UNITED STATES
                       SECURITIES AND EXCHANGE COMMISSION
                             Washington, D.C. 20549

                                    FORM 10-K

[X] Annual  Report  Pursuant  to Section 13 or 15(d) of the  Securities Exchange
    Act of 1934 For the fiscal year ended September 30, 1997
                                       OR
[ ] Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange
    Act of 1934.

                        Commission File Number 000-28276
                   ------------------------------------------
                                   SAWTEK INC.
             (Exact name of registrant as specified in its charter)
                   ------------------------------------------
             Florida                                     59-1864440
(State or other jurisdiction                (I.R.S. Employer Identification No.)
of incorporation or organization)                           32703
1818 S. Highway 441, Apopka, Florida                     (Zip Code)
(Address of principal executive offices)                 

Registrant's telephone number, including area code:  (407) 886-8860

Securities registered pursuant to Section 12(b) of the Act:  None

Securities registered pursuant to Section 12(g) of the Act:

                         Common Stock, $.0005 Par Value

Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the  preceding 12 months (or for such  shorter  period that the  registrant  was
required  to file  such  reports),  and  (2) has  been  subject  to such  filing
requirements for the past 90 days).
                                    Yes      X                No ____
                                    
Indicate by check mark if disclosure of delinquent  filers  pursuant to Item 405
of Regulation  S-K is not contained  herein,  and will not be contained,  to the
best  of  the  registrant's   knowledge,  in  definitive  proxy  or  information
statements  incorporated  by  reference  in Part  III of this  Form  10-K or any
amendment to this Form 10-K. [ X ]

The aggregate market value of the Common Stock held by non-affiliates of the
registrant as of October 31, 1997 was:
Common Stock, $.0005 par value:  $326,162,748

There were 20,771,805 shares of the registrant's  Common Stock outstanding as of
October 31, 1997.
                      --------------------------------------

                       DOCUMENTS INCORPORATED BY REFERENCE
Portions  of  the  definitive   proxy   statement  of  the  registrant  for  the
registrant's  Annual  Meeting  of the  Shareholders  for the  fiscal  year ended
September 30, 1997,  which  definitive  proxy  statement  will be filed with the
Securities   and  Exchange   Commission  not  later  than  120  days  after  the
registrant's  fiscal  year  end of  September  30,  1997,  are  incorporated  by
reference into Part III.


<PAGE>




                                TABLE OF CONTENTS

                                     PART I
                                                                           Page

Item 1.  Business.....................................................     3-18
Item 2.  Properties...................................................      18
Item 3.  Legal Proceedings............................................      18
Item 4.  Submission of Matters to a Vote of Security Holders..........      18

                                     PART II

Item 5.  Market for Registrant's Common Equity and Related
          Shareholder Matters. .......................................    18-19
Item 6.  Selected Financial Data......................................    19-20
Item 7.  Management's Discussion and Analysis of Financial
          Condition and Results of Operations.........................    20-26
Item 8.  Financial Statements and Supplementary Data..................      26
Item 9.  Changes in and Disagreements with Accountants on
          Accounting and Financial Disclosure.........................      26


                                    PART III

Item 10. Directors and Executive Officers of the Registrant...........    27-28
Item 11. Executive Compensation.......................................      29
Item 12. Security Ownership of Certain Beneficial Owners and
          Management..................................................      29
Item 13. Certain Relationships and Related Transactions...............      29


                                     PART IV

Item 14. Exhibits, Financial Statement Schedules and Reports on
          Form 8-K....................................................      29
         Exhibit Index................................................    29-33
         Signatures...................................................      34



<PAGE>



PART I.

         Except for the historical  information contained herein, the discussion
in this Form 10-K contains certain forward-looking statements that involve risks
and  uncertainties,  such as  statements  of the  Company's  plans,  objectives,
expectations  and intentions.  The cautionary  statements made in this Form 10-K
should be read as being  applicable  to all related  forward-looking  statements
wherever  they appear in this Form 10-K.  The  Company's  actual  results  could
differ  materially  from those  discussed  here.  Factors  that  could  cause or
contribute to such  differences  include those discussed below, as well as those
discussed elsewhere in this Form 10-K.

ITEM 1.  BUSINESS

         Sawtek  designs,  develops,  manufactures  and markets a broad range of
electronic signal  processing  components based on surface acoustic wave ("SAW")
technology. The Company's primary products are custom-designed, high performance
bandpass filters, resonators, delay lines, oscillators and SAW-based subsystems.
These  products are used in a variety of microwave and RF systems,  such as Code
Division  Multiple Access  ("CDMA") and Global System for Mobile  communications
("GSM")-based  digital wireless systems,  digital microwave radios,  WLAN, cable
television  equipment and various defense and satellite  systems.  The Company's
products offer key advantages such as lower distortion, reduced size and weight,
high  reliability and precise  frequency  control  compared to products based on
alternative    technologies    and   address    rapidly    growing    needs   in
telecommunications,  data communications, video transmission, military and space
systems and other markets.  The Company's  proprietary CAD and analysis software
tools  support  rapid and precise  SAW device  design and  simulation,  enabling
Sawtek  and its  customers  to  achieve  timely  new  product  development.  The
Company's  commercial  customer base accounts for approximately 89% of net sales
and includes  major  telecommunications  equipment  producers  such as Ericsson,
LGIC, Lucent Technologies, Motorola, Nokia, and Qualcomm.

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

         The  wireless  communications  industry  is  experiencing   significant
worldwide  growth.  Cost  reductions  and  technological  improvements  in  such
wireless  communications  products as cellular, PCS, global satellite telephones
and  wireless   data  systems  are   contributing   to  this  growth.   Wireless
communications  systems can offer the  functional  advantages  of wired  systems
without  the  costly  and  time  consuming  development  of an  extensive  wired
infrastructure, which is of particular importance in developing parts of the 

                                       3
<PAGE>

world. Rapidly emerging digital telecommunications standards and technology will
provide  the  performance  improvements  necessary  to address  overcrowding  of
existing  cellular  systems  and  to  provide  increased  functionality.  Unless
carriers adopt the emerging digital standards,  they will be forced to build new
cellular base station sites and continue to suffer from dropped calls due to the
overcrowding   problem.   These  standards   include  CDMA,  an  approach  being
commercialized by Qualcomm in the United States and worldwide,  and GSM, adopted
throughout  Europe  and many other  countries.  These new  approaches  are being
utilized to provide  cellular  and PCS  services as well as wireless  local loop
("WLL") networks.  As demands for wireless  communications  subscriber  services
grow, service providers are offering digital handheld products and expanding the
associated infrastructure. These factors, coupled with regulatory changes in the
United  States  and  abroad,  as well as  advances  in  wireless  communications
technology,  are leading to substantial worldwide growth in existing systems and
the emergence of new markets and applications.

         As the wireless  telecommunications  industry has expanded,  previously
allocated  frequency bands have become increasingly  congested,  and the need to
precisely  control  transmission  frequencies  and to  filter  unwanted  signals
without distortion has become critically important. In response to this crowding
of existing  frequency bands,  regulatory  agencies have allocated new blocks of
spectrum at higher frequencies and more stringently  regulated  allowable signal
bandwidths.  Systems  operating at these  higher  microwave  and RF  frequencies
require   higher   frequency  IF  components  to  simplify  the  overall  system
architecture,  thereby reducing cost, complexity and power consumption.  To make
more efficient use of the crowded  frequency bands, the spacing between adjacent
signal  channels  must be  reduced,  placing  the  desired  signal very close to
unwanted interfering  signals.  Highly selective IF filters are required to pass
the desired signal without distortion,  while rejecting interfering signals from
adjacent channels and other sources.

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

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

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

                                       4

<PAGE>

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

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

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

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

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

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

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

         Satellite. A number of satellite  telecommunications  systems have been
proposed by major communications  companies and consortia.  The Company supplies
satellite  and  ground-based  SAW  components  for  several of these  developing
systems.  For some time, Sawtek has been a leading producer of high reliability,
space qualified SAW components and is well positioned for these applications.

                                       5


<PAGE>

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

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

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

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

         Sawtek has a diversified  customer base with four  customers  that each
accounted  for over 10% of net sales in 1997.  They are in  alphabetical  order:
Ericsson,  Lucent,  Motorola  and  Qualcomm.  The  Company's  top  10  customers
accounted  for  approximately  68% of net sales in 1996 and 76% of net sales for
1997. The loss of any of these customers could have a material adverse effect on
the Company's business,  operating results and financial condition.  There is no
assurance that the Company will obtain future business from these customers.

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

                                       6

<PAGE>
         Bandpass Filters
         ----------------
         Sawtek   currently   offers  three  types  of  SAW  bandpass   filters:
bi-directional transversal, low loss transversal and coupled resonator filters.

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

         Low Loss Transversal Filters.  Sawtek offers 180 high performance,  low
loss  transversal   filters  for  use  in  both  infrastructure  and  subscriber
applications  in CDMA and  GSM-based  digital  cellular  systems,  wireless PBX,
wireless handheld data terminals and WLANs.

         Coupled Resonator Filters. The Company offers over 70 coupled resonator
filter products which include in-line  coupled,  waveguide  coupled and combined
mode resonator filters.  The Company currently supplies filters of this type for
use in GSM, PCS and numerous other  commercial  and military  telecommunications
systems.

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

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

         Oscillators
         -----------
         Sawtek currently offers over 100 fixed frequency and voltage controlled
oscillators  based on both SAW and STW resonator  technologies.  Oscillators are
used to  generate  a pure  RF tone or  signal.  This  signal  often  determines,
directly or through frequency  multiplication,  the final operating frequency of
the system in which it is used.  Oscillators,  in  conjunction  with  additional
circuitry,  are also used in  converting or mixing RF signals from one frequency
to another.  The Company's  oscillators are used in high performance  commercial
and military  applications  such as  instrumentation,  avionics  and  electronic
warfare.
                                       7
<PAGE>

         SAW-based Subsystems
         --------------------
         The Company's most complex and highly integrated products are SAW-based
subsystems.  In  general,  these  subsystems  consist  of  key  SAW  components,
surrounded  by  additional  circuitry,  that  provide  a higher  level of system
functionality  than that provided by the SAW devices  alone.  These products are
highly specialized and are custom developed for specific applications.  Sawtek's
subsystem  products  are largely  used in military  and space  applications  and
include  channelized  filter banks,  switched  filter and delay line modules and
pulse expansion and compression subsystems.

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

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

         A majority of Sawtek's  sensor  development  work is being conducted as
part of a Technology  Reinvestment  Program  ("TRP")  project  which  received a
cost-shared  financial award  (DE-FC07-95ID13343)  in the 1994 TRP  competition.
Sawtek is the lead company in this project,  and is working  cooperatively  with
Sandia  National  Laboratories,  Battelle  Pacific  Northwest  Laboratories  and
consortium members, General Atomics and Perkin-Elmer. To date, Sawtek scientists
have made fundamental improvements over prior art in three major technical areas
necessary for product  development,  namely  temperature  compensation,  polymer
development  and metrology.  No commercial  sales of SAW chemical sensor systems
have been made by the Company to date and there is no assurance that the Company
will be successful in developing sensing products for commercial applications.

Technology
----------
         SAW Technology.  A simple SAW filter has two transducers  which consist
of interdigital arrays of thin metal electrodes photolithographically defined on
a highly polished  piezoelectric wafer. A piezoelectric material is one in which
there exists a reciprocal, linear relationship between the electric field in the
material and the strain in the material.  When a signal of the proper  frequency
is  applied  across  the  interdigital  transducers  ("IDTs"),  the  alternating
electrode voltages cause the surface of the device to expand and contract

                                       8
<PAGE>

due to the varying electric fields induced in the piezoelectric  material.  This
causes the  generation of a mechanical  (or acoustic)  wave  propagating  at the
surface  of  the  device.   Reciprocally,   the  acoustic   wave   generates  an
electrostatic  wave with  potentials  at the surface of the device  which can be
detected by an IDT. The  operating  frequency of the device is determined by the
electrode  spacing and the  material's  surface  acoustic  wave  velocity.  This
relationship  places  physical  limitations  on the  frequency  of  operation of
practical SAW devices due to limitations in  photolithographic  resolution.  The
configuration of the IDTs and properties of the substrate material determine the
signal processing function and response characteristics of the device.

         The appeal of SAW devices as preferred signal processing  components is
based on the  inherent  advantages  of the  technology.  SAW devices can provide
complex signal processing functions in a single,  compact device. One example of
this is the outstanding bandpass filter  characteristics  which can routinely be
achieved  using  SAW  technology.  Comparable  performance  utilizing  LC filter
technology would require numerous components and could occupy many square inches
of PC board space. Because surface acoustic waves propagate 100,000 times slower
than electromagnetic waves, the realization of relatively long electrical delays
on devices of limited dimensions is possible.  Additional performance advantages
of SAW  technology,  which vary based on the  application,  include  small size,
linear phase, high selectivity,  excellent rejection and temperature  stability.
The ruggedness and reliability of SAW devices are characteristic of the physical
device  structure.  Because  device  operating  frequencies  are  determined  by
photolithographic  processes,  SAW  devices do not  require  complicated  tuning
procedures,  nor  do  they  become  detuned  in  the  field.  The  semiconductor
microfabrication  techniques used in manufacturing  SAW components allow for the
volume  production of  economical  and  reproducible  devices.  The  outstanding
reproducibility  of these  devices  makes  them  ideal for  military  electronic
warfare  applications  such as channelized  filter banks for spectral  analysis.
Small size and ruggedness  make SAW devices  useful for cellular  communications
and  related  applications.  Finally,  the  relative  radiation  hardness of SAW
devices makes them ideal for space-based applications.

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

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

                                       9

<PAGE>

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

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

         In 1996,  the Company  established  a subsidiary  in Costa Rica for the
production of SAW components.  In 1997, the Costa Rican subsidiary accounted for
approximately 34% of net sales.

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

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

Foreign and Domestic Operations and Export Sales
------------------------------------------------
         See Notes 10 and 11 to Consolidated Financial Statements at page F-16.


                                    10

<PAGE>

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

         The  Company's  ability to compete  effectively  in its target  markets
depends on a variety  of  factors  both  within  and  outside  of the  Company's
control,  including  timing and  success  of new  product  introductions  by the
Company and its competitors, availability of manufacturing capacity, the rate at
which customers  incorporate the Company's  components into their products,  the
Company's  ability to respond to price  competition,  availability  of technical
personnel,  sufficient supplies of raw materials,  the quality,  reliability and
price of products  and general  economic  conditions.  There can be no assurance
that the Company will be able to compete successfully in the future.

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

         Sawtek currently employs 21 scientists,  technicians and consultants in
its research and development  efforts. In addition to its staff and consultants,
Sawtek is actively involved in cooperative research with outside  organizations,
including individuals,  research groups,  universities,  institutes and national
laboratories.  This approach allows Sawtek's  research and development  group to
benefit from the ideas and talents of a group of  scientists  more than twice as
large as Sawtek's internal staff, and to maintain a highly creative, stimulating
intellectual environment for its scientists.

         Research and  development  expenses  were $3.8 million in 1997 and $2.0
million for 1996. The Company anticipates that research and development expenses
will  continue to increase in total dollars as personnel and programs are added.
A significant  portion of the Company's  development  activities is conducted in
connection with the design and development of custom devices,  which is paid for
by customers and classified as NRE items. The revenue generated from these items
is included in net sales and the cost is  reflected in cost of sales rather than
in research and development expenses.

                                       11


<PAGE>

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

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

Backlog
-------
         Sawtek's  backlog as of  September  30,  1997 was  approximately  $27.4
million  compared to the backlog at  September  30, 1996 of $27.8  million.  The
Company has reduced customer  delivery times from over 15 weeks 18 months ago to
approximately  eight  to  12  weeks  through  its  capacity  expansion  efforts.
Customers are now placing  orders based on this reduced lead time resulting in a
slightly  lower  backlog  compared  to last year.  The  Company  includes in its
backlog  only  customer  orders and  certain  purchase  agreements  with  firmly
scheduled  deliveries  within the  subsequent  12 months.  Of the $27.4  million
backlog at September 30, 1997,  the Company could  potentially  ship all of this
backlog by the end of fiscal 1998.  The Company's  backlog is used in the MRP II
scheduling system to plan and schedule all work orders. The Company's backlog is
not  necessarily  indicative  of future  product  sales,  and the Company may be
materially  adversely  affected by a delay or  cancellation of a small number of
purchase  orders.  Backlog  cancellations  are negotiated  with each customer in
writing and form a part of the contract with the customer.

         Most of the  orders  from the  Company's  largest  customers  allow the
customer to cancel the order with a certain amount of required notice; and, from
time to time, the Company has  experienced  cancellations  of orders in backlog.
This notice is  negotiated  with each  customer and is generally  related to the
manufacturing cycle time of the product which the customer ordered, typically 60
to 90 days.  If there is any work in  process at the time of  cancellation,  the
customer  may be required to pay  customary  termination  charges.  If customers
over-order to secure  delivery dates and  eventually  cancel orders the customer
may be subject to price renegotiation as a result of the lower quantity of units
taken.

Employees
---------
         As of  September  30, 1997,  the Company had a total of 555  employees,
including 390 in manufacturing and operations;  86 in research,  development and
engineering;  26 in  quality  assurance;  19 in sales and  marketing;  and 34 in
administration.  With the exception of 98 employees  located in San Jose,  Costa
Rica,  all  of  the  employees  of  the  Company  are  based  at  the  Company's
headquarters and two other sites in Orlando,  Florida.  The Company believes its
future  performance  will  depend in a large part on its  ability to attract and
retain highly skilled employees.  None of the Company's employees is represented
by a labor union,  and the Company has not experienced  any work stoppages.  The
Company considers its employee relations to be good.

                                       12
<PAGE>

                         RISK FACTORS AND UNCERTAINTIES

         There are forward  looking  statements  in this report.  Any  statement
relating to plans, intentions,  expectations or other forward looking expression
is a forward  looking  statement.  The  Company may make other  forward  looking
statements  either  orally or in  writing in the  future.  The  following  "Risk
Factors and Uncertainties" are intended to be cautionary statements  identifying
important  factors that could cause  actual  results to differ  materially  from
those in the forward looking statements.

         Dependence on Continuing  Demand for Wireless  Communications  Services
and CDMA Technology.  Approximately  62% of the Company's net sales for 1996 and
approximately  72% of net sales for 1997 were  derived from sales of SAW devices
for applications in wireless communications systems. Any economic, technological
or other force that causes a reduction in demand for wireless services may cause
a reduction in the need for  performance  upgrades to existing base stations and
in the  installation of new base stations,  which would have a material  adverse
effect on the Company's business, financial condition and results of operations.
Approximately  59% of the Company's net sales for fiscal 1996 and  approximately
56%  of  net  sales  for  the  fiscal  1997  were   derived  from  base  station
applications.  As base stations are installed  and  upgraded,  domestically  and
internationally,  the market for SAW devices installed in such base stations may
ultimately become  saturated.  The life of SAW devices is typically in excess of
20  years,  and a market  for  replacement  devices  for base  stations  may not
develop.

         Sales of products for CDMA-based  systems,  including base stations and
subscriber  handset  phones,  accounted  for  approximately  24% of net sales in
fiscal 1996 and  approximately  50% of net sales for 1997.  CDMA  technology has
recently been  introduced in the  marketplace and there can be no assurance that
unforeseen  complications  will  not  arise in the  scale-up  and  operation  of
CDMA-based  systems that could  materially  delay or limit the commercial use or
acceptance of CDMA  technology.  Such delay or limitation  would have a material
adverse  effect on the  Company's  business,  operating  results  and  financial
condition.

         There is a trend toward lower average  selling  prices for base station
filters due to competitive  pricing  pressures and to the  installation  of more
"micro" base stations which use less expensive,  lower  performance SAW filters.
The  Company is  uncertain  whether an  increase  in the number of base  station
filters sold in the future will offset the decrease in the average selling price
for these  filters so as to maintain or increase  revenues from the sale of base
station  filters.  The  Company  believes  that  its  sales of SAW  filters  for
subscriber  handsets in the CDMA market will  increase  significantly  in fiscal
year 1998.  Handset filters typically produce lower gross margins than the gross
margins produced by base station filters.

         Dependence on a Limited  Number of Customers.  Historically,  a limited
number of customers  have  accounted for a significant  portion of the Company's
net  sales.  In fiscal  1996 and  fiscal  1995,  sales to the  Company's  top 10
customers accounted for approximately 68% and 60% respectively, of net sales. In
1996, the Company's top three customers accounted for approximately 24%, 11% and
8% of net sales.  For 1997,  sales to the top 10 customers  accounted for 76% of
net sales with the top four customers accounting for approximately 14%, 12%, 11%
and 11% of net  sales.  The  Company  expects  that sales of its  products  to a
limited  number of customers  will continue to account for a high  percentage of
its net sales in the foreseeable  future. In addition,  a substantial portion of
the  Company's  products  are  designed  to  address  the  needs  of  individual
customers.  Accordingly,  the Company's  future success depends largely upon the
decisions of the Company's  current  customers to continue to purchase  products
from the Company,  as well as the decisions of prospective  customers to develop
and market systems that incorporate the Company's products.

                                       13
<PAGE>

         Adverse  developments  relating to the wireless  communications  market
involving one or more of the Company's  large  customers,  including  litigation
among such  customers,  could have an adverse  effect on the market price of the
Company's Common Stock even if the actual impact of such  developments  would be
immaterial to the Company's results of operations and financial condition.

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

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

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

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

                                       14
<PAGE>

         Risks  Associated  with  Costa  Rica  Operations.   The  Company  bears
significant  manufacturing  risks  associated  with its  operations in San Jose,
Costa Rica.  During 1997 shipments  from Costa Rica accounted for  approximately
34% of  consolidated  net sales.  Operating a production  facility in Costa Rica
carries  unknown risks of disruption  resulting  from  government  intervention,
wars, currency  devaluation,  labor disputes,  earthquakes and other events. Any
such disruptions could have a material adverse effect on the Company's business,
results of operations and financial condition.

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

         Risks   Associated  with   International   Operations.   The  Company's
international  sales account for approximately 44%, 54% and 49% of net sales for
fiscal 1997, 1996 and 1995,  respectively.  Ericsson,  based in Sweden,  was the
Company's second largest customer in fiscal 1997,  accounting for  approximately
12% of net sales.  The sale of  products  in foreign  countries  involves  risks
associated  with  currency   exchange  rate   fluctuations   and   restrictions,
export-import  regulations,  customs  matters,  longer payment  cycles,  foreign
collection  problems and  political  and  transportation  risks.  The  Company's
international  sales are generally  denominated in U.S.  dollars.  However,  the
Company may be required in the future,  due to competition,  to denominate sales
in the foreign  currencies of certain  countries.  As a result,  fluctuations in
currency  exchange  rates may (in the future) have a  significant  effect on the
Company's sales, even in the absence of an increase or decrease of unit sales to
foreign customers.  A strong U.S. dollar could have a material adverse effect on
the Company's ability to compete internationally.  The Company has not, to date,
engaged in hedging a portion of its foreign  exchange risk. If, however,  any of
the Company's future  international sales are denominated in foreign currencies,
the Company may find it  necessary  to engage in rate  hedging  activities  with
respect to certain  exchange  rate  risks.  There can be no  assurance  that the
Company will engage in such  exchange  rate hedging or that any such  activities
will successfully protect against such risks. In addition, foreign sales involve
uncertainties arising from local business practices and cultural considerations,
and risks associated with  international  trade  transactions.  For a portion of
foreign sales, the Company depends upon independent  sales  representatives  who
are not subject to the  Company's  control and are  generally  free to terminate
their relationships with the Company on 30 days notice.

                                       15
<PAGE>

         Limited  Sources  of  Supply.  The  Company  has a  limited  number  of
suppliers for certain  critical raw materials,  components and equipment used by
the Company in manufacturing SAW devices. While historically the Company has not
experienced  difficulty in obtaining  needed  supplies and equipment,  synthetic
crystal material and wafer fabrication  equipment could potentially be difficult
to obtain. The synthetic quartz material used by the Company, and purchased from
third  parties,  may  require  up to six  months to grow.  Currently,  few wafer
producers  have the  expertise  and capacity  necessary to satisfy the Company's
wafer  requirements.  A failure by the Company to anticipate  its needs for high
quality  quartz could result in a shortage of quartz  material  available to the
Company.  If the  Company is unable to satisfy  its  requirements  for quartz or
other raw materials or to obtain and maintain appropriate fabrication equipment,
the Company's  business,  financial condition and results of operations would be
materially  adversely affected.  There can be no assurance that the Company will
be able to secure adequate supplies of materials.

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

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

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

                                       16
<PAGE>

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

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

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

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

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

                                       17
<PAGE>

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

ITEM 2.  PROPERTIES

         The Company's principal  administrative,  engineering and manufacturing
facilities  are  located in three  buildings  aggregating  approximately  86,000
square feet in Orlando,  Florida,  consisting of one 65,000 square foot facility
owned by the Company and two leased facilities. The Company anticipates vacating
one 16,000  square foot leased  facility at the  expiration of the lease term in
fiscal 1998 to coincide with the  completion of its 28,000 square foot expansion
to its main  facility.  The Company also has a production  facility in San Jose,
Costa Rica located in a 31,690 square foot Company-owned  facility.  The Company
has spent  approximately  $3.3 million to upgrade this building.  The Company is
building a 28,000  square  foot  expansion  to its  Orlando  facility to be used
primarily for research and development,  sales and administrative purposes. Upon
completion of these  facilities,  the Company  believes its  facilities  will be
adequate to meet its current needs and that suitable  additional or  alternative
space will be  available,  as needed,  on  commercially  reasonable  terms.  The
Company's  Orlando facility is encumbered by an Industrial  Development  Revenue
Bond maturing in 2010.

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

ITEM 3.  LEGAL PROCEEDINGS

         There were no  material  legal  proceedings  either by or  against  the
Company during fiscal 1997 or ongoing as of the date of this Form 10-K.


ITEM 4.  SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

         No matters  were  submitted  to a vote of security  holders  during the
fourth quarter of fiscal year 1997.

PART II.

ITEM 5.  MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED SHAREHOLDER
         MATTERS

         The shares of the  Company  are quoted on the  Nasdaq  National  Market
under the symbol "SAWS." The Company went public on May 1, 1996 and accordingly,
no public price data is available  prior to this date. The following  table sets
forth the high and low sales price per share of the Common  Stock of the Company
as reported by the Nasdaq National Market for the periods indicated:
<TABLE>
<CAPTION>
                                                          High           Low
          <S>                                            <C>           <C> 
          Fiscal Year Ended September 30, 1996
             3rd Quarter . . . . . . . . . . . . . . .   $39.75        $16.50*
             4th Quarter . . . . . . . . . . . . . . .    35.75         21.50

          Fiscal Year Ended September 30, 1997
            1st Quarter  . . . . . . . . . . . . . . .    42.75         23.75
            2nd Quarter  . . . . . . . . . . . . . . .    46.50         28.00
            3rd Quarter  . . . . . . . . . . . . . . .    37.75         24.00
            4th Quarter  . . . . . . . . . . . . . . .    49.875        32.75
</TABLE>
                                       18

<PAGE>

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

         The last  reported  sale  price  of the  Common  Stock  on the  Nasdaq
National Market on September 30, 1997 was $46.25 per share.

         As of October 31, 1997 there were  20,771,805  shares of the  Company's
Common Stock  outstanding held by approximately 96 shareholders of record.  Many
shareholders  hold their  shares in "street  name." The Company  believes it has
more than 3,000 beneficial owners of its Common Stock.

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

ITEM 6.  SELECTED FINANCIAL DATA

         The  following is a summary of selected  financial  data of the Company
and its  subsidiaries  as of and for each of the five years ended  September 30,
1997.  The  historical  consolidated  financial  data has been  derived from the
historical financial statements of the Company,  which financial statements have
been audited by Ernst & Young LLP, independent  auditors,  as indicated in their
report included elsewhere herein.  These data should be read in conjunction with
"Management's  Discussion  and  Analysis of Financial  Condition  and Results of
Operations"  and  the  Company's  Consolidated  Financial  Statements  appearing
elsewhere in this document.

Consolidated Statements of Income Data:
<TABLE>
<CAPTION>
                                                            Year Ended September 30,
                                            --------------------------------------------------------
                                            1997          1996        1995         1994         1993
                                            ----          ----        ----         ----         ----
                                                     (in thousands, except per share data)
<S>                                       <C>           <C>          <C>         <C>          <C>
Net sales                                 $82,769       $57,664      $31,317     $19,139      $14,428
Cost of sales                              36,849        27,262       13,084       8,815        7,174
                                           ------        ------       ------       -----        -----
Gross profit                               45,920        30,402       18,233      10,324        7,254
Operating expenses:
  Selling expenses                          5,064         3,947        3,139       2,689        2,600
  General and administrative expenses       5,406         5,791        3,440       3,283        1,408
  ESOP compensation expense                   196        12,925          782         610          499
  Research and development expenses         3,756         1,954        1,669       1,116          831
                                           ------        ------       ------      ------       ------
            Total operating expenses       14,422        24,617        9,030       7,698        5,338
                                           ------        ------       ------      ------       ------   
  Operating income                         31,498         5,785        9,203       2,626        1,916
  Interest expense                            197           245          435         302          416
  Other income                             (2,026)         (634)        (291)        (55)         (51)
                                           ------        ------       ------      ------       ------
  Income before income taxes               33,327         6,174        9,059       2,379        1,551
  Income taxes                             12,568         6,514        3,390         894          576
                                           ------        ------       ------      ------       ------  
  Net income (loss)                       $20,759       $  (340)     $ 5,669     $ 1,485      $   975
                                           ======        ======       ======      ======       ======
  Net income (loss) per share (1)         $  0.97       $ (0.02)     $  0.34     $  0.08      $  0.05
                                           ======        ======       ======      ======       ======
  Shares used in per share calculations    21,476        19,246       16,529      18,142       19,248
                                           ======        ======       ======      ======       ======
-----------------------------
<FN>
(1)      Computed on the basis described in Notes to Consolidated Financial Statements.
</FN>
</TABLE>
 
                                       19


<PAGE>
Consolidated Balance Sheet Data:
<TABLE>
<CAPTION>

                                                                                   September 30,
                                                         ------------------------------------------------------------  
                                                         1997         1996             1995        1994          1993
                                                         ----         ----             ----        ----          ----
                                                                                  (in thousands)
<S>                                                   <C>           <C>            <C>          <C>            <C> 

Cash, cash equivalents, and
 short-term investments                                $ 58,064     $ 27,743       $ 2,819      $ 2,675        $ 1,709
Working capital                                          68,787       35,799         7,100        5,055          4,122
Total assets                                            119,572       74,594        23,124       11,250         10,784
Long-term debt, less current maturities                   2,638        3,786         6,805        4,147          3,787
Total shareholders' equity                               98,460       61,625       (20,605)      (5,660)        (1,098)
</TABLE>


ITEM 7.   MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
          AND RESULTS OF OPERATIONS

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

Overview
--------
         The  Company  was  incorporated  in January  1979 to  design,  develop,
manufacture  and  market a broad  range of  electronic  components  based on SAW
technology  and  used  in   telecommunications,   data   communications,   video
transmission,  military and space systems and other applications.  The Company's
focus has been on the  high-end  performance  spectrum  of the  market,  and its
primary products are SAW bandpass filters,  resonators, delay lines, oscillators
and SAW-based subsystems.  The Company's products were initially concentrated in
the  military  and  space  systems  market,  with over half of net sales in 1992
attributable  to this market  segment.  Since then, the Company made a strategic
decision to target commercial markets,  which accounted for approximately 89% of
its net sales in 1997. The Company has also witnessed  significant growth in its
international markets over the last five years.  International sales represented
less than 20% of net sales in 1992,  54% of net sales in 1996 and  approximately
44% of net sales in 1997.

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

         Net sales  increased 84% from 1995 to 1996,  and 44% from 1996 to 1997.
The growth in net sales is attributable to growth in the wireless communications
market to which the Company supplies SAW bandpass filters for cellular telephone
base  stations  and  handheld  subscriber  telephones.  The  Company has a broad
product line of SAW filters and other  components  with average  selling  prices
ranging from $3 to $300.  The Company is committed to  substantially  increasing
its  ability to service  the  wireless  communications  market and has  recently
expanded  its  operations  in both  Florida  and in San Jose,  Costa  Rica.  The
manufacturing  expansion in Orlando is complete and  production in the new wafer
fabrication and assembly areas has begun.  The Company began operations in Costa
Rica in 1996 and on June 28, 1996,  the Company  purchased a 31,690  square-foot
facility  for  approximately  $1.3 million and spent $3.3 million to upgrade the
facility for SAW manufacturing. The facility, which will be used to increase the
Company's production capabilities, became operational in July 1997.

                                       20
<PAGE>

         For 1997,  net sales to the  Company's  top 10 customers  accounted for
approximately  76% of net  sales  with the top  four  customers  accounting  for
approximately  48% of net sales.  The Company expects that sales of its products
to a limited number of customers will continue to account for a high  percentage
of its net sales in the foreseeable future.

         There is a trend toward lower average  selling  prices for base station
filters due to competitive  pricing  pressures and to the  installation  of more
"micro" base stations which use less expensive,  lower  performance SAW filters.
The  Company is  uncertain  whether an  increase  in the number of base  station
filters sold in the future will offset the decrease in the average selling price
for these  filters so as to maintain or increase  revenues from the sale of base
station  filters.  The  Company  believes  that  its  sales of SAW  filters  for
subscriber  handsets in the CDMA market will  increase  significantly  in fiscal
year 1998.  Handset filters typically produce lower gross margins than the gross
margins produced by base station filters.

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

Results of Operations
         The  following  table  sets  forth,  for  the  periods  indicated,  the
percentage relationship of certain items from the Company's statements of income
to net sales:
<TABLE>
<CAPTION>
                                                            Percentage of Net Sales
                                                            Year Ended September 30,
                                                       ----------------------------------  
                                                       1997          1996            1995
                                                       ----          ----            ----  
<S>                                                   <C>           <C>             <C>   
Net sales . . . . . . . . . . . . . . . . . . .       100.0%        100.0%          100.0%
Cost of sales . . . . . . . . . . . . . . . . .        44.5          47.3            41.8
                                                      -----         -----           -----  
Gross margin  . . . . . . . . . . . . . . . . .        55.5          52.7            58.2
Operating expenses:
  Selling expenses  . . . . . . . . . . . . . .         6.1           6.8            10.0
  General and administrative expenses . . . . .         6.6          10.0            11.0
  ESOP compensation expense . . . . . . . . . .         0.2          22.4             2.5
  Research and development expenses . . . . . .         4.5           3.4             5.3
                                                      -----         -----           -----  
            Total operating expenses  . . . . .        17.4          42.6            28.8
                                                      -----         -----           ----- 
Operating income  . . . . . . . . . . . . . . .        38.1          10.1            29.4
Interest expense  . . . . . . . . . . . . . . .         0.2           0.4             1.4
Other income  . . . . . . . . . . . . . . . . .        (2.4)         (1.0)           (1.0)
                                                      -----         -----           -----  
Income before income taxes  . . . . . . . . . .        40.3          10.7            29.0
Income taxes  . . . . . . . . . . . . . . . . .        15.2          11.3            10.9
                                                      -----         -----           ----- 
Net income (loss) . . . . . . . . . . . . . . .        25.1%         (0.6)%          18.1%
                                                      =====         =====           =====
</TABLE>
                                       21

<PAGE>

Comparison of Years Ended September 30, 1996 and 1997
-----------------------------------------------------
         Net Sales.  Net sales increased 44% from $57.7 million in 1996 to $82.8
million in 1997. The increase was a result of increased product shipments to the
wireless  communications  market,  specifically sales of high volume filters for
base station  applications and subscriber  handsets based on CDMA technology for
the telecommunications  industry.  International sales increased by $5.2 million
in 1997  compared to 1996  principally  due to  increased  product  shipments to
Korea.  Sales for military and space systems  decreased from 15% of net sales in
1996 to 12% of net sales in 1997 due to the  increase in overall net sales.  The
dollar volume of military sales,  however,  actually increased from $8.7 million
to $9.7 million from 1996 to 1997.

         Gross  margin.  Gross margin  increased  from 52.7% in 1996 to 55.5% in
1997 primarily due to improved yields, lower manufacturing costs associated with
the Costa Rican operation and economies of scale with the increased  volume.  As
the Company shifts its product mix to high volume production,  it is anticipated
that gross  margins will decline as these  components  are more  susceptible  to
pricing pressure.

         Selling expenses.  Selling expenses  increased 28% from $4.0 million in
1996 to $5.1 million in 1997, and decreased as a percentage of net sales at 6.1%
in 1997 compared to 6.8% in 1996. The Company  anticipates that selling expenses
will  increase as new  employees  are added to support  its sales and  marketing
effort in 1998 and as  commission  expenses  are  incurred,  but  should  remain
somewhat constant as a percentage of net sales.

         General  and  administrative   expenses.   General  and  administrative
expenses  decreased  6.0% from $5.8 million in 1996 to $5.4 million in 1997, and
decreased as a percentage  of net sales from 10.0% to 6.6% for the same periods.
The net decrease in expenses was  primarily due to higher  expenses  incurred in
1996 for start-up  costs for the Costa Rica  operation  and  compensatory  stock
option expense.

         ESOP compensation  expense.  ESOP  compensation  expense decreased from
$12.9  million in 1996 to $196,000 in 1997.  This decrease of $12.7 million is a
result of the release  and  allocation  of all ESOP  shares  acquired in 1994 to
participants'  accounts  based on their  compensation  earned in the first seven
months of 1996. These shares are accounted for in accordance with SOP 93-6 which
uses market  value as the basis of valuing  shares as they are  committed  to be
released.  In the fourth quarter of FY97, the Company restructured its loan with
the ESOP  providing for a repayment  and  allocation of shares over a seven-year
period ending in 2003. As a result,  the  remaining  unearned ESOP  compensation
expense at September 30, 1997 of $1,170,870 will be spread over this period. The
Company recorded ESOP compensation  expense of $196,000 for the full fiscal year
of 1997  and a  credit  of  $391,000  for the  fourth  quarter  due to the  loan
restructuring that was undertaken in that quarter.

         Research and Development  Expenses.  Research and development  expenses
increased 92% from $2.0 million in 1996 to $3.8 million in 1997.  These expenses
increased due to  additional  personnel  and expanded  research and  development
efforts.  The Company  anticipates  that research and development  expenses will
continue to increase in total  dollars as personnel  and  programs are added.  A
significant  portion of the Company's  development  activities  are conducted in
connection with the design and development of custom devices, which are paid for
by customers and are classified as NRE items.  The revenue  generated from these
items is included in net sales and the cost is reflected in cost of sales rather
than in research and development expenses.

         Interest expense.  Interest expense decreased from $245,000 in 1996 to
$197,000 in 1997 due to repayment of debt.

                                       22

<PAGE>

         Other income. Other income represents interest income and non-operating
expenses.  Other income  increased as the Company  recorded  increased  interest
income earned on its cash balances during 1997.

         Income tax expense.  The  provision for income taxes as a percentage of
income before income taxes was 37.7% for 1997. In 1996,  the Company  incurred a
non-deductible  charge  for ESOP  compensation  expense of  approximately  $12.9
million.  Had it not been for this  charge,  the tax  provision  would have been
approximately  37% for this period.  The Company  expects that its effective tax
rate will decline to approximately 36% to 37% in fiscal 1998.

Comparison of years ended September 30, 1995 and 1996
-----------------------------------------------------
         Net sales.  Net sales increased 84% from $31.3 million in 1995 to $57.7
million in 1996. The increase was a result of increased product shipments to the
wireless  communication  market,  specifically  sales of high volume filters for
base station  applications  for the  telecommunication  industry.  Sales of high
volume  commercial  production  components were up over 129% in 1996 compared to
1995. International sales increased from approximately 49% in 1995 to 54% of net
sales for 1996.

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

         Selling expenses.  Selling expenses increased in 1996 compared to 1995,
but decreased as a percentage of net sales.  The decrease as a percentage of net
sales was a result of the Company's  expanding net sales with  substantially the
same level of sales and  marketing  personnel  in 1996 as in 1995.  As a result,
most of the  selling  expenses  remained  relatively  constant  with  commission
expenses  paid to  outside  sales  representatives  as the only  component  that
increased significantly with the higher sales level.

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

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

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

                                       23

<PAGE>


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

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

         Income tax expense.  The  provision for income taxes as a percentage of
income before income taxes was 37.4% for 1995. In 1996,  the Company  incurred a
non-deductible charge for ESOP compensation expense of $11.3 million. Had it not
been for this charge, the tax provision would have been approximately  37.3% for
1996.

Liquidity and Capital Resources
-------------------------------
         The Company has financed its  operations to date through cash generated
from  operations,  bank  borrowings,   lease  financing,  the  private  sale  of
securities,  its May 1,  1996  initial  public  offering  and the  July 1,  1997
follow-on  public  offering.   The  Company  requires  capital  principally  for
equipment,  expansion of its primary  facility,  financing of growth in accounts
receivable and inventory,  investment in product development  activities and new
technologies,   expansion  of  its   operation  in  Costa  Rica  and   potential
acquisitions of new technologies or compatible companies.  For 1997, the Company
generated  net  cash  from  operating  activities  of $35.3  million  consisting
primarily  of net income of $20.8  million,  $3.9  million of  depreciation  and
amortization,  $7.7  million of  increases  in deferred  taxes,  $2.6 million of
increases  in  accounts  payable  and  accrued  liabilities  and a $3.9  million
increase in taxes payable,  partially offset by increases in accounts receivable
and inventory of $4.3 million.  Cash flow from  operations was $13.6 million and
$6.8 million in 1996 and 1995, respectively.

         The Company has a credit line  agreement  totaling  $15.0  million from
SunTrust Bank, Central Florida,  N.A. renewable  annually.  There was no balance
outstanding on this credit line at September 30, 1997.

         The Company  made capital  expenditures  of $14.4  million  during 1997
compared to $24.3 million and $5.6 million in 1996 and 1995,  respectively.  The
Company is in the process of  expanding  its  Orlando,  Florida  facilities  and
intends to make various capital  expenditures  for production and test equipment
and  furniture and fixtures.  In addition,  the Company  intends to make various
capital  expenditures for its San Jose, Costa Rica operation.  The Company plans
to  spend   approximately  $14.0  million  in  1998  on  capital  equipment  and
facilities.

         The Company believes that its present cash position,  together with its
credit  facility and funds  expected to be  generated  from  operations  will be
sufficient to meet its working capital and other cash requirements through 1998.
Thereafter,  the Company  may require  additional  equity or debt  financing  to
address  its  working   capital   needs  or  to  provide   funding  for  capital
expenditures.  There can be no  assurance  that  events in the  future  will not
require the Company to seek additional  capital sooner or, if so required,  that
it will be available on terms acceptable to the Company, if at all.

                                       24

<PAGE>


Foreign Operations and Export Sales
-----------------------------------
         The  Company  established  a  subsidiary  in Costa Rica in 1996,  began
operations in the second quarter and commenced shipments in the third quarter of
1996.  As  of  September  30,  1997,   the  Company  had  a  net  investment  of
approximately   $10  million  in  this  operation  and  recorded  net  sales  of
approximately  $28.4  million with an operating  profit of  approximately  $13.4
million for 1997. The functional  currency for the Costa Rican subsidiary is the
U.S.  dollar  as  sales,  most  material  cost and  equipment  are  U.S.  dollar
denominated.  The  effects of  currency  fluctuations  of the local  Costa Rican
currency are not considered significant and are not hedged.

         In 1996, the Company established a "foreign sales corporation" pursuant
to the applicable  provisions in the Internal  Revenue Code to take advantage of
income tax reductions on export sales.  Through  September 30, 1997, the cost to
operate this  subsidiary was less than $10,000,  and it has less than $10,000 in
identifiable assets.

         International  sales are  denominated in U.S.  dollars and  represented
44%, 54% and 49% of net sales for the years ended  September 30, 1997,  1996 and
1995,  respectively.  Sales to European markets  accounted for 23%, 38%, and 36%
for these same periods,  respectively.  The remaining international sales relate
primarily to Asian and Canadian  markets.  See Notes to  Consolidated  Financial
Statements.

Recently Issued Accounting Standards
------------------------------------
         In February  1997,  the FASB issued SFAS No. 128,  Earnings  Per Share,
which is effective  for  financial  statements  issued for periods  ending after
December 15, 1997. This  pronouncement  establishes  standards for computing and
presenting  earnings per share  ("EPS") for entities with  publicly-held  common
stock or potential common stock. SFAS 128 simplifies the standards for computing
EPS and makes them comparable to international EPS standards.  Early application
of this statement is not permitted.

         In February 1997, the FASB issued SFAS Statement No. 129, Disclosure of
Information  about Capital  Structure,  which is  applicable  to all  companies.
Capital  structure  disclosures  required by Statement  129 include  liquidation
preferences  of preferred  stock,  information  about the  pertinent  rights and
privileges of the outstanding equity securities,  and the redemption amounts for
all issues of capital stock that are redeemable at fixed or determinable  prices
on fixed  or  determinable  dates.  Statement  129 is  effective  for  financial
statements for periods ending after December 15, 1997.

         In June,  1997,  the FASB issued  SFAS  Statement  No.  130,  Reporting
Comprehensive  Income, which establishes standards for the reporting and display
of  comprehensive  income and its  components  in a full set of general  purpose
financial  statements.  According to the FASB,  the  proposal  was  developed in
response to financial  statement users' concerns about the increasing  number of
items  that  bypass  the  income   statement,   such  as  changes  in  value  of
available-for-sale  securities and foreign currency translation adjustments, and
the effort  required to analyze them (even though they are separately  disclosed
in a statement of  shareholders'  equity).  The  standard  does not address when
transactions are recorded, how they are measured in the financial statements, or
whether they should be included in net income or other comprehensive income. The
statement is effective for fiscal years beginning after December 15, 1997.

         In June,  1997,  the FASB issued SFAS  Statement  No. 131,  Disclosures
About Segments of an Enterprise  and Related  Information,  which  significantly
changes the way public companies report segment  information in annual financial
statements  and  also  requires  those  companies  to  report  selected  segment
information in interim financial  reports to shareholders.  Statement No. 131 is
effective for periods beginning after December 15, 1997.

                                       25
<PAGE>

         The Company  intends to adopt the provisions of these standards in 1998
and does not expect their application to have a material impact on the financial
statements of the Company.

Impact of Inflation on the Company
----------------------------------
         Management does not believe that inflation has had a material impact on
operating costs and earnings of the Company.

ITEM 8.  FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

         See Index to Consolidated  Financial Statements,  which appears on page
F-1 herein.


ITEM 9.  CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND 
         FINANCIAL DISCLOSURE

         None.

                                       26

<PAGE>


Index to Consolidated Financial Statements
------------------------------------------

Report of Ernst & Young LLP, Independent Auditors.......................... F-2
Consolidated Balance Sheets................................................ F-3
Consolidated Statements of Income (Loss)................................... F-4
Consolidated Statements of Shareholders' Equity............................ F-5
Consolidated Statements of Cash Flows...................................... F-6
Notes to Consolidated Financial Statements................................. F-7

Financial Statement Schedules
-----------------------------

         All  required  information  is  included  in the Notes to  Consolidated
Financial Statements.


<PAGE>



Report of Ernst & Young LLP, Independent Auditors



Board of Directors and Shareholders
Sawtek Inc. and subsidiaries

         We have audited the accompanying  consolidated balance sheets of Sawtek
Inc.  and  subsidiaries  as of  September  30,  1997 and 1996,  and the  related
consolidated  statements of income (loss),  shareholders'  equity and cash flows
for each of the three  years in the  period  ended  September  30,  1997.  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  financial  statements  referred to above  present
fairly,  in all material  respects,  the  financial  position of Sawtek Inc. and
subsidiaries at September 30, 1997 and 1996, and the consolidated results of its
operations  and its cash flows for each of the three  years in the period  ended
September 30, 1997, in conformity with generally accepted accounting principles.

                                     


Orlando, Florida                           ERNST & YOUNG LLP
October 24, 1997



<PAGE>
<TABLE>


                          Sawtek Inc. and Subsidiaries
                           Consolidated Balance Sheets
                  (dollars in thousands, except per share data)
                                     ASSETS
<CAPTION>
                                                                                               September 30,
                                                                                            ------------------
                                                                                            1997          1996
                                                                                            ----          ----
<S>                                                                                       <C>           <C>    
Current Assets:
  Cash, cash equivalents, and short-term investments                                      $ 58,064      $ 27,743
  Accounts receivable net of allowance for doubtful accounts  and returns of $684 at
    September 30, 1997 and $654 at  September 30, 1996                                      11,895         7,938
  Inventories                                                                                6,877         6,509
  Deferred income taxes                                                                      1,234         1,266
  Other current assets                                                                         579           528
                                                                                           -------       ------- 
            Total current assets                                                            78,649        43,984
Other assets                                                                                   122           186
Property, plant and equipment, net                                                          40,801        30,424
                                                                                           -------       -------
            Total assets                                                                  $119,572      $ 74,594
                                                                                           =======       =======

</TABLE>
<TABLE>
                      LIABILITIES AND SHAREHOLDERS' EQUITY
                                                                                               September 30,
                                                                                            ------------------ 
                                                                                            1997          1996
                                                                                            ----          ---- 
<S>                                                                                       <C>           <C>   
Current Liabilities:
  Accounts payable                                                                        $ 2,667       $ 1,801
  Accrued wages and benefits                                                                3,290         2,825
  Other accrued liabilities                                                                 2,588         1,352
  Current maturities of long-term debt                                                      1,249         1,363
  Income taxes payable                                                                         68           844
                                                                                           ------        ------ 
            Total current liabilities                                                       9,862         8,185
Long-term debt, less current maturities                                                     2,638         3,786
Deferred income taxes                                                                       8,612           998
Shareholders' Equity:
  Common Stock; $.0005 par value;120,000,000 authorized shares; issued and out-
    standing shares 20,761,805 at September 30, 1997 and 19,854,102 at September 30, 1996      10            10
  Capital surplus                                                                          68,880        53,000
  Unearned ESOP compensation                                                               (1,171)       (1,367)
  Retained earnings                                                                        30,741         9,982
                                                                                          -------        ------
            Total shareholders' equity                                                     98,460        61,625
                                                                                           -------        ------  
            Total liabilities and shareholders' equity                                   $119,572       $74,594
                                                                                          =======        ======



                See notes to consolidated financial statements.
</TABLE>
                                      F-3


<PAGE>


                          Sawtek Inc. and Subsidiaries
                    Consolidated Statements of Income (Loss)
                      (in thousands, except per share data)
<TABLE>
<CAPTION>
                                                                             Year Ended September 30,
                                                                       ---------------------------------- 
                                                                       1997             1996          1995
                                                                       ----             ----          ----  
<S>                                                                 <C>              <C>            <C>     
Net sales                                                           $ 82,769         $ 57,664       $ 31,317
Cost of sales                                                         36,849           27,262         13,084
                                                                     -------          -------        -------  
Gross profit                                                          45,920           30,402         18,233
Operating expenses:
  Selling expenses                                                     5,064            3,947          3,139
  General and administrative expenses                                  5,406            5,791          3,440
  ESOP compensation expense                                              196           12,925            782
  Research and development expenses                                    3,756            1,954          1,669
                                                                     -------          -------        -------
            Total operating expenses                                  14,422           24,617          9,030
                                                                     -------          -------        -------
Operating income                                                      31,498            5,785          9,203
Interest expense                                                         197              245            435
Other income                                                          (2,026)            (634)          (291)
                                                                     -------          -------        -------
Income before taxes                                                   33,327            6,174          9,059
Income taxes                                                          12,568            6,514          3,390
                                                                     -------          -------        -------
Net income (loss)                                                   $ 20,759         $   (340)      $  5,669
                                                                     =======          =======        =======
Net income (loss) per share                                         $   0.97         $  (0.02)      $   0.34
                                                                     =======          =======        =======
Shares used in per share calculations                                 21,476           19,246         16,529
                                                                     =======          =======        =======


                See notes to consolidated financial statements.

</TABLE>

                                       F-4

<PAGE>
<TABLE>
                          Sawtek Inc. and Subsidiaries
                 Consolidated Statements of Shareholders' Equity
                                 (in thousands)

<CAPTION>
                                              6% Cumulative
                                              Preferred Stock      Common Stock                  Unearned      Retained
                                            -----------------     ---------------   Capital        ESOP        Earnings
                                            Shares     Amount     Shares   Amount   Surplus    Compensation    (deficit)
                                            ------     ------     ------   ------   -------    ------------    ---------     
<S>                                          <C>       <C>        <C>       <C>    <C>           <C>           <C>      
Balance at October 1, 1994                   150       $ 300      5,342     $  3   $   705                     $ (6,668)

  Net income                                                                                                      5,669
  Sale of Common Stock                                              330                 52
  Purchase of Common Stock                                         (427)              (101)                        (478)
  Market value adjustment to redeemable
    ESOP Common Stock                                                                                           (21,298)
  Stock option compensation                                                          1,229
  Preferred stock dividends                                                                                         (18)
                                             ---        ----     ------      ---     -----        -----          ------ 
Balance at September 30, 1995                150         300      5,245        3     1,885                      (22,793)
  Net loss                                                                                                         (340)
  Reclassification of redeemable ESOP
    Common Stock in connection with
    initial public offering                                       9,843        5     1,851       (3,023)         33,287
  ESOP allocation                                                                   11,269        1,656
  Sale of Common Stock in the initial
    public offering                                               3,000        2    35,218
  Sale of Common Stock other than in the
    initial public offering                                       1,813                382
  Purchase of Common Stock                                          (56)               (21)                        (145)
  Compensatory stock option tax benefit                                              2,021
  Stock option compensation                                                            195
  Preferred stock dividends                                                                                         (27)
  Redemption of preferred stock             (150)       (300)         9                200
                                             ---        ----     ------      ---    ------        -----          ------  
Balance at September 30, 1996                 --         --      19,854       10    53,000       (1,367)          9,982
  Net Income                                                                                                     20,759
  Sale of Common Stock                                              908             10,627
  Compensatory stock option tax benefit                                              4,700
  Stock option compensation                                                            553
  ESOP allocation                                                                                   196
                                             ---        ----     ------      ---    ------        -----         -------
Balance at September 30, 1997                 --         --      20,762     $ 10   $68,880      ($1,171)       $ 30,741
                                             ===        ====     ======      ===    ======        =====         =======

                See notes to consolidated financial statements.
</TABLE>


                                       F-5


<PAGE>
<TABLE>
                          Sawtek Inc. and Subsidiaries
                      Consolidated Statements of Cash Flows
                                 (in thousands)
<CAPTION>

                                                                          Year Ended September 30,
                                                                       ----------------------------- 
                                                                       1997         1996        1995
                                                                       ----         ----        ---- 
<S>                                                                 <C>           <C>        <C>   
Operating activities:
Net income (loss)                                                   $ 20,759      $  (340)   $ 5,669
Adjustments to reconcile net income (loss) to net cash provided
 by operating activities:
    Depreciation and amortization                                      3,938        2,141        790
    Deferred income taxes                                              7,646          402       (415)
    ESOP allocation                                                      196       12,925        782
    Stock option compensation                                            553          195      1,229
    Loss on sale of fixed assets                                          87
Changes in operating assets and liabilities:
    Increase in assets:
    Accounts receivable                                               (3,957)      (2,685)    (2,434)
    Inventories                                                         (368)      (3,267)    (1,494)
    Other current assets                                                 (51)        (399)       (17)
    Increase in liabilities:
    Accounts payable                                                     866        1,023        435
    Accrued liabilities                                                1,701        1,409      1,522
    Income taxes payable                                               3,923        2,151        709
                                                                     -------      -------     ------ 
Net cash provided by operating activities                             35,293       13,555      6,776

Investing activities:
Purchase of property, plant and equipment                            (14,381)     (24,347)    (5,551)
Increase in Industrial Revenue Bond assets                                            (48)    (3,574)
Reduction in Industrial Revenue Bond assets                                         2,654        968
Industrial Revenue Bond acquisition costs                                                        (87)
Short-term investments                                               (15,764)
Proceeds from sales of fixed assets                                       44
                                                                     -------      -------     ------
Net cash used in investing activities                                (30,101)     (21,741)    (8,244)

Financing activities:
Proceeds from long-term debt                                                        8,200      3,500
Principal payments on long-term debt                                  (1,262)     (10,399)    (1,409)
Sale of Common Stock                                                  10,627       35,602         52
Purchase of Common Stock                                                             (166)      (513)
Redemption of preferred stock                                                        (100)
Preferred stock dividends paid                                                        (27)       (18)
                                                                     -------      -------     ------ 
Net cash provided by financing activities                              9,365       33,110      1,612
                                                                     -------      -------     ------
Increase in cash and cash equivalents                                 14,557       24,924        144
Cash and cash equivalents at beginning of period                      27,743        2,819      2,675
                                                                     -------      -------     ------ 
Cash and cash equivalents at end of period                            42,300       27,743      2,819
Short-term investments                                                15,764
                                                                     -------      -------     ------
Cash, cash equivalents, and short-term investments                  $ 58,064     $ 27,743    $ 2,819
                                                                     =======      =======     ======

                See notes to consolidated financial statements.
</TABLE>

                                       F-6


<PAGE>



                          Sawtek Inc. and Subsidiaries
                   Notes to Consolidated Financial Statements

Note 1 - Summary of Significant Accounting Policies
---------------------------------------------------
         Description of Business.  Sawtek Inc. and subsidiaries  (the "Company")
designs,  develops,  manufactures and markets a broad range of electronic signal
processing  components  based on surface acoustic wave ("SAW")  technology.  The
Company's  primary  products  are  custom-designed,  high  performance  bandpass
filters,  resonators,  delay lines, oscillators and SAW-based subsystems.  These
products  are  used in a  variety  of  microwave  and 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.

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

         Prior to the IPO, the Company effected a twenty-for-one  stock split of
issued and  outstanding  common shares and increased  the  authorized  number of
shares to  40,000,000  shares  of Common  Stock  which  was again  increased  to
120,000,000  shares in 1997.  All  share,  per  share,  ESOP,  and stock  option
information  in the  accompanying  financial  statements  has been  restated  to
reflect the split and change in authorized  shares.  Also,  prior to the IPO the
Company redeemed the 6% cumulative preferred stock for $100,000 and 9,087 shares
of Common Stock.

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

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

         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 sales expenses.  Concentrations of
credit risk with respect to the  receivables are limited due to the large number
of  customers,  generally  short  payment  terms  and  their  dispersion  across
geographic areas and markets.

                                       F-7

<PAGE>



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

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

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

                  Building and Improvements          10 - 30 years
                  Production and Test Equipment       4 -  8 years
                  Computer Equipment                  4 -  8 years
                  Furniture and Fixtures              5 - 10 years

         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.

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

         Earnings Per Share. Earnings per share ("EPS") is computed based on the
weighted-average  number of Common  Shares,  common  stock  options  (using  the
treasury  stock  method) and all ESOP shares  outstanding.  In  accordance  with
Securities and Exchange Commission staff accounting bulletins, common and common
equivalent  shares  issued by the  Company at prices  below the public  offering
price during the one year period prior to the filing date of the initial  public
offering have been included in the  calculation as if they were  outstanding for
all periods  prior to the  offering  (using the  treasury  stock  method and the
initial public offering price).

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

         Income Taxes. The provision for income taxes includes Federal and State
taxes  currently  payable and deferred taxes arising from temporary  differences
between  income  for  financial  and tax  reporting  purposes.  These  temporary
differences  result   principally  from  the  use  of  accelerated   methods  of
depreciation  for tax  purposes,  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.

                                       F-8


<PAGE>



         ESOP  Compensation  Expense.  ESOP shares  acquired  after December 31,
1992,  are accounted  for  according to the  provisions of Statement of Position
(SOP) 93-6 of the  Accounting  Standards  Division of the American  Institute of
Certified Public  Accountants.  This SOP requires that  compensation  expense be
measured  using a fair market  value basis when the shares are  committed  to be
released to the employees.  The Company  accounts for ESOP shares acquired prior
to January 1, 1993,  in  accordance  with  Statement  of  Position  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"). APB 25 requires compensation
cost  for  stock-based   compensation  plans  to  be  recognized  based  on  the
difference,  if any,  between the fair market  value of the stock on the date of
grant and the option exercise  price. In October 1995, the Financial  Accounting
Standards  Board issued  Statement of Financial  Accounting  Standards  No. 123,
Accounting for  Stock-Based  Compensation  ("SFAS 123").  SFAS 123 established a
fair  value-based  method of accounting for  compensation  cost related to stock
options and other forms of stock-based  compensation  plans.  However,  SFAS 123
allows an entity to continue to measure  compensation costs using the principles
of APB 25 if certain pro forma  disclosures  are made.  The Company  adopted the
provisions of SFAS 123 on October 1, 1996,  and has elected to continue to apply
the provisions of APB 25 and provide the pro forma disclosure provisions of SFAS
123.

         SFAS No. 121,  "Accounting  for the Impairment of Long Lived Assets and
for Long Lived Assets to be Disposed Of." The Company  adopted the provisions of
SFAS 121 as of October 1, 1996. This statement  requires that long-lived  assets
and  certain  intangibles  to be held and used by the  Company be  reviewed  for
impairment  whenever  events  or  changes  in  circumstances  indicate  that the
carrying  amount of the  asset  may not be  recoverable.  The  adoption  of this
statement  did not have a material  impact on the  financial  statements  of the
Company.

         SFAS No. 128,  "Earnings per Share." In February  1997, the FASB issued
SFAS No. 128, "Earnings per Share," which is effective for financial  statements
issued  for  periods  ending  after  December  15,  1997.   This   pronouncement
establishes  standards for computing and presenting earnings per share (EPS) for
entities with  publicly-held  Common Stock or potential  Common Stock.  SFAS 128
simplifies  the  standards  for  computing  EPS and  makes  them  comparable  to
international  EPS  standards.  Early  application  of  this  statement  is  not
permitted.

         SFAS No. 129,  "Disclosure of Information about Capital  Structure." In
February  1997,  the  FASB  issued  SFAS  Statement  No.  129,   "Disclosure  of
Information  about Capital  Structure,"  which is  applicable to all  companies.
Capital structure  disclosures  required by Statement 129 including  liquidation
preferences  of preferred  stock,  information  about the  pertinent  rights and
privileges of the outstanding equity securities,  and the redemption amounts for
all issues of capital stock that are redeemable at fixed or determinable  prices
on fixed  or  determinable  dates.  Statement  129 is  effective  for  financial
statements for periods ending after December 15, 1997.

                                       F-9


<PAGE>


         SFAS No. 130, "Reporting  Comprehensive Income." In June 1997, the FASB
issued  SFAS No. 130,  "Reporting  Comprehensive  Income."  SFAS No. 130 becomes
effective  for fiscal  years  beginning  after  December  15, 1997 and  requires
reclassification of earlier financial statements for comparative purposes.  SFAS
No. 130 requires that changes in the amounts of certain items, including foreign
currency  translation  adjustments and gains and losses on certain securities be
shown in the  financial  statements.  SFAS No.  130 does not  require a specific
format for the financial  statement in which  comprehensive  income is reported,
but does  require  that an amount  representing  total  comprehensive  income be
reported in that statement.

         SFAS No. 131,  "Disclosures about Segments of an Enterprise and Related
Information."  Also in June 1997,  the FASB issued  SFAS No.  131,  "Disclosures
about  Segments of an Enterprise and Related  Information."  This Statement will
change the way public  companies  report  information  about  segments  of their
business in annual  financial  statements  and requires them to report  selected
segment  information in their quarterly reports issued to stockholders.  It also
requires  entity-wide  disclosures  about the  products  and  services an entity
provides,  the material countries in which it holds assets and reports revenues,
and its major  customers.  The Statement is effective for fiscal years beginning
after December 15, 1997.

         The Company  intends to adopt the  provisions of SFAS 128, 129, 130 and
131 in 1998 and does not expect their  application to have a material  impact on
the financial statements of the Company.

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

Note 2 - Cash, Cash Equivalents, and Short-Term Investments
-----------------------------------------------------------
         Cash, cash equivalents,  and short-term  investments is composed of the
following:

<TABLE>
<CAPTION>
                                                            September 30,
                                                        --------------------
                                                        1997            1996
                                                        ----            ----
                                                            (in thousands)
<S>                                                   <C>              <C>  
Cash and equivalents:
--------------------
Cash                                                  $ 1,837          $   604
Commercial paper                                       40,463           27,139
                                                       ------           ------ 
Cash and equivalents                                   42,300           27,743

Short-term investments:
----------------------
Municipal securities                                    5,766
Certificates of deposit                                 4,998
Government agency securities                            5,000
                                                       ------
Short-term investments                                 15,764
                                                       ------           ------
Cash, cash equivalents, and short-term investments    $58,064          $27,743
                                                       ======           ======
</TABLE>


                                      F-10


<PAGE>



Note 3 - Allowance for Doubtful Accounts and Sales Returns
----------------------------------------------------------
         The  allowance  for doubtful  accounts and sales returns is composed of
the following:
<TABLE>
<CAPTION>

                                                                       September 30,
                                                         ----------------------------------------
                                                         1997               1996             1995
                                                         ----               ----             ----
                                                                       (in thousands)
<S>                                                      <C>                <C>              <C>  
Balance, beginning of period                             $ 654              $ 277            $  88
Provision for doubtful accounts and sales returns          821                820              364
Sales returns and uncollectible accounts written off      (791)              (443)            (175)
                                                          ----               ----             ---- 
Balance, end of period                                   $ 684              $ 654            $ 277
                                                          ====               ====             ====
</TABLE>



Note 4 - Inventories
--------------------
         Inventories are composed of the following:

<TABLE>
<CAPTION>
                              September 30,
                          --------------------
                          1997            1996
                          ----            ----
                             (in thousands)
<S>                    <C>              <C>    
Raw material           $ 2,911          $ 1,976
Work in process          2,246            2,341
Finished goods           1,720            2,192
                        ------           ------
          Total        $ 6,877          $ 6,509
                        ======           ======
</TABLE>

         The allowance for obsolete and slow moving inventory is composed of the
following:
<TABLE>
<CAPTION>
                                         September 30,
                                -------------------------------
                                1997          1996         1995
                                ----          ----         ----
                                        (in thousands)
<S>                            <C>           <C>           <C> 
Balance, beginning of period   $1,705        $  887        $680
Charged to cost of sales          270           931         245
Disposal of inventory             (40)         (113)        (38)
                                -----         -----         ---
Balance, end of period         $1,935        $1,705        $887
                                =====         =====         ===
</TABLE>


                                      F-11


<PAGE>


Note 5 - Property, Plant and Equipment
--------------------------------------
         Property, plant and equipment is composed of the following:
<TABLE>
<CAPTION>
                                           September 30,
                                        -------------------
                                        1997           1996
                                        ----           ---- 
                                          (in thousands)

<S>                                   <C>            <C>    
Land and improvements                 $   671        $   671
Buildings                              14,076          9,829
Production and test equipment          29,490         21,459
Computer equipment                      2,977          2,734
Furniture and fixtures                  1,833          1,533
Construction in progress                5,507          4,774
                                       ------         ------
                                       54,554         41,000
Less accumulated depreciation          13,753         10,576
                                       ------         ------ 
      Total                           $40,801        $30,424
                                       ======         ======
</TABLE>

         Approximately  $159,000,  $380,000  and $82,000 of interest  costs were
capitalized  as part of property,  plant and  equipment in 1997,  1996 and 1995,
respectively.

Note 6 - Line of Credit
-----------------------
         The  Company  has a line of  credit  with a bank for  working  capital,
equipment  purchases,  plant  expansion and other general  business  purposes of
$15,000,000 with interest at LIBOR plus 125 basis points.  The line of credit is
unsecured  and  renewable  annually.  Covenants in  connection  with the line of
credit and with long-term debt agreements  impose  restrictions with respect to,
among other things,  the  maintenance of certain  financial  ratios,  additional
indebtedness  and disposition of assets.  The Company was in compliance with the
covenants as of September 30, 1997 and 1996.

         There were no  borrowings  against the line of credit at September  30,
1997. In 1996,  the Company  borrowed  $7,000,000  and repaid all of this with a
portion of the proceeds from the IPO.

Note 7 - Long-Term Debt and Lease Obligations
---------------------------------------------
         Long-term debt consists of the following:
<TABLE>
<CAPTION>
                                         September 30,
                                      ------------------- 
                                      1997           1996
                                      ----           ----
                                        (in thousands)
<S>                                  <C>            <C>   
Industrial Revenue Bond (a)          $  490         $  593
ESOP Note (b)                           780          1,367
Industrial Revenue Bond (c)           2,617          2,970
Term Loan (d)                           -              219
                                      -----          -----  
                                      3,887          5,149
Less Current Maturities               1,249          1,363
                                      -----          -----
                                     $2,638         $3,786
                                      =====          =====
</TABLE>

                                      F-12
<PAGE>

         (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  $780,000 at September 30, 1997 and $823,000 at September
30, 1996. The obligation is payable in varying  quarterly  installments  through
2001 plus interest at 68% of the prime rate.

         (b) In 1991, the Company  established an Employee Stock  Ownership Plan
(ESOP).  The Company borrowed  $4,000,000 from a bank and loaned it to the ESOP.
The  remaining  obligation is payable to the bank in quarterly  installments  of
$195,521, plus interest at 7.16%, through September 1998.

         (c) In 1995, the Company obtained  $3,500,000 in financing  through the
Orange County Industrial Development  Authority.  The obligation is secured by a
building  expansion and related equipment with a carrying value of approximately
$7,505,000  at September  30, 1997 and  $7,939,000  at September  30, 1996.  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.

         (d) The term loan was repaid in 1997.

         The Company  leases  equipment  under a  noncancelable  agreement  that
expires  in 1998.  Rental  expense  was  approximately  $461,000,  $481,000  and
$168,000 in 1997, 1996 and 1995, respectively.

         Required future payments for long-term debt and operating leases are as
follows:
<TABLE>
<CAPTION>
                             Debt                    Leases
                             ----                    ------  
                                     (in thousands)
<C>                         <C>                       <C> 
1998                        $1,249                    $317
1999                           469                      33
2000                           379                       7
2001                           288                       -
2002                           202                       -
Thereafter                   1,300                       -
                             -----                     ---
                            $3,887                    $357
                             =====                     ===
</TABLE>

         The Company made interest payments of approximately $313,000,  $550,000
and $456,000 on long-term debt in 1997, 1996 and 1995, respectively.

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


                                      F-13


<PAGE>



Note 8 - Income Taxes
---------------------
         The income tax provision is composed of the following:
<TABLE>
<CAPTION>
                                                 Year Ended September 30,
                                             -------------------------------- 
                                             1997           1996         1995
                                             ----           ----         ----
                                                      (in thousands)
<S>                                       <C>              <C>          <C>
Current:
  Federal                                 $ 4,549          $ 5,176      $3,263
  State                                       373              936         542
                                           ------           ------       -----
                                            4,922            6,112       3,805
Deferred:
  Federal                                   6,554              343        (354)
  State                                     1,092               59         (61)
                                           ------            -----       ----- 
                                            7,646              402        (415)
                                           ------           ------       -----
       Total Income Tax Provision         $12,568          $ 6,514      $3,390
                                           ======           ======       =====
</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,
                                                                -------------------
                                                                1997           1996
                                                                ----           ---- 
                                                                   (in thousands)
<S>                                                            <C>            <C>
Current:
  Accruals not currently deductible                            $   340        $   475
  Inventory costs capitalized for tax purposes                     195            210
  Inventory loss provision                                         699            581
                                                                ------         ------
            Deferred Tax Asset                                 $ 1,234        $ 1,266
                                                                ======         ======
Non-Current:
  Stock option compensation not currently deductible           $   664        $   568
  Earnings of subsidiary not currently taxed                    (6,940)          (328)
  Excess tax over book depreciation                             (2,336)        (1,238)
                                                                ------         ------
            Deferred Tax Liability                             $(8,612)       $  (998)
                                                                ======         ======
</TABLE>


                                      F-14

<PAGE>


         A reconciliation  of statutory  Federal income taxes to reported income
taxes is as follows:
<TABLE>
<CAPTION>
                                                    Year Ended September 30,
                                                 -------------------------------  
                                                 1997          1996         1995
                                                 ----          ----         ----
                                                          (in thousands)
<S>                                            <C>            <C>         <C> 
Income taxes computed at the Federal
 statutory rate of 35% (34% in 1995)           $11,664        $2,161      $3,080
State income taxes, net of Federal benefit         952           646         329
Non-deductible ESOP compensation expense                       3,944
Other                                              (48)         (237)        (19)
                                                ------         -----       -----
Total Income Tax Provision                     $12,568        $6,514      $3,390
                                                ======         =====       =====
</TABLE>


         In 1997 and 1996,  the  Company's  tax  liability  was  reduced and its
capital surplus was increased by $4,700,000 and $2,021,000,  respectively,  as a
result of transactions involving stock options.

         The Company  made  income tax  payments  of  approximately  $1,007,000,
$3,959,000 and $3,105,000 in 1997, 1996 and 1995, respectively.

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

Note 9 - Employee Benefit Plans
-------------------------------
         In 1997, the Company merged the Sawtek Inc. Code Section 401(k) Profit
Sharing Plan into the Employee Stock Ownership Plan for Employees of Sawtek Inc.
and renamed the combined plan the Sawtek Inc.Employee Stock Ownership and 401(k)
Plan. The merged plan has two principal elements: i) a profit sharing and 401(k)
element and ii) an employee stock ownership ("ESOP")element.

         Profit Sharing and 401(k) element.  In 1981, the Company  established a
profit sharing plan covering  substantially  all 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.

         Employee Stock Ownership element.  In 1991, the Company  established an
Employee Stock  Ownership Plan covering  substantially  all employees.  The ESOP
purchased  3,376,640 shares of Common Stock from substantially all of the common
shareholders  and 5,512,240 shares of Common Stock from the Company in 1991. The
transaction  was  financed  from the  proceeds  of a  $4,000,000  loan  from the
Company. The Company accounts for these ESOP shares in accordance with Statement
of Position  76-3.  As of September  30, 1997,  2,530,224 of these shares remain
unallocated.  In 1994,  the ESOP  purchased an  additional  1,610,600  shares of
Common Stock from the Company. The transaction was financed from the proceeds of
a $1,656,000 loan from the Company.  In April 1996, the Company amended the ESOP
and  allocated  the  ESOP's  1,610,600  shares  of Common  Stock of the  Company
acquired in 1994 to  employees  for services  rendered in the period  October 1,
1995 to April 28, 1996. As these shares were  accounted  for in accordance  with
SOP 93-6,  which the Company  adopted  October 1, 1994,  the Company  recorded a
charge to operating income of approximately  $12,925,000 for 1996. The effect of
the  adoption  of SOP 93-6 was to reduce  net income by  $11,269,000  ($0.59 per
share) for fiscal 1996.

                                      F-15
<PAGE>


         The Company  restructured  the  remaining  balance of its loan with the
ESOP in 1997 providing for a repayment of the loan and allocation of the related
shares through fiscal year 2003.

         The Company made  contributions of approximately  $293,000,  $1,783,000
and $1,095,000 to the ESOP in 1997, 1996 and 1995, respectively.  Allocations to
participants'  accounts  were 506,207,  1,610,600 and 1,737,960  shares in 1997,
1996 and 1995, respectively.

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

Note 10 - Significant Customers
-------------------------------
         Sales to the United States  government  (both as a prime contractor and
on a subcontract  basis),  to foreign markets and to significant  customers as a
percent of the Company's total revenues were as follows:
<TABLE>
<CAPTION>
                                                                                 Year Ended September 30,
                                                                                 ------------------------
                                                                                  1997      1996     1995
                                                                                  ----      ----     ----
<S>                                                                                <C>       <C>      <C>
U.S. Government (Inclusive of Significant Customers)                               11%       15%      17%
Foreign Markets (Inclusive of Significant Customers and European Market)           44%       54%      49%
European Market (Inclusive of Significant Customers)                               23%       38%      36%
Significant Customer A                                                             14%        8%       8%
Significant Customer B                                                             12%       24%      23%
Significant Customer C                                                             11%       11%      10%
Significant Customer D                                                             11%        3%       *
*Less than 1%
</TABLE>

Note 11 - Geographic Segments
-----------------------------
         Sales  are  reported  in the  geographic  area  where  they  originate.
Transfers  from the U.S.  to Costa Rica are made on a basis  intended to reflect
the market price of the products. Prior to 1996, all sales, operating profit and
assets were attributable to the United States operation.
<TABLE>
<CAPTION>
                                  Net Sales            Operating Income                Assets
                              ----------------         ----------------           ----------------
                              1997        1996         1997        1996           1997        1996
                              ----        ----         ----        ----           ----        ----
                                                        (in thousands)  
<S>                         <C>         <C>          <C>          <C>           <C>          <C>    
United States               $61,523     $54,203      $18,104      $4,680        $103,781     $72,697
Costa Rica                   28,438       4,793       13,424       1,105          15,821       8,222
Eliminations                 (7,192)     (1,332)         (30)        -               (30)     (6,325)
                             ------      ------       ------       -----         -------      ------ 
Consolidated Results        $82,769     $57,664      $31,498      $5,785        $119,572     $74,594
                             ======      ======       ======       =====         =======      ======

</TABLE>

                                      F-16
<PAGE>

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

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

Note 12 - Stock Options
-----------------------
         The Company has granted incentive stock options and non-qualified stock
options  under the 1983 Stock Option Plan and the Second Stock Option Plan.  The
Second  Stock Option Plan was  approved by the  shareholders  in 1996 with up to
2,000,000  shares of Common  Stock  available  for  options.  Incentive  options
granted are exercisable  over a ten year period,  generally in four equal annual
installments  commencing  one year after the date of grant.  A  majority  of the
non-qualified  options granted are exercisable from the date of grant over a ten
year  period,  while the  remainder  become  exercisable  in three or four equal
annual installments.

         Information concerning options under this plan is as follows:
<TABLE>
<CAPTION>
                                                                                                      Weighted Average
                                             Shares Under Option       Price Range of Options          Exercise Price
                                             -------------------       ----------------------         ----------------
<S>                                                <C>                    <C>                              <C>                      
Balance at October 1, 1994                         2,557,600              $ 0.13 - $ 0.79                  $ 0.27
Granted                                            1,012,980              $ 0.13 - $ 1.34                  $ 0.82
Terminated                                          (107,250)             $ 0.51 - $ 0.74                  $ 0.61
Exercised                                           (330,230)             $ 0.13 - $ 0.79                  $ 0.16
                                                  ---------
Balance at September 30, 1995                      3,133,100              $ 0.13 - $ 1.34                  $ 0.44
Granted                                              175,000              $ 3.55 - $24.75                  $13.16
Terminated                                            (8,140)             $ 0.74 - $ 1.34                  $ 1.12
Exercised                                         (1,754,500)             $ 0.13 - $ 1.34                  $ 0.23
                                                   ---------
Balance at September 30, 1996                      1,545,460              $ 0.13 - $24.75                  $ 2.13
Granted                                              249,500              $11.05 - $33.25                  $25.47
Terminated                                           (11,580)             $ 0.74 - $24.75                  $11.25
Exercised                                           (568,250)             $ 0.13 - $11.05                  $ 0.98
                                                   --------- 
Balance at September 30, 1997                      1,215,130              $ 0.13 - $33.25                  $ 7.37
                                                   =========
Exercisable at September 30, 1997                    390,631              $ 0.13 - $24.75                  $ 2.42
                                                   =========
</TABLE>


         The  weighted-average  contractual life of stock options outstanding as
of September 30, 1997 was 7.67 years.


                                      F-17


<PAGE>



         The following table  summarizes  information  about fixed stock options
outstanding at September 30, 1997:
<TABLE>
<CAPTION>
                                             Weighted-Avg.                               Number
      Range of              Number             Remaining         Weighted-Avg.        Exercisable         Weighted-Avg.
   Exercise Prices        Outstanding      Contractual Life     Exercise Price     at Sept. 30, 1997     Exercise Price
   ---------------        -----------      ----------------     --------------     -----------------     --------------
<C>                        <C>                   <C>                <C>                 <C>                  <C>                    
$0.13 - $ 1.34               814,630             7.08               $ 0.73              330,880              $ 0.53
$3.55 - $33.25               400,500             8.87               $21.94               59,751              $15.32
                           ---------                                                    -------
                           1,215,130                                                    390,631
                           =========                                                    =======
</TABLE>

         The Company applies APB Opinion No. 25 in accounting for its Plans and,
accordingly,  no  compensation  cost was  recognized  to the extent 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 (loss) and income (loss)
per share would be the pro forma amounts indicated below:
<TABLE>
<CAPTION>
                                                Year Ended September 30,
                                             ------------------------------ 
                                             1997                      1996
                                             ----                      ----   
                                         (in thousands, except per share data)
<S>                                        <C>                       <C>  
Net income (loss)
    As reported . . . . . . . . . . .      $20,759                   $ (340)
    Pro forma   . . . . . . . . . . .      $19,697                   $ (342)

Net income (loss) per share
    As reported . . . . . . . . . . .      $  0.97                   $(0.02)
    Pro forma   . . . . . . . . . . .      $  0.92                   $(0.02)
</TABLE>

         The  weighted-average  fair  value of options  granted  during the year
ended September 30, 1997 and 1996 was $19.62 and $7.87, respectively,  using the
Black-Scholes   option-pricing   model  with  the   following   weighted-average
assumptions:  1997  --expected  volatility  of 74%,  risk-free  interest rate of
6.45%, no expected  dividends and an expected life of 4.5 years;  1996 -expected
volatility of 76%,  risk-free  interest rate of 6.03%, no expected dividends and
an expected life of 4 years.

         The pro forma net income (loss)  reflects only options  granted in 1997
and 1996. Therefore,  the full impact of calculating compensation cost for stock
options  under SFAS No. 123 is not  reflected in the pro forma net income (loss)
amounts  presented above because  compensation cost is reflected over the option
vesting periods of up to 4 years and compensation cost for options granted prior
to October 1, 1995 is not considered.


                                      F-18
<PAGE>

Note 13 - Quarterly  Financial  Information  (unaudited)
--------------------------------------------------------
          Selected quarterly financial data is summarized below:

<TABLE>
<CAPTION>
                                                               Quarter Ended
                             ---------------------------------------------------------------------------------
                                           Fiscal 1997                               Fiscal 1996
                             ---------------------------------------   ---------------------------------------
                             Sept.30,   June 30,   Mar.31,   Dec.31,   Sept.30,   June 30,   Mar.31,   Dec.31,
                               1997       1997      1997      1996       1996       1996       1996     1995
                               ----       ----      ----      ----       ----       ----       ----     ----      
                                                     (in thousands, except per share data)
<S>                          <C>        <C>        <C>       <C>        <C>       <C>       <C>        <C>    
Net sales                    $23,055    $21,203    $20,009   $18,502    $18,000   $14,926   $13,929    $10,809
Cost of sales                 10,645      9,213      8,313     8,678      8,672     6,986     6,512      5,092
                              ------     ------     ------    ------     ------    ------    ------     ------    
Gross profit                  12,410     11,990     11,696     9,824      9,328     7,940     7,417      5,717
Operating expenses:
 Selling expenses              1,516      1,152      1,150     1,246      1,202     1,174       797        774
 General & administrative
   expenses                    1,194      1,292      1,786     1,134      1,633     1,509     1,581      1,068
 ESOP compensation
   expense                      (391)       195        196       196                1,846     5,539      5,540
 Research and development
   expenses                    1,075      1,088        912       681        583       467       486        418
                              ------     ------     ------    ------     ------    ------    ------     ------ 
     Total operating expenses  3,394      3,727      4,044     3,257      3,418     4,996     8,403      7,800
                              ------     ------     ------    ------     ------    ------    ------     ------
Operating income (loss)        9,016      8,263      7,652     6,567      5,910     2,944      (986)    (2,083)
Interest expense net of
  capitalized interest            45         41         70        41        (94)      114        87        138
Other (income) expense          (661)      (557)      (453)     (355)      (374)     (240)      (26)         6
                              ------     ------     ------    ------     ------    ------    ------     ------
Income (loss) before
  income taxes                 9,632      8,779      8,035     6,881       6,378    3,070    (1,047)    (2,227)
Income taxes                   3,564      3,333      3,053     2,618       2,460    1,699     1,401        954
                              ------     ------     ------    ------      ------   ------    ------     ------  
Net income (loss)            $ 6,068    $ 5,446    $ 4,982   $ 4,263     $ 3,918  $ 1,371   $(2,448)   $(3,181)
                              ======     ======     ======    ======      ======   ======    ======     ======
Net income (loss) per
  share (1)                  $  0.28    $  0.25    $  0.23   $  0.20     $  0.18  $  0.07   $ (0.14)   $ (0.18)
                              ======     ======     ======    ======      ======   ======    ======     ======
Shares used in computation
  of net income per share     21,776     21,401     21,368    21,358      21,286   20,286    18,140     17,272

<FN>
(1) Earnings per share for each quarter is calculated as a discrete period;  the
sum of the four quarters may not equal the calculated full-year amount.

</FN>
</TABLE>


                                      F-19


<PAGE>


PART III.

ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
-----------------------------------------------------------

Management - Executive Officers and Directors
---------------------------------------------
         The  executive  officers and directors of the Company and their ages as
of September 30, 1997 are as follows:
<TABLE>
<CAPTION>
Name                                        Age      Position
----                                        ---      -------- 
<S>                                         <C>      <C>    
Steven P. Miller. . . . . . . . . . . . . . 49       Chairman, Chief Executive Officer and Director
Gary A. Monetti . . . . . . . . . . . . . . 38       President and Chief Operating Officer
Neal J. Tolar (1) . . . . . . . . . . . . . 56       Senior Vice President, Chief Technical Officer and Director
Thomas A. Shoquist (3)  . . . . . . . . . . 50       Vice President - Quality
Raymond A. Link . . . . . . . . . . . . . . 43       Vice President - Finance and Chief Financial Officer
Robert C. Strandberg (1)(2) . . . . . . . . 40       Director
Bruce S. White (2)  . . . . . . . . . . . . 64       Director
Willis C. Young (1)(2)  . . . . . . . . . . 56       Director
---------------------
<FN>
(1)      Member of the Audit Committee.
(2)      Member of the Compensation Committee.
(3)      Mr. Shoquist retired from Sawtek Inc. on October 1, 1997.
</FN>
</TABLE>

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

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

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

                                       27


<PAGE>


         Raymond  A.  Link  joined  the  Company  in  September   1995  as  Vice
President-Finance  and Chief Financial Officer. From 1987 to September 1995, Mr.
Link  was  Vice   President-Finance  and  Chief  Financial  Officer  of  Hubbard
Construction  Company, a heavy/highway  construction  company.  Prior to joining
Hubbard  Construction  Company,  Mr.  Link  was  with  Harris  Corporation,   an
electronics manufacturer, in various financial capacities from 1980 to 1987. Mr.
Link  has an  M.B.A.  degree  from  the  Wharton  School  at the  University  of
Pennsylvania  and a B.S. degree in Accounting  from the State  University of New
York at Buffalo. He is a Certified Public Accountant.

         Robert C.  Strandberg  has been a Director of the Company since October
1995.  Mr.  Strandberg is President and CEO of PSC Inc., a  manufacturer  of bar
code  readers,  since  June 1997 and served as  Executive  Vice  President  from
November 1996 to June 1997. From May 1996 to October 1996, he was  self-employed
as a business consultant.  From September 1991 to April 1996, Mr. Strandberg was
the Chairman of the Board of Directors, President and Chief Executive Officer of
Datamax  International  Corporation,  a manufacturer of bar code printers.  From
1988 to 1991, he was Vice  President-Finance  of Datamax.  From 1986 to 1988, he
worked for GTECH,  a lottery  management  company,  in the areas of finance  and
strategic  planning.  Mr. Strandberg has an M.B.A.  degree from Harvard Graduate
School of Business  Administration and a B.S. degree in Operations  Research and
Industrial  Engineering  from  Cornell  University.

         Bruce S. White has been a Director of the Company since April 1996. Mr.
White has been a Corporate  Vice  President  of AVNET  Inc.,  a  distributor  of
electronic  components,  since  January  1996 and the  President of the Penstock
Division of AVNET Inc.  since July 1994.  From 1974 to July 1994,  Mr. White was
the President and Chief Executive Officer of Penstock Inc., a company he founded
to distribute RF and microwave components.  Penstock is a distributor of certain
products  manufactured by Sawtek.  In fiscal 1997, sales from Sawtek to Penstock
were approximately $1.4 million. Mr. White has a B.A. degree in Mathematics from
Colgate  University and a B.S. and M.S.  degree in Electrical  Engineering  from
Michigan State University.

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

         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.

                                       28


<PAGE>



ITEM 11. EXECUTIVE COMPENSATION
-------------------------------
         The  information  required  by this  item  is  incorporated  herein  by
reference to the Company's  proxy  statement to be filed not later than 120 days
after the end of the fiscal year.


ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
-----------------------------------------------------------------------
         The  information  required  by this  item  is  incorporated  herein  by
reference to the Company's  proxy  statement to be filed not later than 120 days
after the end of the fiscal year.


ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
-------------------------------------------------------
         The  information  required  by this  item  is  incorporated  herein  by
reference to the Company's  proxy  statement to be filed not later than 120 days
after the end of the fiscal year.


PART IV.

ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8K
------------------------------------------------------------------------
(A) The following documents are filed as part of this report:

    1.  Financial statements - see index to Consolidated Financial Statements on
        page F-1 hereof.

    2.  Financial  statement  schedules:  All schedules  have been  omitted
        because they are  inapplicable  or not material,  or the  information
        called for thereby is included in the Consolidated Financial Statements
        and notes thereto.

    3.  Exhibits required by Item 601 of Regulation S-K:

        (a)  See Exhibit Index in (c) below.
        (b)  Reports on Form 8K:  the Company did not file any report on Form 8K
             during the quarter ended September 30, 1997.
        (c)  Exhibits:

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

                                       29


<PAGE>



             4.1*  Specimen stock certificate.

            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).

            10.4*  Incentive Stock Option Agreement, dated December 12, 1994,
                   between the Company and Ronald M. Hays.

            10.5*  Incentive Stock Option Agreement, dated December 19, 1994,
                   between the Company and Neal J. Tolar.

            10.6*  Stock Option Agreement, dated December 19, 1994, between the
                   Company and Steven P. Miller.

            10.7   Employee Stock Ownership Plan and Trust Agreement for 
                   Employees of Sawtek Inc. (the "ESOP") (incorporated by
                   reference to Registration Statement on Form S-8, File No.
                   333-08281).

            10.8*  Sawtek Inc. 1994 Stockholders Agreement.

            10.9*  Restructuring Agreement, dated January 11, 1991, by and
                   between the Company, certain shareholders of the Company and
                   the ESOP.

            10.10* Agreement with respect to Stock Options, dated June 29, 1994,
                   between the Company and the ESOP.

            10.11* Second ESOP Loan Agreement, dated June 29, 1994.

            10.12* Second Amendment to ESOP Loan Agreement, dated June 29, 1994.

            10.13* Commercial Lease, dated March 1, 1994, between the Company as
                   Tenant and Piezo Technology, Inc. as Landlord.

            10.14* Lease, dated August 2, 1995, between the Company as Tenant
                   and Dr. Phillips, Inc. as Landlord.

            10.15* Lease Agreement dated November 19, 1995, between Sawtek, S.A.
                   as Lessee and Centro de Ciencia y Tecnolgia Ultrapark, S.A.
                   as Lessor.

            10.16* Master Lease Agreement,  dated as of March 21, 1995, between
                   the Company as Lessee and General Electric Capital
                   Corporation, as Lessor.

                                       30
<PAGE>

            10.17* Company Loan Agreement dated January 11, 1991, between the
                   Company and Sun Bank, National Association ("Sun Bank").

            10.18* Company Note, dated January 11, 1991.

            10.19* Security Agreement dated January 11, 1991, between the
                   Company and Sun Bank.

            10.20* Company Pledge Agreement dated January 11, 1991.

            10.21* Mortgage and Security Agreement, dated January 9, 1991, by 
                   and between the Company, the Orange County Industrial 
                   Development Authority ("OCIDA"), and Sun Bank.

            10.22* Fourth Amendment to Installment Sales and Security Agreement,
                   dated January 8, 1991, by and between the Company, OCIDA, and
                   Sun Bank.

            10.23* ESOP Pledge Agreement, dated January 11, 1991, by and between
                   the Company, ESOP, and Southeast Bank, National Association
                   ("Southeast").

            10.24* ESOP Loan Agreement, dated January 11, 1991, by and between
                   the Company and Southeast.

            10.25* ESOP Note dated January 11, 1991.

            10.26* Amended and Restated Loan and Security Agreement, dated
                   November 15, 1995, between the Company and SunTrust Bank,
                   Central Florida, National Association ("SunTrust").

            10.27* Increase Promissory Note dated November 10, 1995.

            10.28* Renewal, Increase and Consolidation Promissory Note, dated
                   November 10, 1995.

            10.29* Promissory Demand Note, dated November 10, 1995.

            10.30* Fifth Amendment to Installment Sale and Security Agreement,
                   dated as of March 1, 1995, between the Company, Sun Bank and
                   OCIDA.

            10.31* Fourth Supplemental Trust Indenture, dated as of March 1,
                   1995, between the Company, Sun Bank and OCIDA.

            10.32* Construction Loan Agreement, dated as of March  1, 1995, 
                   between the Company and Sun Bank.


                                       31
<PAGE>



            10.33* 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.

            10.34* Bond Purchase Agreement dated as of December 1, 1981, between
                   OCIDA and the Company.

            10.35* Installment Sale and Security Agreement, dated as of December
                   1, 1981, between OCIDA and the Company and accepted by the
                   Guarantors.

            10.36* Guaranty Agreement dated as of December 1, 1981, among the
                   Guarantors and OCIDA.

            10.37* Trust Indenture dated as of December 1, 1981,  between OCIDA
                   and the Trustee and accepted by the Company and the
                   Guarantors.

            10.38* Sawtek Inc. Code ss.401(k) Profit Sharing Plan and Trust
                   Agreement, dated February 15, 1995.

            10.39  Letter from SunTrust Bank, Central Florida, N.A. for renewal
                   and repricing of unsecured line of credit for Sawtek Inc.
                   dated September 27, 1996 (incorporated by reference to Form
                   10-K filed November 4, 1996).

            10.40  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).

            10.41  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).

            10.42# Amendment to Employee Stock Ownership Plan and Trust 
                   Agreement for Employees of Sawtek Inc.

            10.43  Modification of ESOP Loan Agreement dated as of September 26,
                   1997 between the Company and Marine Midland Bank.

            10.44  Modification of ESOP Pledge Agreement dated as of September
                   26, 1997 between the Company and Marine Midland Bank.

            10.45  Renewal ESOP Note dated as of September 26, 1997.

                                       32

<PAGE>


            10.46  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.

            10.47  Sawtek Inc. Employee Stock Ownership and 401(k) Plan dated as
                   of July 16, 1997.

            10.48  Sawtek Inc. Employee Stock Ownership and 401(k) Trust
                   Agreement dated July 16, 1997 between the Company and Marine
                   Midland Bank.
 
            11.1   Statement regarding computation of per share earnings.

            21.1*  List of subsidiaries of the Registrant.

            23.1   Consent of Ernst & Young LLP.

            24.1   Power of attorney.  Reference is made to page 34.

            27.0   Financial Data Schedule.

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

#  Incorporated by reference to Registration Statement on
   Form S-3, File No. 333-26747.



















                                       33

<PAGE>

                                   SIGNATURES

         Pursuant to the  requirements  of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this report to be signed on
its behalf by the  undersigned,  thereunto  duly  authorized  on the 12th day of
November, 1997.

                                   SAWTEK INC.

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

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

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


                                POWER OF ATTORNEY

         KNOW  ALL MEN BY THESE  PRESENTS,  that  each  person  whose  signature
appears on the following page  constitutes  and appoints Steven P. Miller and or
Raymond A. Link to sign any  amendments to this Report on Form 10-K, and to file
the same,  with exhibits  thereto and other  documents in connection  therewith,
with the Securities and Exchange Commission, hereby ratifying and confirming all
that the said  attorney-in-fact,  or his  substitute or  substitutes,  may do or
cause to be done by virtue hereof.

         Pursuant to the  requirements  of the Securities  Exchange Act of 1934,
this  Report has been  signed  below by the  following  persons on behalf of the
Registrant and in the capacities indicated on the 12th day of November, 1997.


/s/Neal J. Tolar                         /s/Steven P. Miller
Neal J. Tolar                            Steven P. Miller
Senior Vice President and Director       Chairman, CEO and Director

/s/Robert C. Strandberg                  /s/Willis C. Young
Robert C. Strandberg                     Willis C. Young
Director                                 Director

/s/Bruce S. White
Bruce S. White
Director



                                       34


<PAGE>

                                                                   EXHIBIT 11.1

<TABLE>

              STATEMENT REGARDING COMPUTATION OF PER SHARE EARNINGS
                            as reported on Form 10-K
                      (in thousands, except per share data)

<CAPTION>
                                                                        Three months ended                Year ended
                                                                           September 30,                 September 30,
                                                                        ------------------         ------------------------
                                                                        1997          1996         1997      1996      1995
                                                                        ----          ----         ----      ----      ----
<S>                                                                    <C>           <C>          <C>       <C>       <C> 
Primary Earnings Per Share:
Weighted average number of shares of Common Stock outstanding          20,740        19,854       20,376    17,197    13,738
Net effect of dilutive stock options based on the Treasury stock
 method using the average fair market value in effect
 for the period                                                         1,008         1,432        1,079     2,012     2,638
                                                                       ------        ------       ------    ------    ------
       Total shares outstanding for primary EPS                        21,748        21,286       21,455    19,209    16,376
                                                                       ======        ======       ======    ======    ======
Fully Diluted Earnings Per Share:
Weighted average number of shares of Common Stock outstanding          20,740        19,854       20,376    17,197    13,738
Net effect of dilutive stock options based on the Treasury
 stock method using the higher of the fair market value at
 the end of the period or the average during the period                 1,036         1,432        1,100     2,049     2,791
                                                                       ------        ------       ------    ------    ------
       Total shares outstanding for fully diluted EPS                  21,776        21,286       21,476    19,246    16,529
                                                                       ======        ======       ======    ======    ======
Net income (loss)                                                     $ 6,068       $ 3,918      $20,759     ($340)  $ 5,669
Less preferred stock dividends                                                                                  27        18
                                                                       ------        ------       ------    ------    ------
Net income (loss) applicable to common shareholders                   $ 6,068       $ 3,918      $20,759     ($367)  $ 5,651
                                                                       ======        ======       ======    ======    ======
Earnings (loss) per share:
     Primary                                                          $  0.28       $  0.18      $  0.97    ($0.02)  $  0.35
     Fully diluted                                                    $  0.28       $  0.18      $  0.97    ($0.02)  $  0.34


</TABLE>





<PAGE>

                                                                    EXHIBIT 23.1



                         Consent of Independent Auditors


We consent to the  incorporation  by  reference  in the  following  Registration
Statements  of  our  report  dated  October  24,  1997,   with  respect  to  the
consolidated  financial  statements of Sawtek Inc. included in its Annual Report
(Form 10-K) for the year ended September 30, 1997.

<TABLE>
<CAPTION>

Registration
 Statement
   Number                                 Description
------------      ------------------------------------------------------------
<C>               <C>                                               
333-11701         Form S-8 re: Sawtek Inc. Employee Stock Purchase Plan
333-11523         Form S-8 re: Sawtek Inc. Second Stock Option Plan
333-10579         Form S-8 re: Sawtek Inc. Amended and Restated 1983 Incentive
                    Stock Option Plan
333-08281         Form S-8 re: Sawtek Inc. Employee Stock Ownership and 401(k)
                    Plan, formerly known as the Employee Stock Ownership Plan
                    for Employees of Sawtek Inc.
</TABLE>




                                                      /s/Ernst & Young, LLP
                                                      Ernst & Young LLP



Orlando, Florida
November 7, 1997



<PAGE>
                                                                  EXHIBIT 10.43







                                 MODIFICATION OF
                               ESOP LOAN AGREEMENT
                                   DATED AS OF
                                JANUARY 11, 1991



                   MODIFICATION DATED AS OF SEPTEMBER 26, 1997



                      SAWTEK INC. EMPLOYEE STOCK OWNERSHIP
                            AND 401(k) PLAN AND TRUST











<PAGE>




                                 MODIFICATION OF
                               ESOP LOAN AGREEMENT

         This  MODIFICATION OF ESOP LOAN AGREEMENT (the "Agreement") is made and
entered into on September 26, 1997 in Apopka,  Orange  County,  Florida  between
SAWTEK INC., a Florida  corporation  (the "Company") and MARINE MIDLAND BANK, as
successor  trustee (the  "Trustee") of the SAWTEK INC.  EMPLOYEE STOCK OWNERSHIP
AND 401(k) PLAN AND TRUST (the "KSOP" and the  "Trust")  (formerly  known as the
Employee  Stock  Ownership  Plan and Trust for  Employees  of Sawtek  Inc.  (the
"ESOP")).

                             BACKGROUND INFORMATION

         A. Effective October 1, 1990, the Company  established the ESOP for the
benefit  of its  participants  and  beneficiaries.  The  ESOP  was  amended  and
restated,  and combined with the Company's  401(k) profit  sharing plan, on July
16, 1997, to become the KSOP.

         B. On January 11, 1991,  the Company and certain  shareholders  thereof
sold common stock of the Company (the "Shares") to the Trust.

         C. In order to finance the acquisition of the Shares, the Trust entered
into an exempt loan (the "1991 Exempt  Loan") with the Company in the  principal
amount  of  $4,000,000,  as  evidenced  by the ESOP Loan  Agreement  dated as of
January 11, 1991 (the "1991 Loan Agreement").

         D. The Trust acquired  8,888,880 Shares (as adjusted to reflect a 1996,
20 for 1 stock split) in  conjunction  with the 1991 Loan  Agreement  and placed
such Shares in a suspense account within the ESOP for release in accordance with
the ESOP  Pledge  Agreement  dated as of  January  11,  1991 (the  "1991  Pledge
Agreement") and applicable ERISA regulations.

         E. As of the date of this Agreement,  the Trust remains indebted to the
Company from the 1991 ESOP Loan in the principal  amount of  $1,366,392.35,  and
there  remains  3,036,431  of Shares  in the  suspense  account  of the KSOP for
allocation to the participants and beneficiaries of the KSOP.

         F. Effective May 5, 1997,  Marine Midland Bank was appointed  successor
trustee of the Trust,  replacing  Steven P.  Miller,  Neal Jay Tolar,  Willis C.
Young,  and Robert C. Strandberg as co-trustees of the Trust. At the time of the
1991 Loan Agreement, Southeast Bank, N.A. was the trustee of the Trust.

         G. As stated and  memorialized  in the  Implementation  Agreement dated
September 26, 1997 (the "Implementation Agreement"), the Company and the Trustee
have agreed to extend the amortization of the 1991 ESOP Loan in exchange for the
additional  consideration to be provided by the Company to the KSOP and Trust in
accordance with the Implementation  Agreement.  The Company and the Trustee have
agreed that the ESOP Loan, as modified herein, continues to be primarily for the
benefit of the participants and beneficiaries of the KSOP.


<PAGE>



                                    ARTICLE I
                                   DEFINITIONS

         SECTION 1.01.  Definitions.  The following terms, as used herein,  have
the following meanings:

         "Agreement" means this modification of the ESOP Loan Agreement dated as
of January 11, 1991 between the Company and the Trustee.

         "Business Day" means any day except a Saturday,  Sunday or other day on
which banks in Orlando, Florida are authorized or required by law to close.

         "Company"  means Sawtek Inc., a Florida  corporation  that sponsors the
KSOP.

         "Code" means the Internal  Revenue Code of 1986, as amended or replaced
from time to time.

         "Disqualified  Person" means a  disqualified  person in relation to the
KSOP as defined in Code Section 4975(e)(2).

         "ERISA" means the Employee  Retirement  Income Security Act of 1974, as
amended or replaced from time to time.

         "ESOP" means the Employee Stock  Ownership Plan and Trust for Employees
of Sawtek, Inc. prior to its amendment and restatement as of July 16, 1997.

         "Event of Default"  means the events of default  provided in Article VI
of this Agreement.

         "Implementation  Agreement" means the agreement between the Company and
the Trustee of even date herewith that  provides the overall  agreement  between
the Company and the Trustee  with respect to the  modification  of the 1991 ESOP
Loan Agreement and 1991 ESOP Pledge Agreement.

         "KSOP" means the Sawtek Inc.  Employee Stock  Ownership and 401(k) Plan
and Trust dated as of July 16, 1997.

         "Modified ESOP Loan Documents" means  collectively this Agreement,  the
Modified ESOP Pledge Agreement and Renewal ESOP Note.

         "Modified ESOP Pledge  Agreement" means the 1991 ESOP Pledge Agreement,
as modified September 26, 1997.

         "1991 ESOP Loan" means the $4,000,000  loan by the Company to the Trust
on January 11, 1991, as evidenced by the 1991 ESOP Note.

         "1991 ESOP Loan  Agreement"  means the ESOP Loan Agreement  between the
Trustee and the Company dated as of January 11, 1991.

         "1991  ESOP  Loan  Documents"  means  collectively  the 1991  ESOP Loan
Agreement, 1991 ESOP Note and 1991 ESOP Pledge Agreement.

         "1991 ESOP Note" means the Trust's ESOP Note in the principal amount of
$4,000,000 dated as of January 11, 1991.


<PAGE>



         "1991 ESOP Pledge  Agreement" means the ESOP Pledge  Agreement  between
the Trustee and the Company dated as of January 11, 1991.

         "Party in  Interest"  means a party in interest in relation to the KSOP
as defined in ERISA Section (3)(14).

         "Renewal  ESOP  Note"  means the  renewal  of the 1991 ESOP Note in the
principal amount of $1,366,392.35, dated as of September 26, 1997.

         "Shares"  means the shares of common  stock of the Company  acquired by
the Trust.

         "Trust" means the Sawtek Inc. Employee Stock Ownership and 401(k) Trust
dated as of July 16, 1997.

         "Trustee"  means Marine Midland Bank, as Trustee of the Trust,  and any
successor thereto.

         "Unallocated  Shares" means Shares being held in suspense in the Trust,
pending allocation to participants pursuant to the terms of the KSOP.

         SECTION 1.02.  Accounting  Terms and  Determinations.  Unless otherwise
specified  herein,  all accounting  terms used herein shall be interpreted,  all
accounting  determinations hereunder shall be made, and all financial statements
required  to be  delivered  hereunder  shall  be  prepared  in  accordance  with
generally accepted accounting principals. In the event of ambiguities or changes
in GAAP, the more conservative principal or interpretation shall be used.

                                   ARTICLE II
                                    THE LOAN

         SECTION  2.01.  Commitment  to Extend Loan. On the terms and subject to
the conditions of this Agreement,  the Company and the Trustee hereby agree that
the  amortization  of the  repayment  of the 1991 ESOP Loan shall be extended to
September 30, 2003.  Furthermore,  the Company and the Trustee  acknowledge  and
agree that as of the date of this Agreement, the unpaid principal balance of the
1991 ESOP Loan from the  Company to the Trust is  $1,366,392.35,  and  3,036,431
Shares remain in the suspense  account of the KSOP and Trust pending release and
allocation to the participants and beneficiaries of the KSOP.

         SECTION 2.02.  Effect on  Agreements.  Nothing in this Agreement or the
Modified  ESOP Loan  Documents  is  intended to modify or affect the January 11,
1991 loan from SunBank, N.A. (now known as SunTrust Bank, Central Florida, N.A.)
to the Company.  Furthermore,  nothing in this Agreement shall be interpreted or
construed  to affect the rights and  obligations  of the  Company  and the Trust
under  the 1991  ESOP  Loan  Agreement,  1991  ESOP  Note and 1991  ESOP  Pledge
Agreement prior to the date of this Agreement.  As of the date of the Agreement,
the rights and  obligations  of the  Company  and the Trust  under the 1991 ESOP
Note,  1991  ESOP Loan  Agreement  and 1991 ESOP  Pledge  Agreement  shall be as
provided in this Agreement, the Renewal ESOP Note and Modified Pledge Agreement.


<PAGE>



         SECTION  2.03.  ESOP  Note:  Payment of  Principal  and  Interest.  The
continuing  obligation  of the  Trust  to  repay  the 1991  ESOP  Loan  shall be
evidenced  by the Renewal  ESOP Note.  The Renewal ESOP Note shall be payable in
seven (7) equal, annual installments of principal plus accrued interest, payable
each year on September 30, with the first installment due on September 30, 1997,
and the final  installment  due on  September  30,  2003.  The annual  principal
payment shall be $195,198.91. The Renewal ESOP Note shall be without recourse to
the Trust, except that the Company shall have rights to the Shares to the extent
permitted  by Code  Section  4975 and as  provided in the  Modified  ESOP Pledge
Agreement.

         SECTION 2.04. Interest Rate. Interest shall accrue from the date hereof
on the  outstanding  principal  amount of the  Renewal  ESOP Note at the  fixed,
annual rate of seven and sixteen one-hundredths percent (7.16%).

         SECTION 2.05.  Prepayments.  The Trust may, without premium or penalty,
prepay the Renewal ESOP Note in whole or in part,  at any time,  upon payment of
the principal amount being prepaid together with accrued interest thereon to the
date of prepayment. Any prepayment of the Modified ESOP Note shall be applied to
the principal installments thereof in the inverse order of their maturities.

         SECTION 2.06. General Provisions as to Payments.

         (a) The Trust  shall  make  each  payment  of  principal  and  interest
hereunder  under the  Renewal  ESOP Note not later  than  11:00  a.m.  (Orlando,
Florida  time) on the date  when due in  lawful  money of the  United  States of
America to the Company at its address  referred to in the  signature  section of
this Agreement in immediately available funds. Whenever any payment of principal
of,  or  interest  on,  the  Renewal  ESOP  Note is due on a day  which is not a
Business  Day,  the date for  payment  thereof  shall  be  extended  to the next
succeeding Business Day.

         (b)  Interest  shall be computed on the basis of a year of 360 days and
paid  for the  actual  number  of days  elapsed  (including  the  first  day but
excluding  the last  day).  If the due  date for any  payment  of  principal  is
extended by operation of law or otherwise, interest thereon shall be payable for
such extended time.

         SECTION 2.07. Special Limitations.  Notwithstanding any other provision
in the Modified ESOP Loan Documents, the obligations of the Trust and the rights
of the Company under the Modified ESOP Loan Documents are subject to and limited
by any specific limitations that may now or in the future be explicitly required
by law to qualify the 1991 ESOP Loan (as modified  herein) for an exemption from
any prohibition  relating to transactions  with an employee stock ownership plan
by a  "disqualified  person" or "party in  interest"  under Code Section 4975 or
ERISA Sections 406 and 408, respectively,  or any similar or successor provision
of applicable law, but only to the extent, and for so long as, such prohibitions
specifically would be applicable to the 1991 ESOP Loan (as modified herein), and
no exemption is available  for such  limitations.  The Trustee shall comply with
any  reasonable  request from the Company for  assistance  in  establishing  the
inapplicability  of  such  a  prohibition  or  the  qualification  for  such  an
exemption.

         SECTION 2.08. Maximum Interest Rate.

         (a) Nothing  contained in this Agreement or the Renewal ESOP Note shall
require the Trust to pay interest at a rate exceeding the maximum rate permitted
by applicable law.

         (b) If the amount of interest  payable to the  Company on any  interest
payment  date in  respect  of the  immediately  preceding  interest  computation
period,  computed  pursuant to Section  2.06,  would  exceed the maximum  amount
permitted by such  applicable  law to be charged by the  Company,  the amount of
interest payable on such interest payment date automatically shall be reduced to
such maximum permissible amount.


<PAGE>


                                   ARTICLE III
                           CONDITIONS TO MODIFICATION

         SECTION 3.01. Conditions.  The modification of the 1991 ESOP Loan shall
be subject to the satisfaction of the following conditions:

         (a) execution by the Company and the Trustee of this Agreement;

         (b) execution by the Trustee of the Renewal ESOP Note;

         (c)  execution  by the  Company and the  Trustee of the  Modified  ESOP
Pledge Agreement;

         (d)  execution  by the Company  and the  Trustee of the  Implementation
Agreement; and

         (e) the fact  that all of the  representations  and  warranties  of the
Trust  contained in any of the Modified  ESOP Loan  Documents  shall be true and
correct on and as of the date of such modification in all material respects.


                                   ARTICLE IV
                         REPRESENTATIONS AND WARRANTIES

         The Trustee  represents  and warrants,  on behalf of the Trust,  to and
with the Company the following:

         SECTION 4.01. Authorization:  Assuming that the Company (i) submits the
KSOP  and  Trust to the  Internal  Revenue  Service  with an  application  for a
favorable  determination  letter  that the KSOP meets the  requirements  of Code
Sections 401(a) and 4975(e)(7),  (ii) obtains a favorable  determination  letter
from the Internal Revenue Service on such application, and (iii) promptly adopts
any  amendments to the KSOP and Trust that are required by the Internal  Revenue
Service as a condition to the issuance of its favorable determination letter:

         (a) To the best knowledge of the Trustee,  the execution,  delivery and
performance  by the  Trustee  of the  Modified  ESOP Loan  Documents,  continued
holding,  pledge  and  the  potential  sale  of  Unallocated  Shares  and  other
collateral as contemplated  thereby, and the administration of the KSOP pursuant
to the terms of the KSOP and Trust documents, do not contravene, or constitute a
default under,  the KSOP or Trust  instruments,  or of any agreement,  judgment,
injunction, order, decree or other instrument binding upon the Trustee, and will
not result in the creation or  imposition  of any lien on any asset of the Trust
except as specifically provided in the Modified ESOP Pledge Agreement, or result
in a violation of, or create any liability under, ERISA or the Code.

         (b) To the best knowledge of the Trustee, the transactions contemplated
hereby do not constitute  prohibited  transactions  under the Code or ERISA. The
Trust forming a part of the KSOP has been duly  constituted  in accordance  with
valid and binding trust instruments,  is validly existing and is qualified under
Code Sections 401(a) and 501(a).

         SECTION 4.02. Binding Effect.  Each of the Modified ESOP Loan Documents
constitutes  a valid and binding  agreement  of the Trust,  and the Renewal ESOP
Note,  when  executed and  delivered in  accordance  with this  Agreement,  will
continue to be a valid and binding obligation of the Trust.

         SECTION  4.03.  Debt.  The Trust has no debt other  than debt  incurred
pursuant to this Agreement and the 1991 ESOP Loan Agreement.

         SECTION 4.04.  Litigation.  To the best knowledge of the Trustee, there
is no  action,  suit  or  proceeding  pending  against,  threatened  against  or
affecting the KSOP or Trust before any court or  arbitrator or any  governmental
body,  agency or  official  in which  there is a  reasonable  possibility  of an
adverse  decision which would  adversely  affect the KSOP and Trust,  taken as a
whole,  or the  ability  of the Trust to  perform  its  obligations  under  this
Agreement,  or which in any manner questions the validity of any of the Modified
ESOP Loan Documents.
<PAGE>

                                    ARTICLE V
                                    COVENANTS

         The  Trustee  agrees  that,  so long as any  amount  payable  under the
Renewal ESOP Note remains  unpaid or any  obligation of the Trust to the Company
remains unperformed or unfulfilled:

         SECTION 5.01. Plan Documents and Information.  The Trustee will deliver
to the Company:

         (a) any consent,  acknowledgment  or other document that reasonably may
be  requested  by the Company in order to  establish  the  qualified  and exempt
status of the KSOP and Trust and the Renewal ESOP Loan; and

         (b) from  time to time such  additional  information  in the  Trustee's
possession  regarding  the status or  financial  position of the KSOP and Trust,
including  copies of all documents and  correspondence  relating to the KSOP and
Trust or the transactions  contemplated  hereby, to or from the Internal Revenue
Service, the U.S. Department of Labor or any other competent  authority,  as the
Company may reasonably request.

         SECTION  5.02.  Benefit  to  Participants.  The  Trustee  has  engaged,
consulted  with and has relied and will rely upon the advice of such advisers as
it deems appropriate, and based upon said investigations and advice, the Trustee
has determined and will determine that the  modification  of the 1991 ESOP Loan,
together with the Implementation  Agreement, is primarily for the benefit of the
KSOP'  s  participants  and  beneficiaries  as  contemplated  by  United  States
Department of Labor  Regulations  Section  2550.408b-3  and Treasury  Regulation
Section 54.4975-7. The terms of the Modified ESOP Loan Documents are at least as
favorable to the KSOP and Trust as the terms of a comparable loan resulting from
arm's length negotiating  between  independent  parties and the interest rate on
the Renewal ESOP Note is not in excess of a reasonable rate of interest.

         SECTION 5.03. Relating to Company. The Company shall make contributions
to the KSOP and Trust at such  times,  in such  amounts,  and  within the limits
specified  in the  applicable  provisions  of the Code,  as may be  necessary to
enable  the KSOP and  Trust to meet  all of its debt and  other  obligations  as
provided in the Modified ESOP Loan Documents. The Company shall take any and all
actions  necessary or  appropriate  to maintain the tax qualified  status of the
KSOP and Trust under the Internal Revenue Code.


                                   ARTICLE VI
                                    DEFAULTS

         SECTION 6.01. Events of Default. If one or more of the following events
shall have occurred and be continuing:

         (a)  the  failure  or  omission  of the  Trust  to  pay  when  due  any
installment  of  principal or interest on the Renewal ESOP Note (but only to the
extent the Company is in  compliance  with its  covenants  contained  in Section
5.03);

         (b) the Trust shall fail to observe or perform any  covenant  contained
in Section 5.02 of this Agreement;

         (c) the Trust shall fail to observe or perform any  covenant  contained
in any of the Modified ESOP Loan Documents;

         (d) any  representation,  warranty,  certification or statement made by
the Trust in any of the Modified ESOP Loan Documents is false in a material way;
or,

         (e) an event of default shall occur under any of the Modified ESOP Loan
Documents;

then, and in every such event,  the Company may take any action  permitted to be
taken upon the  occurrence  of an Event of Default  under  this  Agreement,  the
Modified ESOP Pledge Agreement or any of the other Modified ESOP Loan Documents.
<PAGE>

         Notwithstanding  anything contained herein to the contrary, if an Event
of Default  shall occur and be  continuing,  the Company shall have no rights to
assets  of  the  KSOP  and  Trust  other  than  (a)  contributions  (other  than
contributions of employer securities) that are made by the Company to enable the
KSOP and Trust to meet its  obligations  hereunder and earnings  attributable to
the investment of such  contributions;  and (b) those Shares that are pledged to
the Company pursuant to the Modified ESOP Pledge Agreement;  provided,  however,
that (i) the  value of the  Trust  assets  transferred  in  satisfaction  of the
Renewal  KSOP Loan shall not exceed  the  amount in  default;  and (ii) the KSOP
assets shall be  transferred to the Company only to the extent of the failure of
the Trust to meet the payment schedule of the Modified ESOP Loan.

                                   ARTICLE VII
                                  MISCELLANEOUS

         SECTION 7.01. Notices.  All notices,  requests and other communications
to any party hereunder shall be in writing (including bank wire, fax, or similar
writing) and shall be given to such party at its address or fax number set forth
on the signature  pages hereof or such other address or fax number as such party
may hereafter  specify for the purpose by notice to the Trustee and the Company.
Each such notice, request or other communication shall be effective (i) if given
by fax, when such fax is transmitted to the fax number specified in this Section
and the  appropriate  answer back is received,  (ii) if given by mail,  72 hours
after such  communication  is  deposited  in the mails with first class  postage
prepaid,  addressed  as  aforesaid  or (iii) if given by any other  means,  when
delivered at the address specified in this Section.

         SECTION 7.02. Survival.  All representations and warranties made by the
Trust in any of the Modified ESOP Loan Documents,  or in any document  delivered
in  connection  herewith  or  therewith  shall  survive  the  execution  of this
Agreement and the Modified ESOP Loan Documents.

         SECTION  7.03.  Amendments  and  Waivers.  Any  provision of any of the
Modified  ESOP Loan  Documents  may be amended  or waived if, but only if,  such
amendment or waiver is in writing and is signed by the Company and the Trustee.

         SECTION 7.04.  Successors and Assigns. The provisions of this Agreement
shall be binding  upon and inure to the benefit of the parties  hereto and their
respective  successors  and assigns  (including  any  successor  trustees of the
KSOP),  except that the KSOP and Trust may not assign or otherwise  transfer any
of its rights under this  Agreement.  The Company may at any time sell,  assign,
transfer,  pledge,  grant security  interests or participations in, or otherwise
dispose of, its rights under any of the Modified ESOP Loan  Documents,  in whole
or in part.

         SECTION 7.05. Florida Law. To the extent not superseded by federal law,
each of the Modified ESOP Loan Documents  shall be construed in accordance  with
and governed by the law of the State of Florida.

         SECTION 7.06. Counterparts: Effectiveness. This Agreement may be signed
in any number of counterparts, each of which shall be an original, with the same
effect as if the signatures thereto and hereto were upon the same instrument.
<PAGE>

         SECTION  7.07.  No  Waivers.  The  obligations  of the KSOP  and  Trust
hereunder  shall not in any way be modified or limited by reference to any other
ESOP loan  document,  instrument or agreement.  All of the rights of the Company
hereunder are separate from and in addition to any rights that it may have under
the terms of the  Renewal  ESOP Note,  the  Modified  ESOP Pledge  Agreement  or
otherwise.  No failure or delay by the Company in exercising any right, power or
privilege  hereunder  shall operate as a waiver  thereof nor shall any single or
partial  exercise  thereof preclude any other or further exercise thereof or the
exercise of any other right, power or privilege.  The rights and remedies herein
provided  shall be  cumulative  and not  exclusive  of any  rights  or  remedies
provided by law or  otherwise.  No failure or delay by the Company in exercising
any right,  power or privilege  under or in respect of any of the Modified  ESOP
Loan Documents shall affect the rights,  powers or privileges hereunder or shall
operate as a limitation or waiver thereof.

         SECTION 7.08.  Term of the Agreement.  The term of this Agreement shall
be until the payment in full of all  principal  and interest on the Renewal ESOP
Note and all sums payable to the Company  pursuant to this Agreement,  whichever
is earlier.

         SECTION 7.09. Severability. If any provision of this Agreement shall be
held to be invalid,  illegal or  unenforceable  under any  applicable  law,  the
validity,  legality and enforceability of the remaining  provisions hereof shall
not be affected or impaired thereby.

         SECTION 7.10.  Titles and Contents.  The Section  headings and table of
contents are inserted for  convenience  of reference  only and are not a part of
this Agreement and shall not be used to limit,  expand or otherwise interpret or
construe the provisions hereof.

         IN WITNESS  WHEREOF,  the parties hereto have caused this Modified ESOP
Loan Agreement to be duly executed by their respective authorized officers as of
the day and year first above written.


                                    COMPANY:

                                    SAWTEK INC.


                                     By:/s/Raymond A. Link
                                        Raymond A. Link
                                        Vice President Finance
                                        Chief Financial Officer
                                        1818 South Highway 441
                                        Apopka, Florida 32703
                                        (407) 886-7061 (Fax)

                                    TRUSTEE:

MARINE MIDLAND BANK, AS TRUSTEE OF THE SAWTEK INC. EMPLOYEE STOCK OWNERSHIP AND
401(k) PLAN AND TRUST



                                        By:/s/Stephen J. Hartman, Jr.
                                        Stephen J. Hartman, Jr.
                                        Senior Vice President

                                        Marine Midland Bank
                                        140 Broadway
                                        New York, New York 10005
                                        (212) 503-6780 (Fax)

<PAGE>




                          CONSENT TO LOAN MODIFICATION



         In  accordance  with  Section 7.03 of the ESOP Loan  Agreement  between
Sawtek Inc. and the Trustees of the Sawtek Inc.  Employee  Stock  Ownership Plan
and Trust dated  January  11, 1991 (the  "Agreement"),  SunTrust  Bank,  Central
Florida,  N.A.  (referred to as the "Bank" in such Agreement) hereby consents to
the modification of the Agreement in  substantially  the form attached hereto as
Exhibit A. Such  modification  is effective  September 26, 1996,  and amends the
repayment schedule and interest rate provided in the Agreement.

         Nothing  in this  Consent  shall be  construed  to  alter or amend  the
Company  Loan  Agreement  by and  between  Sawtek  Inc.  and  SunBank,  National
Association (now known as SunTrust Bank,  Central  Florida,  N.A.) dated January
11, 1991, and any and all documents and instruments related thereto.



Dated:  October 1, 1997                     SunTrust Bank, Central Florida, N.A.



                                            By:  /s/Douglas A. Woodman
                                                 Douglas A. Woodman
                                                 Vice President




<PAGE>
                                                                 EXHIBIT 10.44










                                 MODIFICATION OF
                              ESOP PLEDGE AGREEMENT
                                   DATED AS OF
                                JANUARY 11, 1991




                   MODIFICATION DATED AS OF SEPTEMBER 26, 1997




                      SAWTEK INC. EMPLOYEE STOCK OWNERSHIP
                            AND 401(k) PLAN AND TRUST








<PAGE>


                                 MODIFICATION OF
                              ESOP PLEDGE AGREEMENT


         This  MODIFICATION OF ESOP PLEDGE  AGREEMENT (the  "Agreement") is made
and entered into on September 26, 1997 in Apopka, Orange County, Florida between
SAWTEK INC., a Florida  corporation  (the "Company") and MARINE MIDLAND BANK, as
successor  trustee (the  "Trustee") of the SAWTEK INC.  EMPLOYEE STOCK OWNERSHIP
AND 401(k) PLAN AND TRUST (the "KSOP" and the  "Trust")  (formerly  known as the
Employee  Stock  Ownership  Plan and Trust for  Employees  of Sawtek  Inc.  (the
"ESOP").


                                   BACKGROUND

         A. Effective October 1, 1990, the Company  established the ESOP for the
benefit  of its  participants  and  beneficiaries.  The  ESOP  was  amended  and
restated,  and combined with the Company's  401(k) profit  sharing plan, on July
16, 1997, to become the KSOP.

         B. On January 11, 1991, the Company and certain shareholders thereof 
sold common stock of the Company (the "Shares") to the Trust.

         C. In order to finance the acquisition of the Shares, the Trust entered
into an exempt loan (the "1991 Exempt  Loan") with the Company in the  principal
amount  of  $4,000,000,  as  evidenced  by the ESOP Loan  Agreement  dated as of
January 11, 1991 (the "1991 Loan Agreement").

         D. The Trust acquired  8,888,880 Shares (as adjusted to reflect a 1996,
20 for 1 stock split) in  conjunction  with the 1991 Loan  Agreement  and placed
such Shares in a suspense account within the ESOP for release in accordance with
the ESOP  Pledge  Agreement  dated as of  January  11,  1991 (the  "1991  Pledge
Agreement"), the KSOP document and applicable ERISA regulations.

         E. As of the date of this Agreement,  the Trust remains indebted to the
Company from the 1991 ESOP Loan in the principal  amount of  $1,366,392.35,  and
there  remains  3,036,431  shares  in  the  suspense  account  of the  KSOP  for
allocation to the participants and beneficiaries of the KSOP.

         F. Of the  3,036,431  shares,  1,298,462  shares  are  scheduled  to be
released from the 1991 Pledge Agreement by September 30, 1997, and the remaining
1,737,969 shares by September 30, 1998.

         G. Effective May 5, 1997,  Marine Midland Bank was appointed  successor
trustee of the Trust,  replacing  Steven P.  Miller,  Neal Jay Tolar,  Willis C.
Young,  and Robert C. Strandberg as co-trustees of the Trust. At the time of the
1991 Loan Agreement, Southeast Bank, N.A. was the trustee of the Trust.

         H. As stated and  memorialized  in the  Implementation  Agreement dated
September 26, 1997 (the "Implementation Agreement"), the Company and the Trustee
have agreed to extend the amortization of the 1991 ESOP Loan in exchange for the
additional  consideration to be provided by the Company to the KSOP and Trust in
accordance with the Implementation  Agreement.  The Company and the Trustee have
agreed that the 1991 ESOP Loan, as amended by the Modified ESOP Loan  Agreement,
the Renewal ESOP Note and this  Agreement,  continues  to be  primarily  for the
benefit of the participants and beneficiaries of the KSOP.


<PAGE>




                                    AGREEMENT


          1.  DEFINITIONS.  As used in this  Agreement,  the following terms and
phrases shall have the meanings set forth below:

          "Administrator"  shall mean the Company,  unless a person or committee
of persons is  designated  by the  Company  pursuant  to Article VII of the KSOP
document to administer the KSOP on behalf of the Company. Until such time as the
Board of Directors of the Company  provides  otherwise,  the President and Chief
Financial  Officer of the Company have been  appointed to administer the KSOP on
behalf of the Company.

          "Agreement"  shall mean this modification of the ESOP Pledge Agreement
dated as of January 11, 1991, between the Company and the Trustee.

          "Blank  Stock  Power"  shall mean a blank stock power  executed by the
Trust and  delivered  to the  Company  for each Stock  Certificate  representing
Common Stock.

          "Collateral"  shall  mean,  until its  release  pursuant to Section 11
below,  (i) all Common Stock  acquired by the Trust with the loan  proceeds from
the 1991  ESOP  Loan;  (ii) all  earnings  attributable  to such  Common  Stock,
including stock dividends,  stock splits,  warrants,  options and stock purchase
rights;  and  (iii)  all  other  property  at any  time  and  from  time to time
distributed by the Company in respect of, in exchange for, or in substitution of
such Common Stock.

          "Common  Stock" shall mean the 8,888,880 (as adjusted for the 1996, 20
for 1 stock split) shares of common stock of the Company  originally  pledged by
the Trust to the Company as Collateral for the 1991 ESOP Loan. As of the date of
this  Agreement,  3,036,431  shares of such Common Stock  remain  pledged by the
Trust to the Company.

          "Company" shall mean Sawtek Inc. and its successors.

          "Company Loan" shall mean the loan by SunTrust Bank,  Central Florida,
N.A. to the Company under the Company Loan Agreement.

          "Company Loan  Agreement"  shall mean the  $4,000,000  loan  agreement
between the Company and SunTrust Bank,  Central Florida,  N.A. dated January 11,
1991, as amended, changed, modified, and renewed from time to time.

          "Company  Loan  Documents"  shall mean  collectively  the Company Loan
Agreement,  Company  Pledge  Agreement,  Company  Note and all other  documents,
instruments,  blank stock powers, or other writings delivered by or on behalf of
the Company to SunTrust  Bank,  Central  Florida,  N.A. in  connection  with the
Company Loan.

          "Company Note" shall mean that certain  promissory  note dated January
11,  1991 from the  Company to  SunTrust  Bank,  Central  Florida,  N.A.  in the
original  principal  amount of  $4,000,000,  as  amended,  changed,  modified or
renewed from time to time.

          "Company  Pledge  Agreement"  shall  mean the Pledge  Agreement  dated
January 11, 1991 between the Company and SunTrust Bank, Central Florida, N.A.

          "Default" shall mean any condition or event which constitutes an Event
of Default  or which  with the giving of notice or lapse of time or both  would,
unless cured or waived, become an Event of Default.

          "ESOP"  shall mean the  Employee  Stock  Ownership  Plan and Trust for
Employees of Sawtek Inc.

          "Event of  Default'  has the  meaning  set forth in  Article VI of the
Modified ESOP Loan Agreement

          "Implementation Agreement" means the agreement between the Company and
the Trustee of even date herewith that  provides the overall  agreement  between
the Company and the Trustee  with respect to the  modification  of the 1991 ESOP
Loan Agreement and 1991 ESOP Pledge Agreement.
<PAGE>

          "Liability"  or   "Liabilities"   shall  mean  all   obligations   and
indebtedness,  including  principal and interest and all other monies, due or to
become due under or upon the Renewal ESOP Note or Modified ESOP Loan Agreement.

          "Modified  ESOP  Loan  Agreement"   shall  mean  the  1991  ESOP  Loan
Agreement, as modified September 26, 1997.

          "1991 ESOP Loan" shall mean the loan in the original  principal amount
of $4,000,000  extended by the Company to the Trust,  the proceeds of which loan
were used to enable the Trust to acquire the Common Stock.

          "1991 ESOP Loan  Agreement"  shall mean the $4,000,000  loan agreement
between the Company and the Trust dated January 11, 1991,  as amended,  changed,
modified and renewed from time to time.

          "1991 ESOP Loan Documents" shall mean  collectively the 1991 ESOP Loan
Agreement,  the 1991 ESOP Note,  the 1991 ESOP  Pledge  Agreement  and all other
documents,  instruments, blank stock powers or other writings delivered by or on
behalf of the ESOP to the Company in connection with the 1991 ESOP Loan.

          "1991  ESOP Note"  shall  mean that  certain  promissory  note,  dated
January 11, 1991, in the face amount of $4,000,000 executed and delivered by the
Trust in favor of the Company.

          "1991 ESOP Pledge  Agreement"  shall mean this Agreement  prior to its
modification.

          "Release Date" shall mean September 30, 1997 through 2002.

          "Renewal  ESOP  Note"  means the  renewal of the 1991 ESOP Note in the
principal amount of $1,366,392.35, dated as of September 26, 1997.

          "Rule  144" shall  mean Rule 144 as  promulgated  by the SEC under the
Securities Act of 1933, as amended from time to time.

          "SEC" shall mean the Securities and Exchange Commission.

          "Stock Certificate(s)" shall mean the stock certificates  representing
the Common Stock.

          "Trustee" shall mean Marine Midland Bank as successor  trustee for the
KSOP, and its successors in office.

          "UCC" shall mean the Florida  Uniform  Commercial  Code,  Chapters 671
through  679,  inclusive,  Florida  Statutes,  as the same may now  exist or may
hereafter be amended from time to time.

          2. GRANT OF SECURITY  INTEREST.  To secure the payment and performance
of all Liabilities,  the Trust hereby grants to the Company a security  interest
in  all  of the  Collateral.  See  Section  11  below  for  the  release  of the
Collateral.

          3. REPRESENTATIONS,  WARRANTIES AND COVENANTS.  Except as permitted or
contemplated  by the Company Loan Documents,  the Trust  represents and warrants
to, and covenants with, the Company as follows:

             (a) The  Trust  is the  absolute,  legal,  registered  owner of the
Collateral free and clear of all liens,  encumbrances,  security interests,  and
voting trust  restrictions of any kind whatsoever  except the security  interest
granted the Company by this Agreement.

             (b) The Trust will not,  without the prior  written  consent of the
Company,  sell, transfer,  or create or permit to exist any lien on, or security
interest in, the Collateral.

             (c) The Trust will  defend the  Collateral  against  the claims and
demands of any person at any time claiming the same or any interest therein.

             (d) By virtue of this  Agreement  and the previous  delivery of the
Stock Certificates and Blank Stock powers to the Company,  the Trust has granted
to the Company a valid, first priority security interest in the Collateral.

             (e)  There is not now,  and  will not be filed in the  future,  any
financing statement listing any person other than the Company as a secured party
covering any or all of the Collateral.
<PAGE>

             (f) The Trust will not permit  any of the  Collateral  to be levied
upon under legal process.

             (g) As directed by the  Administrator,  the Trust will pay promptly
when due all taxes,  assessments  and other  charges of any nature  which may be
levied or assessed upon or with respect to the Collateral.

             (h)  Except  as  otherwise   provided   herein,   the  Trust  shall
immediately  deliver to the Company any  additions to the  Collateral  including
earnings on the Collateral and any products or proceeds of Collateral,  together
with the Stock  Certificates and Blank Stock Powers if applicable and such other
documents as the Company may reasonably request.

             (j) The Trust shall not enter into any stock restriction or similar
agreement  with respect to the Collateral  without the prior written  consent of
the Company.

             (k)  The  Trust  shall  notify  the  Company  in the  event  of the
occurrence  of a Default or of an Event of Default  under the Modified ESOP Loan
Documents. All of the foregoing representations,  warranties and covenants shall
be true and correct throughout the term of this Agreement and shall be fulfilled
and maintained by the Trust throughout the term hereof.

          4. PERFORMANCE OF BORROWER'S  OBLIGATIONS.  At its option, the Company
may, but shall not be obligated to, discharge taxes, liens or security interests
or  encumbrances  at any time levied upon or placed on the Collateral or perform
any other obligation of the Trust hereunder.

          5. DEFAULT.  The Trust shall be in default under this  Agreement  upon
the occurrence of an Event of Default.

          6. RIGHTS AND REMEDIES ON DEFAULT.

             (a) Upon the occurrence of an Event of Default under this Agreement
and the Modified ESOP Loan  Agreement,  the Company may, in its sole  discretion
and without  further notice or demand,  proceed  immediately to exercise any and
all  of  the  Company's  rights,  powers  and  privileges  with  respect  to the
Collateral,  including without limitation, after prior notice to the Trustee, if
required,  the right to (i) register the  Collateral in the Company's name or in
the name of any  designee of the Company and (ii) sell or  otherwise  dispose of
the Collateral or any part thereof at a private or public sale in such manner as
the Company shall deem reasonable.

             (b) Subject to the requirement, if any, that the Company give prior
notice to the Trustee of any transfer of the  Collateral,  the Company shall act
as the authorized  agent and  attorney-in-fact  of the Trust in disposing of the
Collateral,  and in that capacity is authorized to take such action on behalf of
the Trustee as will further such a disposition,  including  without  limitation,
making any necessary endorsement or signature in its own name, the Trust's name,
the Trustee's name or the Administrator's name. The Trust expressly acknowledges
that  compliance  with federal or state  securities and other laws may limit the
disposition of the  Collateral by the Company.  No disposition of the Collateral
by the Company upon a Default  shall be deemed to be a breach of any duty to the
KSOP or the Trust or to be  commercially  unreasonable  because  a better  sales
price might have been attained through an alternative disposition if the Company
in good faith has determined that the alternative disposition might constitute a
violation of state or federal laws. Any purchaser at a sale  conducted  pursuant
to the terms of this  Agreement  shall hold the property sold  absolutely,  free
from any claim or right on the part of the Trust.  The Trust  hereby  waives any
right of  redemption,  stay or appraisal  under  present or future law. Each and
every purchaser of any of the Collateral shall be vested with all  shareholder's
rights  provided by the stock  purchased,  including,  without  limitation,  all
voting and dividend rights. The Trustee agrees that the Company may purchase the
Collateral  or any part  thereof  at any sale.  Any  requirement  imposed by law
regarding  the  giving  to the  Trustee  of  prior  notice  of any sale or other
disposition of the Collateral shall be deemed reasonable if given by the Company
in  writing  at least  ten (10) days  prior to such  sale or other  disposition,
specifying  the time and place  thereof;  provided that this  Agreement and this
paragraph shall not, of itself, require the giving of any such notice.
<PAGE>

             (c) Notwithstanding  anything contained herein to the contrary, the
Company may  exercise  its rights under this Section 6 only with respect to that
amount  of  Collateral  equal in value to the  amount  by which  the Trust is in
default,  or such lesser  amount of  Collateral  as may be required  pursuant to
Section 25 hereof.

          7.   APPLICATION  OF  PROCEEDS.   The  net  proceeds  derived  from  a
disposition of the Collateral shall be applied first to the payment of all costs
and expenses of collection and disposition of the Collateral (including, without
limitation,  reasonable  attorneys'  fees and securities  registration  fees and
expenses),  and  then  toward  payment  of the  Liabilities,  in such  order  of
application  as the  Company  may from  time to time  elect,  and any  remaining
balance shall be paid to the Trust or other party lawfully entitled thereto.

          8. VOTING RIGHTS; DIVIDENDS; ETC.

             (a)  Unless  and until an Event of  Default  hereunder  shall  have
occurred:

                  (i) The  Trustee,  in  accordance  with  the  KSOP  and  Trust
documents,  shall be  entitled  to  exercise  any and all voting and  consensual
rights and powers accruing to an owner of the Collateral or any part thereof for
any purpose not inconsistent with the terms of this Agreement; and

                  (ii) The Trust shall be entitled to receive and retain any and
all cash  dividends  or other  distributions  in respect of the  pledged  Common
Stock.

             (b) Upon the occurrence,  and during the continuance,  of any Event
of Default, regardless of whether the Company makes any demand or request on the
Trust:

                  (i) The Trustee shall deliver  immediately  to the Company any
and all cash,  checks,  drafts,  items, or other  instruments for the payment of
money  which may be received  after such  Default by the Trust as  dividends  or
otherwise  with  respect to the  Collateral,  duly  endorsed and assigned to the
Company.

                  (ii) The Trustee shall deliver to the Company immediately upon
the Trust's receipt thereof,  any and all stock, stock dividends,  stock splits,
warrants,  and  stock  purchase  rights  received  with  respect  to  any of the
Collateral,  together  with  Blank  Stock  Powers  with  respect  to  all  Stock
Certificates evidencing same.

                  (iii) All  rights of the  Trustee to  exercise  the voting and
consensual  rights and powers  which it is  entitled  to  exercise  pursuant  to
subparagraph  (a)(i)  hereof  shall cease,  and all such rights shall  thereupon
become vested in the Company,  which shall have the sole and exclusive right and
authority to exercise such voting and consensual rights and powers. The exercise
by the  Company of any of its  rights  hereunder  with  respect to voting of the
Collateral  shall not in any way constitute an election by the Company to become
owner thereof.

          9.  PERFECTION.  To continue to perfect the  security  interest in the
Collateral,  the Company or its agent shall continue to retain possession of the
Stock  Certificates for the Common Stock and Blank Stock Powers. The Trust shall
from time to time execute and deliver to the Company any and all documents which
are,  in the  opinion of the Company or its  counsel,  necessary  to perfect the
security interest granted hereunder.

         10.  POSSESSION  OF  COLLATERAL.  The  Company  shall  have the duty to
preserve the Collateral.  Upon the  termination of this  Agreement,  the Company
shall return the  Collateral  (including  the Stock  Certificates  and the Blank
Stock Powers) to the Trust along with such  endorsements  as may be necessary to
transfer title to the Collateral to the Trust.

         11. RELEASE OF STOCK COLLATERAL.

             (a) On each  Release Date during the term of the Renewal ESOP Note,
the Company  shall release from the  Collateral  and deliver over to the Trustee
Stock Certificates representing that number of shares of Common Stock as equals:

                  (i) the number of shares of Common  Stock  held as  Collateral
immediately prior to the Release Date; multiplied by,
<PAGE>

                  (ii) a  fraction,  the  numerator  of which is the  amount  of
principal and interest paid on the Renewal ESOP Note during that plan year,  and
the  denominator  of which is the sum of the  numerator  plus the  principal and
interest to be paid on the Renewal ESOP Note for all future years.

         Notwithstanding  the  foregoing,  the  Company  agrees  that  unless so
required by the  Company  Loan  Documents  (as they exist as of the date of this
Agreement),  the Company shall not use any encumbered  shares of Common Stock to
repay  the  Renewal  ESOP  Note,  and that in the  event  the KSOP and  Trust is
terminated, all encumbered shares of Common Stock then shall be allocated to the
participants of the KSOP.

             (b) Simultaneously  with the release of any of the shares of Common
Stock from the Collateral,  the Company shall take such actions as are necessary
to release  its  security  interest in all  dividends,  stock  dividends,  stock
splits, warrants,  options, stock purchase rights, and all other property at any
time and from time to time  distributed  by the  Company  in  respect  of, or in
exchange  for,  or in  substitution  of any and all of such  shares of  released
Common Stock.

             (c) If the  Company  is not in  possession  of a Stock  Certificate
representing  the exact  number of shares of Common  Stock to be  released  from
Collateral on a particular  Release Date, the Company and the Trustee shall take
such actions,  including  the delivery to the Company of a duly  endorsed  Stock
Certificate representing a number of shares greater than the number of shares to
be released  from  Collateral,  as are  necessary  to provide for the Company to
reissue Stock Certificates representing,  respectively,  the requisite number of
shares to be released from Collateral and the number of shares to be retained by
Company.  Upon  the  issuance  of any  new  Stock  Certificate  by  the  Company
representing  a portion of the  Collateral,  the  Trustee  shall  deliver to the
Company Blank Stock Powers and such other  documents or  instruments  as Company
may reasonably request.

             (d)  Notwithstanding  any delay in the delivery to the Trustee of a
Stock  Certificate  representing  the  shares  of  Common  Stock  released  from
Collateral on the Release Date, the Trustee shall,  as against the Company,  for
all purposes be deemed the record and beneficial  owner of such shares as of the
Release Date, with all of the rights and privileges accruing thereto.

         12. REGISTRATION IN NOMINEE NAME; DENOMINATIONS. The Company shall have
the right to hold the Stock  Certificate(s)  representing  the Collateral in the
name of the Trust  endorsed  or  assigned  in blank or in favor of the  Company.
Except  as  otherwise  prohibited  by law  or any  specific  provision  of  this
Agreement,  upon the occurrence of an Event of Default, the Company may have the
Collateral  registered  in the name of the Company or any nominee or nominees of
the Company. The Company shall at all times have the right to exchange the Stock
Certificate(s) representing the Common Stock for Stock Certificate(s) of similar
or larger  denominations for any purpose consistent with its performance of this
Agreement.

         13. REGISTRATION. After an Event of Default which is continuing, if for
any reason the  Company  desires  to sell any of the  Collateral  at a public or
private sale, the Trust shall take, at any time and from time to time,  upon the
written request of the Company,  such action,  and prepare,  distribute and file
such  documents,  as are  required  in the opinion of counsel for the Company as
being  necessary  to permit the public or private sale of such  Collateral.  The
Trust  shall use its best  efforts to  qualify,  file or register or cause to be
qualified,  filed or registered,  any of the Collateral  under the "Blue Sky" or
other  securities  laws of such  states as may be  reasonably  requested  by the
Company after an Event of Default which is continuing,  and keep  effective,  or
cause to be kept effective, all such qualifications, filings or registrations.

         14. FURTHER  ASSURANCE.  During the term of this  Agreement,  the Trust
shall do such further  acts and execute and deliver any and all other  documents
as the Company may request in connection with the administration and enforcement
of this  Agreement  or relative to the  Collateral  including  the granting of a
perfected,  valid and  enforceable  security  interest in the  Collateral to the
Company.
<PAGE>

         15. NOTICE.  All notices under this  Agreement  shall be in writing and
along with all other  documents  permitted  or  required  to be given under this
Agreement shall be deemed to have been given, (i) in the case of delivery to the
address  as set  forth  in the  signature  section  of this  Agreement,  when so
delivered,  (ii) in the case of mailing,  on the third  business  day after said
document has been  deposited in the United States Mails,  postage  prepaid,  and
sent by  certified  mail and  addressed to the other party at the address as set
forth in the signature section of this ESOP Pledge  Agreement,  and (iii) in all
other cases, when the same has been actually received by the other party. Either
party hereto may change the address at which said notices are to be delivered or
sent by the  giving  of notice  of such  change to the other  party as set forth
herein.

         16. POWER OF ATTORNEY.  The Trustee hereby  appoints the Company as its
attorney-in-fact  for  the  purposes  of  carrying  out the  provisions  of this
Agreement and taking any action and executing any document which the Company may
deem necessary or advisable to accomplish the purpose hereof.  Without  limiting
the generality of the  foregoing,  the Company shall have the right and power to
execute and file  financing  statements,  Blank Stock Powers,  and all necessary
forms  for  filing  with the SEC and  state  security  regulatory  agencies,  if
applicable,  and to receive and endorse in the Trust's  name all checks,  drafts
and  other  instruments  representing  or  constituting  payments  made  on  the
Collateral.  The  foregoing  power of attorney is coupled  with an interest  and
shall be terminated only upon the release of all the Collateral.

         17.  TERM.  This  Agreement,  and the  rights  and  privileges  granted
hereunder  to the  Company,  shall  continue and remain in full force and effect
until all Collateral has been released pursuant to this Agreement, at which time
this Agreement shall be terminated.

         18. TIME. Time is of the essence of this Agreement.

         19. WAIVER.  No waiver by the Company of any default shall operate as a
waiver of any other  default  or of the same  default on a future  occasion.  No
delay or omission on the part of the Company in  exercising  any right or remedy
shall  operate as a waiver  thereof,  and no single or partial  exercise  by the
Company  of any right or remedy  shall  include  any other or  further  exercise
thereof or the exercise of any other right or remedy.

         20. CUMULATIVE  RIGHTS. The provisions of this Agreement are cumulative
and are in addition to the provisions of the Renewal ESOP Note and Modified ESOP
Loan  Agreement  and all of the Modified  ESOP Loan  Documents,  and the Company
shall  have  all the  benefits,  rights  and  remedies  provided  hereunder  and
thereunder.

         21.  SUCCESSORS AND ASSIGNS.  All rights of the Company hereunder shall
inure  to the  benefit  of  its  successors  and  assigns  and  all  duties  and
obligations   of  the  Trust   hereunder   shall  bind  the  heirs,   executors,
administrators, successors and assigns of the Trust, except that the Trust shall
not (except as provided in the Company  Loan  Documents)  be permitted to assign
its obligations under this Agreement or in the Collateral,  in whole or in part,
directly or indirectly.

         22.  GOVERNING  LAW. To the extent not  superseded by federal law, this
Agreement  shall be  construed  in  accordance  with and governed by the laws of
Florida.

         23. SEVERABILITY.  Whenever possible,  each provision of this Agreement
shall be  interpreted  in such a  manner  as to be  effective  and  valid  under
applicable law, but if any provision of this Agreement shall be prohibited by or
invalid under  applicable law, such provision shall be ineffective to the extent
of such  prohibition or invalidity,  without  invalidating the remainder of such
provision or the remaining provisions of this Agreement.



<PAGE>



         24.  COMPLETE  AGREEMENT.   This  Agreement  constitutes  the  complete
agreement  between  the  parties  and  incorporates  and sets  forth  all  prior
discussions, agreements and representations between the parties in regard to the
matters  set  forth  herein.  This  Agreement  may not be  altered,  amended  or
otherwise  modified  except by a writing  signed by the  person to be charged by
said alteration,  amendment or modification. The requirement that this Agreement
may not be altered,  amended or modified except by a writing,  may not itself be
waived except by a writing.  The paragraph  headings used in this  Agreement are
for  convenience  of reference  only and are not a part of this Agreement and do
not limit or define any provisions of this Agreement.

         25.  CONSTRUCTION.  All  provisions  hereof shall be construed so as to
maintain (i) the KSOP as a qualified,  leveraged  employee stock  ownership plan
under Sections  401(a) and 4975(e)(7) of the Code, (ii) the Trust as exempt from
taxation  under Section  501(a) of the Code, and (iii) the Modified ESOP Loan as
an exempt loan under Section 54.5975-7 of the Treasury Regulations.

                                   COMPANY:
                                   SAWTEK INC.


                                    By:/s/Raymond A. Link
                                       Raymond A. Link
                                       Vice President Finance
                                       Chief Financial Officer
                                       1818 South Highway 441
                                       Apopka, Florida 32703
                                       (407) 886-7061 (Fax)


                                    TRUSTEE:

                                    MARINE MIDLAND BANK, AS TRUSTEE OF THE
                                    SAWTEK INC. EMPLOYEE STOCK OWNERSHIP
                                    AND 401(k) PLAN AND TRUST

                                    By:/s/Stephen J. Hartman, Jr.
                                       Stephen J. Hartman, Jr.
                                       Senior Vice President
                                       Marine Midland Bank
                                       140 Broadway
                                       New York, New York 10005
                                       (212) 503-6780 (Fax)



<PAGE>
                                                                   EXHIBIT 10.45

                                RENEWAL ESOP NOTE



$1,366,392.35                                                 Apopka, Florida
                                                              September 26, 1997


         This is a Renewal ESOP Note  modifying the terms of the ESOP Note dated
January 11, 1991, in the original  principal amount of $4,000,000 (the "Original
Note").  All required  documentary  stamp taxes on the  Original  Note have been
fully paid.  This Renewal ESOP Note is intended to comply with the provisions of
Florida  Statutes  ss.201.09  (dealing with  documentary  stamp taxes on renewal
notes).  This  Renewal  ESOP Note  modifies  the term and  interest  rate of the
Original Note.

         For value  received,  Marine Midland Bank, as successor  trustee of the
Sawtek Inc.  Employee Stock Ownership and 401(k) Plan and Trust (the "Borrower")
(formerly  known as the Employee Stock Ownership Plan and Trust for Employees of
Sawtek  Inc.),  promises to pay to the order of Sawtek Inc.  (the  "Company") at
1818 South Highway 441, Apopka,  Florida 32703, or at such other location as may
hereafter be designated  by the Company,  the principal sum of One Million Three
Hundred  Sixty Six Thousand,  Three  Hundred  Ninety Two Dollars and Thirty Five
Cents ($1,366,392.35) plus interest at seven and sixteen  one-hundredths percent
(7.16%) per annum, in seven equal, annual installments of principal plus accrued
interest  commencing  September 30, 1997, and payable thereafter on September 30
of each year through and including September 30, 2003.

         All such  payments of principal and accrued  interest  shall be made in
lawful money of the United States in immediately  available  funds in the manner
specified in the ESOP Loan  Agreement.  The Borrower also shall pay all costs of
collection, including court costs and attorneys' fees, if collection proceedings
are brought with respect to this Renewal ESOP Note.  The Borrower may prepay all
or any portion of this Renewal ESOP Note without penalty or premium.

         This is the Renewal  ESOP Note  referred to in the  Modified  ESOP Loan
Agreement  dated as of September 26, 1997,  between the Borrower and the Company
(as the  same  may be  amended  from  time to  time,  the  "Modified  ESOP  Loan
Agreement"). The provisions of the Modified ESOP Loan Agreement are incorporated
herein by reference.

         This   Modified   ESOP  Note  is  secured  by  collateral  as  is  more
specifically  described in that certain  Modified ESOP Pledge Agreement dated as
of September 26, 1997,  between the Borrower and the Company (as the same may be
amended from time to time, the "Modified ESOP Pledge Agreement").


<PAGE>



         This Note shall be without  recourse to the  Borrower,  except that the
Company shall have rights in the  collateral  to the extent  provided in Section
4975 of the  Internal  Revenue  Code  of  1986,  as  amended,  and the  Treasury
Regulations  thereunder,  and as provided in the Modified ESOP Pledge Agreement.
Notwithstanding anything contained herein to the contrary, the Company shall not
take  any  action  or  fail to act in any  manner  that  would  cause  the  loan
represented  by this  Renewal  ESOP Note to fail to qualify as an exempt loan as
defined in Section 54.4975-7 of the Treasury Regulations. This Renewal ESOP Note
shall be interpreted so as to qualify as such an exempt loan.

         Time is of the essence  hereunder.  The failure or  forbearance  of the
Company to exercise any right hereunder,  or otherwise granted by law or another
agreement,  shall not affect or release the liability of the Borrower, and shall
not  constitute  a waiver of such  right  unless so  stated  by the  Company  in
writing.  The Borrower agrees that the Company shall have no responsibility  for
the  collection or  protection of any property  securing this Renewal ESOP Note,
and expressly  consents that the Company may from time to time,  without notice,
extend the time for payment of this Renewal ESOP Note, or any part thereof,  and
waive its rights with respect to any property or indebtedness.

         The Borrower hereby expressly waives presentment and notice of dishonor
of this Renewal ESOP Note.

                               SAWTEK INC. EMPLOYEE STOCK
                               OWNERSHIP AND 401(k) PLAN AND TRUST

ATTEST:                        By: Marine Midland Bank, Trustee


____________________________   By:/s/Stephen J. Hartman, Jr.
                                  Stephen J. Hartman, Jr.
                                  Senior Vice President




<PAGE>
                                                                   EXHIBIT 10.46


                            IMPLEMENTATION AGREEMENT

         This IMPLEMENTATION  AGREEMENT dated September 26, 1997, by and between
SAWTEK INC., a Florida  corporation  (the "Company") and MARINE MIDLAND BANK, as
successor  trustee (the  "Trustee") of the trust (the "Trust") that forms a part
of the SAWTEK  INC.  EMPLOYEE  STOCK  OWNERSHIP  AND 401(K)  PLAN AND TRUST (the
"Plan")


                              W I T N E S S E T H:

         WHEREAS,  effective  October  1,  1990,  the  Company  established  the
Employee  Stock  Ownership  Plan and Trust (the "Prior Plan") for the benefit of
its eligible employees; and

         WHEREAS,  the Prior Plan was amended and restated and combined with the
Company's  401(k) profit sharing plan in the form of the Plan effective July 16,
1997; and

         WHEREAS,  on January 11,  1991,  the  Company and certain  shareholders
thereof  sold  8,888,880  shares (as  adjusted  to reflect a 1996 20 for 1 stock
split) common stock of the Company (the "Shares") to the Trust; and

         WHEREAS,  in order to finance the acquisition of the Shares,  the Trust
entered  into an exempt  loan (the "1991  Exempt  Loan") with the Company in the
principal amount of $4,000,000, as evidenced by the ESOP Loan Agreement dated as
of January 11, 1991 (the "1991 Loan Agreement"); and

         WHEREAS,  the Shares were placed in a suspense account within the Prior
Plan for  release  in  accordance  with the ESOP  Pledge  Agreement  dated as of
January 11, 1991 (the "1991 Pledge Agreement") and applicable  regulations under
the Employee Retirement Income Security Act of 1974, as amended ("ERISA"); and

         WHEREAS,  as of the date of this agreement,  the Trust remains indebted
to the Company from the 1991 ESOP Loan in the principal  amount of $1,366,392.35
and there  remains  3,036,431 of the Shares in the suspense  account of the Plan
for allocation to the participants and beneficiaries of the Plan; and

         WHEREAS, Effective May 5, 1997, the Trustee was appointed the successor
trustee of the Trust,  replacing  Steven P.  Miller,  Neal Jay Tolar,  Willis C.
Young,  and Robert C. Strandberg as co-trustees of the Trust. At the time of the
1991 Loan Agreement, Southeast Bank, N.A. was the trustee of the Trust; and
<PAGE>

         WHEREAS,  the  Trustee  has made the  determination  to enter into this
Agreement and other documents  related to the modification of the 1991 ESOP Loan
including the  Modification  of ESOP Loan Agreement  between the Company and the
Trust dated as of the date  hereof,  attached as Exhibit A (the  "Modified  ESOP
Loan Agreement"), the Renewal ESOP Note dated as of the date hereof, attached as
Exhibit B, and the Modified  ESOP Pledge  Agreement  dated as of the date hereof
between  the Company and the Trust,  attached as Exhibit C (the  "Modified  ESOP
Pledge Agreement"); and

         WHEREAS, it is intended that the loan made under the Modified ESOP Loan
Agreement and evidenced by the Renewal ESOP Note (the  "Modified  ESOP Loan") be
primarily for the benefit of the Plan  participants and  beneficiaries  and will
constitute  an "exempt  loan"  within the meaning of section  4975(d)(3)  of the
Internal  Revenue Code of 1986,  as amended (the  "Code"),  Treasury  Regulation
Section  54.4975-7(b),  Section  408(b)(3)  of the  Employee  Retirement  Income
Security  Act of 1974,  as amended  ("ERISA"),  Department  of Labor  Regulation
Section 2550.408b-3, and Section 5.5 of the Plan; and

         WHEREAS,  the  Company  has  agreed  to enter  into this  Agreement  in
consideration  for the Trustee  entering into the Modified ESOP Loan  Agreement,
the Renewal ESOP Note and the Modified ESOP Pledge Agreement; and

         NOW,  THEREFORE,  in  consideration  of the  premises  and  the  mutual
covenants  and  agreements   herein   contained  and  other  good  and  valuable
consideration (the receipt,  adequacy and sufficiency of which each party hereto
respectively acknowledges by its execution hereof), the parties hereto intending
legally to be bound do hereby agree to the implementation of their understanding
as follows:

         1.  Representation.  The  Company  represents  that (i) the  execution,
delivery and performance of this Agreement are within  Company's powers and have
been duly  authorized  by all  necessary  action by the  Company,  and (ii) this
Agreement  constitutes  the  Company's  valid and  legally  binding  obligation,
enforceable against the Company in accordance with its terms.

         2.  Incremental  Contribution.  (a) For the fiscal year ended September
30, 1998, the Company shall  contribute to the Trust a matching  contribution in
an amount  equal to 100  percent  of each  Plan  participant's  salary  deferral
contributions,  not to exceed 3 percent of such  participant's  compensation  as
defined in Section 1.15 of the Plan.
<PAGE>

         (b) For the fiscal years ended  September  30, 1999 and  September  30,
2000, the Company shall contribute to the Trust an amount equal to the lesser of
(i) 100 percent of each Plan participant's salary deferral  contributions not to
exceed 3 percent of such participant's  compensation,  and (ii) 5 percent of the
Company's  net,  after-tax  profits.  For the purpose of this  Agreement  "net",
after-tax  profits" shall be calculated in accordance  with  generally  accepted
accounting principals, minus any accrual for the Company's contribution for that
Plan year.

         The Company's  contribution  under  paragraphs (a) and (b) are referred
collectively  as the  "Incremental  Contributions."  The  Company,  in its  sole
discretion,  may make the Incremental  Contributions in the form of cash, shares
of common stock of the Company ("Common Stock"), or a combination  thereof.  The
value  of a  contribution  in the  form of  shares  of  Common  Stock  shall  be
determined by  multiplying  the number of shares  contributed to the Plan by the
Average (as defined  herein) of the last sale prices of a share of Common Stock,
as  reported  on NASDAQ at the close of trading on the ten  consecutive  trading
days ending on the third business day prior to the date of the  contribution  to
the Plan (the "Value Calculation"). "Average" shall mean the sum of the ten last
sale  prices  determined  as  specified  above  divided by ten,  with the result
rounded to the nearest  ten-thousandth.  The Company and the Trustee  agree that
the Value Calculation will be adjusted, as mutually agreeable, in the event that
such  calculation  is deemed at some  future  date to  constitute  a  prohibited
transaction under section 4975 of the Code or Section 406 of ERISA.

         3.  Repayment of ESOP Loan.  The Company agrees that under the terms of
the Modified ESOP Loan Agreement it is obligated to contribute sufficient monies
to the Trust to repay the Modified  ESOP Loan and the Trustee  agrees that it is
obligated to use these  monies to repay its loan from the  Company.  The Company
agrees that no Shares held in the Trust will be used to repay the Modified  ESOP
Loan.

         4.  General.

         4.1 Amendment. This Agreement may not be amended, waived or modified in
any manner without the written consent of the parties.

         4.2  Notices.  All  notices  or  other  communications  given  or  made
hereunder  shall be duly given when received if delivered in person or by telex,
facsimile,  registered or certified  mail,  return  receipt  requested,  postage
prepaid  to any party at the  address  and to the  addressee  for such party set
forth on the signature page of this Agreement or such other address or addressee
as the party to whom  notice is to be given  furnishes  in  writing to the other
party in the manner set forth above.
<PAGE>

         4.3 Governing Law. This Agreement shall be construed in accordance with
the  governed  by the  internal  laws of the  State  of  Florida  applicable  to
contracts made and performed in the State of Florida.

         IN WITNESS  WHEREOF,  the parties have caused this Agreement to be duly
executed  and  delivered  by their  respective  representatives  thereunto  duly
authorized as of the date first hereinbefore apearing.

                                    SAWTEK INC. EMPLOYEE STOCK OWNERSHIP
                                    AND 401(k) TRUST

                                    MARINE MIDLAND BANK, solely in its
                                    capacity as Trustee and not in its
                                    individual or corporate capacity


                                    By:  /s/Stephen J. Hartman, Jr.
                                    Its: Senior Vice President
                                    Name:  Stephen J. Hartman, Jr.
                                    Title: Vice President

                                    Address:  140 Broadway
                                    New York, New York  10005-1180

                                    
                                    SAWTEK INC.       

                                    By:   /s/Raymond A. Link
                                    Its:  VP-Finance
                                    Name:  Raymond A. Link
                                    Title: Vice President- Finance
                                           Chief Financial Officer

                                    Address:  P.O. Box 609501
                                    Orlando, Florida  32860-9501
<PAGE>



                                   Exhibit A
            (Modified ESOP Loan Agreement dated September 26, 1997)

<PAGE>


                                   Exhibit B
                  (Renewal ESOP Note dated September 26, 1997)
<PAGE>

                                   Exhibit C
           (Modified ESOP Pledge Agreement dated September 26, 1997)
<PAGE>


                                                                   EXHIBIT 10.47











                                   SAWTEK INC.
                    EMPLOYEE STOCK OWNERSHIP AND 401(K) PLAN







                                  PREPARED BY:

                         MAGUIRE, VOORHIS & WELLS, P.A.
                             Two South Orange Plaza
                             Orlando, Florida 32801










                             EFFECTIVE JULY 16, 1997







<PAGE>


                                TABLE OF CONTENTS
                                                                        Page
BACKGROUND INFORMATION                                                    1

ARTICLE I. - DEFINITIONS                                                  1

ARTICLE II. - ELIGIBILITY                                                14
 2.1  CONDITIONS OF ELIGIBILITY                                          14
 2.2  EFFECTIVE DATE OF PARTICIPATION                                    14
 2.3  TERMINATION OF ELIGIBILITY                                         14
 2.4  OMISSION OF ELIGIBLE EMPLOYEE                                      15
 2.5  INCLUSION OF INELIGIBLE EMPLOYEE                                   15

ARTICLE III. - CONTRIBUTION AND ALLOCATION                               15
 3.1  FORMULA FOR DETERMINING EMPLOYER'S CONTRIBUTION                    15
 3.2  PARTICIPANT'S SALARY REDUCTION ELECTION                            17
 3.3  TIME OF PAYMENT OF CONTRIBUTIONS                                   21
 3.4  ACCOUNTING AND ALLOCATION                                          21
 3.5  AVERAGE DEFERRAL PERCENTAGE TESTS                                  25
 3.6  ADJUSTMENT TO AVERAGE DEFERRAL PERCENTAGE TESTS                    27
 3.7  AVERAGE CONTRIBUTION PERCENTAGE TESTS                              29
 3.8  ADJUSTMENT TO AVERAGE CONTRIBUTION PERCENTAGE TESTS                31
 3.9  MAXIMUM ANNUAL ADDITIONS                                           33
 3.10 ADJUSTMENT FOR EXCESSIVE ANNUAL ADDITIONS                          34
 3.11 TRANSFERS FROM QUALIFIED PLANS                                     35
 3.12 PARTICIPANT'S QUALIFIED DIRECTED INVESTMENT ACCOUNT                36
 3.13 DIRECTED INVESTMENT ACCOUNT                                        37
 3.14 VOTING COMPANY STOCK                                               38

ARTICLE IV. - VALUATIONS                                                 38
 4.1  VALUATION OF THE TRUST FUND                                        38

ARTICLE V. - FUNDING AND INVESTMENT POLICY                               39
 5.1  INVESTMENT POLICY                                                  39
 5.2  EMPLOYER SECURITIES                                                39
 5.3  APPLICATION OF CASH                                                40
 5.4  TRANSACTIONS INVOLVING COMPANY STOCK                               40
 5.5  LOANS TO THE TRUST                                                 41

ARTICLE VI. - DETERMINATION AND DISTRIBUTION OF BENEFITS                 42
 6.1  DETERMINATION OF BENEFITS UPON RETIREMENT                          42
 6.2  DETERMINATION OF BENEFITS UPON DEATH                               42
 6.3  DETERMINATION OF BENEFITS IN EVENT OF DISABILITY                   43
 6.4  DETERMINATION OF BENEFITS UPON TERMINATION                         44
 6.5  DETERMINATION OF BENEFITS AT AGE 59                                46
 6.6  DISTRIBUTION OF BENEFITS                                           46
 6.7  DISTRIBUTION OF BENEFITS UPON DEATH                                50
 6.8  HOW ESOP BENEFITS WILL BE DISTRIBUTED                              52
 6.9  IN SERVICE DISTRIBUTION                                            52
 6.10 TIME OF SEGREGATION OR DISTRIBUTION                                53
 6.11 DISTRIBUTION FOR MINOR BENEFICIARY                                 53
 6.12 LOCATION OF PARTICIPANT OR BENEFICIARY UNKNOWN                     53
 6.13 LIMITATIONS ON BENEFITS AND DISTRIBUTIONS                          53
 6.14 DISTRIBUTION OF DEFERRAL ACCOUNT UPON HARDSHIP                     54
 6.15 DIRECT ROLLOVERS                                                   55
 6.16 LOANS                                                              55
 6.17 PUT OPTION                                                         57
 6.18 NONTERMINABLE PROTECTIONS AND RIGHTS                               59
<PAGE>
                              TABLE OF CONTENTS
                                 --continued--                          Page

ARTICLE VII. - TOP HEAVY RULES                                           59
 7.1  DEFINITIONS                                                        59
 7.2  TOP HEAVY PLAN REQUIREMENTS                                        61
 7.3  DETERMINATION OF TOP HEAVY STATUS                                  61
 7.4  REQUIRED MINIMUM ALLOCATIONS                                       62
 7.5  TOP HEAVY VESTING SCHEDULE                                         63

ARTICLE VIII - ADMINISTRATION                                            63
 8.1  POWERS AND RESPONSIBILITIES OF THE EMPLOYER                        63
 8.2  ASSIGNMENT AND DESIGNATION OF ADMINISTRATIVE AUTHORITY             64
 8.3  ALLOCATION AND DELEGATION OF RESPONSIBILITIES                      64
 8.4  POWERS, DUTIES AND RESPONSIBILITIES                                64
 8.5  RECORDS AND REPORTS                                                66
 8.6  ANNUAL REPORT                                                      66
 8.7  APPOINTMENT OF ADVISERS                                            66
 8.8  INFORMATION FROM EMPLOYER                                          66
 8.9  PAYMENT OF EXPENSES                                                66
 8.10 MAJORITY ACTIONS                                                   67
 8.11 CLAIMS PROCEDURE                                                   67
 8.12 CLAIMS REVIEW PROCEDURE                                            67
 
ARTICLE IX. - AMENDMENT, TERMINATION, AND MERGERS                        68
 9.1  AMENDMENT                                                          68
 9.2  TERMINATION                                                        68
 9.3  MERGER OR CONSOLIDATION                                            69

ARTICLE X. - MISCELLANEOUS                                               69
10.1  PARTICIPANT'S RIGHTS                                               69
10.2  ALIENATION                                                         69
10.3  CONSTRUCTION OF AGREEMENT                                          70
10.4  GENDER AND NUMBER                                                  70
10.5  LEGAL ACTION                                                       70
10.6  PROHIBITION AGAINST DIVERSION OF FUNDS OR FORFEITURE FOR CAUSE     70
10.7  BONDING                                                            71
10.8  EMPLOYER'S AND TRUSTEE'S PROTECTIVE CLAUSE                         71
10.9  RECEIPT AND RELEASE FOR PAYMENTS                                   71
10.10 ACTION BY THE EMPLOYER                                             71
10.11 NAMED FIDUCIARIES AND ALLOCATION OF RESPONSIBILITY                 71
10.12 HEADINGS                                                           72
10.13 UNIFORMITY                                                         72




<PAGE>





                                  SAWTEK INC.
                    EMPLOYEE STOCK OWNERSHIP AND 401(k) PLAN


         This Plan  generally is made effective July 16, 1997, by SAWTEK INC., a
Florida corporation (the "Employer").

                             BACKGROUND INFORMATION

         A. Effective  October 1, 1980, the Employer  adopted the predecessor of
the Sawtek Inc. Code Section 401(k) Profit Sharing Plan and Trust Agreement (the
"401(k) Plan").

         B. The 401(k) Plan was amended and restated  effective October 1, 1987,
and February  15,  1996,  and also was amended from time to time in the interim.
The pre-tax salary deferral feature was added effective October 1, 1991.

         C. Effective  October 1, 1990, the Employer  adopted the Employee Stock
Ownership Plan and Trust  Agreement for Employees of Sawtek Inc. (the "ESOP") in
order to enable the Eligible  Employees of the Employer to acquire a proprietary
interest in the common stock of the Employer.

         D. The ESOP was amended on three occasions since its original effective
date, and then was amended and restated effective February 15, 1996.

         E. The Employer now desires to (i) add an Employer  matching  provision
to the 401(k)  component of the Plan, (ii) merge the 401(k) Plan and ESOP into a
single,  Employee  Stock  Ownership  and 401(k) Plan (to form the "Plan")  (iii)
modify  the  terms  of the  Plan to  better  meet  the  needs  of the  Employer,
Participants  and  Beneficiaries,  and (iv) to comply with  changes  mandated by
federal law.

         F. Amounts  contributed  under the Plan will be held and invested,  and
then distributed,  by the Trustee.  The Trustee shall act in accordance with the
terms of a separate Trust Agreement between the Employer and the Trustee,  which
Trust Agreement  shall be known as the Sawtek Inc.  Employee Stock Ownership and
401(k) Trust (the "Trust").  The Trust  implements and forms a part of the Plan.
The provisions of, and the benefits under, the Plan are subject to the terms and
provisions of the Trust.


                                   ARTICLE I.
                                   DEFINITIONS

             1.1 "Act" means the  Employee  Retirement  Income  Security  Act of
1974, as amended.

             1.2  "Actual  Contribution  Percentage"  means,  with  respect to a
Participant, the percentage obtained (calculated to the nearest one hundredth of
one percent) by dividing the Matching Contribution allocated to such Participant
for the  Plan  Year by his or her  Compensation  for the  same  Plan  Year.  For
purposes of this computation,  a Participant's  Compensation  shall include only
such items as are paid after the  Participant's  Plan  entry date  specified  in
Section 2.2.


<PAGE>



             1.3  "Actual  Deferral   Percentage"   means,  with  respect  to  a
Participant, the percentage obtained (calculated to the nearest one hundredth of
one percent) by dividing the  Participant's  Deferred  Compensation for the Plan
Year by his or her  Compensation for the same Plan Year.  Deferred  Compensation
allocated to the Participant's  Deferral Account of each Non-Highly  Compensated
Participant shall be reduced by Excess Deferred  Compensation to the extent such
excess  amounts  are made  under the Plan or any other  plan  maintained  by the
Employer. For purposes of this computation,  a Participant's  Compensation shall
include  only such  items as are paid  after the  Participant's  Plan entry date
specified in Section 2.2.

             1.4  "Administrator"  means  the  Employer,   unless  a  person  or
committee of persons is designated  by the Employer  pursuant to Article VIII to
administer  the Plan on behalf of the Employer.  Until such time as the Board of
Directors of the Employer provides otherwise,  the President and Chief Financial
Officer of the Employer are  appointed to  administer  the Plan on behalf of the
Employer.

             1.5  "Affiliated  Employer"  means  the  Employer  and  any  of the
following entities:

                   (a) Any corporation  which is a member of a "controlled group
of corporations" (as that phrase is defined in Code Section 414(b)), which group
includes the Employer;

                   (b) Any trade or business (whether or not  incorporated,  and
including a sole proprietorship,  partnership,  estate and trust) which is under
"common  control"  (as that phrase is defined in Code  Section  414(c)) with the
Employer;

                   (c) Any  entity  (whether  or not  incorporated)  which  is a
member of an  "affiliated  service  group"  (as that  phrase is  defined in Code
Section 414(m)), which group includes the Employer; and

                   (d) Any entity  required to be  aggregated  with the Employer
pursuant to Regulations promulgated pursuant to Code Section 414(o).

             1.6 "Aggregate  Account" means,  with respect to each  Participant,
the  value  of all  accounts  (including  the  Participant's  Deferral  Account,
Participant's Profit Sharing Account,  Participant's ESOP Account, Participant's
Matching Account and Participant's  Rollover Account)  maintained on behalf of a
Participant,  whether  attributable  to Employer or  Employee  contributions.  A
Participant's  ESOP  Account is comprised  of his or her  Participant's  Company
Stock  Account,   Participant's  ESOP  Investment  Account,   and  Participant's
Qualified Directed Investment Account.

             1.7 "Agreement" or "Plan" shall mean this instrument, including all
amendments or restatements hereof.

             1.8 "Anniversary Date" means September 30.

             1.9  "Average  Contribution  Percentage"  means,  with respect to a
specified group of Participants for a Plan Year, the average  (calculated to the
nearest one hundredth of one percent) of the Actual Contribution  Percentages of
the Participants in such specified group for the Plan Year.

             1.10  "Average  Deferral  Percentage"  means,  with  respect  to  a
specified group of Participants for a Plan Year, the average  (calculated to the
nearest one hundredth of one percent) of the Actual Deferral  Percentages of the
Participants in such specified group for the Plan Year.


<PAGE>



             1.11 "Beneficiary"  means the person or entity to whom the share of
a  deceased  Participant's   Aggregate  Account  is  payable,   subject  to  the
restrictions of Section 6.2.

             1.12 "Business Day" means any day on which the Federal  Reserve and
New York Stock Exchange are both open for business.

             1.13 "Code" means the Internal  Revenue Code of 1986, as amended or
replaced from time to time.

             1.14 "Company  Stock" means common stock issued by the Employer (or
by a corporation  which is a member of the controlled  group of  corporations of
which the Employer is a member)  which is readily  tradeable  on an  established
securities market.

             1.15  "Compensation"  means, with respect to any Participant,  such
Participant's wages for the Plan Year within the meaning of Code Section 3401(a)
(for the  purposes  of income tax  withholding  at the  source)  but  determined
without regard to any rules that limit the remuneration  included in wages based
on the nature or location of the employment or the services performed.

                   For  purposes of this  Section  1.15,  the  determination  of
Compensation  shall be made by including salary reduction  contributions made on
behalf of a Participant  to a plan  maintained by the Employer  pursuant to Code
Sections 125 or 401(k).  However,  for purposes of applying Section 3.9 for Plan
Years beginning prior to December 31, 1997,  Compensation shall not include,  or
shall be net of, salary reduction  contributions made on behalf of a Participant
to a plan maintained by the Employer pursuant to Code Sections 125 or 401(k).

                   For  purposes of  allocations  made  pursuant to Section 3.4,
Compensation shall not include any income realized or recognized relating to the
exercise of any incentive stock option or non-qualified  stock option granted to
the  Participant  by the Employer,  or relating to the purchase of Company Stock
pursuant  to an  employee  stock  purchase  plan  maintained  by  the  Employer.
Furthermore,  Compensation  shall not include any moving  allowances  or tuition
reimbursements paid by the Employer.

                   Compensation  in excess of $150,000  (or such other amount as
the Secretary of the Treasury may  designate  from time to time pursuant to Code
Section  401(a)(17)(B)) shall be disregarded regardless of whether the Plan is a
Top Heavy Plan. If a determination  period consists of fewer than 12 months, the
foregoing  annual  Compensation  limit shall be  multiplied  by a fraction,  the
numerator of which is the number of months in the determination  period, and the
denominator of which is 12.

                   Effective for  Participants  that enter the Plan on and after
July 16, 1997,  Compensation  for a Participant's  Plan Year of entry shall mean
Compensation  actually  paid after the  Participant  enters the Plan pursuant to
Article II.  However,  see Section 7.4 for the definition of Compensation in the
event a minimum allocation is required for any Top Heavy Plan Year.

                   For Plan Years  beginning  prior to  December  31,  1996,  in
determining the  Compensation of an Employee,  the family  attribution  rules of
Code Sections  401(a)(17) and 414(q)(6) (as modified by Code Section 401(a)(17))
shall apply.

             1.16 "Current Obligations" means principal and interest obligations
arising  from an  extension  of credit to the Trust  which are  payable  in cash
within one year from the date an Employer Contribution is due.

             1.17 "Deferred  Compensation" means that portion of a Participant's
Compensation  which has been  deferred  pursuant  to Section  3.2,  and has been
allocated to the Participant's Deferral Account.


<PAGE>



             1.18 "Determination  Year" means the Plan Year for which testing is
being performed to determine if an Employee is a Highly Compensated Employee.

             1.19 "Direct  Rollover" means a payment by the Plan to the Eligible
Retirement Plan specified by the Distributee in accordance with Section 6.15.

             1.20  "Distributee"  means  an  Employee  or  former  Employee.  In
addition,  an Employee's or former Employee's surviving spouse and an Employee's
or former  Employee's spouse or former spouse who is the alternate payee under a
qualified domestic relations order, as defined in Code Section 414(p),  shall be
Distributees with regard to the interest of the spouse or former spouse.

             1.21  "Eligible  Employee"  means any Employee who is not otherwise
described in this Section and has satisfied the age provisions of Section 2.1.

                   Employees who are Leased  Employees,  or who are  nonresident
aliens  who do not  receive  any  earned  income  (as  defined  in Code  Section
911(d)(2)  from the Employer which  constitutes  United States source income (as
defined in Code Section 861(a)(3)), shall not be eligible to participate in this
Plan.

                   Employees  of  Affiliated  Employers  shall  become  Eligible
Employees only upon  satisfaction  of the age requirement of Section 2.1 and the
adoption  of this  Plan  by the  Affiliated  Employer,  which  adoption  must be
approved by the Board of Directors of Sawtek Inc.

                   Employees who are included in a unit of employees  covered by
an agreement  which the  Secretary of Labor finds to be a collective  bargaining
agreement  between  employee  representatives  and  the  Employer  shall  not be
eligible  to  participate  in this  Plan if there is  evidence  that  retirement
benefits  were the  subject  of good  faith  bargaining  between  such  employee
representatives and the Employer,  unless such collective  bargaining  agreement
requires the covered employees to participate in this Plan.

             1.22  "Eligible  Retirement  Plan" means an  individual  retirement
account  described in Code Section  408(a),  an  individual  retirement  annuity
described in Code  Section  408(b),  an annuity  plan  described in Code Section
403(a), or a qualified trust described in Code Section 401(a),  that accepts the
Distributee's  Eligible  Rollover  Distribution.  However,  in  the  case  of an
Eligible Rollover  Distribution to a surviving  spouse,  an Eligible  Retirement
Plan  includes only an individual  retirement  account or individual  retirement
annuity.

             1.23 "Eligible Rollover Distribution" means any distribution of all
or any portion of the balance to the credit of the  Distributee,  except that an
Eligible Rollover Distribution does not include (i) any distribution that is one
of a series of substantially  equal periodic  payments (not less frequently than
annually) made for the life (or life expectancy) of the Distributee or the joint
lives (or joint life  expectancies)  of the  Distributee  and the  Distributee's
Beneficiary,  or  for a  specified  period  of  ten  years  or  more,  (ii)  any
distribution  to the extent such  distribution  is required  under Code  Section
401(a)(9),  and (iii) the portion of any distribution  that is not includable in
gross income  (determined  without  regard to the exclusion  for net  unrealized
appreciation with respect to Employer securities).

             1.24  "Employee"  means any person who is employed by the Employer,
or  Affiliated  Employer,  but  excludes  any  person  who  is  employed  as  an
independent contractor.

                   The term "Employee" shall include any Leased Employee, unless
such Leased  Employee is covered by a plan  described in Code Section  414(n)(5)
and  Leased  Employees  do not  constitute  more  than  20%  of  the  Employer's
Non-Highly Compensated Employees.


<PAGE>



             1.25  "Employer"  means  Sawtek Inc.,  a Florida  corporation,  any
subsidiary or parent of such corporation which adopts the Plan with the approval
of the Board of Directors of Sawtek Inc.,  any  successor  which shall  maintain
this Plan, and any other employer permitted by the Employer to adopt this Plan.

             1.26 "ESOP" means an employee  stock  ownership plan that meets the
requirements of Code Section 4975(e)(7) and Regulation Section 54.4975-11.

             1.27. "ESOP Contribution" means the Employer's  contribution to the
Plan,  made pursuant to Section 3.1(a) and allocated to the  Participants'  ESOP
Accounts.

             1.28  "Excess  Deferred  Compensation"  means,  with respect to the
taxable  year  of a  Participant,  the  excess  of such  Participant's  Deferred
Compensation  under this Plan plus the elective  deferrals  described in Section
3.2(f) and  Regulation  Section  1.402(g)-1(b),  actually made on behalf of such
Participant  for such taxable year, over the dollar  limitation  provided for in
Code Section 402(g), which is incorporated herein by reference.  For purposes of
Code Section 415, pursuant to Regulation Section 1.415-6(b)(1),  Excess Deferred
Compensation  shall  be  treated  as an  "annual  addition"  unless  distributed
pursuant to Section 3.2(f). Excess Deferred Compensation shall be included in an
Employee's Deferred  Compensation for purposes of the Actual Deferral Percentage
test and Average  Deferral  Percentage  test,  unless  such excess  relates to a
deferral made by a Non-Highly  Compensated  Participant  under this or any other
qualified retirement plan of the Employer.

             1.29 "Excess Elective  Contributions" means, with respect to a Plan
Year, the excess of Deferred Compensation made pursuant to Section 3.2 on behalf
of a Highly Compensated  Participant for such Plan Year, over the maximum amount
of such contributions permitted under Section 3.5(a) and Code Section 401(k)(3).
Excess Elective Contributions shall be treated as "annual additions" pursuant to
Section 3.9 and Code Section 415.

             1.30 "Excess Matching  Contributions" means, with respect to a Plan
Year,  the excess of Employer  Matching  Contributions  made pursuant to Section
3.1(c) on behalf of a Highly  Compensated  Participant  for such Plan Year, over
the maximum amount of such Employer Matching  Contributions  permitted under the
limitations   of  Section  3.7  and  Code  Section   401(m).   Excess   Matching
Contributions shall be attributed to individual Highly Compensated  Participants
in accordance with Section 3.8(a).

             1.31 "Exempt Loan" means a loan made to the Trust by a disqualified
person or a loan to the Plan which is  guaranteed by a  disqualified  person and
which  satisfies the  requirements  of Section  2550.408b-3 of the Department of
Labor Regulations, Regulation Section 54.4975-7(b) and Section 5.5 hereof.

             1.32   "Family   Member"   means,   with  respect  to  an  affected
Participant,  such Participant's  spouse,  lineal descendants and ascendants and
their  spouses,  all as  described  in Code  Section  414(q)(6)(B).  The  family
aggregation  provisions  no longer  apply in Plan Years  beginning  on and after
October 1, 1997.

             1.33   "Fiduciary"   means  any  person  who  (a)   exercises   any
discretionary  authority or discretionary  control respecting  management of the
Plan or exercises any authority or control respecting  management or disposition
of its assets;  (b) renders  investment advice for a fee or other  compensation,
direct or indirect,  with respect to any monies or other property of the Plan or
has any  authority  or  responsibility  to do so;  or (c) has any  discretionary
authority or discretionary  responsibility  in the  administration  of the Plan.
Such definition  includes,  but is not limited to, the Trustee, the Employer and
its representative body, and the Administrator.

             1.34  "Fiscal  Year"  means the  Employer's  accounting  year of 12
months  commencing on October 1 of each year and ending the following  September
30.


<PAGE>



             1.35  "Forfeiture"  means  that  portion  of a  Participant's  ESOP
Account,  Participant's Matching Account or Participant's Profit Sharing Account
that is not Vested, and occurs on the earlier of:

                   (a)  The  distribution  of the  entire  Vested  portion  of a
Participant's  ESOP Account,  Participant's  Matching  Account or  Participant's
Profit Sharing Account; or

                   (b) The last day of the Plan  Year in which  the  Participant
incurs five consecutive One-Year Breaks in Service.

                   For  purposes  of  paragraph  (a)  above,  in the  case  of a
Terminated  Participant whose Vested interest in his Participant's ESOP Account,
Participant's  Matching Account or Participant's Profit Sharing Account is zero,
such Terminated  Participant  shall be deemed to have received a distribution of
his  Vested  interest  in  such  account(s)  upon  the  effective  date  of  his
termination of  employment.  Restoration of such amounts shall occur pursuant to
Section 3.4.

             1.36  "Former  Participant"  means a person  who has been an active
Participant, but who has ceased to be a Participant for any reason.

             1.37 "Gap  Period"  means the period of time between the end of the
applicable  computation  period  (i.e.,  Participant's  taxable year or the Plan
Year) and the date a corrective distribution is made to the Participant.

             1.38 "Highly  Compensated  Employee" means an Employee described in
Code Section  414(q) and the  Regulations  thereunder,  and  generally  means an
Employee who performed services for the Employer during the Determination  Year,
and is in one or more of the following groups:

                   (a) Employees who at any time during the  Determination  Year
or Look-Back Year were "five percent owners" of the Employer.

                   (b) Employees who received  Compensation during the Look-Back
Year from the Employer in excess of $75,000.

                   (c) Employees who received  Compensation during the Look-Back
Year from the Employer in excess of $50,000  ($80,000  for Plan Years  beginning
after  December 31,  1996) and were in the Top Paid Group of  Employees  for the
Plan Year (Look-Back Year for Plan Years beginning after December 31, 1996).

                   (d) Employees who during the Look-Back  Year were  "officers"
of the Employer (as that term is defined  within the meaning of the  Regulations
under Code Section 416) and received Compensation during the Look-Back Year from
the  Employer  greater  than  50% of the  limit in  effect  under  Code  Section
415(b)(1)(A)  for any such Plan Year. The number of officers shall be limited to
the lesser of (i) 50  employees;  or (ii) the greater of three  employees or ten
percent of all employees.  For purposes of  determining  the number of officers,
Employees described in Section (a), (b), (c) and (d) shall be excluded, but such
Employees  shall still be considered for purposes of identifying  the particular
Employees who are  officers.  If the Employer does not have at least one officer
whose annual  Compensation is in excess of 50% of the Code Section  415(b)(1)(A)
limit,  then the  highest  paid  officer of the  Employer  shall be treated as a
Highly Compensated Employee.

                   (e)  Employees  who are in the  group  consisting  of the 100
Employees paid the greatest  Compensation  during the Determination Year and are
also  described in (b), (c) or (d) above when these  paragraphs  are modified to
substitute Determination Year for Look-Back Year.


<PAGE>



                   For  Plan  Years   beginning   after   December   31,   1996,
subparagraphs (b), (d) and (e) shall no longer apply, except that in determining
whether an Employee is a Highly  Compensated  Employee  for purposes of the Plan
Year  beginning  October 1, 1997,  subparagraphs  (b),  (d) and (e) shall not be
applied to the Look-Back Year beginning  October 1, 1996, and the  parenthetical
language in subparagraph (c) shall be applied to such Look-Back Year.

                   The dollar threshold  amounts  specified in (b) and (c) above
shall be adjusted at such time and in such manner as is provided in Code Section
414(q)(1).  In the case of such an adjustment,  the dollar limits which shall be
applied  are those for the  calendar  year in which  the  Determination  Year or
Look-Back Year begins.

                   In  determining  who  is  a  Highly   Compensated   Employee,
Employees who are non-resident  aliens and who received no earned income (within
the meaning of Code Section  911(d)(2))  from the Employer  constituting  United
States source income within the meaning of Code Section  861(a)(3)  shall not be
treated as Employees. Additionally, all Affiliated Employers shall be taken into
account as a single  employer  and Leased  Employees  within the meaning of Code
Section 414(n)(2) and 414(o)(2) shall be considered Employees unless such Leased
Employees are covered by a plan described in Code Section  414(n)(5) and are not
covered in any  qualified  plan  maintained  by the  Employer.  The exclusion of
Leased  Employees for this purpose shall be applied on a uniform and  consistent
basis for all of the Employer's  retirement  plans.  Highly  Compensated  Former
Employees  shall be treated as Highly  Compensated  Employees  without regard to
whether they performed services during the Determination Year.

             1.39 "Highly  Compensated  Former Employee" means a former Employee
who (i) had a  separation  year  prior  to the  Determination  Year and (ii) was
either a Highly  Compensated  Employee in the year of separation from service or
in any  Determination  Year after  attaining age 55. Highly  Compensated  Former
Employees shall be treated as Highly Compensated Employees.

             1.40 "Highly Compensated  Participant" means any Highly Compensated
Employee who is eligible to participate in the Plan.

             1.41 "Hour of Service" means (a) each hour for which an Employee is
directly or indirectly  compensated or entitled to  compensation by the Employer
for the performance of duties during the applicable computation period; (b) each
hour for which an Employee is directly or indirectly  compensated or entitled to
compensation   by  the  Employer   (irrespective   of  whether  the   employment
relationship  has terminated) for reasons other than performance of duties (such
as vacation, holidays,  sickness, jury duty, disability,  lay-off, military duty
or leave of absence) during the applicable computation period; and (c) each hour
for which  back pay is awarded or agreed to by the  Employer  without  regard to
mitigation of damages.

                   For purposes of (a) above, Hours of Service shall be credited
to the  computation  period  (See  definition  of Year of  Service) in which the
duties are  performed.  For  purposes  of (b) above,  Hours of Service  shall be
credited  to  the  computation  period  provided  for  in  Department  of  Labor
Regulations  Sections  2530.200b-2(c)(2).  Finally,  for  purposes of (c) above,
Hours of Service shall be credited to the computation period or periods to which
the award or agreement  for back pay  pertains,  rather than to the  computation
period in which the award, agreement or payment is made.

                   Hours  of  Service  for  hourly  Employees  shall be based on
actual  hours  worked,  and for  salaried  Employees on the basis of 45 Hours of
Service for each week (or portion thereof) employed by the Employer.


<PAGE>



                   Notwithstanding  the  above,  (i) no more  that 501  Hours of
Service are  required  to be  credited to any  Employee on account of any single
continuous  period during which the Employee  performs no duties (whether or not
such period occurs in a single  computation  period);  (ii) an hour for which an
Employee is directly or indirectly paid, or entitled to payment, on account of a
period  during  which no duties are  performed is not required to be credited to
the Employee if such payment is made or due under a plan  maintained  solely for
the purpose of complying with  applicable  worker's  compensation,  unemployment
compensation  or disability  insurance  laws; and (iii) Hours of Service are not
required to be credited for a payment  which solely  reimburses  an Employee for
medical or medically related expenses incurred by the Employee.

                   For purposes of this Section, a payment shall be deemed to be
made by or due from the Employer  regardless  of whether such payment is made by
or due from the Employer directly or indirectly through,  among others, a trust,
fund,  or  insurer,  to which the  Employer  contributes  or pays  premiums  and
regardless of whether  contributions made or due to the trust, fund, insurer, or
other entity are for the benefit of  particular  Employees or are on behalf of a
group of Employees in the aggregate.

                   An  Hour  of  Service   must  be  counted  for   purposes  of
determining a Year of Service,  a year of participation  for purposes of accrued
benefits,  a One-Year  Break in Service,  and employment  commencement  date (or
reemployment   commencement   date).  The  provisions  of  Department  of  Labor
Regulations  Sections  2530.200  b-2(b)  and  (c)  are  incorporated  herein  by
reference.

             1.42  "Investment  Manager"  means any person,  firm or corporation
(other than the Trustee or named  Fiduciary) who (i) is a registered  investment
adviser  under the  Investment  Advisers Act of 1940,  or is a bank or insurance
company described in Act Section 3(38),  (ii) has the power to manage,  acquire,
or dispose of Plan  assets,  and (iii)  acknowledges  in writing  its  fiduciary
responsibility to the Plan under the Act. See Section 8.1(c).

             1.43 "Leased  Employee" means a person who provides services to the
Employer and is described in Code  Section  414(n) and  Regulations  promulgated
thereunder. Generally, a person shall be considered a Leased Employee if:

                   (a) He is not otherwise an Employee of the Employer,

                   (b) He provides services to the Employer,

                   (c) Such  services  are  provided  pursuant  to an  agreement
between the Employer and a leasing organization,

                   (d) Such person has performed  such services for the Employer
on a substantially full-time basis for at least twelve months, and

                   (e) Such services are of a type historically performed in the
Employer's business field by employees. Effective for Plan Years beginning after
December 31, 1996, this  requirement  shall be amended by deleting the foregoing
"historically  performed"  provision and instead requiring that such services be
performed under the primary direction and control of the Employer.

             1.44  "Look-Back  Year" means the twelve month  period  immediately
preceding  the  Determination  Year for  which  testing  is being  performed  to
determine if an Employee is a Highly  Compensated  Employee.  See  definition of
Highly Compensated Employee.


<PAGE>



             1.45  "Matching   Contribution"   means  the  Employer's   matching
contribution  made to the Plan  pursuant to Section  3.1(c) and  allocated  to a
Participant's Matching Account.

             1.46 "Net  Profit"  means,  with  respect to any Fiscal  Year,  the
Employer's  pre-tax profit for such Fiscal Year determined upon the basis of the
Employer's  books of  account  in  accordance  with  the  method  of  accounting
regularly  used by the Employer,  without any reduction for taxes upon income or
for  contributions  made by the  Employer  to this Plan or any  other  qualified
retirement plan.

             1.47 "Nonallocation  Period" means the period beginning on the date
of the sale of Company Stock to the Plan and ending on the later of:

                   (a) the date which is 10 years after the date of sale; or

                   (b) the date of the Plan allocation attributable to the final
payment of acquisition indebtedness incurred in connection with such sale.

             1.48 "Noncurrent  Obligations" means Trust obligations arising from
an  extension  of credit to the Trust  which are  payable in cash later than one
year from the date an Employer contribution is due.

             1.49  "Non-Highly  Compensated  Employee" means any Employee who is
neither a Highly  Compensated  Employee  or (for Plan Years  beginning  prior to
December 31, 1996) a Family Member thereof.

             1.50 "Non-Highly Compensated Participant" means any Participant who
is neither a Highly  Compensated  Employee or (for Plan Years beginning prior to
December 31, 1996) a Family Member thereof.

             1.51  "Normal  Retirement  Date"  means  the first day of the month
coinciding with or next following the  Participant's  Normal Retirement Age. For
purposes  of this  Section,  Normal  Retirement  Age  means the  earlier  of the
Participant's  attainment of (i) age 65 with five (5) years of  participation in
the Plan or (ii) age 55 with 10 Years of Service.  A  Participant  shall  become
100% Vested in his Aggregate Account upon attaining his Normal Retirement Age.

             1.52 "One-Year  Break in Service" means a Plan Year during which an
Employee has not completed more than 500 Hours of Service with the Employer.  An
Employee  shall not incur a One-Year Break in Service for the Plan Year in which
he  becomes a  Participant,  dies,  retires  or  suffers  a Total and  Permanent
Disability.  Furthermore,  solely  for the  purpose  of  determining  whether  a
Participant has incurred a One-Year Break in Service,  Hours of Service shall be
recognized for "authorized leaves of absence" and "maternity or paternity leaves
of absence."

                   "Authorized  leave of  absence"  means an  unpaid,  temporary
cessation from active  employment with the Employer  pursuant to an established,
non-discriminatory  policy, whether occasioned by illness,  military service, or
any other reason.

                   A "maternity or paternity  leave of absence" means an absence
from work for any  period by reason of the  Employee's  pregnancy,  birth of the
Employee's child,  placement of a child with the Employee in connection with the
adoption of such child,  or any absence for the purpose of caring for such child
for a period  immediately  following such birth or placement.  For this purpose,
Hours of  Service  shall be  credited  for the  computation  period in which the
absence  from work begins only if credit  therefore  is necessary to prevent the
Employee from incurring a One-Year Break in Service or, in any case in which the
Administrator is unable to determine such hours normally  credited,  eight Hours
of Service  per day.  The total Hours of Service  required to be credited  for a
"maternity or paternity leave of absence" shall not exceed 501.


<PAGE>



             1.53 "Participant" means any Eligible Employee who becomes eligible
for and enters the Plan as provided in Sections 2.1 and 2.2, and has not for any
reason become ineligible to participate further in the Plan. Upon termination of
employment, a Participant becomes a Former Participant for purposes of the Plan.

             1.54 "Participant's  Company Stock Account" means the subaccount of
the  Participant's  ESOP  Account  which is credited  with the shares of Company
Stock purchased and paid for by the Trust or contributed to the Trust Fund.

             1.55 "Participant's Deferral Account" means the account established
and maintained by the  Administrator  for each  Participant  with respect to his
interest in the Plan  resulting  from the  Participant's  Deferred  Compensation
contributed to the Plan pursuant to Sections 3.1(b) and 3.2. A Participant shall
be 100% Vested in his Participant's Deferral Account at all times.

             1.56 "Participant's ESOP Account" means the account established and
maintained  by the  Administrator  for  each  Participant  with  respect  to his
interest in the Plan  resulting  from the  Employer's  ESOP  Contributions  made
pursuant to Section 3.1(a) and Forfeitures  allocated pursuant to Section 3.4. A
Participant's  ESOP  Account  may be  further  subdivided  into a  Participant's
Company Stock Account,  Participant's  ESOP Investment Account and Participant's
Qualified  Directed  Investment   Account.  A  Participant's   interest  in  his
Participant's ESOP Account shall be subject to the vesting provisions of Section
6.4.

             1.57 Participant's ESOP Investment Account" means the subaccount of
the Participant's  ESOP Account which is credited with his share of net gains or
losses,  Forfeitures and Employer ESOP  Contributions  held in a form other than
Company Stock and which is debited with payments to acquire Company Stock.

             1.58 "Participant's Matching Account" means the account established
and maintained by the  Administrator  for each  Participant  with respect to his
interest in the Plan resulting from the Employer's  Matching  Contributions made
pursuant  to Section  3.1(c).  A  Participant's  interest  in his  Participant's
Matching Account shall be subject to the vesting provisions of Section 6.4.

             1.59  "Participant's  Profit  Sharing  Account"  means the  account
established  and  maintained  by the  Administrator  for each  Participant  with
respect to his interest in the Plan resulting from the Employer's Profit Sharing
Contribution,  if any, made pursuant to Section 3.1(e). A Participant's interest
in his  Participant's  Profit  Sharing  Account  shall be subject to the vesting
provisions of Section 6.4.

             1.60  "Participant's  Qualified Directed  Investment Account" means
the subaccount  established by the Administrator for a Qualified Participant who
makes a diversification election pursuant to Section 3.12.

             1.61 "Participant's Rollover Account" means the account established
and maintained by the  Administrator  for any  Participant (or Employee) who has
transferred  amounts to the Plan from  another  qualified  plan (or conduit IRA)
pursuant  to  Section  3.11.  A   Participant   shall  be  100%  Vested  in  his
Participant's Rollover Account at all times.

             1.62  "Plan  Year"  means the Plan's  accounting  year of 12 months
commencing on October 1 of each year and ending the following September 30.

             1.63   "Profit   Sharing   Contribution"   means   the   Employer's
contribution  to the Plan made  pursuant to Section  3.1(e) and allocated to the
Participant's Profit Sharing Account.


<PAGE>



             1.64  "Qualified  Election  Period"  means the six Plan Year period
beginning with the first Plan Year in which the Participant  becomes a Qualified
Participant.

             1.65  "Qualified  Non-Elective  Contribution"  means the Employer's
contributions  to the Plan  that are  made  pursuant  to  Section  3.1(d).  Such
contributions  shall be (i)  considered  additional  Deferred  Compensation  for
purposes of the Plan, (ii) allocated to the Participant's  Deferral Account, and
(iii) used to satisfy the Average Deferral  Percentage test of Section 3.5. 

             1.66  "Qualified   Participant"  means  ay  Participant  or  Former
Participant who has attained age 55 and has been credited with ten (10) Years of
Service.

             1.67 "Regulation"  means the income tax regulations  promulgated by
the Secretary of the Treasury or his delegate, as amended from time to time.

             1.68  "Retired   Participant"   means  a  person  who  has  been  a
Participant, but who has become entitled to retirement benefits under the Plan.

             1.69  "Retirement  Date"  means the date as of which a  Participant
retires.

             1.70 "Suspense Account" means the account credited with the portion
of all Former Participant's ESOP Accounts,  Participant's  Matching Accounts and
Participant's  Profit Sharing Accounts which have become  forfeitable during any
Plan Year, but which have not been reallocated pursuant to Section 3.4(e).

             1.71  "Terminated  Participant"  means  a  person  who  has  been a
Participant, but whose employment has been terminated other than by death, Total
and Permanent Disability, or retirement.

             1.72 "Total and  Permanent  Disability"  means a physical or mental
condition of a Participant  that  qualifies as a total and permanent  disability
under  the  terms  of  the  Employer's  group  disability  income  policy.  Such
determination shall be made by the group disability income insurer.

             1.73 "Trustee" means the person named as Trustee of the Sawtek Inc.
Employee Stock Ownership and 401(k) Trust.

             1.74  "Trust  Fund"  means the assets of the Plan as the same shall
exist from time to time.

             1.75 "Unallocated  Company Stock Suspense Account" means an account
containing  Company Stock  acquired  with the proceeds of an Exempt Loan,  which
Company  Stock has not been  released  from such  account and  allocated  to the
Participants' Company Stock Accounts.

             1.76 "Valuation  Date" means the Anniversary  Date of the Plan, and
any other date on which the  Administrator  makes  allocations,  or  pursuant to
Section  4.1,  directs  the  Trustee to value the Trust  Fund.  In the event the
Employer  elects to value the Trust  Fund,  or any portion  thereof,  on a daily
basis, Valuation Date also shall include all Business Days.

             1.77  "Vested"  means  the  portion  of any  of  the  Participant's
accounts  in the  Plan  that  is  nonforfeitable.  This  Plan  does  not  permit
forfeiture for cause.  However,  see Section 3.1 for permitted reversions of all
or a portion of the Trust Fund to the Employer.

             1.78 "Year of  Service"  shall mean a Plan  Year,  during  which an
Employee is credited with at least 1000 Hours of Service.


<PAGE>



                   Years of Service  (including  service  as a Leased  Employee)
with any Affiliated Employer shall be recognized. Service from the date on which
the  Employee  first  performs an Hour of Service  shall be counted in computing
Years of Service for vesting purposes.

                   The  Administrator  shall,  in  accordance  with  a  uniform,
non-discriminatory  policy,  elect to credit  Hours of Service  pursuant to this
Plan by counting  actual  Hours of Service for any  Employee,  or by adopting an
equivalency based on a period of employment as provides in Section 2530.200-2(c)
of the Department of Labor Regulations.


                                  ARTICLE II.
                                  ELIGIBILITY

             2.1   CONDITIONS OF ELIGIBILITY

                   Any  full-time  Employee  who had entered the Plan as of July
16, 1997 shall continue to be eligible to participate hereunder.  Otherwise,  an
Employee  must meet the  eligibility  requirements  described  below in order to
become a Participant.

                   Any  Employee  who has  attained  age 18 shall be eligible to
participate hereunder immediately upon his employment, provided such Employee is
not excluded from  participation by the Eligible Employee  provisions of Section
1.21.

             2.2   EFFECTIVE DATE OF PARTICIPATION

                   Any Eligible Employee who had entered the Plan as of July 16,
1997 shall continue to participate in the Plan for all purposes.  Thereafter, an
Employee  who,  pursuant to Section  2.1,  has become  eligible  to  participate
hereunder  shall enter the Plan  immediately  upon meeting the  requirements  of
Section 2.1.

             2.3   TERMINATION OF ELIGIBILITY

                   (a) In the event a Participant shall go from a classification
of an Eligible  Employee to a non-eligible  Employee (e.g., by becoming a Leased
Employee  or  Employee  covered  by a  collective  bargaining  agreement),  such
Participant shall become a Former  Participant but shall continue to vest in his
or her  Participant's  ESOP Account,  Participant's  Profit Sharing  Account and
Participant's  Matching  Account  for each  Year of  Service  completed  while a
non-eligible  Employee,  until  such  time as his  Participant's  ESOP  Account,
Participant's Profit Sharing Account and Participant's Matching Account shall be
forfeited or distributed pursuant to the terms of the Plan.  Additionally,  such
Former  Participant's  Aggregate  Account in the Plan shall continue to share in
the income,  gains or losses of the Trust Fund, unless such Aggregate Account is
otherwise  segregated  or  subject to the  investment  direction  provisions  of
Section 3.13.

                   (b) In the event an Employee  ceases to be a  Participant  in
the Plan  because  of a change  of job  classification  (i.e.,  becomes a Leased
Employee,  covered  by a  collective  bargaining  agreement,  or an  independent
contractor),  but has not incurred a One-Year  Break in Service,  such  Employee
shall again become a Participant  effective as of the first day of the Plan Year
in which such Employee again becomes an Eligible Employee.


<PAGE>



                   (c) In the event an individual who is an Employee, but not an
Eligible  Employee,  becomes a member of an eligible  class,  then such Employee
shall enter the Plan and become a  Participant  as of the later of (i) the first
day of the Plan Year in which the Employee becomes an Eligible Employee, or (ii)
the entry date  provided in Section 2.2  coinciding  with or next  following the
date the Employee met any age  requirement of Section 2.1 (assuming the Employee
had been an  Eligible  Employee  during  his  entire  period of  service  to the
Employer).

             2.4   OMISSION OF ELIGIBLE EMPLOYEE

                   If in any Plan Year any  Employee who should be included as a
Participant in the Plan is erroneously  omitted,  and discovery of such omission
is not made until after a  contribution  by the  Employer  for the Plan Year has
been made and after  the  allocation  of such  contribution  has been  completed
pursuant to Section 3.4, the Employer shall make a subsequent  contribution  (or
any available Forfeitures shall be applied) with respect to the omitted Employee
in an amount  which the  Administrator  would  have  allocated  to such  omitted
Participant's Aggregate Account (plus any lost earnings due to the omission) had
the Participant not been omitted.  Such contribution shall be made regardless of
its  deductibility  in whole or in part in any  taxable  year  under  applicable
provisions of the Code. In addition,  such Employee may immediately begin making
salary deferrals.

             2.5   INCLUSION OF INELIGIBLE EMPLOYEE

                   If in any Plan  Year any  person  who  should  not have  been
included as a Participant in the Plan is erroneously included,  and discovery of
such  incorrect  inclusion is not made until after a  contribution  for the Plan
Year has been made and after the allocation of such contribution erroneously has
been made to the Participant  pursuant to Section 3.4, the Employer shall not be
entitled to recover the contribution  made with respect to the ineligible person
regardless of its deductibility with respect to such contribution.  However,  in
such event, the amount  contributed with respect to the ineligible  person shall
constitute a Forfeiture for the Plan Year in which the discovery is made,  shall
be credited to the  Suspense  Account and shall be  reallocated  as a Forfeiture
pursuant  to  Section  3.4(e)  for the Plan  Year of  discovery.  Such  person's
Deferred  Compensation  shall  remain in the Plan for the benefit of such person
until such time as one of the  events  described  in Article VI shall  occur and
give rise to a distribution.  Such person's Participant  Aggregate Account shall
share in the Trust Fund's earnings until distributed.


                                  ARTICLE III.
                          CONTRIBUTION AND ALLOCATION

             3.1   FORMULA FOR DETERMINING EMPLOYER'S CONTRIBUTION

                   For each Plan Year,  the  Employer  may or shall (as the case
may be) contribute to the Plan the following amounts,  which shall be subject to
the  following  conditions.

                   (a) ESOP  Contribution:  For each Fiscal  Year,  the Employer
may,  in its  sole  discretion,  determine  the  amount,  if  any,  of any  ESOP
Contribution to be made by it to the Plan. Such  contribution may be made by the
Employer  regardless  of Net  Profits  or  accumulated  earnings,  and  shall be
allocated to each Participant's ESOP Account.  In determining such contribution,
the Employer  shall be entitled to rely upon an estimate of its Net Profits,  of
the total Compensation for all Participants, and of the amounts contributable by
it. Except as otherwise  provided herein,  the Employer's  determination of such
contribution  shall be binding on all  Participants,  the  Administrator and the
Trustee.  The Trustee  shall have no right or duty to inquire into the amount of
the Employer's  contribution or the method used in determining the amount of the
Employer's  contribution,  but  shall be  accountable  only for  funds  actually
received by the Trustee.


<PAGE>



                   Notwithstanding  the  preceding  paragraph,   and  except  as
otherwise required herein, the Employer's ESOP Contribution for each Fiscal Year
shall  not be less  than the  amount  required  to  enable  the  Trust to timely
discharge its Current Obligations,  even if some or all of such contribution may
not be deductible by the Employer under the Code.

                   (b) Deferred  Compensation:  The Employer shall contribute to
the Plan the  total  amount  of all  Participants'  Compensation  which has been
deferred  into the Plan  pursuant to Section 3.2. Such amount shall be deemed to
be Deferred Compensation and allocated to the applicable  Participants' Deferral
Accounts.

                   (c) Matching Contribution: Effective for Plan Years beginning
on or after  October 1, 1997, on behalf of each  Participant  who has elected to
defer a portion of his Compensation into the Plan pursuant to Section 3.2 or has
been allocated a Qualified Non-Elective Contribution,  the Employer shall make a
discretionary  Matching  Contribution  based on the matching formula  determined
from time to time by the Employer.  Such amount shall be deemed to be a Matching
Contribution and allocated to the applicable Participants' Matching Accounts.

                   (d) Qualified  Non-Elective  Contribution:  On behalf of each
Participant  (or if  elected  by the  Employer,  on  behalf  of each  Non-Highly
Compensated Participant only), the Employer may make a discretionary,  Qualified
Non-Elective  Contribution  equal  to  a  percentage  of  Compensation  of  such
Participants (or, if applicable,  such Non-Highly Compensated Participants only)
determined  by the  Employer.  Such  amount  shall be  deemed  to be  additional
Deferred  Compensation  and allocated to the applicable  Participants'  Deferral
Accounts.

                   (e) Profit  Sharing  Contribution:  For each Fiscal Year, the
Employer  may, in its sole  discretion,  determine  the  amount,  if any, of any
Profit Sharing  Contribution to be made by it to the Plan. Such contribution may
be made by the Employer regardless of Net Profits or accumulated  earnings,  and
shall be allocated to each Participant's  Profit Sharing Account. In determining
such Profit Sharing Contribution, the Employer shall be entitled to rely upon an
estimate of its Net Profits, of the total Compensation for all Participants, and
of the amounts  contributable by it. Except as otherwise  provided  herein,  the
Employer's   determination  of  such  contribution   shall  be  binding  on  all
Participants, the Administrator and the Trustee. The Trustee shall have no right
or duty to inquire into the amount of the Employer's  contribution or the method
used in  determining  the amount of the  Employer's  contribution,  but shall be
accountable only for funds actually received by the Trustee.

                   (f)  Except as  otherwise  required  herein,  the  Employer's
contributions  provided for in this Section shall not exceed the maximum  amount
allowable as a deduction to the Employer  under the  provisions  of Code Section
404. All contributions by the Employer shall be made in cash or in such property
as is acceptable to the Trustee and permitted by the Act and the Code.

                   (g) Notwithstanding the foregoing  provisions,  to the extent
necessary to provide the top heavy minimum allocations  required by Article VII,
the Employer shall make a contribution even if it exceeds the Employer's current
or accumulated  Net Profit or the amount which is deductible  under Code Section
404.


<PAGE>



                   (h)  Except  as  provided  in  paragraph  (g)  above  and  in
accordance with Act Section 403(c)(2)(C),  Revenue Ruling 91-4 and the Code, any
contribution  by  the  Employer  to the  Trust  Fund  is  conditioned  upon  the
deductibility  of the  contribution  by the Employer  under the Code and, to the
extent any such  deduction  is  disallowed,  the Employer  may,  within one year
following a final  determination of the disallowance,  whether by agreement with
the  Internal  Revenue  Service  or by final  decision  of a court of  competent
jurisdiction,  demand repayment of such disallowed contribution, and the Trustee
shall  return such  contribution  within one year  following  the  disallowance,
provided such return of contribution is otherwise  permitted by the Act, Revenue
Ruling  91-4 and the  Code.  Earnings  of the Plan  attributable  to the  excess
contribution  may not be returned to the Employer,  but any losses  attributable
thereto must reduce the amount so returned.

                   (i) Notwithstanding  anything herein to the contrary,  in the
event the Employer shall make an excessive  contribution under a mistake of fact
as described in Act Section  403(c)(2)(A)  and Revenue Ruling 91-4, the Employer
may demand repayment of such excessive  contribution at any time within one year
following  the time of payment and the Trustee  shall  return such amount to the
Employer  within the one year period.  Earnings of the Plan  attributable to the
excess  contributions  may not be  returned  to the  Employer,  but  any  losses
attributable thereto must reduce the amount so returned.

                   (j)  Notwithstanding  any  provision  of  this  Plan  to  the
contrary,  any  amount  returned  to the  Employer  pursuant  to  the  foregoing
paragraphs  of this  Section 3.1 may be returned to the Employer  regardless  of
whether the  Participant is Vested,  in whole or in part.  However,  the maximum
reversion to the Employer  shall not exceed the  limitations  of Revenue  Ruling
91-4.

             3.2   PARTICIPANT'S SALARY REDUCTION ELECTION

                   (a) Pursuant to procedures  and guidelines  established  from
time to time by the  Administrator in accordance with paragraph (j) below,  each
Participant  may  elect  to  defer  into the  Plan a  portion  (up to a  maximum
percentage   determined  from  time  to  time  by  the   Administrator)  of  his
Compensation  which would have been  received  during the Plan Year (but for the
deferral  election).  Such deferral  shall comply with the  requirements  of the
Average  Deferral  Percentage  test  of  Section  3.5 and  the  annual  addition
requirements  of Section 3.9, and shall not exceed the maximum amount  allowable
as a deduction to the Employer  under Code Section 404. A deferral  election (or
modification  of  an  earlier   election)  may  not  be  made  with  respect  to
Compensation  which is available on or before the date the Participant  executes
such election.

                   (b) The  amount  by  which a  Participant's  Compensation  is
reduced shall be that Participant's  Deferred Compensation and allocated to that
Participant's Deferral Account.

                   (c) The balance in each Participant's  Deferral Account shall
be 100%  Vested at all times,  and shall not be subject  to  Forfeiture  for any
reason.

                   (d) Amounts held in a  Participant's  Deferral  Account shall
not be distributable earlier than the:

                       (1)  Participant's  termination of employment,  Total and
Permanent Disability, or death;

                       (2) Participant's attainment of age 59 1/2;


<PAGE>



                       (3)  Termination of the Plan without the existence at the
time of Plan  termination of another  defined  contribution  plan (other than an
employee  stock  ownership  plan as defined in Code Section  4975(e)(7))  or the
establishment of a successor  defined  contribution plan (other than an employee
stock  ownership plan as defined in Code Section  4975(e)(7)) by the Employer or
an Affiliated Employer within the period ending twelve months after distribution
of all assets from the Plan.  For  purposes of this  Section,  the rules of Code
Section  401(k)(10)(B) and of Regulation Sections  1.401(k)-1(d)(3)  and (5) are
incorporated herein by reference;

                       (4) Date of disposition by the Employer to an entity that
is not an Affiliated  Employer of  substantially  all of the  Employer's  assets
(within the meaning of Code  Section  409(d)(2))  used in its trade or business.
For  purposes  of this  Section,  the rules of Code  Section  401(k)(10)(B)  and
Regulation  Sections   1.401(k)-1(d)(4)  and  (5)  are  incorporated  herein  by
reference;

                       (5) Date of  disposition by the Employer or an Affiliated
Employer who  maintains  the Plan of its  interest in a  subsidiary  (within the
meaning  of Code  Section  409(d)(3))  to an entity  which is not an  Affiliated
Employer.  For purposes of this Section, the rules of Code Section 401(k)(10)(B)
and Regulation  Sections  1.401(k)-1(d)(4)  and (5) are  incorporated  herein by
reference; or

                       (6) Proven financial  hardship of a Participant,  subject
to the limitations of Section 6.14.

                   (e) In the  event  a  Participant  has  received  a  hardship
distribution  from his  Participant's  Deferral Account pursuant to Section 6.14
or, pursuant to Regulations  under Code Section 401(k) (iii)(B),  from any other
plan maintained by the Employer, then such Participant shall not be permitted to
elect to have Deferred Compensation  contributed to the Plan on his behalf for a
period of 12 months following the date of receipt of such hardship distribution.
Furthermore,  the dollar limitation under Code Section 402(g) applicable to such
Participant  shall be reduced  with  respect to the  Participant's  taxable year
following the taxable year in which the hardship  distribution was received,  by
the amount of such Participant's Deferred Compensation,  if any, under this Plan
(and any other  maintained by the Employer) for the taxable year of the hardship
distribution.

                   (f) If a Participant's Deferred Compensation under this Plan,
together  with  any  elective   deferrals  (as  defined  in  Regulation  Section
1.402(g)-1(b))  under another qualified cash or deferred arrangement (as defined
in Code  Section  401(k)),  a  simplified  employee  pension (as defined in Code
Section  408(k)),  a salary  reduction  arrangement  (within the meaning of Code
Section 3121(a)(5)(D)), a deferred compensation plan under Code Section 457 or a
trust described in Code Section  501(c)(18),  cumulatively exceed the limitation
imposed  by Code  Section  402(g)  for such  Participant's  taxable  year  (such
limitation  to be adjusted  annually in accordance  with the method  provided in
Code Section 415(d) pursuant to  Regulations),  the  Participant  may, not later
than March 1 following the close of his taxable year,  notify the  Administrator
in writing of such Excess  Deferred  Compensation  and request that his Deferred
Compensation  under  this  Plan  be  reduced  by  an  amount  specified  by  the
Participant.  In such  event,  the  Administrator  shall  direct the  Trustee to
distribute such Excess Deferred Compensation (and any "income" allocable to such
excess amount) to the  Participant not later than the first April 15th following
the  close of the  Participant's  taxable  year in which  such  Excess  Deferred
Compensation was contributed. A Participant shall be deemed to have notified the
Administrator in writing of such Excess Deferred Compensation for a taxable year
if such excess is  calculated  by taking into  account only  elective  deferrals
under the Plan and other plans of the Employer.  Any  distribution  of less than
the entire amount of Excess Deferred  Compensation and "income" shall be treated
as a pro rata  distribution  of Excess Deferred  Compensation  and "income." The
amount  distributed  shall not exceed the  Participant's  Deferred  Compensation
under the Plan for the taxable year. Any  distribution on or before the last day
of the Participant's  taxable year in which the Excess Deferred Compensation was
contributed must satisfy each of the following conditions:
<PAGE>

                       (1) The Participant shall designate (or is deemed to have
so designated) the distribution as Excess Deferred Compensation;

                       (2) The distribution must be made after the date on which
the Plan received the Excess Deferred Compensation; and


                       (3)  The  Plan  must  designate  the  distribution  as  a
distribution of Excess Deferred Compensation.

                   Any Matching Contributions made on account of Excess Deferred
Compensation  distributed  pursuant  to  this  Section  shall  be  treated  as a
Forfeiture  for  the  Plan  Year  of   distribution   of  such  Excess  Deferred
Compensation.

                   (g) For purposes of Section 3.2(f) above,  "income" means the
gain or loss  allocable to Excess  Deferred  Compensation  which shall equal the
allocable  gain or loss for the  taxable  year of the  Participant.  The  income
allocable  to  Excess  Deferred   Compensation  for  the  taxable  year  of  the
Participant  is  determined  by  multiplying  the income  allocable  to Deferred
Compensation  for  the  taxable  year  of the  Participant  by a  fraction.  The
numerator of the fraction is the Participant's Excess Deferred  Compensation for
the taxable year of the Participant.  The denominator of the fraction is the sum
of the Participant's Deferral Account as of the beginning of the taxable year of
the Participant plus the Deferred  Compensation  allocable to such Participant's
Deferral  Account for the taxable  year of the  Participant.  No income shall be
allocable to Excess Deferred Compensation for the Gap Period.

                   (h) Income  allocable to any  distribution of Excess Deferred
Compensation  on or before the last day of the taxable  year of the  Participant
shall be calculated from the first day of the taxable year of the Participant to
the date on which  distribution is made pursuant to Section 3.2(f) above,  using
the method  described in paragraph (g) above for the income  allocable to Excess
Deferred Compensation for the taxable year of the Participant.

                   (i)  Notwithstanding  Section 3.2(f) above,  a  Participant's
Excess  Deferred  Compensation  shall be  reduced,  but not below  zero,  by any
distribution and/or recharacterization of Excess Elective Contributions pursuant
to Section 3.6 for the Plan Year  beginning  with or within the taxable  year of
the Participant.

                   (j) The Employer and the  Administrator  shall  implement the
salary  deferral  elections  provided for in this Section 3.2 in accordance with
the following:

                       (1) A Participant may commence making elective  deferrals
to the Plan only  after  first  satisfying  the  eligibility  and  participation
requirements specified in Article II. If a Participant fails to make his initial
salary  deferral  election  within the  designated  enrollment  term,  then such
Participant  may  thereafter  make an  election  in  accordance  with the  rules
governing  modifications.  A Participant shall make such election by executing a
deferral election form, and filing such agreement with the Administrator.

                   Such election (i) shall initially be effective beginning with
the first pay period administratively  feasible to effect the deferral election,
(ii) shall not have  retroactive  effect,  and (iii) shall remain in force until
revoked or modified.


<PAGE>



                       (2) A Participant  may modify a prior election during the
Plan Year and  concurrently  make a new  election  by filing a revised  deferral
election  form with the  Administrator  at such times or during such  enrollment
periods  as  are   established  by  the   Administrator.   However,   until  the
Administrator  provides  otherwise,  modifications of a prior deferral  election
shall only be made as of the first day of each calendar quarter.

                       (3) Notwithstanding  the above provisions,  a Participant
may elect prospectively to revoke his salary reduction agreement in its entirety
at any time during the Plan Year by  providing  the  Administrator  with written
notice of such  revocation.  Such  revocation  shall become  effective as of the
payroll  date  for  which  it is  administratively  practical  to  give  effect.
Furthermore,  the receipt of a hardship  distribution  pursuant to Section 6.14,
the  termination  of  the   Participant's   employment,   or  the  cessation  of
participation  in the Plan for any reason,  shall be deemed to revoke any salary
reduction  agreement then in effect,  effective as of the date  administratively
practical  following  the close of the pay period  within  which  such  receipt,
termination or cessation occurs.

             3.3   TIME OF PAYMENT OF CONTRIBUTIONS

                   The Employer  shall pay to the Trustee its  contributions  to
the Plan for each  Plan  Year  within  the  time  prescribed  by law,  including
extensions of time, for the filing of the  Employer's  federal income tax return
for the Fiscal Year.  The Employer  shall  designate  the Plan Year to which the
contribution  relates.  To the extent  the Trust has  Current  Obligations,  the
Employer's ESOP Contribution shall be paid to the Plan in cash in sufficient and
timely amounts to meet the terms of such Current obligations.  However, Deferred
Compensation accumulated through payroll deductions shall be paid to the Trustee
within  the  times  prescribed  by the  Department  of Labor.  Furthermore,  any
additional Employer contributions which are Qualified Non-Elective Contributions
allocable to the Participant's Deferral Account for a Plan Year shall be paid to
the Plan no later than the twelve-month  period immediately  following the close
of such Plan Year.

             3.4   ACCOUNTING AND ALLOCATION

                   (a)  The   Administrator   shall  establish  and  maintain  a
Participant's  Deferral  Account,   Participant's  ESOP  Account,  Participant's
Matching Account,  and Participant's Profit Sharing Accounts (and if applicable,
a Participant's Rollover Account) in the name of each Participant,  to which the
Administrator  shall credit,  as of each  Anniversary  Date (or at more frequent
intervals  determined  by the  Administrator),  all  amounts  allocable  to each
Participant  as  hereinafter  set  forth.  The   Administrator  may  divide  the
Participant's   ESOP  Account  into  a  Participant's   Company  Stock  Account,
Participant's  ESOP Investment Account and/or  Participant's  Qualified Directed
Investment Account.

                   (b) The Employer  shall  provide the  Administrator  with all
information  required by the  Administrator  to make a proper  allocation of all
Employer contributions  (including the ESOP Contribution,  Matching Contribution
and Profit Sharing Contribution,  if any),  Forfeitures,  Company Stock released
from the Unallocated  Company Stock Suspense Account,  or Trust Fund earnings or
losses for each Plan Year. Within a reasonable time after the date of receipt by
the Administrator of such information, the Administrator shall allocate any such
contributions,  Company  Stock  released  from  the  unallocated  Company  Stock
Suspense Account and Forfeitures  (after making any  reinstatements  required by
Section 3.4(f)) as follows:


<PAGE>



                       (1)  With  respect  to  any  Employer's   Profit  Sharing
Contributions,   ESOP   Contributions,   Forfeitures  of  such  Employer's  ESOP
Contributions and Profit Sharing Contributions,  and Company Stock released from
the Unallocated Company Stock Suspense Account,  after making any reinstatements
required by Section 3.4(f), the Administrator shall allocate such amounts in the
same proportion that each such  Participant's  Compensation with respect to such
Plan Year bears to the total  Compensation of all Participant's  with respect to
such Plan Year.

                       (2) With respect to the Deferred Compensation contributed
pursuant to Section 3.1(b), to each  Participant's  Deferral Account,  an amount
equal to his Deferred Compensation for such Plan Year (or other interval).

                       (3)  Effective  for Plan  Years  beginning  on and  after
October 1, 1997,  with respect to the Matching  Contributions  made  pursuant to
Section 3.1(c),  to each  Participant's  Matching  Account an amount  determined
under the matching formula for the Plan Year (or other interval).

                       (4)   With   respect   to  any   Qualified   Non-Elective
Contributions  made pursuant to Section  3.1(d),  to each  Participant's  (or if
applicable,  to each Non-Highly Compensated  Participant only) Deferral Account,
an amount determined by the Employer for such Plan Year.

                   (c) Notwithstanding the above provisions of Section 3.4(b), a
Participant  who performed  less than 500 Hours of Service during a Plan Year or
terminated employment for any reason during the Plan Year shall not be allocated
a share  of the  Employer's  ESOP  Contribution,  Profit  Sharing  Contribution,
Company Stock  Released from the  Unallocated  Company Stock  Suspense  Account,
Forfeitures,  Matching  Contribution,  or Qualified  Non-Elective  Contribution,
unless  required  by  Section  7.4  or  unless  required  to  meet  the  minimum
participation or coverage tests of Code Sections  401(a)(26) and 410 or to avoid
discrimination  under  Code  Section  401(a)(4)  for that  Plan  Year.  However,
effective  October 1, 1997, a Participant who terminated  employment  during the
Plan Year due to death or Total and  Permanent  Disability  shall be allocated a
share of such  contributions  for such Plan Year,  provided such Participant had
500 Hours of  Service  for that Plan  Year.  Furthermore,  a  Participant  whose
effective  date of termination is September 30 shall be deemed to be employed on
the last day of the Plan Year.

                   (d) The Company  Stock Account of each  Participant  shall be
credited as of each  Anniversary  Date with the  Participant's  allocable  share
(determined  pursuant  to  paragraph  (b)  above) of  Company  Stock  (including
fractional shares) purchased and paid for by the Trust or contributed in kind to
the Trust by the Employer. In addition, each Participant's Company Stock Account
shall be credited as of each  Anniversary Date with Forfeitures of Company Stock
and with stock  dividends on Company Stock that previously had been allocated to
the Participant's Company Stock Account. Cash dividends on Company Stock held in
a  Participant's   Company  Stock  Account  shall,  in  the  discretion  of  the
Administrator,  be allocated to the Participant's ESOP Investment Account,  paid
directly  to the  Participant,  or used to repay an Exempt Loan  (provided  that
Company Stock released from the Unallocated  Company Stock Suspense  Account and
allocated to the Participant's Company Stock Account has a fair market value not
less than the amount of cash  dividends  which would have been allocated to such
Participant's ESOP Investment Account for the Plan Year). Company Stock acquired
by the Plan with the  proceeds  of an Exempt  Loan  shall be  allocated  to each
Participant's  Company Stock Account upon release from the  Unallocated  Company
Stock  Suspense  Account as  provided in Section  3.4(g)  below.  Company  Stock
received by the Trust during a Plan Year with respect to an ESOP Contribution by
the Employer for the preceding Plan Year shall be allocated to the Participant's
Company Stock Accounts as of the Anniversary Date of such preceding Plan Year.


<PAGE>



                   (e) As of each  Anniversary  Date or  other  Valuation  Date,
before allocation of the Employer's  contributions made pursuant to Section 3.1,
any Company Stock released from the Unallocated  Company Stock Suspense Account,
any Forfeitures,  and any earnings or losses  (including net appreciation or net
depreciation)  of the Trust Fund  (other than  earnings or losses on  segregated
accounts subject to Participant  self-direction)  since the last valuation shall
be  allocated  in  the  same  proportion  that  each  Participant's  and  Former
Participant's  Aggregate  Account (as of the beginning of the valuation  period)
bears to the  total of all  Participants'  and  Former  Participants'  Aggregate
Accounts  as of the same date.  Such  allocation  shall,  pursuant  to a uniform
procedure  determined  by the  Administrator,  be  reduced  by any  withdrawals,
distributions,  forfeitures,  or hardship distributions made pursuant to Section
6.14.  Notwithstanding the foregoing,  unless the Administrator  elects to value
the Trust Fund daily, the  Administrator  may,  pursuant to a uniform  procedure
determined  by the  Administrator,  provide  that  gains or losses  on  Deferred
Compensation  may be  computed  on a  time-weighted  basis to give effect to the
periodic   contribution  of  Deferred  Compensation  required  by  Section  3.4.
Furthermore,  in the event the  Employer  elects to value the Trust Fund on each
Business  Day,  (i) each  distribution  or  withdrawal  shall be  charged to the
appropriate  account  on the  Business  Day as of  which  such  distribution  or
withdrawal  is  processed,  and (ii)  contributions  made by or on  behalf  of a
Participant shall be credited to the appropriate  account on the Business Day as
of  which  such   contribution   is  received  and   processed.   The  Trustee's
determination  of the net value of the Trust Fund, and of the debits and credits
to each  account,  shall be  conclusive  and  binding  on the  Participants  and
Beneficiaries.  See also Section 3.12  regarding  the  allocation of earnings to
Participant's Qualified Directed Investment Accounts.

                   (f) As of each Anniversary  Date, any amounts credited to the
Suspense  Account that have become  Forfeitures  during the Plan Year (including
amounts  forfeited  under Section 6.4) first,  in  accordance  with Section 8.9,
shall be used to pay Plan  expenses,  costs and fees,  and the balance  shall be
allocated as follows:

                       (1)  Forfeitures  in the  Suspense  Account  relating  to
Participants'  and Former  Participants'  ESOP  Accounts,  Participants'  Profit
Sharing  Accounts,  and  Participant's  Matching Accounts shall first be used to
reinstate previously forfeited Participants' ESOP Accounts, Participants' Profit
Sharing  Accounts  and  Participants'  Matching  Accounts,  if any,  pursuant to
Section 6.4(g).  If required  restorations  exceed  available  Forfeitures,  the
Employer shall contribute the excess to the Plan.

                       (2) Any  remaining  Forfeitures  in the Suspense  Account
relating  to  Participants'  ESOP  Accounts  and  Participants'  Profit  Sharing
Accounts shall be allocated in the year forfeited among the  Participants'  ESOP
and Participants'  Profit Sharing Accounts in the same manner, and in connection
with,  the  allocation of the Employer's  ESOP  Contribution  and Profit Sharing
Contribution respectively allocated pursuant to Section 3.4(b).

                       (3) Any  remaining  Forfeitures  in the Suspense  Account
relating to Participant's  Matching Accounts shall be used in the year forfeited
to reduce the Employer's Matching Contribution required by Section 3.1(c) above.

                       (4) In the  event the  allocation  of  Forfeitures  shall
cause the "annual addition" limitation of Section 3.9 to be exceeded, the excess
shall be reallocated in accordance with Section 3.10.


<PAGE>



                       (5)  Notwithstanding the above provisions of this Section
3.4(f),  a Participant  who performed  less than 500 Hours of Service during the
Plan Year or terminated employment for any reason during the Plan Year shall not
be allocated a share of the Plan  Forfeitures for that Plan Year unless required
pursuant to Section 7.4 or unless required to meet the minimum  participation or
coverage tests of Code Sections  401(a)(26)  and 410 or to avoid  discrimination
under Code Section 401(a)(4) for that Plan Year.  However,  effective October 1,
1997, a Participant who terminated employment during such Plan Year due to death
or Total  and  Permanent  Disability  shall be  allocated  a share of such  Plan
Forfeitures for such Plan Year,  provided such Participant was credited with 500
Hours of Service for that Plan Year. Furthermore,  a Participant whose effective
date of  termination  is September 30 shall be deemed to be employed on the last
day of the Plan Year.

                   (g) All Company Stock  acquired by the Plan with the proceeds
of an Exempt Loan shall be added to and  maintained in the  Unallocated  Company
Stock Suspense Account.  Such Company Stock shall be released and withdrawn from
that account as if all Company Stock in that account were  encumbered.  For each
Plan Year during the  duration of the Exempt  Loan,  the number of shares of the
Company  Stock  released  shall  equal the  number  of  encumbered  shares  held
immediately  before release for the current Plan Year  multiplied by a fraction,
the numerator of which is the amount of principal and interest paid for the Plan
Year and the denominator of which is the sum of the numerator plus the principal
and interest to be paid for all future Plan Years.  (See  Section 5.5  regarding
Exempt  Loans).  The rules of Labor  Regulation  Section  2550.408b-3(h)(1)  are
incorporated herein by reference. As of each Anniversary Date, the Administrator
shall consistently  allocate to each Participant's Company Stock Account, in the
same manner as the Employer's  ESOP  Contributions  are allocated,  non-monetary
units (i.e.,  shares and fractional  shares of Company Stock)  representing each
Participant's  interest  in the Company  Stock  withdrawn  from the  Unallocated
Company Stock Suspense  Account.  Notwithstanding  the foregoing,  Company Stock
released from the Unallocated Company Stock Suspense Account with cash dividends
pursuant to this Section shall be allocated to each Participant's  Company Stock
Account in the same proportion that each such Participant's  number of shares of
Company Stock sharing in such cash dividends bears to the total number of shares
of all Participants' Company Stock sharing in such cash dividends. Income earned
with respect to Company Stock in the Unallocated  Company Stock Suspense Account
may be used, at the  discretion of the  Administrator,  to repay the Exempt Loan
used to purchase  such Company  Stock.  Any income which is not so used shall be
allocated as income of the Plan.

                   (h)  If  a  Former   Participant  is  reemployed  after  five
consecutive  One-Year  Breaks  in  Service,  then  separate  accounts  shall  be
maintained as follows:

                       (1) One account for nonforfeitable  benefits attributable
to pre-break service; and

                       (2) One  account  representing  his  status  in the  Plan
attributable to post-break service.

                   (i) If,  because  of the  service  requirements  in  Sections
3.4(c) or 3.4(f)(5),  this Plan would otherwise fail to meet the requirements of
Code  Sections  401(a)(26),  410 or 401(a)(4)  and the  Regulations  thereunder,
because the Employer's ESOP Contributions,  Profit Sharing  Contributions and/or
Forfeitures  have not been  allocated to a sufficient  number or  percentage  of
Participants  or Former  Participants  for a Plan Year, then the following rules
shall apply:


<PAGE>



                       (1) The group of  Participants  eligible  to share in the
Employer's ESOP  Contributions,  Profit Sharing  Contribution and/or Forfeitures
for  the  Plan  Year  shall  be  expanded  to  include  the  minimum  number  of
Participants who would not otherwise be eligible as are necessary to satisfy the
applicable  test specified  above.  The specific  Participants  who shall become
eligible  under the  terms of this  paragraph  shall be those  who are  actively
employed  on the last day of the Plan  Year  and,  when  compared  to  similarly
situated Participants, have completed the greatest number of Hours of Service in
the Plan Year.

                       (2) If after  application  of  paragraph  (1) above,  the
applicable test is still not satisfied, then the group of Participants or Former
Participants  eligible to share in the  Employer's  ESOP  Contributions,  Profit
Sharing  Contribution  and/or  Forfeitures  for the Plan Year  shall be  further
expanded to include the minimum number of  Participants  or Former  Participants
who are not actively  employed on the last day of the Plan Year as are necessary
to satisfy the applicable test. The specific Participants or Former Participants
who  shall  become  eligible  to share  shall be those  Participants  or  Former
Participants,  when  compared  to  similarly  situated  Participants  or  Former
Participants,  who have completed the greatest number of Hours of Service in the
Plan Year before terminating employment.

                       (3) Nothing in this Section shall permit the reduction of
a Participant's Aggregate Account.  Therefore,  any amounts that have previously
been allocated to Participants or Former  Participants may not be reallocated to
satisfy these requirements. In such event, the Employer shall make an additional
contribution   equal  to  the  amount  such  affected   Participants  or  Former
Participants would have received had they been included in the allocations, even
if its exceeds the amount which would be deductible  under Code Section 404. Any
adjustment to the  allocations  pursuant to this paragraph shall be considered a
retroactive amendment adopted by the last day of the Plan Year.

             3.5   AVERAGE DEFERRAL PERCENTAGE TESTS

                   (a) For each Plan Year, the annual  allocation  under Section
3.4(b)(2)  derived  from  Deferred  Compensation  allocated  to a  Participant's
Deferral Account shall satisfy one of the following tests:

                       (1)  The  Average  Deferral  Percentage  for  the  Highly
Compensated  Participant  group  for the Plan  Year  shall  not be more than the
Average Deferral Percentage of the Non-Highly Compensated  Participant group for
the Plan Year (or for Plan Years  beginning  after  December 31,  1996,  for the
preceding  Plan  Year)  multiplied  by 1.25,  or

                       (2) The excess of the Average Deferral Percentage for the
Highly Compensated Participant group for the Plan Year over the Average Deferral
Percentage for the Non-Highly  Compensated  Participant  group for the Plan Year
(or for Plan Years  beginning  after  December 31, 1996,  for the preceding Plan
Year) shall not be more than two  percentage  points,  and the Average  Deferral
Percentage for the Highly Compensated  Participant group for the Plan Year shall
not  exceed the  Average  Deferral  Percentage  for the  Non-Highly  Compensated
Participant  group for the Plan Year (or for Plan Years beginning after December
31, 1996, for the preceding Plan Year) multiplied by two. The provisions of Code
Section 401(k)(3) and Regulation Section  1.401(k)-1(b) are incorporated  herein
by reference.

                   For Plan Years beginning after December 31, 1996, the current
Plan Year may be used for  computing  the  Average  Deferral  Percentage  of the
Non-Highly  Compensated  Participant  group if the Employer so elects,  but once
such election is made, it may not be changed except as provided by the Secretary
of the Treasury.


<PAGE>



                   (b) In order to prevent the multiple  use of the  alternative
method described in subparagraph (a)(2) above and Section 3.7(a)(2) with respect
to any  Highly  Compensated  Employee,  the  provisions  of  Regulation  Section
1.401(m)-2  are  incorporated  herein by reference.  See Section  3.7(b) for the
method of eliminating such multiple use.

                   (c) For Plan Years  beginning prior to December 31, 1996, for
purposes of determining the Actual Deferral  Percentage of a Highly  Compensated
Employee who is subject to the Family Member rules of Code Section 414(q)(6) the
following shall apply:

                       (1)  The  combined  Actual  Deferral  Percentage  for the
family  group  (which  shall be treated as one Highly  Compensated  Participant)
shall be determined by aggregating the Deferred Compensation and Compensation of
all  eligible  Family  Members  (including  Highly  Compensated   Participants).
However,  in applying the $150,000 limit (as adjusted) to  Compensation,  Family
Member  shall  include  only  the  affected  Employee's  spouse  and any  lineal
decedents who have not attained age 19 before the close of the Plan Year.

                       (2) The Deferred Compensation, Compensation and Qualified
Non-Elective  Contributions  of all  Family  Members  shall be  disregarded  for
purposes  of  determining  the  Actual  Deferral  Percentage  of the  Non-Highly
Compensated  Participated  group  except to the  extent  taken  into  account in
paragraph (1) above.

                       (3) If a  Participant  is required to be  aggregated as a
member of more than one family group in a plan, all Participants who are members
of those family groups that include the Participant are aggregated as one family
group in accordance with paragraphs (1) and (2) above.

                   (d) For  purposes  of  Sections  3.5(a)  and  3.6,  a  Highly
Compensated  Participant and a Non-Highly Compensated  Participant shall include
any  Employee  eligible to make a deferral  election  pursuant  to Section  3.2,
whether or not such deferral election was made or suspended.

                   (e) For purposes of this Section and Code Sections 401(a)(4),
410(b)  and  401(k),  if two or  more  plans  which  include  cash  or  deferred
arrangements  are considered one plan for purposes of Code Section 410(b) (other
than for purposes of the average benefit  percentage test), the cash or deferred
arrangements  included  in such plans  shall be treated as one  arrangement.  In
addition,  two or more cash or  deferred  arrangements  may be  considered  as a
single arrangement for purposes of determining whether such arrangements satisfy
Code Sections  401(a)(4),  410(b) and 401(k). In such case, the cash or deferred
arrangements  included in such plans and the plans  including such  arrangements
shall be treated as one arrangement and as one plan for purposes of this Section
and Code Sections 401(a)(4),  410(b) and 401(k). For Plans Years beginning after
December 31, 1989, plans may be aggregated under this paragraph (e) only if they
have the same plan year.

                   (f) For  purposes of this  Section,  if a Highly  Compensated
Participant  is a  Participant  under two or more cash or deferred  arrangements
(other than a plan  described  in  Regulation  Section  1.401(k)-1(b)(3)(ii)(B))
which are  maintained  by the  Employer or an  Affiliated  Employer and to which
Deferred  Compensation  contributions  are  made,  all  such  cash  or  deferred
arrangements  shall be  treated  as one  cash or  deferred  arrangement  for the
purpose of  determining  the Actual  Deferral  Percentage  with  respect to such
Highly  Compensated  Participant.  If the  cash or  deferred  arrangements  have
different plan years,  this  paragraph  shall be applied by treating all cash or
deferred  arrangements  ending with or within the same calendar year as a single
arrangement.


<PAGE>



             3.6   ADJUSTMENT TO AVERAGE DEFERRAL PERCENTAGE TESTS

                   (a) In the event that the  initial  allocations  of  Deferred
Compensation  made pursuant to Section 3.4(b)(2) do not satisfy one of the tests
set forth in Section  3.5(a),  then on or before the  fifteenth day of the third
month  following the end of the Plan Year,  the  Administrator  shall adjust the
Excess Elective Contributions as follows:

                       (1) For Plan years  beginning prior to December 31, 1996,
the  Administrator   shall  direct  the  Trustee  that  the  Highly  Compensated
Participant having the highest Actual Deferral Percentage shall have his portion
of  Excess  Elective  Contributions  distributed  to him  (without  the need for
Participant  or  spousal  consent)  until one of the tests set forth in  Section
3.5(a) is satisfied by the Highly  Compensated  Participant  group, or until his
Actual Deferral  Percentage equals the Actual Deferral  Percentage of the Highly
Compensated  Participant  having the second highest Actual Deferral  Percentage.
This process shall  continue  until one of the tests set forth in Section 3.5(a)
is  satisfied  by the Highly  Compensated  Participant  group.  For each  Highly
Compensated Participant, the amount of Excess Elective Contributions is equal to
the  difference  between the Deferred  Compensation  of such Highly  Compensated
Participant  (determined  prior to the application of this paragraph)  minus the
amount  determined by multiplying the Highly  Compensated  Participant's  Actual
Deferral  Percentage  (determined  after  application of this  paragraph) by his
Compensation.   However,   in   determining   the  amount  of  Excess   Elective
Contributions to be distributed  with respect to an affected Highly  Compensated
Participant  as  determined  herein,  such amount shall be reduced by any Excess
Deferred Compensation previously distributed to such affected Highly Compensated
Participant  for his taxable  year  ending  with or within  such Plan Year.  See
Sections 3.2(f) and (g).
                   
                       (2) For Plan Years beginning after December 31, 1996, the
Administrator  first shall  determine the total dollar amount of Excess Elective
Contributions that must be returned to the Highly Compensated  Participant group
in order to satisfy  one of the tests set forth in  Section  3.5(a).  Next,  the
Administrator shall direct the Trustee to distribute such total dollar amount of
Excess  Elective  Contributions  to the Highly  Compensated  Participants on the
basis of the dollar  amount of  Deferred  Compensation  allocated  to the Highly
Compensated Participants pursuant to Section 3.4(b)(2) (prior to the application
of  this  subsection),   such  that  Excess  Elective   Contributions  shall  be
distributed  to the  Highly  Compensated  Participants  who were  allocated  the
highest dollar amount of Deferred Compensation.  This provision shall be applied
by  distributing  (without the need for  Participant or spousal  consent) to the
Highly  Compensated  Participant  who was allocated the highest  dollar amount a
dollar amount of Excess Elective  Contributions until the total amount of Excess
Elective  Contributions  is distributed,  or until his dollar amount of Deferred
Compensation  equals the dollar  amount of Deferred  Compensation  of the Highly
Compensated Participant that was allocated the second highest amount of Deferred
Compensation.  This process shall  continue  until one of the tests set forth in
Section  3.5(a)  is  satisfied  by the  Highly  Compensated  Participant  group.
However,  in  determining  the  amount of Excess  Elective  Contributions  to be
distributed,  such  total  amount  shall  be  reduced  by  any  Excess  Deferred
Compensation  previously distributed to a Highly Compensated Participant for his
taxable year ending with or within such Plan Year. See Sections 3.2(f) and (g).

                       (3) With respect to the  distribution  of Excess Elective
Contributions pursuant to (a) above, such distribution:

                           (i) may be postponed, but not later than the close of
the Plan Year following the Plan Year to which they are allocable;

                           (ii)  shall be made  first  from  unmatched  Deferred
Compensation  and,  thereafter,  from  Deferred  Compensation  which is matched.
Matching  Contributions  relating to Excess Elective  Contributions shall not be
distributed,  but  rather  shall  be  treated  as a  Forfeiture  of  a  Matching
Contribution in the Plan Year of the distribution  and reallocation  pursuant to
Section 3.4.


<PAGE>



                           (iii)  shall  be  made  from  Qualified  Non-Elective
Contributions only to the extent that Excess Elective  Contributions  exceed the
balance  in  the  Participant's   Deferral  Account   attributable  to  Deferred
Compensation contributed pursuant to Section 3.1(b);

                           (iv) shall be adjusted  for  "income"  (as defined in
paragraph 4 below); and

                           (v)  shall  be   designated  by  the  Employer  as  a
distribution of Excess Elective Contributions and "income".

                       (4) For purposes of this Section 3.6,  "income" means the
gain or loss allocable to Excess Elective  Contributions for the Plan Year. Such
amount  shall be  determined  by  multiplying  the income  allocable to Deferred
Compensation  for the Plan Year by a fraction.  The numerator of the fraction is
the  Participant's  Excess  Elective   Contributions  for  the  Plan  Year.  The
denominator of the fraction is the sum of the Participant's  Deferral Account as
of the  beginning of the Plan Year plus the Deferred  Compensation  allocable to
such  Participant's  Deferral  Account  for the Plan  Year.  No income  shall be
allocable to Excess Elective Contributions for the Gap Period.

                       (5) Any  distribution  of less than the entire  amount of
Excess  Elective  Contributions  shall be treated as a pro rata  distribution of
Excess Elective Contributions and income.

                       (6) For Plan Years  beginning prior to December 31, 1996,
the  determination  and correction of Excess Elective  Contributions of a Highly
Compensated Participant whose Actual Deferral Percentage is determined under the
Family  Member  rules of Code  Serction  414(q)(6)  and Section  3.5(b) shall be
accomplished by reducing the Actual Deferral  Percentage as required herein, and
allocating  the Excess  Elective  Contributions  for the  family  unit among the
Family Members in proportion to the Deferred  Compensation of each Family Member
that was combined to determine the group Actual Deferral Percentage.

                   (b)  Within 12 months  after  the end of the Plan  Year,  the
Employer may make a special Qualified Non-Elective Contribution on behalf of all
Participants  (or  Non-Highly  Compensated   Participants  only)  in  an  amount
sufficient  to  satisfy  one of the  tests  set forth in  Section  3.5(a).  Such
contribution  shall be allocated to the  Participant's  Deferral Account of each
Participant (or Non-Highly Compensated Participants only) in the same proportion
that each Participant's  Compensation (or Non-Highly  Compensated  Participant's
Compensation  only) for the Plan Year  bears to the  total  Compensation  of all
Participants (or Non-Highly Compensated Participants only).

             3.7   AVERAGE CONTRIBUTION PERCENTAGE TESTS

                   (a) For each Plan Year, the Average  Contribution  Percentage
for the Highly Compensated  Participant group shall satisfy one of the following
tests:

                       (1) The Average  Contribution  Percentage  for the Highly
Compensated  Participant  group  for the Plan  Year  shall  not be more than the
Average Contribution Percentage for the Non-Highly Compensated Participant group
for the Plan Year (for Plan Years  beginning  after  December 31, 1996,  for the
preceding Plan Year) multiplied by 1.25, or


<PAGE>



                       (2) The excess of the Average Contribution Percentage for
the  Highly  Compensated  Participant  group for the Plan Year over the  Average
Contribution Percentage for the Non-Highly Compensated Participant group for the
Plan Year (for Plan Years  beginning  after December 31, 1996, for the preceding
Plan  Year)  shall  not be more  than two  percentage  points,  and the  Average
Contribution  Percentage for the Highly  Compensated  Participant  group for the
Plan Year (for Plan Years  beginning  after December 31, 1996, for the preceding
Plan  Year)  shall  not  exceed  the  Average  Contribution  Percentage  for the
Non-Highly  Compensated  Participant  group for the Plan  Year  (for Plan  Years
beginning  after December 31, 1996,  for the preceding Plan Year)  multiplied by
two. For Plan Years beginning after December 31, 1996, the current Plan Year may
be used in  computing  the Average  Contribution  Percentage  of the  Non-Highly
Compensated  Participant group if the Employer so elects, but once such election
is made,  it may not be  changed  except as  provided  by the  Secretary  of the
Treasury.

                   (b) In order to prevent the multiple  use of the  alternative
method described in subparagraph (a)(2) above and Section 3.5(a)(2),  any Highly
Compensated  Participant  eligible to make Deferred  Compensation  contributions
pursuant to Section 3.2 or any other cash or deferred arrangement  maintained by
the Employer or an Affiliated  Employer,  and to receive Matching  Contributions
under  this  Plan or under any  other  plan  maintained  by the  Employer  or an
Affiliated  Employer,  shall have his  Actual  Contribution  Percentage  reduced
pursuant to Regulation Section 1.401(m)-2. The provisions of Code Section 401(m)
and Regulation Sections  1.401(m)-1(b) and 1.401(m)-2 are incorporated herein by
reference.  See  Section  3.8  for  the  reduction  of the  Actual  Contribution
Percentage.  In lieu of such reduction, the Employer may eliminate such multiple
use by making Qualified Non-Elective Contributions.

                   (c) For  purposes  of  determining  the  Actual  Contribution
Percentage and the amount of Excess Matching  Contributions  pursuant to Section
3.8, only Employer Matching  Contributions  contributed to the Plan prior to the
end  of  the  succeeding  Plan  Year  shall  be  considered.  In  addition,  the
Administrator may elect to take into account, with respect to Employees eligible
to have Employer Matching  Contributions pursuant to Section 3.1(c) allocated to
their   accounts,   elective   deferrals  (as  defined  in  Regulation   Section
1.402(g)-1(b))  and  qualified  non-elective  contributions  (as defined in Code
Section  401(m)(4)(C))  contributed  to any  plan  maintained  by the  Employer.
Qualified  non-elective  contributions  may  be  treated  as  Employer  Matching
Contributions only if the requirements of Regulation  Sections  1.401(m)-1(b)(5)
and 1.401(k)-1(g)(13)(iii) are satisfied.  Furthermore,  such elective deferrals
and qualified  non-elective  contributions shall be treated as Employer Matching
Contributions   subject  to  Regulation   Section   1.401(m)-1(b)(2)   which  is
incorporated  herein by reference.  However,  the Plan Year of this Plan must be
the same as the plan year of the plan to which the  elective  deferrals  and the
qualified non-elective contributions are made.

                   (d) For Plan Years  beginning prior to December 31, 1996, for
purposes  of  determining  the  Actual  Contribution   Percentage  of  a  Highly
Compensated  Employee who is subject to the Family Member  aggregation  rules of
Code Section 414(q)(6), the following shall apply:

                       (1) The combined Actual  Contribution  Percentage for the
family  group  (which  shall be treated as one Highly  Compensated  Participant)
shall be determined by aggregating Employer Matching Contributions made pursuant
to Section 3.1(c) of all eligible Family Members  (including Highly  Compensated
Participants). However, in applying the $200,000 limit to Compensation, for Plan
Years  beginning  after  December  1988,  Family  Members shall include only the
affected  Employee's spouse and any lineal descendants who have not attained age
19 before the close of the Plan Year.


<PAGE>



                       (2) The Employer Matching  Contributions made pursuant to
Section 3.1(c), Deferred Compensation, Compensation and contributions treated as
Matching  Contributions  of all Family Members shall be disregarded for purposes
of determining  the Average  Contribution  Percentage of the Highly  Compensated
Participant  and the Non-Highly  Compensated  Participant  group,  except to the
extent taken into account in paragraph (1) above.

                       (3) If a  Participant  is required to be  aggregated as a
member of more than one family group in a plan, all Participants who are members
of those family groups that include the Participant are aggregated as one family
group in accordance with paragraphs (1) and (2) above.

                   (e) For purposes of this Section and Code Sections 401(a)(4),
410(b)  and  401(m),  if two or more  plans of the  Employer  to which  Matching
Contributions  are made are  treated as one plan for  purposes  of Code  Section
410(b) (other than the average benefits test under Code Section 410(b)(2)(A)(ii)
as in effect for Plan Years beginning after December 31, 1988), such plans shall
be treated as one plan. In addition,  two or more plans of the Employer to which
Matching  Contributions are made may be considered as a single plan for purposes
of determining  whether such plans satisfy Code Sections  401(a)(4),  410(b) and
401(m).  In such case, the  aggregated  plans must satisfy this Section and Code
Sections  401(a)(4),  410(b) and 401(m) as though such  aggregated  plans were a
single plan.  For Plan Years  beginning  after  December 31, 1989,  plans may be
aggregated under this paragraph (d) only if they have the same plan year.

                   Notwithstanding  the above,  an employee stock ownership plan
described in Code Section  4975(e)(7)  may not be aggregated  with this Plan for
purposes of determining  whether the employee stock  ownership plan or this Plan
satisfies this Section and Code Sections 401(a)(4), 410(b) and 401(m).

                   (f) For  purposes of this  Section,  if a Highly  Compensated
Participant  is a  Participant  under  two  or  more  plans  (other  than a plan
described in Regulation  Section  1.401(m)-1(b)(3)(ii))  which are maintained by
the Employer or an Affiliated  Employer and to which Matching  Contributions are
made, all such  contributions on behalf of such Highly  Compensated  Participant
shall  be  aggregated  for  purposes  of  determining  such  Highly  Compensated
Participant's  Actual  Contribution  Percentage.  However,  if  the  plans  have
different  plan years,  this  paragraph  shall be applied by treating  all plans
ending with or within the same calendar year as a single plan.

                   (g) For  purposes  of  Sections  3.7(a)  and  3.8,  a  Highly
Compensated Participant and Non-Highly Compensated Participant shall include any
Employee  eligible to have Employer Matching  Contributions  pursuant to Section
3.1(c)  (whether or not a deferral  election was made or  suspended  pursuant to
Section 3.2(d)) allocated to his Participant Matching Account for the Plan Year.

             3.8   ADJUSTMENT TO AVERAGE CONTRIBUTION PERCENTAGE TESTS

                   (a) In the event that the  initial  allocations  of  Matching
Contributions made pursuant to Section 3.4(b)(3) do not satisfy one of the tests
set forth in Section  3.7(a),  then on or before the  fifteenth day of the third
month  following the end of the Plan Year,  the  Administrator  shall adjust the
Excess  Matching  Contributions. 

                       (1)  Effective  for Plan  Years  beginning  on and  after
October 1, 1997, the Administrator first shall determine the total dollar amount
of Excess Matching Contributions that must be distributed to or forfeited by the
Highly  Compensated  Participant  group in order to satisfy one of the tests set
forth in Section  3.7(a).  Next, the  Administrator  shall direct the Trustee to
distribute  or forfeit (as provided  below) such total  dollar  amount of Excess
Matching  Contributions with respect to the Highly  Compensated  Participants on
the basis of the dollar amount of Matching Contributions allocated to the Highly
Compensated Participants pursuant to Section 3.4(b)(3) (prior to the application
of  this  subsection),   such  that  Excess  Matching   Contributions  shall  be
distributed to or forfeited with respect to the Highly Compensated  Participants

<PAGE>

who were  allocated the highest  dollar amount of Matching  Contributions.  This
provision  shall be applied by distributing to or forfeiting with respect to the
Highly  Compensated  Participant with the highest dollar  allocation of Matching
Contributions  a dollar  amount  until  the  total  amount  of  Excess  Matching
Contributions  are  distributed  or  forfeited,  or until his  dollar  amount of
Matching Contributions equals the dollar amount of Matching Contributions of the
Highly  Compensated  Participant  who was allocated the second highest amount of
Matching  Contributions.  This process shall continue until one of the tests set
forth in  Section  3.7(a) is  satisfied  by the Highly  Compensated  Participant
group.  Except as  provided  in  Section  3.6(a)(3)(ii),  for  purposes  of this
subsection,  to the extent a Highly Compensated  Participant described herein is
Vested,  Excess Matching  Contributions  (and income allocable thereto) shall be
distributed,  and the portion  thereof  that is not Vested shall be forfeited at
that time.

                       (2) The distribution and/or Forfeiture of Excess Matching
Contributions shall be made in the following order:

                           (i)   Employer   Matching   Contributions   forfeited
pursuant to Section 3.6(a)(3)(ii);

                           (ii) Remaining Employer Matching Contributions.

                   (b) Any  distribution  and/or  Forfeiture  of less  than  the
entire amount of Excess Matching  Contributions and income shall be treated as a
pro rata  distribution  and/or  Forfeiture of Excess Matching  Contributions and
income. Distribution of Excess Matching Contributions shall be designated by the
Employer  as  a  distribution  of  Excess  Matching  Contributions  and  income.
Forfeitures of Excess Matching Contributions shall be treated in accordance with
Section  3.4.  However,  no  such  Forfeiture  may  be  allocated  to  a  Highly
Compensated  Participant  whose  contributions  are  reduced  pursuant  to  this
Section.

                   (c)  Excess  Matching   Contributions,   including  forfeited
Matching Contributions,  shall be treated as Employer contributions for purposes
of Code Sections 404 and 415, even if distributed from the Plan.

                   (d) For purposes of this Section 3.8, "income" means the gain
or loss  allocable  to Excess  Matching  Contributions  for the Plan Year.  Such
amount  shall be  determined  by  multiplying  the income  allocable to Matching
Contributions for the Plan Year by a fraction.  The numerator of the fraction is
the  Participant's  Excess  Matching   Contributions  for  the  Plan  Year.  The
denominator of the fraction is the sum of the Participant's  Matching Account as
of the beginning of the Plan Year plus the Matching  Contributions  allocable to
such  Participant's  Matching  Account  for the Plan  Year.  No income  shall be
allocable to Excess Matching Contributions for the Gap Period.

                   (e)  In  no  case  shall  the   amount  of  Excess   Matching
Contributions  with  respect to any Highly  Compensated  Participant  exceed the
amount of Employer  Matching  Contributions  made pursuant to Section 3.1(c) and
any  Qualified  Non-Elective  Contributions  or  elective  deferrals  taken into
account pursuant to Section 3.7 on behalf of such Highly Compensated Participant
for such Plan Year.

                   (f) Notwithstanding the above, within 12 months after the end
of the Plan  Year,  the  Employer  may  make a  special  Qualified  Non-Elective
Contribution  on  behalf  of  all   Participants   (or  Non-Highly   Compensated
Participants only) in an amount sufficient to satisfy one of the tests set forth
in Section 3.7(a).  Such  contributions  shall be allocated to the Participant's
Deferral  Account of each  Participant  (or Non-Highly  Compensated  Participant
only) in the same proportion that each Participant's Compensation (or Non-Highly
Compensated  Participant's  Compensation  only) for the Plan  Year  bears to the
total Compensation of all Participants (or Non-Highly  Compensated  Participants
only).  A separate  accounting  shall be maintained for the purpose of excluding
such contributions from the Actual Deferral Percentage tests pursuant to Section
3.5(a) and shall comply with the  requirements of Regulation  Section 1.401(m) -
1(b)(5).
<PAGE>

             3.9   MAXIMUM ANNUAL ADDITIONS

                   (a) Notwithstanding Section 3.4, the maximum annual additions
(as  defined in Section  3.9(b)  below)  credited to a  Participant's  Aggregate
Account for any limitation year (as defined in Section 3.9(d) below) shall equal
the lesser of: (1) $30,000 (or, if greater,  one-fourth of the dollar limitation
in effect  under Code  Section  415(b)(1)(A)),  or (2) 25% of the  Participant's
Compensation  for such  limitation  year,  as  adjusted  from time to time as in
Section  3.9(e) below.  Provided that no more than  one-third of the  Employer's
ESOP  Contributions  for the Plan Year, which are deductible under the principal
and interest deduction rules of Code Section 404(a)(9),  are allocated to Highly
Compensated Participants, the limitations of Code Section 415 shall not apply to
Forfeitures  of  Company  Stock if such  Company  Stock  was  acquired  with the
proceeds  of  an  Exempt  Loan,  or  to  the  portion  of  the  Employer's  ESOP
Contribution  which is  deductible  as an interest  payment  under Code  Section
404(a)(9)(B).

                   (b) For purposes of applying the  limitations of Code Section
415,  annual  additions  means the sum  credited  to a  Participant's  Aggregate
Account  for  any  limitation  year  of:  (1)  Deferred  Compensation,  Matching
Contributions,   Profit  Sharing   Contributions,   and  Qualified  Non-Elective
Contributions; (2) ESOP Contributions; (3) Forfeitures; (4) amounts allocated to
an individual  medical  account,  as defined in Code Section  415(l)(2) which is
part of a pension or annuity plan maintained by the Employer; and (5) except for
purposes of subsection (a)(2) above,  amounts derived from contributions paid or
accrued which are attributable to postretirement  medical benefits  allocated to
the separate  account of a key employee (as defined in Section  419(A)(d)(3)  of
the Code)  under a welfare  benefit  plan (as  defined in Section  419(e) of the
Code)  maintained  by the  Employer.  Contributions  do not  fail  to be  annual
additions merely because they are Excess Deferred Compensation,  Excess Elective
Contributions,  or  Excess  Matching  Contributions,  or merely  because  Excess
Elective  Contributions  or Excess  Matching  Contributions  are  distributed or
recharacterized. Excess Deferred Compensation distributed pursuant to Regulation
Section  1.402(g)-1(e)(2)  or (3) are not  annual  additions.  The  Compensation
percentage  limitation referred to in Section 3.9(a)(2) above shall not apply to
any  contribution  for medical  benefits  (within  the  meaning of Code  Section
419A(f)(2))  after  separation  from service  which is  otherwise  treated as an
annual  addition,  or any amount  otherwise  treated as an annual addition under
Code Section 415(l)(i).

                   (c) For purposes of applying the  limitations of Code Section
415,  the  following  are not annual  additions:  (1) transfer of funds from one
qualified  plan to  another;  (2)  rollover  contributions  (as  defined in Code
Sections 402(a)(5), 403(a)(4), 403(b)(8) and 408(d)(3)); (3) repayments of loans
made to a Participant from the Plan; (4) repayments of distributions received by
an Employee pursuant to Code Section 411(a)(7)(B) (cash-outs); (5) repayments of
distributions  received by an Employee  pursuant  to Code  Section  411(a)(3)(D)
(mandatory  contributions);  (6) Employee contributions to a simplified employee
pension  excludable under Code Section  408(k)(6);  and (7) deductible  Employee
contributions to a qualified Plan.

                   (d) For purposes of applying the  limitations of Code Section
415, the "limitation year" shall be the Plan Year.

                   (e) The limitation  stated in paragraph (a)(1) above shall be
adjusted  annually as provided in Code Section 415(d)  pursuant to  Regulations.
The adjusted  limitation  is effective as of January 1 of each calendar year and
is applicable to limitation years ending with or within that calendar year.

                   (f) For  purposes  of this  Section,  all  qualified  defined
benefit plans (whether  terminated or not) ever maintained by the Employer shall
be treated as one defined benefit plan, and all qualified  defined  contribution
plans  (whether  terminated  or not) ever  maintained  by the Employer  shall be
treated as one defined contribution plan.

                   (g)  For  purposes  of this  Section,  all  Employees  of any
Affiliated Employers shall be considered to be employed by a single Employer.
<PAGE>

             3.10   ADJUSTMENT FOR EXCESSIVE ANNUAL ADDITIONS

                   (a) If, as a result of a  reasonable  error in  estimating  a
Participant's  Compensation,  a reasonable  error in  determining  the amount of
Deferred Compensation (within the meaning of Code Section 402(g)(3)) that may be
made with respect to any  Participant  under the limits of Section 3.9 above, or
other facts and circumstances to which Regulation Section 1.415-6(b)(6) shall be
applicable,  the annual additions under this Plan would cause the maximum annual
additions  to be  exceeded  for any  Participant,  the  Administrator  shall (1)
distribute  any  Deferred  Compensation  (within  the  meaning  of Code  Section
402(g)(3))  credited for the limitation year to the extent that the return would
reduce the "excess amount" in the Participant's  Aggregate Account; (2) hold any
remaining   "excess   amount"  after  the  return  of  any  voluntary   Employee
contributions in a "Section 415 suspense  account";  (3) allocate and reallocate
the "Section 415 suspense  account" in the next  limitation year (and succeeding
limitation  years if  necessary)  to all  Participants  in the Plan  before  any
Employer or Employee  contributions  which would constitute annual additions are
made to the  Plan  for such  limitation  year;  and (4)  reduce  the  Employer's
discretionary  contributions  to the Plan for such limitation year by the amount
of the "Section 415 suspense  account"  allocated  and  reallocated  during such
limitation year.

                   (b) For  purposes of this  Article,  "excess  amount" for any
Participant  for a  limitation  year shall mean the excess,  if any, of: (1) the
annual  additions  which would be credited to his account under the terms of the
Plan without regard to the limitations of Code Section 415, over (2) the maximum
annual additions determined pursuant to Section 3.9.

                   (c) For  purposes  of this  Section,  "Section  415  suspense
account" shall mean an unallocated  account equal to the sum of "excess amounts"
for all  Participants  in the Plan during the limitation  year. The "Section 415
suspense account" shall not share in any earnings or losses of the Trust Fund.

                   (d) Except as provided in this Section 3.10, the Plan may not
distribute "excess amounts" to Participants or Former Participants.

             3.11  TRANSFERS FROM QUALIFIED PLANS

                   (a) With the  consent of the  Administrator,  amounts  may be
transferred by or on behalf of a Participant from other qualified  corporate and
noncorporate  plans,   provided  that  the  trust  from  which  such  funds  are
transferred permits the transfer to be made and, in the opinion of legal counsel
for the Employer,  the transfer will not jeopardize the tax exempt status of the
Plan  or  create  adverse  tax  consequences  for  the  Employer.   The  amounts
transferred  shall be  credited  to the  Participant's  Rollover  Account.  Such
account shall be 100% Vested at all times and shall not be subject to Forfeiture
for any reason.

                   (b) Amounts in a Participant's Rollover Account shall be held
by the Trustee pursuant to the provisions of this Plan, and such amounts may not
be withdrawn by, or distributed to the Participant,  in whole or in part, except
as provided in paragraph (c) of this Section.

                   (c) At Normal  Retirement  Date,  or such other date when the
Participant or his  Beneficiary  would be entitled to receive his  Participants'
Matching Account and/or  Participant's Profit Sharing Account under the terms of
the  Plan,  the  Participant's  Rollover  Account  shall be  distributed  to the
Participant or his  Beneficiary in the form that the  Participant or Beneficiary
shall elect pursuant to Article VI. Notwithstanding the foregoing, a Participant
may  request and receive a lump sum  distribution  of all,  and only all, of his
Participant's  Rollover  Account at any time,  even while still  employed by the
Employer.  Such lump sum  distribution  shall be made as soon as practical after
the Anniversary Date or Valuation Date coinciding  with, or next following,  the
date  on  which  the  Participant  requests  distribution  of his  Participant's
Rollover Account.

                   (d) Unless the  Administrator  directs that the Participant's
Rollover Account be segregated into a separate account for such Participant in a
federally  insured savings account,  certificate of deposit in a bank or savings
and  loan  association,  money  market  certificate,  or other  short-term  debt
security acceptable to the Trustee, or unless the Participant's Rollover Account
is subject to the directed  investment  provisions of Section 3.13, such account
shall be  invested  as part of the  general  Trust  Fund and shall  share in any
income earned or losses incurred thereon pursuant to the terms of Section 3.4.
<PAGE>

                   (e) The Administrator may direct that Employee  transfers and
rollovers made after a certain date pursuant to this Section be segregated  into
a separate  account for each  Participant in a federal insured savings  account,
certificate of deposit in a bank or savings and loan  association,  money market
certificate,  or other short-term debt security  acceptable to the Trustee until
such  time  as the  allocations  pursuant  to this  Agreement  have  been  made.
Alternately,  the  Administrator  may  direct  that  Participant  transfers  and
rollovers be received only at certain times throughout the Plan Year.

                   (f)  For  purposes  of  this   Section,   the  term  "amounts
transferred from another qualified  corporate and noncorporate plan" shall mean:
(1)  amounts  transferred  to this  Plan  directly  from  another  corporate  or
noncorporate  plan;  (2) lump sum  distributions  received by an  Employee  from
another  qualified  plan which are eligible for tax free rollover to a qualified
corporate or noncorporate plan and which are transferred by the Employee to this
Plan within 60 days following his receipt  thereof;  (3) amounts  transferred to
this Plan from a conduit individual retirement account provided that the conduit
individual  retirement account has no assets other than assets (and the earnings
therein)  which (i) were  previously  distributed  to the  Employee  by  another
qualified  corporation or noncorporation  plan as a lump sum distribution,  (ii)
were  eligible for tax free  rollover to a qualified  corporate or  noncorporate
plan, and (iii) were  deposited in such conduit  individual  retirement  account
within 60 days of receipt thereof;  and (4) amounts  distributed to the Employee
from a conduit individual  retirement account meeting the requirements of clause
(3) above,  and  transferred  by the Employee to this Plan within 60 days of his
receipt  thereof  from such  conduit  individual  retirement  account.  Prior to
accepting any transfers to which this Section  applies,  the  Administrator  may
require the  Participant to establish that the amounts to be transferred to this
Plan meet the  requirements of this Section and may also require the Participant
to provide an opinion of counsel  satisfactory  to the Employer that the amounts
to be transferred meet the requirements of this Section.

                   (g)  For  purposes  of  this  Section,  the  term  "qualified
corporate or  noncorporate  plan" shall mean any tax  qualified  plan under Code
Section 401(a).

             3.12  PARTICIPANT'S QUALIFIED DIRECTED INVESTMENT ACCOUNT

                   (a) Each  Qualified  Participant  may elect no later  than 90
days after the close of each Plan Year during the Qualified  Election  Period to
direct the Trustee in writing as to the investment of 25% of the total number of
shares of Company Stock  acquired by or  contributed  to the Plan that have ever
been  allocated to the  Participant's  Company Stock  Account of such  Qualified
Participant  (reduced  by the  number  of  shares of  Company  Stock  previously
diversified or distributed pursuant to this Section 3.12). In the last Plan Year
of the  Qualified  Election  Period,  50%  shall be  substituted  for 25% in the
preceding  sentence.  Furthermore,  the  rules of Code  Section  401(a)(28)  are
incorporated herein by reference.

                   (b) Notwithstanding Section 3.12(a), if the fair market value
(determined as of the Valuation Date immediately  preceding the beginning of the
90 day election  period) of Company Stock acquired by or contributed to the Plan
that has ever been allocated to the  Participant's  Company Stock Account of the
Qualified  Participant is less than $500, then such Participant's  Company Stock
Account shall not be subject to the diversification requirements of this Section
3.12.

                   (c) A separate  Participant's  Qualified Directed  Investment
Account shall be established by the Administrator for any Qualified  Participant
that makes a  diversification  election  pursuant  to this  Section  3.12.  Such
Qualified  Directed  Investment Account shall not share in the earning or losses
of the Trust Fund with respect to the Company Stock so diversified,  but instead
shall be credited or debited  with only the earnings or losses  attributable  to
the investments directed pursuant to Section 3.12(d) below.

                   (d)  The  Administrator  shall  select  a  minimum  of  three
investment  options  that  shall be  available  to  Qualified  Participants  for
reinvestment  of the  portion  of  their  Participant's  Company  Stock  Account
diversified pursuant to Section 3.12(a). A Qualified  Participant shall have the
right to direct the portion of his Participant's  Company Stock Account that has
been  diversified  into a  minimum  of one of the  three  available  options.  A
Qualified Participant may change his investment option at least once a Plan Year
in  accordance  with  procedures  established  by  the  Administrator.   If  the
Administrator  permits a change of  investment  options  only once a year,  such

<PAGE>

change  shall  be  made  during  the  first  90  days  of  the  Plan  Year.  The
Administrator  and Trustee  shall  complete a Qualified  Participant's  election
under Section  3.12(a) or change his investment  option pursuant to this Section
3.12(d)  within  90 days  of  receipt  of  written  notice  from  the  Qualified
Participant.  Alternately, in lieu of establishing three investment options, the
Administrator  may authorize  and direct the Trustee to  distribute  the Company
Stock subject to the diversification elections within 90 days after the close of
the Plan Year.

                   (e) In the event a Qualified Participant directs a portion of
his Participant's Employer Account pursuant to this Section 3.12, such Qualified
Participant shall not have, with respect to such directed portion,  the right to
demand  Company Stock pursuant to Code Section  409(h)(1)(A)  and Section 6.8 of
this Plan.

             3.13  DIRECTED INVESTMENT ACCOUNT

                   The  Administrator,   in  its  sole  discretion,  may  permit
Participants, Former Participants,  Terminated Participants and Beneficiaries to
direct the  investment of all or any portion of their  Aggregate  Account (other
than their  Participants'  Company  Stock  Account)  among  investment  funds or
options  designated  by  the  Investment  Advisory  Committee  appointed  by the
Employer  pursuant to Section  8.1(a).  Such  investment  direction  shall be in
accordance with the rules and procedures  established by the Administrator  from
time to time.

             3.14  VOTING COMPANY STOCK

                   The Trustee  shall vote all Company  Stock held by it as part
of the Plan's assets and in accordance with this Section.

                   Except as otherwise  required by the Act,  the Trustee  shall
vote  Company  Stock  which  has been  allocated  to a  Participant's  or Former
Participant's  Company Stock Account in accordance with the voting  instructions
of such Participant or Former Participant. To the extent a Participant or Former
Participant  fails to timely  exercise the right to vote Company Stock which has
been so  allocated to his Company  Stock  Account,  the Trustee  shall vote such
allocated  shares of Company Stock,  together with any Company Stock held in the
Unallocated  Company  Stock  Suspense  Account,  in the sole  discretion  of the
Trustee.

                   In the event the  Trustee  receives a notice of tender  offer
for the Company  Stock,  the Trustee  immediately  shall  forward such notice to
Participants and Former  Participants  with Company Stock Accounts at that time.
Except  as  otherwise  required  by the Act,  the  Trustee  shall  request  each
Participant  and Former  Participant to instruct the Trustee as to the tender of
shares of Company Stock allocated to his Company Stock Account,  and the Trustee
shall tender (or not tender) those shares according to such instructions. To the
extent a Participant or Former Participant fails to timely instruct the Trustee,
the Trustee  shall  determine,  in its sole  discretion,  whether to tender such
allocated shares of Company Stock,  together with any Company Stock then held in
the Unallocated Company Stock Suspense Account.


                                  ARTICLE IV.
                                   VALUATIONS

             4.1   VALUATION OF THE TRUST FUND

                   The  Administrator  shall  direct  the  Trustee,  as of  each
Anniversary  Date and  Valuation  Date, to determine the net worth of the assets
comprising  the Trust Fund as it exists on such  Anniversary  Date or  Valuation
Date.  See Section  3.4(e) for the rules and methods by which the  Participants'
Aggregate Accounts shall be valued and by which  distributions,  withdrawals and
contributions  shall be debited and credited to such  accounts.  In  determining
such net worth, the Trustee shall value the assets  comprising the Trust Fund at
their fair market value as of such  Anniversary  Date or Valuation  Date and may
deduct and pay all expenses for which the Trustee,  Administrator or other third
party service provider has not yet obtained  reimbursement  from the Employer or
the Trust Fund. See Section 8.9 pertaining to the payment of expenses.

                   Determination  of fair  market  value  shall  be made in good
faith and based on all relevant factors for determining the fair market value of
the asset.
<PAGE>

                   In determining the value of any security,  if the security is
traded on a national exchange,  the Trustee shall consider the price at which it
was last traded.  With respect to any unlisted  security held in the Trust Fund,
the bid price next  preceding the close of business on the Valuation  Date shall
be considered. In either event, the Trustee shall also consider such other facts
(including  without  limitation  minority  discounts  and  discounts for lack of
marketability)  that the Trustee  determines,  in its discretion,  to reasonably
influence the price of the security. The Trustee may, in any case, employ one or
more  appraisers  for the purpose of valuing the  securities or any other assets
and may rely on the values  established  by such  appraiser or  appraisers.  All
valuations  of Company  Stock which is not readily  tradeable on an  established
securities  market  shall be made by an  independent  appraiser  that  meets the
requirements of Code Section 401(a)(28)(c).


                                   ARTICLE V.
                         FUNDING AND INVESTMENT POLICY

             5.1   INVESTMENT POLICY

                   (a) The Plan is designed to have a cash or deferred component
(i.e.,  the  Deferred  Compensation  and  Matching  Contribution)  and  an  ESOP
component. The ESOP component is designed to invest primarily in Company Stock.

                   (b)  Notwithstanding  paragraph (a) above, the  Administrator
may also direct the Trustee to invest (or may permit  Participant  direction) in
other property described in the Trust or the Trustee may hold such funds in cash
or cash equivalents.

                   (c) The Plan may not obligate itself to acquire Company Stock
from a particular  holder  thereof at an  indefinite  time  determined  upon the
happening of an event such as the death of the holder.

                   (d) The Plan may not obligate itself to acquire Company Stock
under a put option binding upon the Plan.  However,  at the time a put option is
exercised by the Employer,  the Plan may be given an option to assume the rights
and obligations of the Employer under a put option binding upon the Employer.

                   (e) All  purchases of Company  Stock shall be made at a price
which,  in the  judgment of the  Administrator,  does not exceed the fair market
value thereof. All sales of the Company Stock shall be made at a price which, in
the  judgment  of the  Administrator,  is not less  than the fair  market  value
thereof. The valuation rules set forth in Article IV and Code Section 401(a)(28)
shall be applicable to all such purchases and sales.

             5.2   EMPLOYER SECURITIES

                   The ESOP  component  of the Plan is  designed  to  invest  in
"qualifying Employer securities" as that term is defined in the Act.

             5.3   APPLICATION OF CASH

                   Employer contributions in cash and other cash received by the
Trust  Fund  (other  than  Deferred  Compensation,  Matching  Contributions  and
rollover contributions) shall first be applied to pay any Current Obligations of
the Trust Fund.

             5.4  TRANSACTIONS INVOLVING COMPANY STOCK

                   (a)  No  portion  of  the  Trust  Fund  attributable  to  (or
allocable in lieu of) Company Stock acquired by the Plan in a sale to which Code
Section 1042 applies may accrue,  or be allocated  directly or indirectly  under
any plan  maintained by the Employer  meeting the  requirements  of Code Section
401(a):
<PAGE>

                       (1) During the Nonallocation Period, for the benefit of:

                           (i) Any  taxpayer  who makes an  election  under Code
Section 1042(a) with respect to Company Stock; or

                           (ii) Any  individual  who is related to the  taxpayer
within the meaning of Code Section 267(b), or

                       (2) For the  benefit of any other  person who owns (after
application of Code Section 318(a), applied without regard to the employee trust
exemption in Code Section 318(a)(2)(B)(i)) more than 25% of:

                           (i) Any class of outstanding stock of the Employer or
Affiliated Employer which issued such Company Stock, or

                           (ii)  The  total  value of any  class of  outstanding
stock of the Employer or Affiliated Employer.

                   (b) Subparagraph  (a)(1)(ii)  (relating to family attribution
rules) shall not apply to lineal descendants of the taxpayer,  provided that the
aggregate amount allocated to the benefit of all such lineal  descendants during
the  Nonallocation  Period does not exceed more than 5% of the Company Stock (or
amounts  allocated in lieu thereof) held by the Plan which are attributable to a
sale to the Plan by any person related to such  descendants  (within the meaning
of Code  Section  267(c)(4))  in a  transaction  to which Code  Section  1042 is
applied.

                   (c) A person  shall be  treated  as  failing  to meet the 25%
stock ownership  limitation  under  paragraph  (a)(2) above if such person fails
such limitation:

                       (1) At any time during the one year period  ending on the
date of sale of Company Stock to the Plan, or

                       (2) On the date as of which Company Stock is allocated to
Participants in the Plan.

             5.5   LOANS TO THE TRUST

                   (a)  The  Plan  may  borrow  money  for any  lawful  purpose,
provided the proceeds of an Exempt Loan are used within a reasonable  time after
receipt only to:

                       (1) Acquire Company Stock;

                       (2) Repay an Exempt Loan; or

                       (3) Repay a prior Exempt Loan.

                   (b) All loans to the Trust which are made or  guaranteed by a
disqualified  person must satisfy all  requirements  applicable  to Exempt Loans
under Code Section  4975(d)(3),  Regulation  Section  54.4975-7(b),  Act Section
408(b)(3) and Department of Labor Regulation  Section  2550.408(b)-3  including,
but not limited to, the following:

                       (1) The loan must be at a reasonable rate of interest;

                       (2) The  amount of  interest  paid  shall not  exceed the
amount of each payment  which would be treated as interest  under  standard loan
amortization tables;
<PAGE>

                       (3) Any  collateral  pledged to the  creditor by the Plan
shall consist only of the Company Stock purchased with the borrowed funds;

                       (4) Under the terms of the loan,  any  pledge of  Company
Stock shall  provide  for the  release of shares so pledged on a pro-rata  basis
pursuant to Section 3.4(g);

                       (5) Under the terms of the loan,  the creditor shall have
no recourse  against the Plan except with respect to such  collateral,  earnings
attributable   to  such   collateral,   Employer   contributions   (other   than
contributions  of Company Stock) that are made to meet Current  Obligations  and
earnings attributable to such contributions;

                       (6) The loan must be for a  specific  term and may not be
payable at the demand of any person, except in the case of default;

                       (7) In the  event of  default  upon an Exempt  Loan,  the
value of the Trust Fund transferred in satisfaction of the Exempt Loan shall not
exceed the amount of default. If the lender is a disqualified  person, an Exempt
Loan shall  provide for a transfer of Trust Funds upon  default only upon and to
the extent of the failure of the Plan to meet the payment schedule of the Exempt
Loan; and

                       (8)  Exempt  Loan  payments  during a Plan  Year must not
exceed  an  amount  equal  to:  (A)  the  sum,  over  all  Plan  Years,  of  all
contributions  and cash  dividends paid by the Employer to the Plan with respect
to such  Exempt  Loan  and  earnings  on such  Employer  contributions  and cash
dividends,  less (B) the sum of the Exempt Loan payments in all  preceding  Plan
Years.   A  separate   accounting   shall  be   maintained   for  such  Employer
contributions, cash dividends and earnings until the Exempt Loan is repaid.

                                  ARTICLE VI.
                   DETERMINATION AND DISTRIBUTION OF BENEFITS

             6.1   DETERMINATION OF BENEFITS UPON RETIREMENT

                   (a) As of, or after, a Participant's  Normal Retirement Date,
such  Participant  may terminate  employment and request a  distribution  of his
Participant's  Aggregate Account. As of the attainment of Normal Retirement Age,
such  Participant's  Aggregate  Account  shall become 100% vested.  Participants
shall be permitted to continue participation in the Plan after the attainment of
their Normal Retirement Age.

                   (b) As soon as is practicable after the Participant's request
for a Normal Retirement distribution, the Administrator shall direct the Trustee
to  distribute,  or begin the  distribution  of, all  amounts  credited  to such
Participant's Aggregate Account in accordance with Section 6.6.

             6.2   DETERMINATION OF BENEFITS UPON DEATH

                   (a) Upon the death of a  Participant  before  his  Retirement
Date  or  other  termination  of  employment,   all  amounts  credited  to  such
Participant's Aggregate Account shall become 100% Vested. Unless a later date is
elected by the deceased Participant's Beneficiary, as soon as is practical after
the Beneficiary's request for a distribution, the Administrator shall direct the
Trustee,  in accordance  with the provisions of Section 6.7, to  distribute,  or
begin the distribution of, the deceased  Participant's  Aggregate Account to the
Participant's Beneficiary.
<PAGE>

                   (b)  Unless a later  date is  elected  by a  deceased  Former
Participant's  Beneficiary,  as soon as is  practical  after  the  Beneficiary's
request  for  distribution,  the  Administrator  shall  direct the  Trustee,  in
accordance  with the  provisions  of Section  6.7, to  distribute,  or begin the
distribution of, any remaining amounts credited to the  Participant's  Aggregate
Account  of  such  deceased  Former  Participant  to such  Former  Participant's
Beneficiary.

                   (c) The  Administrator may require such proper proof of death
and such evidence of the right of any person to receive  payment of the value of
the Aggregate  Account of a deceased  Participant  or Former  Participant as the
Administrator may deem desirable. The Administrator's determination of death and
of the right of any person to receive payment shall be conclusive.

                   (d) Unless  otherwise  elected and consented to in the manner
prescribed in Code Section 417(a)(2),  the Beneficiary of the death benefit of a
married Participant shall be the Participant's spouse.  However, the Participant
may designate a Beneficiary other than his spouse if:

                       (1) The  spouse  has  validly  waived her right to be the
Participant's Beneficiary pursuant to Code Section 417(a)(2);

                       (2) The Participant has no spouse; or

                       (3) The spouse cannot be located.

                       The   designation  of  a  Beneficiary  by  a  Participant
(whether  married  or  single)  shall  be  made  on a form  satisfactory  to the
Administrator.  A  Participant  may at any  time  revoke  his  designation  of a
Beneficiary  or change his  Beneficiary  by filing notice of such  revocation or
change with the Administrator.  However,  if married,  the Participant's  spouse
must again consent in writing to any change in  Beneficiary  unless the original
consent  acknowledges  that the spouse had the right to limit  consent only to a
specific  Beneficiary and that the spouse voluntarily elected to relinquish such
right.  In the event a  Participant  has no spouse and no valid  designation  of
Beneficiary  exists at the time of the  Participant's  death, the  Participant's
Aggregate Account shall be payable in the following order:

                       (1) To the Participant's lineal descendants, per stirpes,
including his legally adopted children;

                       (2) To the Participant's  lineal ascendants,  per capita,
that survive the Participant; and

                       (3) To the Participant's estate.

             6.3   DETERMINATION OF BENEFITS IN EVENT OF DISABILITY

                   Upon a Participant's Total and Permanent  Disability prior to
his Retirement Date or other termination of employment,  all amounts credited to
such Participant's  Aggregate Account shall become 100% Vested. Unless otherwise
elected by the Participant,  as soon as is practical after the  determination of
Total and Permanent Disability and the Participant's request for a distribution,
the Administrator shall direct the Trustee, in accordance with the provisions of
Section 6.6, to distribute to (or begin the  distribution  to) such  Participant
all amounts credited to such  Participant's  Aggregate  Account as though he had
retired.

             6.4   DETERMINATION OF BENEFITS UPON TERMINATION

                   (a) Upon the termination of employment of a Participant prior
to his  retirement,  death or Total and  Permanent  Disability,  the  Terminated
Participant  shall be entitled to a  distribution  of the Vested  portion of his
Aggregate Account in accordance with this Section and Section 6.6 below.
<PAGE>

                   (b) With  respect to the  Terminated  Participant's  Deferral
Account,  Participant's  Matching Account,  Participant's Profit Sharing Account
and Participant's Rollover Account, as soon as is practical after the terminated
Participant's   request  for  a  termination   of  service   distribution,   the
Administrator  shall direct the Trustee,  in accordance  with the  provisions of
Section  6.6,  to  distribute,  or begin the  distribution  of,  the  Terminated
Participant's Deferral Account,  Participant's  Matching Account,  Participant's
Profit Sharing Account and Participant's  Rollover Account.  With respect to the
Participant's  ESOP Account  (which  includes the  Participant's  Company  Stock
Account,  Participant's  ESOP  Investment  Account and  Participant's  Qualified
Directed  Investment  Account),  upon a request  for a  termination  of  service
distribution,  unless the  Terminated  Participant  elects a later  distribution
commencement date, distribution of the Participant's ESOP Account shall commence
not later  than the last day of the Plan Year which is the fifth Plan Year after
the Plan Year in which the Participant otherwise separated from service with the
Employer,   unless  the   Participant  is  reemployed  by  the  Employer  before
distribution is otherwise required by this paragraph.  The rules of Code Section
409(o) are  incorporated  herein by  reference.  See Section 6.6. In the event a
Participant's effective date of termination of service is September 30, the Plan
Year that includes such September 30 shall be regarded as the Plan Year in which
the  Participant  otherwise  separated from Service with the Employer.  See also
Section 3.4(c).

                   (c) The amount of the Terminated  Participant's ESOP Account,
Participant's Profit Sharing Account and Participant's Matching Account which is
not Vested shall be credited to the Suspense Account, pending Forfeiture,  as of
the effective date of termination of employment.

                   (d)  For  purposes  of  this  Section  6.4,  if a  Terminated
Participant's  Vested  balance in his Aggregate  Account is zero, the Terminated
Participant  shall be deemed to have  received  a  distribution  of such  vested
balance upon termination of employment.

                   (e) The Vested  portion of any  Participant's  ESOP  Account,
Participant's Profit Sharing Account,  and Participant's  Matching Account shall
be a percentage of the total amount credited to such Participant's ESOP Account,
Participant's  Profit  Sharing  Account  and  Participant's   Matching  Account,
respectively,  determined on the basis of the  Participant's  number of Years of
Service according to the following schedule:
<TABLE>
<CAPTION>
                                         Vesting Schedule

                           Years of Service            Percentage
                           ----------------            ----------
<S>                        <C>                             <C>
                           Less than 3                       0%
                           3                                20%
                           4                                40%
                           5                                60%
                           6                                80%
                           7 or more                       100%
</TABLE>

                   (f) The computation of a Participant's  Vested  percentage of
his  interest  in the Plan  shall not be  reduced as the result of any direct or
indirect  amendment  to this  Plan.  In the event  that this Plan is  amended to
change or modify any vesting  schedule,  a Participant with at least three Years
of Service as of the expiration  date of the election period provided herein may
elect to have his Vested  percentage  computed  under the Plan without regard to
such  amendment.  If a  Participant  fails  to make  such  election,  then  such
Participant shall be subject to the amended vesting schedule.  The Participant's
election  period shall  commence on the adoption date of the amendment and shall
end 60 days after the latest of:

                       (1) The adoption date of the amendment;

                       (2) The effective date of the amendment; or
<PAGE>

                       (3) The date the Participant  received  written notice of
the amendment from the Employer or Administrator.

                   (g) (1) If any Former  Participant shall be reemployed by the
Employer  before a  One-Year  Break in  Service  occurs,  he shall  continue  to
participate  in the  Plan in the  same  manner  as if such  termination  had not
occurred.

                       (2) If any Former  Participant shall be reemployed by the
Employer before five  consecutive  One-Year  Breaks in Service,  and such Former
Participant had received a distribution of his entire Vested  Aggregate  Account
prior to his re-employment,  his forfeited Aggregate Account shall be reinstated
only if he repays the full amount  distributed  to him, other than his voluntary
contributions,  prior to the fifth  anniversary of his date of reemployment.  In
the event the Former  Participant does repay the full amount distributed to him,
the  undistributed  portion  of the  Participant's  Aggregate  Account  must  be
restored in full,  unadjusted by any gains or losses occurring subsequent to the
Anniversary Date or other Valuation Date preceding his termination.  See Section
3.4(f) regarding the reinstatement of Aggregate Accounts.

                       (3) If any  Former  Participant  is  reemployed  after  a
One-Year Break in Service has occurred,  Years of Service shall include Years of
Service prior to his One-Year Break in Service subject to the following rules:

                           (i) If any non-Vested,  Former Participant (i.e., had
less than 7 Years of Service at his termination of service) has a One-Year Break
in Service  (but less than 5  consecutive  One-Year  Breaks in Service) he shall
immediately be eligible to participate  in the Plan.  Except as provided  below,
Years of  Service  before  and  after his  One-Year  Break in  Service  shall be
recognized for vesting  purposes with respect to his Aggregate  Account  balance
attributable to both pre-break and post-break service.

                           (ii)  After  the  greater  of  (A)  five  consecutive
One-Year Breaks in Service,  or (B) a number of One-Year Breaks in Service equal
to the Former  Participants'  pre-break Years of Service, a Participant's Vested
Aggregate  Account  attributable  to  post-break  Years of Service  shall not be
increased  as a result of  pre-break  Years of Service  pursuant to Code Section
411(a)(6)(D)(I);

                           (iii)  After  five  consecutive  One-Year  Breaks  in
Service, a Former Participant's Vested Aggregate Account balance attributable to
pre-break service shall not be increased as a result of post-break service;

                           (iv) If a non-Vested,  Former Participant incurs five
consecutive  One-Year Breaks in Service,  he must again satisfy the requirements
of Sections 2.1 and 2.2 in order to become eligible for and enter the Plan; and

                           (v) If a  Former  Participant  completes  a  Year  of
Service (a One-Year Break in Service previously occurred, but employment had not
terminated),  he shall participate in the Plan  retroactively from the first day
of the Plan Year during which he completes one Year of Service.
<PAGE>

             6.5   DETERMINATION OF BENEFITS AT AGE 59 1/2

                   (a) As of, or after,  the date a Participant  attains age 59-
1/2, such Participant may request a distribution of all, or any portion,  of his
Participant's Deferral Account, even if the Participant continues as an Employee
of the Employer.  Such  Participant  shall  continue to  participate in the Plan
provided the  Participant  continues  to meet the  eligibility  requirements  of
Article II.

                   (b) Upon a request for a distribution  in accordance with the
preceding  paragraph,  or as soon as practicable  thereafter,  the Administrator
shall  direct  the  Trustee to  distribute,  or begin the  distribution  of, all
amounts  credited to such  Participant's  Deferral  Account in  accordance  with
Section 6.6.

             6.6   DISTRIBUTION OF BENEFITS

                   (a) This plan  provides  for  different  forms of payment and
different  commencement dates for the Participant's ESOP Account (which includes
his Company  Stock  Account,  ESOP  Investment  Account and  Qualified  Directed
Investment  Account) on the one hand, and all other accounts of the  Participant
(which  includes his  Participant's  Deferral  Account,  Participant's  Matching
Account and  Participant's  Rollover  Account)  on the other hand.

                   (b) The ESOP Account. With respect to the distribution of the
Participant's ESOP Account, effective February 15, 1996, distribution on account
of  retirement  (Section 6.1) or Total and  Permanent  Disability  (Section 6.3)
shall  be  made in cash or in kind  (as  determined  by the  Administrator,  but
subject  to Section  6.8) in one lump sum,  or in a fixed  number of  quarterly,
semiannual or annual  installments over a period not to exceed the Participant's
life  expectancy (or the life  expectancy of the  Participant and his designated
Beneficiary).  The  Participant  shall have the right to determine  whether such
distribution is in one lump sum or  installments.  With respect to distributions
to  Participants   that  have   terminated   employment  and  have  requested  a
distribution pursuant to Section 6.4, unless the Participant elects in writing a
longer distribution period, such distribution of the Participant's ESOP Account,
including  the Company  Stock  Account,  ESOP  Investment  Account and Qualified
Directed Investment Account, made pursuant to Section 6.4, may be distributed in
cash or in kind,  (as  determined by the  Administrator,  but subject to Section
6.8)  in  substantially  equal  periodic  payments  (not  less  frequently  than
annually)  over a period  of five  years.  In the case of a  Participant  with a
Participant's ESOP Account in excess of $500,000,  the five year period shall be
extended one additional  year (up to an additional  five) for each $100,000,  or
fraction thereof,  by which such account exceeds  $500,000.  Such dollar amounts
shall be  adjusted  at the same time and in the same  manner as provided in Code
Section 415(d).

                   The  Other  Accounts.   With  respect  to  the  Participant's
Deferral Account,  Participant's Matching Account,  Participant's Profit Sharing
Account  and  Participant's  Rollover  Account,  in the event a  Participant  is
entitled to a lifetime distribution in accordance with Sections 6.1, 6.3, 6.4 or
6.5,  the  Administrator,  pursuant to the  election of the  Participant,  shall
direct the Trustee to distribute to the Participant or Former  Participant,  the
Vested portion of his  Participant's  Deferral Account,  Participant's  Matching
Account,  Participant's Profit Sharing Account,  and/or  Participant's  Rollover
Account,  in  one of the  following  methods  selected  by  the  Participant  or
Terminated Participant

                       (1) One lump sum payment in cash or in kind;
<PAGE>

                       (2)  Payments  over a period  certain  (not to exceed the
life  expectancy  of  the  Participant  or  the  joint  life  expectancy  of the
Participant  and his  Beneficiary) in monthly,  quarterly,  semiannual or annual
installments.  In order to provide such installment payments,  the Administrator
may (A) segregate the  Participant's  Deferral Account,  Participant's  Matching
Account,  Participant's  Profit  Sharing  Account,  and  Participant's  Rollover
Account in a separate, federally insured savings account, certificate of deposit
in a bank or savings and loan  association,  money market  certificate  or other
liquid short-term  security or (B) purchase a  nontransferable  annuity contract
for a term certain (with no life contingencies) providing for such payment;

                       (3) A single life annuity  (payable  over the lifetime of
the Participant) with or without a term certain; or

                       (4) A joint  and  survivor  annuity  (with  the  survivor
benefit being 50%, 75% or 100%).

                   (c)  In  the  event  a   Participant   desires   to  elect  a
distribution  of his  Participant's  Deferral  Account,  Participant's  Matching
Account, Participant's Profit Sharing Account and Participant's Rollover Account
in the form of a life annuity, the following rules shall apply:

                       (1)  Unless  otherwise   elected  as  provided  below,  a
Participant  who  desires  an  annuity  form  of  payment,  is  married  on  his
distribution  commencement  date,  and who does not die before such date,  shall
receive the combined value of his Participant's Deferral Account,  Participant's
Matching  Account,   Participant's  Profit  Sharing  Account  and  Participant's
Rollover  Account  in the form of a joint and  survivor  annuity.  The joint and
survivor  annuity shall be an annuity that  commences  immediately  and shall be
equal in value to a single life  annuity  that may be  purchased  with the total
value of such accounts.  The survivor benefits following the Participant's death
shall  continue to the  Participant's  spouse during the spouse's  lifetime at a
rate  equal  to 50% of the rate at  which  such  benefits  were  payable  to the
Participant  during his lifetime.  This joint and 50% survivor  annuity shall be
considered the  designated  qualified  joint and survivor  annuity and automatic
form of payment for the purposes of this Plan.  An unmarried  Participant  shall
receive the value of his benefit in the form of a life annuity.  Such  unmarried
Participant,  however,  may  elect in  writing  to waive the life  annuity.  The
election  must  comply  with the  provisions  of this  Section  as if it were an
election to waive the joint and survivor annuity by a married  Participant,  but
without the spousal consent requirement.

                       (2) Any election to waive the joint and survivor  annuity
must be made by the Participant in writing during the election period  described
below and be consented to in writing by the Participant's  spouse. If the spouse
is legally  incompetent to give consent,  the spouse's legal  guardian,  even if
such guardian is the  Participant,  may give consent.  The election to waive the
joint and survivor annuity shall designate a Beneficiary (or a form of benefits)
that may be changed only with spousal  consent (unless the consent of the spouse
expressly  permits  designations by the  Participant  without the requirement of
further consent by the spouse).  Such spouse's  consent shall be irrevocable and
must  acknowledge  the  effect of such  election  and be  witnessed  by a notary
public.  Such  consent  shall  not  be  required  if it is  established  to  the
satisfaction of the  Administrator  that the required consent cannot be obtained
because there is no spouse, the spouse cannot be located, or other circumstances
that may be prescribed by Regulations.  The election made by the Participant and
consented to by his spouse may be revoked  (but not modified  unless as provided
above) by the  Participant  in writing  without the consent of the spouse at any
time during the election period. The number of revocations shall not be limited.
Any new election must comply with the  requirements  of this  Section.  A former
spouse's waiver shall not be binding on a new spouse.

                       (3) The  election  period to waive the joint and survivor
annuity  shall be the 90 day  period  ending on the  Participant's  distribution
commencement date.
<PAGE>

                       (4) For  purposes  of  this  Section,  the  "distribution
commencement  date" means the first day of the first  period for which an amount
is paid as an  annuity,  or, in the case of a benefit not payable in the form of
an annuity,  the first day on which all events have  occurred  which entitle the
Participant to a distribution.

                       (5) With regard to the election,  the Administrator shall
provide to the  Participant no less than 30 days and no more than 90 days before
the "distribution commencement date" a written explanation of:

                           (i)  the  terms  and  conditions  of  the  joint  and
survivor annuity;

                           (ii) the Participant's  right to make, and the effect
of, an election to waive the joint and survivor annuity;

                           (iii)  the  right  of  the  Participant's  spouse  to
consent to any election to waive the joint and survivor annuity; and

                           (iv) the  right of the  Participant  to  revoke  such
election, and the effect of such revocation.

                   (d)  Notwithstanding  this  Section  6.6,  cash  dividends on
shares of Company Stock  allocable to the  Participants'  Company Stock Accounts
may be paid  pursuant to Section  3.4(d) to the  Participants  or  Beneficiaries
within 90 days after the close of the Plan Year in which the dividend is paid.

                   (e) Any part of a  Participant's  Aggregate  Account which is
retained in the Plan after the Anniversary  Date on which his  participation  in
the Plan  terminates  will continue to be treated as a  Participant's  Aggregate
Account.  However,  such account shall not be credited with any further Employer
contributions or Forfeitures.

                   (f)  The  Participant's  Aggregate  Account  may  not be paid
without his written consent if the value exceeds,  or has ever exceeded,  $3,500
at the  time  of any  prior  distribution.  If the  value  of the  Participant's
Aggregate Account does not exceed $3,500,  and has never exceeded $3,500, at the
time of any prior  distribution,  the Administrator  may immediately  distribute
such  Aggregate  Account  (in a single  lump  sum)  without  such  Participant's
consent.  No  distribution  may be  made  under  this  Section  6.6  unless  the
Administrator  first  complies  with  the tax  and  distribution  reporting  and
disclosure provisions of the Code and Regulations.

                   (g)   Notwithstanding  any  provision  in  the  Plan  to  the
contrary, the distribution of a Participant's Aggregate Account shall be made in
accordance with the following  requirements and shall otherwise comply with Code
Section 401(a)(9) and the Regulations  thereunder  (including Regulation Section
1.401(a)(9)-(2)), the provisions of which are incorporated herein by reference:

                       (1)  A   Participant's   Aggregate   Account   shall   be
distributed to him not later than the Participant's  "required  beginning date."
Alternatively,  distributions  to a  Participant  must  begin no later  than the
Participant's  "required  beginning date," and must be made over the life of the
Participant  (or the  joint  lives  of the  Participant  and  the  Participant's
designated  Beneficiary) or a period certain  measured by the life expectancy of
the  Participant  (or the joint life  expectancies  of the  Participant  and his
designated Beneficiary) in accordance with Regulations. For Plan Years beginning
prior to December 31,  1996, a  Participant's  "required  beginning  date" means
April  1 of  the  calendar  year  following  the  calendar  year  in  which  the
Participant  attains age 70 1/2.  For Plan Years  beginning  after  December 31,
1996, a  Participant's  "required  beginning date" means April 1 of the calendar
year  following  the later of (i) the  calendar  year in which  the  Participant
attains age 70 1/2, or (ii) the calendar year in which the Participant  retires.
However,  part (ii) of the preceding sentence shall not apply to any Participant
that is a "five  percent  owner" (as defined in Code  Section  416) for the Plan
Year ending in the calendar year in which such Participant attains age 70 1/2.

                       (2)  Distributions to a Participant and his Beneficiaries
shall only be made in accordance with the incidental death benefit  requirements
of Code Section 401(a)(9)(G) and the Regulations thereunder.
<PAGE>

                   (h)  All   annuity   contracts   under  this  Plan  shall  be
non-transferable  when  distributed.  Furthermore,  the  terms  of  any  annuity
contract  purchased and distributed to a Participant or spouse shall comply with
all of the requirements of the Plan.

                   (i)  If  a  distribution   is  one  to  which  Code  Sections
401(a)(11) and 417 do not apply, such distribution may commence less than thirty
(30) days after the notice required under Regulation  Section  1.411(a)-11(c) is
given, provided that: (1) the Administrator clearly informs the Participant that
the  Participant  has a right to a period of at least  thirty  (30)  days  after
receiving  the  notice to  consider  the  decision  of whether or not to elect a
distribution and, if applicable,  a particular  distribution option, and (2) the
Participant, after receiving the notice, affirmatively elects a distribution.

                   (j) In no event shall a distribution required by this Article
VI be distributed  later than 180 days after the  Anniversary  Date for the Plan
Year in which such distribution is to be made. However, unless otherwise elected
in writing by the Former  Participant  (such  election may not result in a death
benefit that is more than incidental), a distribution shall begin not later than
the 60th  day  after  the  close of the Plan  Year in which  the  latest  of the
following events occurs.

                           (i) The date on which  the  Participant  attains  his
Normal Retirement Age;

                           (ii) The 10th  anniversary  of the year in which  the
Participant commenced participation in the Plan; or

                           (iii) The date the Participant terminates his service
with the Employer.

             6.7   DISTRIBUTION OF BENEFITS UPON DEATH

                   (a) Unless otherwise elected as provided in Section 6.2(d), a
Vested Participant who dies before the distribution of his Aggregate Account has
commenced  pursuant to Section 6.6 above, and who has a surviving spouse,  shall
have the value of his Aggregate Account paid to his surviving spouse.

                   (b) In the event a Participant has commenced  distribution of
his  Aggregate  Account  prior  to  death,  distribution  of  the  Participant's
Aggregate  Account shall continue in the form or forms, and at least as rapidly,
as prior to the Participant's death.

                   (c) Except as provided in paragraph (b) above, in the event a
Beneficiary  is entitled to a death benefit in accordance  with Section 6.2, the
Administrator,  pursuant to the  election of the  Beneficiary,  shall direct the
Trustee to distribute to the Beneficiary,  the deceased  Participants  Aggregate
Account, in one of the methods of distribution specified in Section 6.6 above.

                   (d) The deceased  Participant's  Aggregate Account may not be
paid without the  Beneficiary's  consent if the value of such Aggregate  Account
exceeds, or has ever exceeded, $3,500 at the time of any prior distribution.  If
the value of the Participant's  Aggregate Account does not exceed $3,500 and has
never exceeded $3,500 at the time of any prior  distribution,  the Administrator
may immediately distribute such Aggregate Account (in a single lump sum) without
such Beneficiary's  consent. No such distribution may be made under this Section
unless the Administrator first complies with the tax and distribution  reporting
and disclosure provisions of the Code and Regulations.

                   (e)   Notwithstanding  any  provision  in  the  Plan  to  the
contrary,  distributions  upon  the  death  of a  Participant  shall  be made in
accordance  with the  requirements  of, and shall  otherwise  comply with,  Code
Section 401(a)(9) and the Regulations  thereunder.  If a Participant dies before
he has begun to receive any  distributions of his Aggregate  Account,  or before
distributions  are  deemed  to have  begun  pursuant  to  Regulations,  then the
Participant's  Aggregate  Account shall be distributed to his  Beneficiaries  by
December  31st of the  calendar  year in  which  the  fifth  anniversary  of the
Participant's date of death occurs.
<PAGE>

                   However, the 5-year distribution requirement of the preceding
paragraph shall not apply to any portion of the deceased Participant's Aggregate
Account which is payable to or for the benefit of a designated  Beneficiary.  In
such event,  such  portion  may,  at the  election  of the  Participant  (or the
Participant's  designated  Beneficiary),  be  distributed  over the life of such
designated  Beneficiary  (or  over  a  period  not  extending  beyond  the  life
expectancy of such designated Beneficiary) provided such distribution begins not
later than December 31st of the calendar year immediately following the calendar
year in which the  Participant  died.  However,  in the event the  Participant's
spouse  (determined  as  of  the  date  of  the  Participant's   death)  is  his
Beneficiary,  the requirement that  distributions  commence within one year of a
Participant's  death  shall  not  apply.  In lieu  thereof,  distributions  must
commence  on or before  the later of: (1)  December  31st of the  calendar  year
immediately  following the calendar year in which the  Participant  died; or (2)
December 31st of the calendar year in which the Participant  would have attained
age 70 1/2,  and must be made over the life of the  spouse (or over a period not
extending  beyond the life  expectancy of the spouse).  If the surviving  spouse
dies before  distributions  to such spouse begin,  then the 5-year  distribution
requirement of this Section shall apply as if the spouse was the Participant.

                   (f) The  Beneficiary  shall  not  have the  right  to  demand
Employer securities allocated to the deceased Participant's Aggregate Account.
       
             6.8   HOW ESOP BENEFITS WILL BE DISTRIBUTED

                   (a) Distribution of a Participant's  ESOP Account may be made
in cash or Company Stock or both (as determined by the Administrator), provided,
however,  that if a Participant or  Beneficiary so demands,  such benefit (other
than  Company  Stock sold and  reinvested  pursuant  to Section  3.12)  shall be
distributed only in the form of Company Stock. Prior to making a distribution of
benefits, the Administrator shall advise the Participant or his Beneficiary,  in
writing,  of the right to demand that benefits be distributed  solely in Company
Stock.

                   (b) If a Participant or Beneficiary  demands that benefits be
distributed  solely in  Company  Stock,  distribution  of a  Participant's  ESOP
Account will be made  entirely in whole shares or other units of Company  Stock.
Any  balance  in a  Participant's  ESOP  Investment  Account  will be applied to
acquire for  distribution  the maximum  number of whole shares or other units of
Company  Stock  at the  then  fair  market  value.  Any  fractional  unit  value
unexpended  will be  distributed  in cash. If Company Stock is not available for
purchase by the Trustee,  then the Trustee shall hold such balance until Company
Stock is acquired and then make such distribution, subject to this Article VI.

                   (c) The Trustee will make  distributions  from the Trust only
on instructions from the Administrator.

             6.9   IN SERVICE DISTRIBUTION

                   (a)  At  such  time  as  a  Participant  (but  not  a  Former
Participant or Terminated Participant) becomes 100% Vested, such Participant may
request  once each Plan Year a  distribution  not to exceed five percent (5%) of
such Participant's Company Stock Account,  determined as of the Anniversary Date
or Valuation Date immediately  preceding such request.  Such  Participant  shall
continue to participate in the Plan provided the  Participant  continues to meet
the eligibility requirements of Article II.

                   (b) In service  distributions  pursuant to this Section shall
be  made  in one  lump  payment,  in  cash  or in  kind  (as  determined  by the
Administrator),  but the  provisions  of Sections 6.8 and 6.18 shall apply to in
service distributions permitted by this Section 6.9.

                   (c) Requests for in service  distributions under this Section
6.9  shall  be  made by the  Participant  to the  Administrator  on a form to be
supplied by the  Administrator.  The  Administrator is authorized to, and shall,
promulgate  procedures from time to time which govern in service  distributions,
including the times of the Plan Year during which in service  distributions  may
be requested.

                   (d)  This   Section  6.9  shall  be   effective  as  soon  as
administratively practicable after July 1, 1997.
<PAGE>

             6.10  TIME OF SEGREGATION OR DISTRIBUTION

             Notwithstanding  any  other  provision  of  this  Agreement  to the
contrary, whenever the Trustee is to make a distribution or to commence a series
of payments, the distribution or series of payments may be made or begun as soon
after the Participant's or Beneficiary's  request as is practicable,  but unless
otherwise consented to in writing by the Participant or Beneficiary, in no event
shall  distribution  be made or begun later than 180 days after the  Anniversary
Date following such request. However, unless otherwise elected in writing by the
Former Participant (such election may not result in a death benefit that is more
than incidental), a "distribution" shall begin not later than the 60th day after
the close of the Plan Year in which the latest of the following events occurs:

                   (a) The date on which  the  Participant  attains  his  Normal
Retirement Age;

                   (b) The 10th anniversary of the year in which the Participant
commenced participation in the Plan; or

                   (c) The date the Participant  terminates his service with the
Employer.

             6.11  DISTRIBUTION FOR MINOR BENEFICIARY

             In the  event a  distribution  is to be made to a  minor,  then the
Administrator may, in his sole discretion, direct that such distribution be paid
to the  legal  guardian,  or,  if none,  to a parent  of such  Beneficiary  or a
responsible adult with whom the Beneficiary  maintains his residence,  or to the
custodian for such  Beneficiary  under the Uniform Gift to Minors Act or Gift to
Minors  Act, if such is  permitted  by the laws of the state in which said minor
Beneficiary  resides.  Such  payment to the legal  guardian or parent of a minor
Beneficiary shall fully discharge the Trustee, Employer,  Administrator and Plan
from further liability on account thereof.

             6.12  LOCATION OF PARTICIPANT OR BENEFICIARY UNKNOWN

             In the event that all, or any portion, of the distribution  payable
to a Participant or his Beneficiary  hereunder  shall, at the expiration of five
years  after it shall  become  payable,  remain  unpaid  solely by reason of the
inability  of the  Administrator,  after  sending a  registered  letter,  return
receipt requested, to the last known address, and after further diligent effort,
to ascertain the whereabouts of such Participant or his beneficiary,  the amount
so distributable  shall be forfeited and shall be used to reduce the cost of the
Plan. In the event a Participant  or  Beneficiary  is located  subsequent to his
benefit being forfeited, such benefit shall be restored.

             6.13  LIMITATIONS ON BENEFITS AND DISTRIBUTIONS

             All  rights  and  benefits,  including  elections,  provided  to  a
Participant  in this  Plan  shall  be  subject  to the  rights  afforded  to any
"alternate payee" under a "qualified  domestic  relations order" as that term is
defined in Code Section 414(p).

             6.14  DISTRIBUTION OF DEFERRAL ACCOUNT UPON HARDSHIP

                   (a)  The  Plan   Administrator  may  direct  the  Trustee  to
distribute  a portion of a  Participant's  Deferral  Account  (not to exceed the
Participant's  Deferral Account valued as of the next preceding Anniversary Date
or Valuation  Date) in the event of an immediate and heavy  financial need. Such
hardship   distribution   shall  be  made  only  within  the  "deemed   hardship
distribution standards" published by the Internal Revenue Service in Regulations
Sections 1.401(k)-1(d)(2)(iv).

                   (b) The  determination  of  whether  an  immediate  and heavy
financial need exists shall be made by the Administrator based upon all relevant
facts and circumstances.  A hardship  withdrawal shall be authorized only if the
distribution is to be used for one of the following purposes:
<PAGE>

                       (1) The payment of unreimbursed medical expenses incurred
by the  Participant,  his spouse or his  dependent  (as defined in Code Section)
152) or the payment of  unreimbursed  expenses  necessary  for these  persons to
obtain medical care;

                       (2) Costs directly related to the purchase of a principal
residence by the Participant (excluding mortgage payments);

                       (3) The payment of tuition and related  educational  fees
for the next 12 months of post-secondary  education for the Participant,  or his
spouse or dependent (as defined in Code Section 152);

                       (4)  The  need  to   prevent   the   eviction   from  the
Participant's  principal  residence  or  foreclosure  on  the  mortgage  of  the
Participant's principal residence.

                   (c) In order to obtain a hardship withdrawal, the Participant
must certify to the Administrator and agree that all of the following conditions
are satisfied:

                       (1) The  distribution  is not in excess of the  amount of
the  Participant's  immediate and heavy financial need (which amount may include
any  amounts  necessary  to pay any  federal,  state  or local  income  taxes or
penalties reasonably anticipated to result from the distribution);

                       (2) The Participant has obtained all distributions, other
than hardship distributions, and all non-taxable loans currently available under
all plans maintained by the Employer; and

                       (3) The  Participant's  salary deferrals to the Plan "and
all other  plans  maintained  by the  Employer"  (as that  phrase is  defined in
Regulation Section  1.401(k)-1(d)(2)(iv)(B)(4) will be suspended for at least 12
months, and his maximum salary deferrals for the following taxable year shall be
reduced pursuant to Section 3.2(e).

                   (d) A distribution to satisfy an immediate or heavy financial
need may only be made if the Participant does not have other resources available
to satisfy such need. For this purpose, a Participant's  resources shall include
property which is owned by him, his spouse or minor children.  The determination
whether a Participant  has other  resources  with which to satisfy the financial
need will be based upon all relevant facts and  circumstances.  The  Participant
shall  certify and provide such  documentation  as may be necessary to show that
the amount of the  distribution  is not in excess of the financial need and that
the need cannot be met by one of the following alternatives:

                       (1) Through reimbursement or compensation by insurance or
otherwise;

                       (2) By  selling  or  otherwise  liquidating  assets  in a
reasonable  manner, but only if doing so would not create an immediate and heavy
financial need;

                       (3) By stopping elective  contributions to the Plan under
Section 3.2;

                       (4) By  borrowing  money from a bank or other  commercial
lender on terms that would be considered commercially reasonable; or

                       (5) By  electing to receive  any  available  distribution
from the Plan.

             6.15  DIRECT ROLLOVERS

             Notwithstanding  any  provision  of the Plan to the  contrary  that
would otherwise limit a Distributee's election under this Article, a Distributee
may elect,  at the time and in the manner  prescribed by the  Administrator,  to
have any  portion of an  Eligible  Rollover  Distribution  paid  directly  to an
Eligible  Retirement  Plan specified by the  Distributee  in a Direct  Rollover.
Nothing in this Section 6.15 shall be construed to grant or Distribute any right
to a distribution other than those rights provided in this Article VI.
<PAGE>

             6.16  LOANS TO PARTICIPANTS

                   (a) The Administrator  shall have the authority to administer
the loan program provided under the Plan. Such authority shall include,  without
limitation,  the  authority  to (i)  approve  or deny  loan  applications,  (ii)
establish limitations on the amount or terms of a loan, (iii) determine the rate
of interest and the  collateral for each loan, and (iv) call a loan into default
and take all actions  necessary or  appropriate  to preserve  Plan assets in the
event of such default.

                   (b) Loans shall be  available  to all  Participants  (but not
Former  Participants or Terminated  Participants)  of the Plan provided they are
Employees  of the  Employer on the date the loan is made.  Any  Participant  may
request a loan from the Plan in writing by  delivering a written  request to the
Administrator on a form prescribed by the Employer. The Administrator shall then
approve or deny such loan application within 30 days of the receipt thereof.

             In the event the loan is approved,  the Participant shall execute a
promissory  note,  security   agreement,   an  authorization  to  withhold  loan
repayments from the Participant's  regular paycheck from the Employer,  and such
other documents as shall be required by the Administrator.

             Any  loan  that is  approved  shall  be  treated  as a  segregated,
directed  investment under Article III (for purposes of crediting  earnings) for
the benefit of only the borrowing Participant.

                   (c) Plan loans shall be approved  if the  following  criteria
are  met  by the  Participant  requesting  the  loan:

                       (1)  The  sum of all  the  Participant's  (and  spouse's)
monthly debt payments  (computed  immediately  after the Plan loan is made,  and
including  principal and interest payments on mortgage loans, car loans,  credit
cards and other unsecured or secured debt obligations but excluding  obligations
paid off with the proceeds of the Plan loan),  plus the monthly  amortization of
the  Participant's  Plan loan then being  requested  shall not exceed 45% of the
Participant's  (and spouse's) gross monthly income (computed before any Internal
Revenue Code Sections 401(k) or 125 salary  deferrals).  The  Participant  shall
certify this to the Administrator at the time the loan is requested.

                       (2) The loan does not exceed the maximum loan limitations
in paragraph (d) below.

                       (3)  The  Participant  does  not  have  any  other  loans
outstanding from the Plan at the time the Participant applies for the loan.

                       (4) The loan is repaid in level payments of principal and
interest over a period not to exceed five years,  by payroll  deduction from the
Participant's regular paychecks.

                       (5) The loan satisfies the provisions  otherwise provided
in this section as to interest rate, collateral and documentation.

                       (6) The Participant  agrees to pay (or have deducted) all
fees and documentary  stamps  associated with the loan,  whether incurred at the
time of the loan or on an annual basis.

                   (d)  The  maximum  dollar  amount  of  any  Plan  loan  to  a
Participant,  when added to plan loans from any other qualified plans maintained
by the Employer, shall not exceed the lesser of -

                       (1) $50,000, reduced by the excess (if any) of -

                           (i) the highest outstanding balance of loans from the
Plan to the Participant  during the one year period ending on the day before the
date of the loan, over
<PAGE>

                           (ii) the  outstanding  balance of loans from the Plan
to the Participant on the date of the loan; or 

                        (2)  One-half  of  the  Participant's  Vested  Aggregate
Account balance (excluding the Participant's Company Stock Account).

             The minimum  dollar amount of any Plan loan to a Participant  shall
be $1,000.

             No  loans  shall be made  from  the  Plan if the  rate of  interest
determined pursuant to paragraph (e) below would exceed the state usuary rate at
the time the loan would be made.

                   (e) Loans shall bear a  reasonable  rate of  interest,  which
shall be commensurate  with interest rates charged by persons in the business of
lending money under similar  circumstances.  The Administrator (or its designee)
shall  determine the interest rate for any loan based on the rate charged by one
or more  commercial  lenders for a similar  loan,  taking into  account  similar
collateral.

                   (f)  All  loans  shall  be  evidenced  by a  promissory  note
executed by the  Participant  in favor of the Trustee of the Plan.  In addition,
the loan  shall be  secured by a grant by the  Participant  to the  Trustee of a
security interest in 50% of the  Participant's  Vested Aggregate Account balance
in the Plan.  Such  security  interest  shall be  evidenced  by a duly  executed
security  agreement and, if the  Administrator  requests,  an executed and filed
Form UCC-1 Financing Statement. The Plan shall have a right to offset the amount
of any loan,  including  interest  and  collection  costs,  against  any  amount
distributable to or on behalf of the Participant or his Beneficiary.

                   (g) In the event the  Participant  fails to pay any principal
or interest when due, the Plan loan shall be considered in default 60 days after
the date such payment was due. Unless prohibited by the Code or Regulations, the
loan shall then be  foreclosed,  and the amount of the loan treated as a deemed,
in service  distribution  to the  Participant of the entire amount of the unpaid
principal and accrued interest (plus collection costs).

                   (h) All loans shall be due and payable  upon a  Participant's
termination of employment with the Employer or Affiliated Employer.

             6.17  PUT OPTION

                   (a) If Company Stock which was not acquired with the proceeds
of an Exempt Loan is distributed to a Participant  and such Company Stock is not
readily tradeable on an established  securities market, a Participant shall have
the right to require the Employer to repurchase the Company Stock distributed to
such Participant under a fair valuation formula.  Such Stock shall be subject to
the provisions of paragraph (c) below.

                   (b) Company  Stock which is acquired  with the proceeds of an
Exempt  Loan and which is not  publicly  traded  when  distributed,  or if it is
subject  to a trading  limitation  when  distributed,  must be  subject to a put
option. For purposes of this paragraph,  a "trading limitation" on Company Stock
is a restriction  under any federal or state  securities  law or any  regulation
thereunder,  or an agreement (not  prohibited by this Plan affecting the Company
Stock which would make the Company  Stock not as freely  tradeable  as stock not
subject to such  restriction.

                   (c) The put option shall be exercisable only by a Participant
or Former Participant,  by the Participant's or Former Participant's  donees, or
by a person  (including an estate or its  distributee) to whom the Company Stock
passes by reason of a Participant's or Former  Participant's  death. (Under this
paragraph,  Participant  or Former  Participant  means a  Participant  or Former
Participant and the Beneficiaries of the Participant or Former Participant under
the Plan.) The put option must permit a Participant or Former Participant to put
the Company Stock to the  Employer.  Under no  circumstances  may the put option
bind the Plan. However,  the option shall grant the Plan an option to assume the
rights  and  obligations  of the  Employer  at the time  that the put  option is
exercised.  If it is known at the time a loan is made that  federal or state law
will be violated by the Employer's honoring such put option, the put option must
permit the Company Stock to be put, in a manner  consistent  with such law, to a
third party (e.g., an affiliate of the Employer or a shareholder  other than the
Plan) that has  substantial net worth at the time the loan is made and whose net
worth is reasonably expected to remain substantial.
<PAGE>

             The put option shall  commence as of the day following the date the
Company  Stock  is  distributed  to the  Former  Participant  and  end  60  days
thereafter and if not exercised within such 60-day period,  an additional 60-day
option shall  commence on the first day of the fifth month of the Plan Year next
following the date the Company Stock was  distributed to the Former  Participant
(or such other 60-day period as provided in Regulations).  However,  in the case
of Company Stock that is publicly traded without  restrictions  when distributed
but ceases to be so traded  within  the  option  period  described  herein,  the
Employer  must notify each holder of such Company  Stock in writing on or before
the 10th day after the date the  Company  Stock  ceases to be so traded that for
the  remainder of the  applicable  option period the Company Stock is subject to
the put  option.  The number of days  between the 10th day and the date on which
notice is  actually  given,  if later  than the 10th  day,  must be added to the
duration of the put option.  The notice must inform  distributees of the term of
the put options that they are to hold.  The terms must satisfy the  requirements
of this paragraph.

             The put  option  shall be  exercised  by the holder  notifying  the
Employer in writing  that the put option is being  exercised.  The notice  shall
state the name and  address  of the  holder and the number of shares to be sold.
The period  during which a put option is  exercisable  does not include any time
when a  distributee  is unable to exercise it because the party bound by the put
option is prohibited  from  honoring it by applicable  federal or state law. The
price at which a put  option  must be  exercisable  is the value of the  Company
Stock  determined  in  accordance  with Article V. Payment  under the put option
involving a "total  distribution"  shall be paid in  substantially  equal annual
installments  over a period  certain  beginning not later than thirty days after
the  exercise of the put option and not  extending  beyond  five (5) years.  The
length of the term of the payout shall be determined by the  Administrator.  The
deferral of payment  shall be evidenced by a promissory  note that is adequately
secured and bears a reasonable  interest rate on the unpaid  amounts.  The first
payment under the put option involving  installment  distributions  must be paid
not later than  thirty (30) days after the  exercise of the put option.  Payment
under a put option must not be  restricted  by the  provisions  of a loan or any
other   arrangement,   including  the  terms  of  the  Employer's   articles  of
incorporation, unless so required by applicable state law.

             For  purposes  of  this  Section,   "Total  Distribution"  means  a
distribution to a Participant or his Beneficiary  within one taxable year of the
entire Vested Participant's ESOP Account.

                   (d) An  arrangement  involving  the Plan  that  creates a put
option must not provide for the  issuance of put options  other than as provided
under this Section.  The Plan (and the Trust Fund) must not  otherwise  obligate
itself  to  acquire  Company  Stock  from  a  particular  holder  thereof  at an
indefinite  time  determined upon the happening of an event such as the death of
the holder.

             6.18  NONTERMINABLE PROTECTIONS AND RIGHTS

             No Company  Stock,  other  than that  described  in  Section  6.17,
acquired  with the proceeds of a loan  described  in Section 5.5 hereof,  may be
subject to a put, call, or other option, or buy-sell or similar arrangement when
held by and when  distributed  from the Trust  Fund,  whether or not the Plan is
then an ESOP. The protections and rights shall continue to exist under the terms
of this Plan so long as any Company  Stock  acquired with the proceeds of a loan
described in Section 5.5 hereof is held by the Trust Fund or by any Participant,
Former Participant or other person for whose benefit such protections and rights
have been created, and neither the repayment of such loan nor the failure of the
Plan to be an ESOP,  nor an amendment of the Plan shall cause a  termination  of
said protections and rights.
<PAGE>


                                  ARTICLE VII.
                                 TOP HEAVY RULES

             7.1   DEFINITIONS

             For purposes of this Article VII, and this Agreement, the following
capitalized terms shall have the following meanings:

                   (a) "Aggregation  Group" means either a Required  Aggregation
Group or a Permissive Aggregation Group as hereinafter defined.

             Only those plans of the Employer in which the  Determination  Dates
fall within the same  calendar  year shall be  aggregated  in order to determine
whether such plans are Top Heavy Plans.

             An  Aggregation  Group  shall  include  any  terminated   qualified
retirement  plan of the Employer that was maintained by the Employer  within the
last five year period ending on the Determination Date.

                   (b) "Determination  Date" means the last day of the preceding
Plan Year.

                   (c) "Five  Percent  Owner"  means any  person who owns (or is
considered as owning within the meaning of Code Section 318) more than 5% of the
outstanding  stock of the Employer or stock possessing more than 5% of the total
combined  voting  power  of all  stock  of the  Employer  or,  in the case of an
unincorporated  business,  any  person  who owns more than 5% of the  capital or
profits interest in the Employer. In determining percentage ownership hereunder,
employers that would otherwise be aggregated under Code Sectionse  414(b),  (c),
(m), or (o) shall be treated as separate employers.

                   (d) "Key  Employee"  means  those  Employees  defined in Code
Section 416(i) and the Regulations thereunder.  Generally, the term includes any
Employee or former Employee (and his Beneficiaries)  who, at any time during the
Plan Year or any of the preceding four Plan Years, is:

                   (1) An  officer  of the  Employer  (as that  term is  defined
within  the  meaning  of  the  Regulations   under  Code  Sectione  416)  having
Compensation  in  excess  of 50% of the  amount in  effect  under  Code  Section
415(b)(1)(A) for the Plan Year. For purposes of this definition, no more than 50
Employees  (or if less,  the  greater of three  Employees  or ten percent of the
Employees) shall be treated as officers, and Employees described in Code Section
414(q)(8) shall be excluded as officers.

                       (2) One of the 10 Employees having  Compensation  greater
than the  amount in effect  under  Code  Section  415(c)(1)(A),  and  owning (or
considered  as owning  within the meaning of Code  Section 318) both more than a
one-half percent interest in the Employer or Affiliated Employer, and one of the
10 largest interests in the Employer or Affiliated Employer.

                       (3) A "Five Percent Owner" of the Employer.

                       (4)  A  "one  percent  owner"  of  the  Employer   having
Compensation  from the Employer of more than  $150,000  for the Plan Year.  "One
percent  owner" means any person who owns (or is considered as owning within the
meaning of Code Section 318) more than one percent of the  outstanding  stock of
the  Employer or stock  possessing  more than one percent of the total  combined
voting power of all the stock of the Employer.  For purposes of this definition,
the rules of subsections (b), (c) and (m) of Code Section 414 shall not apply in
determining  ownership.  However,  in  determining  whether  an  individual  has
Compensation of more than $150,000,  Compensation from each employer required to
be  aggregated  under  Code  Section  414(b),  (c) and (m)  shall be taken  into
account.

                   (e) "Non-Key  Employee" means any Employee or former Employee
(and his Beneficiaries) who is not a Key Employee.
<PAGE>

                   (f)  "Permissive  Aggregation  Group"  means  an  Aggregation
Group,  selected by the  Employer,  that  includes  any plan not  required to be
included in the Required Aggregation Group,  provided the resulting group, taken
as a whole,  would continue to satisfy the provisions of Code Sections 401(a)(4)
and 410.

             In the case of a Permissive  Aggregation Group, only a plan that is
part of the Required  Aggregation  Group will be  considered a Top Heavy Plan if
the Permissive Aggregation Group is a Top Heavy Group. No plan in the Permissive
Aggregation  Group  will  be  considered  a Top  Heavy  Plan  if the  Permissive
Aggregation  Group is not a Top Heavy Group. 

                   (g) "Required  Aggregation  Group" means an Aggregation Group
which  includes a plan of the Employer in which a Key Employee is a Participant,
and  each  other  plan of the  Employer  which  enables  any plan in which a Key
Employee  participates to meet the  requirements  of Code Sections  401(a)(4) or
410.

             In the case of a Required Aggregation Group, each plan in the group
will be considered a Top Heavy Plan if the Required  Aggregation  Group is a Top
Heavy Group. No plan in the Required  Aggregation Group will be considered a Top
Heavy Plan if the Required Aggregation Group is not a Top Heavy Group.

                   (h) "Super Top Heavy Plan" means a plan  described in Section
7.3(b) below.

                   (i) "Top Heavy Plan" means a plan described in Section 7.3(a)
below.

                   (j) "Top Heavy Group" means an Aggregation Group in which, as
of the Determination Date, the sum of:

                       (1)  The  present  value  of  accrued   benefits  of  Key
Employees under all defined benefit pension plans included in the group; plus

                       (2) The  aggregate  accounts of Key  Employees  under all
defined contribution plans included in the group;

exceeds 60% of a similar sum determined for all Participants.

                   (k) "Top Heavy Plan Year" means that,  for a particular  Plan
Year, the Plan is a Top Heavy Plan.

             7.2   TOP HEAVY PLAN REQUIREMENTS

                   (a) For any Top Heavy Plan Year,  the Plan shall  provide the
following:

                       (1) Special  vesting  requirements of Code Section 416(b)
pursuant to Section 7.5 below; and

                       (2)   Special   minimum   contribution   and   allocation
requirements of Code Section 416(c) pursuant to Section 7.4 below.

             7.3   DETERMINATION OF TOP HEAVY STATUS

                   (a) This Plan  shall be a Top Heavy Plan for any Plan Year in
which, as of the Determination Date, the sum of:

                           (i) the  present  value of  accrued  benefits  of Key
Employees, plus
<PAGE>

                           (ii) the Participants' Aggregate Accounts (other than
the  Participants'  Rollover  Accounts) of Key Employees under this Plan and the
aggregate  accounts  of Key  Employees  in all  plans of an  Aggregation  Group,
exceeds 60% of the sum of:

                           (i) the present value of accrued  benefits of all Key
Employees and Non-Key Employees, plus

                           (ii) the Participants' Aggregate Accounts (other than
the Participants'  Rollover Accounts) of all Key Employees and Non-Key Employees
under this Plan and the  aggregate  accounts  of all Key  Employees  and Non-Key
Employees in all plans of an Aggregation Group.

                   If any  Participant is a Non-Key  Employee for any Plan Year,
but  such  Participant  was a  Key  Employee  for  any  prior  Plan  Year,  such
Participant's  present value of accrued benefit and/or  Participant's  Aggregate
Account and  aggregate  account  balance in other  aggregate  plans shall not be
taken into account for purposes of determining  whether this Plan is a Top Heavy
or Super Top Heavy Plan (or whether any  Aggregation  Group which  includes this
Plan is a Top Heavy Group). In addition,  if a Participant or Former Participant
has not performed any services for any Employer maintaining the Plan at any time
during the five-year period ending on the Determination  Date, the present value
of accrued  benefit and/or  Participant's  Aggregate  Account or other aggregate
account  balance  in other  aggregate  plans  for  such  Participant  or  Former
Participant  shall not be taken into  account for the  purposes  of  determining
whether this Plan is a Top Heavy or Super Top Heavy Plan.

                   (b) This Plan  shall be a Super  Top Heavy  Plan for any Plan
Year in which the provisions of paragraph (a) are met, substituting 90% for 60%.

             7.4   REQUIRED MINIMUM ALLOCATIONS

                   (a) Notwithstanding Section 3.4, for any Top Heavy Plan Year,
the sum of the Employer's Profit Sharing  Contributions,  ESOP Contributions and
Forfeitures allocated to the Participant's ESOP Account and Participant's Profit
Sharing  Account of each Non-Key  Employee  shall be equal to 3% of such Non-Key
Employee's compensation (as defined for purposes of Code Section 416 (reduced by
contributions and forfeitures, if any, allocated to each Non-Key Employee in any
other  defined   contribution  plan  included  with  this  Plan  in  a  Required
Aggregation  Group).  However,  if (i) the sum of the Employer's  Profit Sharing
Contributions,   ESOP   Contributions,   and   Forfeitures   allocated   to  the
Participant's ESOP Account and Participant's  Profit Sharing Account of each Key
Employee does not equal or exceed 3% of such Key  Employees'  compensation,  and
(ii) this Plan is not required to be included in an Aggregation  Group to enable
a defined benefit plan to meet the  requirements of Code Sections  401(a)(4) and
410,  then  the  sum  of  the  Employer's  Profit  Sharing  Contribution,   ESOP
Contribution  and Forfeitures  allocated to the  Participant's  ESOP Account and
Participant's  Profit Sharing Account of each Non-Key Employee shall be equal to
the  largest  percentage   allocated  to  the  Participant's  ESOP  Account  and
Participant's  Profit Sharing Account of any Key Employee.  For purposes of this
Section 7.4,  compensation shall include  compensation for the entire Plan Year,
even compensation  paid prior to the  Participant's  Plan entry date provided in
Article II.

                   (b) Notwithstanding the above provisions of this Section 7.4,
no such  minimum  allocation  shall be  required  for any Non-Key  Employee  who
participates  in another defined  contribution  plan subject to Code Section 412
included with this Plan in a Required  Aggregation Group, if the minimum benefit
is provided by such other defined contribution plan.
<PAGE>

             7.5   TOP HEAVY VESTING SCHEDULE

                   Notwithstanding  the vesting schedule in Section 6.4(e),  for
any Top Heavy Plan Year, the Vested portion of any  Participant's  ESOP Account,
Participant's Matching Account and Participant's Profit Sharing Account shall be
a percentage  of the total amount  credited to such  accounts  determined on the
basis of the Participant's number of Years of Service according to the following
schedule:
<TABLE>
<CAPTION>
                                      Vesting Schedule
                           <S>                         <C>  

                           Years of Service            Percentage
                           ----------------            ----------
                           Less than 2                      0%
                           2                               20%
                           3                               40%
                           4                               60%
                           5                               80%
                           6 or more                      100%

</TABLE>

                                  ARTICLE VIII
                                 ADMINISTRATION

             8.1   POWERS AND RESPONSIBILITIES OF THE EMPLOYER

                   (a) The Employer shall be empowered to appoint and remove the
Trustee, Administrator and Investment Advisory Committee from time to time as it
deems necessary for the proper administration of the Plan and to assure that the
Plan is being  operated for the exclusive  benefit of the  Participants,  Former
Participants and their  Beneficiaries in accordance with the terms of this Plan,
the Code, and the Act.

                   (b) The  Employer  shall  establish  a  "funding  policy  and
method"  (i.e.,  it shall  determine  whether  the Plan has a short run need for
liquidity  (e.g.,  to pay benefits) or whether  liquidity is a long run goal and
investment  growth  (and  stability  of same) is a more  current  need) or shall
appoint a qualified person to do so. However, the Employer or its delegate shall
communicate such needs and goals to the Trustee,  who shall coordinate such Plan
needs with its investment  policy. The communication of such "funding policy and
method" shall not  constitute a directive to the Trustee as to investment of the
Trust Funds.  Such  "funding  policy and method"  shall be  consistent  with the
objectives of this Plan and with the requirements of Title I of the Act.

                   (c)  The  Employer  may,  in  its   discretion,   appoint  an
Investment  Advisory  Committee  that shall  have the  authority  to  designate,
monitor and change the investment options made available to Participants, Former
Participant's  and  Beneficiaries  pursuant to Section  3.13.  Furthermore,  the
Employer may, in its discretion,  appoint an Investment Manager to manage all or
a designated portion of the assets of the Plan. In such event, the Trustee shall
follow the  directive of the  Investment  Manager in investing the assets of the
Plan,  provided  that such  direction is made in  accordance  with the terms and
objectives of this Plan and are not contrary to the Act.

             8.2   ASSIGNMENT AND DESIGNATION OF ADMINISTRATIVE AUTHORITY

                   The Employer may appoint one or more  Administrators  and one
or more members of an Investment Advisory Committee.  Any person,  including but
not limited to, the Employees of the Employer,  shall be eligible to serve as an
Administrator  or on a  committee  designated  as the  Administrator,  or on the
Investment Advisory Committee.

                   Any Administrator, member of any administrative committee, or
member of an Investment  Advisory Committee may resign by delivering his written
resignation  to the  Employer,  or be removed by the  Employer  by  delivery  of
written notice of removal,  to take effect at a date specified therein,  or upon
delivery to the  individual  if no date is  specified.  The  Employer,  upon the
resignation or removal of an Administrator or committee  member,  shall promptly
designate in writing a successor to this position.

                   If  the  Employer  does  not  appoint  an   Administrator  or
Investment  Advisory  Committee,  or if the  committee is without  members,  the
Employer shall function as the Administrator.
<PAGE>

             8.3   ALLOCATION AND DELEGATION OF RESPONSIBILITIES

                   In the event a  committee  is  appointed  by the  Employer to
serve as  Administrator  or Investment  Advisory  Committee,  the members of the
committee may allocate the  responsibilities  of the Administrator or Investment
Advisory Committee among themselves, in which event the members of the committee
shall  notify the Employer and the Trustee in writing of such action and specify
the  responsibilities  of each member.  The Trustee  thereafter shall accept and
rely upon any instruction by the appropriate  Administrator  or committee member
until  such time as the  Employer,  Administrators  or  committee  file with the
Trustee a written revocation of such designation.

             8.4   POWERS, DUTIES AND RESPONSIBILITIES

                   The  primary   responsibility  of  the  Administrator  is  to
administer  the Plan for the  exclusive  benefit of the  Participants  and their
Beneficiaries,  subject to the specific terms of the Plan, the Act and the Code.
The  Administrator  shall  administer the Plan in accordance  with its terms and
shall  have the  discretionary  power to  determine  all  questions  arising  in
connection with the administration, interpretation, and application of the Plan.
Any such determination by the Administrator shall be conclusive and binding upon
all persons.  The Administrator,  in its discretion,  may establish  procedures,
correct any defect,  supply any information,  or reconcile any  inconsistency in
such  manner and to such extent as shall be deemed  necessary  or  advisable  to
carry out the  purpose  of this Plan;  provided,  however,  that any  procedure,
discretionary act, discretionary interpretation or construction shall be done in
a non-discriminatory  manner based upon uniform principles  consistently applied
and shall be  consistent  with the  intent  that the Plan shall  continue  to be
deemed a qualified plan under the terms of Code Section 401(a), and shall comply
with the  terms of the Act and all  regulations  issued  pursuant  thereto.  The
Administrator  shall have all powers  necessary or appropriate to accomplish his
duties under this Plan.

                   The  Administrator  shall be  charged  with the duties of the
general  administration  of  the  Plan,  including,  but  not  limited  to,  the
following:

                   (a) To determine,  in its discretion,  all questions relating
to  the  eligibility  of  Employees  to  participate  or  remain  a  Participant
hereunder, based upon information furnished by the Employer;

                   (b) To compute,  certify, and direct the Trustee with respect
to the amount and kind of  benefits to which any  Participant  shall be entitled
hereunder;

                   (c) To  authorize  and direct the Trustee with respect to all
non-discretionary or otherwise directed disbursements from the Trust;

                   (d) To maintain all necessary records for the  administration
of the Plan;

                   (e)  To  interpret  or  construe,  in  its  discretion,   the
provisions of the Plan and to make and publish such rules for  regulation of the
Plan as are consistent with the terms hereof;

                   (f) To  determine  the  size  and  type  of any  contract  on
insurance to be purchased  from any insurer,  and to designate  the insurer from
which such contract of insurance shall be purchased;

                   (g) To compute and certify to the Employer and to the Trustee
from time to time the sums of money  necessary or desirable to be contributed to
the Trust Fund;

                   (h) To consult with the  Employer  and the Trustee  regarding
the short and long-term  liquidity needs of the Plan in order for the Trustee to
exercise any investment  discretion in a manner designed to accomplish  specific
objectives;

                   (i) To assist any Participant regarding his rights, benefits,
or elections available under the Plan; and

                   (j) To prepare and  implement a procedure to notify  Eligible
Employees that they may elect to have a portion of their  Compensation  deferred
or paid to them in cash.
<PAGE>

             8.5   RECORDS AND REPORTS

                   The  Administrator  shall keep a record of all actions  taken
and shall keep all other books of account,  records,  and other data that may be
necessary for proper  administration  of the Plan, and shall be responsible  for
supplying  all  information  and  reports  to  the  Internal   Revenue  Service,
Department of Labor, Participants, Beneficiaries and others as required by law.

             8.6   ANNUAL REPORT

                   The  Administrator  may,  as  soon  as  possible  after  each
Anniversary  Date, but in any event no later than 210 days  thereafter,  furnish
each Participant with a written statement showing:

                   (a) The balance of his Aggregate  Account as of the preceding
Anniversary Date.

                   (b) The  amount of  Employer  contributions  and  Forfeitures
allocated to his Participant's Aggregate Account for the Plan Year.

                   (c) The adjustment to his Participant's  Aggregate Account to
reflect his share of the income and expenses,  gains or losses of the Trust Fund
for the Plan Year.

             8.7   APPOINTMENT OF ADVISERS

                   The  Administrator,  or the  Trustee  with the consent of the
Administrator, may appoint counsel, specialists,  advisers, and other persons as
the Administrator or the Trustee deems necessary or desirable in connection with
the administration of this Plan.

             8.8   INFORMATION FROM EMPLOYER

                   To enable the  Administrator  to perform his  functions,  the
Employer shall supply full and timely  information to the  Administrator  on all
matters  relating  to the  Compensation  of all  Participants,  their  Hours  of
Service,  their  Years of  Service,  their  retirement,  death,  disability,  or
termination of employment,  and such other pertinent facts as the  Administrator
may  require;  and the  Administrator  shall  advise the  Trustee of such of the
foregoing facts as may be pertinent to the Trustee's  duties under the Plan. The
Administrator  may rely upon such information as is supplied by the Employer and
shall have no duty or responsibility to verify such information.

             8.9   PAYMENT OF EXPENSES

                   All expenses of administration shall be paid out of the Trust
Fund unless paid by the  Employer.  Such  expenses  shall  include any  expenses
incident to the functioning of the Administrator, including, but not limited to,
fees of accountants,  counsel, and other specialists and their agents, and other
costs of  administering  the Plan.  Until paid, the expenses shall  constitute a
liability of the Trust Fund. However,  the Employer may reimburse the Trust Fund
for any  administration  expense  incurred.  However,  the Employer  may, in its
discretion,  and on a uniform  nondiscriminatory basis, reimburse the Trust Fund
only for the portion of such Expenses allocable to Participants,  and direct the
Trustee that the portion of expenses  allocable to Former  Participant's be paid
by the Trust Fund and debited to such Former  Participant's  Aggregate  Account.
Any administration  expense paid to the Trust Fund as a reimbursement  shall not
be considered an Employer contribution.


<PAGE>



             8.10  MAJORITY ACTIONS

                   Except where there has been an allocation  and  delegation of
administrative  authority  pursuant to Section  7.3, if there shall be more than
one Administrator, or if the Administrator is a committee, the Administrators or
committee members,  as the case may be, shall act by a majority of their number,
but may authorize one or more of them to sign all papers on their behalf.

             8.11  CLAIMS PROCEDURE

                   Claims  for  benefits  under  the Plan may be filed  with the
Administrator  on  forms  supplied  by  the  Employer.  Written  notice  of  the
disposition  of a claim shall be furnished to the claimant  within 90 days after
the application is filed. In the event the claim is denied,  the reasons for the
denial shall be specifically  set forth in the notice in language  calculated to
be understood by the claimant,  pertinent provisions of the Plan shall be cited,
and,  where  appropriate,  an explanation as to how the claimant can perfect the
claim will be provided.  In addition,  the claimant  shall be furnished  with an
explanation of the Plan's claims review procedure.

             8.12  CLAIMS REVIEW PROCEDURE

                   Any Employee,  former Employee, or Beneficiary of either, who
has been denied a benefit or has been determined to be ineligible to participate
in  the  Plan  or  remain  a  Participant  in the  Plan,  by a  decision  of the
Administrator  pursuant  to Section  8.11,  shall be  entitled  to  request  the
Administrator  to give  further  consideration  to his claim by filing  with the
Administrator (on a form which may be obtained from the Administrator) a request
for a hearing.  Such request,  together with a written  statement of the reasons
why the claimant  believes his claim should be allowed,  shall be filed with the
Administrator  no later than 60 days after  receipt of the written  notification
provided for in Section  8.11.  The  Administrator  shall then conduct a hearing
within the next 60 days, at which the claimant may be represented by an attorney
or any other representative of his choosing and at which the claimant shall have
an opportunity to present  written and oral evidence and arguments in support of
his claim. At the hearing (or prior thereto, upon 5 business days written notice
to  the  Administrator)  the  claimant  or  his  representative  shall  have  an
opportunity to review all documents in the possession of the Administrator which
are pertinent to the claim at issue and its disallowance. Either the claimant or
the  Administrator  may cause a court  reporter to attend the hearing and record
the proceedings. In such event, a complete written transcript of the proceedings
shall be furnished to both  parties by the court  reporter.  The full expense of
such court reporter and such transcripts shall be borne by the party causing the
court  reporter to attend the hearing.  A final  decision as to the allowance of
the claim  shall be made by the  Administrator  within 60 days of receipt of the
appeal  (unless  there  has  been  an  extension  of  60  days  due  to  special
circumstances,  provided the delay and the special circumstances  occasioning it
are communicated in writing to the claimant within the 60-day period). The final
decision  shall  be  written  in a manner  calculated  to be  understood  by the
claimant  and shall  include  specific  reasons for the  decision  and  specific
references to the pertinent Plan provisions on which the decision is based.


                                  ARTICLE IX.
                       AMENDMENT, TERMINATION, AND MERGERS

              9.1  AMENDMENT

                   The  Employer  shall have the right at any time to amend this
Agreement.  However, no such amendment shall authorize or permit any part of the
Trust Fund (other than such part as is required to pay taxes and  administration
expenses)  to be used for or diverted to purposes  other than for the  exclusive
benefit of the Participants or their Beneficiaries or estates; no such amendment
shall  cause  any  reduction  in  the  amount  credited  to the  account  of any
Participant  or cause or permit  any  portion  of the Trust Fund to revert to or
become the property of the  Employer;  and no such  amendment  which affects the
rights,  duties or  responsibilities  of the  Trustee and  Administrator  may be
without the Trustee's and  Administrator's  written consent.  Any such amendment
shall become effective as provided therein upon its execution.
<PAGE>

                   For the purposes of this Section,  a Plan amendment which has
the effect of eliminating or reducing an early retirement benefit or eliminating
an optional  form of benefit (as  provided in  Regulations)  shall be treated as
reducing the amount credited to the account of a Participant.

              9.2  TERMINATION

                   The  Employer  shall have the right at any time to  terminate
the Plan (and the other Employers and Affiliated  Employers shall have the right
to terminate their  participation  in the Plan) by delivering to the Trustee and
Administrator written notice of such termination.  The Plan shall also terminate
upon complete discontinuance of contributions (both elective or non-elective) by
the Employer.  Upon any termination  (full or partial),  all amounts credited to
any affected Participants'  Aggregate Account shall become 100% Vested and shall
not  thereafter be subject to Forfeiture  and all  unallocated  amounts shall be
allocated to the Aggregate  Accounts of all  Participants in accordance with the
provisions hereof. Upon such termination of the Plan or complete  discontinuance
of  contributions,   the  Employer,   by  written  notice  to  the  Trustee  and
Administrator, may direct either:

                   (a) Complete  distribution of the assets in the Trust Fund to
the Participants in cash or in kind, in the form provided in Section 6.6 as soon
as the  Administrator  deems it to be in the best interests of the Participants,
but in no event later than two years after such termination; or

                   (b)  Continuation  of the Trust created by this Agreement and
the  distribution  of  benefits  pursuant to Article VI at such time and in such
manner as though the Plan had not been terminated.

              9.3  MERGER OR CONSOLIDATION

                   This Plan and Trust may be merged or  consolidated  with,  or
its assets and/or  liabilities  may be  transferred  to any other plan and trust
only if the benefits  which would be received by a Participant  of this Plan, in
the event of a termination of the Plan immediately  after such transfer,  merger
or consolidation  are at least equal to the benefits the Participant  would have
received if the Plan had terminated  immediately before the transfer,  merger or
consolidation.


                                   ARTICLE X.
                                  MISCELLANEOUS

              10.1 PARTICIPANT'S RIGHTS

                   This  Plan  shall  not be deemed  to  constitute  a  contract
between  the  Employer  and  any  Participant  or  to be a  consideration  or an
inducement for the employment of any Participant or Employee.  Nothing contained
in this Plan shall be deemed to give any Participant or Employee the right to be
retained in the service of the  Employer or to  interfere  with the right of the
Employer to discharge any  Participant or Employee at any time regardless of the
effect which such discharge shall have upon him as a Participant of this Plan.


<PAGE>



              10.2 ALIENATION

                   (a)  Subject to the  exceptions  provided  below,  no benefit
which  shall  be  payable  out of the  Trust  Fund to any  person  (including  a
Participant or his Beneficiary)  shall be subject in any manner to anticipation,
alienation, sale, transfer,  assignment, pledge, encumbrance, or charge, and any
attempt to anticipate,  alienate,  sell, transfer,  assign, pledge, encumber, or
charge the same shall be void, and no such benefit shall in any manner be liable
for, or subject to, the debts, contracts, liabilities,  engagements, or torts of
any such person,  nor shall it be subject to  attachment or legal process for or
against such person, and the same shall not be recognized by the Trustee, except
to such extent as may be required by law.

                   (b)  This   provision   shall  not  apply  to  the  extent  a
Participant,  Former Participant or Beneficiary is indebted to the Plan, for any
reason, under any provision of this Agreement.  At the time a distribution is to
be  made  to or  for a  Participant's,  Former  Participant's  or  Beneficiary's
benefit,  such  proportion  of  the  amount  distributed  as  shall  equal  such
indebtedness  shall be paid or  offset  by the  Trustee  to the  Trustee  or the
Administrator,  at the direction of the Administrator,  to apply against, offset
or  discharge  such  indebtedness.  However,  prior  to  making a  payment,  the
Participant,  Former  Participant or Beneficiary must be given written notice by
the Administrator that such indebtedness is to be paid in whole or part from his
Participant's  Aggregate  Account.  If the  Participant,  Former  Participant or
Beneficiary  does not agree that the  indebtedness  is a valid claim against his
Vested Participant's  Aggregate Account, he shall be entitled to a review of the
validity of the claim in accordance  with  procedures  provided in Sections 8.11
and 8.12.

                   (c) This provision  shall not apply to a "qualified  domestic
relations  order"  defined in Code  Section  414(p),  and those  other  domestic
relations  orders  permitted  to be so  treated by the  Administrator  under the
provisions  of the  Retirement  Equity  Act of  1984.  The  Administrator  shall
establish a written  procedure to  determine  the  qualified  status of domestic
relations orders and to administer  distributions  under such qualified  orders.
Further,  to the extent provided under a "qualified domestic relations order", a
former  spouse of a  Participant  shall be treated  as the  spouse or  surviving
spouse for all purposes under this Plan.

              10.3 CONSTRUCTION OF AGREEMENT

                   This Plan and Trust shall be construed and enforced according
to the Act,  the Code and the laws of the State of  Florida,  to the  extent not
preempted by the Act or the Code. Any such claim shall be brought exclusively in
the Federal District Court for the Middle District of Florida, Orlando Division.

              10.4 GENDER AND NUMBER

                   Wherever any words are used herein in the masculine, feminine
or neuter  gender,  they  shall be  construed  as though  they were also used in
another  gender in all cases where they would so apply,  and  whenever any words
are used  herein in the  singular or plural  form,  they shall be  construed  as
though  they were also used in the other  form in all cases  where they would so
apply.

              10.5 LEGAL ACTION

                   In the  event any  claim,  suit,  or  proceeding  is  brought
regarding  the  Plan   established   hereunder  to  which  the  Trustee  or  the
Administrator may be a party, and such claim, suit, or proceeding is resolved in
favor of that Trustee or Administrator,  they shall be entitled to be reimbursed
from the Trust Fund for any and all costs,  attorney's  fees, and other expenses
pertaining thereto incurred by them for which they shall have become liable.


<PAGE>



              10.6  PROHIBITION  AGAINST  DIVERSION OF FUNDS OR  FORFEITURE  FOR
CAUSE

                   (a)  Except  as  provided  below and  otherwise  specifically
permitted  by  law,  it  shall  be  impossible  by  operation  of the  Plan,  by
termination  thereof,  by power of revocation or amendment,  by the happening of
any contingency,  by collateral  arrangement or by any other means, for any part
of the corpus or income of any Trust Fund  maintained  pursuant to the Plan,  or
any funds  contributed  thereto,  to be used for, or diverted to, purposes other
than the  exclusive  benefit  of  Participants,  Former  Participants,  or their
Beneficiaries.

                   (b)  No  portion  of  a  participant's  Vested  Participant's
Aggregate  Account  shall be forfeited for cause.  However,  see Section 3.1 for
permitted reversions of all or a portion of the Trust Fund to the Employer.

              10.7 BONDING

                   Every  Fiduciary,  except  a bank  or an  insurance  company,
unless  exempted by the Act and  regulations  thereunder,  shall be bonded in an
amount  not less than 10% of the  amount of the funds  such  Fiduciary  handles;
provided,  however,  that the minimum  bond shall be $1,000 and the maximum bond
$500,000.  The amount of funds  handled  shall be determined at the beginning of
each Plan Year by the amount of funds handled by such person,  group or class to
be covered and their predecessors, if any, during the preceding Plan Year, or if
there is no preceding  Plan Year,  then by the amount of the funds to be handled
during the then current Plan Year. The bond shall provide protection to the Plan
against any loss by reason of acts of fraud or dishonesty by the Fiduciary alone
or in connivance with others. The surety shall be a corporate surety company (as
such term is used in Section  412(a)(2) of the Act),  and the bond shall be in a
form  approved  by the  Secretary  of Labor.  Notwithstanding  anything  in this
Agreement  to the  contrary,  the cost of such bonds  shall be an expense of and
may, at the election of the Administrator, be paid from the Trust Fund or by the
Employer.

             10.8  EMPLOYER'S AND TRUSTEE'S PROTECTIVE CLAUSE

                   Neither the Employer nor the Trustee,  nor their  successors,
shall be  responsible  for the  validity  of any  contract of  insurance  issued
hereunder  or for the  failure  on the  part  of the  insurer  to make  payments
provided  by any such  contract  of  insurance,  or for the action of any person
which may delay  payment  or render a  contract  of  insurance  null and void or
unenforceable in whole or in part.

             10.9  RECEIPT AND RELEASE FOR PAYMENTS

                   Any payment to any Participant, Former Participant, his legal
representative,  Beneficiary,  or to any guardian, parent or committee appointed
for such Participant,  Former  Participant or Beneficiary in accordance with the
provisions  of  this  Agreement,  shall,  to  the  extent  thereof,  be in  full
satisfaction of all claims hereunder against the Trustee,  Administrator and the
Employer,  any  of  whom  may  require  such  Participant,  Former  Participant,
Beneficiary, legal representative, guardian, parent or committee, as a condition
precedent to such payment, to execute a receipt and release thereof in such form
as shall be determined by the Trustee, Administrator or Employer.

             10.10 ACTION BY THE EMPLOYER

                   Whenever the Employer,  under the terms of this Agreement, is
permitted  or required to do or perform any act or matter or thing,  it shall be
done and  performed  by a person  duly  authorized  by its  legally  constituted
authority.
<PAGE>

             10.11 NAMED FIDUCIARIES AND ALLOCATION OF RESPONSIBILITY

                   The "named  Fiduciaries"  of this Plan are (a) the  Employer,
(b) the Administrator, (c) the Trustee, and (d) any Investment Manager appointed
hereunder.  The named Fiduciaries shall have only those specific powers, duties,
responsibilities,  and  obligations  as are  specifically  given them under this
Agreement.  In general,  the  Employer  shall have the sole  responsibility  for
making the  contributions  provided for under Section 3.1; the sole authority to
appoint and remove the Trustee,  the  Administrator,  and any Investment Manager
which may be provided for under this Agreement; to formulate the Plan's "funding
policy  and  method";  and to amend  or  terminate,  in  whole or in part,  this
Agreement.  The  Administrator  shall  have  the  sole  responsibility  for  the
administration of this Agreement, which responsibility is specifically described
in this Agreement.  The Trustee shall have the sole responsibility of management
of the assets held under the Trust, except those assets, the management of which
has been assigned to an Investment Manager,  who shall be solely responsible for
the  management of the assets  assigned to it, all as  specifically  provided in
this  Agreement.  Each  named  Fiduciary  warrants  that any  directions  given,
information  furnished,  or action taken by it shall be in  accordance  with the
provisions  of this  Agreement,  authorizing  or providing  for such  direction,
information or action. Furthermore,  each named Fiduciary may rely upon any such
direction,  information  or action of another  named  Fiduciary  as being proper
under this  Agreement,  and is not required under this Agreement to inquire into
the propriety of any such direction, information or action. It is intended under
this Agreement  that each named  Fiduciary  shall be responsible  for the proper
exercise of its own powers, duties,  responsibilities and obligations under this
Agreement.  No named  Fiduciary  shall  guarantee  the Trust  Fund in any manner
against  investment loss or depreciation in asset value. Any person or group may
serve in more than one Fiduciary capacity.

             10.12 HEADINGS

                   The  headings and  subheadings  of this  Agreement  have been
inserted for convenience of reference and are to be ignored in any  construction
of the provisions hereof.

             10.13 UNIFORMITY

                   All provisions of this Plan shall be interpreted  and applied
in a uniform, non-discriminatory manner.

         IN WITNESS  WHEREOF,  this Agreement has been executed the day and year
first above written.

                               EMPLOYER:

                               SAWTEK INC.

                               By:/s/Steven P. Miller
                                  Steven P. Miller, Chairman
 



                               Acceptance by Trustee


         The  undersigned  Trustee hereby accepts the foregoing.  Employee Stock
ownership  and 401(k) Plan,  and agrees to serve as a Trustee of the Plan.  This
acceptance is dated effective as of July 16, 1997.

                               MARINE MIDLAND BANK


                               By:/s/Stephen J. Hartman, Jr.
                                  Stephen J. Hartman, Jr.
                            Title:Senior Vice President





<PAGE>
                                                                   EXHIBIT 10.48









                                   SAWTEK INC.
                    EMPLOYEE STOCK OWNERSHIP AND 401(k) TRUST












                                  PREPARED BY:

                         MAGUIRE, VOORHIS & WELLS, P.A.
                             Two South Orange Avenue
                             Orlando, Florida 32801






<PAGE>



                                   SAWTEK INC.
                    EMPLOYEE STOCK OWNERSHIP AND 401(k) TRUST

         This Trust Agreement (the "Agreement") is made and entered into between
Sawtek Inc., a Florida  corporation  (the "Employer") and Marine Midland Bank, a
New York banking  corporation  (the  "Trustee"),  to be effective as of July 16,
1997.

                             BACKGROUND INFORMATION

         A. The Employer  previously  has adopted the Sawtek Inc. Code ss.401(k)
Profit  Sharing  Plan and Trust  (the  "401(k)  Plan")  and the  Employee  Stock
Ownership Plan and Trust Agreement for Employees of Sawtek Inc. (the "ESOP").

         B. The  Trustee  previously  has been  appointed  as the Trustee of the
ESOP.

         C. Effective  July 16, 1997, the 401(k) Plan and ESOP were merged into
the Sawtek Inc.  Employee Stock Ownership and 401(k) Plan (the "Plan"),  and the
Trustee was appointed by the Employer to serve as trustee of the Plan.

         D. The Plan  contemplates  this  separate  trust  document  between the
Employer and the Trustee.  It is intended that this Agreement implement and form
a part of the Plan. The provisions of, and benefits under,  the Plan are subject
to the terms and provisions of this Trust.

                                    ARTICLE I
                                      NAME

                   This Trust Agreement shall be known as the
            "Sawtek Inc. Employee Stock Ownership and 401(k) Trust."

                                   ARTICLE II
                PLAN ADMINISTRATION AND FIDUCIARY RESPONSIBILITY

           2.1  PLAN ADMINISTRATION

                The Plan shall be  administered by the Plan  administrator  (the
"Administrator"),  which shall be appointed by the Employer  pursuant to Article
VIII of the Plan. The name of the  Administrator (or the names of the members of
a committee  acting as the  Administrator)  shall be certified to the Trustee by
the Secretary of the Employer.  If there shall be more than one Administrator or
if  a  committee  shall  be  appointed  to  serve  as  the  Administrator,   the
Administrator  may authorize one or more individuals to sign all  communications
between  the  Administrator  and Trustee and shall at all times keep the Trustee
advised  of the  names of the  individuals  authorized  to sign on behalf of the
Administrator, and provide specimen signatures thereof. With the Trustee's prior
written  consent,  the  Administrator  may authorize the Trustee to act, without
specific  directions or instructions  from the  Administrator,  on any matter or
class of matters  with  respect to which  directions  or  instructions  from the
Administrator are called for hereunder.  The Trustee shall be fully protected in
relying  on any  communication  sent by any  authorized  person and shall not be
required to verify the accuracy or validity of any signature  unless the Trustee
has reasonable grounds to doubt the authenticity of any signature.


<PAGE>



           2.2  FIDUCIARY RESPONSIBILITY

                The  Administrator,  Trustee,  any investment  manager appointed
pursuant to Section 5.2 of this  Agreement  and  Article  VIII of the Plan,  the
Investment  Advisory  Committee  appointed  pursuant  to  Section  5.1  of  this
Agreement and Article VIII of the Plan, and any other  fiduciaries  with respect
to the Plan and this Trust, shall discharge their duties hereunder solely in the
interest of participants and beneficiaries of the Plan (the  "Participants"  and
"Beneficiaries"),  for the  exclusive  purpose of providing  their  benefits and
defraying reasonable expenses of Plan and Trust  administration,  with the care,
skill,  prudence and diligence  under the  circumstances  then prevailing that a
prudent  person  acting in a like  capacity and familiar with such matters would
use in the conduct of an enterprise of a like character and with like aims.


                                   ARTICLE III
                   MANAGEMENT AND CONTROL OF TRUST FUND ASSETS

           3.1  THE TRUST FUND

                The "trust fund" as of any date shall mean all property of every
kind then held by the Trustee pursuant to this Agreement (the "Trust Fund").

           3.2  TRUSTEE'S GENERAL POWERS

                With  respect  to the Trust  Fund,  the  Trustee  shall have the
following powers,  rights and duties in addition to those provided  elsewhere in
this Agreement or by law:

                (a) To receive  and to hold all  contributions  paid to it under
the Plan; provided,  however, that the Trustee shall have no duty to require any
contributions to be made to it or to determine that the  contributions  received
by the Trustee  comply with the provisions of the Plan or with any action of the
Employer.

                (b) To retain in cash such amounts as are  considered  advisable
and as are permitted by applicable law, as directed by the  Administrator;  and,
subject to Section 4.1 below,  to deposit cash in any depositary  (including the
banking  department  of the bank acting as Trustee or an affiliate of such bank)
without  liability  for interest  and,  without  limiting the  generality of the
foregoing,  to invest cash in savings  accounts or time  certificates of deposit
bearing a  reasonable  rate of interest in the  banking  department  of the bank
acting as Trustee (or an  affiliate  of the bank acting as Trustee) or to invest
any undirected cash or any cash directed to be invested in money market funds in
money market mutual funds established, maintained, or managed by the Trustee (or
an affiliate of the Trustee), including a money market mutual fund for which the
Trustee or an affiliate of the Trustee serves as investment adviser.

                (c) As directed by the Administrator, to make distributions from
the Trust Fund to such persons or trusts,  in such manner,  at such times and in
such forms  (including  Company  Stock (as defined in Section 1.14 of the Plan),
cash or  otherwise)  as  directed,  without  inquiring  as to whether a payee is
entitled  to the  payment,  or as to whether a payment is  proper,  and  without
liability for a payment made in good faith without actual notice or knowledge of
the changed condition or status of the payee.


<PAGE>



                (d) To give proxies to vote stocks and other voting  securities,
to join in or oppose  (alone or jointly with  others)  voting  trusts,  mergers,
consolidations, foreclosures, reorganizations, liquidations, or other changes in
the  financial  structure  of any  corporation,  and to  exercise  or sell stock
subscription or conversion  rights;  provided,  however,  that the Trustee shall
vote  shares of  Company  Stock  and shall  tender  shares of  Company  Stock in
response to a tender offer for, or a request or invitation  for tenders of, such
shares in accordance  with Section 4.3 of this Agreement and Section 3.14 of the
Plan.

                (e)  As  directed  by the  Employer  or  the  Administrator,  to
contract or otherwise enter into transactions  between itself,  as Trustee,  and
the Employer or any Employer stockholder or other individual, for the purpose of
acquiring or selling Company Stock and, subject to the provisions of Section 2.2
of this Agreement,  to retain such Company Stock;  provided,  however,  that the
Trustee  shall have  complete  and  independent  discretion  with respect to the
Trustee's  initial  decision whether to purchase Company Stock with the proceeds
of one or more  exempt  loans (as  defined in  Section  5.5 of the Plan) or with
other amounts  specified by the Employer for investment in Company Stock as part
of the Trust's initial purchase of Company Stock.

                (f) To compromise,  contest, arbitrate, settle or abandon claims
and demands by or against the Trust Fund.

                (g) To begin,  maintain or defend any  litigation  necessary  in
connection  with the  administration  of the Plan or this  Trust,  except  that,
unless  otherwise  required by law, the Trustee shall not be obliged or required
to do so unless indemnified to the Trustee's satisfaction.

                (h) To  retain  any funds or  property  subject  to any  dispute
without liability for the payment of interest,  or to decline to make payment or
delivery  thereof  until  final  adjudication  is made by a court  of  competent
jurisdiction.

                (i) To  report to the  Employer  and the  Administrator  on each
accounting date under the Plan, or as soon thereafter as practicable, or at such
other times as the Employer or the Administrator may request and as agreed to by
the  Trustee,  the then net worth of the Trust Fund  (that is,  the fair  market
value of all assets comprising the Trust Fund, less  liabilities,  if any, other
than  liabilities to persons  entitled to benefits under the Plan) determined on
the  basis  of such  evidence,  data or  information  as the  Trustee  considers
pertinent and reliable; and the Trustee shall furnish and report to the Employer
and  Administrator  only such  information with respect to such assets as may be
agreed upon by the Administrator and the Trustee.

                (j) To maintain records and accounts reflecting all receipts and
disbursements under this Agreement and such other records and accounts as may be
agreed upon by the Administrator and the Trustee,  all of which shall be open to
the inspection of the Employer or the Administrator at all reasonable times, and
may be  audited  from time to time by  anyone  named by the  Administrator.  All
accounts of the Trustee shall be kept on an accrual  basis.  If, during the term
of this Agreement, the Department of Labor issues regulations under the Employee
Retirement  Income  Security Act of 1974  ("ERISA")  regarding  the valuation of
securities  or other assets for purposes of the reports  required by ERISA,  the
Trustee shall use such valuation methods for purposes of the accounts  described
by this  subsection.  If the  Trustee  determines  that there is not a generally
recognized  market (as  contemplated by Section 3(18)(A) of ERISA) for shares of
Company  Stock,  the Trustee then shall  determine,  in accordance  with Section
3(18)(B) of ERISA, the fair market value of Company Stock based on the report of
an  "independent  appraiser"  (as  described  in  Section  401(a)(28)(C)  of the
Internal Revenue Code of 1986, as amended, the "Code") retained by the Trustee.


<PAGE>



                The  Administrator  may  approve any  accounting  so made by the
Trustee by written notice of approval  delivered to the Trustee.  Failure by the
Administrator  to express  objection to such accounting in writing  delivered to
the Trustee  within sixty (60) days from the date upon which the  accounting was
delivered to the Employer and  Administrator  shall constitute  approval of such
accounting.  Upon the receipt of a written  approval of the accounting,  or upon
the passage of the period of time within which  objection may be filed,  without
written  objections having been delivered to the Trustee,  such accounting shall
be deemed to be approved, and the Trustee shall be released and discharged as to
all items, matters and things set forth in such accounting,  as fully as if such
accounting  had been  settled  and  allowed  by decree  of a court of  competent
jurisdiction  in an action or  proceeding  in which the  Trustee,  Employer  and
Administrator,  and all persons  having or claiming to have any  interest in the
Trust Fund or under the Plan, were parties.

                (k)  As  directed  by the  Administrator,  to  pay  any  estate,
inheritance,  income or other  tax,  charge or  assessment  attributable  to any
benefit which it shall or may be required to be paid out of such benefit; and to
require before making any payment such release or other document from any taxing
authority and such  indemnity  from the intended payee as the Trustee shall deem
necessary for its protection.

                (l)  To  employ  agents,   attorneys,   accountants,   financial
advisers,  independent appraisers, or other persons (who also may be employed by
the  Employer)  and to delegate  to them such  powers as the  Trustee  considers
desirable (except that the Trustee may not delegate its  responsibilities  under
this Agreement as to the management or control of the assets of the Trust Fund),
provided  that such  delegation,  and the  acceptance  thereof,  by such agents,
attorneys,  accountants,  financial advisers,  independent appraisers,  or other
persons,  shall be in writing;  and, to the extent permitted by law, the Trustee
shall be protected in acting or refraining  from acting on the advice of persons
so employed without court action. 

                (m) To assume,  until advised to the contrary,  that the Plan is
qualified  under  Section  401(a)  of the Code and that the  Trust as  evidenced
hereby is entitled to tax exemption under Section 501(a) of the Code.

                (n)  To  manage,  sell,  contract  to  sell,  grant  options  to
purchase,  convey, exchange,  transfer,  abandon, improve, repair, insure, lease
for any term (although  commencing in the future or extending beyond the term of
this Trust) and otherwise deal with all property, real or personal, in such way,
for  such  considerations,  and on such  terms  and  conditions  as the  Trustee
decides;  and at the direction of the  Administrator,  to acquire and become the
policyholder  under  group  annuity  contracts  issued by a legal  reserve  life
insurance company.

                (o) Except for assets subject to the authority of the Investment
Advisory  Committee (see Section 8.1(c) of the Plan), the rights of Participants
and Former  Participants to direct the investment of a portion of their accounts
pursuant  to  Sections  3.12  and  3.13 of the  Plan,  and the  authority  of an
investment  manager appointed pursuant to Section 8.1(c) of the Plan and Section
5.2 below,  the Trustee  shall have the authority to diversify the assets of the
Trust  Fund so as to  minimize  the  risk of  large  losses,  unless  under  the
circumstances  it is clearly prudent not to do so; provided,  however,  that all
investments  in Company Stock shall be undertaken  pursuant to the provisions of
Section 4.1 of this Agreement.

                (p) To register  ownership of any  securities or other  property
held by the Trustee in its own name or in the name of a nominee, with or without
the addition of words  indicating  that such  securities are held in a fiduciary
capacity,  and to hold any securities in bearer form;  provided,  that the books
and records of the Trustee shall at all times reflect that all such  investments
are part of the Trust Fund.


<PAGE>



                (q) With the approval of the  Administrator,  to borrow such sum
or sums from time to time as the Trustee considers necessary or desirable and in
the best interest of the Trust Fund,  and for that purpose to mortgage or pledge
any part of the Trust Fund (subject to the applicable provisions of Section 4975
of the Code and the Treasury Regulations issued thereunder).

                (r) To deposit securities with a clearing corporation as defined
in  Article  8  of  the  Florida  Uniform   Commercial  Code.  The  certificates
representing  securities,  including  those in bearer form,  may be held in bulk
form with,  and may be merged into,  certificates  of the same class of the same
issuer  which   constitute   assets  of  other   accounts  or  owners,   without
certification as to the ownership  attached.  Utilization of a book-entry system
may be made for the transfer or pledge of securities held by the Trustee or by a
clearing  corporation.  The  Trustee  shall at all  times,  however,  maintain a
separate and distinct record of the securities owned by the Trust.

                (s) To  participate  in and use the Federal  Book-Entry  Account
System,  a service provided by the Federal Reserve Bank for its member banks for
deposit of United States Treasury securities.

                (t) To  appoint  a bank,  trust  company,  or  broker  or dealer
registered  under the  Securities  Exchange Act of 1934 to act as custodian with
respect to any portion of the Trust Fund;  and a custodian  so  appointed  shall
have  custody of such  assets as are  deposited  with it and as  custodian  such
rights, powers and duties with respect thereto as shall be agreed upon from time
to time by the Administrator and such custodian.

                (u) To furnish the  Administrator  with such  information in the
Trustee's possession as the Administrator may need for tax or other purposes.

                (v) At the direction of the Administrator,  to receive, hold and
invest any funds or other property which the Administrator  determines are to be
transferred to the Trustee from:

                    (i) any other  trust  forming a part of a plan  intended  to
meet the requirements of Section 401(a) of the Code;

                    (ii) an employee  of the  Employer if such funds or property
qualify as a rollover amount  described in Sections  401(a)(31) or 402(c) of the
Code; or

                    (iii)  an  individual   retirement   account  or  individual
retirement annuity  maintained by an employee of the Employer,  if such funds or
property qualify as a rollover  contribution  described in Section  408(d)(3) of
the Code;

and to  allocate,  credit and  distribute  any such funds and other  property so
transferred in accordance with the terms of the Plan.

                (w) To transfer  all or any portion of the Trust Fund to another
trust or trusts  forming a part of a plan or plans that are intended to meet the
requirements of Section 401(a) of the Code, as directed by the Administrator.

                (x) To perform  any and all other  acts  which in the  Trustee's
judgment are appropriate for the proper management,  investment and distribution
of the Trust Fund.


<PAGE>



           3.3  RESPONSIBILITY OF TRUSTEE

                The Trustee shall not be responsible in any way for the adequacy
of the Trust Fund to meet and discharge any or all liabilities under the Plan or
for the proper application of distributions made or other actions taken upon the
written direction of the Administrator.  The powers, duties and responsibilities
of the  Trustee  shall be  limited  to those  set forth in this  Agreement,  and
nothing  contained in the Plan,  either  expressly or by  implication,  shall be
deemed to impose  any  additional  powers,  duties  or  responsibilities  on the
Trustee.

           3.4  COMPENSATION AND EXPENSES

                Except  as  otherwise  provided  below  in this  Agreement,  all
reasonable costs,  charges and expenses  incurred in the  administration of this
Trust and the Plan,  including  compensation  to the  Trustee  (as  agreed  upon
between the  Employer or  Administrator  and the  Trustee),  compensation  to an
investment manager (as agreed upon between the Employer or Administrator and the
investment manager), and any compensation to agents, attorneys,  accountants and
other persons employed by the Trustee,  the Administrator,  Investment  Advisory
Committee  or the  Employer,  will be paid from the Trust Fund to the extent not
paid by the Employer,  in its discretion.  Expenses  incurred in connection with
the sale,  investment  and  reinvestment  of the Trust Fund (such as  brokerage,
postage,  express and insurance  charges and transfer  taxes) shall be paid from
the Trust  Fund.  The Trustee  shall be fully  protected  in making  payments of
administrative expenses pursuant to the written directions of the Administrator.

           3.5  CONTINUATION OF POWERS UPON TRUST TERMINATION

                Notwithstanding anything to the contrary in this Agreement, upon
termination of the Trust, the powers, rights and duties of the Trustee hereunder
shall continue until all Trust Fund assets have been liquidated.


                                   ARTICLE IV
                              PROVISIONS RELATED TO
                          INVESTMENTS IN COMPANY STOCK

           4.1  INVESTMENTS IN COMPANY STOCK

                If the Employer's  contribution  made pursuant to the provisions
of Section  3.1(a) of the Plan for any "Plan Year" (as defined  Section  1.62 of
the Plan) is in cash,  such cash shall be used by the Trustee  first to make any
scheduled or accelerated  amortization  payment on an acquisition loan and then,
if any amounts remain thereafter,  shall be allocated as the Trustee is directed
in writing by the  Administrator  in accordance with the Plan. If allowed by the
Administrator  under  the terms of the  Plan,  Participants  may elect to invest
salary  deferral  contributions  (made  pursuant  to Section 3.2 of the Plan) in
Company Stock,  and, subject to Subsection  3.2(e) of this Agreement and Section
3.13 of the Plan, the Administrator will direct the Trustee with respect to such
investments.  Subject to the  provisions of Section 3.2 of this  Agreement,  any
cash  dividends  received by the Trustee on Company Stock held in the Trust Fund
shall be  applied as  provided  by  Section  3.4(d) of the Plan.  Subject to the
provisions  of  Section  3.2(e)  of  this  Agreement,  the  Trustee  is  further
authorized to purchase  Company Stock on the open market or from the Employer or
from any  stockholder,  and such  stock  may be  outstanding,  newly  issued  or
treasury  stock.  All such  purchases  must be at a price  not in excess of fair
market value,  as determined by an independent  appraiser when the Company Stock
is not publicly traded.  Pending  investment of cash in Company Stock, such cash
may be  invested  in  savings  accounts,  certificates  of  deposit,  high-grade
short-term  securities,  common or collective funds or mutual funds (including a
common,  collective,  or  mutual  fund  for  which  the  Trustee  or  one of the
affiliates  of  the  Trustee  serves  as  investment  adviser)  maintained  as a
short-term investment fund or in other types of short-term  investments approved
by the Investment Advisory Committee for these purposes.
<PAGE>

          4.2  STOCK DIVIDENDS,  SPLITS AND OTHER CAPITAL REORGANIZATIONS;  SALE
PROCEEDS

                Any  Company  Stock  received by the Trustee as a stock split or
dividend or as a result of a  reorganization  or other  recapitalization  of the
Employer  shall  be  allocated  as of each  accounting  date  under  the Plan in
proportion to the Company Stock to which it is  attributable.  While one or more
acquisition  loans are outstanding,  any proceeds  received by the Trust Fund as
the result of the sale,  assignment,  transfer or other  disposition  of Company
Stock (to a party other than the Employer or an affiliate of the Employer)  will
first be applied to repay such acquisition loans.

           4.3  VOTING OF SHARES AND TENDER OFFERS

                Company Stock held in the Trust Fund shall be voted and tendered
by the  Trustee  in the  manner  set  forth  in  Section  3.14 of the  Plan  and
consistent with its duties described in Section 2.2 of this Agreement.

                                    ARTICLE V
                              PROVISIONS RELATED TO
                      INVESTMENTS OTHER THAN COMPANY STOCK

           5.1  INVESTMENT ADVISORY COMMITTEE AUTHORITY

                With respect to Trust Fund assets not invested in Company  Stock
(other  than cash to be held on a short term  basis),  the  Investment  Advisory
Committee  shall have the  following  powers,  rights and duties in  addition to
those provided elsewhere in this Agreement or the Plan:

                (a) The Investment Advisory  Committee,  in its sole discretion,
may  from  time to time  establish  one or more  investment  funds  ("Investment
Funds")  under  this  Agreement  for  investment  of  all  or  a  portion  of  a
Participant's or Former  Participant's  account in accordance with Sections 3.12
or 3.13 of the Plan. Such Investment Funds shall be comprised of:

                    (i) shares of an  investment  company  registered  under the
Investment Company Act of 1940 (a "mutual fund"), or

                    (ii) a common, collective or commingled trust fund or pooled
investment  fund  qualified  under Section  401(a) and entitled to tax exemption
under Section 501(a) of the Code.

                The Employer,  in accordance with Section 8.1(c) of the Plan and
Section 5.2 of this Agreement,  also may appoint one or more investment managers
to manage all or a portion of any such investment fund.  Pursuant to Section 5.4
of this  Agreement,  the  Administrator  also may permit  Participants to direct
investments in U.S. Government securities.

                (b) The Administrator, pursuant to Sections 3.12 and 3.13 of the
Plan,  may direct the Trustee to transfer  amounts  held in the Trust Fund to be
applied  to the  purchase  or sale of shares or units in an  Investment  Fund in
accordance with the directions of Plan Participants and Former Participants.


<PAGE>



                (c) In the absence of investment directions from any Participant
or Former  Participant in the Plan in accordance  with Sections 3.12 and 3.13 of
the Plan,  the  Administrator  shall  designate an Investment  Fund in which the
amounts  in  such a  Participant's  or  Former  Participant's  accounts  will be
invested and shall  direct the Trustee to invest such amounts in the  designated
investment fund.

                (d) The  Administrator  may authorize the Trustee to temporarily
invest assets of the Trust Fund in short-term  investments described in the last
sentence of Section 4.1 of this Agreement  pending  investment of such assets in
accordance with the directions of Plan Participants or Former  Participants,  or
other disposition of such assets under the terms of this Agreement.

                (e)  The  Trustee   shall  have  no  custodial   or   investment
responsibility  with respect to any Trust assets  invested in an Investment Fund
described  in clause  (a)(i) or (a)(ii)  above,  except the  Trustee  shall vote
shares of a mutual fund  constituting  an investment fund as provided in Section
3.2(d) of this Agreement.

                (f) The Trustee shall be indemnified in accordance  with Section
6.11 of this  Agreement in connection  with its good faith  compliance  with any
directions  from  the   Participants  or  Former   Participants,   or  the  Plan
Administrator or Investment Advisory Committee, in accordance with this Section.

           5.2  INVESTMENT MANAGERS

                In accordance  with Section 8.1(c) of the Plan, the Employer may
appoint one or more  "investment  managers" to direct the investments to be made
by the Trustee  with  respect to any part or all of the assets of an  Investment
Fund  designated by the Investment  Advisory  Committee  pursuant to Section 5.1
above. Except as otherwise provided by law, the Trustee shall have no obligation
for  investment  of any assets of the Trust Fund that are subject to  investment
directions  from an investment  manager.  Appointment  of an investment  manager
shall be made by written  agreement  between  the  Employer  and the  investment
manager,  which agreement  shall specify those powers,  rights and duties of the
Trustee under this Agreement  that are allocated to the  investment  manager and
that  portion of the assets of the Trust Fund subject to  investment  direction.
The  Employer  or  Administrator  shall  notify  the  Trustee  in writing of the
appointment of an investment  manager,  which notice shall specify those powers,
rights and duties of the Trustee under this  Agreement that are allocated to the
investment  manager and that  portion of the assets of the Trust Fund subject to
investment  direction  by the  investment  manager.  An  investment  manager  so
appointed  pursuant to this Section 5.2 shall be either a registered  investment
adviser  under the  Investment  Advisers Act of 1940, a bank, as defined in said
Act, or an insurance  company  qualified  to manage,  acquire and dispose of the
assets of a Plan under the laws of more than one state of the United States. Any
such  investment  manager shall  acknowledge  to the Employer in writing that it
accepts such appointment and that it is a fiduciary with respect to the Plan and
Trust.  An investment  manager may resign at any time upon written notice to the
Employer or  Administrator,  and the Employer or  Administrator  shall  promptly
notify the Trustee of the  investment  manager's  resignation.  The Employer may
remove an  investment  manager at any time by written  notice to the  investment
manager and the Trustee.



<PAGE>



           5.3  COLLECTIVE INVESTMENT FUNDS

                In addition to a mutual fund, the Investment  Advisory Committee
may designate as an Investment Fund any common,  collective or commingled  trust
fund or pooled  investment  fund qualified  under Section 401(a) of the Code and
entitled  to tax  exemption  under  Section  501(a) of the Code.  An  investment
manager  (including  a bank or trust  company)  may cause any part or all of the
assets  of the  Trust  Fund for  which it has  investment  responsibility  to be
invested in any common, collective or commingled trust fund or pooled investment
fund  as  described  above.  The  Trustee  may  invest  cash  for  which  it has
responsibility to be invested in any common, collective or commingled trust fund
or pooled  investment fund as described above. To the extent assets of the Trust
Fund are invested in any such common,  collective  or  commingled  trust fund or
pooled investment fund, the provisions of the documents under which such fund is
maintained,  as amended from time to time, shall govern any investment  therein,
and such  provisions  are  hereby  incorporated  herein  and made a part of this
Agreement. If the Investment Advisory Committee or an investment manager decides
to invest Trust Fund assets in a common,  collective or commingled trust fund or
pooled  investment  fund (as described in this Section) then,  upon direction of
the Investment Advisory Committee or the investment  manager,  the Trustee shall
enter into those agreements necessary for the purpose of investing in such fund,
including custody agreements. With respect to any assets the Investment Advisory
Committee or an investment manager invests in a common, collective or commingled
trust fund or pooled  investment fund (as described in this Section)  maintained
by an investment  manager,  the Administrator may appoint the investment manager
as custodian of such assets.

           5.4  U.S. GOVERNMENT SECURITIES

                If  permitted  by the  Investment  Advisory  Committee  and  the
Administrator, Participants and Former Participants may direct the investment of
their  accounts  under  the  Plan in  securities  of the  U.S.  government,  its
agencies,  or  instrumentalities,  subject to such uniform and nondiscriminatory
rules and  procedures as the  Administrator  may establish.  In accordance  with
Participants'  and Former  Participants'  directions,  the  Administrator  shall
direct the Trustee  with respect to the  purchase or sale of  securities  of the
U.S. government,  its agencies, or instrumentalities.  The Trustee shall have no
investment  responsibility  with  respect  to  such  Trust  assets  invested  in
securities of the U.S. government,  its agencies or instrumentalities over which
the Participant or Former Participant has the right of self-direction.

                                   ARTICLE VI
                               GENERAL PROVISIONS

           6.1  DISAGREEMENT AS TO ACTS

                If there is a disagreement  between the Trustee and anyone as to
any act or transaction  reported in any  accounting,  the Trustee shall have the
right to have its account settled by a court of competent jurisdiction.



<PAGE>



           6.2  INTERESTS NOT TRANSFERABLE

                The interests of persons entitled to benefits under the Plan are
not subject to their debts or other  obligations  and, except as may be required
by the tax  withholding  provisions of the Code or any state's income tax act or
pursuant to a qualified domestic relations order as defined in Section 414(p) of
the Code, may not be voluntarily or involuntarily sold, transferred,  alienated,
assigned or encumbered.

           6.3  THIRD PARTIES

                Except as otherwise  provided by law, the Trustee's  exercise or
non-exercise  of its powers and discretions in good faith shall be conclusive on
all persons. No one shall be obliged to see to the application of any money paid
or property  delivered to the Trustee,  except to the extent that the Investment
Advisory  Committee  or  investment  manager  is  directing  investments  of the
Trustee.  The  certificate  of the Trustee  that it is acting  according to this
Agreement will fully protect all persons dealing with the Trustee.

           6.4  EVIDENCE

                Evidence  required  of anyone  under  this  Agreement  may be by
certificate,  affidavit, document or other instrument which the person acting in
reliance thereon considers pertinent and reliable, and signed, made or presented
by the proper party.

           6.5  WAIVER OF NOTICE

                Any  notice  required  under  this  Agreement  may be  waived in
writing by the person entitled thereto.

           6.6  COUNTERPARTS

                This  Agreement  may be executed in any number of  counterparts,
each of which  shall be deemed an  original  and no other  counterparts  need be
produced.

           6.7  GOVERNING LAWS AND SEVERABILITY

                This Agreement shall be construed and administered  according to
the laws of the State of Florida to the extent that such laws are not  preempted
by the laws of the United States of America.  If any provision of this agreement
is held illegal or invalid,  the  illegality or invalidity  shall not affect the
remaining provisions of the Agreement, but shall be severable, and the Agreement
shall be construed and enforced as if the illegal or invalid provision had never
been inserted herein.



<PAGE>



           6.8  SUCCESSORS

                This  Agreement  shall be binding  on all  persons  entitled  to
benefits under the Plan and their respective heirs and legal representatives, on
the Employer and its successors and assigns,  on the Trustee and its successors,
and on the Administrator and Investment  Advisory  Committee,  and their members
and their successors. The term "Employer" as used in the Plan and this Agreement
includes  any  entity  that  continues  the Plan and this  Trust in  effect,  as
provided in the Plan; and, if the employer  concerned is the Employer,  the term
"Employer" also shall include such entity.

           6.9  ACTION

                Any action  required or  permitted  to be taken by the  Employer
under this Agreement shall be by resolution of its Board of Directors, by a duly
authorized  committee  of such  Board of  Directors,  or by a person or  persons
authorized  by  resolution  of such Board of  Directors or such  committee.  The
Trustee  shall  not  recognize  or  take  notice  of  any   appointment  of  any
representative of the Employer,  Administrator or Investment  Advisory Committee
unless and until the Employer,  Administrator or Investment  Advisory  Committee
shall have notified the Trustee in writing of such appointment and the extent of
such  representative's  authority.  The Trustee may assume that such appointment
and  authority  continue  in  effect  until it  receives  written  notice to the
contrary from the Employer,  Administrator or Investment Advisory Committee. Any
action  taken  or  omitted  to be  taken  by the  Trustee  by  authority  of any
representative of the Employer,  Administrator or Investment  Advisory Committee
within the scope of its authority  shall be as effective for all purposes hereof
as  if  such  action  or  non-action  had  been   authorized  by  the  Employer,
Administrator or Investment Advisory Committee.

           6.10 CONFORMANCE WITH PLAN

                Unless otherwise indicated in this Agreement,  all terms used in
this  Agreement  shall have the meaning as stated in the Plan. To the extent the
provisions of the Plan and this Agreement  conflict,  the provisions of the Plan
shall govern; provided, however, that the Trustee's duties and obligations shall
be determined solely under this Agreement.

           6.11 INDEMNIFICATION

                (a) Except as provided in subparagraph  (b) below,  with respect
to assets of the Trust Fund  invested  pursuant  to Section  5.1,  to the extent
permitted by law, the Employer  shall  indemnify  and save  harmless the Trustee
from and against liability,  including all expenses  reasonably  incurred in its
defense,  pursuant to the  indemnification  provisions of the engagement  letter
between the Employer and the Trustee, which is attached hereto as Exhibit A.

                (b) The  provisions  of this  Section  6.11  shall  survive  the
termination  of the Plan and Trust and the  resignation  or the  removal  of the
Trustee.

           6.12 LITIGATION BY PARTICIPANTS

                If a legal action begun against the Trustee,  the  Employer,  or
the Investment Advisory Committee or Administrator, or any member thereof, by or
on behalf of any person results  adversely to that person,  or if a legal action
arises because of conflicting claims to a Participant's, Former Participant's or
other person's benefits,  the cost to the Trustee,  Employer,  or the Investment
Advisory  Committee or  Administrator,  or any member thereof,  of defending the
action will be charged to the extent permitted by law to the sums, if any, which
were involved in the action or were payable to the person concerned.
<PAGE>

           6.13 COURTS

                Except  as  otherwise  provided  by law,  in  case of any  court
proceedings   involving  the   Employer,   Investment   Advisory   Committee  or
Administrator,  or any member  thereof,  the Trustee or the Trust Fund, only the
Employer,  the Trustee and any other of such parties involved in the proceedings
shall be  necessary  parties to the  proceedings,  and no other  person shall be
entitled to notice of process.  A final judgment entered in any such proceedings
shall be conclusive.

           6.14 LIABILITIES MUTUALLY EXCLUSIVE

                To the extent  permitted  by law, the  Trustee,  any  investment
manager,  the Employer,  and each member of the Investment Advisory Committee or
Administrator,  shall be responsible  only for its or his own acts or omissions,
and neither the  Administrator  nor the Trustee shall be required to collect any
contribution  from the  Employer or any other  person or to verify that any such
contribution is in the proper amount.  No insurance  company shall be a party to
this  Agreement  for any  purpose or be  responsible  for the  validity  of this
Agreement,  it being intended that an insurance company shall be liable only for
the obligations set forth in the contracts issued by it.

           6.15 GENDER AND NUMBER

                Where the context  admits,  words in the masculine  gender shall
include the feminine and neuter genders,  the singular shall include the plural,
and the plural shall include the singular.

           6.16 HEADINGS

                The headings of Articles and Sections of this  Agreement are for
convenience  of  reference  only and  shall  have no  substantive  effect on the
provisions of this Agreement.

           6.17 STATUTORY REFERENCES

                Any references in the Plan or this Agreement to a Section of the
Code or ERISA  shall  include any  comparable  section or sections of any future
legislation which amends, supplements or supersedes said Section.

                                   ARTICLE VII
                            NO REVERSION TO EMPLOYER


         The  Employer  shall have no right,  title or interest in the assets of
the Trust Fund, except as may be permitted by law and provided in the Plan or in
a pledge  agreement  entered  into  between  the  Employer  and the  Trustee  in
connection  with an  acquisition  loan. If there is a default on an  acquisition
loan,  the Employer may  exercise  its rights  under the pledge  agreement  with
respect to the shares of Company  Stock  subject to the pledge  agreement.  Such
Employer  rights  shall  include,  but not be  limited  to,  the sale of pledged
shares, the transfer of pledged shares to the Employer,  and the registration of
pledged  shares in the  Employer's  name.  Notwithstanding  the  foregoing,  the
Trustee has no responsibility as to the sufficiency of the Trust Fund to provide
any distribution to the Employer under this Article VII.



<PAGE>



                                  ARTICLE VIII
                                CHANGE OF TRUSTEE

           8.1  RESIGNATION

                The Trustee may resign at any time by giving at least sixty (60)
days advance, written notice to the Employer and the Administrator.


           8.2  REMOVAL OF THE TRUSTEE

                The  Employer  may remove the  Trustee by giving at least  sixty
(60) days  advance,  written  notice to the Trustee,  subject to  providing  the
removed  Trustee with  satisfactory  written  evidence of the  appointment  of a
successor Trustee and of the successor Trustee's acceptance of the Trusteeship.

           8.3  DUTIES OF RESIGNING OR REMOVED TRUSTEE AND OF SUCCESSOR TRUSTEE

                If the Trustee resigns or is removed, it shall promptly transfer
and  deliver  the assets of the Trust  Fund to the  successor  Trustee,  and may
reserve  such  amount to provide for the  payment of all fees and  expenses,  or
taxes then or  thereafter  chargeable  against the Trust Fund, to the extent not
previously paid by the Employer. Within sixty (60) days, the resigned or removed
Trustee shall  furnish to the Employer and the  successor  Trustee an account of
its  administration  of the  Trust  from  the  date of its  last  account.  Each
successor  Trustee  shall  succeed to the title to the Trust Fund  vested in its
predecessor  without the signing or filing of any  further  instrument,  but any
resigning  or  removed  Trustee  shall  execute  all  documents  and do all acts
necessary to vest such title or record in any successor Trustee.  Each successor
shall have all the powers,  rights and duties  conferred by this Agreement as if
originally named Trustee.  No successor  Trustee shall be personally  liable for
any act or failure to act of a  predecessor  Trustee.  With the  approval of the
Employer or  Administrator,  a successor Trustee may accept the account rendered
and the  property  delivered  to it by its  predecessor  Trustee  as a full  and
complete discharge to the predecessor Trustee without incurring any liability or
responsibility for so doing.

           8.4  FILLING TRUSTEE VACANCY

                The  Employer  shall  fill a vacancy in the office of Trustee as
soon as  practicable  by a writing filed with the person or entity  appointed to
fill the vacancy.


                                   ARTICLE IX
                              ADDITIONAL EMPLOYERS

         Any Affiliated  Employer (as defined in the Plan),  with the consent of
the Board of Directors of the Employer, may become a party to this Agreement by:

                (a) filing with the Employer and the Trustee a certified copy of
resolutions of its Board of Directors,  a duly authorized committee of its Board
of  Directors,  or a person or persons  authorized by resolution of its Board of
Directors or such committee to that effect; and

                (b) filing with the Trustee a certified  copy of  resolutions of
the Employer's Board of Directors,  a duly authorized committee of such Board of
Directors,  or a person or persons  authorized  by  resolution  of such Board of
Directors or such committee consenting to such action.
<PAGE>


                                    ARTICLE X
                            AMENDMENT AND TERMINATION

           10.1 AMENDMENT

                While the  Employer  expects and intends to continue  the Trust,
the Employer reserves the right to amend or terminate the Trust by action of the
Employer's Board of Directors. Notwithstanding the foregoing:

                (a) An amendment  may not change the duties and  liabilities  of
the Trustee without the Trustee's consent;

                (b) An amendment  shall not reduce the value of a  Participant's
or Former  Participant's  nonforfeitable  benefits accrued prior to the later of
the adoption or the effective date of the amendment; and

                (c) Except as provided in Article VII, under no condition  shall
any  amendment  result in the return or repayment to the Employer of any part of
the Trust Fund or the income  therefrom,  or result in the  distribution  of the
Trust Fund for the benefit of anyone other than  employees and former  employees
of the Employer and any other persons entitled to benefits under the Plan.

           10.2 TERMINATION

                If the Plan is  terminated,  this Trust,  including  all rights,
titles, powers, duties, discretions and immunities imposed on or reserved to the
Trustee,   the  Employer,   Investment   Advisory  Committee  and  Administrator
nevertheless  shall  continue in effect  until all assets of the Trust Fund have
been distributed by the Trustee as directed by the Administrator under the Plan.

        IN WITNESS WHEREOF,  the Employer and Trustee have caused this Agreement
to be signed and  attested by their duly  authorized  officers as of the day and
year first above written.

                                    EMPLOYER:

                                    SAWTEK INC.

Attest:/s/Raymond A. Link           By: /s/Steven P. Miller
       Raymond A. Link                  Steven P. Miller
       Chief Financial Officer          Chief Executive Officer


                                    TRUSTEE:
                                
                                    MARINE MIDLAND BANK

Attest:________________________     By: /s/Stephen J. Hartman, Jr.
                                        Stephen J. Hartman, Jr.
                                        Senior Vice President