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UNITED STATES SECURITIES AND EXCHANGE COMMISSION
 Washington, D.C. 20549
 
 FORM 10-K
 (Mark One)
 þ
    
    ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 For the Fiscal Year Ended December 31, 2005
 o
    
    TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 For the transition period from            to
 Commission File Number 0-27892
 SIPEX CORPORATION
 (Exact name of registrant as specified in its charter)
 Delaware
    
    04-6135748(State of Incorporation)
    
    (IRS employer identification number)233 South Hillview Drive, Milpitas, California
    
    95035(Address of principal executive offices)
    
    (Zip Code)
 Registrants telephone number, including area code: (408) 934-7500
Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12(g) of the Act:
Common Stock, par value $0.01 per share
Name of exchange on which registered: None
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EXPLANATORY NOTE




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TABLE OF CONTENTS
 PagePart IItem 1. Business
    
    
    1Item 1A. Risk Factors
    
    
    8Item 1B. Unresolved Staff Comments
    
    
    16Item 2. Properties
    
    
    17Item 3. Legal Proceedings
    
    
    17Item 4. Submission of Matters to a Vote of Security Holders
    
    
    18Part IIItem 5. Market for Registrants Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities
    
    
    20Item 6. Selected Financial Data
    
    
    21Item 7. Managements Discussion and Analysis of Financial Condition and Results of Operations
    
    
    22Item 7A. Quantitative and Qualitative Disclosure about Market Risk
    
    
    35Item 8. Financial Statements and Supplementary Data
    
    
    37Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure
    
    
    65Item 9A. Controls and Procedures
    
    
    66Item 9B. Other Information
    
    
    68Part IIIItem 10. Directors and Executive Officers of the Registrant
    
    
    68Item 11. Executive Compensation
    
    
    70Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters
    
    
    76Item 13. Certain Relationships and Related Transactions
    
    
    79Item 14. Principal Accounting Fees and Services
    
    
    81Part IVItem 15. Exhibits, Financial Statement Schedules and Reports on Form 10-K
    
    
    81Signatures
    
    
    82EXHIBIT 31.1EXHIBIT 31.2EXHIBIT 32.1EXHIBIT 32.2
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FORWARD-LOOKING STATEMENTS
  
 PART I
 
 Item 1. Business:
   Investigation and Restatement
   
    
    transactions identified through interviews;
    
    transactions identified through email searches;
    
    aged accounts receivables;
    
    credit memos and sales returns;
    
    period-end transactions;
    
    non-recurring transactions;
    
    cut-off of revenue; and
    
    return reserves.
  1




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Delisting from the Nasdaq Global Market
    Availability of Reports and Other Information
  2




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Company Overview
   Recent Developments
    Semiconductor Industry Background
    3




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Sipexs Business Strategy
  Sipex Markets, Applications and Products
   Power Management Products
  Interface Products
  Optical Storage Products
 4




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Sales, Distribution and Marketing
       5




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Customers
  Backlog
  Manufacturing
    6




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Product Quality Assurance and Reliability
  Patents, Licenses and Trademarks
   Research and Development
    Competition
  7




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Employees
   
 Item 1A. Risk Factors
 Our quarterly and annual operating results are volatile and difficult to predict and may cause our
stock price to fluctuate.
  
    
    the cyclical nature of the semiconductor industry;
    
    the volatility of the optical device market;
    
    competitive pressures on selling prices;
    
    the mix of product sales, as our margins vary across product lines;
    
    the timing and cancellation of customer orders;
    
    the effect the timing of sales by our resellers may have on our reported results as a result of our sell-through
revenue recognition policies;
    
    our ability to maintain and expand our distributor relationships;
    
    our ability to design and manufacture products to meet customers and distributors specifications and expectations;
    
    our ability to introduce new products and technologies on a timely basis;
    
    market acceptance of our products and our customers products;
    
    the introduction of products and technologies by our competitors;
    
    the level of orders received that can be shipped in a quarter;
    
    delays in shipments from our fabrication plant to assembly houses;
    
    the availability of foundry capacity, raw materials and assembly and test capacity;
    
    our ability to manufacture and have manufactured for us, the correct mix to respond to orders on hand and new
orders received in the future;
    
    fluctuations in yields;
    
    changes in product mix;
    
    the level of future product returns;
    
    the timing of investments in research and development, including tooling expenses associated with product
development, process improvements and production;
    
    costs associated with increased regulation of corporate governance and disclosure and risks of non-compliance with
such regulation; and
    
    the overall economic conditions in the United States and abroad.
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Our management has identified certain material weaknesses in the design and operation of our
internal controls, which, if not adequately addressed, could result
in accounting errors and call into
question the accuracy of our financial results.
  
    
    Entity-level control activities were not appropriately designed and operating
effectively to ensure a control environment that emphasized the
establishment of, adherence to, or adequate communication regarding appropriate internal
control for all aspects of our operations;
    
    Internal controls over revenue recognition were not maintained adequately with respect to
(i) lack of communication and review of significant revenue
transactions, (ii) entering into arrangements
that were not within the original contractual distributor agreements related to return rights and
other concessions, (iii) improper sales cut-off procedures at
our German subsidiary, (iv) lack of sufficient
evidence of pre-sale evaluation of the reasonableness of customer collection capabilities, (v) lack of sufficient evidence of customer delivery and acceptance, (vi) improper recognition of revenues
related to engineering service contracts; and
    
    During the final closing steps of the restatement process related to preparation of our
financial statements for the year ended January 1, 2005, our internal control procedures did not
operate effectively to update significant estimates based upon the best available information at that time.
The principal estimates needing updating related to valuation of excess and obsolete inventories.
   We may need to obtain a significant amount of additional capital in the future and may not be able
to secure adequate funds on a timely basis or on terms acceptable to us.
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We are not currently listed on a national exchange or on the Nasdaq Global Market or Nasdaq Capital
Market, and can offer no assurance that we will ever be listed.
  There is a risk that the SEC could levy fines against us, or declare us to be out of compliance
with applicable laws, rules and regulations.
  We may not successfully transfer our manufacturing processes to Silan in China and Episil
Technologies in Taiwan.
   We may experience difficulties in developing and introducing new or enhanced products necessitated
by technological advances.
  10




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
    
    accurate new product definition;
    
    timely completion and introduction of new product designs;
    
    availability of foundry capacity;
    
    achievement of manufacturing yields; and
    
    market acceptance of our products and our customers products.
  The introduction of our new products may be delayed in order to test for and resolve design flaws.
  We depend on distributors who sell directly to OEMs and the loss of one or more of our significant
distributors could have a material adverse effect on our business.
  We may not successfully expand our sales and distribution channels.
  We derive a substantial portion of our revenues from Future Electronics, a related party, and our
revenues would likely decline significantly if Future elected not to make, cancel, reduce or defer
purchases of our products.
  11




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Affiliates of Future, our largest stockholder and distributor, beneficially own a significant
percentage of our common stock, which will allow them to significantly influence matters requiring
stockholder approval and could either discourage or entirely
facilitate a potential acquisition of
our company.
  Occasionally we enter into agreements that expose us to potential damages that exceed the value of
the agreement
  We may face significant risks related to our international operations.
  
    
    unexpected changes in legal and regulatory requirements;
    
    changes in tariffs;
    
    exchange rates and other barriers;
    
    political and economic instability;
    
    difficulties in accounts receivable collection;
    
    difficulties in managing distributors or representatives;
    
    difficulties in staffing and managing international operations;
    
    difficulties in protecting our intellectual property overseas;
    
    the seasonality of sales; and
    
    potentially adverse tax consequences.
  Our inability to meet any increase in demand could reduce our market share.
  12




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If we are unable to compete effectively with existing or new competitors, we will experience fewer
customer orders, reduced revenues, reduced gross margins and lost market share.
  
    
    accurately identify emerging technological trends and demand for product features and performance characteristics;
    
    develop and maintain competitive products;
    
    enhance our products by adding innovative features that differentiate our products from those of our competitors;
    
    bring products to market on a timely basis at competitive prices;
    
    respond effectively to new technological changes or new product announcements by others;
    
    increase device performance and improve manufacturing yields;
    
    adapt products and processes to technological changes; and
    
    adopt and/or set emerging industry standards.
  The implementation of a new management information system may disrupt our business.
  A failure of our information systems would adversely impact our ability to process orders for and
manufacture products.
  We have only limited protection for our proprietary technology.
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Our future success depends on retaining our key personnel and attracting and retaining additional
highly qualified employees.
  We have recently experienced significant changes in senior management and our corporate
organization.
  Product defects or compatibility problems with our products could damage our reputation, decrease
market acceptance of our technology, cause us to replace defective or incompatible products at a
substantial cost and result in potentially costly litigation.
  
    
    cause delays in product introductions and shipments;
    
    result in increased costs and diversion of development resources;
    
    result in increased product returns and cause us to incur costs due to
unusable inventory or replacement of defective or incompatible
products; or
    
    require design modifications.
  Our manufacturing processes are very complex, which may result in manufacturing difficulties.
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We rely on outside foundries to supply certain of our wafers and those foundries may not produce at
acceptable levels.
  
    
    lack of adequate wafer supply;
    
    limited control over delivery schedules;
    
    unavailability of or delays in obtaining access to key process technologies; and
    
    limited control over quality assurance, manufacturing yields and production costs.
  Our ability to meet current demand or any increase in demand for our products may be limited by our
ability to test our semiconductor wafers.
  Our wafer fabrication facility and the facilities of certain of our significant customers and third
party wafer suppliers are located in areas susceptible to earthquakes and other natural disasters.
  We rely on outside suppliers to assemble, test and ship product to our customers
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The requirement that we expense employee stock options will have a material effect on our results
of operations in future periods.
  We have incurred and will continue to incur increased costs as a result of being a public company.
  We must comply with significant environmental regulations, employment tax regulations, employment
practices and other governmental regulations which are difficult and expensive.
  Our stock price has been volatile and could continue to remain volatile.
 .
 
 Item 1B. Unresolved Staff Comments:
 None.
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Item 2. Properties:
  Approximate
    
    Owned Or
    
    LeaseFacility Size
    
    Leased: Land
    
    ExpirationLocation
    
    Description
    
    (Square Feet)
    
    Area Owned
    
    DateMilpitas, CA
    
    Manufacturing/Design Center/General Office
    
    
    95,700
    
    
    Owned
    
    *Billerica, MA
    
    Design Center/General Office
    
    
    64,260
    
    
    Leased
    
    1/30/2008Munich, Germany
    
    General Office
    
    
    2,740
    
    
    Leased
    
    3/31/2010Tokyo, Japan
    
    General Office
    
    
    2,500
    
    
    Leased
    
    1/31/2007Zaventem, Belgium
    
    Design Center/General Office
    
    
    9,540
    
    
    Leased
    
    9/30/2009Shenzhen, China
    
    General Office
    
    
    1,310
    
    
    Leased
    
    4/25/2007Shanghai, China
    
    General Office
    
    
    1,670
    
    
    Leased
    
    11/19/2007Taipei, Taiwan
    
    General Office
    
    
    2,600
    
    
    Leased
    
    3/31/2008Pointe-Claire, Quebec, Canada
    
    General Office
    
    
    2,594
    
    
    Leased
    
    1/31/2008Ipoh, Perak, Malaysia
    
    Warehouse
    
    
    2,630
    
    
    Leased
    
    6-month notice
 
 *
    
    The property was sold and leased back on March 9, 2006 with an expiration date of March 31, 2011.
See Note 16 to consolidated financial statements relating to subsequent events.  
 Item 3. Legal Proceedings:
 Class Action Securities Litigation
 Keller v. Sipex Corporation, et al., Coil
Partners LLC v. Sipex Corporation, et al., Levy v. Sipex Corporation, et al., Jacobson v. Sipex Corporation, et al.,
  Levy Keller In re Sipex Corporation Securities Litigation
  17




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Stockholder
Derivative Litigation
 Lie v. McBurnie, et al Nagdev v. Maghribi, et al
  Lie Sipex Derivative Cases
  Government Investigation
  DiPietro v. Sipex
   
 Item 4. Submission of Matters to a Vote of Security Holders:
  Executive Officers of Sipex
  18




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Name, Age & Position
    
    Business ExperienceRalph Schmitt  Age 45
Chief Executive Officer and
Director
    
    Mr. Schmitt joined Sipex in June 2005 as chief executive officer and
member of the board of directors. Mr. Schmitt received his BSEE from
Rutgers University and began his career as a computer and
communications system hardware designer. Prior to joining Sipex, Mr.
Schmitt was the vice president of sales and marketing at Cypress
Semiconductor Corporation. Mr. Schmitt had also served on the boards
of Cypress subsidiaries, Silicon Light Machines and Cypress
Microsystems, and on the board of Azanda Networks. He also currently
serves on the board of StarGen, Inc., a privately held company.Clyde R. Wallin Age 53
Chief Financial Officer and
Senior Vice President of Finance
    
    Mr. Wallin joined Sipex in April 2004 as chief financial officer and
senior vice president of Finance. Previously, from October 2002 to
April 2004, Mr. Wallin served as chief financial officer of iWatt,
Inc., a private analog semiconductor company. Prior to iWatt, from
September 2000 to October 2002, Mr. Wallin was the chief financial
officer for Kendin Communications, which was acquired by Micrel, Inc.,
and after this acquisition Mr. Wallin continued with Micrel, Inc. Mr.
Wallin earned a Bachelors of Science in Economics from the University
of Oregon and an MBA in Finance from the University of Chicago.Rick C. Hawron  Age 52
Senior Vice President
Worldwide Sales
    
    Mr. Hawron joined Sipex in February 2004 as senior vice president of
worldwide sales. Prior to joining Sipex, Mr. Hawron was the corporate
vice president at Future Electronics Inc. Mr. Hawron was employed by
Future Electronics Inc. for 27 years in various capacities around the
globe, including vice president and managing director for Europe.Ed Lam  Age 46
Senior Vice President
Marketing and Business Development
    
    Mr. Lam is senior vice president of marketing and business
development. He joined Sipex in September 2005, and has over 20 years
of analog semiconductor industry experience with National
Semiconductor Corporation. Mr. Lam earned his BSEE from San Francisco
State University.Joel Camarda  Age 57
Senior Vice President of Operations
    
    Mr. Camarda joined Sipex in November 2005 as senior vice president of
operations. Mr. Camarda started his career as a senior Manufacturing
engineer for National Semiconductor Corporation and later worked for
companies including Rockwell and Cypress Semiconductor Corporation.
Mr. Camarda has over 30 years of semiconductor industry experience.
Prior to joining Sipex, Mr. Camarda worked for Kulicke & Soffa (K&S)
Industries, where he served as the vice president of operations for
their test products division. Prior to K&S, he worked for Silicon
Storage Technology, Inc. Mr. Camarda earned his BS in Engineering
from New York Universitys School of Engineering.Lee Cleveland  Age 43
Senior Vice President of Engineering
    
    Mr. Cleveland joined Sipex in September of 2003. Mr. Cleveland was
promoted to senior vice president of engineering, effective October 1,
2005. Mr. Cleveland has held various technical and management
positions at AMD and Sipex. Mr. Cleveland graduated from UC Berkeley
with a degree in Electrical Engineering.
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PART II
 
 Item 5. Market for Registrants Common Equity, Related Stockholder Matters and
Issuer Purchases of Equity Securities
 Delisting from the Nasdaq Global Market
 et seq.
   Quarterly Stock Market Data
 Fiscal 2005
    
    Dec. 31, 2005
    
    Oct. 1, 2005
    
    July 2, 2005
    
    April 2, 2005Stock price range per share:High
    
    $
    1.95
    
    
    $
    2.48
    
    
    $
    2.14
    
    
    $
    4.50Low
    
    
    1.29
    
    
    
    1.65
    
    
    
    1.15
    
    
    
    2.01
 Fiscal 2004
    
    Jan. 1, 2005
    
    Oct. 2, 2004
    
    July 3, 2004
    
    April 3, 2004Stock price range per share:High
    
    $
    5.90
    
    
    $
    5.75
    
    
    $
    6.54
    
    
    $
    9.41Low
    
    
    4.40
    
    
    
    3.80
    
    
    
    4.75
    
    
    
    6.27
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Item 6. Selected Financial Data:
  Years EndedOperating Results:
    
    2005
    
    2004
    
    2003
    
    2002
    
    2001Net sales
    
    $
    72,674
    
    
    $
    75,453
    
    
    $
    36,535
    ***
    
    $
    66,260
    
    
    $
    72,062Gross profit (loss)
    
    
    13,749
    
    
    
    11,796
    
    
    
    (9,068
    )***
    
    
    (8,488
    )
    
    
    (2,536
    )As a % of net sales
    
    
    18.9
    %
    
    
    15.6
    %
    
    
    (24.8
    )%
    
    
    (12.8
    )%
    
    
    (3.5
    )%Depreciation and amortization
    
    
    10,952
    
    
    
    6,559
    
    
    
    7,587
    
    
    
    7,675
    
    
    
    6,662Research & development expenses
    
    
    17,248
    
    
    
    14,710
    
    
    
    13,252
    
    
    
    12,944
    
    
    
    12,858Loss from operations
    
    
    (38,515
    )
    
    
    (23,066
    )
    
    
    (38,495
    )
    
    
    (47,455
    )
    
    
    (32,928
    )Loss before income taxes
    
    
    (37,915
    )
    
    
    (22,881
    )
    
    
    (39,489
    )
    
    
    (47,542
    )
    
    
    (32,282
    )Net loss
    
    
    (38,107
    )
    
    
    (22,748
    )
    
    
    (39,807
    )
    
    
    (79,276
    )
    
    
    (19,692
    )As a % of net sales
    
    
    (52.4
    )%
    
    
    (30.1
    )%
    
    
    (109.0
    )%
    
    
    (119.6
    )%
    
    
    (27.3
    )%Net loss per common share  basic
    
    $
    (1.07
    )
    
    $
    (0.69
    )
    
    $
    (1.41
    )
    
    $
    (2.92
    )
    
    $
    (0.82
    )Net loss per common share  diluted
    
    $
    (1.07
    )
    
    $
    (0.69
    )
    
    $
    (1.41
    )
    
    $
    (2.92
    )
    
    $
    (0.82
    )Balance Sheet and Financial Data:Cash and cash equivalents
    
    $
    1,969
    
    
    $
    15,523
    
    
    $
    18,338
    
    
    $
    6,489
    
    
    $
    4,874Short-term investment securities
    
    
    
    
    
    
    249
    
    
    
    2,994
    
    
    
    9,980
    
    
    
    Restricted cash equivalents and securities
    
    
    1,000
    
    
    
    1,838
    
    
    
    
    
    
    
    
    
    
    
    
    *Total assets
    
    
    50,442
    
    
    
    88,066
    
    
    
    101,296
    
    
    
    98,786
    **
    
    
    145,127Long-term debt
    
    
    
    
    
    
    
    
    
    
    21,323
    
    
    
    10,455
    
    
    
    7,396Working capital (deficit)
    
    
    (3,385
    )
    
    
    14,346
    
    
    
    24,468
    
    
    
    27,775
    
    
    
    36,260Current ratio
    
    
    0.9
    
    
    
    1.5
    
    
    
    2.0
    
    
    
    3.0
    
    
    
    4.7Purchase of property, plant and equipment
    
    
    878
    
    
    
    1,921
    
    
    
    2,024
    
    
    
    4,108
    
    
    
    40,441
    *Stockholders equity
    
    
    22,521
    
    
    
    60,080
    
    
    
    54,233
    
    
    
    74,520
    
    
    
    127,822
 
 *
    
    In June 2001, Sipex purchased the land, building and equipment of its Milpitas manufacturing facility for $35.0 million which was
formerly under lease. Proceeds for the buyout were provided through the liquidation of $36.8 million of restricted cash that had
previously secured the lease of the facility and equipment.**
    
    The 2002 decrease in total assets was mainly due to the establishment of a 100% valuation allowance of $31.9 million for
deferred tax assets, the disposition of machinery and equipment with a net book value of $6.7 million and $3.0 million write-off of goodwill.***
    
    The decrease in net sales in 2003
was primarily due to non-cash charges as a reduction to sales of
$14.1 million in 2003 reflecting the fair value of conversion
rights related to the 2003 convertible note issued to Future, a
related party (See Note 3 to our consolidated financial
statements regarding Related Parties), and $12.6 million
initial impact for the revenue values of our products in the
distribution channel upon conversion to sell-through accounting (See
Note 3 to our consolidated financial statements regarding
Revenue Recognition). In addition, the 2003 gross loss increased by
$1.8 million as a result of the conversion to sell-through
accounting. 21




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Item 7. Managements Discussion and Analysis of Financial Condition and Results of
Operations:
  Overview
   TM
      22




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Critical Accounting Policies and Estimates
   Revenue Recognition .
   23




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Valuation of Inventories.
 Restructuring and Fixed Asset Impairment.
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Income Taxes.
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Results of Operations
  Years Ended2005
    
    2004
    
    2003Net sales
    
    
    100.0
    %
    
    
    100.0
    %
    
    
    100.0
    %Cost of sales
    
    
    81.1
    
    
    
    84.4
    
    
    
    124.8Gross profit (loss)
    
    
    18.9
    
    
    
    15.6
    
    
    
    (24.8
    )Operating expenses:Research and development
    
    
    23.7
    
    
    
    19.5
    
    
    
    36.3Marketing and selling
    
    
    14.6
    
    
    
    11.4
    
    
    
    20.3General and administrative
    
    
    19.8
    
    
    
    13.0
    
    
    
    22.0Restructuring and impairment
    
    
    13.8
    
    
    
    2.3
    
    
    
    1.9Total operating expenses
    
    
    71.9
    
    
    
    46.2
    
    
    
    80.5Loss from operations
    
    
    (53.0
    )
    
    
    (30.6
    )
    
    
    (105.3
    )Other income (expense), net
    
    
    0.8
    
    
    
    0.3
    
    
    
    (2.7
    )Loss before income taxes
    
    
    (52.2
    )%
    
    
    (30.3
    )%
    
    
    (108.0
    )%
 Fiscal Year Ended December 31, 2005 compared to Fiscal Year Ended January 1, 2005
 Net Sales
   Gross Profit (Loss) .
 Research and Development.
 26




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Marketing and Selling.
 General and Administrative.
 Restructuring and Fixed Asset Impairment.
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Restructuring
    
    
    Fixed AssetCosts
    
    
    ImpairmentAccrual balance December 31, 2003
    
    $
    1,070
    
    
    $
    Incurred 2004
    
    
    1,858
    
    
    
    Charges utilized
    
    
    (1,036
    )
    
    
    Deferred rent adjustment
    
    
    15
    
    
    
    Adjustments to accrual
    
    
    (60
    )
    
    
    Accrual balance January 1, 2005
    
    
    1,847
    
    
    $
    Incurred 2005
    
    
    871
    
    
    
    9,377Charges utilized
    
    
    (726
    )
    
    
    (9,377
    )Sublease income received
    
    
    293
    
    
    
    Adjustments to accrual
    
    
    (294
    )
    
    
    Accrual balance December 31, 2005
    
    $
    1,991
    
    
    $
    
 Other Income (Expense), Net.
 Income Tax Expense.
 Fiscal Year Ended January 1, 2005 compared to Fiscal Year Ended December 31, 2003
 Net Sales
  (a)
    
    Interface product net sales in 2004 increased by $23.0 million or 139% over 2003 due
primarily to the allocation of non-cash charges against sales of $11.0 million relating to
the fair value of conversion rights, and $6.5 million for conversion to the sell-through
accounting allocated to this product line in 2003. The increase attributable to higher
product demand amounted to $5.5 million.(b)
    
    Net sales of our power management product line increased $11.5 million, or 118%
primarily as a result of the allocation of the 2003 non-cash charges of $2.3 million and
$1.2 million relating to the conversion rights and conversion to sell-though accounting,
respectively, and $8.0 million attributable to sales growth.(c)
    
    Sales of our optical storage products increased $6.2 million, or 80%. The increase was
primarily due to the impact of the 2003 non-cash charge of $1.1 million relating to the
conversion to sell-through accounting methodology and a $5.1 million increase attributable
to the growth in demand for the new products introduced in 2003, particularly in Japan.(d)
    
    Sales of our legacy and EL product lines decreased by approximately $1.8 million. In
the third quarter of 2002, we sold the hybrid product family to SatCon Electronics Inc,
which resulted in no net sales for that product line in 2003. In addition, we discontinued
producing the electroluminescent display driver product family by the first quarter of
2003. Total sales in these product areas decreased by approximately $6.3 million but was
partially offset by a $3.8 million impact of the 2003 non-cash charge relating to the
conversion to sell-through methodology and an $0.8 million allocation of the 2003 non-cash
charge relating to the conversion rights.
 28




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Gross Profit (Loss) .
  Research and Development.
 Marketing and Selling.
 General and Administrative.
 29




---



##### Table of Contents



Restructuring.
   RestructuringCostsAccrual balance December 31, 2002
    
    $
    755Incurred 2003
    
    
    1,043Charges utilized
    
    
    (535
    )Deferred rent adjustment
    
    
    137Adjustments to accrual
    
    
    (330
    )Accrual balance December 31, 2003
    
    
    1,070Incurred 2004
    
    
    1,858Charges utilized
    
    
    (1,036
    )Deferred rent adjustment
    
    
    15Adjustments to accrual
    
    
    (60
    )Accrual balance January 1, 2005
    
    $
    1,847
 Other Income (Expense), Net.
 Income Tax Expense.
 Financial Condition, Liquidity and Capital Resources
  30




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31




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##### Table of Contents



32




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##### Table of Contents



Contractual Obligations
  Less Than
    
    
    1 - 3
    
    
    3 - 5
    
    
    More ThanTotal
    
    
    1 Year
    
    
    Years
    
    
    Years
    
    
    5 YearsRestructuring liability (1)
    
    $
    1,245
    
    
    $
    596
    
    
    $
    649
    
    
    $
    
    
    
    $
    Operating leases (2)
    
    
    1,530
    
    
    
    598
    
    
    
    697
    
    
    
    235
    
    
    
    Purchase commitment- PolarFab
    
    
    2,272
    
    
    
    2,272
    
    
    
    
    
    
    
    
    
    
    
    Purchase commitment- Cadence Design
    
    
    1,867
    
    
    
    856
    
    
    
    1,011
    
    
    
    
    
    
    
    Other (3)
    
    
    388
    
    
    
    388
    
    
    
    
    
    
    
    
    
    
    
    Total contractual obligations
    
    $
    7,302
    
    
    $
    4,710
    
    
    $
    2,357
    
    
    $
    235
    
    
    $
    
 
 (1)
    
    Represents estimated lease payments with related costs for the unused portion of our Billerica, MA facility.(2)
    
    Excludes the lease payments related to restructuring facility at Billerica, MA that are included in (1) above.(3)
    
    Includes licensing and testing services with various vendors. Effect of Recent Accounting Pronouncements
  33




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Accounting for Income Taxes
 34




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##### Table of Contents



Accounting for Uncertainty in Income
Taxes Accounting for Income Taxes
 
 Item 7A. Quantitative and Qualitative Disclosures about Market Risk
 Market Risk
  35




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##### Table of Contents



Interest Rate Risk
        Foreign Currency Exchange Risk
  36




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##### Table of Contents



Item 8. Financial Statements and Supplementary Data:
  PageReport of Independent Registered Public Accounting Firm
    
    
    38Consolidated Balance Sheets as of December 31, 2005 and January 1, 2005
    
    
    39Consolidated Statements of Operations for the years ended
December 31, 2005, January 1, 2005 and December 31, 2003
    
    
    40Consolidated Statements of Stockholders Equity and
Comprehensive Income (Loss) for the years ended December 31,
2005, January 1, 2005, December 31, 2003
    
    
    41Consolidated Statements of Cash Flows for the years ended
December 31, 2005, January 1, 2005, December 31, 2003
    
    
    42Notes to consolidated financial statements
    
    
    43
  37




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REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
     DELOITTE & TOUCHE LLP
 
 38




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##### Table of Contents



SIPEX CORPORATION
 
 CONSOLIDATED BALANCE SHEETS
 (in thousands, except per-share data)
 December 31, 2005
    
    
    January 1, 2005ASSETSCurrent assets:Cash and cash equivalents
    
    $
    1,969
    
    
    $
    15,523Restricted cash
    
    
    500
    
    
    
    613Short-term investment securities
    
    
    
    
    
    
    249Accounts receivable, less allowances of $820 and $1,143, respectively
    
    
    3,735
    
    
    
    7,597Accounts receivable, related party, less allowance of $529 and $271, respectively
    
    
    3,011
    
    
    
    2,311Inventories
    
    
    13,400
    
    
    
    13,141Prepaid expenses and other current assets
    
    
    1,300
    
    
    
    1,604Total current assets
    
    
    23,915
    
    
    
    41,038Property, plant, and equipment, net
    
    
    25,803
    
    
    
    45,318Restricted cash  noncurrent
    
    
    500
    
    
    
    1,225Other assets
    
    
    224
    
    
    
    485Total assets
    
    $
    50,442
    
    
    $
    88,066LIABILITIES AND STOCKHOLDERS EQUITYCurrent liabilities:Short-term borrowing
    
    $
    3,000
    
    
    $
    Accounts payable
    
    
    7,394
    
    
    
    10,863Accrued expenses
    
    
    7,282
    
    
    
    5,855Accrued restructuring costs
    
    
    1,407
    
    
    
    566Deferred income, related party
    
    
    5,707
    
    
    
    5,874Deferred income, other
    
    
    2,510
    
    
    
    3,534Total current liabilities
    
    
    27,300
    
    
    
    26,692Long-term accrued restructuring costs
    
    
    584
    
    
    
    1,281Other long-term liabilities
    
    
    37
    
    
    
    13Total liabilities
    
    
    27,921
    
    
    
    27,986Commitment and contingencies (Note 12)Stockholders equity:Preferred stock, $0.01 par value, 1,000 shares authorized
and no shares issued or outstanding
    
    
    
    
    
    
    Common stock, $0.01 par value, 60,000 shares authorized;
35,550 and 35,394 shares issued and outstanding at December 31, 2005
and January 1, 2005, respectively
    
    
    355
    
    
    
    354Additional paid-in capital
    
    
    224,026
    
    
    
    223,479Accumulated deficit
    
    
    (201,841
    )
    
    
    (163,734
    )Accumulated other comprehensive loss
    
    
    (19
    )
    
    
    (19
    )Total stockholders equity
    
    
    22,521
    
    
    
    60,080Total liabilities and stockholders equity
    
    $
    50,442
    
    
    $
    88,066
  39




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##### Table of Contents



SIPEX CORPORATION
 
 CONSOLIDATED STATEMENTS OF OPERATIONS
 (in thousands, except per-share data)
 Years EndedDecember 31, 2005
    
    
    January 1, 2005
    
    
    December 31, 2003Net sales
    
    $
    40,847
    
    
    $
    46,219
    
    
    $
    28,760Net sales, related party (net of $14,131 reduction in 2003 for
debt conversion rights  see Note 2)
    
    
    31,827
    
    
    
    29,234
    
    
    
    7,775Total net sales
    
    
    72,674
    
    
    
    75,453
    
    
    
    36,535Cost of sales
    
    
    35,103
    
    
    
    41,250
    
    
    
    26,426Cost of sales, related party
    
    
    23,822
    
    
    
    22,407
    
    
    
    19,177Total cost of sales
    
    
    58,925
    
    
    
    63,657
    
    
    
    45,603Gross profit (loss)
    
    
    13,749
    
    
    
    11,796
    
    
    
    (9,068
    )Operating expenses:Research and development
    
    
    17,248
    
    
    
    14,710
    
    
    
    13,252Marketing and selling
    
    
    10,642
    
    
    
    8,570
    
    
    
    7,408General and administrative
    
    
    14,420
    
    
    
    9,784
    
    
    
    8,054Restructuring
    
    
    577
    
    
    
    1,798
    
    
    
    713Impairment of fixed assets
    
    
    9,377
    
    
    
    
    
    
    
    Total operating expenses
    
    
    52,264
    
    
    
    34,862
    
    
    
    29,427Loss from operations
    
    
    (38,515
    )
    
    
    (23,066
    )
    
    
    (38,495
    )Other income (expense):Interest income
    
    
    208
    
    
    
    176
    
    
    
    122Interest expense
    
    
    (35
    )
    
    
    (194
    )
    
    
    (1,135
    )Other, net
    
    
    427
    
    
    
    203
    
    
    
    19Total other income (expense), net
    
    
    600
    
    
    
    185
    
    
    
    (994
    )Loss before income tax expense (benefit)
    
    
    (37,915
    )
    
    
    (22,881
    )
    
    
    (39,489
    )Income tax expense (benefit)
    
    
    192
    
    
    
    (133
    )
    
    
    318Net loss
    
    $
    (38,107
    )
    
    $
    (22,748
    )
    
    $
    (39,807
    )Net loss per common share  basic and diluted
    
    $
    (1.07
    )
    
    $
    (0.69
    )
    
    $
    (1.41
    )Weighted average common shares outstanding 
basic and diluted
    
    
    35,544
    
    
    
    32,936
    
    
    
    28,137
  40




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##### Table of Contents



SIPEX CORPORATION
 
 CONSOLIDATED STATEMENTS OF STOCKHOLDERS EQUITY AND COMPREHENSIVE INCOME (LOSS)
  Common Stock
    
    
    
    
    
    
    
    
    
    
    AccumulatedOther
    
    
    TotalNumber of
    
    
    
    
    
    
    Additional Paid-
    
    
    Accumulated
    
    
    Comprehensive
    
    
    Stockholders'Shares
    
    
    $0.01 Par Value
    
    
    in Capital
    
    
    Deficit
    
    
    Income (Loss)
    
    
    EquityBalances at December 31, 2002
    
    
    28,031
    
    
    $
    280
    
    
    $
    175,489
    
    
    $
    (101,179
    )
    
    $
    (70
    )
    
    $
    74,520Net loss
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (39,807
    )
    
    
    
    
    
    
    (39,807
    )Foreign currency translation adjustments
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    63
    
    
    
    63Comprehensive loss
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (39,744
    )Issuance of common stock under stock option
plans
    
    
    272
    
    
    
    3
    
    
    
    1,289
    
    
    
    
    
    
    
    
    
    
    
    1,292Issuance of common stock under stock
purchase plan
    
    
    123
    
    
    
    1
    
    
    
    359
    
    
    
    
    
    
    
    
    
    
    
    360Fair value of debt conversion rights
    
    
    
    
    
    
    
    
    
    
    17,542
    
    
    
    
    
    
    
    
    
    
    
    17,542Compensation from acceleration of stock
option vesting
    
    
    
    
    
    
    
    
    
    
    61
    
    
    
    
    
    
    
    
    
    
    
    61Consulting services provided by related
party (see Note 2)
    
    
    
    
    
    
    
    
    
    
    202
    
    
    
    
    
    
    
    
    
    
    
    202Balances at December 31, 2003
    
    
    28,426
    
    
    
    284
    
    
    
    194,942
    
    
    
    (140,986
    )
    
    
    (7
    )
    
    
    54,233Net loss
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (22,748
    )
    
    
    
    
    
    
    (22,748
    )Foreign currency translation adjustments
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (12
    )
    
    
    (12
    )Comprehensive loss
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (22,760
    )Issuance of common stock under stock option
plans
    
    
    1,377
    
    
    
    14
    
    
    
    4,230
    
    
    
    
    
    
    
    
    
    
    
    4,244Issuance of common stock under stock
purchase plan
    
    
    91
    
    
    
    1
    
    
    
    425
    
    
    
    
    
    
    
    
    
    
    
    426Issuance of common stock on conversion of
notes
payable, net of discount and issuance costs
    
    
    4,600
    
    
    
    46
    
    
    
    21,089
    
    
    
    
    
    
    
    
    
    
    
    21,135Issuance of common stock on exercise of
warrants
    
    
    900
    
    
    
    9
    
    
    
    2,642
    
    
    
    
    
    
    
    
    
    
    
    2,651Compensation from acceleration of stock
option vesting
    
    
    
    
    
    
    
    
    
    
    44
    
    
    
    
    
    
    
    
    
    
    
    44Other stock compensation expense
    
    
    
    
    
    
    
    
    
    
    7
    
    
    
    
    
    
    
    
    
    
    
    7Consulting services provided by related
party (see Note 2)
    
    
    
    
    
    
    
    
    
    
    100
    
    
    
    
    
    
    
    
    
    
    
    100Balances at January 1, 2005
    
    
    35,394
    
    
    
    354
    
    
    
    223,479
    
    
    
    (163,734
    )
    
    
    (19
    )
    
    
    60,080Net loss and comprehensive loss
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (38,107
    )
    
    
    
    
    
    
    (38,107
    )Issuance of common stock under stock option
plans
    
    
    156
    
    
    
    1
    
    
    
    461
    
    
    
    
    
    
    
    
    
    
    
    462Compensation from acceleration of stock
option vesting
    
    
    
    
    
    
    
    
    
    
    60
    
    
    
    
    
    
    
    
    
    
    
    60Other stock compensation expense
    
    
    
    
    
    
    
    
    
    
    9
    
    
    
    
    
    
    
    
    
    
    
    9Consulting services provided by related
party (see Note 2)
    
    
    
    
    
    
    
    
    
    
    17
    
    
    
    
    
    
    
    
    
    
    
    17Balances at December 31, 2005
    
    
    35,550
    
    
    $
    355
    
    
    $
    224,026
    
    
    $
    (201,841
    )
    
    $
    (19
    )
    
    $
    22,521
  41




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##### Table of Contents



SIPEX CORPORATION
 
 CONSOLIDATED STATEMENTS OF CASH FLOWS
 Years EndedDecember 31, 2005
    
    
    January 1, 2005
    
    
    December 31, 2003Operating activities:Net loss
    
    $
    (38,107
    )
    
    $
    (22,748
    )
    
    $
    (39,807
    )Adjustments to reconcile net loss to net cash used in
operating activities:Fair value of debt conversion rights
    
    
    
    
    
    
    
    
    
    
    14,131Stock compensation expense
    
    
    69
    
    
    
    51
    
    
    
    61Depreciation and amortization
    
    
    10,952
    
    
    
    6,559
    
    
    
    7,587Provision for inventories
    
    
    5,031
    
    
    
    8,628
    
    
    
    2,948Provision for restructuring charges
    
    
    577
    
    
    
    1,798
    
    
    
    713Forgiveness of interest on notes payable
    
    
    
    
    
    
    
    
    
    
    411Loss on disposal of fixed assets
    
    
    39
    
    
    
    
    
    
    
    1,144Impairment of fixed assets
    
    
    9,377
    
    
    
    
    
    
    
    Amortization of discount and issuance costs on notes payable
    
    
    
    
    
    
    57
    
    
    
    360Provision for uncollectible receivables and sales returns
and allowances
    
    
    1,484
    
    
    
    1,323
    
    
    
    157Consulting services provided by related party
    
    
    17
    
    
    
    100
    
    
    
    202Changes in assets and liabilities:Accounts receivable
    
    
    1,678
    
    
    
    (863
    )
    
    
    (3,247
    )Inventories
    
    
    (5,290
    )
    
    
    (5,365
    )
    
    
    (4,959
    )Prepaid expenses and other current assets
    
    
    83
    
    
    
    115
    
    
    
    1,948Other assets
    
    
    261
    
    
    
    (278
    )
    
    
    (44
    )Accounts payable
    
    
    (3,444
    )
    
    
    391
    
    
    
    2,256Accrued expenses
    
    
    1,427
    
    
    
    1,374
    
    
    
    1,063Accrued restructuring costs
    
    
    (433
    )
    
    
    (608
    )
    
    
    (535
    )Deferred income
    
    
    (1,191
    )
    
    
    620
    
    
    
    7,405Other long-term liabilities
    
    
    24
    
    
    
    (21
    )
    
    
    34Net cash used in operating activities
    
    
    (17,446
    )
    
    
    (8,867
    )
    
    
    (8,172
    )Investing activities:Proceeds from maturity of short-term investment securities
    
    
    850
    
    
    
    9,000
    
    
    
    19,000Purchase of short-term investment securities
    
    
    (601
    )
    
    
    (6,255
    )
    
    
    (12,014
    )Purchase of property, plant, and equipment
    
    
    (878
    )
    
    
    (1,921
    )
    
    
    (2,024
    )Proceeds from sale of machinery and equipment
    
    
    
    
    
    
    20
    
    
    
    Restricted cash  decrease (increase)
    
    
    838
    
    
    
    (1,838
    )
    
    
    Net cash provided by (used in) investing activities
    
    
    209
    
    
    
    (994
    )
    
    
    4,962Financing activities:Proceeds from issuance of common stock under employee stock
plans
    
    
    683
    
    
    
    4,449
    
    
    
    1,652Net proceeds from issuance of note payable and related
warrants
    
    
    
    
    
    
    
    
    
    
    10,344Proceeds from exercise of warrants
    
    
    
    
    
    
    2,651
    
    
    
    Legal fees for conversion of convertible debt to common stock
    
    
    
    
    
    
    (42
    )
    
    
    Proceeds from acceleration of conversion rights
    
    
    
    
    
    
    
    
    
    
    3,000Proceeds from short-term borrowing
    
    
    3,000
    
    
    
    
    
    
    
    Net cash provided by financing activities
    
    
    3,683
    
    
    
    7,058
    
    
    
    14,996Effect of foreign currency exchange rate changes on cash and
cash equivalents
    
    
    
    
    
    
    (12
    )
    
    
    63Increase (decrease) in cash and cash equivalents
    
    
    (13,554
    )
    
    
    (2,815
    )
    
    
    11,849Cash and cash equivalents at beginning of period
    
    
    15,523
    
    
    
    18,338
    
    
    
    6,489Cash and cash equivalents at end of period
    
    $
    1,969
    
    
    $
    15,523
    
    
    $
    18,338Supplemental cash flow information:Cash paid during the period for:Income taxes
    
    $
    48
    
    
    $
    13
    
    
    $
    143Interest
    
    $
    
    
    
    $
    5
    
    
    $
    522Supplemental disclosure of non-cash investing and financing activities:Purchase of property, plant and equipment not paid at end of
period
    
    $
    88
    
    
    $
    113
    
    
    $
    993Conversion of convertible debt to common stock
    
    $
    
    
    
    $
    21,177
    
    
    $
    Receivable from exercise of stock options
    
    $
    
    
    
    $
    221
    
    
    $
    
  42




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##### Table of Contents



SIPEX CORPORATION
 
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 Note 1. Description of Business
    Note 2. Summary of Significant Accounting Policies
 Basis of Presentation
    Revenue Recognition
   43




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##### Table of Contents



Research and Development
  Net Loss Per Share
  44




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##### Table of Contents



2005
    
    2004
    
    2003Weighted average common shares outstanding  basic
    
    
    35,544
    
    
    
    32,936
    
    
    
    28,137Net effect of dilutive potential common shares outstanding based
on the treasury stock method using the average
market price
    
    
    
    
    
    
    
    
    
    
    Weighted average common shares outstanding  diluted
    
    
    35,544
    
    
    
    32,936
    
    
    
    28,137
  December 31, 2005
    
    January 1, 2005
    
    December 31, 2003Option shares outstanding
    
    
    6,517
    
    
    
    5,452
    
    
    
    6,570Weighted average
exercise price of option
shares outstanding
    
    $
    2.87
    
    
    $
    5.98
    
    
    $
    5.51Convertible note of
$12.0 million issued on
September 27, 2002
(conversion price at
$7.50)
    
    
    
    
    
    
    
    
    
    
    1,600Convertible note of
$10.6 million issued on
June 20, 2003
(conversion price at
$3.52)
    
    
    
    
    
    
    
    
    
    
    3,000Warrants issued on
September 27, 2002
(exercise price at
$2.9458)
    
    
    
    
    
    
    
    
    
    
    900
 Concentration of Credit Risk
  Concentration of Other Risks
  Fair Values of Financial Assets and Financial Liabilities
  Short-term Investments
  45




---



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Inventories
  Valuation of Inventories
  Related Parties
     46




---



##### Table of Contents



Employee Advances
  47




---



##### Table of Contents



Property, Plant and Equipment
  Useful LivesBuilding and improvements
    
    30 years (see Note 5)Machinery and equipment
    
    3-10 years (see Note 3)Furniture, fixtures and office equipment
    
    3-7 yearsLeasehold improvements
    
    Lesser of 10 years or lease term
 Restricted Cash
  Impairment of Long-Lived Assets and Long-Lived Assets to be Disposed of
  Foreign Currency Translation
  Income Taxes
  Stock-Based Compensation
  48




---



##### Table of Contents



2005
    
    
    2004
    
    
    2003Net loss as reported
    
    $
    (38,107
    )
    
    $
    (22,748
    )
    
    $
    (39,807
    )Add employee stock-based compensation expense from accelerated
stock option vesting and other employee stock option compensation
included in reported net loss
    
    
    60
    
    
    
    51
    
    
    
    61Less employee stock-based compensation expense determined
under fair value method
    
    
    (5,107
    )
    
    
    (7,969
    )
    
    
    (6,371
    )Pro forma net loss
    
    $
    (43,154
    )
    
    $
    (30,666
    )
    
    $
    (46,117
    )Net loss per shareBasic and diluted  as reported
    
    
    (1.07
    )
    
    
    (0.69
    )
    
    
    (1.41
    )Basic and diluted  pro forma
    
    
    (1.21
    )
    
    
    (0.93
    )
    
    
    (1.64
    )
   2005
    
    2004
    
    2003Expected life of options
    
    4 years
    
    4 years
    
    5 yearsVolatility
    
    
    86
    %
    
    
    61
    %
    
    
    100
    %Risk-free interest rate
    
    
    3.9
    %
    
    
    3.4
    %
    
    
    3.0
    %Dividend yield
    
    
    
    
    
    
    
    
    
    
    
   2004
    
    2003Expected life of options
    
    0.5 year
    
    0.5 yearVolatility:First purchase period
    
    
    61
    %
    
    
    115
    %Second purchase period
    
    
    60
    %
    
    
    75
    %Risk-free interest rate
    
    
    2.0
    %
    
    
    1.0
    %Dividend yield
    
    
    
    
    
    
    
  Effect of Recent Accounting Pronouncements
  49




---



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50




---



##### Table of Contents



51




---



##### Table of Contents



Note 3. Restructuring and Impairment of Fixed Assets
  TotalEmployee
    
    
    Restructuring
    
    
    Fixed AssetFacility
    
    
    Costs
    
    
    Costs
    
    
    ImpairmentAccrual balance, December 31, 2002
    
    $
    
    
    
    $
    755
    
    
    $
    755
    
    
    $
    Incurred in 2003
    
    
    1,043
    
    
    
    
    
    
    
    1,043
    
    
    
    Charges utilized
    
    
    (110
    )
    
    
    (425
    )
    
    
    (535
    )
    
    
    Deferred rent adjustment
    
    
    137
    
    
    
    
    
    
    
    137
    
    
    
    Adjustments to accrual
    
    
    
    
    
    
    (330
    )
    
    
    (330
    )
    
    
    Accrual balance, December 31, 2003
    
    
    1,070
    
    
    
    
    
    
    
    1,070
    
    
    
    Incurred in 2004
    
    
    1,826
    
    
    
    32
    
    
    
    1,858
    
    
    
    Charges utilized
    
    
    (1,004
    )
    
    
    (32
    )
    
    
    (1,036
    )
    
    
    Deferred rent adjustment
    
    
    15
    
    
    
    
    
    
    
    15
    
    
    
    Adjustments to accrual
    
    
    (60
    )
    
    
    
    
    
    
    (60
    )
    
    
    Accrual balance, January 1, 2005
    
    
    1,847
    
    
    
    
    
    
    
    1,847
    
    
    
    Incurred in 2005
    
    
    105
    
    
    
    766
    
    
    
    871
    
    
    
    9,377Charges utilized
    
    
    (726
    )
    
    
    
    
    
    
    (726
    )
    
    
    (9,377
    )Sub-lease income received
    
    
    293
    
    
    
    
    
    
    
    293
    
    
    
    Adjustments to accrual
    
    
    (264
    )
    
    
    (30
    )
    
    
    (294
    )
    
    
    Accrual balance, December 31, 2005
    
    $
    1,255
    
    
    $
    736
    
    
    $
    1,991
    
    
    $
    
 Restructuring
     52




---



##### Table of Contents



Impairment
  Note 4. Inventories
  2005
    
    
    2004Raw materials
    
    $
    223
    
    
    $
    482Work-in-process
    
    
    10,297
    
    
    
    9,512Finished goods
    
    
    2,880
    
    
    
    3,147$
    13,400
    
    
    $
    13,141
 Note 5. Property, Plant and Equipment
  2005
    
    
    2004Land
    
    $
    5,957
    
    
    $
    5,957Building and improvements
    
    
    23,614
    
    
    
    25,641Machinery and equipment
    
    
    13,503
    
    
    
    35,068Furniture, fixtures and office equipment
    
    
    6,926
    
    
    
    10,145Leasehold improvements
    
    
    326
    
    
    
    40050,326
    
    
    
    77,211Less accumulated depreciation and amortization
    
    
    24,523
    
    
    
    31,893$
    25,803
    
    
    $
    45,318
  53




---



##### Table of Contents



Note 6. Accrued Expenses
  2005
    
    
    2004Accrued compensation and benefits
    
    $
    2,959
    
    
    $
    2,177Accrued audit fees
    
    
    2,607
    
    
    
    1,643Accrued royalties
    
    
    185
    
    
    
    711Accrued commissions
    
    
    309
    
    
    
    318Accrued warranty
    
    
    87
    
    
    
    228Accrued legal fees
    
    
    365
    
    
    
    158Other
    
    
    770
    
    
    
    620$
    7,282
    
    
    $
    5,855
 Note 7. Short-Term Borrowing
    Note 8. Income Taxes
  2005
    
    
    2004
    
    
    2003Domestic
    
    $
    (37,910
    )
    
    $
    (23,019
    )
    
    $
    (39,583
    )Foreign
    
    
    (5
    )
    
    
    138
    
    
    
    94Loss before income
tax expense
(benefit)
    
    $
    (37,915
    )
    
    $
    (22,881
    )
    
    $
    (39,489
    )
 54




---



##### Table of Contents



2005
    
    
    2004
    
    
    2003Deferred
    
    
    Current
    
    
    Total
    
    
    Deferred
    
    
    Current
    
    
    Total
    
    
    Deferred
    
    
    Current
    
    
    TotalFederal
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    State
    
    
    
    
    
    
    4
    
    
    
    4
    
    
    
    
    
    
    
    (14
    )
    
    $
    (14
    )
    
    
    
    
    
    
    16
    
    
    $
    16Foreign
    
    
    
    
    
    
    188
    
    
    
    188
    
    
    
    
    
    
    
    (119
    )
    
    $
    (119
    )
    
    
    
    
    
    
    302
    
    
    $
    302Income tax
expense (benefit)
    
    $
    
    
    
    $
    192
    
    
    $
    192
    
    
    $
    
    
    
    $
    (133
    )
    
    $
    (133
    )
    
    $
    
    
    
    $
    318
    
    
    $
    318
  2005
    
    
    2004
    
    
    2003Tax benefit at statutory rate
    
    $
    (13,270
    )
    
    $
    (8,008
    )
    
    $
    (13,821
    )State income tax, net of federal income tax expense (benefit)
    
    
    4
    
    
    
    (14
    )
    
    
    16Non-deductible expenses
    
    
    40
    
    
    
    39
    
    
    
    4,959Foreign taxes on branch income and tax rate differential
    
    
    188
    
    
    
    (119
    )
    
    
    302Tax credits
    
    
    (928
    )
    
    
    (491
    )
    
    
    (633
    )Losses not benefited/change in valuation allowance
    
    
    14,158
    
    
    
    8,460
    
    
    
    9,495Actual tax expense (benefit)
    
    $
    192
    
    
    $
    (133
    )
    
    $
    318
  2005
    
    
    2004Current deferred tax assets:Inventories, primarily write-downs not currently deductible
    
    $
    5,049
    
    
    $
    4,497Accounts receivable
    
    
    503
    
    
    
    648Deferred revenue
    
    
    3,064
    
    
    
    3,632Accrued expenses and reserves not currently deductible
    
    
    2,659
    
    
    
    2,170Total current deferred tax assets before valuation allowance
    
    
    11,275
    
    
    
    10,947Valuation allowance  current
    
    
    (11,275
    )
    
    
    (10,947
    )Noncurrent deferred tax assets:Net operating loss carryforwards
    
    
    63,468
    
    
    
    58,015Tax credit carryforwards
    
    
    5,232
    
    
    
    4,305Total noncurrent deferred tax assets before valuation allowance
    
    
    68,700
    
    
    
    62,320Valuation allowance  noncurrent
    
    
    (67,810
    )
    
    
    (54,824
    )Deferred tax liabilities:Fixed assets, due to differences in depreciation
    
    
    (890
    )
    
    
    (7,496
    )Net deferred tax assets
    
    $
    
    
    
    $
    
  55




---



##### Table of Contents



Note 9. Stockholders Equity
    56




---



##### Table of Contents



57




---



##### Table of Contents



2005
    
    
    2004
    
    
    2003Weighted
    
    
    
    
    
    
    Weighted
    
    
    
    
    
    
    WeightedAverage
    
    
    
    
    
    
    Average
    
    
    
    
    
    
    AverageExercise
    
    
    
    
    
    
    Exercise
    
    
    
    
    
    
    ExerciseShares
    
    
    Price
    
    
    Shares
    
    
    Price
    
    
    Shares
    
    
    PriceOutstanding at beginning of year
    
    
    5,452
    
    
    $
    5.98
    
    
    
    6,570
    
    
    $
    5.51
    
    
    
    6,458
    
    
    $
    7.35Granted
    
    
    2,817
    
    
    
    1.85
    
    
    
    1,645
    
    
    
    5.65
    
    
    
    2,335
    
    
    
    5.22Exercised
    
    
    (156
    )
    
    
    2.96
    
    
    
    (1,377
    )
    
    
    3.08
    
    
    
    (272
    )
    
    
    4.72Forfeited
    
    
    (1,596
    )
    
    
    5.07
    
    
    
    (1,386
    )
    
    
    6.22
    
    
    
    (1,951
    )
    
    
    11.37Outstanding at end of year
    
    
    6,517
    
    
    $
    2.87
    
    
    
    5,452
    
    
    $
    5.98
    
    
    
    6,570
    
    
    $
    5.51Options exercisable at year-end
    
    
    2,599
    
    
    $
    3.63
    
    
    
    2,322
    
    
    $
    6.44
    
    
    
    1,908
    
    
    $
    6.83Weighted average fair value
of options granted
    
    
    
    
    
    $
    1.15
    
    
    
    
    
    
    $
    2.88
    
    
    
    
    
    
    $
    3.83
  Options Outstanding
    
    
    Options ExercisableWeightedAverage
    
    
    Weighted
    
    
    
    
    
    
    WeightedRemaining
    
    
    Average
    
    
    
    
    
    
    AverageRange of
    
    
    Number of
    
    
    Contractual
    
    
    Exercise
    
    
    Number of
    
    
    ExerciseExercise Prices
    
    
    Shares
    
    
    Life
    
    
    Price
    
    
    Shares
    
    
    Price$
    1.00
    -
    $
    1.68
    
    
    
    700
    
    
    8.62 years
    
    $
    1.44
    
    
    
    236
    
    
    $
    1.18$
    1.70
    -
    $
    1.70
    
    
    
    1,306
    
    
    8.86 years
    
    $
    1.70
    
    
    
    303
    
    
    $
    1.70$
    1.72
    -
    $
    1.88
    
    
    
    475
    
    
    9.71 years
    
    $
    1.78
    
    
    
    205
    
    
    $
    1.79$
    1.90
    -
    $
    1.90
    
    
    
    2,391
    
    
    7.35 years
    
    $
    1.90
    
    
    
    1,222
    
    
    $
    1.90$
    1.91
    -
    $
    4.40
    
    
    
    681
    
    
    9.46 years
    
    $
    2.44
    
    
    
    53
    
    
    $
    4.30$
    4.46
    -
    $
    8.65
    
    
    
    701
    
    
    8.28 years
    
    $
    6.36
    
    
    
    377
    
    
    $
    6.15$
    8.68
    -
    $
    21.25
    
    
    
    216
    
    
    5.54 years
    
    $
    12.14
    
    
    
    156
    
    
    $
    13.34$
    21.50
    -
    $
    21.50
    
    
    
    3
    
    
    2.55 years
    
    $
    21.50
    
    
    
    3
    
    
    $
    21.50$
    28.31
    -
    $
    28.31
    
    
    
    15
    
    
    4.55 years
    
    $
    28.31
    
    
    
    15
    
    
    $
    28.31$
    28.75
    -
    $
    28.75
    
    
    
    29
    
    
    4.59 years
    
    $
    28.75
    
    
    
    29
    
    
    $
    28.756,517
    
    
    8.20 years
    
    $
    2.87
    
    
    
    2,599
    
    
    $
    3.63
 Note 10. Accrued Warranty
   2005
    
    
    2004Beginning balance
    
    $
    228
    
    
    $
    195Warranty claims
    
    
    (60
    )
    
    
    (192
    )Accruals for the period
    
    
    (81
    )
    
    
    225Ending balance
    
    $
    87
    
    
    $
    228
 Note 11. Employee Benefit Plan
  58




---



##### Table of Contents



Note 12. Commitments and Contingencies
   Year Ending2006
    
    $
    1,1052007
    
    
    9172008
    
    
    3302009
    
    
    2222010
    
    
    12Total
    
    $
    2,586
    Legal Proceedings
  Class Action Securities Litigation
   59




---



##### Table of Contents



Stockholder
Derivative Litigation
     Government Investigation
  DiPietro v. Sipex
  60




---



##### Table of Contents



Other Contingencies
  Note 13. Valuation and Qualifying Accounts
  SalesReturns and
    
    
    Bad Debt
    
    
    Total A/RAllowances
    
    
    Reserves
    
    
    AllowancesBalances at December 31, 2002
    
    $
    653
    
    
    $
    292
    
    
    $
    945Provisions
    
    
    249
    
    
    
    (92
    )
    
    
    157Deductions
    
    
    (759
    )
    
    
    
    
    
    
    (759
    )Balances at December 31, 2003
    
    
    143
    
    
    
    200
    
    
    
    343Provisions
    
    
    1,355
    
    
    
    (32
    )
    
    
    1,323Charged to other account
    
    
    350
    
    
    
    
    
    
    
    350Deductions
    
    
    (489
    )
    
    
    (113
    )
    
    
    (602
    )Balances at January 1, 2005
    
    
    1,359
    
    
    
    55
    
    
    
    1,414Provisions
    
    
    1,173
    
    
    
    311
    
    
    
    1,484Charged to other account
    
    
    53
    
    
    
    
    
    
    
    53Deductions
    
    
    (1,485
    )
    
    
    (117
    )
    
    
    (1,602
    )Balances at December 31, 2005
    
    $
    1,100
    
    
    $
    249
    
    
    $
    1,349
  Note 14. Segment Information and Major Customers
  61




---



##### Table of Contents



2005
    
    
    2004
    
    
    2003Interface
    
    $
    38,477
    
    
    $
    39,622
    
    
    $
    16,589Power Management
    
    
    19,027
    
    
    
    21,223
    
    
    
    9,731Optical Storage
    
    
    14,620
    
    
    
    13,824
    
    
    
    7,674Other*
    
    
    550
    
    
    
    784
    
    
    
    2,541Total net sales
    
    $
    72,674
    
    
    $
    75,453
    
    
    $
    36,535
 
 *
    
    Mainly Legacy and other discontinued products.   2005
    
    
    2004
    
    
    2003Japan
    
    $
    16,859
    
    
    $
    18,520
    
    
    $
    10,129United States
    
    
    14,704
    
    
    
    15,203
    
    
    
    5,214United Kingdom
    
    
    11,137
    
    
    
    9,220
    
    
    
    2,080Singapore
    
    
    9,381
    
    
    
    9,391
    
    
    
    2,814China
    
    
    8,606
    
    
    
    7,085
    
    
    
    4,367Taiwan
    
    
    6,253
    
    
    
    8,654
    
    
    
    5,783Asia, other than Japan, Taiwan, Singapore, and China
    
    
    1,604
    
    
    
    1,997
    
    
    
    1,126France
    
    
    1,421
    
    
    
    2,473
    
    
    
    1,217Germany
    
    
    1,413
    
    
    
    1,550
    
    
    
    1,615Rest of the World
    
    
    1,296
    
    
    
    1,360
    
    
    
    2,190Total net sales
    
    $
    72,674
    
    
    $
    75,453
    
    
    $
    36,535
  2005
    
    2004Future Electronics Inc., a related party
    
    
    44
    %
    
    
    23
    %Microtek, Inc.
    
    

    
    *
    
    
    23
    %
 
 *
    
    Less than 10%  2005
    
    2004
    
    2003Future Electronics Inc., a related party
    
    
    44
    %
    
    
    39
    %
    
    
    21
    %Microtek, Inc.
    
    
    10
    %
    
    
    17
    %
    
    
    22
    %
 62




---



##### Table of Contents



Note 15. Quarterly Data ( Unaudited)
  Quarters EndedDecember 31, 2005
    
    October 1, 2005
    
    July 2, 2005
    
    April 2, 2005(in thousands, except per share data)Fiscal 2005Net sales
    
    $
    17,242
    
    
    $
    17,373
    
    
    $
    18,332
    
    
    $
    19,727Gross profit
    
    
    501
    (2)
    
    
    4,626
    
    
    
    3,245
    
    
    
    5,377Net loss
    
    
    (11,693
    )(2)
    
    
    (5,161
    )
    
    
    (16,211
    )(1)
    
    
    (5,042
    )Net loss per common share  basic
and diluted
    
    
    (0.33
    )
    
    
    (0.15
    )
    
    
    (0.46
    )
    
    
    (0.14
    )
 Quarters EndedJanuary 1, 2005
    
    October 2, 2004
    
    July 3, 2004
    
    April 3, 2004(in thousands, except per share data)Fiscal 2004Net sales
    
    $
    20,598
    
    
    $
    20,195
    
    
    $
    16,509
    
    
    $
    18,151Gross profit (loss)
    
    
    (409
    )
    
    
    4,771
    
    
    
    4,355
    
    
    
    3,079Net loss
    
    
    (9,744
    )
    
    
    (4,625
    )
    
    
    (3,137
    )
    
    
    (5,242
    )Net loss per common share  basic
and diluted
    
    
    (0.28
    )
    
    
    (0.14
    )
    
    
    (0.09
    )
    
    
    (0.17
    )
 
 (1)
    
    As described in Note 3, in the second quarter of 2005, the Company recognized a $9.4
million impairment charge for its long-lived assets, based upon changes in the planned use
for its wafer fabrication assets.(2)
    
    As described in Note 5, in the fourth quarter of 2005, the Company reduced the
remaining estimated depreciation life for its headquarters building and related
improvements from 25 years to approximately four months based upon its decision to sell
the facility, resulting in an increase in depreciation expense of $6.5 million (including
$4.3 million included in cost of sales). Note 16. Subsequent Events
     63




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64




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##### Table of Contents



Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure:
  65




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##### Table of Contents



Item 9A. Controls and Procedures:
 Evaluation of Disclosure Controls and Procedures for year ended December 31, 2005
   Internal Control over Financial Reporting
  66




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##### Table of Contents



Changes in Internal Control over Financial Reporting
   
    
    Our new CEO, Ralph Schmitt, was hired in June 2005;
    
    We implemented annual ethics training for all employees and we have engaged a
compliance firm to ensure that all employees read, understand and confirm critical
accounting and ethics policies. All employees must now annually reaffirm our Code of
Conduct, legal compliance policy and whistleblower procedures;
    
    We increased management oversight by expanding our disclosure process to include all
senior managers and sales and marketing personnel with responsibility for responding to
issues raised during the financial reporting process and we require certifications from
all executive management and key sales and marketing personnel;
    
    Our key financial managers made periodic visits to our distributors to emphasize the
terms of the distribution agreements and the revenue reporting requirements of Sipex as a
public company;
    
    We adopted sell-through revenue recognition for our sales to distributors. As part of
this adoption, we have engaged an outside company to conduct inventory cycle counts on a
rotating basis at all of our distributors warehouses to verify quantities. In addition,
the distributors have been advised that the terms of the distribution agreement are
binding and any changes to those terms must be approved in writing by both our CEO and CFO. Finally, we implemented more stringent policies and procedures regarding revenue
accounting and oversight of contractual arrangements by requiring the review and approval
from our CEO and CFO on non-standard sales terms and conditions of a significant nature;
    
    We implemented a process for formal revenue recognition training sessions for key
finance, sales and marketing personnel;
 67




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##### Table of Contents




    
    We improved the documentation, communication and periodic review of our accounting
policies throughout our domestic and international locations for consistency and
compliance with generally accepted accounting principles;
    
    We enhanced the training and education for our international finance and accounting
personnel and new hire additions to the worldwide finance team; and
    
    We re-engineered the sales administration function so that all finance-related
activities are performed by the finance staff. The finance department assumed
responsibility for the customer credit issuance and tracking process and the external
sales representative commission calculation.
  
    
    We conducted a formal review of the foreign locations in which we are doing
business, evaluated the appropriate and necessary legal and tax structure for these
foreign locations and then implemented such structure and the related internal controls
to ensure compliance with local laws and regulations.
 Inherent Limitation on the Effectiveness of Internal Controls
  
 Item 9B. Other Information
  
 PART III
 
 Item 10. Directors and Executive Officers of the Registrant:
   Nominee or Directors Name andYear Nominee or Director First
    
    
    
    
    
    Year Term Will
    
    Class ofBecame a Director
    
    Age
    
    Position(s) Held
    
    Expire
    
    DirectorCONTINUING DIRECTORS:Joseph Consoli (2002)
    
    62
    
    Director
    
    2005
    
    IIIDouglas M. McBurnie (2000)
    
    63
    
    Director
    
    2006
    
    IThomas P. Redfern (2003)
    
    66
    
    Director
    
    2006
    
    IRalph Schmitt (2005)
    
    45
    
    Director
    
    2005
    
    IIIJohn D. Arnold (2004)
    
    52
    
    Director
    
    2007
    
    IIBrian Hilton (2004)
    
    63
    
    Chairman of the Board
    
    2007
    
    IILionel H. Olmer (1988)
    
    71
    
    Director
    
    2007
    
    II
 68




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##### Table of Contents



Mr. Consoli
 Mr. Redfern
 Mr. McBurnie
 Mr. Olmer
 Mr. Arnold
 Mr. Hilton
 Mr. Schmitt
  69




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##### Table of Contents



Board of Directors Committees
 www.sipex.com
 Compensation Committee
  Corporate Governance and Nominating Committees
  Audit Committee
    Section 16(a) Beneficial Ownership Reporting Compliance
  Code of Business Conduct and Ethics
  
 Item 11. Executive Compensation
  70




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##### Table of Contents



Long TermCompensation -SecuritiesFiscal
    
    Annual Compensation
    
    Underlying Options
    
    All Other CompensationName and Principal Position
    
    Year
    
    Salary
    
    Bonus (2)
    
    (1)
    
    (3)Ralph Schmitt (4)
    
    
    2005
    
    
    $
    200,000
    
    
    $
    65,000
    
    
    
    1,000,000
    
    
    $
    7,288Chief Executive Officer and President
    
    
    2004
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    2003
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Douglas McBurnie (5)
    
    
    2005
    
    
    $
    199,032
    
    
    
    
    
    
    
    10,000
    
    
    $
    19,454Acting Chief Executive
    
    
    2004
    
    
    $
    20,192
    
    
    
    
    
    
    
    107,500
    
    
    $
    21,542Officer and President
    
    
    2003
    
    
    
    
    
    
    
    
    
    
    
    7,500
    
    
    $
    17,500Clyde R. Wallin (6)
    
    
    2005
    
    
    $
    201,442
    
    
    $
    52,000
    
    
    
    200,000
    
    
    $
    12,359Senior Vice President of Finance and
Chief Financial Officer
    
    
    2004
    
    
    $
    138,671
    
    
    
    
    
    
    
    50,000
    
    
    $
    3,7232003
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Richard Hawron (7)
    
    
    2005
    
    
    $
    315,021
    
    
    
    
    
    
    
    150,000
    
    
    $
    101,848Senior Vice President of Worldwide
Sales
    
    
    2004
    
    
    $
    77,884
    
    
    
    
    
    
    
    100,000
    
    
    $
    38,1792003
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Lee E. Cleveland(8)
    
    
    2005
    
    
    $
    205,769
    
    
    $
    52,000
    
    
    
    300,000
    
    
    $
    4,000Senior Vice President of Engineering
    
    
    2004
    
    
    $
    203,846
    
    
    
    
    
    
    
    
    
    
    $
    3,1582003
    
    
    $
    60,769
    
    
    
    
    
    
    
    
    
    
    $
    1,575Edward Lam (9)
    
    
    2005
    
    
    $
    77,269
    
    
    $
    37,700
    
    
    
    425,000
    
    
    $
    4,088Senior Vice President of Marketing
and Business Development
    
    
    2004
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    2003
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Joel J. Camarda (10)
    
    
    2005
    
    
    $
    32,538
    
    
    $
    17,600
    
    
    
    250,000
    
    
    $
    1,693Senior Vice President of Operations
    
    
    2004
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    2003
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Joseph Rauschmeyer (11)
    
    
    2005
    
    
    $
    118,497
    
    
    
    
    
    
    
    
    
    
    $
    126,794Senior Vice President of Operations
    
    
    2004
    
    
    $
    234,423
    
    
    
    
    
    
    
    50,000
    
    
    $
    11,7382003
    
    
    $
    230,000
    
    
    
    
    
    
    
    50,000
    
    
    $
    5,288Kevin Plouse (12)
    
    
    2005
    
    
    $
    64,746
    
    
    
    
    
    
    
    
    
    
    $
    4,489Senior Vice President of Business
Development
    
    
    2004
    
    
    $
    224,230
    
    
    
    
    
    
    
    
    
    
    $
    11,8192003
    
    
    $
    220,000
    
    
    
    
    
    
    
    50,000
    
    
    $
    5,244
 
 (1)
    
    We did not grant any restricted stock awards, grant any stock appreciation rights or make any long term
incentive payments during fiscal years 2003, 2004 or 2005.(2)
    
    Bonuses are reported in year earned even if actually paid in subsequent year.(3)
    
    Includes contributions made by us for the Named Executive Officers to our Tax Deferred Savings Plan, insurance
premiums, housing assistance,
severance payments, directors fees, severance payments and directors fees.(4)
    
    Mr. Schmitt joined us in June 2005(5)
    
    Mr. McBurnie assumed the role of Acting President and CEO from December 2004 to August 2005.(6)
    
    Mr. Wallin joined us in April 2004. Includes 200,000 option shares repriced on September 6, 2005. This option
was originally granted on April 5, 2004. See Option Reprice Program and Report of the Board of Directors
on the Option Reprice Program.(7)
    
    Mr. Hawron joined us in February 2004 and received housing assistance in 2005. Includes 50,000 option
shares repriced on September 6, 2005. This option was originally granted on December 17, 2004. See Option
Reprice Program and Report of the Board of Directors on the Option Reprice Program.(8)
    
    Mr. Cleveland joined in September 2002 and was promoted to Senior VP of Engineering in October 2005.
Includes 300,000 option shares repriced on September 6, 2005. These options were originally granted on
September 2, 2003 and December 9, 2004. See Option Reprice Program and Report of the Board of Directors
on the Option Reprice Program.(9)
    
    Mr. Lam joined us in September 2005.(10)
    
    Mr. Camarda joined us in November 2005.(11)
    
    Mr. Rauschmayer joined us in September 2002 and departed in September 2005.(12)
    
    Mr. Plouse joined the Company in September 2002 and departed in April 2005. 71




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Option Grants in Last Fiscal Year
  Number of
    
    Percent of TotalSecurities
    
    Options Granted
    
    
    
    
    
    
    
    
    
    Potential Realizable Value atUnderlying
    
    to Employees in
    
    Exercise or
    
    
    
    
    
    Assumed Annual Rates of StockOptions
    
    Fiscal 2005
    
    Base Price per
    
    Expiration
    
    Price (4)Name
    
    Granted (1)
    
    Year (%)(2)
    
    Share (3)
    
    Date
    
    5%
    
    10%Ralph Schmitt
    
    
    1,000,000
    
    
    
    19.4
    
    
    $
    1.70
    
    
    
    6/27/2015
    
    
    $
    1,069,121
    
    
    $
    2,709,362Douglas McBurnie
    
    
    10,000
    
    
    
    0.2
    
    
    $
    1.88
    
    
    
    7/18/2015
    
    
    $
    11,823
    
    
    $
    29,962Clyde R. Wallin
    
    
    200,000
    (5)
    
    
    3.9
    
    
    $
    1.90
    
    
    
    4/5/2014
    
    
    $
    197,494
    
    
    $
    480,703Richard Hawron
    
    
    100,000
    
    
    
    1.9
    
    
    $
    1.75
    
    
    
    10/19/2015
    
    
    $
    110,057
    
    
    $
    278,90550,000
    (6)
    
    
    1
    
    
    $
    1.90
    
    
    
    12/17/2014
    
    
    $
    54,399
    
    
    $
    135,051Lee E. Cleveland
    
    
    200,000
    (7)
    
    
    3.9
    
    
    $
    1.90
    
    
    
    9/2/2013
    
    
    $
    181,133
    
    
    $
    433,713100,000
    (8)
    
    
    1.9
    
    
    $
    1.90
    
    
    
    12/9/2014
    
    
    $
    108,479
    
    
    $
    269,143Edward M. Lam
    
    
    425,000
    
    
    
    8.2
    
    
    $
    2.00
    
    
    
    9/19/2015
    
    
    $
    534,560
    
    
    $
    1,354,681Joel J. Camarda
    
    
    250,000
    
    
    
    4.8
    
    
    $
    1.68
    
    
    
    11/4/2015
    
    
    $
    264,136
    
    
    $
    669,372
 
 (1)
    
    Unless otherwise noted, these options will vest at a rate of 25% of the
shares subject to the option on the anniversary of the grant date, so that
the option will be fully exercisable four (4) years from the grant date.(2)
    
    A total of 5,163,086 shares were granted to employees (including named
officers) in fiscal year 2005, 2,455,966 of which are the result of an
option reprice program approved by our board of directors on August 29,
2005, repriced on September 6, 2005. See Option Reprice Program and
Report of the board of directors on the Option Reprice Program.
Excluding the effect of the repricing program, the percent of the total
options granted to employees in fiscal 2005 for the named executives would
be as follows; Schmitt 36.9%, McBurnie 0.37%, Wallin 0%, Hawron 3.69%,
Cleveland 0%, Lam 15.7%, Camarda 9.23%, Rauschmeyer 0% and Plouse 0%.(3)
    
    All options were granted at the fair market value on the date of the grant.(4)
    
    Amounts reported in these columns represent amounts that may be realized
upon exercise of the options immediately prior to the expiration of their
term assuming the specified compound rates of appreciation (5% and 10%) on
the market value of our common stock on the date of option grant over the
term of the options. These numbers are calculated based on rules
promulgated by the SEC and do not reflect our estimate of future stock
price growth. Actual gains, if any, on stock option exercises and common
ctock holdings are dependent on the timing of such exercise and the future
performance of our common stock. There can be no assurance that the rates
of appreciation assumed in this table can be achieved or that the amounts
reflected will be received by the individuals.(5)
    
    This option was granted on September 6, 2005 pursuant to an option reprice
program approved by our board of directors on August 29, 2005. All of the
shares subject to this option shall vest at a rate of 25% of the shares
subject to the option on the anniversary of the original grant date, so
that the option will be fully exercisable four (4) years from the original
grant date of April 5, 2004. See Option Reprice Program and Report of
the board of directors on the Option Reprice Program.(6)
    
    This option was granted on September 6, 2005 pursuant to an option reprice
program approved by our board of directors on August 29, 2005. All of the
shares subject to this option shall vest at a rate of 25% of the shares
subject to the option on the anniversary of the original grant date, so
that the option will be fully exercisable four (4) years from the original
grant date of December 17, 2004. See Option Reprice Program and Report
of the board of directors on the Option Reprice Program.(7)
    
    This option was granted on September 6, 2005 pursuant to an option reprice
program approved by our board of directors on August 29, 2005. All of the
shares subject to this option shall vest at a rate of 25% of the shares
subject to the option on the anniversary of the original grant date, so
that the option will be fully exercisable four (4) years from the original
grant date of September 2, 2003. See Option Reprice Program and Report
of the board of directors on the Option Reprice Program.(8)
    
    This option was granted on September 6, 2005 pursuant to an option reprice
program approved by our board of directors on August 29, 2005. All of the
shares subject to this option shall vest at a rate of 25% of the shares
subject to the option on the anniversary of the original grant date, so
that the option will be fully exercisable four (4) years from the original
grant date of December 9, 2004. See Option Reprice Program and Report
of the board of directors on the Option Reprice Program. 72




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Option Exercises and Fiscal Year-End Values
  Shares
    
    
    
    
    
    Number of Securities Underlying Unexercised
    
    Value of Unexercised In-the-Acquired on
    
    Value
    
    Options at Year-End (1)
    
    Money Options at Year-End (2)Name
    
    Exercise
    
    Realized
    
    Exercisable
    
    Unexercisable
    
    Exercisable
    
    UnexercisableRalph Schmitt
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1,000,000
    
    
    
    
    
    
    
    Clyde R. Wallin
    
    
    
    
    
    
    
    
    
    
    62,500
    
    
    
    187,500
    
    
    
    
    
    
    
    Richard Hawron
    
    
    
    
    
    
    
    
    
    
    80,191
    
    
    
    169,809
    
    
    
    
    
    
    
    Lee E. Cleveland
    
    
    
    
    
    
    
    
    
    
    125,000
    
    
    
    175,000
    
    
    
    
    
    
    
    Edward M. Lam
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    425,000
    
    
    
    
    
    
    
    Joel J. Camarda
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    250,000
    
    
    
    
    
    
    
    Joseph T. Rauschmayer
    
    
    
    
    
    
    
    
    
    
    358,854
    
    
    
    
    
    
    
    
    
    
    
    Kevin W. Plouse
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    John D. Arnold
    
    
    
    
    
    
    
    
    
    
    25,000
    
    
    
    30,000
    
    
    
    
    
    
    
    Joseph C. Consoli
    
    
    
    
    
    
    
    
    
    
    43,750
    
    
    
    18,750
    
    
    
    3,150
    
    
    
    1,050Brian Hilton
    
    
    
    
    
    
    
    
    
    
    23,125
    
    
    
    24,375
    
    
    
    
    
    
    
    Douglas McBurnie
    
    
    
    
    
    
    
    
    
    
    241,625
    
    
    
    18,375
    
    
    
    56,000
    
    
    
    Lionel H. Olmer
    
    
    
    
    
    
    
    
    
    
    66,748
    
    
    
    20,250
    
    
    
    
    
    
    
    Thomas P. Redfern
    
    
    
    
    
    
    
    
    
    
    15,625
    
    
    
    24,375
    
    
    
    
    
    
    
    
 
 (1)
    
    Pursuant to stock option agreements, all option shares must be vested to be exercised.(2)
    
    Value is based on the difference between the option exercise price and the
fair market value of our common stock on December 31, 2005, multiplied by the number of
shares underlying the options. 73




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Executive Employment and Severance Agreements
     74




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##### Table of Contents



Option Reprice (Ten Year Option Repricings):
  Market
    
    Exercise
    
    
    
    
    
    Length OfOption/
    
    Value At
    
    Price At
    
    New
    
    Original OptionDate Of
    
    SAR Shares
    
    Time Of
    
    Time Of
    
    Exercise
    
    Term At Time OfName
    
    Repricing
    
    Repriced
    
    Repricing
    
    Repricing
    
    Price
    
    Repricing (9/6/2005)Cleveland, Lee E.
    
    9/6/2005
    
    
    200,000
    
    
    $
    1.9000
    
    
    $
    7.8000
    
    
    $
    1.9000
    
    
    7 Years  361 DaysCleveland, Lee E.
    
    9/6/2005
    
    
    100,000
    
    
    $
    1.9000
    
    
    $
    4.4100
    
    
    $
    1.9000
    
    
    9 Years    94 DaysHawron, Richard
    
    9/6/2005
    
    
    50,000
    
    
    $
    1.9000
    
    
    $
    4.4600
    
    
    $
    1.9000
    
    
    9 Years  102 DaysWallin, Clyde R.
    
    9/6/2005
    
    
    200,000
    
    
    $
    1.9000
    
    
    $
    6.4800
    
    
    $
    1.9000
    
    
    8 Years  211 Days
 Report of the Board on the Option Reprice Program
     
 75




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##### Table of Contents



Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder
Matters:
  Total Amount and Nature ofName and Address of Beneficial Owner (1)
    
    Beneficial Ownership
    
    Percent of ClassAlonim Investments, Inc. (2)
    
    
    16,296,200
    
    
    
    45.8
    %237 Hymus Blvd. Montreal (Pointe-Claire), Quebec H9R 5C7 CanadaKennedy Capital Management, Inc.(3)
    
    
    2,718,967
    
    
    
    7.6
    %10829 Olive Blvd. St. Louis, MO 63141Wasatch Advisors, Inc.(4)
    
    
    1,899,690
    
    
    
    5.3
    %150 Social Hall Avenue, 4th Floor, Salt Lake city, UT 84111Dimensional Fund Advisors(5)
    
    
    1,782,770
    
    
    
    5.0
    %1299 Ocean Avenue, 11th Floor Santa Monica, CA 90401Joseph T. Rauschmayer (6)
    
    
    362,854
    
    
    
    1.01
    %Douglas M. McBurnie (7)
    
    
    261,625
    
    
    
    
    *Lee E. Cleveland (8)
    
    
    141,400
    
    
    
    
    *Richard Hawron (9)
    
    
    125,191
    
    
    
    
    *Clyde R. Wallin (10)
    
    
    112,500
    
    
    
    
    *Lionel H. Olmer (11)
    
    
    70,722
    
    
    
    
    *Joseph C. Consoli (12)
    
    
    48,750
    
    
    
    
    *John D. Arnold (13)
    
    
    41,625
    
    
    
    
    *Brian Hilton (14)
    
    
    28,125
    
    
    
    
    *Thomas P. Redfern (15)
    
    
    20,625
    
    
    
    
    *Kevin W. Plouse (16)
    
    
    15,500
    
    
    
    
    *Ralph Schmitt
    
    
    
    
    
    
    
    *Joel J. Camarda
    
    
    
    
    
    
    
    *Edward M. Lam
    
    
    
    
    
    
    
    *All directors and executive officers as
a group (11 persons)
    
    
    1,228,917
    
    
    
    3.3
    %
 
 *
    
    Less than 1% of Common Stock 76




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##### Table of Contents



(1)
    
    Unless otherwise indicated, to our knowledge, each person listed above has sole voting
and investment power with respect to the shares and maintains a mailing address at:
c/o SIPEX Corporation, 233 South Hillview Drive, Milpitas, CA 95035.(2)
    
    Based solely on information provided in a Schedule 13G/A filed with the SEC
on January 26, 2006, Alonim Investments had sole dispositive power of 16,296,200
shares and sole voting power of 16,296,200 shares.(3)
    
    Based solely on information provided in a Schedule 13G filed with the SEC
on February 14, 2006, Kennedy Capital Management, Inc. had sole dispositive power
of 2,718,967 shares,and sole voting power of 2,718,967 shares.(4)
    
    Based solely on information provided in a Schedule 13G filed with the SEC
on February 14, 2005, Wasatch Advisors, Inc. and had sole dispositive power of
1,899,690 shares, and sole voting power of 1,899,690 shares.(5)
    
    Based solely on information provided in a Schedule 13G/A filed with the SEC
on February 6, 2006, Dimensional Fund Advisors Inc. had sole dispositive power
of 1,782,770 shares and sole voting power of 1,782,770.(6)
    
    Based on information provided in a Form 4 filed with the SEC on May 21, 2004.
Any subsequent transactions were not required to be reported on a Form 4 pursuant
to Section 16b-a of the SEC, and to the best of our knowledge were same-day sale transactions
and did not change the number of shares owned. Also includes 358,854 shares issuable
pursuant to stock options which are exercisable prior to March 1, 2006.(7)
    
    Based on information provided in a Form 4 filed with the SEC on November 4, 2002
Any subsequent transactions were not required to be reported on a Form 4 pursuant to Section 16b-a of the
SEC, and to the best of our knowledge were same-day sale transactions and did not change the number of
shares owned. Also includes 246,625 shares issuable pursuant to stock options which are exercisable prior
to March 1, 2006.(8)
    
    Based on information provided in a Form 4 filed with the SEC on October 1, 2005.
Also includes 125,000 shares issuable pursuant to stock options which are exercisable prior to March 1, 2006.(9)
    
    Based on information provided in a Form 3 filed with the on May 11, 2004. Also includes 105,191 shares issuable pursuant to stock options which are exercisable prior to
March 1, 2006.(10)
    
    Includes 112,500 shares issuable pursuant to stock options which are exercisable prior to March 1, 2006.(11)
    
    Based on information provided in a Form 4 filed with the SEC on September 27, 2000.
Also includes 68,722 shares issuable pursuant to stock options which are exercisable prior to March 1, 2006.(12)
    
    Includes 48,750 shares issuable pursuant to stock options which are exercisable prior to March 1, 2006.(13)
    
    Based on information provided in a Form 4 filed with the SEC on March 2, 2004. Also includes
35,625 shares issuable pursuant to stock options which are exercisable prior to March 1, 2006.(14)
    
    Includes 28,125 shares issuable pursuant to stock options which are exercisable prior to March 2, 2005.(15)
    
    Includes 20,625 shares issuable pursuant to stock options which are exercisable prior to March 2, 2005.(16)
    
    Based on information provided in a Form 4 filed with the SEC on June 14, 2004. Ay subsequent
transactions were not required to be reported on a Form 4 pursuant to Section 16b-a of the SEC, and to the
best of our knowledge were same-day sale transactions and did not change the number of shares owned. 77




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Securities Authorized for Issuance Under Equity Compensation Plans
  (a)
    
    
    (b)
    
    
    (c)Number of securitiesremaining available forNumber of securities to be
    
    
    Weighted-average
    
    
    future issuance underissued upon exercise of
    
    
    exercise price of
    
    
    equity compensation plansoutstanding options,
    
    
    outstanding options,
    
    
    (excluding securitiesPlan Category
    
    warrants and rights
    
    
    warrants and rights
    
    
    reflected in column (a))Equity compensation plans
approved by security holders (1)
    
    
    3,573,846
    
    
    $
    3.76
    
    
    
    709,764Equity compensation plans not
approved by stockholders (1)
    
    
    2,943,274
    
    
    $
    1.78
    
    
    
    Total
    
    
    6,517,120
    
    
    $
    2.87
    
    
    
    709,764
 
 (1)
    
    Pursuant to an option reprice program approved by the board of directors on August 29, 2005, an
aggregate of 2,455,966 option shares outstanding under our 1996, 1997, 2000 and 2002 Plans, as well
as stand alone option agreements were repriced on September 6, 2005 to $1.90 per share to provide
for exercise prices equal to the closing price of our common stock as disclosed on the Pink Sheets
on that date. The terms and conditions of the original option agreements remained unchanged.  2000 Non-Qualified Stock Option Plan
    2002 Nonstatutory Stock Option Plan
  78




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Item 13. Certain Relationships and Related Transactions
 Future Electronics
      79




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80




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Item 14. Principal Accounting Fees and Services
   Deloitte & Touche LLP
    
    2005
    
    
    2004Audit fees (1)
    
    $
    1,911
    
    
    $
    2,384Audit related fees (2)
    
    
    
    
    
    
    Tax fees (3)
    
    
    20
    
    
    
    All other fees (4)
    
    
    129
    
    
    
    7Total
    
    $
    2,060
    
    
    $
    2,391
 
 (1)
    
    Audit fees were for professional services rendered in connection with the audit of our annual
financial statements and the review of our quarterly financial statements.(2)
    
    Deloitte & Touche LLP did not perform any audit related services in 2005 and 2004.(3)
    
    Deloitte & Touche LLP performed tax consulting services in connection with the Silan deal in 2005.(4)
    
    All other fees were for professional services rendered other than audit, audit-related or tax
fees. For 2004, the fees were primarily for a Form S-8 filing. The fees for 2005 primarily related
to our internal investigation. Policy on Audit Committee Pre-Approval of Audit and Permissible Non-Audit Services of Independent
Auditors
  
 PART IV
 
 Item 15. Exhibits, Financial Statement Schedules and Reports on Form 10-K:
  1.
    
    Consolidated
Financial Statements.The following consolidated financial statements of
the Company and Reports of Independent Registered Public Accounting Firm are incorporated in Item
8 of this report.
 
      2.
    
    Consolidated Financial Statement Schedules.Consolidated financial statements
schedules have been omitted because they are either not required or are included in the
consolidated financial statements or the notes thereto.3.
    
    Exhibit: The exhibits listed in the accompanying index to
exhibits are filed or incorporated by reference as part of this
Form 10-K.
 81




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SIGNATURES
  SIPEX CORPORATIONBy:

/s/ RALPH SCHMITTRalph SchmittChief Executive Officer and Director  Name
    
    Title
    
    Date/s/ RALPH SCHMITT

Ralph Schmitt
    
    Chief Executive Officer and Director
(Principal Executive Officer)
    
    August 17, 2006/s/ CLYDE R. WALLIN

Clyde R. Wallin
    
    Chief Financial Officer and
Senior Vice President, Finance,
(Principal Financial and Accounting Officer)
    
    August 17, 2006/s/ JOHN D. ARNOLD

John D. Arnold
    
    Director
    
    August 17, 2006/s/ JOSEPH C. CONSOLI

Joseph C. Consoli
    
    Director
    
    August 17, 2006/s/ BRIAN HILTON

Brian Hilton
    
    Chairman of the Board of Directors
    
    August 17, 2006/s/ DOUGLAS M. MCBURNIE

Douglas M. McBurnie
    
    Director
    
    August 17, 2006/s/ Lionel H. Olmer

Lionel H. Olmer
    
    Director
    
    August 17, 2006/s/ THOMAS  P. REDFERN

Thomas P. Redfern
    
    Director
    
    August 17, 2006
 82




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##### Table of Contents



EXHIBIT INDEX
 ExhibitNumber
    
    Description2.1
    
    Agreement and Plan of Reorganization dated October 21, 1999
by and among the Company, Calogic, CAT Acquisition
Corporation I and the other signatories thereto (previously
filed as Exhibit 2.1 to the Companys Form 8-K filed on
December 8, 1999 and incorporated herein by reference)2.2
    
    Amendment No. 1 to the Agreement and Plan of Reorganization
dated November 23, 1999 by and among the Company, Calogic,
CAT Acquisition Corporation I and the other signatories
thereto (previously filed as Exhibit 2.2 to the Companys
Form 8-K filed on December 8, 1999 and incorporated herein by
reference)3.1
    
    Amended and Restated Certificate of Incorporation
(incorporated herein by reference from the Companys
Registration Statement on Form 8-A filed with the Securities
and Exchange Commission on October 28, 2003)3.2
    
    Bylaws (incorporated herein by reference from the Companys
Registration Statement on Form 8-A filed with the Securities
and Exchange Commission on October 28, 2003)4.2
    
    Form of Indemnification Agreement for directors and officers
(filed as Exhibit 4.2 to the Companys Registration Statement
on Form S-1, File No. 333-1328, and incorporated herein by
reference)10.1**
    
    1988 Non-Statutory Stock Option Plan (filed as Exhibit 10.1
to the Companys Registration Statement on Form S-1, File No.
333-1328, and incorporated herein by reference)10.2**
    
    1991 Non-Statutory Stock Option Plan (filed as Exhibit 10.2
to the Companys Registration Statement on Form S-1, File No.
333-1328, and incorporated herein by reference)10.3**
    
    1993 Stock Option and Incentive Plan (filed as Exhibit 10.3
to the Companys Registration Statement on Form S-1, File No.
333-1328, and incorporated herein by reference)10.4**
    
    1994 Stock Option and Incentive Plan (filed as Exhibit 10.4
to the Companys Registration Statement on Form S-1, File No.
333-1328, and incorporated herein by reference)10.5**
    
    1996 Incentive Stock Option Plan (filed as Exhibit 10.5 to
the Companys Registration Statement on Form S-1, File No.
333-1328, and incorporated herein by reference)10.6
    
    1996 Non-Employee Director Stock Option Plan (filed as
Exhibit 10.6 to the Companys Registration Statement on Form
S-1, File No. 333-1328, and incorporated herein by reference)10.7**
    
    1996 Employee Stock Purchase Plan (filed as Exhibit 10.7 to
the Companys Registration Statement on Form S-1, File No.
333-1328, and incorporated herein by reference)10.8**
    
    Employment Agreement dated August 19, 2002 by and between the
Company and Walid Maghribi (filed as Exhibit 99.1 to the
Companys 8K filed on August 23, 2002, and incorporated
herein by reference)10.9**
    
    Employment Agreement, as of the 14th day of May, 1999,
between the Company and James E. Donegan (filed as Exhibit
10.2 to the Companys Quarterly Report on Form 10-Q for the
quarter ended July 3, 1999, and incorporated herein by
reference)10.10**
    
    Employment Agreement, as of the 14th day of May, 1999,
between the Company and Raymond W.B. Chow (filed as Exhibit
10.4 to the Companys Quarterly Report on Form 10-Q for the
quarter ended July 3, 1999, and incorporated herein by
reference)10.11
    
    Form of Sales Representative Agreement (filed as Exhibit
10.15 to the Companys Registration Statement on Form S-1,
File No. 333-1328, and incorporated herein by reference)10.12
    
    Form of Sales Representative Agreement (previously filed as
an exhibit to the Companys Annual Report on Form 10-K for
the year ended December 31, 1998 and incorporated herein by
reference)10.13**
    
    1997 Incentive Stock Option Plan (filed as Appendix A to the
Companys definitive Proxy Statement for the Special Meeting
In Lieu Of Annual Meeting Of Shareholders held May 30, 1997
and incorporated herein by reference)10.14**
    
    Sipex Corporation 1999 Stock Plan (filed as Appendix A to the
Companys Definitive Proxy Statement on Schedule 14A, No.
1000-27897, and incorporated herein by reference)10.15*
    
    License Agreement between Timex Corporation and Sipex
Corporation dated July 1, 1997 (previously filed as an
Exhibit to the Companys Annual Report on Form 10-K for the
year ended December 31, 1997, and incorporated herein by
reference)




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##### Table of Contents



ExhibitNumber
    
    Description10.16**
    
    Employment Agreement, dated as of the 9th day of August, 1999
between the Company and Stephen E. Parks (filed as Exhibit
10.1 to the Companys Quarterly Report on Form 10-Q for the
quarter ended July 3, 1999, and incorporated herein by
reference)10.17**
    
    2000 Non-Qualified Stock Option Plan (filed as an exhibit to
the Companys Annual Report on Form 10-K for the year ended
December 31, 2000, and incorporated herein by reference)10.18**
    
    2002 Nonstatutory Stock Option Plan (filed as Exhibit 4.3 to
the Companys Registration Statement on Form S-8, File No.
73880, and incorporated herein by reference)10.19
    
    Deed of Reconveyance and Termination of Lease (filed as
Exhibit 10.2 to the Companys Quarterly Report on Form 10-Q
for the quarter ended June 30, 2001, and incorporated herein
by reference)10.20**
    
    Employment Agreement dated February 2, 2003 by and between
the Company and Phillip A. Kagel (filed as an Exhibit to the
Companys Annual report on Form 10-K for the year ended
December 31, 2002, and incorporated herein by reference)10.21**
    
    Employment Agreement dated September 11, 2002 by and between
the Company and Joseph T. Rauschmayer (filed as an Exhibit to
the Companys Annual report on Form 10-K for the year ended
December 31, 2002, and incorporated herein by reference)10.22**
    
    Employment Agreement dated August 23, 2002 by and between the
Company and Kevin Plouse (filed as an Exhibit to the
Companys Annual report on Form 10-K for the year ended
December 31, 2002, and incorporated herein by reference)10.23
    
    Securities Purchase Agreement dated as of September 27, 2002,
by and between the Company and S&F Financial Holdings, Inc.
(filed as Exhibit 99.2 to the Companys 8-K filed on October
1, 2002, and incorporated herein by reference)10.24
    
    Sipex Corporation 5.75% Convertible Secured Note due 2007
(filed as Exhibit 99.3 to the Companys 8-K filed on October
1, 2002, and incorporated herein by reference)10.25
    
    Warrant to purchase 900,000 shares of common stock issued to
S&F Financial Holdings, Inc. (filed as Exhibit 99.4 to the
Companys 8-K on October 1, 2002, and incorporated herein by
reference)10.26
    
    Deed of Trust with Assignment of Rents dated as of September
27, 2002, between the Company, First America Title Insurance
Company and S&F Financial Holdings, Inc. (filed as Exhibit
99.5 to the Companys 8-K on October 1, 2002, and
incorporated herein by reference)10.27
    
    Worldwide Authorized Distributor Market Price Agreement dated
July 22, 1993, by and between the Company and Future
Electronics Incorporated (filed as an Exhibit to the
Companys Annual report on Form 10-K for the year ended
December 31, 2002, and incorporated herein by reference)10.28
    
    Addendum A dated February 7, 2003 to Worldwide Authorized
Distributor Market Price Agreement dated July 22, 1993, by
and between the Company and Future Electronics Incorporated
(filed as an Exhibit to the Companys Annual report on Form
10-K for the year ended December 31, 2002, and incorporated
herein by reference)10.29
    
    Securities Purchase Agreement dated as of May 27, 2003, by
and between the Company and Alonim Investments Inc.
(previously filed as Exhibit 99.1 to the Companys Form 8-K
filed on May 29, 2003 and incorporated herein by reference)10.30
    
    Form of Company Convertible Secured Note to be issued to
Alonim Investments Inc. (previously filed as Exhibit 99.1 to
the Companys Form 8-K filed on May 29, 2003 and incorporated
herein by reference)10.31
    
    Form of Registration and Standstill Agreement by and between
the Company and Alonim Investments Inc., and its affiliates
which are signatories thereto, namely: Future Electronics
Inc., and S&F Financial Holdings Inc. (previously filed as
Exhibit 99.1 to the Companys Form 8-K filed on May 29, 2003
and incorporated herein by reference)10.32
    
    Form of Voting Agreement by and between the Company and
Alonim Investments Inc. (previously filed as Exhibit 99.1 to
the Companys Form 8-K filed on May 29, 2003 and incorporated
herein by reference)10.33
    
    Form of Security Agreement by and between the Company and
Alonim Investments Inc. (previously filed as Exhibit 99.1 to
the Companys Form 8-K filed on May 29, 2003 and incorporated
herein by reference)10.34
    
    Form of Deed of Trust to be issued to Alonim Investments Inc.
(previously filed as Exhibit 99.1 to the Companys Form 8-K
filed on May 29, 2003 and incorporated herein by reference)10.35
    
    Modification Agreement dated as of December 23, 2003 by and
among the Company and Rodfre Lending LLC and certain of its
affiliates (previously filed as Exhibit 99.1 to the Companys
Form 8-K filed on December 24, 2003)




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##### Table of Contents



ExhibitNumber
    
    Description10.36
    
    Separation Agreement and Release as of 12/17/04 (previously
filed as Exhibit 99.2 to the Companys Form 8-K filed on
12/23/04 and incorporated herein by reference) with Mr.
Maghribi the former President and Chief Executive Officer of
Sipex and a former member of the Board of Directors of Sipex10.37
    
    Letter agreement as of 12/17/04 (previously filed as Exhibit
99.3 to the Companys Form 8-K filed on 12/23/04 and
incorporated herein by reference) concerning the terms of Mr.
McBurnies employment with Sipex10.38
    
    Letter agreement as of 6/7/05 (previously filed as Exhibit 99
to the Companys Form 8-K filed on 6/30/05 and incorporated
herein by reference) concerning the terms of the newly
appointed Chief Executive Officer Ralph Schmitt10.39
    
    Loan and Security Agreement as of 7/21/05, (previously filed
as Exhibit 99.3 to the Companys Form 8-K filed on 7/25/05
and incorporated herein by reference) with Silicon Valley
Bank10.40
    
    Bonus plan as of August 29, 2005, (previously filed as
Exhibit 99.1 to the Companys Form 8-K filed on 9/2/05 and
incorporated herein by reference) for an executive bonus plan
for the remainder of 2005 for certain of its officers10.41
    
    Separation Agreement and General Release as of 9/2/05
(previously filed as Exhibit 10.1 to the Companys Form 8-K
filed on 9/2/05 and incorporated herein by reference) with
Joseph T. Rauschmayer, Senior Vice President of Operations10.42
    
    Grant of options (previously filed in the Companys Form 8-K
filed on 9/25/05 and incorporated herein by reference) to Mr.
Wallin CFO and Mr. Hawron Sr. VP World Wide Sales10.43
    
    Separation Agreement and General Release as of 4/26/05
(previously filed as Exhibit 10.1 to the Companys Form 8-K
filed on 9/15/05 and incorporated herein by reference) with
Kevin Plouse10.44
    
    Letter agreement as of 9/12/05 (previously filed as Exhibit
10.1 to the Companys Form 8-K filed on 9/23/05 and
incorporated herein by reference) with Mr. Edward Lam joining
Sipex as the new Senior Vice President of Marketing and
Business Development10.45
    
    Letter agreement as of 10/7/05 (previously filed as Exhibit
10.1 to the Companys Form 8-K filed on 10/12/05 and
incorporated herein by reference) with Joel Camarda joining
Sipex as Senior Vice President of Operations10.46
    
    Amendment No. 1 as of 10/7/05, (previously filed as Exhibit
10.1 to the Companys Form 8-K filed on 10/7/05 and
incorporated herein by reference) to the Loan and Security
Agreement with Silicon Valley Bank, dated July 21, 200510.47
    
    Amendment No. 2 as of 11/10/05, (previously filed as Exhibit
10.1 to the Companys Form 8-K filed on 11/16/05 and
incorporated herein by reference) to the Loan and Security
Agreement with Silicon Valley Bank, dated July 21, 200521.1
    
    Subsidiaries of the Company (previously filed as an exhibit
to the Companys Annual report on Form 10-K for the year
ended December 31, 2000, and incorporated herein by
reference31.1
    
    Certification of Chief Executive Officer pursuant to Section
302(a) of the Sarbanes-Oxley Act of 200231.2
    
    Certification of Chief Financial Officer pursuant to Section
302(a) of the Sarbanes-Oxley Act of 200232.1
    
    Certification of Chief Executive Officer pursuant to 18 U.S.C
section 1350, as adopted pursuant to Section 906 of the
Sarbanes-Oxley Act of 200232.2
    
    Certification of Chief Financial Officer pursuant to 18 U.S.C
section 1350, as adopted pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002
 
 *
    
    Confidential treatment as to certain portions has been requested pursuant to Rule 24b-2
promulgated under the Securities Exchange Act of 1934, as amended.**
    
    The Exhibits identified above with an asterisk (*) are management contracts or compensatory
plans or arrangements.