##### Table of Contents



UNITED STATES SECURITIES AND
    EXCHANGE COMMISSION
 Washington, D.C.
    20549
      Form
    10-K/A
 (Amendment
    No. 2)
  (Mark One)þ

ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
    SECURITIES EXCHANGE ACT OF 1934For the Fiscal Year Ended
    December 30, 2006o

TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
    SECURITIES EXCHANGE ACT OF 1934For the transition period
    from          to   Commission File Number 1-33403
      SIPEX CORPORATION
 (Exact name of registrant as
    specified in its charter)
  Delaware

04-6135748(State of
    Incorporation)

(IRS employer
    identification number)233 South Hillview Drive,
    Milpitas, California(Address of principal
    executive offices)

95035(Zip Code)   Registrants telephone number, including area code:
 (408) 934-7500
  Securities registered pursuant to Section 12(b) of the
    Act:
 None
 Securities registered pursuant to Section 12(g) of the
    Act:
 Common Stock, par value $0.01 per share
  Name of exchange on which registered:
 The Nasdaq Capital Market
   o þ
  o þ
  þ o
  Regulation S-K Form 10-K Form 10-K. o
  Rule 12b-2
  o o þ
  Rule 12b-2  o þ
  1-for-2




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##### 



TABLE OF
    CONTENTS
  PagePART IIItem 7.

Managements
    Discussion and Analysis of Financial Condition and Results of
    Operations


3Item 8.

Financial
    Statements and Supplementary Data


18PART IIIItem 11.

Executive
    Compensation


56PART IVSignatures


70Exhibit
    Index


71EXHIBIT 23.1EXHIBIT 31.5EXHIBIT 31.6EXHIBIT 32.5EXHIBIT 32.6   2




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EXPLANATORY
    NOTE
  Form 10-K Form 10-K/A Form 10-K)
  
    To remove the reference to the appraisals and independent
    appraisal firms in Item 7. Managements Discussion and
    Analysis of Financial Condition and Results of Operations and in
    Item 8. Financial Statement and Supplementary Data as we
    did not intend to expertise the appraisal firms that assisted us
    and we are fully responsible for the determination of fair value
    of assets in the impairment analyses. No other changes have been
    made to the 2006
    Form 10-K.
    To correct the inadvertent omission of the Grant Date Fair
    Value of Stock and Option Awards column in the
    Grants of Plan-Based Awards in 2006 table in
    Item 11. Executive Compensation. No other changes have been
    made to Amendment No. 1 of the 2006
    Form 10-K.      Item 7.
    Managements
    Discussion and Analysis of Financial Condition and Results of
    Operations:  Form 10-K.
  Significant
    Developments
         3




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Forms 10-K Form 10-K Form 10-Q
  Form 10-K Form 10-K Forms 10-Q.
  Forms 10-Q Form 10-K/A Form 10-K Form 10-K Forms 10-Q
  Business
    Overview
      tm
     4




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Critical
    Accounting Policies and Estimates
      Revenue Recognition.
     5




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Valuation of Inventories. and/or
  Restructuring and Fixed Asset Impairment.
   6




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Income Taxes.
   7




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##### Table of Contents



Results
    of Operations
    Years Ended2006


2005


2004Net sales


100.0
%


100.0
%


100.0
%Cost of sales


88.1



81.1



84.4Gross profit


11.9



18.9



15.6Operating expenses:Research and development


22.0



23.7



19.5Marketing and selling


19.7



14.6



11.4General and administrative


17.1



19.8



13.0Restructuring and impairment


2.4



13.8



2.3Total operating expenses


61.2



71.9



46.2Loss from operations


(49.3
)


(53.0
)


(30.6
)Other income (expense), net


(2.9
)


0.8



0.3Loss before income taxes


(52.2
)%


(52.2
)%


(30.3
)%   Fiscal
    Year Ended December 30, 2006 compared to Fiscal Year Ended
    December 31, 2005
  Net Sales.
      Gross Profit (Loss).
 8




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Research and Development.
  Marketing and Selling.
  General and Administrative.
  Restructuring and Fixed Asset
    Impairment.
   9




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sub-lease
      TotalRestructuring


Fixed AssetCosts


ImpairmentAccrual balance January 1,
    2005

$
1,847


$
Incurred 2005


871



9,377Charges utilized


(726
)


(9,377
)Sub-lease
    income received


293



Adjustments to accrual


(294
)


Accrual balance December 31,
    2005


1,991



Incurred in 2006


2,010



Charges utilized


(2,299
)


(12
)Employee stock options accelerated
    as severance pay


(137
)


Sub-lease
    income received


565



Adjustments to accrual


(263
)


12Accrual balance, December 30,
    2006

$
1,867


$
   Other Income (Expense), Net.
  Income Tax Expense.
  Fiscal
    Year Ended December 31, 2005 compared to Fiscal Year Ended
    January 1, 2005
  Net Sales.
   10




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##### Table of Contents



Gross Profit (Loss).
  Research and Development.
  Marketing and Selling.
  General and Administrative.
  Restructuring and Fixed Asset
    Impairment.
  held-for-use
 11




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TotalRestructuring


Fixed AssetCosts


ImpairmentAccrual balance December 31,
    2003

$
1,070


$
Incurred 2004


1,858



Charges utilized


(1,036
)


Deferred rent adjustment


15



Adjustments to accrual


(60
)


Accrual balance January 1,
    2005


1,847



Incurred 2005


871



9,377Charges utilized


(726
)


(9,377
)Sub-lease
    income received


293



Adjustments to accrual


(294
)


Accrual balance December 31,
    2005

$
1,991


$
   Other Income (Expense), Net.
  Income Tax Expense.
 12




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Financial
    Condition, Liquidity and Capital Resources
    Operating
    Activities
             13




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Investing
    Activities
        Financing
    Activities
         14




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##### Table of Contents



and/or and/or
       15




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##### Table of Contents



trading-day
    2 3
  Forms 10-K 10-Q 10-K
   16




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##### Table of Contents



Off-Balance
    Sheet Arrangement
  Regulation S-K
  Contractual
    Obligations
    Less Than


1 - 3


3 - 5


More ThanTotal


1 Year


Years


Years


5 YearsConvertible note payable(1):Principal

$
30,000


$



$



$



$
30,000Interest


32,654



2,129



3,300



3,300



23,925Long-term lease financing
    obligation(2)


5,797



1,329



2,776



1,692



Restructuring liability(3)


771



617



154







Operating leases(4)


1,642



676



627



315



24Purchase
    commitment  Polar Fab


3,653



3,653











Purchase
    commitment  Cadence Design


974



857



117







Verification software
    tools  Mentor Graphics


419



157



262







Other(5)


2,022



1,964



58







Total contractual obligations

$
77,932


$
11,382


$
7,294


$
5,307


$
53,949     (1)
    
    $30.0 million Convertible Senior Notes issued on
    March 18, 2006 due May 18, 2026 with 5.5% interest
    payable semi-annually on May 15 and November 15 of each year
    beginning on November 15, 2006.(2)
    
    Lease payments (excluding $11.2 million estimated final
    obligation settlement with the lessor by returning the Hillview
    facility due on our Hillview facility in Milpitas, California)
    under a
    5-year
    Standard Form Lease agreement that we signed with Mission
    West Properties L.P. on March 9, 2006.(3)
    
    Represents estimated lease payments with related costs for the
    unused portion of our Billerica, Massachusetts facility.(4)
    
    Includes lease payments related to the used portion of our
    facility at our Billerica, Massachusetts facility.(5)
    
    Includes wafer and part purchases as well as other services with
    various vendors including Episil and BCD Semiconductor
    Manufacture Limited.  Effect
    of Recent Accounting Pronouncements
   17




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Item 8.
    Financial
    Statements and Supplementary Data:    PageReport of
    Independent Registered Public Accounting Firm


19Consolidated
    Balance Sheets as of December 30, 2006 and
    December 31, 2005


20Consolidated
    Statements of Operations for the years ended December 30,
    2006, December 31, 2005 and January 1, 2005


21Consolidated
    Statements of Stockholders Equity (Deficit) and
    Comprehensive Loss for the years ended December 30, 2006,
    December 31, 2005, January 1, 2005


22Consolidated
    Statements of Cash Flows for the years ended December 30,
    2006, December 31 2005, January 1, 2005


23Notes to
    consolidated financial statements


24    18




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REPORT OF
    INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM          Share-Based Payment,
  /s/  DELOITTE &
    TOUCHE LLP
    19




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##### Table of Contents



SIPEX
    CORPORATION



CONSOLIDATED
    BALANCE SHEETS

(In
    thousands, except per-share data)  December 30,


December 31,2006


2005ASSETSCurrent assets:Cash and cash equivalents

$
13,041


$
1,969Restricted cash


350



500Short-term investment securities


2,388



Accounts receivable, less
    allowances of $551 and $820, respectively


6,222



3,735Accounts receivable, related
    party, less allowances of $306 and $529, respectively


949



3,011Inventories


15,586



13,400Prepaid expenses and other current
    assets


1,641



1,300Total current assets


40,177



23,915Property, plant, and equipment, net


19,113



25,803Restricted cash 
    noncurrent


57



500Other assets


202



224Total assets

$
59,549


$
50,442LIABILITIES AND
    STOCKHOLDERS EQUITY (DEFICIT)Current liabilities:Short-term bank borrowing

$



$
3,000Current portion of long-term bank
    borrowing


667



Current portion of lease financing
    obligation


191



Accounts payable


10,331



7,394Accrued expenses


7,185



7,282Accrued restructuring costs


1,728



1,407Deferred income, related party


5,543



5,707Deferred income, other


2,555



2,510Total current liabilities


28,200



27,300Long-term bank borrowing


1,333



Long-term lease financing
    obligation


12,152



Long-term accrued restructuring
    costs


139



584Convertible senior notes


25,826



Other long-term liabilities


24



37Total liabilities


67,674



27,921Commitments and contingencies
    (Note 14)Stockholders equity
    (deficit):Preferred stock, $0.01 par
    value, 1,000 shares authorized and no shares issued or
    outstanding






Common stock, $0.01 par
    value, 60,000 shares authorized; 18,390 and
    17,775 shares issued and outstanding at December 30,
    2006 and December 31, 2005, respectively


184



178Additional paid-in capital


234,785



224,203Accumulated deficit


(243,075
)


(201,841
)Accumulated other comprehensive
    loss


(19
)


(19
)Total stockholders equity
    (deficit)


(8,125
)


22,521Total liabilities and
    stockholders equity (deficit)

$
59,549


$
50,442    20




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SIPEX
    CORPORATION



CONSOLIDATED
    STATEMENTS OF OPERATIONS

(In
    thousands, except per-share data)  Years EndedDecember 30,


December 31,


January 1,2006


2005


2005Net sales

$
44,733


$
40,847


$
46,219Net sales, related party


34,017



31,827



29,234Total net sales


78,750



72,674



75,453Cost of sales


41,103



35,103



41,250Cost of sales, related party


28,296



23,822



22,407Total cost of sales


69,399



58,925



63,657Gross profit


9,351



13,749



11,796Operating expenses:Research and development


17,332



17,248



14,710Marketing and selling


15,524



10,642



8,570General and administrative


13,486



14,420



9,784Restructuring


1,863



577



1,798Impairment of fixed assets


12



9,377



Total operating expenses


48,217



52,264



34,862Loss from operations


(38,866
)


(38,515
)


(23,066
)Other income (expense):Interest income


721



208



176Interest expense


(3,046
)


(35
)


(194
)Other, net


82



427



203Total other income (expense), net


(2,243
)


600



185Loss before income tax expense
    (benefit)


(41,109
)


(37,915
)


(22,881
)Income tax expense (benefit)


125



192



(133
)Net loss

$
(41,234
)

$
(38,107
)

$
(22,748
)Net loss per common
    share  basic and diluted

$
(2.32
)

$
(2.14
)

$
(1.38
)Weighted average common shares
    outstanding  basic and diluted


17,807



17,772



16,468    21




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##### Table of Contents



SIPEX
    CORPORATION



CONSOLIDATED
    STATEMENTS OF STOCKHOLDERS EQUITY (DEFICIT) AND

COMPREHENSIVE
    LOSS  Common Stock


Additional





Accumulated


TotalNumber of


$0.01 Par


Paid-In


Accumulated


Other


StockholdersShares


Value


Capital


Deficit


Comprehensive Loss


Equity (Deficit)(In thousands, except per share data)Balances at December 31,
    2003


14,213


$
142


$
195,084


$
(140,986
)

$
(7
)

$
54,233Net loss














(22,748
)






(22,748
)Foreign currency translation
    adjustments


















(12
)


(12
)Comprehensive loss






















(22,760
)Issuance of common stock under
    employee stock option plans


688



7



4,237











4,244Issuance of common stock under
    employee stock purchase plan


46







426











426Issuance of common stock on
    conversion of notes payable, net of discount and issuance costs


2,300



23



21,112











21,135Issuance of common stock on
    exercise of warrants


450



5



2,646











2,651Compensation from acceleration of
    stock option vesting










44











44Other stock compensation expense










7











7Consulting services provided by
    related party (see Note 2)










100











100Balances at January 1,
    2005


17,697



177



223,656



(163,734
)


(19
)


60,080Net loss and comprehensive loss














(38,107
)






(38,107
)Issuance of common stock under
    employee stock option plans


78



1



461











462Compensation from acceleration of
    stock option vesting










60











60Other stock compensation expense










9











9Consulting services provided by
    related party (see Note 2)










17











17Balances at December 31,
    2005


17,775



178



224,203



(201,841
)


(19
)


22,521Net loss and comprehensive loss














(41,234
)






(41,234
)Issuance of common stock under
    employee stock option plans


195



2



727











729Issuance of common stock on
    exercise of warrants


420



4



2,696











2,700Beneficial conversion feature of
    convertible senior notes










1,639











1,639Warrant issuance with convertible
    senior notes, net of issuance costs










1,568











1,568Stock-based compensation










3,947











3,947Consulting services provided by
    related party (see Note 2)










5











5Balances at December 30,
    2006


18,390


$
184


$
234,785


$
(243,075
)

$
(19
)

$
(8,125
)    22




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##### Table of Contents



SIPEX
    CORPORATION



CONSOLIDATED
    STATEMENTS OF CASH FLOWS  Years EndedDecember 30,


December 31,


January 1,2006


2005


2005(In thousands)Operating activities:Net loss

$
(41,234
)

$
(38,107
)

$
(22,748
)Adjustments to reconcile net loss
    to net cash used in operating activities:Stock-based compensation expense


3,780



69



51Depreciation and amortization


9,410



10,952



6,559Provision for inventories


4,997



5,031



8,628Provision for purchase commitments
    on excess inventories


1,417







Provision for restructuring charges


1,610



577



1,798Loss on disposal of fixed assets


9



39



Impairment of fixed assets


12



9,377



Amortization of discount and
    issuance costs on convertible senior notes


472







57Provision for uncollectible
    receivables and sales returns and allowances


909



1,484



1,323Consulting services provided by
    related party


5



17



100Changes in assets and liabilities:Accounts receivable


(1,334
)


1,678



(863
)Inventories


(7,016
)


(5,290
)


(5,365
)Prepaid expenses and other current
    assets


(341
)


83



115Other assets


22



261



(278
)Accounts payable


2,856



(3,444
)


391Accrued expenses


(1,532
)


1,427



1,374Accrued restructuring costs


(1,850
)


(433
)


(608
)Deferred income


(119
)


(1,191
)


620Other long-term liabilities


(13
)


24



(21
)Net cash used in operating
    activities


(27,940
)


(17,446
)


(8,867
)Investing activities:Proceeds from maturity of
    short-term investment securities


5,600



850



9,000Purchase of short-term investment
    securities


(7,988
)


(601
)


(6,255
)Purchase of property, plant, and
    equipment


(3,799
)


(878
)


(1,921
)Net proceeds from sale of machinery
    and equipment


1,139







20Restricted cash 
    decrease (increase)


593



838



(1,838
)Net cash provided by (used in)
    investing activities


(4,455
)


209



(994
)Financing activities:Proceeds from issuance of common
    stock under employee stock option plans


729



683



4,449Proceeds from issuance of common
    stock on exercise of warrants


2,700







2,651Legal fees for conversion of
    convertible debt to common stock










(42
)Proceeds from borrowing 
    related party


7,000







Repayment of borrowing 
    related party


(7,000
)






Proceeds from (repayment of)
    short-term bank borrowing


(3,000
)


3,000



Net proceeds from lease financing
    obligation


12,578







Repayment of lease financing
    obligation


(235
)






Proceeds from issuance of
    convertible senior notes and warrants


30,000







Debt issuance costs related to
    convertible senior notes


(1,305
)






Proceeds from long-term bank
    borrowing


2,000







Net cash provided by financing
    activities


43,467



3,683



7,058Effect of foreign currency exchange
    rate changes on cash and cash equivalents










(12
)Increase (decrease) in cash and
    cash equivalents


11,072



(13,554
)


(2,815
)Cash and cash equivalents at
    beginning of period


1,969



15,523



18,338Cash and cash equivalents at end of
    period

$
13,041


$
1,969


$
15,523Supplemental cash flow information:Cash paid during the period for:Income taxes

$
32


$
48


$
13Interest

$
1,972


$



$
5Supplemental disclosure of non-cash
    investing and financing activities:Purchase of property, plant and
    equipment not paid at end of period

$
169


$
88


$
113Conversion of convertible debt to
    common stock

$



$



$
21,177Receivable from exercise of stock
    options

$



$



$
221    23




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##### Table of Contents



SIPEX
    CORPORATION
 NOTES TO
    CONSOLIDATED FINANCIAL STATEMENTS  Note 1.
    Description
    of Business        Note 2.
    Summary
    of Significant Accounting Policies  Basis
    of Presentation
      53-week
  Reverse
    Stock Split
  1-for-2
 24




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##### Table of Contents



SIPEX
    CORPORATION
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
    Revenue
    Recognition
               25




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##### Table of Contents



SIPEX
    CORPORATION
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
   Research
    and Development
    Net
    Loss Per Share
      2006


2005


2004Weighted average common shares
    outstanding  basic


17,807



17,772



16,468Net effect of dilutive potential
    common shares outstanding based on the treasury stock method
    using the average market price










Weighted average common shares
    outstanding  diluted


17,807



17,772



16,468     December 30,


December 31,


January 1,2006


2005


2005Option shares outstanding


3,761



3,259



2,726Weighted average exercise price of
    option shares outstanding

$
5.88


$
5.74


$
11.96Convertible notes of
    $30.0 million issued on May 18, 2006 (conversion price
    at $5.36)


5,597







Warrants issued on May 18,
    2006 with the above convertible notes (exercise price at $6.432)


420







   Concentration
    of Credit Risk
    Concentration
    of Other Risks
   26




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##### Table of Contents



SIPEX
    CORPORATION
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
  period-to-period
  Fair
    Values of Financial Assets and Financial
    Liabilities
  S-1
  Short-term
    Investments
    Inventories
  s first-in,
  Valuation
    of Inventories
  and/or
 27




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##### Table of Contents



SIPEX
    CORPORATION
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
   Related
    Parties
    and/or
         28




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##### Table of Contents



SIPEX
    CORPORATION
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
         Employee
    Advances
    Property,
    Plant and Equipment
    Useful LivesBuilding and improvements

25 years (see Note 5)Machinery and equipment

3-10 years
    (see Note 3)Furniture, fixtures and office
    equipment

3-7 yearsLeasehold improvements

Lesser of 10 years or lease
    term   Restricted
    Cash
    Impairment
    of Long-Lived Assets and Long-Lived Assets to be Disposed
    of
   29




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##### Table of Contents



SIPEX
    CORPORATION
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
    Foreign
    Currency Translation
    Income
    Taxes
    Stock-Based
    Compensation
  Adoption
    of SFAS No. 123R
    No. FAS 123R-3 paid-in-capital paid-in-capital.
   30




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##### Table of Contents



SIPEX
    CORPORATION
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
    Form S-8
      2006WeightedWeighted


AverageNumber


Average


Remaining


Aggregateof


Exercise


Contractual


IntrinsicOptions


Price


Term (in years)


Value(In thousands)








(In thousands)Outstanding at beginning of year


3,259


$
5.74Granted


912



6.20Exercised


(195
)


3.73Forfeited or expired


(215
)


7.04Outstanding at end of year


3,761


$
5.88



7.81


$
17,518Vested and expected to vest at
    December 30, 2006


3,553


$
5.91



7.76


$
16,587Exercisable at December 30,
    2006


1,867


$
6.47



6.83


$
9,010      31




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##### Table of Contents



SIPEX
    CORPORATION
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
     2006Cost of sales

$
343Research and development


1,219Marketing and selling


816General and administrative


1,265Restructuring (see Note 3)


137Stock-based compensation expense
    before income tax effect


3,780Less income tax effect


Stock-based compensation expense
    after income tax effect

$
3,780         Prior
    to the Adoption of SFAS No. 123R
     32




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##### Table of Contents



SIPEX
    CORPORATION
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
    2005


2004Net loss as reported

$
(38,107
)

$
(22,748
)Add employee stock-based
    compensation expense from accelerated stock option vesting and
    other employee stock option compensation included in reported
    net loss


60



51Less employee stock-based
    compensation expense determined under fair value method


(5,107
)


(7,969
)Pro forma net loss

$
(43,154
)

$
(30,666
)Net loss per shareBasic and diluted  as
    reported

$
(2.14
)

$
(1.38
)Basic and diluted  pro
    forma


(2.43
)


(1.86
)     Valuation
    Assumptions
    2006


2005


2004Expected life of options


6 years



4 years



4 yearsVolatility


89
%


86
%


61
%Risk-free interest rate


4.8
%


3.9
%


3.4
%Dividend yield










Weighted average fair value of
    options granted

$
4.68


$
2.30


$
5.76    33




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##### Table of Contents



SIPEX
    CORPORATION
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
     2006


2005


2004Expected life of options










0.5 yearVolatility:First purchase period










61
%Second purchase period










60
%Risk-free interest rate










2.0
%Dividend yield










Average fair value:First purchase period









$
2.74Second purchase period









$
2.70   Effect
    of Recent Accounting Pronouncements
  No. 03-1, 03-1, Other-Than-Temporary 03-1 03-1
  04-10 04-10
    FAS 109-1,
 34




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##### Table of Contents



SIPEX
    CORPORATION
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
      FAS 115-1 FAS 124-1, Other-Than-Temporary 115-1), No. 03-01, Other-Than-Temporary 115-1 other-than-temporary, 115-1 other-than-temporary 115-1 115-1
  instrument-by-instrument
     35




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##### Table of Contents



SIPEX
    CORPORATION
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
      No. 00-19-2,
   36




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##### Table of Contents



SIPEX
    CORPORATION
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
   Note 3.
    Restructuring
    and Impairment of Fixed Assets    TotalEmployee


Restructuring


Fixed AssetFacility


Costs


Costs


ImpairmentAccrual balance, December 31,
    2003

$
1,070


$



$
1,070


$
Incurred in 2004


1,826



32



1,858



Charges utilized


(1,004
)


(32
)


(1,036
)


Deferred rent adjustment


15







15



Adjustments to accrual


(60
)






(60
)


Accrual balance, January 1,
    2005


1,847







1,847



Incurred in 2005


105



766



871



9,377Charges utilized


(726
)






(726
)


(9,377
)Sub-lease
    income received


293







293Adjustments to accrual


(264
)


(30
)


(294
)Accrual balance, December 31,
    2005


1,255



736



1,991



Incurred in 2006


200



1,810



2,010



Charges utilized


(818
)


(1,481
)


(2,299
)


(12
)Employee stock options accelerated
    as severance pay






(137
)


(137
)


Sub-lease
    income received


565







565



Adjustments to accrual


(209
)


(54
)


(263
)


12Accrual balance, December 30,
    2006

$
993


$
874


$
1,867


$
     Restructuring
       37




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##### Table of Contents



SIPEX
    CORPORATION
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
    sub-lease
        Impairment
       38




---



##### Table of Contents



SIPEX
    CORPORATION
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
   Note 4.
    Inventories    2006


2005Raw materials

$
768


$
223Work-in-process


10,518



10,297Finished goods


4,300



2,880$
15,586


$
13,400   Note 5.
    Property,
    Plant and Equipment    2006


2005Land

$
5,957


$
5,957Building and improvements


23,614



23,614Machinery and equipment


11,713



13,503Furniture, fixtures and office
    equipment


7,454



6,926Leasehold improvements


357



32649,095



50,326Less accumulated depreciation and
    amortization


29,982



24,523$
19,113


$
25,803       Note 6.
    Accrued
    Expenses    39




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##### Table of Contents



SIPEX
    CORPORATION
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
  2006


2005Accrued compensation and benefits

$
2,815


$
2,959Accrued provision for purchase
    commitment on excess inventories


1,417



Accrued interest and related
    derivative liaility


679



8Accrued audit fees


574



2,607Accrued commissions


444



309Accrued income taxes


340



248Accrued warranty


259



87Accrued legal fees


251



365Accrued royalties


19



185Other


387



514$
7,185


$
7,282   Note 7.
    Borrowing
    Arrangements       40




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##### Table of Contents



SIPEX
    CORPORATION
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
  and/or
      Note 8.
    Income
    Taxes    2006


2005


2004Domestic

$
(40,930
)

$
(37,910
)

$
(23,019
)Foreign


(179
)


(5
)


138Loss before income tax expense
    (benefit)

$
(41,109
)

$
(37,915
)

$
(22,881
)     2006


2005


2004Deferred


Current


Total


Deferred


Current


Total


Deferred


Current


TotalFederal

$



$



$



$



$



$



$



$



$
State






(10
)


(10
)






4



4







(14
)


(14
)Foreign






135



135







188



188







(119
)


(119
)Total expense (benefit)

$



$
125


$
125


$



$
192


$
192


$



$
(133
)

$
(133
)  41




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##### Table of Contents



SIPEX
    CORPORATION
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
    2006


2005


2004Tax benefit at statutory rate

$
(14,388
)

$
(13,270
)

$
(8,008
)State income tax, net of federal
    income tax expense (benefit)


(10
)


4



(14
)Non-deductible expenses


872



40



39Foreign taxes on branch income and
    tax rate differential


135



188



(119
)Tax credits


(606
)


(928
)


(491
)Losses not benefited/change in
    valuation allowance


14,122



14,158



8,460Actual tax expense (benefit)

$
125


$
192


$
(133
)     2006


2005Current deferred tax assets:Inventories, primarily write-downs
    not currently deductible

$
4,127


$
5,049Accounts receivable


389



503Deferred revenue


3,170



3,064Accrued expenses and reserves not
    currently deductible


7,944



2,659Total current deferred tax assets
    before valuation allowance


15,630



11,275Valuation allowance 
    current


(15,630
)


(11,275
)Noncurrent deferred tax assets:Net operating loss carryforwards


77,083



63,468Tax credit carryforwards


5,405



5,232Total noncurrent deferred tax
    assets before valuation allowance


82,488



68,700Valuation allowance 
    noncurrent


(77,033
)


(67,810
)Deferred tax liabilities:Fixed assets, due to differences
    in depreciation


(5,455
)


(890
)Net deferred tax assets

$



$
        42




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##### Table of Contents



SIPEX
    CORPORATION
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
          Note 9.
    Stockholders
    Equity  Issuance
    of Common Stock to Related Party
    Stock
    Option Plans
     43




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##### Table of Contents



SIPEX
    CORPORATION
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
         2006


2005


2004Weighted





Weighted





WeightedNumber


Average


Number


Average


Number


Averageof


Exercise


of


Exercise


of


ExerciseShares


Price


Shares


Price


Shares


Price(In thousands)





(In thousands)





(In thousands)Outstanding at beginning of year


3,259


$
5.74



2,726


$
11.96



3,285


$
11.02Granted


912



6.20



1,409



3.70



823



11.31Exercised


(195
)


3.73



(78
)


5.92



(689
)


6.16Forfeited or expired


(215
)


7.04



(798
)


10.14



(693
)


12.44Outstanding at end of year


3,761


$
5.88



3,259


$
5.74



2,726


$
11.96Vested and expected to vest at
    December 30, 2006


3,553


$
5.91Exercisable at December 30,
    2006


1,867


$
6.47  44




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##### Table of Contents



SIPEX
    CORPORATION
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
    Options Outstanding


Options ExercisableWeightedAverage


Weighted





WeightedRemaining


Average





AverageNumber of


Contractual


Exercise


Number of


ExerciseRange of Exercise Prices

Shares


Life


Price


Shares


Price$ 2.00 - $ 3.36


323



7.62 years


$
2.89



167


$
2.54$ 3.40 - $ 3.40


651



7.85 years


$
3.40



339


$
3.40$ 3.44 - $ 3.78


272



8.76 years


$
3.60



174


$
3.58$ 3.80 - $ 3.80


975



6.50 years


$
3.80



698


$
3.80$ 3.82 - $ 5.20


386



8.81 years


$
4.10



83


$
4.14$ 5.62 - $ 6.90


419



9.50 years


$
6.28



23


$
6.72$ 7.00 - $ 9.14


382



9.17 years


$
8.43



105


$
8.81$ 9.56 - $43.00


331



6.38 years


$
16.99



256


$
17.96$56.63 - $56.63


8



3.55 years


$
56.63



8


$
56.63$57.50 - $57.50


14



3.59 years


$
57.50



14


$
57.503,761



7.81 years


$
5.88



1,867


$
6.47   Employee
    Stock Purchase Plan
  beginning-of-period end-of-period
  Note 10.
    Accrued
    Warranty      2006


2005


2004Beginning balance

$
87


$
228


$
195Warranty claims


(28
)


(60
)


(192
)Accruals for the period


200



(81
)


225Ending balance

$
259


$
87


$
228  45




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##### Table of Contents



SIPEX
    CORPORATION
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
  Note 11.  Lease
    Financing Obligation
  on-site
    Fiscal year ending December2007

$
1,3292008


1,3682009


1,4082010


1,4492011


11,454Total minimum lease payments


17,008Less: amount representing interest


4,665Present value of minimum lease
    payments


12,343Less: current portion of lease
    financing obligation


191Long-term lease financing
    obligation

$
12,152     Note 12.  Convertible
    Senior Notes
  Terms
    and Conditions
     46




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##### Table of Contents



SIPEX
    CORPORATION
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
      trading-day
        2 3
   47




---



##### Table of Contents



SIPEX
    CORPORATION
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
    trading-day
      Forms 10-K 10-Q
  Valuation
    of the 2006 Notes, Beneficial Conversion Feature, Warrants and
    Penalties
    No. 98-5, No. 00-27, No. 98-5 No. 05-04 The Effect of a Liquidated Damages Clause on a
    Freestanding Financial Instrument Subject to EITF Issue
    No. 00-19,
    Accounting for Derivative Financial Instruments Indexed
    to, and Potentially Settled in, a Companys Own
    Stock,
 48




---



##### Table of Contents



SIPEX
    CORPORATION
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
    paid-in-capital
    Note 13.
    Employee
    Benefit Plan    Note 14.
    Commitments
    and Contingencies      2007

$
1,2012008


5222009


2362010


1682011


147Thereafter


24Total

$
2,298  49




---



##### Table of Contents



SIPEX
    CORPORATION
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
                Legal
    Proceedings
   50




---



##### Table of Contents



SIPEX
    CORPORATION
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
   Class Action
    Securities Litigation
  Keller v. Sipex
    Corporation, et al., Coil
    Partners LLC v. Sipex Corporation, et al., Levy v. Sipex Corporation,
    et al., Jacobson v.
    Sipex Corporation, et al.,
  Rule 10b-5
  Levy Keller In re Sipex Corporation
    Securities Litigation No. 05-CV-00392.
    Stockholder
    Derivative Litigation
  Lie v. McBurnie,
    et al Nagdev v. Maghribi,
    et al
    Lie Sipex Derivative Cases
 51




---



##### Table of Contents



SIPEX
    CORPORATION
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
     Government
    Investigations
    DiPietro v.
    Sipex
    Sipex v.
    Lestina
        Other
    Contingencies
   52




---



##### Table of Contents



SIPEX
    CORPORATION
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
    Note 15.
    Valuation
    and Qualifying Accounts   SalesReturns and


Bad Debt


Total A/RAllowances


Reserves


AllowancesBalances at December 31, 2003

$
143


$
200


$
343Provisions


1,355



(32
)


1,323Charged to other account


350







350Deductions


(489
)


(113
)


(602
)Balances at January 1, 2005


1,359



55



1,414Provisions


1,173



311



1,484Charged to other account


53







53Deductions


(1,485
)


(117
)


(1,602
)Balances at December 31, 2005


1,100



249



1,349Provisions


989



(80
)


909Charged to other account


282







282Deductions


(1,568
)


(115
)


(1,683
)Balances at December 30, 2006

$
803


$
54


$
857     Note 16.
    Segment
    Information and Major Customers      2006


2005


2004Interface

$
44,550


$
38,477


$
39,622Power Management


22,780



19,027



21,223Optical Storage


11,339



14,620



13,824Other*


81



550



784Total net sales

$
78,750


$
72,674


$
75,453     *
    
    Mainly legacy and other discontinued products. 53




---



##### Table of Contents



SIPEX
    CORPORATION
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
       2006


2005


2004United States

$
16,078


$
14,704


$
15,203China


12,790



8,606



7,085Japan


12,158



16,859



18,520Singapore


12,058



9,381



9,391United Kingdom


11,713



11,137



9,220Taiwan


5,040



6,253



8,654Asia, other than Japan, Taiwan,
    Singapore, and China


4,998



1,604



1,997Germany


1,426



1,413



1,550France


602



1,421



2,473Rest of the World


1,887



1,296



1,360Total net sales

$
78,750


$
72,674


$
75,453     2006


2005Future Electronics, Inc., a
    related party


15
%


44
%Jetronic Technology


11
%


*
%     *
    
    Less than 10%    2006


2005


2004Future Electronics, Inc., a
    related party


43
%


44
%


39
%Microtek, Inc.


*
%


10
%


17
%Komatsu


11
%


*
%


*
%     *
    
    Less than 10%  Note 17.
    Quarterly
    Data (Unaudited)   Quarters EndedDecember 30,


September 30,


July 1,


April 1,2006


2006


2006


2006(In thousands, except per share data)Fiscal 2006Net sales

$
18,859


$
21,024


$
21,013


$
17,854Gross profit (loss)


(516
)


6,196



3,866



(195
)(2)Net loss


(14,278
)


(6,299
)


(6,858
)


(13,799
)(2)Net loss per common
    share  basic and diluted


(0.80
)


(0.35
)


(0.39
)


(0.78
)  54




---



##### Table of Contents



SIPEX
    CORPORATION
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
  Quarters EndedDecember 31,


October 1,


July 2,


April 2,2005


2005


2005


2005(In thousands, except per share data)Fiscal 2005Net sales

$
17,242


$
17,373


$
18,332


$
19,727Gross profit


501
(2)


4,626



3,245



5,377Net loss


(11,693
)(2)


(5,161
)


(16,211
)(1)


(5,042
)Net loss per common
    share  basic and diluted


(0.66
)


(0.29
)


(0.91
)


(0.28
)     (1)
    
    As described in Note 3, in the second quarter of 2005, the
    Company recognized a $9.4 million impairment charge for its
    long-lived assets, based upon changes in the planned use for its
    wafer fabrication assets.(2)
    
    As described in Note 5, in the fourth quarter of 2005, the
    Company reduced the remaining estimated depreciation life for
    its headquarters building and related improvements from
    25 years to approximately four months based upon its
    decision to sell the facility, resulting in an increase in
    depreciation expense of $6.5 million (including
    $4.3 million included in cost of sales) and in the first
    quarter of 2006 of $6.7 million (with $4.5 million
    included in cost of sales).  Note 18.
    Subsequent
    Events  1-for-2
   55




---



##### Table of Contents



Item 11.
    Executive
    Compensation  Compensation
    Discussion and Analysis  Introduction      
    Ralph Schmitt, Chief Executive Officer
    Clyde R. Wallin, Senior Vice President of Finance, Chief
    Financial Officer and Secretary
    Ed Lam, Senior Vice President of Marketing and Business
    Development
    Lee Cleveland, Senior Vice President of Engineering
    Rick Hawron, Senior Vice President of Worldwide Sales.
    Mr. Hawrons employment was terminated on
    January 19, 2007.  Compensation
    Philosophy
        (a)
    Base salaries  the fixed component of executive
    compensation, set according to the individuals role and
    skills against typical market practices for like positions at
    similar companies. We consider practices to reflect the
    typical market practices if they are within a range
    of the median to the
    75th
    percentile of market data for companies in our industry, local
    market, and of similar size. Base salaries are reviewed annually
    and adjusted with consideration given to the individuals
    performance and the affordability of pay increases to our
    company.(b)
    Variable short-term compensation/Annual Bonus  a plan
    that rewards company, group or team
    and/or
    individual performance based on the successful achievement of
    established financial and operating performance measures
    (profitability and operating profit improvement, revenue growth,
    gross margin improvement) tied to our Annual Operating Plan (our
    annual financial plan and budget) goals and objectives,
    succession planning and development and recruitment and employee
    retention. Overall profitability of Sipex, however, is the
    primary determinant of whether, and how much, any bonuses are
    paid to executives.(c)
    Long-term compensation/Equity/Stock Options  stock
    option grants, under the long term component of executive
    compensation, are designed to incentivize and reward executive
    officers and key employees for delivering value to our
    stockholders over a longer period of time. As is typical in our
    industry, we place more emphasis on the equity component of the
    executive compensation. 56




---



##### Table of Contents



(d)
    Benefits  a comprehensive benefits program including
    cost sharing for medical and dental plans, company paid life and
    disability insurance, a flexible 401(k) Tax Deferred Saving Plan
    including company match and an Employee Stock Purchase Plan. The
    benefits provided to our executives are the same as those made
    available to all Sipex employees.(e)
    Severance arrangements and change in control
    agreements/provisions  are in place to provide a
    reasonable level of post-termination compensation to mitigate
    the risk of involuntary termination or changes in control of
    Sipex, so that executives are encouraged to focus on the
    business at hand.(f)
    Other special compensation or arrangements  are not
    emphasized at Sipex. Facts and circumstances may warrant certain
    payments such as housing and relocation for key individuals if
    it is in the Sipexs best interests in attracting or
    retaining that executive.      Corporate
    Governance
  Compensation
    Committee Authority
    
    To annually review and approve annual base salaries, annual
    incentive bonus, including the specific goals and amount, equity
    compensation, employment agreements, severance arrangements, and
    change in control provisions, and any other benefits,
    compensation or arrangements, for the CEO and the other
    executive officers. In doing so, the Compensation Committee may
    consider as appropriate factors such as financial and operating
    performance, the alignment of the interests of the executive
    officers and our stockholders, the performance of our common
    stock and our ability to attract and retain qualified
    individuals.
    To annually make recommendations about compensation issues to
    the board of directors for final review and approval, including
    approval by a majority of the independent directors of the board
    of directors. In doing so, the Compensation Committee makes
    regular reports to the board of directors.
    To act, in its discretion, as administrator of our existing
    employee benefit plans and any future employee benefit plans
    adopted and approved by our board of directors and stockholders,
    and if appropriate, make recommendations to the board of
    directors with respect to incentive compensation plans.
    To review and approve the compensation policy for the directors
    of Sipex, subject to the approval by the full board of directors
    and to approve the fees members of the Compensation Committee
    are entitled to receive for their service as Compensation
    Committee members. 57




---



##### Table of Contents




    To prepare a report (to be included in our proxy statement and
    annual report on
    Form 10-K)
    which describes: (a) the criteria on which compensation
    paid to the CEO for the last completed fiscal year was based;
    (b) the relationship of such compensation to Sipexs
    performance; and (c) the Compensation Committees
    executive compensation policies applicable to our named
    executive officers.
    To review and reassess the adequacy of the Compensation
    Committee Charter annually and recommend any proposed changes to
    the board of directors for approval as well as review its own
    performance annually.
    To retain and terminate, with sole authority, any compensation
    consultant to be used by Sipex to assist in the evaluation of
    CEO or executive officer compensation. The Compensation
    Committee has sole authority to approve the consultants
    fees and other retention terms and also has authority to obtain
    advice and assistance from internal or external legal,
    accounting or other advisors. The Compensation Committee did not
    retain the assistance of a compensation consultant in exercising
    its duties in 2006.      Compensation
    Review Process
      Managements
    Role in Compensation Decisions
     58




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##### Table of Contents



Sources
    of Competitive Data
    
    San Francisco Bay Area companies  444 companies
    reported
    Semiconductor companies  136 companies reported
    Companies with $49.9 to $100.0 million in
    revenues  127 companies reported    Elements
    of Executive Compensation and Decisions Made in
    2006
  Base
    Salary Adjustments
  th
      Cash
    Incentives and Total Cash Compensation
    nd
  
    Revenue improvement each quarter (10%)
    Spending  less than $19 million (10%)
    Fab transition deliverables (20%)
    Complete financial restatement (20%)
    Secure cash alternative (15%) 59




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##### Table of Contents




    New company strategy documented and established (5%)
    Inventory reduction per the Annual Plan (5%)
    Introduction of new products per the Annual Plan (5%)
    Quality metrics per the Annual Plan (5%)
    Information technology deliverables per the Annual Plan (5%)        Target Bonus as %


Target Bonus AmountExecutive

of Salary


($)

Amount Paid Out ($)Schmitt


50%


$200,000 (voluntarily
    reduced to $100,000)

$
65,000Wallin


40%


$80,000

$
52,000Lam


40%


$58,000

$
37,700Cleveland


40%


$80,000

$
52,000Hawron


40%


$90,000

$
58,500       Equity
    Grants
  built-in-value pay-for-performance
  in-the-money
  1 48 th
 60




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##### Table of Contents



.
  Executive
    Benefits and Perquisites
      Employment
    Agreements and Post Employment Termination Benefits
      Mr. Schmitt, June 7, 2005
   61




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##### Table of Contents



Mr. Wallin, April 5, 2004
        
    material change in the executives position at Sipex
    material reduction to the executives base salary or
    benefits and perquisites
    required relocation by more than 50 miles from Sipexs
    headquarters  Mr. Lam, August 24, 2005
      Mr. Cleveland, August 13, 2004
    Mr. Hawron
       62




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##### Table of Contents



Accounting
    and Tax Considerations    gross-up
  performance-based
  Compensation
    Committee Report
  Form 10-K,
    63




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##### Table of Contents



Executive
    Compensation
  Summary
    Compensation Table
    Change inPension Valueand NonqualifiedNon-Equity


DeferredStock


Option


Incentive Plan


Compensation


All OtherSalary


Bonus2


Awards


Awards3


Compensation


Earnings4


Compensation5


TotalName and Principle Position

Year


($)


($)


($)


($)


($)


($)


($)


($)Ralph Schmitt


2006


$
400,000


$
65,000






$
275,280










$



$
740,280President & CEORay Wallin


2006


$
222,428


$
52,000






$
276,289










$
909


$
551,626Chief Financial OfficerEd Lam


2006


$
287,000


$
37,700






$
143,632










$
6,071


$
474,404Sr. VP, Marketing &
    Business DevelopmentLee Cleveland


2006


$
229,327


$
52,000






$
376,244










$
2,466


$
660,038Sr. VP, EngineeringRichard
    Hawron1


2006


$
235,000


$
58,500






$
183,137










$
45,957


$
522,595VP, World Wide Sales     1
    Mr. Hawrons employment with us terminated on
    January 19, 2007.2
    Represents the short-term incentive awards earned under The 2nd
    Half 2005 Bonus Program payout performance.3
    This column represents the dollar amount recognized for
    financial statement reporting purposes with respect to the 2006
    fiscal year for the fair value options granted in 2006 as well
    as prior fiscal years, in accordance with SFAS 123R.
    Pursuant to the SEC rules, the amounts shown exclude the impact
    of estimated forfeitures related to service-based vesting
    conditions.4
    This column represents the sum of the change in pension value
    and non-qualified deferred compensation earnings in 2006 for
    each of the named executives. Nonqualified plans are not
    available to our executives.5
    See the All Other Compensation Table below for additional
    information. Primarily represents employer contributions to the
    401(k) plan and a housing allowance for Mr. Hawron.  All
    Other Compensation Table
    Paymentsrelating toOther


EmployeeName of Executive

Benefits1


Savings
    Plan2


TotalRay Wallin

$



$
909


$
909Chief Financial OfficerEd Lam

$



$
6,071


$
6,071Sr. VP, Marketing &
    Business DevelopmentLee Cleveland

$



$
2,466


$
2,466Sr. VP, EngineeringRichard Hawron

$
40,187


$
5,770


$
45,957VP, World Wide Sales     1
    
    This amount represents housing allowance provided to
    Mr. Hawron. No other supplemental executive perquisites are
    offered to our executives.2
    
    This column reports company matching contributions to the named
    executives 401(k) savings account of 1.5% of pay up to the
    limitations imposed under IRS rules. 64




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##### Table of Contents



Grants of
    Plan-Based Awards in 2006
    All OtherAll Other


Option





Grant DateStock


Awards:


Exercise


FairEstimated Future Payouts


Estimated Future Payouts


Awards:


Number of


or Base


Value ofUnder Non-Equity


Under Equity


Number of


Securities


Price of


StockIncentive Plan Awards


Incentive Plan Awards


Shares of


Underlying


Option


and OptionGrant

Threshold


Target


Maximum


Threshold


Target


Maximum


Stock or


Options


Awards


AwardsName

Date

($)


($)


($)


(#)


(#)


(#)


Units (#)


(#)


($/Sh)


($)1Ralph Schmitt

None






































President & CEORay Wallin

1/17/2006






























62,500


$
4.15



201,450Chief Financial Officer

12/4/2006






























25,000


$
8.50



158,135Ed Lam

12/4/2006






























25,000


$
8.50



158,135Sr. VP, Marketing &
    Business DevelopmentLee Cleveland

12/4/2006






























25,000


$
8.50



158,135Sr. VP, EngineeringRichard Hawron

N/A






































VP, World Wide Sales     1
    
    The value of a stock option award
    is based on the fair value as of the grant date of such award
    determined pursuant to FAS 123R. The exercise price for all
    options granted to the named executive officers is 100% of the
    fair market value of the shares on the grant date. Regardless of
    the value placed on a stock option on the grant date, the actual
    value of the option will depend on the market value of Sipex
    common stock at such date in the future when the option is
    exercised. The proceeds to be paid to the individual following
    this exercise do not include the option exercise price. 65




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##### Table of Contents



Outstanding
    Equity Awards at 2006 Fiscal Year-End
    Option AwardsEquity IncentivePlan Awards:Number of

Number of

Number ofSecurities

Securities

SecuritiesUnderlying

Underlying

Underlying

OptionUnexercised

Unexercised

Unexercised

Exercise


OptionGrant


Options

Options

Unearned Options

Price


ExpirationName

Date


(#) Exercisable

(#) Unexercisable

(#)

($)


DateRalph Schmitt
    President & CEO


6/27/2005


187,500

312,500



$
3.40


6/27/2015Ray Wallin
    Chief Financial Officer


12/20/2004


12,500

12,500



$
8.80


12/20/20149/6/2005
2,3

35,000

50,000



$
3.80


4/5/20141/17/2006




62,500



$
4.15


1/17/201612/4/2006




25,000



$
8.50


12/4/2016Total





47,500

150,000Ed Lam
    Sr. VP, Marketing & Business Development


9/19/2005
2

66,406

146,094



$
4.00


9/19/201512/4/2006




25,000



$
8.50


12/4/2016Total





66,406

171,094Lee Cleveland
    Sr. VP, Engineering


9/6/2005
2,3

75,000

25,000



$
3.80


9/2/201312/4/2006




25,000



$
8.50


12/4/20169/6/2005
2,3

25,000

25,000



$
3.80


12/9/2014Total





100,000

75,000Richard
    Hawron1VP, World Wide Sales


2/2/2004


25,000

25,000



$
17.22


2/2/201410/19/2005


35,673

14,327



$
3.50


10/19/20159/6/2005
2

12,500

12,500



$
3.80


12/17/2014Total





73,173

51,827     1
    
    Mr. Hawrons employment with us terminated on
    January 19, 2007.2
    
    These grants were made as a part of the Option Reprice Program
    that took place in September of 2005.3
    
    Mr. Wallins award vests 25% one year from grant, then
    1/48th per month. Grant is fully vested on April 5, 2008.
    Mr. Clevelands grant vests similarly and is fully
    vested respectively on September 2, 2007 and
    December 9, 2008.  1 48 th 1 48 th
 66




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##### Table of Contents



Option
    Exercises and Stock Vested in Fiscal 2006
    Option AwardsNumber of Shares


Value RealizedAcquired on Exercise


on
    Exercise1Name of Executive

(#)


($)Ray Wallin
    Chief Financial Officer


15,000


$
75,000     1
    
    The value realized equals the difference between the option
    exercise price and the fair market value of Sipex common stock
    on the date of exercise, multiplied by the number of shares for
    which the option was exercised.  Pension
    Benefits in Fiscal 2006
    Nonqualified
    Deferred Compensation in Fiscal 2006
    Other
    Potential Post-Employment Payments
      Termination
    Scenarios
  Ralph Schmitt

President & CEOChange







Involuntary

Involuntaryin
    Control1

Voluntary

Death

Disability

With Cause

Without Cause

RetirementSeverance2

$400,000









$400,000

Intrinsic Value of Accelerated
    Equity3

$1,943,750











Intrinsic Value of Current
    Exercisable
    Equity4

$1,166,250

$1,166,250

$1,166,250

$1,166,250



$1,166,250

$1,166,250Health
    Benefits5

$16,653









$16,653

Total Benefit to
    Employee6

$3,526,653

$1,166,250

$1,166,250

$1,166,250



$1,582,903

$1,166,250Total Termination
    Benefits

$2,360,403









$416,653

     1
    
    Change in Control and all
    terminations are assumed to occur on 12/31/2006.2
    
    Represents 12 months of base
    salary. 67




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##### Table of Contents



3
    
    Value of unvested options
    accelerated 100% upon involuntary termination within
    12 months of CIC at 12/31/06 @ $9.62/share price. Options
    are exercisable for 12 months following termination.4
    
    Current value of shares owned as of
    12/31/06 @ $9.62/share price (direct and indirect ownership).5
    
    Represents current monthly COBRA
    rates which are paid by the employer through the term of the
    severance award (12 months).6
    
    Total termination benefits are the
    total benefit to employees less the intrinsic value of current
    exercisable equity.  Ray Wallin

Chief Financial OfficerChange







Involuntary

Involuntaryin
    Control1

Voluntary

Death

Disability

With Cause

Without Cause

RetirementSeverance2

$112,500









$112,500

Intrinsic Value of Accelerated
    Equity3

$671,125











Intrinsic Value of Current
    Exercisable
    Equity4

$213,950

$213,950

$213,950

$213,950

$213,950

$213,950

$213,950Health
    Benefits5

$8,327









$8,327

Total Benefit to
    Employee

$1,005,902

$213,950

$213,950

$213,950

$213,950

$334,777

$213,950Total Termination
    Benefits6

$791,952









$120,827

     1
    
    Change in Control and all
    terminations are assumed to occur on 12/31/2006.2
    
    Represents 6 months of base
    salary.3
    
    Value of unvested options
    accelerated 100% upon involuntary termination for Good Reason in
    connection with CIC at 12/31/06 @ $9.62/share price and are
    exercisable for the earlier of the term of the option or
    12 months from the date of termination.4
    
    Current value of shares owned as of
    12/31/06 @ $9.62/share price (direct and indirect ownership).5
    
    Represents current monthly COBRA
    rates which are paid by the employer through the term of the
    severance award (6 months).6
    
    Total termination benefits are the
    total benefit to employees less the intrinsic value of current
    exercisable equity.  Ed Lam

Sr. VP, Marketing & Business DevelopmentChange







Involuntary

Involuntaryin
    Control1

Voluntary

Death

Disability

With Cause

Without Cause

RetirementSeverance2

$287,000









$287,000

Intrinsic Value of Accelerated
    Equity3

$424,524











Intrinsic Value of Current
    Exercisable
    Equity4

$373,202

$373,202

$373,202

$373,202



$373,202

$373,202Health
    Benefits5

$16,653









$16,653

Total Benefit to
    Employee

$1,101,379

$373,202

$373,202

$373,202



$676,855

$373,202Total Termination
    Benefits6

$728,177









$303,653

     1
    
    Change in Control and all
    terminations are assumed to occur on 12/31/2006.2
    
    Represents 12 months of base
    salary.3
    
    Value of unvested options 50% of
    which are accelerated upon involuntary termination and CIC at
    12/31/06 @ $9.62/share price. Options are exercisable for
    12 months following the termination.4
    
    Current value of shares owned as of
    12/31/06 @ $9.62/share price (direct and indirect ownership).5
    
    Represents current monthly COBRA
    rates which are paid by the employer through the term of the
    severance award (12 months).6
    
    Total termination benefits are the
    total benefit to employees less the intrinsic value of current
    exercisable equity.  Non-management
    Directors Compensation for Fiscal 2006
   68




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##### Table of Contents



Annual Cash Retainer

$28,000Additional Audit Committee Chair
    Retainer

$10,000Additional Audit Committee Retainer

$4,000Additional Compensation Committee
    Chair Retainer

$2,000New Director Stock Option Grant

22,500 stock options vesting
    one-fourth on each anniversary date of the grantAnnual Stock Option Grant

10,000 stock options vesting
    quarterly over 1 year     Change inPensionValue andNonqualifiedFees Earned








Non-Equity


Deferredor Paid


Stock


Option


Incentive Plan


Compensation


All OtherName

in
    Cash1
    ($)


Awards2
    ($)


Awards3
    ($)


Compensation2
    ($)


Earnings2


Compensation4
    ($)


TotalJoe Consoli

$
35,500






$
42,961














$
78,461Brian Hilton

$
32,500






$
27,888














$
60,388John D. Arnold

$
35,000






$
41,738














$
76,738Thomas Redfern

$
29,000






$
38,494














$
67,494Lionel Olmer

$
29,500






$
56,863














$
86,363Douglas McBurnie

$
28,000






$
108,565














$
136,565Alan Krock

$
14,000






$
11,736














$
25,736Pierre Guilbault

$
14,000






$
11,736














$
25,736Dan Casey

$
14,000






$
11,736














$
25,736     1
    
    This column reports the amount of cash compensation earned in
    2006 for board and committee service.2
    
    No stock awards or Non-Equity Incentive Plan compensation were
    made in 2006. Sipex does not provide any retirement or other
    benefits/perquisites to its non-employee board members (other
    than direct business expense reimbursement).3
    
    This column represents the dollar amount recognized for
    financial statement reporting purposes with respect to the 2006
    fiscal year for the fair value of stock options previously
    granted to the directors. The fair value was estimated using the
    Black-Scholes option-pricing model in accordance with
    SFAS 123R.4
    
    No other compensation was provided.     69




---



##### Table of Contents



SIGNATURES      
    70




---



##### Table of Contents



EXHIBIT INDEX  ExhibitNumber

Description3
.1

Restated Certificate of
    Incorporation of Sipex Corporation dated March 20, 2007
    (previously filed on March 30, 2007 as an exhibit to the
    Companys Annual Report on
    Form 10-K
    for the year ended December 30, 2006, and incorporated
    herein by reference).3
.2

Bylaws (incorporated herein by
    reference from the Companys Registration Statement on
    Form 8-A
    file with the Securities and Exchange Commission on
    October 28, 2003).3
.3

Certificate of Amendment of Bylaws
    of Sipex Corporation (previously filed as Exhibit 3.2 to
    the Companys Current Report on
    Form 8-K
    filed on December 5, 2006 and incorporated herein by
    reference).4
.2

Form of Indemnification Agreement
    for directors and officers (previously filed as Exhibit 4.2
    to the Companys Registration Statement on
    Form S-1,
    File
    No. 333-1328,
    and incorporated herein by reference).4
.4

Indenture dated May 16, 2006
    (filed as Exhibit 4.1 to the Companys Current Report
    on
    Form 8-K
    filed on May 22, 2006, and incorporated herein by
    reference).10
.1**

1996 Incentive Stock Option Plan
    (previously 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
.2**

1996 Employee Stock Purchase Plan,
    as amended (previously filed as Appendix A to the
    Companys Definitive Notice and Proxy Statement on
    April 29, 2004, and incorporated herein by reference).10
.3**

1997 Incentive Stock Option Plan
    (previously 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
.4**

Sipex Corporation 1999 Stock Plan
    (previously filed as Appendix A to the Companys
    Definitive Proxy Statement on Schedule 14A,
    No. 1000-27897,
    and incorporated herein by reference).10
.5**

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
.6**

2006 Equity Incentive Plan
    (previously filed as Appendix C to the Companys
    Definitive Notice and Proxy Statement on October 24, 2006,
    and incorporated herein by reference).10
.7

Worldwide Authorized Distributor
    Market Price Agreement dated July 22, 1993, by and between
    the Company and Future Electronics Incorporated (previously
    filed as an Exhibit to the Companys Annual report on
    Form 10-K
    for the year ended December 31, 2002, and incorporated
    herein by reference).10
.8

Amendment dated October 1,
    2002 to Worldwide Authorized Distributor Market Price Agreement
    dated July 22, 1993, by and between the Company and Future
    Electronics Inc. (previously filed as Exhibit 10.1 to the
    Companys Quarterly Report of
    Form 10-Q
    for the quarter ended July 1, 2006, and incorporated herein
    by reference).10
.9

Addendum A dated
    February 7, 2003 to Worldwide Authorized Distributor Market
    Price Agreement dated July 22, 1993, by and between the
    Company and Future Electronics Incorporated (previously filed as
    an Exhibit to the Companys Annual report on
    Form 10-K
    for the year ended December 31, 2002, and incorporated
    herein by reference).10
.10*

Amendment dated August 26,
    2003 to Worldwide Authorized Distributor Market Price Agreement
    dated July 22, 1993, by and between the Company and Future
    Electronics Inc. (previously filed as Exhibit 10.2 to the
    Companys Quarterly Report of
    Form 10-Q
    for the quarter ended July 1, 2006, and incorporated herein
    by reference).10
.11

Amendment dated September 15,
    2003 to Worldwide Authorized Distributor Market Price Agreement
    dated July 22, 1993, by and between the Company and Future
    Electronics Inc. (previously filed as Exhibit 10.3 to the
    Companys Quarterly Report of
    Form 10-Q
    for the quarter ended July 1, 2006, and incorporated herein
    by reference). 71




---



##### Table of Contents



ExhibitNumber

Description10
.12

Amendment dated April 25,
    2006 to Worldwide Authorized Distributor Market Price Agreement
    dated July 22, 1993, by and between the Company and Future
    Electronics Inc. (previously filed as Exhibit 10.4 to the
    Companys Quarterly Report of
    Form 10-Q
    for the quarter ended July 1, 2006, and incorporated herein
    by reference).10
.13

Amendment dated September 27,
    2006 to Worldwide Authorized Distributor Market Price Agreement
    dated July 22, 1993, by and between the Company and Future
    Electronics Inc. (previously filed as Exhibit 10.1 to the
    Companys Current Report on
    Form 8-K
    filed on October 3, 2006, and incorporated herein by
    reference).10
.14

Amendment dated November 1,
    2006 to Worldwide Authorized Distributor Market Price Agreement
    dated July 22, 1993, by and between the Company and Future
    Electronics Inc. (previously filed as Exhibit 10.1 to the
    Companys Current Report on
    Form 8-K
    filed on November 7, 2006, and incorporated herein by
    reference).10
.15**

Letter agreement as of
    6/7/05
    concerning the terms of the newly appointed Chief Executive
    Officer Ralph Schmitt (previously filed as Exhibit 99.2 to
    the Companys
    Form 8-K
    filed on June 30, 2005, and incorporated herein by
    reference).10
.16

Loan and Security Agreement as of
    7/21/05,
    with Silicon Valley Bank (previously filed as Exhibit 99.1
    to the Companys
    Form 8-K
    filed on
    7/25/05, and
    incorporated herein by reference).10
.17**

Bonus plan as of August 29,
    2005, for an executive bonus plan for the remainder of 2005 for
    certain of its officers (previously filed as Exhibit 99.1
    to the Companys
    Form 8-K
    filed on September 2, 2005, and incorporated herein by
    reference).10
.18**

Separation Agreement and General
    Release as of
    9/2/05 with
    Joseph T. Rauschmayer, Senior Vice President of Operations
    (previously filed as Exhibit 10.1 to the Companys
    Form 8-K
    filed on September 2, 2005, and incorporated herein by
    reference).10
.19**

Separation Agreement and General
    Release as of April 26, 2005 with Kevin Plouse (previously
    filed as Exhibit 10.1 to the Companys
    Form 8-K
    filed on September 15, 2005, and incorporated herein by
    reference).10
.20**

Letter agreement as of
    September 12, 2005 with Mr. Edward Lam joining Sipex
    as the new Senior Vice President of Marketing and Business
    Development (previously filed as Exhibit 10.1 to the
    Companys
    Form 8-K
    filed on September 23, 2005, and incorporated herein by
    reference).10
.21**

Letter agreement as of
    October 7, 2005 with Joel Camarda joining Sipex as Senior
    Vice President of Operations (previously filed as
    Exhibit 10.1 to the Companys
    Form 8-K
    filed on October 12, 2005, and incorporated herein by
    reference).10
.22

Amendment No. 1 dated
    October 7, 2005, to the Loan and Security Agreement with
    Silicon Valley Bank, dated July 21, 2005 (previously filed
    as Exhibit 10.1 to the Companys
    Form 8-K
    filed on October 12, 2005, and incorporated herein by
    reference).10
.23

Amendment No. 2 dated
    November 12, 2005 to the Loan and Security Agreement with
    Silicon Valley Bank, dated July 12, 2005 (previously filed
    as Exhibit 10.1 to the Companys Current Report on
    Form 8-K
    filed on
    11/16/05,
    and incorporated herein by reference).10
.24

Amendment No. 3 dated
    January 19, 2006 to the Loan and Security Agreement with
    Silicon Valley Bank, dated July 12, 2005 (previously filed
    as Exhibit 10.4 to the Companys Current Report on
    Form 8-K
    filed on
    1/25/06, and
    incorporated herein by reference).10
.25

Amendment No. 4 dated
    May 18, 2006 to the Loan and Security Agreement with
    Silicon Valley Bank, dated July 12, 2005, (previously filed
    as Exhibit 10.4 to Companys Current Report on
    Form 8-K
    filed on
    5/22/06, and
    incorporated herein by reference).10
.26

Amendment No. 5 dated
    August 1, 2006 to Loan and Security Agreement between Sipex
    Corporation and Silicon Valley Bank, dated July 12, 2005
    (previously filed as Exhibit 10.1 to the Companys
    Current Report on
    Form 8-K
    filed
    8/7/06, and
    incorporated herein by reference).10
.27

Amendment No. 6 dated
    September 28, 2006 to Loan and Security Agreement between
    Sipex Corporation and Silicon Valley Bank, dated July 12,
    2005 (previously filed as Exhibit 10.1 to the
    Companys Current Report on
    Form 8-K
    filed
    10/4/06, and
    incorporated herein by reference). 72




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##### Table of Contents



ExhibitNumber

Description10
.28*

Master Agreement between Sipex,
    Hangzhou Silan Microelectronics Co. Ltd. and Hangzhou Silan
    Integrated Circuit Co., Ltd., dated as of February 27, 2006
    (previously filed as Exhibit 10.1 to the Company Current
    Report on
    Form 8-K/A
    filed on July 26, 2006, and incorporated herein by
    reference).10
.29

Agreement for Purchase and Sale of
    Real Property dated March 9, 2006, by and between Sipex
    Corporation and Mission West Properties, L.P. (previously filed
    as Exhibit 10.1 to the Company Current Report on
    Form 8-K
    filed on March 13, 2006, and incorporated herein by
    reference).10
.30

Standard Form Lease for 233
    Hillview dated March 9, 2006, by and between Sipex
    Corporation and Mission West Properties, L.P. (previously filed
    as Exhibit 10.2 to the Company Current Report on
    Form 8-K
    filed on March 13, 2006, and incorporated herein by
    reference).10
.31

Securities Purchase Agreement,
    dated as of May 16, 2006, by and among Sipex and the Buyers
    listed on the Schedule of Buyers (previously filed as
    Exhibit 10.1 to Companys Current Report on
    Form 8-K
    filed on
    5/22/06, and
    incorporated herein by reference).10
.32

Amendment No. 1 dated
    May 24, 2006 to Securities Purchase Agreement, dated as of
    May 16, 2006 by and among Sipex and the Buyers listed on
    the Schedule of Buyers (previously filed as Exhibit 10.1 to
    the Companys Current Report on
    Form 8-K
    filed on May 30, 2006, and incorporated herein by
    reference).10
.33

Registration Rights Agreement,
    dated as of May 16, 2006, by and among Sipex and the Buyers
    listed on the Schedule of Buyers (previously filed as
    Exhibit 10.2 to Companys Current Report on
    Form 8-K
    filed on
    5/22/06, and
    incorporated herein by reference).10
.34

Warrant Agent Agreement, dated as
    of May 16, 2006, between Sipex and Wells Fargo Bank,
    National Association, as Warrant Agent (which includes the Form
    of Warrant) (previously filed as Exhibit 10.1 to
    Companys Current Report on
    Form 8-K
    filed on
    5/22/06, and
    incorporated herein by reference).10
.35

Separation Agreement and General
    Release as of January 15, 2007 with Rick Hawron (previously
    filed as Exhibit 10.1 to the Companys
    Form 8-K
    filed on January 19, 2007, and incorporated herein by
    reference).10
.36

Securities Purchase Agreement,
    dated as of March 29, 2007, by and between Sipex and Rodfre
    Holdings LLC (previously filed on March 30, 2007 as an
    exhibit to the Companys Annual Report on
    Form 10-K
    for the year ended December 30, 2006, and incorporated
    herein by reference).12
.1

Computation of Ratio of Earnings
    to Fixed Cost Charges (previously filed on March 30, 2007
    as an exhibit to the Companys Annual Report on
    Form 10-K
    for the year ended December 30, 2006, and incorporated
    herein by reference).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 incorporate
    herein by reference.)23
.1

Consent of Independent Registered
    Public Accounting Firm.31
.1

Certification of Chief Executive
    Officer pursuant to Section 302(a) of the Sarbanes-Oxley
    Act of 2002 (previously filed on March 30, 2007 as an
    exhibit to the Companys Annual Report on
    Form 10-K
    for the year ended December 30, 2006, and incorporated
    herein by reference).31
.2

Certification of Chief Financial
    Officer pursuant to Section 302(a) of the Sarbanes-Oxley
    Act of 2002 (previously filed on March 30, 2007 as an
    exhibit to the Companys Annual Report on
    Form 10-K
    for the year ended December 30, 2006, and incorporated
    herein by reference).31
.3

Certification of Chief Executive
    Officer pursuant to Section 302(a) of the
    Sarbanes-Oxley
    Act of 2002 (previously filed on April 19, 2007 as an
    exhibit to the Amendment No. 1 of Companys Annual
    Report on
    Form 10-K
    for the year ended December 30, 2006, and incorporated
    herein by reference).31
.4

Certification of Chief Financial
    Officer pursuant to Section 302(a) of the
    Sarbanes-Oxley
    Act of 2002 (previously filed on April 19, 2007 as an
    exhibit to the Amendment No. 1 of Companys Annual
    Report on
    Form 10-K
    for the year ended December 30, 2006, and incorporated
    herein by reference).31
.5

Certification of Chief Executive
    Officer pursuant to Section 302(a) of the Sarbanes-Oxley
    Act of 2002.31
.6

Certification of Chief Financial
    Officer pursuant to Section 302(a) of the Sarbanes-Oxley
    Act of 2002. 73




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##### Table of Contents



ExhibitNumber

Description32
.1

Certification of Chief Executive
    Officer pursuant to 18 U.S.C section 1350, as adopted
    pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
    (previously filed on March 30, 2007 as an exhibit to the
    Companys Annual Report on
    Form 10-K
    for the year ended December 30, 2006, and incorporated
    herein by reference).32
.2

Certification of Chief Financial
    Officer pursuant to 18 U.S.C section 1350, as adopted
    pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
    (previously filed on March 30, 2007 as an exhibit to the
    Companys Annual Report on
    Form 10-K
    for the year ended December 30, 2006, and incorporated
    herein by reference).32
.3

Certification of Chief Executive
    Officer pursuant to 18 U.S.C section 1350, as adopted
    pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
    (previously filed on April 19, 2007 as an exhibit to the
    Amendment No. 1 of Companys Annual Report on
    Form 10-K
    for the year ended December 30, 2006, and incorporated
    herein by reference).32
.4

Certification of Chief Financial
    Officer pursuant to 18 U.S.C section 1350, as adopted
    pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
    (previously filed on April 19, 2007 as an exhibit to the
    Amendment No. 1 of Companys Annual Report on
    Form 10-K
    for the year ended December 30, 2006, and incorporated
    herein by reference).32
.5

Certification of Chief Executive
    Officer pursuant to 18 U.S.C section 1350, as adopted
    pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.32
.6

Certification of Chief Financial
    Officer pursuant to 18 U.S.C section 1350, as adopted
    pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.     *
    
    Confidential treatment as to certain portions has been requested
    pursuant to
    Rule 24b-2
    promulgated under the Securities Exchange Act of 1934, as
    amended.**
    
    The Exhibits identified above with a double asterisk (**) are
    management contracts or compensatory plans or arrangements. 74