TABLE OF CONTENTS




|                                              |                                                                                                |  |  |  |  |  |  | 
|--------------------------------------------- | ---------------------------------------------------------------------------------------------- |  |  |  |  |  |  | 
|PART I                                       
|                                              | Item 1. Business:                                                                             
|                                              | Item 2. Properties:                                                                           
|                                              | Item 3. Legal Proceedings:                                                                    
|                                              | Item 4. Submission of Matters to a Vote of Security Holders:                                  
|PART II                                      
|                                              | Item 5. Market for the Companys Common Equity and Related Shareholder
Matters:               
|                                              | Item 6. Selected Consolidated Financial Data:                                                 
|                                              | Item 7. Managements Discussion and Analysis of Financial Condition and
Results of Operations:
|                                              | Item 7A. Quantitative and Qualitative Disclosures About Market Risk:                          
|                                              | Item 8. Financial Statements and Supplementary Data:                                          
|                                              | Item 9. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure: 
|PART III                                     
|                                              | Item 10. Directors and Executive Officers of the Registrant:                                  
|                                              | Item 11. Executive Compensation:                                                              
|                                              | Item 12. Security Ownership of Certain Beneficial Owners and Management:                      
|                                              | Item 13. Certain Relationships and Related Transactions:                                      
|PART IV                                      
|                                              | Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K:                     
|SIGNATURES                                   
|EXHIBIT INDEX                                
|EX-10.21 EMPLOYMENT AGREEMENT DATED 2-22-01  
|EX-10.24 MODIFICATION TO LOAN & SEC AGREEMENT
|EX-23.1 CONSENT OF KPMG LLP                  



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UNITED STATES
SECURITIES AND EXCHANGE COMMISSIONWashington, D.C. 20549



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FORM 10-K

(Mark One)x  ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIESEXCHANGE ACT OF 1934

For the Fiscal Year Ended December 31, 2001

oTRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIESEXCHANGE
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)

|                                            |  |                                     
|------------------------------------------- |  | ------------------------------------
|Massachusetts                               |  | 04-6135748                          
|(State of Incorporation)                    |  | (IRS employer identification number)
|                                            |  |                                     
|22 Linnell Circle, Billerica, Massachusetts |  | 01821                               
|(Address of principal executive offices)    |  | (Zip Code)                          

Registrants telephone number, including area code: (978) 667-8700
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 $.01 per share

Indicate by check mark whether the registrant:  (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes x Noo

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of registrants knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to
this Form 10-K.o

The aggregate market value of common stock held by non-affiliates of the
registrant at March 22, 2002 was approximately $274,000,000 based upon $11.00
per share, the last reported sale price of the common stock on The Nasdaq
National Market on that date. The number of shares of the registrants common
stock outstanding at March 22, 2002 was 24,908,434.

DOCUMENTS INCORPORATED BY REFERENCE

Part III incorporates by reference certain portions of information from the
Registrants Proxy Statement for the Annual Meeting of Shareholders to be held
on May 17, 2002.





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PART I







Item 1. Business:

Company Overview

Sipex Corporation is a semiconductor company that designs, manufactures
and markets, high performance, value-added analog integrated circuits (ICs)
that are used primarily by original equipment manufacturers (OEMs) operating
in the historically high growth markets of computing, communications and
networking infrastructure.

While advances in digital technology have fueled the demand for digital
integrated circuits, they have also created a rapidly growing demand for more
precise, faster and more power efficient analog ICs. Sipex possesses a broad
portfolio of analog ICs, organized into four product families: power
management, serial interface, analog display and the newly created optical
storage. Sipex uses its facility in Milpitas, California and a number of third
party vendors to fabricate, package and test its ICs. Sipexs products are
sold either directly or through a global network of manufacturers
representatives and distributors.

Semiconductor Industry Overview

Integrated circuits, the essential building blocks of todays electronic
products, are classified as either digital or analog ICs. Digital ICs (e.g.
memory products, microprocessors and DSPs), process binary signals composed of
strings of 0s and 1s. Often they are constrained by market-based standards
and depend on a companys ability to design and manufacture very large-scale
circuits, using expensive, state-of-the-art process technologies that minimize
device size.

Analog ICs transform signals derived from the physical environment or
monitor and condition analog signals derived from external electronic inputs.
By contrast with digital ICs, analog ICs are most often designed and optimized
for specialized applications in niche markets. Their development and
successful market adoption require close customer contact and the deployment
of small, tightly coordinated teams of experienced and highly skilled
engineers who understand the complex interrelations of the IC with its layout,
process technology, packaging and end application.

Although analog and digital IC manufacturers share the vagaries of the
semiconductor industry: e.g., cyclical market demands, capacity limitations,
occasional oversupply, manufacturing variation, accelerated product life
cycles, price erosion, global competition, capital equipment expenditures and
rapid technology changes, analog IC manufacturers are often less adversely
affected by them, with exception of the recent downturn in the market. Product
life cycles in the analog IC market tend to be longer and customer pricing
less volatile because competition, particularly foreign competition, is
limited and customers often avoid major changes in the analog portions of
their products due to the design complexities involved. The capital
expenditures for analog IC manufacturers are lower because their fabrication
processes are focused on device matching and careful layout and do not require
frequent and expensive equipment upgrades or replacements to remain
competitive.

Sipexs Business Strategy

Sipex realizes that remaining competitive in the analog IC market depends
on developing and supplying customers in its target markets with a broad
portfolio of synergistic standard product choices that offer features,
performance and pricing which enable and enhance their end products. Sipex has
responded to this realization by maintaining close working relationships with
strategic key customers, creating and following future directed product and
technology roadmaps, and shortening its product development cycles to permit
the rapid introduction of new products.

Sipex Markets, Applications and Products

Sipex focuses on selling its integrated circuits into specific
applications in three major markets: networking and communications, computer
and digital peripherals, and industrial controls and instrumentation. The
markets, their end applications and the product lines involved are recorded on
page 4.

The customer end products in these three target markets are driven by the
same requirements: higher operating efficiency, more power at lower voltages,
and faster data transfer. These must haves provide numerous opportunities
for Sipex to develop niche specific power management, serial interface,
display driver, and optical storage ICs with unique

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feature sets that are optimized for a wide variety of devices, ranging
from power modules in routers to pick up heads in CD/DVD systems.

Sipex currently supports over 1300 products in four active product
categories. These mostly innovative, proprietary products are optimized for
specific end applications that require unique feature sets, specific
electrical performance criteria (speed, precision, power, etc.), and/or
additional system-level integration. Sipex focuses on developing these
products as standard analog ICs in order to serve larger markets and reduce
the risk of dependency on single customer requirements.

Power Management Products- These circuits regulate, control, monitor or
provide the reference voltage for a system or portion of a system. DC/DC
regulators and PWM/PFM controllers convert voltage up or down within a system
and provide a controlled level of power to the system, independent of normal
operating load, line and temperature fluctuations. Supervisory ICs monitor
power levels and notify controller ICs of out-of-range power conditions.
Voltage references establish benchmark voltages within systems and provide
constant outputs independent of temperature and other operating variations.

The power management product portfolio continued to expand in 2001 with
more DC/DC regulators and controllers. These new products delivered key
benefits to portable power and distributed power applications, providing
better power efficiency, increased miniaturization and more power at lower
voltage levels.

Interface Products- Interface products facilitate the transfer of
digital signals between or within electronic systems and ensure reliable
connectivity between networks, computers and the rapidly expanding mix of
digital peripherals and portable devices that connect to them. The single
protocol RS-232 and RS-485 transceivers comply with international standards in
delivering multi-channel digital signals between two parties. The
multi-protocol transceivers enable network equipment to communicate with a
large population of peripherals that use a diverse set of serial protocol
standards without the added burden of multiple add on boards and cables.

Low voltage, serial interface ICs produced this year are popular in a
variety of digital peripherals including data cables for PDAs, cellular phones
and digital still cameras. Multi-protocol ICs continue to be used in
networking and telecommunications equipment.

Analog Display Products Electroluminescent lamp drivers are DC/AC
switches that develop high voltage AC signals from low voltage battery
sources. When a high voltage is applied across electroluminescent material,
the material fluoresces, providing backlighting for LCD displays. This
technology is used in cell phones, PDAs, watches, pagers, remote controls and
other portable devices. In addition to generic lamp driver ICs, Sipex offers
specialized electroluminescent lamp drivers for specific applications.

Optical Storage Products The optical storage product family is a recent
addition to the Sipex product portfolio. Although no production orders were
shipped in 2001 from this family, intense research and development activity
was ongoing and limited sampling of strategic customers occurred. The family
is focused on providing complete electronic solutions for pick up heads used
in optical storage systems such as CD and DVD devices.

The family currently consists of photo-detector ICs, advanced power
control ICs and laser diode drivers. The photo-detector ICs capture a portion
of the light reflected from the optical storage medium, convert it to a set of
electronic digital signals and forward these along for processing. The
reflected light contains both data and tracking information. The advanced
power control ICs capture a portion of the optical power coming from the laser
and feed it back into a control system that regulates laser intensity. This
control function is used to prevent damage to the laser diode and extend the
life of the system. For both of these functions, Sipex has developed a new
technology that permits the photo-detection functions to be incorporated with
their signal conditioning circuitry. This functional integration enables
faster read speeds and smaller footprints in DVD-R/W, DVD-RAM and CD-R/W
systems.

Sipex has also developed a family of laser diode drivers that excite the
laser diode in the pick up head. The Sipex devices are designed to drive two
lasers at high speed. This allows the customer to build a 780nm and 650nm
system on one pick up head for combo CD/DVD devices.

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By offering the three products families, Sipex is able to provide
complete silicon solutions to CD/DVD manufacturers of optical pick up heads.

Legacy Products Legacy products include data converters and assembled
products. Data converter products are incorporated into systems that translate
real world (analog) events into digital data which can be manipulated by a
microprocessor. Sipexs analog-to-digital and digital-to-analog products are
components that allow microprocessors to monitor real world conditions and
then control responses to the conditions monitored. The main focus of Sipexs
product offerings has been high performance 12-bit analog-to-digital and
digital-to-analog converters. Sipex believes that the data converter
marketplace for 12-bit products is highly fragmented and design wins are
characterized by long life cycles. The primary markets served by Sipex are
industrial controls, instrumentation and test equipment. Sipex expects sales
of data converter products to continue to decline in future years as Sipex
continues to focus resources on its target markets.

In the fourth quarter of 2000, Sipex adopted an end-of-life strategy for
the discontinuance of its line of assembled products that were supplied
principally to commercial customers for aerospace and military applications.
Sipex is not currently designing new products for the military market.

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The following table lists examples of user applications and Sipex products
sold into our target markets.

|                                      |  |                         |  |                           
|------------------------------------- |  | ----------------------- |  | --------------------------
|Served Market                         |  | User Application        |  | Key Product Families      
|                                      |  |                         |  |                           
|Networking/ Communications            |  | Routers                 |  | DC-DC Regulators          
|                                      |  | Switches, Bridges, Hubs |  | Linear Regulators         
|                                      |  | Access Devices          |  | Low Dropout Regulators    
|                                      |  | Power Supplies          |  | Voltage References        
|                                      |  | Cable and XDSL Modems   |  | PWM/PFW Controllers       
|                                      |  | Set Top Boxes           |  | Supervisory ICs           
|                                      |  | Internet Appliances     |  | Line Drivers              
|                                      |  | Cellular Phones         |  | Line Receivers            
|                                      |  | Pagers                  |  | Multi-protocol ICs        
|                                      |  | Fax Machines            |  |                           
|                                      |  | Channel Service Units/  |  |                           
|                                      |  | Data Service Units      |  |                           
|                                      |  | GPS Sets                |  |                           
|                                      |  | Two-way Radios          |  |                           
|                                      |  | Cordless Phones         |  |                           
|                                      |  | Satellites              |  |                           
|                                      |  | Base Stations           |  |                           
|                                      |  | PBX Switches            |  |                           
|                                     
|Computers and Digital Peripherals     |  | Servers                 |  | DC-DC Regulators          
|                                      |  | Workstations            |  | Linear Regulators         
|                                      |  | Notebook PCs            |  | Low Dropout Regulators    
|                                      |  | Desktop PCs             |  | Voltage References        
|                                      |  | CD/DVD Drives           |  | PWM/PFW Controllers       
|                                      |  | PDAs                    |  | Supervisory ICs           
|                                      |  | Point-of-sale Terminals |  | Charge Pumps              
|                                      |  | Printers                |  | Photo-detector ICs        
|                                      |  | Digital Cameras         |  | Advanced Power Control ICs
|                                      |  | MP3 Players             |  | Laser Diode Driver ICs    
|                                      |  | Power Supplies          |  | Line Drivers              
|                                      |  | Watches                 |  | Line Receivers            
|                                      |  |                         |  | USB Switches              
|                                      |  |                         |  | EL Lamp Drivers           
|                                     
|Industrial Controls & Instrumentation |  | Test Equipment          |  | DC-DC Regulators          
|                                      |  | Robotics                |  | Linear Regulators         
|                                      |  | Data Recorders          |  | Low Dropout Regulators    
|                                      |  | Analyzers               |  | Voltage References        
|                                      |  | Meters                  |  | PWM/PFW Controllers       
|                                      |  | Factory Automation      |  | Supervisory ICs           
|                                      |  | Automotive              |  | Line Drivers              
|                                      |  | Instrumentation         |  |                           

Sales, Distribution and Marketing

Sipex sells its products to OEM customers through a direct sales force, a
network of independent sales representatives and a small number of independent
distributors. The direct sales force consists of regional sales managers and
field applications engineers who support our sales representatives,
distributors and customers with a variety of sales and technical support. Our
sales staff and field application engineers also manage, train and support our
network of distributors and representatives. The sales and field applications
staff are located in our Billerica and Milpitas facilities and in field offices
in China, France, Germany, Japan, Korea, Taiwan and the United Kingdom.

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Sipex continually seeks to broaden its customer base by increasing sales
through its distributor network. Domestic and international distributor sales
were 43.9%, 51.8% and 28.8% of net sales in 2001, 2000 and 1999, respectively.

In North America and Europe, Sipex sells its products principally through
one distributor, Future Electronics, who is our largest distributor,
and accounted for 21%, 23% and
17% for the years ended December 31, 2001, 2000 and 1999, respectively.
Distributor sales to these regions in 2001, 2000 and 1999 were approximately
$13.5 million, $24.6 million and $15.2 million, respectively, representing
18.5%, 21.5%, and 16.9% of total net sales, respectively. Sipex has entered
into a distributor agreement that provides for this distributor to act as our sole distributor for certain products within these
territories. Sales to this distributor are made under an agreement that
provides protection against price reduction for their inventory of Sipex
products. Sipex maintains a separate price list for products sold to the
distributor, which reflects discounts from the prices charged to customers in
direct sales transactions. On a semi-annual basis, this distributor is
permitted to return for credit a total of 10% of its total purchases during the
most recent six-month period. We recognize revenue on sales to this
distributor under the distribution agreement when the distributor
reports to us the products have been sold through to the end
customer. For sales to all other customers we recognize revenue upon
shipment.

In Japan and the Far East, Sipex sells its products through 13
distributors. Distributor sales to these regions in 2001, 2000 and 1999 were
approximately $18.3 million, $34.8 million and $14.6 million, respectively,
representing 25.4%, 30.3%, and 16.3% of total net sales, respectively.
Substantially all sales to these international locations are denominated in
U.S. dollars. Sipex maintains separate price lists for products sold to
distributors, which typically reflect discounts from the prices charged to
customers in direct sales transactions. Sales to these distributors do not
include protection against price reductions by Sipex on items that are included
in their inventory of Sipex products. On a semi-annual basis, these
distributors are permitted to return for credit against product purchases of an
equivalent dollar value, up to 5% of their total purchases during the most
recent six-month period.

In North America, Sipex also sells its products through 19 independent
sales representative organizations having approximately 38 offices. In Europe
there are 10 sales representative organizations. In Asia and Japan, with the
exception of one representative for Australia, all of the revenue is generated
by distributors. These independent entities are selected for their ability to
provide effective field sales, marketing communications and technical support
to Sipexs customers. Sipex has entered into Sales Representative Agreements
with each of its independent sales representatives. These agreements typically
permit sales representatives to act as an exclusive or a non-exclusive sales
representative in appropriate circumstances. Sales representatives directly
solicit orders for Sipexs products, which Sipex fills either directly with the
customer or through distribution, generating a commission paid by Sipex to the
sales representative.

Sipex is subject to the normal risks of conducting business
internationally, including exchange rate fluctuations. To date, Sipex has not
hedged the risks associated with fluctuations in exchange rates but may
undertake such transactions in the future. Sipex currently does not have a
policy relating to hedging.

Our marketing team develops long term product and technology roadmaps
based on first hand market knowledge, close customer links, industry
experience, and a variety of public and private market data. Detailed technical
information in the form of data sheets, application notes and tutorials is
posted on Sipexs website and a variety of technical and sales materials are
printed and distributed to customers, sales representative and distributors.
Sipex engages in print advertising to raise market awareness of our products
and services.

Customers

Our customer base is comprised of merchant manufacturers, electronics
distributors and customers with captive manufacturing operations. The captive
manufacturers use our products as integral components in their equipment and
systems. In certain cases, we sell our products to a subcontract-assembly
company specified by the captive manufacturer. The merchant manufacturers
typically function as original equipment manufacturers (OEMs) as well as
suppliers of sub-systems to other OEMs.

The end users of our
products, of which Snecma accounted for ten percent of direct net
sales in 2001, include Cisco Systems, Hewlett-Packard, Nortel, Alcatel, Lucent
Technologies, ADC Telecommunications, Dell, Lexmark, Schlumberger, Xerox,
Symbol, 3Com and IBM in the networking/data communications markets; Timex,
3Com, Casio, ETA Swatch, Seiko, Sharp and Handspring in the consumer markets;
Motorola, Garmin, Hyundai, L.G. Information Systems, Samsung, NEC and Cidco in
the telecommunications markets; and Andover Controls, Siemens and Honeywell in
the industrial controls market. Customers incorporating our high reliability
assembled products in military applications include Honeywell, Raytheon,

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Snecma, BF Goodrich, Space Systems/Loral and Lockheed Martin.

Backlog

Our product backlog was approximately $22.3 million at December 31, 2001
compared to $49.1 million at December 31, 2000. The decrease in Sipexs backlog
as of December 31, 2001 reflects the reduced sales and bookings as a result of
the slowdown in the semiconductor industry. We generally include in backlog all
orders scheduled for delivery within one year. However, our business, and to a
large extent the entire semiconductor industry, is characterized by short-term
orders and shipment schedules. Sipex generally permits orders to be canceled or
rescheduled without significant penalty to customers, as indicated in our
fourth quarter of 2000 results and press releases. As a result, the quantities
of our products to be delivered and their delivery schedules may be revised by
customers to reflect changes in their needs. Since backlog can be canceled or
rescheduled, our backlog at any time is not necessarily indicative of future
revenues.

Manufacturing

Sipex has a wafer fabrication facility in Milpitas, California and has
assembly operations in Billerica, Massachusetts. Sipexs wafer fabrication
facility commenced manufacturing operations in the second half of 1999. The
Milpitas wafer fabrication facility is used to produce both four-inch and
six-inch diameter wafers for use in the production of Sipex devices. Sipexs
facilities have been certified as ISO-9001 compliant. Sipex closed its Fremont
facility in the second quarter of 2001 after transitioning the last of the
manufacturing operations into the Milpitas facility.

Sipex broadens its manufacturing capabilities by using third-party
foundries to produce junction isolation complementary metal-oxide semiconductor
(CMOS) processed wafers and BiCMOS processed wafers. The use of third-party
foundries enables Sipex to focus on its design strengths and minimize fixed
costs and capital expenditures while providing access to diverse manufacturing
technologies without bearing the full risk of obsolescence. Sipex uses a
variety of third-party foundries to supply fully processed semiconductor wafers
for its CMOS, BiCMOS and bipolar products. All of these foundries have been
certified as ISO-9001 compliant. Sales of these products collectively
represented 26.4% of Sipexs net sales in 2001, although this was made up of
approximately 32% in the first half of 2001 and 18% in the last half of 2001.
Sales of these products were 30.2% in 2000 and 35.8% in 1999.

In the third and fourth quarters of 1999, our allocation of wafers
produced by one third-party foundry was significantly reduced. This shortage
continued for most of 2000 into the first half of 2001, resulting in an
increased cost of these wafers. We have transitioned production of many of
these wafers into our Milpitas facility. We have qualified certain products to
begin production in our facility and are continuing the process for the
remaining devices. Our basic process technologies include silicon gate CMOS and
BiCMOS processes. We also have two complementary bipolar processes. Our bipolar
processes provide switching characteristics required for many linear circuit
functions. The CMOS and BiCMOS processes are typically used in circuits where
high voltage, high power and low noise are necessary.

Sipex tests integrated circuits or die on the wafers produced by Sipex
and its foundries for compliance with performance specifications before
assembly. Sipexs commercial products are assembled by a variety of
subcontractors in Malaysia, Indonesia and other locations in Asia which have
been certified as ISO-9002, QS 9000, and ISO-14000 compliant. Following
assembly, the packaged units are either returned to Sipex for final testing and
inspection or are tested and inspected offshore before shipment to customers.
Sipex manufactures its precision high-reliability assembled products in
Billerica, Massachusetts. Sipex is in conformance with stringent quality and
reliability requirements for military and aerospace applications.

Product Quality Assurance and Reliability

Sipex is committed to customer satisfaction and continuous improvement in
all aspects of its business. This is accomplished through a comprehensive
quality and reliability system founded on documented procedures. Sipex uses
quality tools such as statistical process control, cross-functional teaming and
advanced statistical analysis in its qualification, production processes and
improvement activities. Sipex maintains strong relationships with its
subcontractors and routinely qualifies suppliers to established standards.
Sipex is ISO-9001 Registered and has continuously maintained conformance to
MIL-PRF-38534.

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Patents, Licenses and Trademarks

Sipex seeks to protect its proprietary technology through patents and
trade secret protection. Currently, Sipex holds a number of patents expiring
between now and 2020 and has additional pending United States patent
applications, although there can be no assurance that any patents will result
from these applications. While Sipex intends to continue to seek patent
coverage for its products and manufacturing technology where appropriate, Sipex
believes that its success depends more heavily on the technical expertise and
innovative abilities of its personnel than on its patent position. Accordingly,
Sipex also relies on trade secrets and confidential technological know-how in
the conduct of its business. There can be no assurance that Sipexs patents or
applicable trade secret laws will provide adequate protection for Sipexs
technology against competitors who may develop or patent similar technology or
reverse engineer Sipexs products. In addition, the laws of certain
territories in which Sipexs products are or may be developed, manufactured or
sold, including Asia, Europe and Latin America, may not protect Sipexs
products and intellectual property rights to the same extent as the laws of the
United States.

Pursuant to license agreements, Sipex pays a royalty to Timex Corporation
for certain electroluminescent product sales, to Maxim Integrated Products and
Analog Devices for certain interface product sales and to the Lemelson Medical,
Education and Research Foundation.

Research and Development

Sipex believes that continued introduction of new products in its target
markets is essential to its growth. As performance demands have increased the
complexity of analog circuits, the design and development process has become a
multi-disciplinary effort, requiring diverse competencies to achieve customers
desired performance. Sipex supports its key designers with an infrastructure of
product and test engineers who perform various support functions and allow the
designer to focus on the core elements of the design.

In 2001, 2000 and 1999, Sipex spent approximately $12.9 million, $13.2
million and $10.6 million, respectively, on research and development,
representing 17.9%, 11.5% and 11.8%, respectively, of net sales for these
periods. Sipex expects that expenditures in support of research and development
activity will increase in absolute dollars in the near future as per historic
trends.

Sipexs ability to compete depends in part upon its continued introduction
of technologically innovative products on a timely basis. Sipexs research and
development efforts are directed primarily at designing and introducing new
products and technologies. Sipex continually upgrades its internal technology
while also working with foundries to develop new technologies for new
generations of products. In addition, Sipex continually refines its
manufacturing practices and technology to improve yields of its products.

Competition

Sipex competes in the high performance segment of the analog integrated
circuit market. The analog integrated circuit segment of the semiconductor
industry is intensely competitive and many major semiconductor companies
presently compete or could compete with Sipex in the same arena. Sipexs
current primary competitors in the high-performance segment of the analog
circuit market include Analog Devices, Intersil, Linear Technology, Maxim
Integrated Products, Micrel Semiconductor, National Semiconductor, On
Semiconductor, Semtech and Texas Instruments. Our primary competitors have
substantially greater financial, technical, manufacturing, marketing,
distribution and other resources and broader product lines than Sipex. Although
foreign companies active in the semiconductor market have not traditionally
focused on the high performance analog market, many foreign companies have the
financial and other resources to participate successfully in these markets and
may become formidable competitors in the future.

Sipex believes that product innovation, quality, reliability, performance
and the ability to introduce products rapidly are more important competitive
factors than price in our target markets because we compete primarily during
the customers design-in stage of product development. At this stage, we have
had pricing pressure on commodity products, particularly in the second through
fourth quarters of 2001.

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Sipex believes that, by virtue of our analog expertise and rigorous design
methodology, we compete favorably in the areas of rapid product introduction,
product innovation, quality, reliability and performance, but may be at a
disadvantage in comparison to larger companies with broader product lines,
greater technical and financial resources and greater service and support
capabilities.

Employees

At December 31, 2001, we had 442 full-time employees, as compared with 597
employees in the prior year. During 2001, we implemented certain cost controls
as a result of the global slowdown in the semiconductor industry, which
included a reduction in headcount and mandatory shut-down time. We believe that
our future success will depend, in part, on our ability to attract and retain
qualified technical and manufacturing personnel. This is particularly important
in the areas of product design and development, where competition for skilled
personnel is intense. None of our employees are subject to a collective
bargaining agreement and we have never experienced a work stoppage. We believe
that our relations with our employees are good.







Item 2.  Properties:

Sipexs corporate office is located in Billerica, Massachusetts.
Information regarding our principal plants and properties appears below:

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|------------------------------------------------------------------------------------------------------------------------- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- |  | ------------- | ------------------------------------------------------ | ------------ |  | ------------------------------------------------------------------------------- |  | ----------------------------------------------------------------------------------------------------------------------------------------
|                                                                                                                          |  |                                                                                                                                                                                                                                     |  | Approximate   |                                                        | Owned Or     |  | Lease                                                                          
|                                                                                                                          |  |                                                                                                                                                                                                                                     |  | Facility Size |                                                        | Leased: Land |  | Expiration                                                                     
|Location                                                                                                                  |  | Description                                                                                                                                                                                                                         |  | (Square Feet) |                                                        | Area Owned   |  | Date                                                                           
|                                                                                                                          |  |                                                                                                                                                                                                                                     |  |               |                                                        |              |  |                                                                                
|Billerica, MA
 
Milpitas, CA
 
San Jose, CA
Munich, Germany
Tokyo, Japan
Zaventem, Belgium
Shenzhen, China
Taipei, Taiwan |  | Manufacturing
         General Office
         Manufacturing
         General Office
         Manufacturing
         General Office
         General Office
         General Office
         General Office
         General Office |  |               | 63,280
 
91,200
 
12,500
1,600
2,500
6,000
2,670
1,400 |              |  | Leased
 
   Owned
 
   Leased
   Leased
   Leased
   Leased
   Leased
   Leased |  | 01/31/2008
 
 
 
         12/31/2004
         02/28/2003
         01/31/2003
         09/30/2009
         04/30/2002
         06/30/2002

We believe that our existing facilities are adequate for the present and
that additional space will be available as needed.







Item 3.  Legal Proceedings:

Sipex may become involved in various legal actions arising, including
securities class actions and other actions, in the ordinary course of business.
Between July 10 and July 19, 2001, two virtually identical purported securities
class action lawsuits were filed in the United States District Court for the
District of Massachusetts, captioned Darren Suprina v. Sipex Corp. et al
(C.A. No. 01-11185-DPW) and Doug Howell v. Sipex Corp. et al (C.A. No.
01-11243-DPW). The suits name as defendants Sipex and certain officers of
Sipex. The suits are purportedly brought on behalf of a class of all persons
who purchased Sipexs common stock from July 20, 2000 through and including
January 11, 2001. The suits allege, among other things, that Sipexs financial
statements for the second and third quarters of fiscal year 2000 contain
misstatements and assert violations of Section 10(b) of the Securities and
Exchange Act of 1934 and SEC Rule 10b-5. The suits seek an unspecified award of
damages. Sipex believes that the allegations in the complaints are without
merit and intends to contest them vigorously. At December 31, 2001, no
provision was made for any potential costs related to these matters as
management concluded it was not probable that any loss would be incurred.







Item 4.  Submission of Matters to a Vote of Security Holders:

No matters were submitted to a vote of Sipexs security holders during the
quarter ended December 31, 2001.

8



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##### Table of Contents



Executive Officers of SIPEX

Information relating to the executive officers of Sipex is set forth
below. All officers held office as of December 31, 2001.

|                                              |  |                                          
|--------------------------------------------- |  | -----------------------------------------
|Name, Age & Position                          |  | Business Experience                      
|                                              |  |                                          
|James E. Donegan  Age 56                     |  | Mr. Donegan joined Sipex in April 1985   
|Chairman, Chief Executive Officer and         |  | as Chairman of the Board, Chief          
|Director                                      |  | Executive Officer and President of       
|                                              |  | Sipex. Mr. Donegan currently serves as a 
|                                              |  | Director of Genesis Microchip Inc., a    
|                                              |  | manufacturer of video semiconductors.    
|                                              |  | Before joining Sipex, Mr. Donegan held   
|                                              |  | the position of Group Vice President of  
|                                              |  | the Electronic Components Group at       
|                                              |  | Midland Ross Corp.                       
|                                             
|Frank R. DiPietro  Age 54                    |  | Mr. DiPietro joined Sipex in December    
|Executive Vice President, Finance, Chief      |  | 1983 as Chief Financial Officer and      
|Financial Officer, Treasurer and Clerk        |  | Treasurer. He was appointed Vice         
|                                              |  | President of Finance in January 1985,    
|                                              |  | Senior Vice President in June 1985 and   
|                                              |  | Executive Vice President in November     
|                                              |  | 1996. From November 1979 to November     
|                                              |  | to November 1983, Mr. Di Pietro served as
|                                              |  | a Controller at Digital Equipment Corp.  
|                                             
|Bruce W. Diamond  Age 42                     |  | Mr. Diamond joined Sipex in January 2001 
|President and Chief Operating Officer         |  | as President and Chief Operating         
|                                              |  | Officer. From October 1997 to December   
|                                              |  | 2000, Mr. Diamond held the position of   
|                                              |  | Senior Vice President of Operations at   
|                                              |  | Anadigics, Inc., a developer and         
|                                              |  | manufacturer of gallium arsenide (GaAs)  
|                                              |  | integrated circuits. Prior to his        
|                                              |  | tenure at Anadigics, Inc., Mr. Diamond   
|                                              |  | spent 15 years at National Semiconductor 
|                                              |  | Corporation where he held various        
|                                              |  | engineering, product line and            
|                                              |  | manufacturing positions.                 
|                                             
|Stephen E. Parks  Age 41                     |  | Mr. Parks joined Sipex in June 1999 as   
|Executive Vice President, Sales and Marketing |  | President and Chief Operating Officer.   
|                                              |  | As of January 2001, Mr. Parks has held   
|                                              |  | the position of Executive Vice President 
|                                              |  | of Sales and Marketing. From September   
|                                              |  | 1995 to June 1999, Mr. Parks held the    
|                                              |  | position of Business Unit Director at    
|                                              |  | Cherry Semiconductor for the Computer    
|                                              |  | and Industrial Business Unit. From 1982  
|                                              |  | to 1995, Mr. Parks worked for AT&T       
|                                              |  | Microelectronics (now Lucent             
|                                              |  | Technologies, Inc.) where he held a      
|                                              |  | variety of management positions in       
|                                              |  | Engineering and Marketing.               
|                                             
|Raymond W.B. Chow  Age 53                    |  | Mr. Chow joined Sipex in October 1988.   
|Senior Vice President, Chief Technology       |  | He was appointed Senior Vice President   
|Officer                                       |  | of Interface Products in August 1994 and 
|                                              |  | Chief Technology Officer in July 1998.   
|                                              |  | From March 1982 to October 1988, Mr.     
|                                              |  | Chow was President and Chief Executive   
|                                              |  | Officer of Barvon BiCMOS Technology,     
|                                              |  | Inc., a company Mr. Chow founded in      
|                                              |  | 1982.                                    

9



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##### Table of Contents









PART II







Item 5. Market for the Companys Common Equity and Related Shareholder
Matters:

Since April 2, 1996, the date of our initial public offering, our common
stock has been available for quotation on The Nasdaq National Market under the
symbol SIPX. The following table sets forth, for the period indicated, the
high and low sale prices per share as reported on The Nasdaq National Market:

|                             |      |               |  |                |  |               |  |                |  |  |  |        |  |  |  |        | 
|---------------------------- | ---- | ------------- |  | -------------- |  | ------------- |  | -------------- |  |  |  | ------ |  |  |  | ------ | 
|Quarterly Stock Market Data  |      |               |  |                |  |               |  |                |  |  |  |        |  |  |  |       
|                             |      |               |  |                |  |               |  |                |  |  |  |        |  |  |  |        | 
|Fiscal 2001                  |      | Dec. 31, 2001 |  | Sept. 29, 2001 |  | June 30, 2001 |  | March 31, 2001
|                             |      |               |  |                |  |               |  |                | 
|Stock price range per share: |      |               |  |                |  |               |  |                |  |  |  |        |  |  |  |       
|                             | High |               |  | 13.380         |  |               |  | 14.040         |  |  |  | 13.440 |  |  |  | 25.563 | 
|                             | Low  |               |  | 6.000          |  |               |  | 6.440          |  |  |  | 6.531  |  |  |  | 7.656  | 

|                             |      |               |  |                |  |               |  |                |  |  |  |        |  |  |  |        | 
|---------------------------- | ---- | ------------- |  | -------------- |  | ------------- |  | -------------- |  |  |  | ------ |  |  |  | ------ | 
|Fiscal 2000                  |      | Dec. 31, 2000 |  | Sept. 29, 2000 |  | June 30, 2000 |  | March 31, 2000
|                             |      |               |  |                |  |               |  |                | 
|Stock price range per share: |      |               |  |                |  |               |  |                |  |  |  |        |  |  |  |       
|                             | High |               |  | 45.125         |  |               |  | 49.672         |  |  |  | 34.938 |  |  |  | 44.813 | 
|                             | Low  |               |  | 15.875         |  |               |  | 23.000         |  |  |  | 20.063 |  |  |  | 17.688 | 

On December 31, 2001, there were approximately 61 shareholders of record.
We believe that the number of beneficial holders of common stock exceeds 2,935.
The last reported sale price of the common stock on March 22, 2002 was $11.00
per share. We have never declared or paid a cash dividend on our capital stock.
We currently intend to retain all of our earnings to finance future growth and
therefore, do not anticipate paying any cash dividends on our common stock in
the foreseeable future.







Item 6.  Selected Consolidated Financial Data:

Selected financial data for the last five years appear below
 (in thousands, except per share data):

|                                                       |                     |      |                          |       |    |        |         |        |   |        |         |      |   |   |         |      |   |   |        |      |  
|------------------------------------------------------ | ------------------- | ---- | ------------------------ | ----- | -- | ------ | ------- | ------ | - | ------ | ------- | ---- | - | - | ------- | ---- | - | - | ------ | ---- | -
|                                                       |                     |      | Years ended December 31,
|                                                       |                     |      |                         
|Operating Results:                                     |                     | 2001 |                          | 2000  |    | 1999 * |         | 1998 * |   | 1997 *
|                                                       |                     |      |                          |       |    |        |         |        |   |        |        
|Net sales                                              |                     | $    | 72,062                   |       |    | $      | 114,620 |        |   | $      | 89,820  |      |   | $ | 91,961  |      |   |   | 75,289 |     
|Gross profit (loss)                                    |                     |      | (1,496                   | )     |    |        | 36,490  |        |   |        | 32,593  |      |   |   | 39,773  |      |   |   | 29,951 |     
|                                                       | As a % of net sales |      |                          | (2.1  | )% |        |         | 31.8   | % |        |         | 36.3 | % |   |         | 43.2 | % |   |        | 39.8 | %
|Depreciation and amortization                          |                     |      | 7,038                    |       |    |        | 4,649   |        |   |        | 2,528   |      |   |   | 2,392   |      |   |   | 1,961  |     
|Research & development expenses                        |                     |      | 12,858                   |       |    |        | 13,159  |        |   |        | 10,623  |      |   |   | 8,407   |      |   |   | 6,951  |     
|Income (loss) from operations                          |                     |      | (31,888                  | )     |    |        | 3,473   |        |   |        | 2,321   |      |   |   | 15,438  |      |   |   | 9,901  |     
|Income (loss) before income taxes                      |                     |      | (32,282                  | )     |    |        | 5,540   |        |   |        | 3,680   |      |   |   | 16,588  |      |   |   | 10,488 |     
|Net income (loss)                                      |                     |      | (19,692                  | )     |    |        | 3,917   |        |   |        | 6,099   |      |   |   | 19,429  |      |   |   | 11,418 |     
|                                                       | As a % of net sales |      |                          | (27.3 | )% |        |         | 3.4    | % |        |         | 6.8  | % |   |         | 21.1 | % |   |        | 15.2 | %
|Net income (loss) per common share  basic             |                     |      | (0.82                    | )     |    |        | 0.18    |        |   |        | 0.28    |      |   |   | 0.92    |      |   |   | 0.55   |     
|Net income (loss) per common share
 assuming dilution |                     |      | (0.82                    | )     |    |        | 0.16    |        |   |        | 0.28    |      |   |   | 0.88    |      |   |   | 0.52   |     
|Balance Sheet and Financial Data:                      |                     |      |                          |       |    |        |         |        |   |        |         |      |   |   |         |      |   |   |        |     
|Cash/short-term investments                            |                     | $    | 4,874                    |       |    | $      | 1,732   |        |   | $      | 7,089   |      |   | $ | 25,791  |      |   | $ | 39,986 |     
|Restricted cash equivalents and securities             |                     |      |                         | **    |    |        | 36,750  |        |   |        | 36,750  |      |   |   | 24,356  |      |   |   |       |     
|Total assets                                           |                     |      | 145,127                  |       |    |        | 148,768 |        |   |        | 119,795 |      |   |   | 107,689 |      |   |   | 84,348 |     
|Long-term debt                                         |                     |      | 7,396                    |       |    |        | 7,057   |        |   |        |        |      |   |   | 516     |      |   |   | 1,217  |     
|Working capital                                        |                     |      | 35,779                   |       |    |        | 44,845  |        |   |        | 42,037  |      |   |   | 50,478  |      |   |   | 54,377 |     
|Current ratio                                          |                     |      | 4.6                      |       |    |        | 3.5     |        |   |        | 3.9     |      |   |   | 3.9     |      |   |   | 4.1    |     
|Capital expenditures                                   |                     |      | 40,441                   | **    |    |        | 19,467  |        |   |        | 9,214   |      |   |   | 4,700   |      |   |   | 6,834  |     
|Shareholders equity                                   |                     |      | 127,822                  |       |    |        | 122,797 |        |   |        | 105,101 |      |   |   | 89,772  |      |   |   | 65,331 |     



|*  |  | The financial data has been adjusted to reflect the combined
operations of Sipex Corporation and Calogic as a result of the November,
1999 merger which was recorded as a pooling of interests (see Note 3 to
Consolidated Financial Statements).                                                                             
|-- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|  
|** |  | 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.

10



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##### Table of Contents









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

Certain Forward-Looking Information

From time to time, information provided by us, statements made by our
employees or information included in its filings with the Securities and
Exchange Commission (including in this Form 10-K) may contain statements which
are not historical facts, known as forward-looking statements, and are made
pursuant to the safe harbor provision of the Private Securities Litigation
Reform Act of 1995. In particular, certain statements contained in the
Managements Discussion and Analysis of Financial Condition and Results of
Operations below which are not historical facts (including, but not limited to,
statements concerning anticipated availability of capital for working capital
and for capital expenditures, statements regarding the pending litigation
against us, and statements regarding revenue recognition policies, including
estimates of future returns) constitute forward-looking statements. Any such
statements are not promises or guarantees but are subject to risks and
uncertainties that may cause our actual future results to differ materially
from those stated in any forward-looking statements. Factors that may cause
such differences include, but are not limited to, the factors discussed below
and the other risks discussed in our other filings with the Securities and
Exchange Commission. Sipex disclaims any obligation to publicly update or
revise any such statements to reflect any change in expectations or in events,
conditions, or circumstances on which any such statements may be based, or that
may affect the likelihood that actual results will differ from those set forth
in the forward-looking statements.

Overview

We are a semiconductor company that designs, manufactures and markets,
high performance, value-added analog integrated circuits, primarily for
original equipment manufacturers doing business in the high growth markets of
networking, computing, and communications. Our four product families, power
management, serial interface, analog display and optical storage constitute a
broad, synergistic portfolio of standard analog ICs that address specific
applications in desktop and portable computers, optical storage, handheld
digital peripherals such as PDAs, cell phones and digital still cameras, and
network and telecommunications infrastructure.

We are headquartered in Billerica, Massachusetts, have manufacturing
facilities in Massachusetts and California and sales offices in China, Japan,
Korea, Taiwan, Germany, Belgium and the United States and a design research
facility in Belgium. We use a combination of in house and outside vendors to
fabricate, package and test our ICs. Our products are sold directly, or through
a global network of independent sales representatives, and a small number of
independent distributors.

Results of Operations

For the periods indicated, the following table sets forth the percentage
of net sales represented by the respective line items in our consolidated
statements of operations.

|                                  |                                       |  |                          |      |      |  |       |      |   |  |       |      | 
|--------------------------------- | ------------------------------------- |  | ------------------------ | ---- | ---- |  | ----- | ---- | - |  | ----- | ---- | 
|                                  |                                       |  | Years Ended December 31,
|                                  |                                       |  |                         
|                                  |                                       |  | 2001                     |      | 2000 |  | 1999 
|                                  |                                       |  |                          |      |      |  |      
|Net sales                         |                                       |  | 100.0                    | %    |      |  | 100.0 | %    |   |  | 100.0 | %   
|Cost of sales                     |                                       |  | 102.1                    |      |      |  | 68.2  |      |   |  | 63.7  |     
|                                  |                                       |  |                          |      |      |  |       |      |   |  |       |     
|Gross profit (loss)               |                                       |  | (2.1                     | )    |      |  | 31.8  |      |   |  | 36.3  |     
|Operating expenses:               |                                       |  |                          |      |      |  |       |      |   |  |       |     
|                                  | Research and development              |  |                          | 17.9 |      |  |       | 11.5 |   |  |       | 11.8 | 
|                                  | Marketing and selling                 |  |                          | 13.8 |      |  |       | 9.4  |   |  |       | 10.9 | 
|                                  | General and administrative            |  |                          | 10.3 |      |  |       | 8.4  |   |  |       | 8.8  | 
|                                  | Merger related costs                  |  |                          |     |      |  |       |     |   |  |       | 1.3  | 
|                                  | Restructuring and facility exit costs |  |                          | 0.2  |      |  |       | (0.5 | ) |  |       | 0.9  | 
|                                  |                                       |  |                          |      |      |  |       |      |   |  |       |     
|Total operating expenses          |                                       |  | 42.2                     |      |      |  | 28.8  |      |   |  | 33.7  |     
|                                  |                                       |  |                          |      |      |  |       |      |   |  |       |     
|Income (loss) from operations     |                                       |  | (44.3                    | )    |      |  | 3.0   |      |   |  | 2.6   |     
|Other income (expense), net       |                                       |  | (0.5                     | )    |      |  | 1.8   |      |   |  | 1.5   |     
|                                  |                                       |  |                          |      |      |  |       |      |   |  |       |     
|Income (loss) before income taxes |                                       |  | (44.8                    | )    |      |  | 4.8   |      |   |  | 4.1   |     
|                                  |                                       |  |                          |      |      |  |       |      |   |  |       |     

11



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##### Table of Contents



Fiscal Year Ended
December 31, 2001 compared to Fiscal Year Ended December 31, 2000

Net sales. Net sales decreased 37.1% to $72.1 million for the year ended
December 31, 2001, as compared to $114.6 million for the year ended December
31, 2000. The decrease in net sales was primarily due to the global slowdown in
the semiconductor technology end-markets resulting in lower shipment levels.
Net sales were also reduced in 2001 by reductions in the selling price of some
of our power management and interface products. Additionally, net sales were
further reduced by the second quarter increase in our reserves for
product returns of $1.2 million, which was based upon our decision to authorize
returns from certain distributors in excess of their contractual return
privileges, based upon continued slowness in the semiconductor industry.
In the fourth quarter of 2001, Sipex accepted distributor orders for
certain products on a discounted basis. Revenue from these orders is recognized at the time of shipment, since these orders are
non-cancelable, non-returnable and for which such sales are not
subject to the terms of the Company's distribution agreement with the
distributor, including without limitation the price protection,
restocking and other returns rights the distributor is entitled to in
the agreement. Year-to-date 2001 net sales were also affected by $4.5 million in the first
quarter of 2001, which is related to a change in the timing of revenue
recognition on sales to our largest distributor. Effective October 1, 2000, we
began to recognize revenue on sales to our largest distributor when the
distributor sells our products to end users (sell through), rather than upon
shipment of the product to the distributor. As of December 31, 2000, there was
approximately $4.5 million of inventory shipped to this distributor for which
we had recognized revenue prior to October 1, 2000; accordingly, our net sales
for the fiscal year ended 2001 were impacted by that amount. Our 2001
sales were also impacted by $1.3 million of sales in the fourth
quarter to our largest distributor on a discounted, non-cancellable
and non-returnable basis. Approximately 62%
of our net sales were derived from international customers in 2001, as compared
to 53% in 2000. Geographically, in 2001, sales decreased in all regions except
for Europe, as compared to 2000.

Gross margins.Gross profit (loss) was ($1.5) million or (2.1)% of net
sales in 2001 compared to $36.5 million or 31.8% of net sales in 2000. The
reduction in gross profit as a percentage of net sales in 2001 from 2000 was
mainly due to the higher operating costs of the Hillview fab, lower capacity
utilization, wafer fab yield and the lowered selling prices on some of our
power management and interface products as a result of the continued global
slowdown in the semiconductor industry.

In the second quarter of 2001, we announced that a continued softness in
our business led to a reduction in the demand on our inventory. During the
several quarters preceding the announcement, we had expanded our internal
fabrication facility and test operations in response to forecasts of
significant revenue growth in our business. However, we experienced significant
customer deferrals of delivery dates and order cancellations. Due to these
customer actions, we were left in a position of higher than normal levels of
inventory, which based on current and forecasted demand, would not be consumed
during the products life cycle. As a result, we took an inventory charge of
$2.6 million due to the sudden and significant decrease in forecasted revenue
in our business in addition to additional reserves established as
part our inventory valuation process.

Research and development.Research and development (R&D) expenses were
$12.9 million and $13.2 million in 2001 and 2000, respectively, or 17.9% and
11.5% of net sales, respectively. The reduction in R&D expenses in 2001, as
compared to 2000, was mainly due to cost saving measures taken due to the
continued slowness in the semiconductor industry. The reduction included lower
bonuses and discretionary spending such as travel, which were
offset by continued process development in the new wafer fabrication facility.
The increase as a percentage of net sales in 2001 was mainly due to the
decreased sales base. Sipex has felt it important to continue to invest in
research and development as future product development is critical to
achieving the corporate growth plans which are achieved through the development
of new products.

Marketing and selling.Marketing and selling expenses were $9.9 million
and $10.8 million in 2001 and 2000, respectively, or 13.8% and 9.4% of net
sales, respectively. The dollar decrease in marketing and selling expenses in
2001 over 2000 was mainly due to lower commissions due to decreased sales and
lower discretionary spending such as travel and entertainment and was partially
offset by increased advertising and additional sales resources in Asia. Sipex
has targeted its growth to include Asia, which is a rapidly expanding market
for semiconductor products. The increase as a percent of sales in 2001 was
mainly due to the lower sales base.

General and administrative.General and administrative expenses were $7.4
million and $9.6 million in 2001 and 2000, respectively, or 10.3% and 8.4% of
net sales, respectively. The dollar decrease in general and administration
expenses was mainly due to controls over spending, and decreased salaries and
bonuses in 2001. The increase as a percent of sales in 2001 was mainly due to
the lower sales base.

12



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##### Table of Contents



Restructuring. During 2001, we recorded charges totaling
$534,000 for severance payments related to the reduction of our workforce as a
result of the continued slowness in the semiconductor market. As of December
31, 2001, the total costs accrued had been paid. This
charge was offset in the statement of operations by a reduction of $357,000 in the
restructuring accrual which was established in the fourth quarter of 1999. The
reduction in 2001 was due to the sale of the Calogic fabrication facility,
which had been planned for closure in early 2001. As a result of the sale, we reduced
both the facility exit and related equipment disposal costs
and employee termination portions of the accrual
due to the assumptions of the facility lease and assets by the new owners who retained many of
the employees to whom we had planned to pay severance costs.
Additionally, the Company was able
to sublease a facility earlier than expected during 2000 which
resulted in a reduction of
the accrual for facility-related costs in 2000. The following is a summary of the
1999 restructuring activity:

|                                 |  |          |       |          |  |             |      |          |  |          |      |             |  |          |     |         |  |   |      |   |  |         |      |   |  |   |   | 
|-------------------------------- |  | -------- | ----- | -------- |  | ----------- | ---- | -------- |  | -------- | ---- | ----------- |  | -------- | --- | ------- |  | - | ---- | - |  | ------- | ---- | - |  | - | - | 
|                                 |  | Accrual  |       |          |  |             |      |          |  |          |      | Accrual     |  |          |     |         |  |   |      |   |  | Accrual
|                                 |  | Balance  |       | Incurred |  | Adjustments |      | Balance  |  | Incurred |      |             |  |          |     | Balance
|                                 |  | 12/31/99 |       | 2000     |  | to Accrual  |      | 12/31/00 |  | 2001     |      | Adjustments |  | 12/31/00
|                                 |  |          |       |          |  |             |      |          |  |          |      |             |  |         
|People related costs             |  | $        | 640   |          |  | $           | (507 | )        |  | $        |     |             |  | $        | 133 |         |  | $ | (51  | ) |  | $       | (82  | ) |  | $ |  | 
|                                
|                                
|                                
|                                
|Facility related
costs           |  |          | 930   |          |  |             | (332 | )        |  |          | (425 | )           |  |          | 173 |         |  |   | (98  | ) |  |         | (75  | ) |  |   |  | 
|                                
|                                
|                                
|                                
|Equipment related
disposal costs |  |          | 300   |          |  |             |     |          |  |          | (100 | )           |  |          | 200 |         |  |   |     |   |  |         | (200 | ) |  |   |  | 
|                                 |  |          |       |          |  |             |      |          |  |          |      |             |  |          |     |         |  |   |      |   |  |         |      |   |  |   |   | 
|                                 |  | $        | 1,870 |          |  | $           | (839 | )        |  | $        | (525 | )           |  | $        | 506 |         |  | $ | (149 | ) |  | $       | (357 | ) |  | $ |  | 
|                                 |  |          |       |          |  |             |      |          |  |          |      |             |  |          |     |         |  |   |      |   |  |         |      |   |  |   |   | 

In the fourth quarter of 1999, Management of Sipex and the Board of
Directors approved a plan to close certain manufacturing facilities in
California, consisting of five locations which were acquired through the merger with
Calogic and accounted
for as a pooling-of-interests. Total estimated costs of $1.9 million
associated with the closure of the Calogic facilities included facility related
costs of $930,000, costs related to the expected abandonment and
disposal of less
efficient and duplicate machinery and equipment of $300,000 and
people related facilities exit and severance costs of $640,000.

In the third quarter of 1999, Sipex
realized net proceeds of $1.1 million from the unanticipated sale of the
tangible assets of our semiconductor wafer fab located in Milpitas, California
which had been written off as part of facility exit costs during 1998. This recovery of
$1.1 million has been recorded as a credit to facility exit costs on the
statement of operations for 1999 resulting in the reporting of net facility
exit costs for 1999 of approximately $817,000.

Interest and other income, net.Other income (expense), net was $(394,000)
and $2.1 million in 2001 and 2000, respectively. The decrease in other income
was due primarily to interest expense in 2001 as a result of borrowings on our
bank line of credit, decreased interest income as a result of the decrease in
restricted cash in the second quarter of 2001 which was used to purchase the
land, building and equipment of the Milpitas wafer fabrication facility,
formerly under the synthetic lease and a $292,000 increase in royalty expense
due to the discontinuance of royalties paid to Sipex under a licensing
agreement.

Income tax expense.We recorded an income tax benefit of $12.6 million for
2001 compared to an income tax expense of $1.6 million for 2000, resulting in
an effective income tax benefit rate of 39.0% in 2001 compared to an effective
tax expense rate of 29.3% in 2000. The 2001 effective rate differs from the
2000 effective rate primarily due to the disproportionately larger impact of
federal and state tax credits on the effective rate in 2000. Also see
income tax discussions below in Liquidity and Capital Resources and
Critical Accounting Policies.

Fiscal Year Ended December 31, 2000 compared to Fiscal Year Ended December 31, 1999

Net sales.Net sales increased 27.6% to $114.6 million for the year ended
December 31, 2000 compared to $89.8 million for the year ended December 31,
1999. The increase in net sales was primarily due to greater demand for our
products and increased design wins. The increase in sales was offset by $5.1
million for a change in the timing of recognizing revenue on sales to our
largest distributor and $1.7 million for additional reserves for distributor
returns necessitated by the elimination of certain distributors. The $5.1
million is the result of changing the timing of recognizing revenue from when
the product is shipped to our largest distributor to when the distributor sells
our products through to the OEM. We made this change effective October 1, 2000
when we concluded we could no longer reasonably estimate reserves for returns
and price concessions due to a change in our relationship with this certain
distributor. At December 31, 2000, there was approximately $4.5 million of
inventory shipped into this distributor for which revenue was recognized prior
to October 1, 2000 that impacted sell-through revenue in the first quarter of
2001. Demand in fiscal year 2000 started out strong and declined in the fourth
quarter due to a cyclical downturn in the industry. As a result of the reduced
demand, we took order cancellations of approximately $8.0 million in the fourth
quarter of 2000 from our distributors. Approximately 53% of our net sales were
derived from international customers in 2000 compared to 51% in 1999.
Geographically, in 2000, we experienced sales growth of 38% in Japan and the
Pacific Rim countries, 28% growth in Europe and 20% growth in the U.S.

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Gross margins.Gross profit was $36.5 million or 31.8% of net sales in
2000 compared to $32.6 million or 36.3% of net sales in 1999. The 4.5%
reduction in gross profit as a percentage of net sales in 2000 from 1999 was
primarily due to continued high wafer pricing from subcontract manufacturers,
lower capacity utilization, additional reserves for distributor returns of $1.7
million necessitated by the elimination of certain distributors in the fourth
quarter, and a $3.1 million increase in inventory reserves mainly due to an
end-of-life strategy for our legacy product lines (assembled products and ASSP)
adopted in the fourth quarter of 2000.

Research and development.Research and development (R&D) expenses were
$13.2 million and $10.6 million in 2000 and 1999, respectively, or 11.5% and
11.8% of net sales, respectively. The increase in R&D expense in 2000 as
compared to 1999 was due primarily to process development as well as an
increase in staffing, particularly design engineering personnel and higher
spending for development of mask sets and test wafers.

Marketing and selling.Marketing and selling expenses were $10.8 million
and $9.7 million in 2000 and 1999, respectively, or 9.4% and 10.9% of net
sales, respectively. The dollar increase in marketing and selling expenses in
2000 over 1999 was due primarily to an increase in staffing, particularly sales
personnel in our Asian operations and field application engineering.

General and administrative.General and administrative expenses were $9.6
million and $7.9 million in 2000 and 1999, respectively, or 8.4% and 8.8% of
net sales, respectively. The dollar increase in general administration expense
was due primarily to increased staffing, legal, accounting and other related
professional expenses.

Restructuring.In the fourth quarter of 1999, management of Sipex and the
Board of Directors approved a plan to close certain office and manufacturing facilities in
California consisting of five locations, which were acquired through the merger with Calogic and accounted
for as a pooling-of-interests. Total estimated costs of $1.9 million
associated with the closure of the Calogic facilities included facility related
costs of $930,000, costs related to the expected abandonment of less
efficient and duplicate machinery and equipment of $300,000 and facilities exit
and people related severance costs of $640,000. All of these costs were accrued as of
December 31, 1999 and were estimated to be paid by the end of 2000, except for
lease costs which were expected to be paid over a two-year period until the
closed facilities could be subleased. See discussion of
2001 results of operations above for the table that summarizes the
activity in this restructuring.

In accordance with the plan, we closed the Calogic manufacturing,
sales and administration facilities in Pleasanton, California and
incurred people related costs and were incurring the lease
costs for the closed facility as originally planned, with the exception of one
building which was subleased unexpectedly. However, the slower than anticipated
ramp-up of our new Milpitas wafer fabrication facility during 2000 delayed the
transition of manufacturing of the Calogic products to our new facility and
hence delayed the closure of the Calogic Fremont wafer fabrication facility,
which will be closed by the end of the first quarter of 2001. The delay in the
closure of the Fremont facility reduced facility costs by shortening the period
in which the leased fabrication facility would be vacant and we also
subleased one of our facilities. Consequently, we
reduced the facility related portion of the accrual to adjust for the
unexpected sublease and the delay in closing this facility. Additionally, the
equipment related accrual was adjusted to reflect our revised
estimate of costs in abandoning this facility. As
of December 31, 2000, $506,000 of the restructuring accrual remains which is
estimated to be paid by the end of the first quarter of 2001, except for lease
termination costs which we expect to incur through the end of the
third quarter of 2001.

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Interest and other income, net.Other income, net was $2.1 million and
$1.4 million in 2000 and 1999, respectively. The increase in other income was
due primarily to lower interest expense due to the payoff of Calogic bank
obligations in December 1999.

Income tax expense.We recorded an income tax expense of $1.6 million for
2000 compared to an income tax benefit of $2.4 million for 1999, resulting in
an effective income tax expense rate of 29.3% in 2000 compared to an effective
tax benefit rate of 65.7% in 1999. The 2000 effective rate differs from the
statutory rate due to federal research credits and state tax credits including
California manufacturers investment tax credit. The 1999 effective rates
differed from the statutory rate due to the reduction of the valuation
allowance for net operating loss carryforwards utilized and deferred tax
benefits expected to be realized in the future.

Liquidity and Capital Resources

At December 31, 2001, we had available funds of $4.9 million consisting of
cash and cash equivalents, as compared to the prior fiscal year balance of $1.7
million. Working capital decreased to $35.8 million in 2001, a 20.0% decrease
from the December 31, 2000 balance of $44.8 million.

Net cash used in operating activities was $16.5 million, $1.0 million, and
$3.6 million in 2001, 2000 and 1999, respectively. Net cash used in operating
activities in 2001 resulted primarily from a $19.7 million net loss, a $4.6
million decrease in accounts payable, a $2.4 million decrease in accrued
expenses and a $1.4 million decrease in other long-term liabilities and an
$11.9 million increase in deferred income tax assets. These cash outflows were
partially offset by a $7.1 million decrease in accounts receivable and a
decrease in inventory of $8.0 million. The significant decrease in our
inventories was primarily due to opportunistic sales in power management and
interface products and greater efficiencies in manufacturing. The decrease in
accounts receivable over the prior year was mainly the result of lower shipment
levels. The decrease in accounts payable over the prior year was mainly the
result of decreased inventory purchases and capital expenditures, other than
the purchase of the land, building and equipment of the Milpitas manufacturing
facility, which funding was provided through the liquidation of restricted
cash. In 2000, net cash used in operating activities resulted primarily from an
$8.3 million increase in accounts receivable, a $10.2 million increase in
inventories and a $3.2 million increase in deferred income tax assets and was
partially offset by net income of $3.9 million and an increase in accounts
payable of $3.9 million.

Net cash used in investing activities for property, plant and equipment
was $40.4 million, $19.5 million and $9.2 million in 2001, 2000 and 1999,
respectively. The growth in 2001 capital investment related principally to our
purchase of the land, building and equipment of our Milpitas wafer fabrication
facility, which was being leased under a five-year operating lease. In
accordance with the provisions of the lease agreement, we paid $35.0 million,
consisting of $6.0 million for the land, $16.9 million for the building and
$12.1 million for machinery and equipment. The recorded cost of the machinery
and equipment purchased was reduced by a $1.4 million long-term liability
recorded by us through June 30, 2001 as the estimated liability under the lease
for the guaranteed residual value of the equipment. Proceeds for the buyout
were provided through the liquidation of restricted cash of $36.8 million that
had previously secured the lease of the facility and equipment. The growth in
2000 capital investment related principally to the expansion of our wafer
manufacturing facility in Milpitas, California and the purchase of machinery
and equipment for the facility which was financed substantially through our
bank line of credit. Capital investments in 1999 related to the expansion of
our wafer manufacturing facility in San Jose, California, equipment upgrades in
all facilities and $2.3 million relating to upgrading Sipexs information
systems infrastructure.

Net cash provided by (used in) financing activities was $23.2 million,
$15.3 million and $(5.9) million in 2001, 2000 and 1999, respectively. On May
16, 2001, we issued 2,190,000 shares of Sipex common stock through a private
placement of securities, resulting in proceeds to us of $21.6 million, net of
underwriting commissions and expenses. Proceeds from the offering were used to
reduce our indebtedness under our bank line of credit and to provide funding
for operations. In addition, in 2001, $1.2 million was provided by the issuance
of common stock upon the exercise of options or pursuant to our stock purchase
plans. In 2000, $8.7 million was provided by the issuance of common stock upon
the exercise of options or pursuant to our stock purchase plans and $7.1
million proceeds from long-term debt, which was partially offset by the
repayment of $413,000 of debt obligations. In 1999, $654,000 was provided by
the issuance of common stock upon the exercise of options or pursuant to our
stock purchase plans, offset by the repayment of $6.6 million of debt
obligations.

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At December 31, 2001, we had U.S. net operating loss carryforwards of
approximately $85.6 million, which are available to offset future Federal
taxable income. In order to fully utilize the deferred tax assets, we will need
to generate sufficient future taxable income prior to the expiration of the net
operating loss carryforwards. U.S. loss carryforwards will expire beginning in
2005. Based on projections of taxable income over the next several years, and
considering the limitation imposed by IRC Section 382, we believe that none of
the loss carryforwards will expire unused. Based upon the
level of historical income and projections for future income
over the periods which the temporary differences are deductible, we believe it
is more likely than not that we will realize the benefits of these deductible
differences. The amount of the deferred tax assets considered realizable,
however, could be reduced in the near term if estimates of future
taxable income during the carryforward period are reduced. Such
reduction could have a material adverse effect on our statement of
operations resulting from the income tax charge that would be
required to record a valuation allowance against the deferred tax
assets.

In addition to the issuance of common stock, we increased cash flows from
operations through a series of salary and spending reductions in the second
through fourth quarters of 2001. Spending reductions included mandatory
vacation, salary reductions, reductions in material purchases, controls over
discretionary spending and reduced headcount.

Sipex has a $20.0 million borrowing limit with a borrowing base of 80% of
our eligible accounts receivable under our bank line of credit. Funds provided
through the line of credit are used to provide working capital for Sipexs
operations. The loan agreement requires compliance with certain minimum
tangible net worth and financial ratios. During 2001, Sipex was in violation
of certain of these covenants. However, waiver of the violations were obtained
and the covenants were modified. At December 31, 2001, Sipex was in compliance
with the modified covenants and projects to be in compliance in 2002.

We believe that our current cash and cash equivalents, bank loan
availability and cash provided by operations will be sufficient to meet our
anticipated cash needs for working capital and capital expenditures for at
least the next 12 months. In order to grow, we may seek additional funding
through the issuance of debt or equity securities. If additional funds are
raised through the issuance of debt securities, these securities could have
rights, preferences and privileges senior to holders of common stock, and terms
of any debt could impose restrictions on our operations. The sale of
additional equity or convertible debt securities could result in additional
dilution to our stockholders and additional financing may not be available in
amounts or on terms acceptable to us. If additional financing is necessary and
we are unable to obtain the additional financing, we may be required to reduce
the scope of our planned product development and marketing efforts, which could
harm our business, financial condition and operating results.

The semiconductor industry is currently experiencing a downturn that is
adversely affecting our results of operations. The continuance of this
prolonged downturn may cause continued losses, which in turn could adversely
affect our ability to secure additional financing and affect the growth of our
business.

The table below summarizes mimimum lease payments
under noncancelable operating leases as of December 31, 2001.

|              |  |   |       | 
|------------- |  | - | ----- | 
|Calendar Year | 
|             
|2002          |  | $ | 1,141
|2003          |  |   | 841  
|2004          |  |   | 829  
|2005          |  |   | 672  
|2006          |  |   | 672  
|Thereafter    |  |   | 872  
|              |  |   |      
|              |  | $ | 5,027
|              |  |   |      

Critical Accounting Policies

The discussion and analysis of our financial condition and results of
operations is based on our consolidated financial statements, which have been
prepared in accordance with accounting principles generally accepted in the
United States. The preparation of these financial statements requires
management to make estimates and assumptions that affect the reported amounts
of assets and liabilities and disclosure of contingent assets and liabilities
at the date of the consolidated financial statements and the reported amounts
of revenues and expenses during the reporting period. On an ongoing basis, we
evaluate our estimates, including those related to revenue recognition, sales
returns, inventories, income taxes, restructuring and contingencies and
litigation. We base our estimates on historical experience and on various other
assumptions that are believed to be reasonable under the circumstances. There
can be no assurance that actual results will not differ from those estimates.

We have identified the accounting policies below as the policies most
critical to our business operations and the understanding of our results of
operations. The impact and any associated risks related to these policies on
our business operations is discussed throughout Managements Discussion and
Analysis of Financial Condition and Results of Operations where such policies
affect our reported and expected financial results. Our critical accounting
policies relate to revenue recognition, sales returns, inventory
reserves and income taxes and are
explained below:

Revenue Recognition.We consider revenue recognition to be a critical
accounting policy. Beginning in the fourth quarter of 2000, we began deferring
revenue on ordinary course shipments to our largest distributor until the
product is

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resold by the distributor to the end user (sell-through) because the
arrangement with this distributor includes price concession and return rights,
the potential impact of which we believed we could no longer reasonably
estimate. For all other product sales, revenue is recognized at the time of
shipment because these distributors/customers have no price protection and have limited
return rights. In addition, management believes that it is able to estimate and
establish appropriate reserves for future returns from these distributors. For
product sales recognized at the time of shipment, Sipex accrues for estimated
sales returns upon shipment based upon our estimates of future
returns. In the fourth quarter of 2001, Sipex accepted distributor
orders for certain products on a discounted basis for which the distributor has
no rights of return other than for product related issues, price protection or
cancellation rights and which are not governed by the terms of the existing
distributor contract. Revenue from these orders was recognized at the
time of shipment, since these orders are non-cancelable, non
returnable and for which such sales are not subject to the terms of
the Company's distribution agreement with the distributor, including
without limitation the price protection, restocking and other returns
rights the distributor is entitled to in the agreement.
Revenue from engineering service contracts is recorded as performance
is completed.

Sales returns. We consider the determination of our estimated reserve for
sales returns to be a critical accounting policy. To estimate reserves for
future sales returns, we regularly review our history of actual returns for
each major product line. We also communicate monthly with our channel partners to gather
information about sell-through activity, end user satisfaction and to determine
the volume of inventory in the channel. We use the results of this analysis to
estimate the reserves for sales returns. We adjust our reserves for future
returns as is necessary, based on returns experience returns
expectations and our
communications with our channel partners.

In estimating reserves, we also consider unusual events and market
conditions. For example, as we announced on March 6, 2002, as of the second
quarter of 2001, we increased our reserves for returns by $1.2 million
for returns from
certain distributors in excess of their contractual return privileges, based
upon continued slowness in the semiconductor industry
and adjusted our financial statements for the second and third quarters of 2001
to reflect the reserve for these returns which had not been provided for at that
time. Historically, we have not experienced material
differences between our estimated reserves for sales returns and actual
results. However, it is possible that future events such as the introduction of
a competitive product, product obsolescence, price competition, continued
slowness in the semiconductor industry and distributors desire to decrease
levels of inventory in the distribution channel could result in significant
changes in customer demand and cause future returns to increase beyond
historical levels. However, Management believes that
it is able to estimate returns, and establish appropriate reserves for returns
from customers for which Sipex recognizes revenue as of shipment, using the
process described above. However, since reserves for estimated sales returns are recorded as a
reduction in revenues, any significant difference between our estimated and
actual returns experience, or changes in our estimate of reserves for future
returns, would be reflected in our reported revenues in the period we determine
that difference, and could have a material impact on our future results of operations.

Inventory reserves.We write down our inventory for estimated obsolescence
or unmarketable inventory equal to the difference between the cost of inventory
and the estimated market value based upon assumptions about future demand and
market conditions. If actual market conditions are less favorable than those
projected by management, additional inventory write-downs may be required. In
the second quarter of 2001, we announced that a continued softness in our
business led to a reduction in the demand on our inventory. During the several
quarters preceding the announcement, we had expanded our internal fabrication
facility and test operations in response to forecasts of significant revenue
growth in our business. However, we experienced significant customer deferrals
of delivery dates and order cancellations. Due to these customer actions, we
were left in a position of higher than normal levels of inventory, which based
on current and forecasted demand, would not be consumed during the products
life cycle. As a result, we took an inventory charge of $2.6 million due to the
sudden and significant decrease in forecasted revenue in our business.

Income taxes. We assessed the realizability of deferred tax assets of $31.9
million as of December 31, 2001, by considering whether it is more likely than
not that some or all of the deferred tax assets will not be realized. The
ultimate realization of deferred tax assets is dependent upon the generation of
future taxable income during the periods in which the associated temporary
differences become deductible. We considered the scheduled reversals of
deferred tax liabilities and projected future taxable income in making this
assessment. At December 31, 2001, we had U.S. net operating loss carryforwards
of approximately $85.6 million, which were available to offset future Federal
taxable income. These losses expire beginning in 2005 through 2021. We also
had Massachusetts and California net operating loss carryforwards of
approximately $63.0 million and $11.3 million, respectively, which are
scheduled to expire beginning in 2005 to 2006. In addition, we had Federal and
State tax credits of approximately $1.3 million and $1.2 million, which are
scheduled to expire from 2002 to 2021, respectively.

In order to fully realize the deferred tax assets, the Company will need
to generate the following amounts of aggregate future taxable income within the
periods noted below in order that none of the loss or credit carryforwards expire unused.

|                                    |  |           |             |            |  |                |             |  |  |                |  | 
|----------------------------------- |  | --------- | ----------- | ---------- |  | -------------- | ----------- |  |  | -------------- |  | 
|                                    |  |           |             |            |  |                |             |  |  | Approximate   
|                                    |  |           |             |            |  |                |             |  |  | Cumulative    
|Type of Deductible                  |  | Years     |             | Expiration |  | Taxable Income
|Temporary Difference                |  | Generated |             | Dates      |  | Required      
|                                    |  |           |             |            |  |               
|U.S. loss carryforwards             |  |           | 1990 - 1995 |            |  |                | 2005 - 2010 |  |  | $22.7 million 
|U.S. loss carryforwards             |  |           | 2000 - 2001 |            |  |                | 2020 - 2021 |  |  | $62.5 million 
|Massachusetts loss carryforwards    |  |           | 2000 - 2001 |            |  |                | 2005 - 2006 |  |  | $62.5 million 
|California loss carryforwards       |  |           | 2000 - 2001 |            |  |                | 2005 - 2006 |  |  | $32.4 million 
|U.S. tax credit carryforwards       |  |           | 1995 - 2001 |            |  |                | 2010 - 2021 |  |  | $107.6 million
|California tax credit carryforwards |  |           | 1998 - 2001 |            |  |                | 2006 - 2009 |  |  | $101.3 million

Based on projections of taxable income over the next several years, and
considering the limitation imposed by IRC Section 382, we believe that none of
the loss carryforwards will expire unused. Based upon our projections for future
income over the periods in which the temporary differences are deductible, we
believe it is more likely than not that we will realize the benefits of these
deductible differences. The amount of the deferred tax assets considered
realizable, however, could be reduced in the near term if estimates
of future taxable income during the carryforward period are reduced. Such
reduction could have a material adverse affect on our statement of operations
resulting from the income tax charge that would be required to reflect a
valuation allowance against the deferred tax asset.

In assessing the realizability of our deferred tax assets, we consider and
rely upon projections of future taxable income. The key assumptions in our
projections include sales growth rates, production volumes and yields and
expected levels of operating expenditures in addition to the factors discussed
below in the section titled Factors Affecting Future Operating Results. These
assumptions are subject to variation based upon both internal factors and
external factors, many of which are beyond the control of the Company. To the extent that actual
experience deviates from our assumptions, our projections would be affected and
hence our assessment of realizability of our deferred tax assets may change.
Such a change will likely occur if the current downturn in our industry is prolonged.

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Recent Accounting Pronouncements

In July 2001, the Financial Standards Board (FASB) issued SFAS 141,
Business Combinations(FAS 141) and SFAS 142, Goodwill and Other Intangible
Assets(FAS 142). FAS 141 requires that the purchase method of accounting be
used for all business combinations initiated after June 30, 2001. FAS 141 also
specifies the criteria that intangible assets acquired in a purchase method
business combination must meet to be recognized and reported apart from
goodwill. FAS 142 requires that goodwill and intangible assets with indefinite
useful lives will no longer be amortized, but instead be tested for impairment,
at least annually, in accordance with the provisions of FAS 142. FAS 142 will
also require that intangible assets with definite useful lives be amortized
over their respective estimated useful lives to their estimated residual
values, and reviewed for impairment in accordance with SFAS 121, Accounting for
the Impairment of Long-Lived Assets and Long-Lived Assets to be Disposed Of.

The provisions of FAS 141 were effective immediately, except with regard
to business combinations initiated prior to July 1, 2001. FAS 142 will be
effective as of January 1, 2002. Goodwill and other intangible assets
determined to have an indefinite useful life that are acquired in a business
combination completed after July 1, 2001 will not be amortized, but will
continue to be evaluated for impairment in accordance with appropriate pre-FAS
142 accounting literature. Goodwill and other intangible assets acquired in
business combinations completed before July 1, 2001 will continue to be
amortized prior to the adoption of FAS 142. On July 1, 2001, we adopted FAS
141. We are currently evaluating the effect that the adoption of FAS 142 will
have on our results of operations and financial position.

FASB recently issued SFAS 143, Accounting for Asset Retirement Obligations
(SFAS 143) which addresses financial accounting and reporting for obligations
associated with the retirement of tangible long-lived assets and the associated
asset retirement costs. SFAS 143 requires an enterprise to record the fair
value of an asset retirement obligation as a liability in the period in which
it incurs a legal obligation associated with the retirement of a tangible
long-lived asset. SFAS 143 also requires the enterprise to record the contra
to the initial obligation as an increase to the carrying amount of the related
long-lived asset and to depreciate that cost over the remaining useful life of
the asset. The liability is changed at the end of each period to reflect the
passage of time changes in the estimated future cash flows underlying the
initial fair value measurement. SFAS 143 is effective for fiscal years
beginning after June 15, 2002. We are currently examining the impact of this
pronouncement on our results of operations and financial position, but
currently believe the impact will not be material.

On October 3, 2001, FASB issued SFAS 144, Accounting for the Impairment or
Disposal of Long-Lived Assets(SFAS 144), which addresses financial accounting
and reporting for the impairment or disposal of long-lived assets and
supersedes FASB Statement No. 121, Accounting for the Impairment of Long-Lived
Assets and for Long-Lived Assets to Be Disposed Of. SFAS 144 retains many of
the fundamental provisions of that Statement. SFAS 144 also supersedes the
accounting and reporting provisions of Accounting Principle Board Opinion 30,
Reporting the Results of OperationsReporting the Effects of Disposal of a
Segment of a Business, and Extraordinary, Unusual and Infrequently Occurring
Events and Transactions(ABP 30), for the disposal of a segment of a
business. However, it retains the requirement in APB 30 to report separately
discontinued operations and extends that reporting to a component of an entity
that either has been disposed of (by sale, abandonment, or in a distribution to
owners) or is classified as held for sale. SFAS 144 is effective for fiscal
years beginning after December 15, 2001 and interim periods within those fiscal
years. We are currently examining the impact of this pronouncement on our
results of operations and financial position, but currently believe the impact
will not be material.

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Factors Affecting Future Operating Results

Fluctuations in Operating Results

Our quarterly and annual operating results are affected by a wide variety
of factors that could materially and adversely affect net sales and
profitability from period-to-period, including overall economic conditions in
the United States, particularly as a result of the events of September 11th,
and abroad, competitive pressures on selling prices; the timing and
cancellation of customer orders; availability of foundry capacity and raw
materials; fluctuations in yields; changes in product mix; our ability to
introduce new products and technologies on a timely basis; introduction of
products and technologies by our competitors; market acceptance of our and our
customers products; the level of orders received which can be shipped in a
quarter; our ability to manufacture in the correct mix to respond to orders on
hand and new orders received in the future; the timing of investments in
research and development, including tooling expenses associated with product
development, process improvements and production; the level of future product
returns; and the cyclical nature of the semiconductor industry. Due to the
absence of substantial noncancelable backlog, we typically plan our production
and inventory levels based on internal forecasts of customer demand, which are
highly unpredictable and can fluctuate substantially.

Our expense levels are based, in part, on expectations of future revenues
and are, to a large extent, fixed in the short term. Our future revenues are
difficult to predict and at times in the past we have failed to achieve revenue
expectations. We may be unable to adjust spending in a timely manner to
compensate for any unexpected revenue shortfall. If revenue levels are below
expectations for any reason, operating results are likely to be harmed. Based
on forecasts, we may increase our operating expenses for personnel and new
product development and for inventory in anticipation of increasing sales
levels; therefore, operating results would be harmed if increased sales are not
achieved. In addition, we are limited in our ability to reduce costs quickly in
response to any revenue shortfalls.

The semiconductor industry is currently experiencing a downturn that is
adversely affecting our results of operations. Our net revenue for the
quarters ended September 30, 2001 and December 31, 2001 decreased 58% and 13%
from the same periods in 2000. Our business depends on market demand for
products using analog semiconductors. Prolonged downturns in the semiconductor
industry will lead to downturns in our net income and may cause continued
losses and cash flow shortages.

Capital Requirements

In order to remain competitive, we must continue to make significant
investments in our facilities and capital equipment. We have funded a portion
of our capital investments through long-term debt under our $20.0 million line
of credit with a commercial bank. In addition to this line of credit, we may
seek additional equity or debt financing from time to time and cannot be
certain that additional financing will be available on favorable terms, if at
all. Moreover, any future equity or convertible debt financing will decrease
the percentage of equity ownership of existing stockholders and may result in
dilution, depending on the price at which the equity is sold or the debt is
converted.

Supply and Manufacturing Risks

Our manufacturing processes are highly complex and are continuously being
modified in an effort to improve yields and product performance. Process
changes can result in interruptions in production or significantly reduced
yields that could result in product introduction or delivery delays. In
addition, yields can be adversely affected by minute impurities in the
environment or other problems that occur in the complex manufacturing process.
Many of these problems are difficult to diagnose and are time-consuming or
expensive to remedy. From time to time we have experienced yield variances. In
particular, new process technologies or new products can be subject to
especially wide variations in manufacturing yields and efficiency. We cannot be
assured that our foundry or those of our suppliers will not experience yield
variances or other manufacturing problems that result in delayed product
introduction or delivery delays.

We currently rely on a variety of outside foundries to supply fully
processed semiconductor wafers. There are significant risks associated with
reliance on outside foundries, including the lack of assured wafer supply and
control over delivery schedules, the unavailability of or delays in obtaining
access to key process technologies and limited control over quality assurance,
manufacturing yields, capacity and production costs. The occurrences of any
supply or other problems such as the wafer shortages could have a negative
impact on our business revenues and results of operations.

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From time to time, the overall semiconductor industry has experienced
significant growth which has created industry-wide capacity shortages and
extended lead times for contract assembly, raw wafers, capital equipment,
foundry wafers and various other products and services that are critical to our
performance. We are seeking to establish and maintain critical inventories and
alternate sources to minimize the impact of our vendors capacity limitations.
However, there may be future shortages of key services that harm our business
and results of operations.

In an effort to reduce our reliance on outside fabricators for our wafers,
we have built an in-house fabrication facility in Milpitas, California. We have
brought wafer production in-house and have transitioned substantially
all of our products to the
new fab. The new facility is a sophisticated, highly complex, state-of-the-art
factory. Actual production rates depend upon the continued reliable operation
and effective integration of a variety of hardware and software components. We
cannot be sure that all of these components will be fully functional or
successfully integrated or that the facility will achieve the forecasted yield
targets. We have experienced and may continue to experience unexpected delays
and problems in qualifying and ramping up production at this new facility. Our
failure to implement the new fab successfully and in a timely fashion may
impact future revenue growth and operating results. In addition, the amount of
capital expenditures required to bring the facility to full operating capacity
could be greater than currently anticipated. Higher costs to bring the facility
to full operating capacity will reduce margins and could harm our business and
results of operations.

Environmental Regulations

We are subject to a variety of federal, state and local governmental
regulations related to the use, storage, discharge and disposal of toxic,
volatile or otherwise hazardous chemicals used in our manufacturing processes.
Although we believe that our activities conform to presently applicable
environmental regulations, the failure to comply with present or future
regulations could result in fines being imposed on us, suspension of production
or a cessation of operations. Any failure by us to control the use of, or
adequately restrict the discharge of, hazardous substances, or otherwise comply
with environmental regulations, could subject us to significant future
liabilities. In addition, we cannot assure you that we have not in the past
violated laws or regulations, which violations could result in remediation or
other significant liabilities, or that past use or disposal of environmentally
sensitive materials in conformity with then existing environmental laws and
regulations will not result in remediation or other significant liabilities
under current or future environmental laws or regulations.

Intellectual Property Rights

The semiconductor industry is characterized by frequent litigation
regarding patent and other intellectual property rights. Although we are not
aware of any pending or threatened patent litigation which we consider
material, there can be no assurance that third parties will not assert claims
against us with respect to existing or future products or technologies and we
have been subject to such claims in the past. In litigation to determine the
validity of any third-party claims, such litigation, whether or not determined
in our favor, could result in significant expense to us and divert the efforts
of our management personnel from productive tasks. In the event of an adverse
ruling in such litigation, we may be required to discontinue the use of certain
processes, cease the manufacture, use and sale of infringing products, expend
significant resources to develop non-infringing technology or obtain licenses
to the infringing technology. There can be no assurance that licenses will be
available on acceptable terms, or at all, with respect to disputed third-party
technology. In the event of a successful claim against us and our failure to
develop or license a substitute technology at a reasonable cost, our business,
financial condition and results of operations would be materially and adversely
affected.

Dependence on New or Enhanced Products

Our future success will depend, in part, upon our ability to anticipate
changes, to enhance our current products and to develop and introduce new
products that keep pace with technological advancements and address the
increasingly sophisticated needs of our customers. Our products may be rendered
obsolete if we fail to anticipate or react to change, and, as a result,
revenues and cash flow may be negatively impacted. Our success depends upon
our ability to develop new semiconductor devices for existing and new markets,
to introduce these products in a timely manner and to have these products
selected for design into new products of customers. The development of these
new devices is highly complex and from time-to-time we have experienced delays
in completing the development of new products. Successful product development
and introduction depends on a number of factors, including 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 and our customers products.

20



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Our success also depends upon the ability to accurately specify and
certify the conformance of our products to applicable standards and to develop
our products in accordance with our customers requirements. We cannot be sure
that we will be able to adjust to changing market conditions as quickly and
cost-effectively as necessary to compete successfully. Furthermore, we cannot
be sure that we will be able to introduce new products in a timely and
cost-effective manner or in sufficient quantities to meet customer demand or
that these products will achieve market acceptance.

Competition: The Semiconductor Industry

We compete in markets that are intensely competitive, and which exhibit
both rapid technological changes and continued price erosion. Our competitors
include many large domestic and foreign companies that have substantially
greater financial, technical and management resources than us. Loss of
competitive position could result in price reductions, fewer customer orders,
reduced revenues, reduced gross margins and loss of market share, any of which
would affect our operating results and financial condition. To remain
competitive, we continue to evaluate our manufacturing operations, looking for
additional cost savings and technological improvements. If we are not able to
successfully implement new process technologies and to achieve volume
production of new products at acceptable yields, our operating results and
financial condition may be affected. Our future competitive performance depends
on a number of factors, including our ability to:



| |  |  | 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.                                                                                                                                      

We cannot assure you that our design, development and introduction
schedules for new products or enhancements to our existing and future products
will be met. In addition, we cannot assure you that these products or
enhancements will achieve market acceptance, or that we will be able to sell
these products at prices that are favorable to us.

International Sales

We derive a significant portion of our net sales from international sales,
including Asia, which are subject to certain risks, including 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,
seasonality of sales and potentially adverse tax consequences. International
sales in 2001, 2000 and 1999 were approximately $44.4 million, $61.1 million
and $45.4 million, respectively, representing 61.6%, 53.3% and 50.5% of total
net sales, respectively. There can be no assurance that economic troubles in
any geographic portion of the world will not have a material adverse effect on
our business, results of operations and financial condition.

Stock Price Volatility

The trading price of our common stock is subject to wide fluctuations in
response to quarter-to-quarter variations in operating results, announcements
of technological innovations or new products by us or our competitors, general
conditions in the semiconductor manufacturing and electronic markets, changes
in earnings estimates by analysts, or other events or factors. In addition, the
public stock markets have experienced extreme price and trading volume
volatility in recent months. In the quarter ended December 31, 2000, our stock
price ranged from a high of $45.125 to a low of $15.875. In the first quarter
of 2001 ending March 31, 2001, our stock price ranged from a high of $25.563 to
a low of $7.656. This volatility has significantly affected the market prices
of securities of many technology companies for reasons frequently unrelated to
the operating performance of the specific companies. These broad market
fluctuations may adversely affect the market price of our common stock. On
January 12, 2001, our closing stock price was $13.00, down from $24.23 closing
price on January 11, 2001 as a result of a press release announcing lower than
expected revenue and earnings.

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Key Employees

Our success depends upon the continued service of our executive officers
and other key management and technical personnel, and on our ability to
continue to attract, retain and motivate qualified personnel, such as
experienced analog circuit designers. The competition for these employees is
intense. Most of our employees are employees at-will and we have no fixed-term
employment agreements with most employees, which means that they can terminate
their employment at any time. We cannot assure you that we will be able to
retain our design engineers, executive officers and other key personnel. The
loss of the services of one or more of our design engineers, executive officers
or other key personnel or our inability to recruit replacements for these
personnel or to otherwise attract, retain and motivate qualified personnel
could seriously impede our success.

Sales and Distribution Channels

An integral part of our strategy is to expand our sales and distribution
channels. We are increasing resources dedicated to developing and expanding
these channels but we may not be successful doing so. If we are successful in
increasing our sales through indirect sales channels, we expect that those
sales will be at lower per unit prices than sales through direct channels, and
revenues we receive for each sale will be less than if we had sold the same
product to the customer directly. Selling through indirect channels may also
limit our contact with our customers. As a result, our ability to accurately
forecast sales, evaluate customer satisfaction and recognize emerging customer
requirements may be hindered. Even if we successfully expand our distribution
channels, any new distributors may not have the technical expertise required to
market and support our products successfully. If parties do not provide
adequate levels of services and technical support, our customers could become
dissatisfied, we could be required to devote additional resources for customer
support, and our brand name and reputation could be harmed. Our strategy of
marketing products directly to our customers and indirectly through
distributors may result in distribution channel conflicts. Our direct sales
efforts may compete with those of our indirect channels and, to the extent
different distributors target the same customers, distributors may also come
into conflict with each other. Although we have attempted to manage our
distribution channels to avoid potential conflicts, channel conflicts may harm
our relationships with existing sales representatives or distributors or impair
our ability to attract sales representatives.

Dependence on distributors

Approximately 44% of our net sales are from shipments of our product to
distributors who sell directly to OEMs. Our agreements with distributors
contain provisions for return of our product including stock rotations whereby
distributors may return a percentage of their product based upon a percentage
of their most recent six months shipments and in certain circumstances upon
termination of the distributor relationship. We estimate the amount of future
returns and have established reserves for estimated returns based upon
information including sales during the period into the distribution channel,
reported sell-through by distributors to OEMs, distributor inventory levels and
the specific terms of the distributor agreements as well as historical returns
experience. As discussed in Managements Discussion and Analysis of Financial
Condition and Results of Operations, beginning in the fourth quarter of 2000,
we began deferring revenue on shipments to our largest distributor until the
product is resold by the distributor to the end user (sell-through) because the
arrangement with this distributor included price concessions and return rights
the potential impact of which we believed we could no longer reasonably
estimate

Legal Risks

As is outlined in Part I, Item 3, we have been named in two, virtually
identical purported securities class action lawsuits. The complaints allege,
among other things, incorrect statements in our financial statements for the
second and third quarters of fiscal year 2000 and seek an unspecified award of
damages. We believe that the allegations in the complaints are without merit
and intend to contest them vigorously. The litigation process is inherently
uncertain and unpredictable, however, and there can be no guarantee as to the
ultimate outcome of this pending litigation.







Item 7A.  Quantitative and Qualitative Disclosures About Market Risk:

We own financial instruments that are sensitive to market risks. None of
these market-risk sensitive instruments are held for trading purposes. We do
not own derivative financial instruments. Our financial instruments are
subject to the risk of a decline in interest rates.

22



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Investment Rate Risk.Our financial instruments are primarily money
market funds. We do not believe these money market funds have a material
exposure to interest rate risk.







Item 8.  Financial Statements and Supplementary Data:

Sipexs Consolidated Financial Statements and related Independent Auditors
Reports are presented in the following pages.

Independent Auditors Report
Consolidated Financial Statements:
     Consolidated Balance Sheets at December 31, 2001 and 2000
     Consolidated Statements of Operations for the years ended December 31, 2001, 2000 and 1999
     Consolidated Statements of Shareholders Equity and Comprehensive Income for the years ended December 31, 2001,
          2000 and 1999
     Consolidated Statements of Cash Flows for the years ended December 31, 2001, 2000 and 1999
     Notes to Consolidated Financial Statements







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

Not applicable.







PART III







Item 10.  Directors and Executive Officers of the Registrant:

The information required by this item, with respect to the directors of the
registrant and the filing of reports under Section 16(a) of the Securities
Exchange Act of 1934, is incorporated by reference from Sipexs definitive
proxy statement in connection with its Annual Meeting of Shareholders to be
held on May 17, 2002, to be filed with the Commission not later than 120 days
after the close of the fiscal year ended December 31, 2001, in the table under
the captions Election of Directors and Compliance with Section 16(a) of the
Securities Exchange Act of 1934.







Item 11.  Executive Compensation:

The information required by this item is incorporated by reference from Sipexs
definitive proxy statement in connection with its Annual Meeting of
Shareholders to be held on May 17, 2002, to be filed with the Commission not
later than 120 days after the close of the fiscal year ended December 31, 2001,
under the caption Compensation and Other Information Concerning Directors and
Officers.







Item 12.  Security Ownership of Certain Beneficial Owners and Management:

The information required by this item is incorporated by reference from Sipexs
definitive proxy statement in connection with its Annual Meeting of
Shareholders to be held on May 17, 2002, to be filed with the Commission not
later than 120 days after the close of the fiscal year ended December 31, 2001,
in the tables under the caption Security Ownership of Certain Beneficial
Owners and Management.







Item 13.  Certain Relationships and Related Transactions:

The information required by this item is incorporated by reference from the
Companys definitive proxy statement in connection with its Annual Meeting of
Shareholders to be held on May 17, 2002, to be filed with the Commission not
later than 120 days after the close of the fiscal year ended December 31, 2001,
under the caption Certain Transactions.

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PART IV







Item 14.  Exhibits,
Financial Statement Schedules and Reports on Form 8-K:

(a)  The following documents are filed as part of this Annual Report on
Form 10-K:



| |                                                                                                                                                                                      
| | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | 1. Consolidated Financial Statements.The following consolidated
financial statements of the Company and Reports of Independent Accountants
are incorporated in Item 8 of this report.



| |                                                                                                                                                                                                                                                                                                                                                                                                                                                           
| | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | Independent Auditors Report
Consolidated Balance Sheets at December 31, 2001 and 2000
Consolidated Statements of Operations for the Years Ended December 31, 2001, 2000 and 1999
Consolidated Statements of Shareholders Equity and Comprehensive Income for the Years Ended December 31,
     2001, 2000 and 1999
Consolidated Statements of Cash Flows for the Years Ended December 31,
2001, 2000 and 1999
Notes to Consolidated Financial Statements



| |                                                                                                                                                                                                                                                                                                                                                     
| | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | 2. Consolidated Financial Statement Schedules.Consolidated financial
statement schedules have been omitted because the required information is not
present or not present in amounts sufficient to require submission of the
schedule or because the information required is included in the consolidated
financial statements or the notes thereto.



| |                                                                                                                                          
| | -----------------------------------------------------------------------------------------------------------------------------------------
| | 3(a). The exhibits listed in the Exhibit Index immediately preceding the
Exhibits are filed as a part of this Annual Report on Form 10-K.



| |                                                                                                                         
| | ------------------------------------------------------------------------------------------------------------------------
| | 3(b). Reports on Form 8-K: No reports on Form 8-K were filed by Sipex
during the fiscal quarter ended December 31, 2001.

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SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, as amended, the registrant has duly caused this report to
be signed on its behalf by the undersigned, thereunto duly authorized, on the
29th day of March, 2002.

|                                    
|------------------------------------
|SIPEX CORPORATION                   
|                                    
|By:/s/ James E. Donegan             
|James E. Donegan                    
|Chairman of the Board of Directors, 
|Chief Executive Officer and Director

Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
registrant and in the capacities and on the dates indicated.

|                        |  |                                  |  |               
|----------------------- |  | -------------------------------- |  | --------------
|Name                    |  | Title                            |  | Date          
|                        |  |                                  |  |               
|/s/ JAMES E. DONEGAN    |  | Chairman of the Board of         |  | March 29, 2002
|                        |  | Directors, Chief Executive       |  |               
|James E. Donegan        |  | Officer, (principal executive    |  |               
|                        |  | officer) and Director            |  |               
|                       
|/s/ FRANK R. DIPIETRO   |  | Executive Vice President,        |  | March 29, 2002
|                        |  | Finance, Chief Financial         |  |               
|Frank R. DiPietro       |  | Officer, Treasurer (principal    |  |               
|                        |  | financial officer and accounting |  |               
|                        |  | officer) and Clerk               |  |               
|                       
|/s/ MANFRED LOEB        |  | Director                         |  | March 29, 2002
|Manfred Loeb            |  |                                  |  |               
|                       
|/s/ DOUGLAS M. MCBURNIE |  | Director                         |  | March 29, 2002
|Douglas M. McBurnie     |  |                                  |  |               
|                       
|/s/ LIONEL H. OLMER     |  |                                  |  |               
|                        |  | Director                         |  | March 29, 2002
|Lionel H. Olmer         |  |                                  |  |               
|                       
|/s/ WILLY SANSEN        |  |                                  |  |               
|                        |  | Director                         |  | March 29, 2002
|Dr. Willy Sansen        |  |                                  |  |               
|                       
|/s/ JOHN L. SPRAGUE     |  |                                  |  |               
|                        |  | Director                         |  | March 29, 2002
|John L. Sprague         |  |                                  |  |               

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EXHIBIT INDEX

|        |  |                                                                                                                                                                                                                                                                                                                  
|------- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Exhibit |  |                                                                                                                                                                                                                                                                                                                  
|Number  |  | Description                                                                                                                                                                                                                                                                                                      
|        |  |                                                                                                                                                                                                                                                                                                                  
|2.1     |  | 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     |  | Restated Articles of Organization of the Company, as amended
(filed as Exhibit 3.1 to the Companys Registration
Statement on Form S-1 (File No. 333-1328, and incorporated
herein by reference)                                                                                                                 
|3.2     |  | Restated By-Laws of the Company, as amended (filed as
Exhibit 3.2 to the Companys Registration Statement on Form
S-1, File No. 333-1328, and incorporated herein by
reference)                                                                                                                                  
|       
|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, 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)                                                                   
|       
|10.9    |  | Employment Agreement, as of the 14th day of May, 1999,
between the Company and Frank R. DiPietro (filed as Exhibit
10.3 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)                                                                                                                                        

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|        |  |                                                                                                                                                                                                                                                                  
|------- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Exhibit |  |                                                                                                                                                                                                                                                                  
|Number  |  | Description                                                                                                                                                                                                                                                      
|        |  |                                                                                                                                                                                                                                                                  
|10.15   |  | Pledge and Security Agreement dated December 14, 1998 by and
between the Company and Frank R. DiPietro (previously filed
as Exhibit 10.18 to the Companys Annual Report on Form 10-K
for the year ended December 31, 1999, and incorporated
herein by reference)
|       
|10.16*  |  | 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)                     
|       
|10.17   |  | Employment Agreement, dated as of the 16th day of May, 1999
between the Company and Yener Gurler (filed as Exhibit 10.5
to the Companys Quarterly Report on Form 10-Q for the
quarter ended July 3, 1999, and incorporated herein by
reference)                 
|       
|10.18   |  | 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)           
|       
|10.19   |  | Business Loan Agreement with Comerica bank (filed as Exhibit
10.1 to the Companys Quarterly Report on Form 10-Q for the
quarter ended July 1, 2000, and incorporated herein by
reference)                                                                       
|       
|10.20   |  | 2000 Non-Qualified Stock Option Plan (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
reference)                                                                     
|       
|10.21   |  | Employment Agreement, dated February 22, 2001 between the
Company and Bruce Diamond (filed herewith)                                                                                                                                                             
|       
|10.22   |  | 2002 Nonstatutory Stock Option Plan (filed as Exhibit 4.3 to
the Companys Registration Statement on Form S-8, File No.
333-7388, and incorporated herein by reference)                                                                                          
|       
|10.23   |  | 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)                                                                   
|       
|10.24   |  | Modification to Loan and Security Agreement with Comerica
Bank dated November 28, 2001 (filed herewith)                                                                                                                                                          
|       
|21.1    |  | 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
reference)                                                                              
|       
|23.1    |  | Consent of KPMG LLP                                                                                                                                                                                                                                              



---

|* |  | Confidential treatment as to certain portions has been requested pursuant
to Rule 24b-2 promulgated under the Securities Exchange Act of 1934, as
amended.
|- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------

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SIPEX CORPORATION

CONSOLIDATED FINANCIAL STATEMENTS

CONTENTS

|                                   |                                                                                                                                |  |      |            | 
|---------------------------------- | ------------------------------------------------------------------------------------------------------------------------------ |  | ---- | ---------- | 
|                                   |                                                                                                                                |  | Page
|                                   |                                                                                                                                |  |     
|Independent Auditors Report       |                                                                                                                                |  | F-2  |           
|Consolidated Financial Statements: |                                                                                                                                |  |      |           
|                                   | Consolidated Balance Sheets as of December 31, 2001 and 2000                                                                   |  |      | F-3        | 
|                                   | Consolidated Statements of Operations for the years ended
December 31, 2001, 2000 and 1999                                     |  |      | F-4        | 
|                                   | Consolidated Statements of Shareholders Equity and
Comprehensive Income for the years ended December 31,
2001, 2000, and 1999 |  |      | F-5        | 
|                                   | Consolidated Statements of Cash Flows for the years ended
December 31, 2001, 2000 and 1999                                     |  |      | F-6        | 
|                                   | Notes to Consolidated Financial Statements                                                                                     |  |      | F-7  F-17 | 

F-1



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##### Table of Contents



INDEPENDENT AUDITORS REPORT

The Board Of Directors and Shareholders
Sipex Corporation:

We have audited the accompanying consolidated balance sheets of Sipex
Corporation (the Company) as of December 31, 2001 and 2000 and the related
consolidated statements of operations, shareholders equity and comprehensive
income, and cash flows for each of the years in the three-year period ended
December 31, 2001. These financial statements are the responsibility of the
Companys management. Our responsibility is to express an opinion on these
financial statements based on our audits.

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

In our opinion, based on our audits, the financial statements referred to
above present fairly, in all material respects, the consolidated financial
position of Sipex Corporation as of December 31, 2001 and 2000 and the
consolidated results of their operations and their cash flows for each of the
years in the three-year period ended December 31, 2001, in conformity with
accounting principles generally accepted in the United States of America.



| | /s/ KPMG LLP
| | ------------

Boston, Massachusetts
March 29, 2002

F-2



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##### Table of Contents



SIPEX CORPORATION

CONSOLIDATED BALANCE SHEETS

|                                           |                                                                                                                                                        |                                            |        |                          |         |      |        |         |         | 
|------------------------------------------ | ------------------------------------------------------------------------------------------------------------------------------------------------------ | ------------------------------------------ | ------ | ------------------------ | ------- | ---- | ------ | ------- | ------- | 
|                                           |                                                                                                                                                        |                                            |        | Years ended December 31,
|                                           |                                                                                                                                                        |                                            |        |                         
|                                           |                                                                                                                                                        |                                            |        | 2001                     |         | 2000
|                                           |                                                                                                                                                        |                                            |        |                          |         |     
|                                           |                                                                                                                                                        |                                            |        | (in thousands)          
|ASSETS                                     |                                                                                                                                                        |                                            |        |                          |         |      |        |        
|Current assets:                            |                                                                                                                                                        |                                            |        |                          |         |      |        |        
|                                           | Cash and cash equivalents                                                                                                                              |                                            | $      | 4,874                    |         |      | $      | 1,732   |        
|                                           | Accounts receivable, less allowances of $2,444 and $2,889 in
2001 and 2000, respectively                                                               |                                            |        | 10,966                   |         |      |        | 20,688  |        
|                                           | Inventories                                                                                                                                            |                                            |        | 25,295                   |         |      |        | 33,324  |        
|                                           | Deferred income taxes  current                                                                                                                        |                                            |        | 3,163                    |         |      |        | 5,515   |        
|                                           | Prepaid expenses and other current assets                                                                                                              |                                            |        | 1,871                    |         |      |        | 1,504   |        
|                                           |                                                                                                                                                        |                                            |        |                          |         |      |        |        
|                                           |                                                                                                                                                        | Total current assets                       |        |                          | 46,169  |      |        |         | 62,763  | 
|Restricted cash equivalents and securities |                                                                                                                                                        |                                            |       |                          |         |      | 36,750 |        
|Property, plant, and equipment, net        |                                                                                                                                                        |                                            | 67,172 |                          |         |      | 32,993 |        
|Goodwill (net of accumulated amortization) |                                                                                                                                                        |                                            | 2,984  |                          |         |      | 3,360  |        
|Deferred income taxes                      |                                                                                                                                                        |                                            | 28,688 |                          |         |      | 12,713 |        
|Other assets                               |                                                                                                                                                        |                                            | 114    |                          |         |      | 189    |        
|                                           |                                                                                                                                                        |                                            |        |                          |         |      |        |        
|                                           |                                                                                                                                                        | Total assets                               |        | $                        | 145,127 |      |        | $       | 148,768 | 
|                                           |                                                                                                                                                        |                                            |        |                          |         |      |        |        
|                                           |                                                                                                                                                        |                                            |        |                          |         |      |        |        
|LIABILITIES AND SHAREHOLDERS EQUITY       |                                                                                                                                                        |                                            |        |                          |         |      |        |        
|Current liabilities:                       |                                                                                                                                                        |                                            |        |                          |         |      |        |        
|                                           | Accounts payable                                                                                                                                       |                                            | $      | 5,989                    |         |      | $      | 10,583  |        
|                                           | Accrued expenses                                                                                                                                       |                                            |        | 2,928                    |         |      |        | 5,372   |        
|                                           | Deferred income                                                                                                                                        |                                            |        | 992                      |         |      |        | 1,963   |        
|                                           |                                                                                                                                                        |                                            |        |                          |         |      |        |        
|                                           |                                                                                                                                                        | Total current liabilities                  |        |                          | 9,909   |      |        |         | 17,918  | 
|Long-term debt                             |                                                                                                                                                        |                                            | 7,396  |                          |         |      | 7,057  |        
|Other long-term liabilities                |                                                                                                                                                        |                                            |       |                          |         |      | 996    |        
|                                           |                                                                                                                                                        |                                            |        |                          |         |      |        |        
|                                           |                                                                                                                                                        | Total liabilities                          |        |                          | 17,305  |      |        |         | 25,971  | 
|                                           |                                                                                                                                                        |                                            |        |                          |         |      |        |        
|Shareholders equity:                      |                                                                                                                                                        |                                            |        |                          |         |      |        |        
|                                           | Preferred stock, $.01 par value, 1,000 shares authorized
and no shares issued or outstanding                                                           |                                            |        |                         |         |      |        |        |        
|                                           | Common stock, $.01 par value, 40,000 shares authorized and
24,844 and 22,502 shares issued and outstanding at
December 31, 2001 and 2000, respectively |                                            |        | 248                      |         |      |        | 225     |        
|                                           | Additional paid-in capital                                                                                                                             |                                            |        | 149,447                  |         |      |        | 124,897 |        
|                                           | Accumulated deficit                                                                                                                                    |                                            |        | (21,903                  | )       |      |        | (2,211  | )      
|                                           | Accumulated other comprehensive income                                                                                                                 |                                            |        | 30                       |         |      |        | (114    | )      
|                                           |                                                                                                                                                        |                                            |        |                          |         |      |        |        
|                                           |                                                                                                                                                        | Total shareholders equity                 |        |                          | 127,822 |      |        |         | 122,797 | 
|                                           |                                                                                                                                                        |                                            |        |                          |         |      |        |        
|                                           |                                                                                                                                                        | Total liabilities and shareholders equity |        | $                        | 145,127 |      |        | $       | 148,768 | 
|                                           |                                                                                                                                                        |                                            |        |                          |         |      |        |        

See accompanying notes to consolidated financial statements

F-3



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##### Table of Contents



SIPEX CORPORATION

CONSOLIDATED STATEMENTS OF OPERATIONS

|                                                               |                                       |                              |         |                                       |        |      |         |        |        |   |        |        |        | 
|-------------------------------------------------------------- | ------------------------------------- | ---------------------------- | ------- | ------------------------------------- | ------ | ---- | ------- | ------ | ------ | - | ------ | ------ | ------ | 
|                                                               |                                       |                              |         | Years ended December 31,             
|                                                               |                                       |                              |         |                                      
|                                                               |                                       |                              |         | 2001                                  |        | 2000 |         | 1999  
|                                                               |                                       |                              |         |                                       |        |      |         |       
|                                                               |                                       |                              |         | (in thousands, except per share data)
|Net sales                                                      |                                       | $                            | 72,062  |                                       |        | $    | 114,620 |        |        | $ | 89,820 |       
|Cost of sales                                                  |                                       |                              | 73,558  |                                       |        |      | 78,130  |        |        |   | 57,227 |       
|                                                               |                                       |                              |         |                                       |        |      |         |        |        |   |        |       
|                                                               |                                       | Gross profit (loss)          |         |                                       | (1,496 | )    |         |        | 36,490 |   |        |        | 32,593 | 
|Operating expenses:                                            |                                       |                              |         |                                       |        |      |         |        |        |   |        |       
|                                                               | Research and development              |                              |         | 12,858                                |        |      |         | 13,159 |        |   |        | 10,623 |       
|                                                               | Marketing and selling                 |                              |         | 9,911                                 |        |      |         | 10,765 |        |   |        | 9,719  |       
|                                                               | General and administrative            |                              |         | 7,446                                 |        |      |         | 9,618  |        |   |        | 7,945  |       
|                                                               | Merger transaction costs              |                              |         |                                      |        |      |         |       |        |   |        | 1,168  |       
|                                                               | Restructuring and facility exit costs |                              |         | 177                                   |        |      |         | (525   | )      |   |        | 817    |       
|                                                               |                                       |                              |         |                                       |        |      |         |        |        |   |        |       
|                                                               |                                       | Total operating expenses     |         |                                       | 30,392 |      |         |        | 33,017 |   |        |        | 30,272 | 
|                                                               |                                       |                              |         |                                       |        |      |         |        |        |   |        |       
|Income (loss) from operations                                  |                                       |                              | (31,888 | )                                     |        |      | 3,473   |        |        |   | 2,321  |       
|Other income (expense):                                        |                                       |                              |         |                                       |        |      |         |        |        |   |        |       
|                                                               | Interest expense                      |                              |         | (559                                  | )      |      |         |       |        |   |        | (375   | )     
|                                                               | Other, net                            |                              |         | 165                                   |        |      |         | 2,067  |        |   |        | 1,734  |       
|                                                               |                                       |                              |         |                                       |        |      |         |        |        |   |        |       
|                                                               |                                       | Total other income (expense) |         |                                       | (394   | )    |         |        | 2,067  |   |        |        | 1,359  | 
|                                                               |                                       |                              |         |                                       |        |      |         |        |        |   |        |       
|Income (loss) before income taxes                              |                                       |                              | (32,282 | )                                     |        |      | 5,540   |        |        |   | 3,680  |       
|Income tax expense (benefit)                                   |                                       |                              | (12,590 | )                                     |        |      | 1,623   |        |        |   | (2,419 | )     
|                                                               |                                       |                              |         |                                       |        |      |         |        |        |   |        |       
|Net income (loss)                                              |                                       | $                            | (19,692 | )                                     |        | $    | 3,917   |        |        | $ | 6,099  |       
|                                                               |                                       |                              |         |                                       |        |      |         |        |        |   |        |       
|Net income (loss) per common share  basic                     |                                       | $                            | (0.82   | )                                     |        | $    | 0.18    |        |        | $ | 0.28   |       
|                                                               |                                       |                              |         |                                       |        |      |         |        |        |   |        |       
|Net income (loss) per common share  assuming dilution         |                                       | $                            | (0.82   | )                                     |        | $    | 0.16    |        |        | $ | 0.28   |       
|                                                               |                                       |                              |         |                                       |        |      |         |        |        |   |        |       
|Weighted average common shares outstanding  basic             |                                       |                              | 24,003  |                                       |        |      | 22,133  |        |        |   | 21,403 |       
|                                                               |                                       |                              |         |                                       |        |      |         |        |        |   |        |       
|Weighted average common shares outstanding
 assuming dilution |                                       |                              | 24,003  |                                       |        |      | 23,749  |        |        |   | 21,981 |       
|                                                               |                                       |                              |         |                                       |        |      |         |        |        |   |        |       

See accompanying notes to consolidated financial statements

F-4



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##### Table of Contents



SIPEX CORPORATION

CONSOLIDATED STATEMENTS OF SHAREHOLDERS EQUITY AND COMPREHENSIVE INCOME

|                                                   |                      |  |              |  |            |   |         |  |             |   |                |  |               |   |         |   |  |   |      |   |  |   |         |         |  
|-------------------------------------------------- | -------------------- |  | ------------ |  | ---------- | - | ------- |  | ----------- | - | -------------- |  | ------------- | - | ------- | - |  | - | ---- | - |  | - | ------- | ------- | -
|                                                   |                      |  | Common Stock |  |            |   |         |  |             |   |                |  | Accumulated   |   |         |   | 
|                                                   |                      |  |              |  | Additional |   |         |  |             |   | Other          |  | Total        
|                                                   |                      |  | Number of    |  | $.01 Par   |   | Paid-in |  | Accumulated |   | Comprehensive  |  | Shareholders'
|                                                   |                      |  | Shares       |  | Value      |   | Capital |  | Deficit     |   | Income         |  | Equity       
|                                                   |                      |  |              |  |            |   |         |  |             |   |                |  |              
|                                                   |                      |  |              |  |            |   |         |  |             |   | (in thousands) |  |               |   |         |   |  |   |     
|Balance at December 31, 1998                       |                      |  | 21,280       |  |            | $ | 213     |  |             | $ | 102,741        |  |               | $ | (13,236 | ) |  | $ | 54   |   |  | $ | 89,772  |        
|Net income                                         |                      |  |             |  |            |   |        |  |             |   |               |  |               |   | 6,099   |   |  |   |     |   |  |   | 6,099   |        
|Foreign currency translation
adjustments           |                      |  |             |  |            |   |        |  |             |   |               |  |               |   |        |   |  |   | 6    |   |  |   | 6       |        
|                                                   |                      |  |              |  |            |   |         |  |             |   |                |  |               |   |         |   |  |   |      |   |  |   |         |        
|                                                   | Comprehensive income |  |              |  |            |   |         |  |             |   |                |  |               |   |         |   |  |   |      |   |  |   |         | 6,105   |  
|Issuance of common stock under
option plans        |                      |  | 169          |  |            |   | 2       |  |             |   | 318            |  |               |   |        |   |  |   |     |   |  |   | 320     |        
|Issuance of common stock under
stock purchase plan |                      |  | 19           |  |            |   |        |  |             |   | 334            |  |               |   |        |   |  |   |     |   |  |   | 334     |        
|Purchase of minority interest                      |                      |  | 300          |  |            |   | 3       |  |             |   | 3,766          |  |               |   |        |   |  |   |     |   |  |   | 3,769   |        
|Adjustments to conform year end
of pooled entity   |                      |  |             |  |            |   |        |  |             |   |               |  |               |   | 1,009   |   |  |   |     |   |  |   | 1,009   |        
|Tax effect of exercises of stock
options           |                      |  |             |  |            |   |        |  |             |   | 3,792          |  |               |   |        |   |  |   |     |   |  |   | 3,792   |        
|                                                   |                      |  |              |  |            |   |         |  |             |   |                |  |               |   |         |   |  |   |      |   |  |   |         |        
|Balance at December 31, 1999                       |                      |  | 21,768       |  |            | $ | 218     |  |             | $ | 110,951        |  |               | $ | (6,128  | ) |  | $ | 60   |   |  | $ | 105,101 |        
|Net income                                         |                      |  |             |  |            |   |        |  |             |   |               |  |               |   | 3,917   |   |  |   |     |   |  |   | 3,917   |        
|Foreign currency translation
adjustments           |                      |  |             |  |            |   |        |  |             |   |               |  |               |   |        |   |  |   | (174 | ) |  |   | (174    | )      
|                                                   |                      |  |              |  |            |   |         |  |             |   |                |  |               |   |         |   |  |   |      |   |  |   |         |        
|                                                   | Comprehensive income |  |              |  |            |   |         |  |             |   |                |  |               |   |         |   |  |   |      |   |  |   |         | 3,743   |  
|Issuance of common stock under
option plans        |                      |  | 715          |  |            |   | 7       |  |             |   | 8,354          |  |               |   |        |   |  |   |     |   |  |   | 8,361   |        
|Issuance of common stock under
stock purchase plan |                      |  | 19           |  |            |   |        |  |             |   | 326            |  |               |   |        |   |  |   |     |   |  |   | 326     |        
|Tax effect of exercises of stock
options           |                      |  |             |  |            |   |        |  |             |   | 5,266          |  |               |   |        |   |  |   |     |   |  |   | 5,266   |        
|                                                   |                      |  |              |  |            |   |         |  |             |   |                |  |               |   |         |   |  |   |      |   |  |   |         |        
|Balance at December 31, 2000                       |                      |  | 22,502       |  |            | $ | 225     |  |             | $ | 124,897        |  |               | $ | (2,211  | ) |  | $ | (114 | ) |  | $ | 122,797 |        
|Net loss                                           |                      |  |             |  |            |   |        |  |             |   |               |  |               |   | (19,692 | ) |  |   |     |   |  |   | (19,692 | )      
|Foreign currency translation
adjustments           |                      |  |             |  |            |   |        |  |             |   |               |  |               |   |        |   |  |   | 144  |   |  |   | 144     |        
|                                                   |                      |  |              |  |            |   |         |  |             |   |                |  |               |   |         |   |  |   |      |   |  |   |         |        
|                                                   | Comprehensive loss   |  |              |  |            |   |         |  |             |   |                |  |               |   |         |   |  |   |      |   |  |   |         | (19,548 | )
|Issuance of common stock under
option plans        |                      |  | 86           |  |            |   | 1       |  |             |   | 702            |  |               |   |        |   |  |   |     |   |  |   | 703     |        
|Issuance of common stock under
stock purchase plan |                      |  | 66           |  |            |   |        |  |             |   | 525            |  |               |   |        |   |  |   |     |   |  |   | 525     |        
|Private placement issuance of
common stock         |                      |  | 2,190        |  |            |   | 22      |  |             |   | 21,589         |  |               |   |         |   |  |   |      |   |  |   | 21,611  |        
|Tax effect of exercises of stock
options           |                      |  |             |  |            |   |        |  |             |   | 1,734          |  |               |   |        |   |  |   |     |   |  |   | 1,734   |        
|                                                   |                      |  |              |  |            |   |         |  |             |   |                |  |               |   |         |   |  |   |      |   |  |   |         |        
|Balance at December 31, 2001                       |                      |  | 24,844       |  |            | $ | 248     |  |             | $ | 149,447        |  |               | $ | (21,903 | ) |  | $ | 30   |   |  | $ | 127,822 |        
|                                                   |                      |  |              |  |            |   |         |  |             |   |                |  |               |   |         |   |  |   |      |   |  |   |         |        

See accompanying notes to consolidated financial statements

F-5



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##### Table of Contents



SIPEX CORPORATION

CONSOLIDATED STATEMENTS OF CASH FLOWS

|                                                                              |                                                                                                   |                                                 |                                                        |                                                     |       |                          |         |         |       |                |         |          |       |         |        |  
|----------------------------------------------------------------------------- | ------------------------------------------------------------------------------------------------- | ----------------------------------------------- | ------------------------------------------------------ | --------------------------------------------------- | ----- | ------------------------ | ------- | ------- | ----- | -------------- | ------- | -------- | ----- | ------- | ------ | -
|                                                                              |                                                                                                   |                                                 |                                                        |                                                     |       | Years Ended December 31,
|                                                                              |                                                                                                   |                                                 |                                                        |                                                     |       |                         
|                                                                              |                                                                                                   |                                                 |                                                        |                                                     |       | 2001                     |         | 2000    |       | 1999          
|                                                                              |                                                                                                   |                                                 |                                                        |                                                     |       |                          |         |         |       |               
|                                                                              |                                                                                                   |                                                 |                                                        |                                                     |       |                          |         |         |       | (in thousands) |         |          |       |        
|Operating activities:                                                         |                                                                                                   |                                                 |                                                        |                                                     |       |                          |         |         |       |                |         |         
|                                                                              | Net income (loss)                                                                                 |                                                 | $                                                      | (19,692                                             | )     |                          | $       | 3,917   |       |                | $       | 6,099    |      
|                                                                              | Adjustments to reconcile net income to net cash used in
operating activities:                     |                                                 |                                                        |                                                     |       |                          |         |         |       |                |         |          |      
|                                                                              |                                                                                                   | Adjustment to conform year end of pooled entity |                                                        |                                                     |      |                          |         |         |      |                |         |          | 1,009 |        
|                                                                              |                                                                                                   | Allowance for returns and doubtful accounts     |                                                        |                                                     | 4,555 |                          |         |         | 3,681 |                |         |          | 1,196 |        
|                                                                              |                                                                                                   | Depreciation and amortization                   |                                                        |                                                     | 7,038 |                          |         |         | 4,649 |                |         |          | 2,528 |        
|                                                                              |                                                                                                   | Loss on disposal of capital assets              |                                                        |                                                     |      |                          |         |         | 38    |                |         |          | 51    |        
|                                                                              |                                                                                                   | Changes in assets and liabilities:              |                                                        |                                                     |       |                          |         |         |       |                |         |          |       |        
|                                                                              |                                                                                                   |                                                 | Decrease (increase) in accounts receivable             |                                                     |       | 5,167                    |         |         |       | (10,367        | )       |          |       | 649     |       
|                                                                              |                                                                                                   |                                                 | Decrease (increase) in inventories                     |                                                     |       | 8,029                    |         |         |       | (10,196        | )       |          |       | (2,268  | )     
|                                                                              |                                                                                                   |                                                 | (Increase) decrease in prepaid expenses                |                                                     |       | (367                     | )       |         |       | 580            |         |          |       | (1,051  | )     
|                                                                              |                                                                                                   |                                                 | Increase in deferred taxes                             |                                                     |       | (11,889                  | )       |         |       | (3,225         | )       |          |       | (6,739  | )     
|                                                                              |                                                                                                   |                                                 | Decrease (increase) in other assets                    |                                                     |       | 75                       |         |         |       | (23            | )       |          |       | 203     |       
|                                                                              |                                                                                                   |                                                 | (Decrease) increase in accounts payable                |                                                     |       | (4,594                   | )       |         |       | 3,922          |         |          |       | 214     |       
|                                                                              |                                                                                                   |                                                 | (Decrease) increase in accrued expenses                |                                                     |       | (2,444                   | )       |         |       | 3,018          |         |          |       | 6,923   |       
|                                                                              |                                                                                                   |                                                 | (Decrease) increase in deferred income                 |                                                     |       | (971                     | )       |         |       | 1,963          |         |          |       |        |       
|                                                                              |                                                                                                   |                                                 | (Decrease) increase in other long-term liabilities     |                                                     |       | (1,396                   | )       |         |       | 996            |         |          |       |        |       
|                                                                              |                                                                                                   |                                                 | Increase in restricted cash equivalents and securities |                                                     |       |                         |         |         |       |               |         |          |       | (12,394 | )     
|                                                                              |                                                                                                   |                                                 |                                                        |                                                     |       |                          |         |         |       |                |         |         
|                                                                              |                                                                                                   |                                                 |                                                        | Net cash used in operating activities               |       |                          | (16,489 | )       |       |                | (1,047  | )        |       |         | (3,580 | )
|                                                                              |                                                                                                   |                                                 |                                                        |                                                     |       |                          |         |         |       |                |         |         
|Investing activities:                                                         |                                                                                                   |                                                 |                                                        |                                                     |       |                          |         |         |       |                |         |         
|                                                                              | Proceeds from maturity of investment securities                                                   |                                                 |                                                        |                                                    |       |                          |         | 5,734   |       |                |         | 119,506  |      
|                                                                              | Purchase of investment securities                                                                 |                                                 |                                                        |                                                    |       |                          |         |        |       |                |         | (117,259 | )    
|                                                                              | Proceeds from liquidation of restricted cash investment                                           |                                                 |                                                        | 36,750                                              |       |                          |         |        |       |                |         |         |      
|                                                                              | Purchase of property, plant, and equipment                                                        |                                                 |                                                        | (40,441                                             | )     |                          |         | (19,467 | )     |                |         | (9,214   | )    
|                                                                              |                                                                                                   |                                                 |                                                        |                                                     |       |                          |         |         |       |                |         |         
|                                                                              |                                                                                                   |                                                 |                                                        | Net cash used in investing activities               |       |                          | (3,691  | )       |       |                | (13,733 | )        |       |         | (6,967 | )
|                                                                              |                                                                                                   |                                                 |                                                        |                                                     |       |                          |         |         |       |                |         |         
|Financing activities:                                                         |                                                                                                   |                                                 |                                                        |                                                     |       |                          |         |         |       |                |         |         
|                                                                              | Proceeds from issuance of common stock                                                            |                                                 |                                                        | 22,839                                              |       |                          |         | 8,687   |       |                |         | 654      |      
|                                                                              | Proceeds from (payments of) long-term debt                                                        |                                                 |                                                        | 339                                                 |       |                          |         | 7,057   |       |                |         | (1,300   | )    
|                                                                              | Payment of capital lease and other debt obligations                                               |                                                 |                                                        |                                                    |       |                          |         | (413    | )     |                |         | (5,268   | )    
|                                                                              |                                                                                                   |                                                 |                                                        |                                                     |       |                          |         |         |       |                |         |         
|                                                                              |                                                                                                   |                                                 |                                                        | Net cash provided by (used in) financing activities |       |                          | 23,178  |         |       |                | 15,331  |          |       |         | (5,914 | )
|                                                                              |                                                                                                   |                                                 |                                                        |                                                     |       |                          |         |         |       |                |         |         
|Effect of foreign currency exchange rate changes on cash and
cash equivalents |                                                                                                   |                                                 | 144                                                    |                                                     |       |                          | (174    | )       |       |                | 6       |         
|                                                                              |                                                                                                   |                                                 |                                                        |                                                     |       |                          |         |         |       |                |         |         
|Increase (decrease) in cash and cash equivalents                              |                                                                                                   |                                                 | 3,142                                                  |                                                     |       |                          | 377     |         |       |                | (16,455 | )       
|Cash and cash equivalents at beginning of period                              |                                                                                                   |                                                 | 1,732                                                  |                                                     |       |                          | 1,355   |         |       |                | 17,810  |         
|                                                                              |                                                                                                   |                                                 |                                                        |                                                     |       |                          |         |         |       |                |         |         
|Cash and cash equivalents at end of period                                    |                                                                                                   | $                                               | 4,874                                                  |                                                     |       | $                        | 1,732   |         |       | $              | 1,355   |         
|                                                                              |                                                                                                   |                                                 |                                                        |                                                     |       |                          |         |         |       |                |         |         
|Supplemental cash flow information:                                           |                                                                                                   |                                                 |                                                        |                                                     |       |                          |         |         |       |                |         |         
|                                                                              | Cash paid (refunded) during the period for:                                                       |                                                 |                                                        |                                                     |       |                          |         |         |       |                |         |          |      
|                                                                              |                                                                                                   | Income taxes                                    |                                                        | $                                                   | (238  | )                        |         | $       | 475   |                |         | $        | 580   |        
|                                                                              |                                                                                                   |                                                 |                                                        |                                                     |       |                          |         |         |       |                |         |         
|                                                                              |                                                                                                   | Interest                                        |                                                        | $                                                   | 559   |                          |         | $       | 27    |                |         | $        | 583   |        
|                                                                              |                                                                                                   |                                                 |                                                        |                                                     |       |                          |         |         |       |                |         |         
|Supplemental disclosure of non-cash investing activities:                     |                                                                                                   |                                                 |                                                        |                                                     |       |                          |         |         |       |                |         |         
|                                                                              | 300,000 shares of Sipex issued in exchange for all the
minority shares in a subsidiary of Calogic |                                                 | $                                                      |                                                    |       |                          | $       |        |       |                | $       | 3,769    |      
|                                                                              |                                                                                                   |                                                 |                                                        |                                                     |       |                          |         |         |       |                |         |         
|                                                                              | Tax benefit from disposition of stock acquired through stock
options                              |                                                 | $                                                      | 1,734                                               |       |                          | $       | 5,266   |       |                | $       | 3,792    |      
|                                                                              |                                                                                                   |                                                 |                                                        |                                                     |       |                          |         |         |       |                |         |         

See accompanying notes to consolidated financial statements

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SIPEX CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2001, 2000 and 1999

1. Description of Business

Sipex Corporation is a semiconductor company that designs, manufactures
and markets, high performance, value-added analog integrated circuits,
primarily for original equipment manufacturers (OEMs) doing business in the
high growth markets of networking, computing, and communications. Sipexs four
product families: power management, serial interface, analog display and
optical storage constitute a broad, synergistic portfolio of standard analog
ICs that address specific applications in desktop and portable computers,
optical storage, handheld digital peripherals such as PDAs, cell phones,
digital still cameras, and network and telecommunications infrastructure.

2. Summary of Significant Accounting Policies

Basis of Presentation

The consolidated financial statements include the accounts of Sipex
Corporation and all of its wholly owned subsidiaries. All intercompany accounts
and transactions have been eliminated. See also Note 5 to the
consolidated financial statements.

The preparation of financial statements in conformity with accounting
principles generally accepted in the United States requires management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the date of
the financial statements and the reported amounts of revenues and expenses
during the reporting period. Actual results could differ from those estimates.

Revenue Recognition

Beginning in the fourth quarter of 2000, we began deferring revenue on
ordinary course shipments to our largest distributor until the product is
resold by the distributor to the end user (sell-through) because the
arrangement with this distributor includes price concession and return rights
the potential impact of which Sipex believed it could no longer reasonably
estimate. For all other product sales, revenue is recognized at the time of
shipment because these distributors have no price protection and have limited
return rights. In addition, management believes that it is able to estimate
and establish appropriate reserves for future returns from these distributors.
For product sales recognized at the time of shipment, Sipex accrues for
estimated sales returns upon shipment. Sipex has accepted distributor orders for certain products on a
discounted basis for which the distributor has no rights of return other than
for warranty related issues, price protection or cancellation rights and which
are not governed by the terms of the existing distributor contract.
Revenue from these orders is recognized at the time of shipment,
since these orders are non-cancelable, non returnable and for which
such sales are not subject to the terms of the Company's distribution
agreement with the distributor, including without limitation the price
protection, restocking and other returns rights the distributor is
entitled to in the agreement. Revenue from
engineering service contracts is recorded as performance is completed.

Restricted Cash Equivalents and Securities

Restricted cash equivalents and securities represented amounts pledged for
an operating lease which Sipex entered into for the construction and lease of a
new wafer fabrication facility in Milpitas, California. In June 2001, Sipex
purchased the land, building and equipment of its Milpitas wafer fabrication
facility, which was being leased under a five-year operating lease. Proceeds
for the buyout were provided through the use of restricted cash of $36.8
million that had previously secured the lease of the facility and equipment.

Sales Returns

To estimate reserves for future sales returns, we regularly review our
history of actual returns for each major product line. We also communicate monthly with our
channel partners to gather information about sell-through activity, end user
satisfaction and to determine the volume of inventory in the channel. We use the
results of this analysis to estimate the reserves for sales returns. We adjust
our reserves for future returns as is necessary, based on actual returns
experience, returns expectations and our communications with our channel
partners.

In estimating reserves, we also consider unusual events and market
conditions. For example, as we announced on March 6, 2002, we increased our reserves for returns by $1.2 million based
upon management's decision to authorize returns from certain
distributors in excess of their contractual return privileges in the second
quarter of 2001, based upon continued slowness in the semiconductor industry and
adjusted our financial statements for the second and third quarters of 2001 to
reflect the reserve for these returns which had not been provided for at that
time. Historically, we have not experienced material differences between our
estimated reserves for sales returns and actual results. However, it is possible
that future events such as the introduction of a competitive product, product
obsolescence, price competition, continued slowness in the semiconductor
industry and distributors' desire to decrease levels of inventory in the
distribution channel could result in significant changes in customer demand and
cause future returns to increase beyond historical levels. However, management
believes that it is able to estimate returns and establish appropriate reserves
for returns from customers for which Sipex recognizes revenue as of shipment,
using the process described above. Since reserves for estimated sales returns
are recorded as a reduction in revenues, any significant difference between our
estimated and actual returns experience, or changes in our estimate of reserves
for future returns, would be reflected in our reported revenues in the period we
determine that difference, and could have a material impact on our future
results of operations.

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Concentration of Credit Risk

Financial instruments that potentially subject Sipex to concentrations of
credit risk consist primarily of cash equivalents and
accounts receivable. Cash equivalents consist of deposits with, or guaranteed
by, major commercial banks, the maturities of which are three months or less
from date of purchase. With respect to accounts receivable, Sipex performs
periodic credit evaluations of the financial condition of its customers and
typically does not require collateral from them. Management assesses the need
for allowances for potential credit losses by considering the credit risk of
specific customers, historical trends and other information.

Fair Values of Financial Assets and Financial Liabilities

The carrying values
of cash and cash equivalents, restricted cash equivalents and
securities,
accounts receivable, accounts payable and accrued liabilities approximate their
fair values due to the relatively short periods to maturity of the instruments.
Long-term debt approximates fair value due to the interest rate being based on
the banks base rate.

Inventories

Inventories are stated at the lower of cost or market. Costs are
determined using the first-in, first-out method.

Property, Plant and Equipment

Property, plant and equipment are stated at cost. Depreciation is provided
by using the straight-line method over their useful lives as follows:

|                                         |  |              |  | 
|---------------------------------------- |  | ------------ |  | 
|                                         |  | Useful Lives
|                                         |  |             
|Buildings                                |  | 30 years    
|Machinery and equipment                  |  | 5-10 years  
|Furniture, fixtures and office equipment |  | 5-10 years  
|Leasehold improvements                   |  | Lease term  

Goodwill

Costs in excess of tangible assets acquired and liabilities assumed have
been recorded as goodwill. Goodwill is amortized on a straight-line basis over
the estimated useful life of ten years. Accumulated amortization for the years
ended December 31, 2001 and December 31, 2000 was approximately $785,000 and
$408,000, respectively. Sipex is currently analyzing the impact of adoption of SFAS 142, expects to complete their analysis by the end of their
fiscal quarter ended June 30, 2002, and would reflect the impact of the
cumulative effect of the change in accounting principle in their first fiscal
quarter of 2002, if any. Sipex expects that upon adoption of SFAS 142, Sipex
would no longer record amortization associated with existing
goodwill of approximately $3.0 million.

Related Parties

Sipex has included as other current assets approximately $631,000,
$583,000 and $587,000 in notes receivable due mainly from officers of the Company in 2001, 2000 and 1999, respectively.

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Impairment of Long-lived Assets and Long-lived Assets to be Disposed of

Sipex reviews
long-lived assets, including goodwill, for impairment whenever events or changes in circumstances
indicate that the carrying amount of an asset may not be recoverable.
Recoverability of assets to be held and used is measured by a comparison of the
carrying amount of an asset to future net cash flows expected to be generated
by the asset. If such assets are considered to be impaired, the impairment to
be recognized is measured by the amount by which the carrying amount of the
asset exceeds the fair value of the asset. Assets to be disposed of are
reported at the lower of the carrying amount or fair value less cost to sell.

Foreign Currency Translation

Foreign currency assets and liabilities are translated into dollars at
current rates, and revenues, costs and expenses are translated at average rates
during each reporting period. Gains or losses resulting from foreign currency
transactions are included in earnings currently, while those resulting from
translation of financial statements are shown as a separate component of other
comprehensive income in the statement of shareholders equity.

Research and Development

Research and development costs are expensed as incurred.

Income Taxes

Deferred tax assets and liabilities are recognized for the future tax
consequences attributable to differences between the financial statement
carrying amounts of existing assets and liabilities and their respective tax
bases and operating loss and tax credit carryforwards. Deferred tax assets and
liabilities are measured using enacted tax rates expected to apply to taxable
income in the years in which those temporary differences are expected to be
recovered or settled. The effect on deferred tax assets and liabilities of a
change in tax rates is recognized in earnings in the period that includes the
enactment date.

Net Income (Loss) Per Share

Basic income (loss) per share is based upon the weighted average number of
common shares outstanding. Income (loss) per share assuming dilution is based
upon the weighted average number of common and common equivalent shares
outstanding assuming dilution.

A reconciliation of basic weighted average common shares with weighted
average shares assuming dilution is as follows (in thousands):

|                                                                                                                             |  |      |        |      |  |      |        |  |  |  |        | 
|---------------------------------------------------------------------------------------------------------------------------- |  | ---- | ------ | ---- |  | ---- | ------ |  |  |  | ------ | 
|                                                                                                                             |  | 2001 |        | 2000 |  | 1999
|                                                                                                                             |  |      |        |      |  |     
|Weighted average common shares outstanding  basic                                                                           |  |      | 24,003 |      |  |      | 22,133 |  |  |  | 21,403 | 
|Net effect of dilutive potential common shares outstanding based
on the treasury stock method using the average market price |  |      |       |      |  |      | 1,616  |  |  |  | 578    | 
|                                                                                                                             |  |      |        |      |  |      |        |  |  |  |        | 
|Weighted average common shares outstanding  assuming dilution                                                               |  |      | 24,003 |      |  |      | 23,749 |  |  |  | 21,981 | 
|                                                                                                                             |  |      |        |      |  |      |        |  |  |  |        | 
|Antidilutive potential common shares excluded from the
computation above                                                     |  |      | 4,995  |      |  |      | 175    |  |  |  | 2,000  | 
|                                                                                                                             |  |      |        |      |  |      |        |  |  |  |        | 

Recent Accounting Pronouncements

In July 2001, the Financial Standards Board (FASB) issued SFAS 141,
Business Combinations(FAS 141) and SFAS 142, Goodwill and Other Intangible
Assets(FAS 142). FAS 141 requires that the purchase method of accounting be
used for all business combinations initiated after June 30, 2001. FAS 141 also
specifies the criteria that intangible assets acquired in a purchase method
business combination must meet to be recognized and reported apart from
goodwill. FAS 142 requires that goodwill and intangible assets with indefinite
useful lives will no longer be amortized, but instead be tested for impairment,
at least annually, in accordance with the provisions of FAS 142. FAS 142 will
also require that intangible assets with definite useful lives be amortized
over their respective estimated useful lives to their estimated residual
values, and reviewed for impairment in accordance with SFAS 121, Accounting for
the Impairment of Long-Lived Assets and Long-Lived Assets to be Disposed Of.

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The provisions of FAS 141 were effective immediately, except with regard
to business combinations initiated prior to July 1, 2001. FAS 142 will be
effective as of January 1, 2002. Goodwill and other intangible assets
determined to have an indefinite useful life that are acquired in a business
combination completed after July 1, 2001 will not be amortized, but will
continue to be evaluated for impairment in accordance with appropriate pre-FAS
142 accounting literature. Goodwill and other intangible assets acquired in
business combinations completed before July 1, 2001 will continue to be
amortized prior to the adoption of FAS 142. On July 1, 2001, the Company
adopted FAS 141 which had no material impact on the Company's results
of operations and financial position. We are currently evaluating the effect that the adoption of
FAS 142 will have on our results of operations and financial position, but
currently believe the impact will not be material.

FASB recently issued SFAS 143, Accounting for Asset Retirement Obligations
(SFAS 143) which addresses financial accounting and reporting for obligations
associated with the retirement of tangible long-lived assets and the associated
asset retirement costs. SFAS 143 requires an enterprise to record the fair
value of an asset retirement obligation as a liability in the period in which
it incurs a legal obligation associated with the retirement of a tangible
long-lived asset. SFAS 143 also requires the enterprise to record the contra
to the initial obligation as an increase to the carrying amount of the related
long-lived asset and to depreciate that cost over the remaining useful life of
the asset. The liability is changed at the end of each period to reflect the
passage of time changes in the estimated future cash flows underlying the
initial fair value measurement. SFAS 143 is effective for fiscal years
beginning after June 15, 2002. We are currently examining the impact of this
pronouncement on the results of operations and financial position of Sipex, but
currently believe the impact will not be material.

On October 3, 2001, FASB issued SFAS 144, Accounting for the Impairment or
Disposal of Long-Lived Assets(SFAS 144), which addresses financial accounting
and reporting for the impairment or disposal of long-lived assets and
supersedes FASB Statement No.121, Accounting for the Impairment of Long-Lived
Assets and for Long-Lived Assets to Be Disposed Of. SFAS 144 retains many of
the fundamental provisions of that Statement. SFAS 144 also supersedes the
accounting and reporting provisions of Accounting Principle Board Opinion 30,
Reporting the Results of OperationsReporting the Effects of Disposal of a
Segment of a Business, and Extraordinary, Unusual and Infrequently Occurring
Events and Transactions(ABP 30), for the disposal of a segment of a
business. However, it retains the requirement in APB 30 to report separately
discontinued operations and extends that reporting to a component of an entity
that either has been disposed of (by sale, abandonment, or in a distribution to
owners) or is classified as held for sale. SFAS 144 is effective for fiscal
years beginning after December 15, 2001 and interim periods within those fiscal
years. We are currently examining the impact of this pronouncement on the
results of operations and financial position of Sipex, but currently believe
the impact will not be material.

Reclassifications

Certain prior year amounts have been reclassified to conform with the
current year presentation.

3. Calogic Merger

On November 23, 1999, Sipex completed its merger of Calogic. In connection
with the merger, Sipex issued 3.6 million shares of its common stock. The
merger was accounted for on a pooling-of-interests basis. Accordingly, Sipexs
consolidated financial statements include the accounts and operations of
Calogic for all periods presented. The shares issued included 300,000 shares
issued in a separate transaction for the purchase of the minority interest in a
subsidiary of Calogic, which was accounted for using the purchase method of
accounting and resulted in approximately $3.8 million of goodwill. Sipex
recorded combined merger-related transaction costs of $1.2 million which was
primarily for professional services, such as investment banking, legal, and
accounting fees.

The following table represents a reconciliation of separate net sales and
net income for the year ended December 31, 1999 previously reported by the
combining companies to those presented in the accompanying consolidated
financial statements (in thousands):

|         |  |           |        |            |  |   |       | 
|-------- |  | --------- | ------ | ---------- |  | - | ----- | 
|         |  | Net sales |        | Net income
|         |  |           |        |           
|Sipex    |  | $         | 60,520 |            |  | $ | 2,620 | 
|Calogic  |  |           | 29,300 |            |  |   | 3,479 | 
|Combined |  | $         | 89,820 |            |  | $ | 6,099 | 

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4. Restructuring and Facility Exit Costs

During 2001, we recorded charges totaling
$534,000 for severance payments related to the reduction of our workforce as a
result of the continued slowness in the semiconductor market. As of December
31, 2001, the total costs accrued had been paid. This
charge was offset in the statement of operations by a reduction of $357,000 in the
restructuring accrual which was established in the fourth quarter of 1999. The
reduction in 2001 was due to the sale of the Calogic fabrication facility,
which had been planned for closure in early 2001. As a result of the sale, we reduced
both the facility exit and related equipment disposal costs
and employee termination portions of the accrual
due to the assumptions of the facility lease and assets by the new owners who retained many of
the employees that we had planned to pay severance costs.
Additionally, the Company was able
to sublease a facility earlier than expected during 2000 which
resulted in a reduction of
the accrual for facility-related costs in 2000.

|                                 |  |          |       |          |  |             |      |          |  |          |      |             |  |         |     |  |  |   |      |   |  |   |      |   |  |   |   | 
|-------------------------------- |  | -------- | ----- | -------- |  | ----------- | ---- | -------- |  | -------- | ---- | ----------- |  | ------- | --- |  |  | - | ---- | - |  | - | ---- | - |  | - | - | 
|                                 |  | Accrual  |       |          |  |             |      |          |  |          |      | Accrual    
|                                 |  | Balance  |       | Incurred |  | Adjustments |      | Balance  |  | Incurred
|                                 |  | 12/31/99 |       | 2000     |  | to Accrual  |      | 12/31/00 |  | 2001     |      | Adjustments |  | Balance
|                                 |  |          |       |          |  |             |      |          |  |          |      |             |  |        
|People related costs             |  | $        | 640   |          |  | $           | (507 | )        |  | $        |     |             |  | $       | 133 |  |  | $ | (51  | ) |  | $ | (82  | ) |  | $ |  | 
|                                
|                                
|                                
|                                
|Facility related
costs           |  |          | 930   |          |  |             | (332 | )        |  |          | (425 | )           |  |         | 173 |  |  |   | (98  | ) |  |   | (75  | ) |  |   |  | 
|                                
|                                
|                                
|                                
|Equipment related
disposal costs |  |          | 300   |          |  |             |     |          |  |          | (100 | )           |  |         | 200 |  |  |   |     |   |  |   | (200 | ) |  |   |  | 
|                                 |  |          |       |          |  |             |      |          |  |          |      |             |  |         |     |  |  |   |      |   |  |   |      |   |  |   |   | 
|                                 |  | $        | 1,870 |          |  | $           | (839 | )        |  | $        | (525 | )           |  | $       | 506 |  |  | $ | (149 | ) |  | $ | (357 | ) |  | $ |  | 
|                                 |  |          |       |          |  |             |      |          |  |          |      |             |  |         |     |  |  |   |      |   |  |   |      |   |  |   |   | 

In the fourth quarter of 1999, Management of Sipex and the Board of
Directors approved a plan to close certain manufacturing facilities in
California, consisting of five locations which were acquired through the merger with
Calogic and accounted
for as a pooling-of-interests. Total estimated costs of $1.9 million
associated with the closure of the Calogic facilities included facility related
costs of $930,000, costs related to the expected abandonment of less
efficient and duplicate machinery and equipment of $300,000 and
people related facilities exit
and severance costs of $640,000.

In the third quarter of 1999, Sipex
realized net proceeds of $1.1 million from the unanticipated sale of the
tangible assets of our semiconductor wafer fab located in Milpitas, California
which had been written off as part of facility exit costs during 1998. This recovery of
$1.1 million has been recorded as a credit to facility exit costs on the
statement of operations for 1999 resulting in the reporting of net facility
exit costs for 1999 of approximately $817,000.

5. Inventories

Inventories were as follows (in thousands):

|                |  |      |        |      |  |   |        | 
|--------------- |  | ---- | ------ | ---- |  | - | ------ | 
|                |  | 2001 |        | 2000
|                |  |      |        |     
|Raw materials   |  | $    | 4,027  |      |  | $ | 4,167  | 
|Work-in-process |  |      | 14,854 |      |  |   | 24,053 | 
|Finished goods  |  |      | 6,414  |      |  |   | 5,104  | 
|                |  |      |        |      |  |   |        | 
|                |  | $    | 25,295 |      |  | $ | 33,324 | 
|                |  |      |        |      |  |   |        | 

6. Property, Plant and Equipment

Property, plant and equipment were as follows (in thousands):

|                                               |  |      |        |      |  |   |        | 
|---------------------------------------------- |  | ---- | ------ | ---- |  | - | ------ | 
|                                               |  | 2001 |        | 2000
|                                               |  |      |        |     
|Land                                           |  | $    | 5,957  |      |  | $ |       | 
|Building                                       |  |      | 23,360 |      |  |   | 4,212  | 
|Machinery and equipment                        |  |      | 53,001 |      |  |   | 44,395 | 
|Furniture, fixtures and office equipment       |  |      | 11,863 |      |  |   | 11,078 | 
|Leasehold improvements                         |  |      | 5,044  |      |  |   | 2,623  | 
|                                               |  |      |        |      |  |   |        | 
|                                               |  |      | 99,225 |      |  |   | 62,308 | 
|Less accumulated depreciation and amortization |  |      | 32,053 |      |  |   | 29,315 | 
|                                               |  |      |        |      |  |   |        | 
|                                               |  | $    | 67,172 |      |  | $ | 32,993 | 
|                                               |  |      |        |      |  |   |        | 

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In June 2001, we purchased the land, building and equipment of our
Milpitas manufacturing facility for $35 million which was
previously leased.
Proceeds for the buyout were provided by the liquidation of $36.8 million
restricted cash that had previously secured the lease of the facility and
equipment.

7. Accrued Expenses

Accrued expenses were as follows (in thousands):

|                                  |  |      |       |      |  |   |       | 
|--------------------------------- |  | ---- | ----- | ---- |  | - | ----- | 
|                                  |  | 2001 |       | 2000
|                                  |  |      |       |     
|Accrued compensation and benefits |  | $    | 1,108 |      |  | $ | 2,592 | 
|Accrued royalties                 |  |      | 536   |      |  |   | 300   | 
|Accrued commissions               |  |      | 737   |      |  |   | 637   | 
|Accrued facility exit costs       |  |      |      |      |  |   | 506   | 
|Other                             |  |      | 547   |      |  |   | 1,337 | 
|                                  |  |      |       |      |  |   |       | 
|                                  |  | $    | 2,928 |      |  | $ | 5,372 | 
|                                  |  |      |       |      |  |   |       | 

8. Long-term Debt

As of December 31, 2001, Sipex had long-term debt consisting of $7.4
million borrowed under a $20.0 borrowing limit with a borrowing base of 80% of
Sipexs eligible accounts receivable. Funds advanced under the line bear
interest at the banks base rate minus 0.5% (4.25% at December 31, 2001), are
due June 1, 2003 and are collateralized by substantially all our assets. The
loan agreement requires compliance with certain minimum tangible net worth and
financial ratios. During 2001, Sipex was in violation of certain of these
covenants. However, waiver of the violations were obtained and the covenants
were modified. At December 31, 2001, Sipex was in compliance with the modified
covenants and projects to be in compliance in 2002.

9. Income Taxes

Total income tax expense (benefit) for the years ended December 31, 2001,
2000 and 1999 was allocated as follows (in thousands):

|                                                                                                                                |  |      |         |      |  |      |        |   |  |   |        |  
|------------------------------------------------------------------------------------------------------------------------------- |  | ---- | ------- | ---- |  | ---- | ------ | - |  | - | ------ | -
|                                                                                                                                |  | 2001 |         | 2000 |  | 1999
|                                                                                                                                |  |      |         |      |  |     
|Income from continuing operations                                                                                               |  | $    | (12,590 | )    |  | $    | 1,623  |   |  | $ | (2,419 | )
|Shareholders equity for compensation expense for tax purposes in
excess of amounts recognized for financial statement purposes |  |      | (1,734  | )    |  |      | (5,266 | ) |  |   | (3,792 | )
|                                                                                                                                |  |      |         |      |  |      |        |   |  |   |        |  
|Total income tax benefit                                                                                                        |  | $    | (14,324 | )    |  | $    | (3,643 | ) |  | $ | (6,211 | )
|                                                                                                                                |  |      |         |      |  |      |        |   |  |   |        |  

Total federal, state and foreign income tax expense (benefit), consists of
the following (in thousands):

|                  |  |          |         |         |  |       |      |          |  |         |         |       |  |          |       |         |  |       |      |   |  |   |       |   |  |   |        |   |  |   |     |   |  |   |        |  
|----------------- |  | -------- | ------- | ------- |  | ----- | ---- | -------- |  | ------- | ------- | ----- |  | -------- | ----- | ------- |  | ----- | ---- | - |  | - | ----- | - |  | - | ------ | - |  | - | --- | - |  | - | ------ | -
|                  |  | 2001     |         | 2000    |  | 1999 
|                  |  |          |         |         |  |      
|                  |  | Deferred |         | Current |  | Total |      | Deferred |  | Current |         | Total |  | Deferred |       | Current |  | Total
|                  |  |          |         |         |  |       |      |          |  |         |         |       |  |          |       |         |  |      
|Federal           |  | $        | (10,082 | )       |  | $     | (684 | )        |  | $       | (10,767 | )     |  | $        | 2,217 |         |  | $     | (274 | ) |  | $ | 1,943 |   |  | $ | 57     |   |  | $ | (29 | ) |  | $ | 28     |  
|Loss carryforward |  |          |        |         |  |       |     |          |  |         |        |       |  |          |      |         |  |       |     |   |  |   |      |   |  |   | (885   | ) |  |   |    |   |  |   | (885   | )
|State             |  |          | (1,770  | )       |  |       | (64  | )        |  |         | (1,834  | )     |  |          | (313  | )       |  |       | (7   | ) |  |   | (320  | ) |  |   | (1,576 | ) |  |   | 2   |   |  |   | (1,574 | )
|Loss carryforward |  |          |        |         |  |       |     |          |  |         |        |       |  |          |      |         |  |       |     |   |  |   |      |   |  |   |       |   |  |   |    |   |  |   |       |  
|Foreign           |  |          |        |         |  |       | 10   |          |  |         | 10      |       |  |          |      |         |  |       |     |   |  |   |      |   |  |   |       |   |  |   | 12  |   |  |   | 12     |  
|                  |  |          |         |         |  |       |      |          |  |         |         |       |  |          |       |         |  |       |      |   |  |   |       |   |  |   |        |   |  |   |     |   |  |   |        |  
|Total expense     |  | $        | (11,852 | )       |  | $     | (738 | )        |  | $       | (12,590 | )     |  | $        | 1,904 |         |  | $     | (281 | ) |  | $ | 1,623 |   |  | $ | (2,404 | ) |  | $ | (15 | ) |  | $ | (2,419 | )
|                  |  |          |         |         |  |       |      |          |  |         |         |       |  |          |       |         |  |       |      |   |  |   |       |   |  |   |        |   |  |   |     |   |  |   |        |  

The actual tax expense (benefit) differs from the expected tax expense
as follows (in thousands):

|                                                                                      |  |      |         |      |  |      |       |   |  |   |        |  
|------------------------------------------------------------------------------------- |  | ---- | ------- | ---- |  | ---- | ----- | - |  | - | ------ | -
|                                                                                      |  | 2001 |         | 2000 |  | 1999
|                                                                                      |  |      |         |      |  |     
|Computed expected tax expense                                                       |  | $    | (11,299 | )    |  | $    | 1,939 |   |  | $ | 1,289  |  
|State income tax, net of federal income tax benefit and change in valuation allowance |  |      | (1,192  | )    |  |      | (201  | ) |  |   | (560   | )
|FSC tax benefits                                                                      |  |      |        |      |  |      |      |   |  |   | (37    | )
|Non-deductible expenses                                                               |  |      | 30      |      |  |      | 71    |   |  |   | 26     |  
|Goodwill amortization and merger costs not deductible                                 |  |      | 130     |      |  |      | 133   |   |  |   | 419    |  
|Change in valuation allowance                                                         |  |      |        |      |  |      |      |   |  |   | (2,569 | )
|Recognition of net operating losses                                                   |  |      |        |      |  |      |      |   |  |   | (885   | )
|Utilization of R&D credits                                                            |  |      | (248    | )    |  |      | (353  | ) |  |   | (22    | )
|Rate differential on foreign taxes and non-deductible foreign losses                  |  |      | (12     | )    |  |      | 41    |   |  |   | (34    | )
|Other                                                                                 |  |      |        |      |  |      | (7    | ) |  |   | (46    | )
|                                                                                      |  |      |         |      |  |      |       |   |  |   |        |  
|Actual tax expense (benefit)                                                          |  | $    | (12,590 | )    |  | $    | 1,623 |   |  | $ | (2,419 | )
|                                                                                      |  |      |         |      |  |      |       |   |  |   |        |  

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The tax effects of temporary differences that give rise to significant
portions of the deferred tax assets and liabilities at December 31, 2001 and
2000 are as follows (in thousands):

|                                     |                                                                   |  |      |        |      |  |   |        |  
|------------------------------------ | ----------------------------------------------------------------- |  | ---- | ------ | ---- |  | - | ------ | -
|                                     |                                                                   |  | 2001 |        | 2000
|                                     |                                                                   |  |      |        |     
|Current deferred tax assets:         |                                                                   |  |      |        |      |  |   |       
|                                     | Inventories, primarily non-deductible reserves                    |  | $    | 1,665  |      |  | $ | 2,811  |  
|                                     | Accounts receivable, primarily allowances                         |  |      | 961    |      |  |   | 1,232  |  
|                                     | Accrued expenses, principally provisions not currently deductible |  |      | 537    |      |  |   | 1,472  |  
|Noncurrent deferred tax assets:      |                                                                   |  |      |        |      |  |   |       
|                                     | Net operating loss carryforwards                                  |  |      | 31,944 |      |  |   | 12,028 |  
|                                     | Tax credit carryforwards                                          |  |      | 3,627  |      |  |   | 3,838  |  
|                                     |                                                                   |  |      |        |      |  |   |       
|                                     | Total deferred tax assets                                         |  |      | 38,253 |      |  |   | 21,381 |  
|Noncurrent deferred tax liabilities: |                                                                   |  |      |        |      |  |   |       
|                                     | Fixed assets, due to differences in depreciation                  |  |      | (6,879 | )    |  |   | (3,153 | )
|                                     |                                                                   |  |      |        |      |  |   |       
|                                     | Net deferred tax assets                                           |  | $    | 31,851 |      |  | $ | 18,228 |  
|                                     |                                                                   |  |      |        |      |  |   |        |  

In assessing the realizability of deferred tax assets, management
considers whether it is more likely than not that some or all of the deferred
tax assets will not be realized. The ultimate realization of deferred tax
assets is dependent upon the generation of future taxable income during the
periods in which the associated temporary differences become deductible.
Management considers the scheduled reversals of deferred tax
liabilities and projected future taxable income, and tax planning strategies in making this
assessment.

At December 31, 2001, Sipex has U.S. net operating loss carryforwards of
approximately $85.6 million, which are available to offset future Federal
taxable income. These losses expire during the years 2005 through 2021. As of
December 31, 2001, a substantial amount of the loss carryforwards are subject
to an annual limitation on utilization as a result of previous ownership
changes pursuant to IRC Section 382. An ownership change occurs where five
percent or greater shareholders undergo a greater than fifty percent change in
ownership over a three year period. The Company has
undergone an ownership change in May of 2001.

At December 31, 2001, Sipex has Massachusetts and California net operating
loss carryforwards of approximately $63.0 million and $11.3 million,
respectively. The state net operating losses will expire from 2005 to 2006.

Sipex also has Federal and California research and development credits of
approximately $1.3 million and $1.2 million, respectively. The Federal credits
will expire from 2010 to 2021, and the California credits may be carried
forward indefinitely. Sipex also has approximately $1.8 million of California
manufacturers investment credit carryforwards, and $100,000 of Massachusetts
investment tax credit carryforwards, which will expire from 2006 to 2009.

In order to fully
realize the deferred tax assets, the Company will need to generate
the following amounts of aggregate future taxable income within the
periods noted below in order that none of the loss or credit carryforwards
expire unused.

|                                    |  |           |             |            |  |                |             |  |  |                |  | 
|----------------------------------- |  | --------- | ----------- | ---------- |  | -------------- | ----------- |  |  | -------------- |  | 
|                                    |  |           |             |            |  |                |             |  |  | Approximate   
|                                    |  |           |             |            |  |                |             |  |  | Cumulative    
|Type of Deductible                  |  | Years     |             | Expiration |  | Taxable Income
|Temporary Difference                |  | Generated |             | Dates      |  | Required      
|                                    |  |           |             |            |  |               
|U.S. loss carryforwards             |  |           | 1990 - 1995 |            |  |                | 2005 - 2010 |  |  | $22.7 million 
|U.S. loss carryforwards             |  |           | 2000 - 2001 |            |  |                | 2020 - 2021 |  |  | $62.5 million 
|Massachusetts loss carryforwards    |  |           | 2000 - 2001 |            |  |                | 2005 - 2006 |  |  | $62.5 million 
|California loss carryforwards       |  |           | 2000 - 2001 |            |  |                | 2005 - 2006 |  |  | $32.4 million 
|U.S. tax credit carryforwards       |  |           | 1995 - 2001 |            |  |                | 2010 - 2021 |  |  | $107.6 million
|California tax credit carryforwards |  |           | 1998 - 2001 |            |  |                | 2006 - 2009 |  |  | $101.3 million

Based on projections
of taxable income over the next several years, and considering the
limitation imposed by IRC Section 382, we believe that none of the
loss carryforwards from earlier years will expire unused. Based upon
the level of historical income and our projections for future
taxable income over the periods, which the temporary differences are
deductible, we believe it is more likely than not that we will
realize the benefits of these deductible differences. The amount of
the deferred tax assets considered realizable, however, could be
reduced in the near term if estimates of future taxable
income during the carryforward period are reduced. Such reduction
could have a materially adverse affect on our statement of operations
resulting from the income tax charge that would be required to reflect
a valuation allowance against the deferred tax assets.

10. Shareholders Equity

Sipex currently maintains nine stock option plans. The 1994 Stock Option
and Incentive Plan, 1996 Stock Option Plan, 1996 Non-Employee Director Stock
Option Plan, 1997 Stock Option Plan, the 1999 Stock Option Plan, the 2000 Non-Qualified Stock Option Plan, the 2001 Stock Option
Plan and the 2002 Nonstatutory Stock Option Plan have had 1,187,900, 1,200,000,
300,000, 1,200,000, 1,200,000, 1,000,000, 765,000 and 1,000,000
shares reserved for issuance, respectively. All plans allow for options which
vest ratably over five years from the date of grant and expire ten years from
the date of grant. In addition to stock option plans, 1,675,000 shares of
Sipexs stock has been reserved for issuance pursuant to options which have
been granted to new employees outside of the option plans. Options for
4,994,817 shares are outstanding as of December 31, 2001.

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In January 1996, the Board of Directors approved the 1996 Employee Stock
Purchase Plan, pursuant to which Sipex is authorized to issue up to 500,000
shares of common stock to its full-time employees, nearly all of whom are
eligible to participate. Under the terms of the Plan, employees can choose each
year to have up to 10 percent of their annual base earnings withheld to
purchase Sipexs common stock. The purchase price of stock is 85 percent of the
lower of its beginning-of-period or end-of-period market price. Under the Plan,
Sipex sold 138,182 shares to employees since inception of the plan.

Sipex applies APB Opinion 25 and related interpretations in accounting for
these plans. Accordingly, no compensation cost has been recognized. Had
compensation cost been determined pursuant to SFAS No. 123, Sipexs net income
(loss) and net income per share would have been adjusted to the pro forma
amounts indicated in the table below. The effects on pro forma net income
(loss) obtained from applying SFAS No. 123 may not be representative of the
effects on reported net income (loss) for future years (in thousands, except
per share amounts).

|                                                |  |             |  |   |         |      |  |      |        |      |  |   |       |  |  | 
|----------------------------------------------- |  | ----------- |  | - | ------- | ---- |  | ---- | ------ | ---- |  | - | ----- |  |  | 
|                                                |  |             |  |   |         | 2001 |  | 2000 |        | 1999
|                                                |  |             |  |   |         |      |  |      |        |     
|Net income (loss)                               |  | As reported |  | $ | (19,692 | )    |  | $    | 3,917  |      |  | $ | 6,099 | 
|                                                |  | Pro forma   |  |   | (28,378 | )    |  |      | (2,495 | )    |  |   | 542   | 
|Net income (loss) per share  basic             |  | As reported |  |   | (0.82   | )    |  |      | 0.18   |      |  |   | 0.28  | 
|                                                |  | Pro forma   |  |   | (1.18   | )    |  |      | (0.11  | )    |  |   | 0.03  | 
|Net income (loss) per share  assuming
dilution |  | As reported |  |   | (0.82   | )    |  |      | 0.16   |      |  |   | 0.28  | 
|                                                |  | Pro forma   |  |   | (1.18   | )    |  |      | (0.11  | )    |  |   | 0.02  | 

The fair value of each option grant is estimated on the date of grant
using the Black-Scholes option-pricing model with the following
weighted-average assumptions used for grants in 2001, 2000 and 1999,
respectively; no dividend yield; expected volatility of 179 percent for 2001
and 95 percent for 2000 and 1999, and expected option lives of six years. The
risk free interest rate assumed was 5.3% for 2001, 5.0% for 2000, and 6.25% for
1999. The weighted-average fair value of options granted during 2001, 2000 and
1999 was $9.38, $23.14, and $10.91, respectively.

A summary of the status of Sipexs stock option plans as of December 31,
2001, 2000 and 1999, and changes during the years then ended, is presented
below (in thousands, except per share amounts):

|                                 |           |  |        |       |          |   |          |       |          |  |        |      |          |   |       |       |  |  |          |       |   |   |       |       | 
|-------------------------------- | --------- |  | ------ | ----- | -------- | - | -------- | ----- | -------- |  | ------ | ---- | -------- | - | ----- | ----- |  |  | -------- | ----- | - | - | ----- | ----- | 
|                                 |           |  | 2001   |       | 2000     |   | 1999    
|                                 |           |  |        |       |          |   |         
|                                 |           |  |        |       |          |   | Weighted |       |          |  |        |      | Weighted |   |       |       |  |  | Weighted
|                                 |           |  |        |       |          |   | Average  |       |          |  |        |      | Average  |   |       |       |  |  | Average 
|                                 |           |  | Shares |       | Exercise |   | Shares   |       | Exercise |  | Shares |      | Exercise
|                                 |           |  | (000)  |       | Price    |   | (000)    |       | Price    |  | (000)  |      | Price   
|                                 |           |  |        |       |          |   |          |       |          |  |        |      |         
|Outstanding at beginning of year |           |  | 3,137  |       |          | $ | 16.87    |       |          |  | 3,675  |      |          | $ | 15.09 |       |  |  | 2,024    |       |   | $ | 16.15 |      
|                                 | Granted   |  |        | 2,386 |          |   |          | 9.61  |          |  |        | 432  |          |   |       | 23.15 |  |  |          | 2,138 |   |   |       | 13.54 | 
|                                 | Exercised |  |        | (86   | )        |   |          | 5.86  |          |  |        | (715 | )        |   |       | 11.69 |  |  |          | (169  | ) |   |       | 1.89  | 
|                                 | Forfeited |  |        | (442  | )        |   |          | 15.31 |          |  |        | (255 | )        |   |       | 16.30 |  |  |          | (318  | ) |   |       | 18.39 | 
|                                 |           |  |        |       |          |   |          |       |          |  |        |      |          |   |       |       |  |  |          |       |   |   |       |      
|Outstanding at end of year       |           |  | 4,995  |       |          | $ | 13.64    |       |          |  | 3,137  |      |          | $ | 16.87 |       |  |  | 3,675    |       |   | $ | 15.09 |      
|                                 |           |  |        |       |          |   |          |       |          |  |        |      |          |   |       |       |  |  |          |       |   |   |       |      
|Options exercisable at year-end  |           |  | 1,627  |       |          | $ | 13.48    |       |          |  | 458    |      |          | $ | 18.11 |       |  |  | 561      |       |   | $ | 13.13 |      
|                                 |           |  |        |       |          |   |          |       |          |  |        |      |          |   |       |       |  |  |          |       |   |   |       |      

F-14



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##### Table of Contents



The following table summarizes information about Sipexs stock options
outstanding at December 31, 2001:

|                    |                   |                 |           |             |                     |                 |             |      |             |      |         |        |         |         | 
|------------------- | ----------------- | --------------- | --------- | ----------- | ------------------- | --------------- | ----------- | ---- | ----------- | ---- | ------- | ------ | ------- | ------- | 
|                    |                   |                 |           |             |                     |                 |             |      |             |      |         |        | Options
|                    |                   |                 |           |             | Options Outstanding |                 | Exercisable
|                    |                   |                 |           |             |                     |                 |            
|                    |                   |                 |           |             |                     |                 |             |      | Weighted    |      |         |        |        
|                    |                   |                 |           |             | Number              |                 | Average     |      | Number     
|                    |                   |                 |           |             | Outstanding         |                 | Remaining   |      | Exercisable
|Range of            |                   | at December 31, |           | Contractual |                     | At December 31,
|Exercise Prices     |                   | 2001            |           | Life        |                     | 2001           
|                    |                   |                 |           |             |                     |                
|                    | $0.2000  $4.7500 |                 |           | 22,860      |                     |                 |             | 3.89 |             |      |         | 22,860 |        
|                    |                   |                 | $6.0000   |             |                     | 768,750         |             |      |             | 9.75 |         |        |         | 530,000 | 
|$6.8700  $11.1250  |                   |                 | 545,164   |             |                     |                 | 8.28        |      |             |      | 104,091 |       
|$12.1250  $12.440  |                   |                 | 151,911   |             |                     |                 | 6.75        |      |             |      | 55,695  |       
|$12.5625  $12.5625 |                   |                 | 500,000   |             |                     |                 | 7.90        |      |             |      | 95,000  |       
|$12.6875  $12.6875 |                   |                 | 1,076,520 |             |                     |                 | 9.04        |      |             |      | 27,000  |       
|$13.0625  $15.0000 |                   |                 | 381,034   |             |                     |                 | 7.25        |      |             |      | 220,574 |       
|$15.5625  $15.5625 |                   |                 | 611,541   |             |                     |                 | 7.61        |      |             |      | 180,391 |       
|$16.6875  $20.0625 |                   |                 | 506,429   |             |                     |                 | 7.33        |      |             |      | 177,323 |       
|                    |                   | $21.0000        |           |             | 430,608             |                 |             |      | 6.78        |      |         |        | 213,969 |        

11. Other, net

Other income (expense), net consisted of the following:

|                |                  |   |        |     |      |   |       |       |  |   |       |       | 
|--------------- | ---------------- | - | ------ | --- | ---- | - | ----- | ----- |  | - | ----- | ----- | 
|                |                  |   | 2001   |     | 2000 |   | 1999 
|                |                  |   |        |     |      |   |      
|Interest income |                  | $ | 1,180  |     |      | $ | 2,514 |       |  | $ | 2,488 |      
|Royalty expense |                  |   | (1,040 | )   |      |   | (748  | )     |  |   | (487  | )    
|Other, net      |                  |   | 25     |     |      |   | 301   |       |  |   | (267  | )    
|                |                  |   |        |     |      |   |       |       |  |   |       |      
|                | Total other, net |   | $      | 165 |      |   | $     | 2,067 |  |   | $     | 1,734 | 
|                |                  |   |        |     |      |   |       |       |  |   |       |      

12. Employee Benefit Plan

Sipex has a defined contribution retirement plan, 401(k), covering
substantially all employees. Sipex matches 50% of the contributions made by
employees up to 6% of their annual compensation. Sipex can also make a
discretionary contribution to the plan. Employee contributions vest immediately
and employer contributions vest ratably over five years. Participants are
entitled, upon termination or retirement, to their vested portion of retirement
fund assets which are held by a corporate trustee. During 2001, 2000 and 1999,
our contributions to the plan were approximately $588,000, $468,000 and
$297,000, respectively.

13. Commitments and Contingencies

Sipex leases facilities under operating leases expiring through 2009. Rent
expense was approximately $2.0 million, $3.1 million, and $3.0 million for the
years ended December 31, 2001, 2000 and 1999, respectively.

Minimum lease payments under operating leases are approximately as follows
(in thousands):

|              |  |   |       | 
|------------- |  | - | ----- | 
|Calendar Year |  |   |       | 
|              |  |   |       | 
|2002          |  | $ | 1,141 | 
|2003          |  |   | 841   | 
|2004          |  |   | 829   | 
|2005          |  |   | 672   | 
|2006          |  |   | 672   | 
|Thereafter    |  |   | 872   | 
|              |  |   |       | 
|              |  | $ | 5,027 | 
|              |  |   |       | 

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In June 2001, Sipex purchased the land, building and equipment of its
Milpitas wafer fabrication facility, which was being leased under a five-year
operating lease. In accordance with the provisions of the lease agreement,
Sipex paid $35.0 million, consisting of $6.0 million for the land, $16.9
million for the building and $12.1 million for machinery and equipment. The
recorded cost of the machinery and equipment purchased was reduced by a $1.4
million long-term liability recorded by Sipex through June 30, 2001 as its
estimated liability under the lease for the guaranteed residual value of the
equipment. Proceeds for the buyout were provided through the liquidation of
restricted cash investments of $36.8 million that had previously secured the
lease of the facility and equipment. This reduced rent expense in 2001 by
approximately $1.3 million.

Sipex may become involved in various legal actions, including securities
class actions, arising in the ordinary course of business. Between July 10 and
July 19, 2001, two virtually identical purported securities class action
lawsuits were filed in the United States District Court for the District of
Massachusetts, captioned Darren Suprina v. Sipex Corp. et al (C.A. No.
01-11185-DPW) and Doug Howell v. Sipex Corp. et al (C.A. No. 01-11243-DPW).
The suits name as defendants Sipex and certain officers of Sipex. The suits are
purportedly brought on behalf of a class of all persons who purchased Sipexs
common stock from July 20, 2000 through and including January 11, 2001. The
suits allege, among other things, that Sipexs financial statements for the
second and third quarters of fiscal year 2000 contain misstatements and assert
violations of Section 10(b) of the Securities and Exchange Act of 1934 and SEC
Rule 10b-5. The suits seek an unspecified award of damages. Sipex believes that
the allegations in the complaints are without merit and intends to contest them
vigorously. At December 31, 2001, no provision was made for any potential costs
related to these matters as management concluded it was not probable that any
loss would be incurred.

14.  Valuation and Qualifying Accounts

The Company had the following activity for the inventory and accounts
receivable allowances:

|                              |  |   |           |   |  |   |                    |   |  | 
|----------------------------- |  | - | --------- | - |  | - | ------------------ | - |  | 
|                              |  |   | INVENTORY |   |  |   | BAD DEBT &
RETURNS |   |  | 
|                              |  |   |           |   |  |   |                    |   |  | 
|1999                          |  |   |           |   |  |   |                    |   | 
|Beginning
Balance January 1   |  | $ | 908       |   |  | $ | 868                |   |  | 
|Charged to costs and expenses |  |   | 2,563     |   |  |   | 1,196              |   |  | 
|Deductions                    |  |   | (756      | ) |  |   | (784               | ) |  | 
|                              |  |   |           |   |  |   |                    |   |  | 
|2000                          |  |   |           |   |  |   |                    |   | 
|Balance
January 1             |  |   | 2,715     |   |  |   | 1,280              |   |  | 
|Charged to costs and expenses |  |   | 3,645     |   |  |   | 3,681              |   |  | 
|Deductions                    |  |   | (2,171    | ) |  |   | (2,072             | ) |  | 
|                              |  |   |           |   |  |   |                    |   |  | 
|2001                          |  |   |           |   |  |   |                    |   | 
|Balance
January 1             |  |   | 4,189     |   |  |   | 2,889              |   |  | 
|Charged to costs and expenses |  |   | 5,637     |   |  |   | 4,555              |   |  | 
|Deductions                    |  |   | (6,285    | ) |  |   | (5,000             | ) |  | 
|                              |  |   |           |   |  |   |                    |   |  | 
|Balance
December 31           |  | $ | 3,541     |   |  | $ | 2,444              |   |  | 
|                              |  |   |           |   |  |   |                    |   |  | 

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##### Table of Contents



15. Export Sales and Major Customers

Sipexs operations are classified into one reportable segment.
Substantially all of our operations and long-lived assets reside in the United
States although we have sales operations in Munich, Belgium, Taipei, Tokyo,
Shenzhen, and Seoul.

Revenues by geographic area are summarized as follows (in thousands):

|                       |  |      |        |      |  |      |         |  |  |   |        | 
|---------------------- |  | ---- | ------ | ---- |  | ---- | ------- |  |  | - | ------ | 
|                       |  | 2001 |        | 2000 |  | 1999
|                       |  |      |        |      |  |     
|United States / Canada |  | $    | 27,702 |      |  | $    | 53,471  |  |  | $ | 44,463 | 
|Europe                 |  |      | 22,274 |      |  |      | 18,778  |  |  |   | 14,681 | 
|Far East               |  |      | 18,037 |      |  |      | 32,173  |  |  |   | 23,832 | 
|Japan                  |  |      | 4,049  |      |  |      | 10,198  |  |  |   | 6,844  | 
|                       |  |      |        |      |  |      |         |  |  |   |        | 
|                       |  | $    | 72,062 |      |  | $    | 114,620 |  |  | $ | 89,820 | 
|                       |  |      |        |      |  |      |         |  |  |   |        | 

For the year ended
2001, Snecma accounted for 10% of Sipexs direct sales. Sales to Future Electronics, Sipexs
largest distributor, accounted for 21%, 23%, and 17% of Sipexs net sales for
the years ended December 31, 2001, 2000 and 1999, respectively.

For the year ended December 31, 2001, Sipex had four customers which
accounted for 11%, 11%, 12% and 13% of the accounts receivable balance. For
the year ended December 31, 2000, Sipex had one customer which accounted for
15% of the accounts receivable balance. For the year ended December 31, 1999,
Sipex had one customer which accounted for 21% of the accounts receivable
balance.

16. Quarterly Data(Unaudited)

Following is a summary of quarterly operating results and share data.
Quarterly information shown below does not vary from amounts reported on any
Form 10-Q previously filed by Sipex prior to June 20, 2001. Information for the
quarters ended June 30, 2001 and September 29, 2001 have
been restated on Form
10-Q/A to reflect a change in our reserve for returns in the quarter
ended June 30, 2001 and September 30, 2001 for returns from two of
our customers in June 2001.

Net income (loss) per share amounts are based on the weighted average
common and common equivalent shares outstanding during the quarter. Therefore,
the total of net income (loss) per share for the four quarters may differ
slightly from net income (loss) per share for the year.

Quarterly Results and Stock Market Data

|                                                |                   |   |                                       |        |                |   |               |        |                |   |        |        |   |   |        |        |  
|----------------------------------------------- | ----------------- | - | ------------------------------------- | ------ | -------------- | - | ------------- | ------ | -------------- | - | ------ | ------ | - | - | ------ | ------ | -
|                                                |                   |   | Dec. 31, 2001                         |        | Sept. 29, 2001 |   | June 30, 2001 |        | March 31, 2001
|                                                |                   |   |                                       |        |                |   |               |        |               
|                                                |                   |   | (in thousands, except per share data)
|Fiscal 2001                                     |                   |   |                                       |        |                |   |               |        |                |   |        |        |   |   |        |       
|Net sales                                       |                   | $ | 17,965                                |        |                | $ | 15,031        |        |                | $ | 19,372 |        |   | $ | 19,694 |       
|Gross profit                                    |                   |   | 3,157                                 |        |                |   | (3,251        | )      |                |   | (2,299 | )      |   |   | 897    |       
|                                                | Net income (loss) |   |                                       | (1,896 | )              |   |               | (6,463 | )              |   |        | (6,305 | ) |   |        | (5,028 | )
|Net income (loss)per share  basic              |                   |   | (0.08                                 | )      |                |   | (0.26         | )      |                |   | (0.26  | )      |   |   | (0.22  | )     
|Net income (loss) per share  assuming dilution |                   |   | (0.08                                 | )      |                |   | (0.26         | )      |                |   | (0.26  | )      |   |   | (0.22  | )     
|Stock price range per share:                    |                   |   |                                       |        |                |   |               |        |                |   |        |        |   |   |        |       
|                                                | High              |   |                                       | 13.380 |                |   |               | 14.040 |                |   |        | 13.440 |   |   |        | 25.563 |  
|                                                | Low               |   |                                       | 6.000  |                |   |               | 6.440  |                |   |        | 6.531  |   |   |        | 7.656  |  

|                                                |      |   |                                       |        |                |   |              |        |               |   |        |        |  |   |        |        | 
|----------------------------------------------- | ---- | - | ------------------------------------- | ------ | -------------- | - | ------------ | ------ | ------------- | - | ------ | ------ |  | - | ------ | ------ | 
|                                                |      |   | Dec. 31, 2000                         |        | Sept. 30, 2000 |   | July 1, 2000 |        | April 1, 2000
|                                                |      |   |                                       |        |                |   |              |        |              
|                                                |      |   | (in thousands, except per share data)
|Fiscal 2000                                     |      |   |                                       |        |                |   |              |        |               |   |        |        |  |   |        |       
|Net sales                                       |      | $ | 20,772                                |        |                | $ | 35,711       |        |               | $ | 31,401 |        |  | $ | 26,736 |       
|Gross profit                                    |      |   | (233                                  | )      |                |   | 15,180       |        |               |   | 11,842 |        |  |   | 9,701  |       
|Net income (loss)                               |      |   | (5,184                                | )      |                |   | 4,746        |        |               |   | 2,703  |        |  |   | 1,652  |       
|Net income (loss) per share  basic             |      |   | (0.23                                 | )      |                |   | 0.21         |        |               |   | 0.12   |        |  |   | 0.08   |       
|Net income (loss) per share  assuming dilution |      |   | (0.23                                 | )      |                |   | 0.20         |        |               |   | 0.12   |        |  |   | 0.07   |       
|Stock price range per share:                    |      |   |                                       |        |                |   |              |        |               |   |        |        |  |   |        |       
|                                                | High |   |                                       | 45.125 |                |   |              | 49.672 |               |   |        | 34.938 |  |   |        | 44.813 | 
|                                                | Low  |   |                                       | 15.875 |                |   |              | 23.000 |               |   |        | 20.063 |  |   |        | 17.688 | 

F-17