<PAGE> 1
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON JUNE 27, 1996
REGISTRATION NO. 333-
================================================================================
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
---------------------
FORM S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
---------------------
SIPEX CORPORATION
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
<TABLE>
<S> <C> <C>
MASSACHUSETTS 3674 04-6135748
(STATE OR OTHER JURISDICTION OF (PRIMARY STANDARD INDUSTRIAL (I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION) CLASSIFICATION CODE NUMBER) IDENTIFICATION NUMBER)
</TABLE>
22 LINNELL CIRCLE
BILLERICA, MASSACHUSETTS 01821
(508) 667-8700
(ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING
AREA CODE, OF REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES)
---------------------
JAMES E. DONEGAN
PRESIDENT AND CHIEF EXECUTIVE OFFICER
SIPEX CORPORATION
22 LINNELL CIRCLE
BILLERICA, MASSACHUSETTS 01821
(508) 667-8700
(NAME, ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER,
INCLUDING AREA CODE, OF AGENT FOR SERVICE)
---------------------
COPIES TO:
<TABLE>
<S> <C>
TIMOTHY C. MAGUIRE, ESQ. DANIEL S. EVANS, ESQ.
TESTA, HURWITZ & THIBEAULT, LLP ROPES & GRAY
HIGH STREET TOWER ONE INTERNATIONAL PLACE
125 HIGH STREET BOSTON, MASSACHUSETTS 02110
BOSTON, MASSACHUSETTS 02110 (617) 951-7000
(617) 248-7000
</TABLE>
---------------------
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: As soon as
practicable after this registration statement becomes effective.
If any of the securities being registered on this form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, check the following box. / /
If this form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following box
and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. / /
If this form is a post effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. / /
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. / /
<TABLE>
CALCULATION OF REGISTRATION FEE
============================================================================================================
<CAPTION>
Proposed Maximum
Proposed Maximum Aggregate Amount of
Title of Each Class of Amount to be Offering Price Offering Registration
Securities to be Registered Registered Per Share Price Fee(1)
- ------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Common Stock, $.01 par value................ 3,450,000 $17.75 $61,237,500 $21,116.39
============================================================================================================
<FN>
(1) Estimated solely for purposes of computing the registration fee and based
upon the average of the high and low prices for such Common Stock on June
21, 1996, as reported on the Nasdaq National Market.
</TABLE>
---------------------
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(a) OF
THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(a),
MAY DETERMINE.
================================================================================
<PAGE> 2
SIPEX CORPORATION
<TABLE>
CROSS REFERENCE SHEET
SHOWING LOCATION IN PROSPECTUS OF INFORMATION
REQUIRED BY PART I OF FORM S-1
<CAPTION>
REGISTRATION STATEMENT
ITEM AND CAPTION LOCATION OR HEADING IN PROSPECTUS
---------------------- ---------------------------------
<C> <S> <C>
1. Forepart of the Registration Statement and
Outside Front Cover Page of Prospectus... Outside Front Cover Page
2. Inside Front and Outside Back Cover Pages
of Prospectus............................ Inside Front and Outside Back Cover Pages
3. Summary Information, Risk Factors and Ratio
of Earnings to Fixed Charges............. Prospectus Summary; Risk Factors
4. Use of Proceeds............................ Prospectus Summary; Use of Proceeds
5. Determination of Offering Price............ Outside Front Cover Page; Underwriting
6. Dilution................................... Dilution
7. Selling Security Holders................... Principal and Selling Shareholders
8. Plan of Distribution....................... Outside Front Cover Page; Underwriting
9. Description of Securities to be
Registered............................... Capitalization; Description of Capital
Stock
10. Interests of Named Experts and Counsel..... Not Applicable
11. Information with Respect to the
Registrant............................... Prospectus Summary; Risk Factors; Use of
Proceeds; Price Range of Common Stock;
Dividend Policy; Capitalization;
Dilution; Selected Consolidated Financial
Data; Management's Discussion and
Analysis of Financial Condition and
Results of Operations; Business;
Management; Certain Transactions;
Principal and Selling Shareholders;
Description of Capital Stock; Shares
Eligible for Future Sale; Consolidated
Financial Statements
12. Disclosure of Commission Position on
Indemnification for Securities Act
Liabilities.............................. Not Applicable
</TABLE>
<PAGE> 3
INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A
REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR
MAY OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT
BECOMES EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR
THE SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE
SECURITIES IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE
UNLAWFUL PRIOR TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS
OF ANY SUCH STATE.
SUBJECT TO COMPLETION
JUNE 27, 1996
3,000,000 SHARES
[SIPEX LOGO]
COMMON STOCK
------------------
Of the 3,000,000 shares of Common Stock offered hereby, 1,000,000 shares
are being sold by SIPEX Corporation ("Sipex" or the "Company") and 2,000,000
shares are being sold by the Selling Shareholders. See "Principal and Selling
Shareholders." The Company will not receive any proceeds from the sale of shares
by the Selling Shareholders. The Company's Common Stock is quoted on the Nasdaq
National Market under the symbol "SIPX." On June 26, 1996, the last reported
sale price of the Company's Common Stock was $19.63 per share.
------------------
THE COMMON STOCK OFFERED HEREBY INVOLVES A HIGH DEGREE OF RISK.
SEE "RISK FACTORS" BEGINNING ON PAGE 6.
------------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION
PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
<TABLE>
=================================================================================================
<CAPTION>
PRICE UNDERWRITING PROCEEDS PROCEEDS TO
TO DISCOUNTS AND TO SELLING
PUBLIC COMMISSIONS COMPANY(1) SHAREHOLDERS
- -------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Per Share............... $ $ $ $
- -------------------------------------------------------------------------------------------------
Total(2)................ $ $ $ $
=================================================================================================
<FN>
(1) Before deducting expenses of the offering estimated at $315,000, all of
which are payable by the Company.
(2) The Company has granted to the Underwriters a 30-day option to purchase up
to 450,000 additional shares of Common Stock solely to cover
over-allotments, if any. To the extent that the option is exercised, the
Underwriters will offer the additional shares to the public at the Price to
Public shown above. If the option is exercised in full, the total Price to
Public, Underwriting Discounts and Commissions and Proceeds to Company will
be $ , $ and $ , respectively. See
"Underwriting."
</TABLE>
------------------
The shares of Common Stock are offered by the several Underwriters, subject
to prior sale, when, as and if delivered to and accepted by them, and subject to
the right of the Underwriters to reject any order in whole or in part. It is
expected that delivery of the shares of Common Stock will be made at the offices
of Alex. Brown & Sons Incorporated, Baltimore, Maryland, on or about
, 1996.
ALEX. BROWN & SONS
INCORPORATED
UBS SECURITIES
ADAMS, HARKNESS & HILL, INC.
THE DATE OF THIS PROSPECTUS IS , 1996.
<PAGE> 4
[PICTURES AND CAPTIONS]
[Graphics depicting different Sipex product applications and applicable Sipex
products as applied to file servers, frame relay switches, printers, CSU/DSUs,
PC/Workstations and Fax/Modems.]
Sipex and the Sipex logo are trademarks of the Company. Indiglo is a
registered trademark of Indiglo Corporation, a subsidiary of Timex Corporation.
This Prospectus also includes trade names, trademarks and registered trademarks
of companies other than Sipex.
IN CONNECTION WITH THIS OFFERING, THE UNDERWRITERS MAY OVER-ALLOT OR EFFECT
TRANSACTIONS WHICH STABILIZE OR MAINTAIN THE MARKET PRICE OF THE COMMON STOCK OF
THE COMPANY AT A LEVEL ABOVE THAT WHICH MIGHT OTHERWISE PREVAIL IN THE OPEN
MARKET. SUCH TRANSACTIONS MAY BE EFFECTED ON THE NASDAQ NATIONAL MARKET OR
OTHERWISE. SUCH STABILIZING, IF COMMENCED, MAY BE DISCONTINUED AT ANY TIME.
IN CONNECTION WITH THIS OFFERING, CERTAIN UNDERWRITERS AND OTHER SELLING
GROUP MEMBERS OR THEIR AFFILIATES MAY ENGAGE IN PASSIVE MARKET MAKING
TRANSACTIONS IN THE COMMON STOCK ON THE NASDAQ NATIONAL MARKET IN ACCORDANCE
WITH RULE 10b-6A UNDER THE SECURITIES EXCHANGE ACT OF 1934. SEE "UNDERWRITING."
2
<PAGE> 5
- -------------------------------------------------------------------------------
PROSPECTUS SUMMARY
This Prospectus contains certain statements of a forward-looking nature
relating to future events or the future financial performance of the Company.
Prospective investors are cautioned that such statements are only expectations
and that actual events or results may differ materially. In evaluating such
statements, prospective investors should specifically consider the various
factors identified in this Prospectus, including the matters set forth under the
caption "Risk Factors," which could cause actual results to differ materially
from those indicated in such forward-looking statements. The following summary
is qualified in its entirety by the more detailed information, including "Risk
Factors," and Financial Statements and Notes thereto, appearing elsewhere in
this Prospectus.
THE COMPANY
Sipex designs, manufactures, markets and sells innovative, high
performance, high value-added analog integrated circuits. The analog
semiconductor market has been forecasted by industry sources to represent
approximately $17.5 billion in sales in 1995, an increase of approximately 25%
over 1994. Industry sources project growth rates for this market of 13% to 17%
over the next five years, to greater than $30 billion in sales in the year 2000.
The growth in this market is being driven by the increasing demand for
microprocessor-based electronic equipment including telecommunications and data
communications networks such as LANs and WANs, personal computers, consumer
electronics and scientific instrumentation. While the Company designs,
manufactures, markets and sells products across these broad, high-growth
markets, it has currently targeted three high-growth sectors that it believes
are especially compatible with its design and process capabilities -- data
communications and telecommunications, battery powered/portable products and
industrial controls/instrumentation.
The Company's strategy is to develop long-term partnering relationships
with leaders in targeted market sectors. This enables the Company to identify
applications and to provide innovative, cost-effective solutions to meet
customers' needs over the life cycles of their products. Having identified and
met the specific needs of market leaders with innovative analog solutions, the
Company is then able to migrate these solutions into standard products that meet
the needs of a wide variety of market participants. Sipex serves the broad
analog signal processing market and its target market sectors with three primary
product lines -- interface circuits, low power application-specific analog
circuits and data converters. The Company utilizes multiple process technologies
to manufacture these circuits.
In addition to and complementing its strategy of teaming with market
leaders, the Company offers a broad base of manufacturing process technologies
through its own foundry and third-party semiconductor foundries. This enables
the Company to design products for its customers utilizing the optimum process
technology for each application. By combining creative design techniques with a
broad base of process technologies, the Company can develop innovative, high
performance analog circuits that support its customers' requirements. The
Company has also focused on leveraging its specialized dielectrically isolated
BiCMOS technology, which the Company believes is particularly well-suited to the
low power, low voltage requirements of battery powered/portable products.
In 1990, the Company began a transition from a supplier of analog hybrid
products and integrated circuits for military applications to a supplier of
analog integrated circuits for commercial applications. The Company's net sales
of commercial products has grown from $9.4 million in 1991 to $24.0 million in
1995 and accounted for $7.5 million in the first quarter of 1996, representing
34.6%, 80.1% and 87.9% of total net sales, respectively. The Company believes
that the percentage of its net sales represented by sales of commercial products
will continue to increase in the future.
The Company sells its products to OEM customers either directly through its
direct sales force or with the assistance of a network of independent sales
representatives, or indirectly through independent distributors. The Company's
products have been incorporated into a broad range of electronic systems and
products by more than 2,400 customers worldwide. In 1995 and the first quarter
of 1996, international sales represented 35.4% and 37.9%, respectively, of the
Company's net sales. The Company's customers, none of which accounted for more
than ten percent of net sales in 1995 or in the first quarter of 1996, include
Digital Equipment Corporation, Hewlett-Packard Co., Motorola, Inc., Philips
N.V., Siemens
- -------------------------------------------------------------------------------
3
<PAGE> 6
- -------------------------------------------------------------------------------
Corporation and Silicon Graphics Inc. in the data
communications/telecommunications markets; Federal Express Corp., Texas
Instruments Incorporated, Timex Corporation and Dassault Aviation S.A. in the
low power analog application areas; and Andover Controls Corp., LTX Corporation
and Honeywell Inc. in the industrial controls market.
Sipex was incorporated in Massachusetts in May 1965 under the name Hybrid
Systems Inc. In 1987, the Company changed its name to SIPEX Corporation. The
Company's executive offices are located at 22 Linnell Circle, Billerica,
Massachusetts 01821, and its telephone number is (508) 667-8700.
<TABLE>
THE OFFERING
<S> <C>
Common Stock offered by the Company.............. 1,000,000 shares
Common Stock offered by the Selling
Shareholders................................... 2,000,000 shares
Common Stock to be outstanding after the
offering....................................... 7,898,078 shares(1)
Use of proceeds.................................. For working capital and other general
corporate purposes.
Nasdaq National Market symbol.................... SIPX
<FN>
- ---------------
(1) Based upon the number of shares of Common Stock outstanding as of May 25,
1996. Excludes 800,612 shares of Common Stock issuable upon the exercise of
options outstanding on that date at a weighted average exercise price of
$0.97 per share, of which options to purchase 293,068 shares were then
exercisable. See "Management -- Stock Plans."
</TABLE>
- -------------------------------------------------------------------------------
4
<PAGE> 7
- -------------------------------------------------------------------------------
<TABLE>
SUMMARY CONSOLIDATED FINANCIAL DATA
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<CAPTION>
THREE MONTHS ENDED
YEAR ENDED DECEMBER 31, ---------------------
--------------------------------------------------- APRIL 1, MARCH 30,
1991 1992 1993 1994 1995 1995 1996
------- ------- ------- ------- ------- --------- ---------
<S> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Net sales:
Commercial products......... $ 9,414 $11,101 $11,899 $13,958 $24,008 $4,412 $7,491
Products with military
applications............. 17,763 17,530 15,634 8,865 5,971 1,882 1,032
------- ------- ------- ------- ------- ------ ------
Total.................... 27,177 28,631 27,533 22,823 29,979 6,294 8,523
Gross profit.................. 1,130 4,667 5,148 4,592 10,900 2,168 3,361
Income (loss) from
operations.................. (7,290) (3,502) (3,340) (4,340) (970) (651) 749
Net income (loss)............. (7,998) (4,136) (3,721) (4,709) (1,802) (808) 482
Net income (loss) per common
and common equivalent
share(1).................... $ (1.69) $ (0.87) $ (0.78) $ (0.99) $ (0.38) $(0.17) $ 0.09
Weighted average common stock
and common stock equivalents
outstanding................. 4,746 4,758 4,758 4,758 4,760 4,758 5,524
Pro forma(2):
Net income (loss)........... $ (938) $ (652) $ 711
Net income (loss) per common
and common equivalent
share.................... $ (0.14) $(0.09) $ 0.09
</TABLE>
<TABLE>
<CAPTION>
MARCH 30, 1996
-----------------------------------------
PRO FORMA
ACTUAL PRO FORMA(3) AS ADJUSTED(4)
------- ------------ --------------
<S> <C> <C> <C>
BALANCE SHEET DATA:
Working capital (deficit).............................. $(2,108) $14,885 $33,067
Total assets........................................... 16,589 22,908 41,090
Long-term debt, net of current portion................. 169 169 169
Long-term debt to affiliates........................... 1,800 -- --
Shareholders' equity (deficit)......................... (1,396) 17,397 35,579
<FN>
- ---------------
(1) Calculated on the basis described in Note 1 of Notes to Consolidated
Financial Statements.
(2) Pro forma net income (loss) and net income (loss) per common and common
equivalent share are presented to give effect to the April 1996 closing of
the Company's initial public offering as if the closing occurred on January
1, 1995. See Note 12 of Notes to Consolidated Financial Statements.
(3) Pro forma to give effect to the April 1996 closing of the sale by the
Company of 2,160,715 shares of Common Stock in its initial public offering,
which provided gross proceeds of approximately $19.1 million, and the
application of the proceeds therefrom. See Consolidated Financial
Statements.
(4) Adjusted to reflect the sale by the Company of 1,000,000 shares of Common
Stock offered hereby at an assumed public offering price of $19.63 per share
and the application of the estimated net proceeds therefrom at the closing
of this offering after deducting estimated underwriting discounts and
commissions and offering expenses. See "Use of Proceeds."
</TABLE>
Except as otherwise noted, all information contained in this Prospectus (i)
assumes no exercise of the Underwriters' over-allotment option; and (ii)
reflects a four into one reverse stock split of the Company's Common Stock
effective on February 12, 1996. See "Description of Capital Stock,"
"Underwriting" and Note 7 of Notes to Consolidated Financial Statements.
- -------------------------------------------------------------------------------
5
<PAGE> 8
RISK FACTORS
This Prospectus contains forward-looking statements within the meaning of
Section 27A of the Securities Act of 1933, as amended, and Section 21E of the
Securities Exchange Act of 1934, as amended. Actual results could differ
materially from those projected in the forward-looking statements as a result of
the risk factors set forth below and elsewhere in this Prospectus. In addition
to the other information in this Prospectus, the following factors should be
carefully considered in evaluating the Company and its business before
purchasing the shares of Common Stock offered hereby.
History of Operating Losses; Accumulated Deficit. The Company has not been
profitable in any of its last five fiscal years. As of March 30, 1996, the
Company had an accumulated deficit of $47.1 million. For 1994 and 1995, the
Company incurred net losses of approximately $4.7 million and $1.8 million,
respectively, although the Company was profitable in the third and fourth
quarters of 1995 and the first quarter of 1996. There can be no assurance that
the Company will achieve or maintain profitability in the future. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" and Consolidated Financial Statements.
Potential Fluctuations in Operating Results. The Company's 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 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; the Company's ability
to introduce new products and technologies on a timely basis; introduction of
products and technologies by the Company's competitors; market acceptance of the
Company's and its customers' products; the level of orders received which can be
shipped in a quarter; the timing of investments in research and development,
including tooling expenses associated with product development, process
improvements and production; and the cyclical nature of the semiconductor
industry. Sudden shortages of raw materials or production capacity constraints
can lead producers to allocate available supplies or capacity to customers with
resources greater than those of the Company, which could impair the Company's
ability to meet its production obligations. Historically, average selling prices
in the semiconductor industry have decreased over the life of a product, and as
a result, the average selling prices of the Company's products may be subject to
pricing pressures in the future. The Company's business is characterized by
short-term orders and shipment schedules, and the Company generally permits
orders to be canceled or rescheduled without significant penalty to the
customer. Due to the absence of substantial noncancellable backlog, the Company
typically plans its production and inventory levels based on internal forecasts
of customer demand, which are highly unpredictable and can fluctuate
substantially. Because the Company is continuing to increase its operating
expenses for personnel and new product development and for inventory in
anticipation of increasing sales levels, operating results would be adversely
affected if increased sales are not achieved. In addition, the Company is
limited in its ability to reduce costs quickly in response to any revenue
shortfalls. From time to time, in response to anticipated long lead times to
obtain inventory and materials from its foundries, the Company may order in
advance of anticipated customer demand, which might result in excess inventory
levels if expected orders fail to materialize or other factors render the
customer's product less marketable. As a result of the foregoing or other
factors, the Company may experience material fluctuations in future operating
results on a quarterly or annual basis which could materially and adversely
affect its business, financial condition and operating results. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" and "Business -- Backlog."
Historically, the Company has also experienced quarterly fluctuations in
net sales and gross profit, principally arising from the amount and timing of
orders of products for military applications. These sales generally resulted in
lower gross margins than sales of commercial products. The Company anticipates a
continuing decline in sales of products for military applications as part of its
transition from a supplier of products with military applications to a supplier
of commercial products. Should sales of these products decline more rapidly than
the Company anticipates in the near future, such decline could have the effect
of causing further fluctuations in quarterly or annual operating results. See
"Risk Factors -- Declining Sales for Military Applications" and "Management's
Discussion and Analysis of Financial Condition and Results of Operations."
6
<PAGE> 9
Dependence on Outside Third-Party Foundries. The Company's bipolar
complementary metal oxide semiconductor ("BiCMOS") and complementary metal oxide
semiconductor ("CMOS") products, which collectively represented approximately
26%, 39% and 38% of the Company's net sales in 1994, 1995 and the first quarter
of 1996, respectively, are manufactured using fully processed semiconductor
wafers supplied primarily by United Microelectronics Corporation in Taiwan, and
Orbit Semiconductor, Inc. and Calogic Corporation, each of which are located in
California. The Company believes that it will remain dependent on third-party
foundries in the future. There are certain significant risks associated with the
Company's reliance on outside foundries, including the lack of assured fully
processed 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 and production costs. In addition,
the manufacture of integrated circuits is a highly complex and technologically
demanding process. Although the Company has undertaken to diversify its sources
of fully processed semiconductor wafer supply and works closely with its outside
foundries to minimize the likelihood of reduced manufacturing yields, the
Company's third-party foundries have from time to time experienced lower than
anticipated manufacturing yields, particularly in connection with the
introduction of new products and the installation and start-up of new process
technologies. There can be no assurance that the Company's outside foundries
will not experience lower than expected manufacturing yields in the future,
which could materially and adversely affect the Company's business, financial
condition and operating results.
The Company purchases fully processed semiconductor wafers from outside
foundries pursuant to purchase orders and does not have a guaranteed level of
production capacity at any of its foundries, although the Company has not
experienced any capacity constraints to date. The Company provides the foundries
with rolling forecasts of its production requirements; however, the ability of
each foundry to provide wafers to the Company is limited by the foundry's
available capacity. Therefore, the Company's foundry suppliers could choose to
prioritize capacity for other customers or uses or reduce or eliminate
deliveries to the Company on short notice. Accordingly, there is no assurance
that the Company's third-party foundries will allocate sufficient capacity to
satisfy the Company's requirements. The Company has qualified, or is in the
process of qualifying, a secondary source for each of its outside foundries.
Notwithstanding the availability of secondary sources to the Company, any sudden
reduction or elimination of any primary source or sources of fully processed
wafers could result in a material delay in the shipment of the Company's
products. There can be no assurance that material disruptions in supply will not
occur in the future. In the event of any such disruption, if the Company's
alternative manufacturing sources were unable quickly to produce fully processed
wafers with acceptable manufacturing yields, the Company's business, financial
condition and operating results would be materially and adversely affected. See
"Business -- Manufacturing."
Manufacturing Risks. The Company is subject to significant manufacturing
risks. The Company utilizes its own wafer manufacturing facility to produce
products utilizing the Company's dielectric isolation complementary bipolar
processes. Approximately 27% and 24% of the Company's net sales came from such
products in 1995 and the first quarter of 1996, respectively. The Company's
business and results of operations would be materially and adversely affected if
it were to experience any significant disruption in the operation of its
facilities. The manufacturing processes utilized by the Company 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. 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 time-consuming or expensive to remedy. From time to time, the Company has
experienced yield variances. In particular, new process technologies or new
products can be subject to especially wide variations in manufacturing yields
and efficiency. There can be no assurance that the Company and its third-party
foundries will not experience yield variances or other manufacturing problems
that result in product introduction or delivery delays. Although previous
fluctuations in yield variances have not materially affected the Company's
business, financial condition or results of operations, there can be no
assurance that future yield variances and resulting delays would not materially
and adversely affect the Company's business, financial condition and results of
operations. The Company is also subject to the risks associated with the
shortage of raw materials
7
<PAGE> 10
such as unprocessed wafers and packages used in the manufacture or assembly of
the Company's products. See "Business -- Manufacturing."
Dependence on New Products; Risk of Product Development Delays. The
Company's success depends upon its ability to develop new semiconductor devices
for existing and new markets, to introduce such products in a timely manner and
to have such products selected for design into new products of its customers.
The development of these new devices is highly complex and from time to time the
Company has 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 the Company's and its customers'
products. The Company's success also depends upon its ability to accurately
specify and certify the conformance of its products to applicable standards and
to develop its products in accordance with customer requirements. The Company's
research and development efforts are directed primarily at designing new
products and technologies. Currently, the Company's major development programs
include expanding its proprietary product offerings of electroluminescent
drivers and programmable dual and multi-mode transceivers, as well as
simultaneously sampling analog-to-digital converters. There can be no assurance
that the Company will be able to adjust to changing market conditions as quickly
and cost-effectively as necessary to compete successfully. Furthermore, there
can be no assurance that the Company will be able to introduce new products in a
timely and cost-effective manner or in sufficient quantities to meet customer
demand or that such products will achieve market acceptance.
The Company's new products are generally incorporated into a customer's
products or systems at the design stage. However, customer decisions to use the
Company's products, which can often require significant expenditures by the
Company without any assurance of success, often precede the generation of volume
sales, if any, by a year or more. Moreover, the value of any design win will
largely depend upon the commercial success of the customer's product and on the
extent to which the design of the customer's products accommodates components
manufactured by the Company's competitors. There can be no assurance that the
Company will continue to achieve design wins, that the products manufactured by
the Company's customers will be introduced in a timely manner or that such
systems will achieve market acceptance. The Company's or its customers' failure
to develop and introduce new products successfully and in a timely manner could
materially and adversely affect the Company's business, financial condition and
operating results in future periods.
Patents and Intellectual Property Claims. The Company's success depends in
part on its ability to obtain patents and licenses and to preserve other
intellectual property rights covering its products and development and testing
tools. To that end, the Company has obtained certain domestic patents and
intends to continue to seek patents on its inventions when appropriate. The
process of seeking patent protection can be time consuming and expensive and
there can be no assurance that patents will issue from currently pending or
future applications or that the Company's existing patents or any new patents
that may be issued will be sufficient in scope or strength to provide meaningful
protection or any commercial advantage to the Company. There can be no assurance
that foreign intellectual property laws will protect the Company's intellectual
property rights. Furthermore, there can be no assurance that others will not
independently develop similar products, duplicate the Company's products or
design around any patents issued to the Company. The Company may be subject to
or may initiate interference proceedings in the patent office, which can demand
significant financial and management resources. Although the Company is not
aware of any pending or threatened patent litigation, from time to time, the
Company may be notified that it is infringing certain patents and other
intellectual property rights of others and the Company has been subject to such
claims in the past. Litigation, which could result in substantial cost to and
diversion of resources of the Company, may be necessary to enforce patents or
other intellectual property rights of the Company or to defend the Company
against claimed infringement of the rights of others. In the event of an adverse
ruling in such litigation, the Company might 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. No assurance can be given that
licenses will be obtainable on acceptable terms, or at all, or that damages for
8
<PAGE> 11
infringement will not be assessed or that litigation will not occur. The failure
to obtain necessary licenses or other rights or litigation arising out of any
such claims could have a material adverse effect on the Company's business,
financial condition and operating results. See "Business -- Patents and
Intellectual Property."
Competition. The Company competes with several domestic semiconductor
companies, most of which have substantially greater financial, technical,
manufacturing, marketing, distribution and other resources and broader product
lines than the Company. The Company also competes indirectly with the in-house
design staffs of certain of its customers, which often provide alternative
solutions to individual analog systems requirements. In addition, although
foreign companies have not traditionally focused on the high performance analog
market, a number of foreign companies have the financial and other resources to
participate successfully in these markets, and there can be no assurance that
they will not become formidable competitors in the future. The Company believes
that its ability to compete successfully depends on a number of factors,
including the breadth of its product line, the ability to develop and introduce
new products rapidly, product innovation, product quality and reliability,
product performance, price, technical service and support, adequacy of
manufacturing quality and capacity and sources of raw materials, efficiency of
production, delivery capabilities and protection of the Company's products by
intellectual property laws. There can be no assurance that the Company will be
able to compete successfully in the future. See "Business -- Competition."
International Sales. In 1993, 1994, 1995 and the first quarter of 1996,
international sales accounted for approximately 24%, 26%, 35% and 38%,
respectively, of the Company's net sales. The Company anticipates that
international sales will continue to account for a significant percentage of its
revenues. A significant portion of the Company's net sales will therefore be
subject to risks associated with international sales, 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 the Company's intellectual property overseas, seasonality of sales
and potentially adverse tax consequences. Although the Company's sales to date
have been principally denominated in United States dollars, the value of the
United States dollar in relation to foreign currencies may also adversely affect
the Company's sales to international customers. To the extent that the Company
expands its international operations or changes its pricing practices to
denominate prices in foreign currencies, the Company will be exposed to
increased risks of currency fluctuations. To date, the Company has not hedged
the risks associated with fluctuations in exchange rates, but may undertake such
transactions in the future. The Company currently does not have a policy
relating to hedging. There can be no assurance that any hedging techniques
implemented by the Company would be successful or that the Company's business,
financial condition or results of operations would not be materially and
adversely affected by exchange rate fluctuations. See "Management's Discussion
and Analysis of Financial Condition and Results of Operations" and Consolidated
Financial Statements.
Declining Sales for Military Applications. In 1994, 1995 and the first
quarter of 1996, sales of products for military applications accounted for
approximately 39%, 20% and 12% of the Company's net sales, respectively. The
Company is not currently designing new products for the military market as the
Company continues to focus its resources on its target commercial markets, and
the Company expects sales of products for military applications to continue to
decline in the future. If the decline in sales of these products is more rapid
than the Company anticipates, then such decline could have a material adverse
effect on the Company's business, financial condition and results of operations
in the near future. See "Management's Discussion and Analysis of Financial
Condition and Results of Operations" and "Business -- Markets."
The Semiconductor Industry. The semiconductor industry has been highly
cyclical and is subject to significant economic downturns at various times,
characterized by diminished product demand, accelerated erosion of average
selling prices and production over-capacity. Although the semiconductor industry
has in recent periods experienced increased demand and production capacity
constraints, there can be no assurance as to how long this condition will
continue. The Company may experience substantial period-to-
9
<PAGE> 12
period fluctuations in future operating results due to general semiconductor
industry conditions and overall economic conditions.
Dependence on Key Personnel. The Company's success depends to a
significant extent upon the continued service of its executive officers and
other key management and technical personnel, and on its ability to continue to
attract, retain and motivate qualified personnel, such as experienced analog
circuit designers. The competition for such employees is intense. Although the
Company has entered into employment agreements with each of its executive
officers, which contain limited covenants not to compete with Sipex, and has
also entered into agreements with its other key personnel containing limited
covenants not to compete with Sipex, there can be no assurance that the Company
will be able to retain its executive officers and other key personnel. The loss
of the services of one or more of the Company's design engineers, executive
officers or other key personnel or the Company's inability to recruit
replacements for such personnel or to otherwise attract, retain and motivate
qualified personnel could have a material adverse effect on the Company's
business, financial condition and operating results. See "Business -- Employees"
and "Management."
Management of Growth. Due to the level of technical and marketing
expertise necessary to support its existing and new customers, the Company must
attract highly qualified and well-trained personnel. There may be only a limited
number of persons with the requisite skills to serve in these positions and it
may become increasingly difficult for the Company to hire such personnel. Future
expansion by the Company may also significantly strain the Company's management,
manufacturing, financial and other resources. There can be no assurance that the
Company's systems, procedures, controls and existing space will be adequate to
support the Company's operations. Failure to manage the Company's growth
properly could have a material adverse effect on the Company's business,
financial condition and operating results.
Rapid Technological Change. The markets for the Company's products are
characterized by rapid technological change and frequent new product
introductions. There can be no assurance that the Company's analog products or
the process technologies utilized by the Company will not become obsolete. In
addition, as digital integrated circuits have become faster and their processing
capacity has expanded, digital circuits have increasingly been used to perform
functions in electronic systems that were previously performed with analog
technologies. There can be no assurance that further advances in digital
processing power will not eventually supplant analog technologies in those new
applications, which could have a material adverse effect on the Company's
business, financial condition and results of operations.
Environmental Regulation. The Company is 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 its
manufacturing process. Although the Company believes that its activities conform
to presently applicable environmental regulations, the failure to comply with
present or future regulations could result in fines being imposed on the
Company, suspension of production or a cessation of operations. Increasing
public attention has been focused on the environmental impact of semiconductor
manufacturing operations, and there can be no assurance that regulatory changes
or changes in regulatory interpretation or enforcement will not render
compliance more difficult and costly. Any failure of the Company to control the
use of, or adequately restrict the discharge of, hazardous substances, or
otherwise comply with environmental regulations, could subject it to significant
future liabilities. In addition, although the Company believes that its past
operations conformed with then applicable environmental laws and regulations,
there can be no assurance that the Company has not in the past violated
applicable laws or regulations, which violations could result in remediation or
other 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 liabilities under current or future
environmental laws or regulations.
The Company and approximately sixty other potentially responsible parties
("PRPs") received a Notice of Potential Liability from the United States
Environmental Protection Agency in June 1993 concerning the Shaffer Landfill
Operable Unit of the Iron Horse Park Superfund Site (the "Site") located in
Billerica, Massachusetts. In January 1995, federal and Massachusetts
governmental authorities filed suit against ten of the PRPs, alleging
responsibility for remediation and other costs. The ten PRPs named in the
10
<PAGE> 13
lawsuit, together with a number of other PRPs not named, but not currently
including the Company, have been engaged in settlement discussions with such
authorities. If the PRP group and the governmental agencies reach a negotiated
settlement regarding the clean-up of the Site, there is no assurance that the
Company would join such a settlement. The Company believes that it has strong
defenses to liability; however, there can be no assurance that the Company will
not be pursued with respect to alleged liability for contamination of the Site.
The Company anticipates that it would vigorously defend against any such claims.
There can be no assurance, however, that any such defenses of any such claims
would be successful. See "Business -- Manufacturing."
Benefits of the Offering to Existing Shareholders; Control by Tractebel
S.A. Tractebel S.A., together with Telfin S.A., its wholly-owned subsidiary,
beneficially owns 3,928,986 shares of Common Stock or 57.0% of the Common Stock
outstanding prior to this offering. Tractebel S.A. and Telfin S.A. are selling
an aggregate of 1,950,000 shares of Common Stock in this offering. Upon the
closing of this offering, Tractebel S.A. will beneficially own approximately
25.1% of the outstanding Common Stock (23.7% if the Underwriters' over-allotment
option is exercised in full). Accordingly, Tractebel S.A. will have voting power
to influence the outcome of matters (including the election of a majority of the
Board of Directors, and any merger, consolidation or sale of all or
substantially all of the Company's assets) submitted to the shareholders for
approval and also will have influence over the management and affairs of the
Company. As a result of such influence, certain transactions may be difficult to
effect without the approval of Tractebel S.A. These transactions include proxy
contests, mergers involving the Company, tender offers, open-market purchase
programs or other purchases of Common Stock that could give shareholders of the
Company the opportunity to realize a premium over the then-prevailing market
price for their shares of Common Stock. See "Principal and Selling Shareholders"
and "Description of Capital Stock -- Massachusetts Law and Certain Provisions of
the Company's Restated Articles of Organization and Restated By-Laws;
Anti-Takeover Effects."
Stock Price Volatility. The trading price of the Company's Common Stock
could be subject to wide fluctuations in response to quarter-to-quarter
variations in operating results, announcements of technological innovations or
new products by the Company or its competitors, general conditions in the
semiconductor manufacturing and electronics 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. 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 the Company's Common Stock. See "Price
Range of Common Stock" and "Underwriting."
Dilution. The public offering price is substantially higher than the book
value per share of the currently outstanding Common Stock. Investors purchasing
shares of Common Stock in this offering will therefore suffer immediate and
substantial dilution of $15.12 per share in the net tangible book value of the
Common Stock from an assumed public offering price of $19.63 per share. See
"Dilution."
Anti-Takeover Effect of Certain Charter and Restated By-Law
Provisions. The Company's Restated Articles of Organization and Restated
By-Laws contain provisions that may make it more difficult for a third-party to
acquire, or may discourage acquisition bids for, the Company. These provisions
could limit the price that certain investors might be willing to pay in the
future for shares of the Company's Common Stock. In addition, shares of the
Company's Preferred Stock may be issued in the future without further
stockholder approval and upon such terms and conditions, and having such rights,
privileges and preferences, as the Board of Directors may determine. The rights
of the holders of Common Stock will be subject to, and may be materially and
adversely affected by, the rights of any holders of Preferred Stock that may be
issued in the future, including preferential rights with respect to voting,
payment of dividends or distributions upon liquidation. The issuance of
Preferred Stock, while providing desirable flexibility in connection with
possible acquisitions and other corporate purposes, could have the effect of
making it more difficult for a third-party to acquire, or discouraging a
third-party from acquiring, a majority of the outstanding voting stock of the
Company. The Company has no present plans to issue any shares of Preferred
Stock. Finally, the Company's Restated By-Laws contain an election by the
Company not to be governed by the Massachusetts Control Share Acquisition
statute. In general, this statute provides that any
11
<PAGE> 14
stockholder of a corporation subject to this statute who acquires beneficial
ownership of 20% or more of the outstanding voting stock of a corporation may
not vote such stock unless the holders of a majority of the capital stock
(excluding the interested shares) of a corporation so authorize. If the Board of
Directors were to amend the Company's Restated By-Laws to permit the Company to
be governed by this statute, the price that certain investors may be willing to
pay for the Company's Common Stock may be limited. See "Description of Capital
Stock -- Massachusetts Law and Certain Provisions of the Company's Restated
Articles of Organization and Restated By-Laws; Anti-Takeover Effects."
Shares Eligible for Future Sale. Sales of a substantial number of shares
of Common Stock in the public market following the offering (pursuant to Rule
144 under the Securities Act of 1933, as amended (the "Securities Act") or
otherwise), as well as the issuance of shares upon exercise of employee stock
options, could adversely affect the prevailing market price of the Common Stock
and impair the Company's ability to raise additional capital through the sale of
equity securities. The Company and all of its executive officers and directors,
including those who are Selling Shareholders, who will hold in the aggregate
45,750 shares of Common Stock and exercisable options to purchase 185,995 shares
of Common Stock after the offering, have agreed that they will not, without the
prior written consent of Alex. Brown & Sons Incorporated, offer, sell, contract
to sell, transfer or otherwise dispose of, directly or indirectly, any shares of
the Common Stock, or any securities convertible into, or exercisable or
exchangeable for, Common Stock or warrants or other rights to purchase Common
Stock, prior to the expiration of 90 days from the date of the consummation of
the offering, except, with respect to the Company, (i) shares of Common Stock
issued pursuant to the exercise of outstanding options and (ii) options granted
to its employees, officers and directors under its existing employee stock
option plans so long as none of such options become exercisable during said 90
day period. Tractebel S.A. will hold 1,978,986 shares of Common Stock after the
offering, and has agreed that it will not, without the prior written consent of
Alex. Brown & Sons Incorporated, offer, sell, contract to sell, transfer or
otherwise dispose of, directly or indirectly, any shares of Common Stock, or any
securities convertible into, or exercisable or exchangeable for, Common Stock or
warrants or other rights to purchase Common Stock, prior to the expiration of
180 days from the date of the consummation of this offering. See "Shares
Eligible for Future Sale."
12
<PAGE> 15
USE OF PROCEEDS
The net proceeds to the Company from the sale of the 1,000,000 shares of
Common Stock offered by the Company hereby are estimated to be $18,181,563
($26,505,016 if the Underwriters' over-allotment option is exercised in full)
assuming a public offering price of $19.63 per share after deducting estimated
underwriting discounts and commissions and offering expenses. The Company will
not receive any proceeds from the sale of shares of Common Stock by the Selling
Shareholders. See "Principal and Selling Shareholders."
The Company intends to use the net proceeds of this offering primarily for
working capital and other general corporate purposes, including potential
acquisitions. The Company may in the future use a portion of the net proceeds to
make acquisitions of businesses, products or technologies intended to broaden
the Company's current product offerings, although there can be no assurance that
any such acquisition will be made. The Company has no present plans, agreements
or commitments and is not currently engaged in any negotiations with respect to
any such transaction. The amounts actually expended by the Company for working
capital purposes will vary significantly depending upon a number of factors,
including future revenue growth, the amount of cash generated by the Company's
operations and the progress of the Company's product development efforts.
Pending the uses described above, the net proceeds will be invested in
short-term, interest-bearing, investment-grade instruments.
PRICE RANGE OF COMMON STOCK
<TABLE>
The Common Stock of the Company has been included for quotation on the
Nasdaq National Market under the symbol "SIPX" since the Company's initial
public offering of Common Stock on April 2, 1996. Prior to that time, there was
no public market for the Common Stock. The following tables set forth the high
and low closing prices for the Common Stock for the periods indicated as
reported by the Nasdaq National Market:
<CAPTION>
HIGH LOW
------ ------
<S> <C> <C>
1996:
Second Quarter (commencing April 2, 1996 through June 26, 1996)...... $21.00 $11.25
</TABLE>
On June 26, 1996, the last reported sale price was $19.63 per share. As of
June 1, 1996, there were 82 holders of record of the Company's Common Stock. The
Company believes that there are more than 200 beneficial owners of the Company's
Common Stock.
DIVIDEND POLICY
The Company has never declared or paid cash dividends on its Common Stock.
The Company currently intends to retain all of its earnings to finance future
growth and therefore does not anticipate paying any cash dividends on its Common
Stock in the foreseeable future.
13
<PAGE> 16
<TABLE>
CAPITALIZATION
The following table sets forth as of March 30, 1996 (i) the actual
capitalization of the Company, (ii) the pro forma capitalization of the Company
giving effect to the April 1996 sale by the Company of 2,160,715 shares of
Common Stock in its initial public offering and the application of proceeds
therefrom, and (iii) the pro forma as adjusted capitalization of the Company
giving effect to the issuance and sale by the Company of the 1,000,000 shares of
Common Stock offered hereby (at an assumed public offering price of $19.63 per
share after deducting estimated underwriting discounts and commissions and
offering expenses) and receipt of the net proceeds therefrom. See "Use of
Proceeds." This table should be read in conjunction with the Company's
Consolidated Financial Statements and the Notes thereto included elsewhere in
this Prospectus.
<CAPTION>
MARCH 30, 1996
----------------------------------------
PRO FORMA
ACTUAL PRO FORMA AS ADJUSTED
------- --------- --------------
(IN THOUSANDS)
<S> <C> <C> <C>
Current portion of long-term debt.................... $ 10,711 $ 210 $ 210
======== ======== ========
Long-term debt, less current portion................. 169 169 169
Long-term debt to affiliates......................... 1,800 -- --
Shareholders' equity (deficit):
Preferred Stock, $.01 par value, no shares
authorized, issued or outstanding (actual);
1,000,000 shares authorized, no shares issued or
outstanding (pro forma and pro forma as
adjusted)....................................... -- -- --
Common Stock, $.01 par value, 25,000,000 shares
authorized, 4,729,441 shares issued and
outstanding (actual); 40,000,000 shares
authorized, 6,890,156 shares issued and
outstanding (pro forma), 7,890,156 shares issued
and outstanding (pro forma as adjusted)(1)...... 47 69 79
Additional paid-in capital........................... 45,485 64,256 82,428
Accumulated deficit.................................. (47,099) (47,099) (47,099)
Cumulative translation adjustment.................... 171 171 171
-------- -------- --------
Total shareholders' equity (deficit)............... (1,396) 17,397 35,579
-------- -------- --------
Total capitalization....................... $ 573 $ 17,566 $ 35,748
======== ======== ========
<FN>
- ---------------
(1) Excludes 794,588 shares of Common Stock issuable upon exercise of options
outstanding as of March 30, 1996 at a weighted average exercise price of
$0.98 per share, of which options to purchase 235,631 shares were then
exercisable. See "Management -- Stock Plans" and Note 7 of Notes to
Consolidated Financial Statements.
</TABLE>
14
<PAGE> 17
DILUTION
<TABLE>
The actual net tangible book deficit of the Company's Common Stock as of
March 30, 1996 was $1.4 million, or $0.30 per share. Pro forma net tangible book
value of the Company's Common Stock as of March 30, 1996, giving effect to the
April 1996 closing of the sale by the Company of 2,160,715 shares of Common
Stock in its initial public offering at a price per share of $9.50, and the
application of proceeds therefrom, was $17.4 million, or $2.52 per share. Pro
forma net tangible book value per share represents the amount of the Company's
shareholders' equity, less intangible assets, divided by 6,890,156 shares of
Common Stock deemed outstanding as of March 30, 1996, assuming the completion of
the Company's initial public offering as of that date. Adjusted pro forma net
tangible book value dilution per share represents the difference between the
amount per share paid by purchasers of shares of Common Stock in the offering
made hereby and the adjusted pro forma net tangible book value per share of
Common Stock immediately after completion of this offering. After giving effect
to the sale of 1,000,000 shares of Common Stock offered by the Company hereby
and the application of the estimated net proceeds therefrom, the adjusted pro
forma net tangible book value of the Company as of March 30, 1996 would have
been $35.6 million or $4.51 per share. This represents an immediate increase in
pro forma net tangible book value of $1.99 per share to existing shareholders
and an immediate dilution in adjusted pro forma net tangible book value of
$15.12 per share to purchasers of Common Stock in this offering, as illustrated
in the following table:
<S> <C> <C>
Assumed public offering price per share........................... $19.63
Pro forma net tangible book value per share at March 30, 1996... $ 2.52
Increase per share attributable to new investors................ 1.99
------
Adjusted pro forma net tangible book value per share after this
offering........................................................ 4.51
------
Adjusted pro forma net tangible book value dilution per share to
new investors................................................... $15.12
======
</TABLE>
As of March 30, 1996, there were 794,588 shares of Common Stock issuable
upon the exercise of outstanding options at a weighted average exercise price of
$0.98 per share, of which options to purchase 235,631 shares were then
exercisable. To the extent these options are exercised, there will be further
dilution to new investors. See "Management -- Stock Plans" and Note 7 of Notes
to Consolidated Financial Statements.
15
<PAGE> 18
SELECTED CONSOLIDATED FINANCIAL DATA
<TABLE>
The following selected consolidated financial data should be read in
conjunction with the Consolidated Financial Statements and the Notes thereto and
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" included elsewhere in this Prospectus. The Consolidated Balance
Sheet Data at December 31, 1995 and the Consolidated Statement of Operations
Data for the year ended December 31, 1995 have been derived from the
Consolidated Financial Statements for such year, which have been audited by KPMG
Peat Marwick LLP, independent auditors. The Consolidated Balance Sheet Data as
of December 31, 1991, 1992 and 1993 and the Consolidated Statements of
Operations Data for each of the two years in the period ended December 31, 1992
are derived from the Company's Consolidated Financial Statements for such years,
which are not included herein, all of which have been audited by Ernst & Young
LLP, independent auditors. The Consolidated Statements of Operations Data for
the year ended December 31, 1993 are derived from the Consolidated Statements of
Operations for such year which has been audited by Ernst & Young LLP,
independent auditors, whose report appears elsewhere herein. The Consolidated
Balance Sheet Data at December 31, 1994 and Consolidated Statements of
Operations Data for the year then ended are derived from the Consolidated
Financial Statements of the Company which are included elsewhere herein and have
been audited by Ernst & Young LLP, independent auditors. Ernst & Young LLP's
report on the Consolidated Financial Statements for the year ended December 31,
1994, which appears elsewhere herein, contains an explanatory paragraph
regarding the Company's ability to continue as a going concern as described in
Note 1 of Notes to Consolidated Financial Statements. The Consolidated Balance
Sheet Data as of April 1, 1995 and March 30, 1996 and the Consolidated Statement
of Operations Data for each of the three months ended April 1, 1995 and March
30, 1996 have been derived from unaudited Consolidated Financial Statements
included elsewhere in this Prospectus and, in the opinion of management, include
all adjustments (consisting only of normal recurring adjustments) necessary for
a fair presentation of the results of operations for the periods presented.
Results for the three months ended March 30, 1996 are not necessarily indicative
of the results to be expected for the full year.
<CAPTION>
THREE MONTHS
ENDED
YEAR ENDED DECEMBER 31, ---------------------
--------------------------------------------------- APRIL 1, MARCH 30,
1991 1992 1993 1994 1995 1995 1996
------- ------- ------- ------- ------- -------- ---------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C> <C>
STATEMENTS OF OPERATIONS DATA:
Net sales:
Commercial products.... $ 9,414 $11,101 $11,899 $13,958 $24,008 $4,412 $7,491
Products with military
applications......... 17,763 17,530 15,634 8,865 5,971 1,882 1,032
------- ------- ------- ------- ------- ------ ------
Total................ 27,177 28,631 27,533 22,823 29,979 6,294 8,523
------- ------- ------- ------- ------- ------ ------
Cost of sales............... 26,047 23,964 22,385 18,231 19,079 4,126 5,162
------- ------- ------- ------- ------- ------ ------
Gross profit........... 1,130 4,667 5,148 4,592 10,900 2,168 3,361
Operating expenses:
Research and
development.......... 1,865 2,077 2,357 2,960 4,399 1,184 1,018
Marketing and
selling.............. 4,657 4,139 4,174 4,078 4,245 1,070 1,111
General and
administrative....... 1,898 1,953 1,957 1,894 1,906 565 483
Write-off of intangible
assets............... -- -- -- -- 1,320 -- --
------- ------- ------- ------- ------- ------ ------
Total operating
expenses.......... 8,420 8,169 8,488 8,932 11,870 2,819 2,612
------- ------- ------- ------- ------- ------ ------
Income (loss) from
operations................ (7,290) (3,502) (3,340) (4,340) (970) (651) 749
Other expense, net.......... (563) (760) (369) (462) (805) (152) (251)
------- ------- ------- ------- ------- ------ ------
Income (loss) before income
taxes..................... (7,853) (4,262) (3,709) (4,802) (1,775) (803) 498
Income tax expense
(benefit)................. 145 (126) 12 (93) 27 5 16
------- ------- ------- ------- ------- ------ ------
Net income (loss)...... $(7,998) $(4,136) $(3,721) $(4,709) $(1,802) $ (808) $ 482
======= ======= ======= ======= ======= ====== ======
</TABLE>
16
<PAGE> 19
<TABLE>
<CAPTION>
THREE MONTHS
ENDED
YEAR ENDED DECEMBER 31, ---------------------
--------------------------------------------------- APRIL 1, MARCH 30,
1991 1992 1993 1994 1995 1995 1996
------- ------- ------- ------- ------- -------- ---------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C> <C>
Net income (loss) per common
and common equivalent
share(1).................. $(1.69) $(0.87) $(0.78) $(0.99) $(0.38) $(0.17) $ 0.09
====== ====== ====== ====== ====== ====== ======
Weighted average common
stock and common stock
equivalents outstanding... 4,746 4,758 4,758 4,758 4,760 4,758 5,524
====== ====== ====== ====== ====== ====== ======
Pro forma(2):
Net income (loss)...... $ (938) $ (652) $ 711
====== ====== ======
Net income (loss) per
common and common
equivalent share..... $(0.14) $(0.09) $ 0.09
====== ====== ======
</TABLE>
<TABLE>
<CAPTION>
DECEMBER 31, MARCH 30, 1996
--------------------------------------------------- -----------------------
1991 1992 1993 1994 1995 ACTUAL PRO FORMA(3)
------- ------- ------- ------- ------- -------- ------------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Working capital
(deficit)............... $12,033 $ 9,908 $ 7,115 $ 5,942 $ 7,307 $(2,108) $14,885
Total assets.............. 23,558 19,771 14,590 13,360 15,870 16,589 22,908
Long-term debt, net of
current portion......... -- -- 161 213 220 169 169
Long-term debt to
affiliates.............. 12,500 12,400 6,600 9,400 11,710 1,800 --
Total shareholders' equity
(deficit)............... 7,640 3,382 4,726 (67) (1,884) (1,396) 17,397
<FN>
- ---------------
(1) Calculated on the basis described in Note 1 of Notes to Consolidated
Financial Statements.
(2) Pro forma net income (loss) and net income (loss) per common and common
equivalent share are presented to give effect to the April 1996 closing of
the Company's initial public offering as if the closing occurred on January
1, 1995. See Note 12 of Notes to Consolidated Financial Statements.
(3) Pro forma to give effect to the April 1996 closing of the sale by the
Company of 2,160,715 shares of Common Stock in its initial public offering,
which provided gross proceeds of approximately $19.1 million, and the
application of the proceeds therefrom. See Consolidated Financial
Statements.
</TABLE>
17
<PAGE> 20
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion provides an analysis of the Company's financial
condition and results of operations and should be read in conjunction with the
"Selected Consolidated Financial Data" and the Notes thereto and the
Consolidated Financial Statements and Notes thereto included elsewhere in this
Prospectus. This discussion contains trend analysis and other forward-looking
statements within the meaning of Section 27A of the Securities Act of 1933, as
amended, and Section 21E of the Securities Exchange Act of 1934, as amended.
Actual results could differ materially from those projected in the
forward-looking statements as a result of the risk factors set forth below and
elsewhere in this Prospectus, particularly under the caption "Risk Factors."
OVERVIEW
The Company was organized and commenced operations in 1965. Between 1965
and 1988, the Company developed, manufactured and marketed standard and
semi-custom analog-to-digital and digital-to-analog products utilizing hybrid
technology, primarily for the military market. Hybrid products are multi-chip
circuits consisting of two or more integrated circuits and other components
connected together on a substrate in a single package. In 1988, the Company
acquired substantially all of the assets of Barvon BiCMOS Technology, Inc.,
which designed and marketed custom and standard monolithic products for the
commercial markets. In 1989, the Company ceased designing new standard hybrid
products, although the Company continues to serve the military markets with
existing hybrid products. The Company expects revenue from the military and
hybrid products to continue to decline in the future.
During 1990, in response to declining orders of products with military
applications, the Company developed a strategy to transition from a supplier of
products with military applications to a supplier of commercial products. To
implement this strategy, from 1990 through 1995 the Company increased its
research and development expenses in order to develop new commercial products.
The Company also realigned its marketing and selling expenses during this period
by increasing staff and promotional expenses as management focused efforts on
the marketing and sales of the Company's commercial products while decreasing
certain sales efforts relating to products with military applications. From 1990
through 1994, the Company incurred substantial losses as it continued to invest
in new products for commercial applications and sales of products with military
applications declined more rapidly than the Company anticipated. The Company
believes that the percentage of its net sales represented by sales of commercial
products will continue to increase in the future. The tables below present the
Company's net sales of commercial products and products with military
applications and net sales of such products as a percentage of total net sales
for the periods indicated:
<TABLE>
<CAPTION>
THREE MONTHS ENDED
YEAR ENDED DECEMBER 31, -----------------------
--------------------------------------------------- APRIL 1, MARCH 30,
1991 1992 1993 1994 1995 1995 1996
------- ------- ------- ------- ------- --------- ----------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C>
Net Sales:
Commercial products........................... $ 9,414 $11,101 $11,899 $13,958 $24,008 $4,412 $7,491
Products with military applications........... 17,763 17,530 15,634 8,865 5,971 1,882 1,032
------- ------- ------- ------- ------- ------ ------
Total................................... $27,177 $28,631 $27,533 $22,823 $29,979 $6,294 $8,523
======= ======= ======= ======= ======= ====== ======
</TABLE>
<TABLE>
<CAPTION>
THREE MONTHS ENDED
YEAR ENDED DECEMBER 31, -----------------------
--------------------------------------------------- APRIL 1, MARCH 30,
1991 1992 1993 1994 1995 1995 1996
------- ------- ------- ------- ------- --------- ----------
<S> <C> <C> <C> <C> <C> <C> <C>
Percentage of Net Sales:
Commercial products........................... 34.6% 38.8% 43.2% 61.2% 80.1% 70.1% 87.9%
Products with military applications........... 65.4 61.2 56.8 38.8 19.9 29.9 12.1
----- ----- ----- ----- ----- ----- -----
Total................................... 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0%
===== ===== ===== ===== ===== ===== =====
</TABLE>
18
<PAGE> 21
RESULTS OF OPERATIONS
<TABLE>
For the periods indicated, the following table sets forth the percentage of
net sales represented by the respective line items in the Company's consolidated
statements of operations.
<CAPTION>
THREE MONTHS ENDED
YEAR ENDED DECEMBER 31, ------------------------
----------------------------- APRIL 1, MARCH 30,
1993 1994 1995 1995 1996
----- ----- ----- -------- ---------
<S> <C> <C> <C> <C> <C>
Net sales........................... 100.0% 100.0% 100.0% 100.0% 100.0%
Cost of sales....................... 81.3 79.9 63.6 65.6 60.6
----- ----- ----- ----- -----
Gross profit........................ 18.7 20.1 36.4 34.4 39.4
Operating expenses:
Research and development.......... 8.6 13.0 14.7 18.8 11.9
Marketing and selling............. 15.2 17.9 14.2 17.0 13.0
General and administrative........ 7.1 8.3 6.3 9.0 5.7
Write-off of intangible assets.... -- -- 4.4 -- --
----- ----- ----- ----- -----
Total operating expenses............ 30.9 39.2 39.6 44.8 30.6
----- ----- ----- ----- -----
Income (loss) from operations....... (12.2) (19.1) (3.2) (10.4) 8.8
Other expense, net.................. (1.3) (2.0) (2.7) (2.4) (2.9)
----- ----- ----- ----- -----
Income (loss) before income taxes... (13.5) (21.1) (5.9) (12.8) 5.9
Income tax expense (benefit)........ 0.1 (0.4) 0.1 0.0 0.2
----- ----- ----- ----- -----
Net income (loss)................... (13.6)% (20.7)% (6.0)% (12.8)% 5.7%
===== ===== ===== ===== =====
</TABLE>
Quarter Ended March 30, 1996 compared to Quarter Ended April 1, 1995
Net Sales. The Company derives its revenues principally from product
sales. Net sales increased 35.4% to $8.5 million in the first quarter of 1996
from $6.3 million in the first quarter of 1995. The increase in net sales was
due primarily to higher unit sales resulting from increased market acceptance of
the Company's proprietary and second source products both domestically and
internationally. The percentage of sales growth was especially strong in Europe,
Japan, and the Asia/Pacific areas.
Gross Profit. The Company's cost of sales consists primarily of costs
associated with the manufacture and delivery of the Company's products from its
production facilities, as well as the Company's sub-contract wafer fab and
assembly contractors. Gross profit as a percentage of net sales, or gross
margin, increased to 39.4% in the first quarter of 1996 from 34.4% for the first
quarter of 1995. The increase in gross profit resulted primarily from the
absorption of certain fixed costs over the increased sales volume and from
increased market acceptance of the Company's proprietary and second source
products.
Research and Development. Research and development expenses consist
primarily of salaries and benefits of employees involved in product development
and fees for product development services provided by consultants. Research and
development expenses decreased 14.0% to $1.0 million in the first quarter of
1996 from $1.2 million in the first quarter of 1995 and decreased as a
percentage of net sales in the first quarter of 1996 to 11.9% from 18.8% for the
first quarter of 1995. The decrease in these expenses was due primarily to the
fact that the Company incurred less mask set and engineering prototype wafer
expenses. The Company expects research and development expenses to increase in
absolute terms in the near future.
Marketing and Selling. Marketing and selling expenses consist principally
of salaries, commissions, travel expenses of direct sales and marketing
personnel and costs associated with marketing and advertising programs.
Marketing and selling increased 3.8% to $1.1 million in the first quarter of
1996 from $1.0 million in the first quarter of 1995 and decreased as a
percentage of net sales to 13.0% in the first quarter of 1996 from 17.0% for the
first quarter of 1995. The increase in absolute terms was primarily due to the
employment of additional direct sales and marketing personnel and costs
associated with marketing and advertising programs.
19
<PAGE> 22
General and Administrative. General and administrative expenses consist
primarily of personnel costs for administration, finance, human resource and
general management, including legal and auditing expenses. General and
administrative expenses decreased 14.5% to $483,000 in the first quarter of 1996
from $565,000 in the first quarter of 1995 and decreased as a percentage of net
sales to 5.7% in the first quarter of 1996 from 9.0% for the first quarter of
1995. General and administrative expenses decreased primarily due to the
elimination of amortization relating to intangible assets written off during the
quarter ended July 1, 1995.
Other Expense, Net. Other expense, net, consists primarily of interest on
outstanding subordinated indebtedness to affiliates and borrowings under the
Company's bank credit facility. The increase in the first quarter of 1996 to
$251,000 from $152,000 for the first quarter of 1995 was due primarily to
increased interest expense relating to increased borrowings. The Company repaid
outstanding indebtedness to affiliates and borrowings under the bank credit
facility in April 1996 with the proceeds of its initial public offering.
Income Tax Expense. The Company recorded income tax expense of $16,000 for
the three months ended March 30, 1996, an effective rate of 3.2%. This amount
differed from the statutory rate of 34% due to the Company's partial utilization
of its net operating loss carryforwards.
Year Ended December 31, 1995 compared to Year Ended December 31, 1994
Net Sales. Net sales increased 31.4% to $30.0 million in 1995 from $22.8
million in 1994. The increase in net sales was principally due to the growing
acceptance of the Company's proprietary interface and low power commercial
products. Commercial product sales increased 72.0% to $24.0 million in 1995
compared to $14.0 million in 1994, while sales of products with military
applications decreased 32.6% to $6.0 million in 1995 compared to $8.9 million in
1994.
Gross Profit. Gross profit as a percentage of net sales increased to 36.4%
in 1995 from 20.1% in 1994. The increase in gross profit resulted primarily from
an increase in higher margin sales of commercial products, in particular
proprietary products, higher volume within the Company's wafer fab facility and
lower production costs associated with off-shore assembly.
Research and Development. Research and development expenses increased
48.6% to $4.4 million in 1995 from $3.0 million in 1994 and increased as a
percentage of net sales to 14.7% in 1995 from 13.0% in 1994. The increase in
research and development expenses resulted primarily from approximately $1.0
million in additional salary and benefit expenses related to employment of
additional staff and from approximately $400,000 of additional expenses related
to engineering prototyping and pre-production activities undertaken in
connection with the development of new proprietary commercial products,
including dual- and multi-protocol interface products.
Marketing and Selling. Marketing and selling expenses increased 4.1% to
$4.2 million in 1995 from $4.1 million in 1994, but decreased as a percentage of
net sales to 14.2% in 1995 from 17.9% in 1994. The increase in expenses related
to the employment of additional direct sales and marketing personnel were offset
by a reduction in international expenses relating to a consolidation of
subsidiaries and increased selling through distributors.
General and Administrative. General and administrative expenses remained
constant at $1.9 million in 1995 and decreased as a percentage of net sales to
6.3% in 1995 from 8.3% in 1994. Increased costs associated with recruitment of
personnel and enhancement of management information systems were offset by
reductions in amortization resulting from the Company's write-off of intangible
assets.
Write-off of Intangible Assets. As a result of the acquisition of certain
businesses involved in the development and design of custom and standard
products with military applications, the Company had intangible assets of $1.4
million as of December 31, 1994 which were being amortized on a straight line
basis over ten years. In 1995, the Company wrote-off the unamortized balance of
these intangible assets as a result of the Company's increased focus on
commercial products and review of actual and expected revenues and cash flows
from specific military products related to the acquired technology.
Other Expense, Net. Other expense, net, increased to $805,000 in 1995 from
$462,000 in 1994. The increase in 1995 was primarily due to increases in amounts
of subordinated indebtedness to affiliates outstanding and increased borrowings
under the bank credit facility.
20
<PAGE> 23
Year Ended December 31, 1994 compared to Year Ended December 31, 1993
Net Sales. Net sales decreased 17.1% to $22.8 million in 1994 from $27.5
million in 1993. This decrease was primarily attributable to the reduction in
revenue from sales of products with military applications as the Company
continued its transition to become a supplier of commercial products. Commercial
product revenue increased 17.3% to $14.0 million in 1994 from $11.9 million in
1993, while sales of products with military applications decreased 43.3% to $8.9
million in 1994 from $15.6 million in 1993.
Gross Profit. Gross profit as a percentage of net sales increased to 20.1%
in 1994 from 18.7% in 1993. The increase in gross profit resulted primarily from
a decrease in lower margin sales of products with military applications and an
increase in higher margin sales of proprietary commercial products.
Research and Development. Research and development expenses increased
25.6% to $3.0 million in 1994 from $2.4 million in 1993 and increased as a
percentage of net sales to 13.0% in 1994 from 8.6% in 1993. This increase
resulted primarily from approximately $400,000 of additional salary and benefit
expenses related to increased staffing and from approximately $200,000 of
additional expenses related to engineering prototyping and pre-production
activities undertaken in connection with the development of new proprietary
commercial products, including dual- and multi-protocol interface products.
Marketing and Selling. Marketing and selling expenses decreased 2.3% to
$4.1 million in 1994 from $4.2 million in 1993 and increased as a percentage of
net sales to 17.9% in 1994 from 15.2% in 1993. The reduction in absolute terms
reflects management's decision to contain marketing and selling expenses in 1994
as a result of anticipated lower sales during the transition from sales of
products with military applications to sales of commercial products.
General and Administrative. General and administrative expenses decreased
3.2% to $1.9 million in 1994 from $2.0 million in 1993, but increased as a
percentage of net sales to 8.3% in 1994 from 7.1% in 1993. The reduction in
absolute terms reflects management's decision to implement reductions in
personnel in 1994.
Other Expense, Net. Other expense, net, increased to $462,000 in 1994 from
$369,000 in 1993. The increase in 1994 was primarily due to higher interest
expense resulting from increases in amounts of subordinated indebtedness to
affiliates outstanding and increased borrowings under the bank credit facility.
21
<PAGE> 24
SELECTED QUARTERLY OPERATING RESULTS
<TABLE>
The following table sets forth certain unaudited quarterly results of
operations of the Company for each of the four quarters of 1994 and 1995 and the
first quarter of 1996. The Company believes that this information has been
prepared on the same basis as the audited Consolidated Financial Statements and
that all necessary adjustments, consisting only of normal recurring adjustments,
have been included in the amounts stated below to present fairly the selected
quarterly information when read in conjunction with the audited Consolidated
Financial Statements and the Notes thereto included elsewhere in this
Prospectus. The quarterly operating results are not necessarily indicative of
future results of operations. See "Risk Factors -- Potential Fluctuations in
Operating Results."
<CAPTION>
QUARTER ENDED
----------------------------------------------------------------------------------------------
APR. 2, JULY 2, OCT. 1, DEC. 31, APR. 1, JULY 1, SEP. 30, DEC. 31, MAR. 30,
1994 1994 1994 1994 1995 1995 1995 1995 1996
------- ------- ------- -------- -------- ------- --------- -------- ---------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
STATEMENTS OF OPERATIONS DATA:
Net sales....................... $ 5,799 $ 5,247 $ 4,682 $7,095 $6,294 $ 7,737 $7,882 $8,066 $8,523
Cost of sales................... 4,708 4,638 4,189 4,696 4,126 4,945 4,983 5,025 5,162
------- ------- ------- ------ ------ ------- ------ ------ ------
Gross profit.................. 1,091 609 493 2,399 2,168 2,792 2,899 3,041 3,361
Operating expenses:
Research and development...... 645 722 731 862 1,184 1,118 1,014 1,083 1,018
Marketing and selling......... 981 1,022 989 1,086 1,070 1,032 1,092 1,051 1,111
General and administrative.... 467 509 464 454 565 494 442 405 483
Write-off of intangible
assets...................... -- -- -- -- -- 1,320 -- -- --
------- ------- ------- ------ ------ ------- ------ ------ ------
Total operating expenses.... 2,093 2,253 2,184 2,402 2,819 3,964 2,548 2,539 2,612
------- ------- ------- ------ ------ ------- ------ ------ ------
Income (loss) from operations... (1,002) (1,644) (1,691) (3) (651) (1,172) 351 502 749
Other expense, net.............. (127) (96) (125) (114) (152) (163) (229) (261) (251)
------- ------- ------- ------ ------ ------- ------ ------ ------
Income (loss) before income
taxes......................... (1,129) (1,740) (1,816) (117) (803) (1,335) 122 241 498
Income tax expense (benefit).... (22) (33) (36) (2) 5 5 7 10 16
------- ------- ------- ------ ------ ------- ------ ------ ------
Net income (loss)........... $(1,107) $(1,707) $(1,780) $ (115) $ (808) $(1,340) $ 115 $ 231 $ 482
======= ======= ======= ====== ====== ======= ====== ====== ======
</TABLE>
<TABLE>
<CAPTION>
QUARTER ENDED
----------------------------------------------------------------------------------------------
APR. 2, JULY 2, OCT. 1, DEC. 31, APR. 1, JULY 1, SEP. 30, DEC. 31, MAR. 30,
1994 1994 1994 1994 1995 1995 1995 1995 1996
------- ------- ------- -------- -------- ------- --------- -------- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
PERCENTAGE OF NET SALES:
Net sales....................... 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0%
Cost of sales................... 81.2 88.4 89.5 66.2 65.6 63.9 63.2 62.3 60.6
----- ----- ----- ----- ----- ----- ----- ----- -----
Gross profit.................. 18.8 11.6 10.5 33.8 34.4 36.1 36.8 37.7 39.4
Operating expenses:
Research and development...... 11.1 13.7 15.6 12.1 18.8 14.5 12.9 13.4 11.9
Marketing and selling......... 16.9 19.5 21.1 15.3 17.0 13.3 13.8 13.1 13.0
General and administrative.... 8.1 9.7 9.9 6.4 8.9 6.4 5.6 5.0 5.7
Write-off of intangible
assets...................... -- -- -- -- -- 17.1 -- -- --
----- ----- ----- ----- ----- ----- ----- ----- -----
Total operating expenses.... 36.1 42.9 46.6 33.8 44.7 51.3 32.3 31.5 30.6
----- ----- ----- ----- ----- ----- ----- ----- -----
Income (loss) from operations... (17.3) (31.3) (36.1) 0.0 (10.3) (15.2) 4.5 6.2 8.8
Other expense, net.............. (2.2) (1.8) (2.7) (1.6) (2.4) (2.1) (2.9) (3.2) (2.9)
----- ----- ----- ----- ----- ----- ----- ----- -----
Income (loss) before income
taxes......................... (19.5) (33.2) (38.8) (1.6) (12.7) (17.3) 1.5 3.0 5.9
Income tax expense (benefit).... (0.4) (0.6) (0.8) 0.0 0.1 0.0 0.1 0.1 0.2
----- ----- ----- ----- ----- ----- ----- ----- -----
Net income (loss)........... (19.1)% (32.5)% (38.0)% (1.6)% (12.8)% (17.3)% 1.4% 2.9% 5.7%
===== ===== ===== ===== ===== ===== ===== ===== =====
</TABLE>
Increases in net sales during the four quarters ended March 30, 1996
primarily reflect sales of new proprietary commercial products and product
enhancements. Net sales increased in the quarter ended December 31, 1994 as
compared to the previous quarter primarily as a result of increased sales of
interface, low power analog and data converter products. Sales of products with
military applications also increased during the quarter ended December 31, 1994
as customers placed final orders for certain of the Company's
22
<PAGE> 25
products. Gross profit increased in the quarter ended December 31, 1994 as
compared to the previous quarter as the Company sold more higher margin
commercial products and increased prices for products with military
applications. Net sales decreased in the quarter ended April 1, 1995 as compared
to the previous quarter primarily due to lower sales of the Company's products
with military applications.
Research and development expenses increased in absolute terms and as a
percentage of net sales in the quarter ended April 1, 1995 as compared to the
previous quarter as a result of expenses associated with new product engineering
wafers, mask sets and additional staffing. In the quarter ended July 1, 1995,
the Company wrote-off the unamortized balance of intangible assets associated
with the acquisition of certain businesses involved in the development and
design of custom and standard products with military applications. The Company
wrote-off this amount as a result of its increased focus on commercial products
and review of actual and expected revenues and cash flows from specific military
products related to the acquired technology.
The Company's 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: 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; the
Company's ability to introduce new products and technologies on a timely basis;
introduction of products and technologies by the Company's competitors; market
acceptance of the Company's and its customers' products; the level of orders
received which can be shipped in a quarter; the timing of investments in
research and development, including tooling expenses associated with product
development, process improvements and production; and the cyclical nature of the
semiconductor industry. Because the Company is continuing to increase its
operating expenses for personnel and new product development and for inventory
in anticipation of increasing sales levels, operating results would be adversely
affected if increased sales are not achieved. In addition, the Company is
limited in its ability to reduce costs quickly in response to any revenue
shortfalls. Historically, the Company has also experienced quarterly
fluctuations in net sales and gross profit, principally arising from the amount
and timing of orders of products for military applications. These sales
generally resulted in lower gross margins than sales of commercial products. The
Company anticipates a continuing decline in sales of products for military
applications as part of its transition from a supplier of products with military
applications to a supplier of commercial products. Should sales of these
products decline more rapidly than the Company anticipates in the near future,
such decline could have the effect of causing further fluctuations in quarterly
or annual operating results. As a result of the foregoing or other factors, the
Company may experience material fluctuations in future operating results on a
quarterly or annual basis which could materially and adversely affect its
business, financial condition and operating results. See "Risk
Factors -- Potential Fluctuations in Operating Results" and "-- Declining Sales
for Military Applications."
LIQUIDITY AND CAPITAL RESOURCES
Since 1991, the Company has financed its operations and met its capital
requirements primarily through cash flow from operations, loans from affiliates
of Tractebel S.A. and a $7.5 million Revolving Credit Agreement with Generale
Bank, which is an affiliate of Sipex by virtue of common ownership. As of March
30, 1996, the Company had cash and cash equivalents of $173,000. On April 8,
1996, the Company received $19.1 million in gross proceeds from its initial
public offering before deducting expenses of the offering estimated at $800,000.
A portion of such proceeds was applied to pay $7.5 million in outstanding
borrowings to Generale Bank and $4.8 million of indebtedness to affiliates. The
Company subsequently terminated its revolving credit facility, and is evaluating
replacement bank credit facilities.
Cash used in operating activities was $2.2 million, $893,000 and $434,000
in 1994, 1995 and the first quarter of 1996, respectively, while cash of $1.3
million was provided by operating activities in 1993. In 1995 and 1994, the use
consisted primarily of net operating losses in support of research and
development costs associated with its commercial products and sales and
marketing expenses. Depreciation and amortization expenses totaled approximately
$254,000 in the first quarter of 1996, approximately $2.3 million in 1995 and
$1.4 million in 1994. Accounts receivable decreased approximately $1.2 million
in the
23
<PAGE> 26
first quarter of 1996, and increased approximately $1.3 million and $325,000 in
1995 and 1994, respectively. In addition, inventories increased approximately
$1.8 million in the first quarter of 1996, $2.0 million in 1995 in support of
increased net sales and decreased approximately $580,000 in 1994.
Cash used in investing activities for property, plant and equipment was
$373,000, $444,000 and $1.2 million in 1993, 1994 and 1995, respectively and
$195,000 in the first quarter of 1996. The Company spent $234,000, $233,000 and
$252,000 in 1993, 1994 and 1995, respectively to acquire assets from capital
lease obligations. These capital expenditures totaled approximately $607,000,
$676,000 and $1.5 million during 1993, 1994 and 1995. In 1996, the Company
expects to spend approximately $1.5 million to acquire capital equipment for
research, development, manufacturing and testing. In particular, the Company
expects to spend approximately $800,000 for wafer fabrication equipment,
$500,000 for final test equipment and $200,000 for design engineering equipment.
Cash provided by financing activities was $2.7 million and $2.2 million in
1994 and 1995, respectively, and $557,000 in the first quarter of 1996 while
cash of $1.1 million was used in financing activities in 1993. In 1994 and 1995,
cash provided by financing activities was primarily the result of proceeds from
long-term debt and the issuance of subordinated notes to affiliates.
At December 31, 1995, the Company had net operating loss carryforwards of
approximately $42.0 million for federal income tax purposes expiring in the
years 2000 to 2010. The Company anticipates that the sale of Common Stock by the
Company and the Selling Shareholders in this offering will cause an annual
limitation on the use of its net operating loss carryforwards pursuant to the
"change in ownership" provisions of Section 382 of the Internal Revenue Code.
The Company currently estimates that this limitation will not materially impact
its utilization of its net operating loss carryforwards in the near term.
The Company believes that cash generated from operations, its current cash
balances and the net proceeds to the Company from this offering will fund
necessary capital expenditures and provide adequate working capital for at least
the next 18 months.
New Accounting Pronouncement
In October 1995, the Financial Accounting Standards Board (the "FASB")
issued SFAS No. 123, "Accounting for Stock-Based Compensation," which
established financial accounting and reporting standards for stock-based
employee compensation plans. Companies are encouraged, rather than required, to
adopt a new method that accounts for stock compensation awards based on their
fair value using an option pricing model. Companies that do not adopt this new
method will be required to make pro forma footnote disclosures of net income as
if the fair value-based method of accounting required by SFAS No. 123 had been
applied. The Company adopted SFAS No. 123 beginning in fiscal year 1996.
Adoption of this pronouncement did not have a material impact on the Company's
financial position or results of operations because the Company intends to make
pro forma footnote disclosures in its financial statements as of and for the
year ending December 31, 1996 instead of adopting the new accounting method.
24
<PAGE> 27
BUSINESS
The following discussion contains trend analysis and other forward-looking
statements within the meaning of Section 27A of the Securities Act of 1933, as
amended, and Section 21E of the Securities Exchange Act of 1934, as amended.
Actual results could differ materially from those projected in the
forward-looking statements as a result of the risk factors set forth below and
elsewhere in this Prospectus, particularly under the caption "Risk Factors."
THE COMPANY
Sipex designs, manufactures, markets and sells innovative, high
performance, high value-added analog integrated circuits. The analog
semiconductor market has been forecasted by industry sources to represent
approximately $17.5 billion in sales in 1995, an increase of approximately 25%
over 1994. Industry sources project growth rates for this market of 13% to 17%
over the next five years, to greater than $30 billion in sales in the year 2000.
The growth in this market is being driven by the increasing demand for
microprocessor-based electronic equipment including telecommunications and data
communications networks such as LANs and WANs, personal computers, consumer
electronics and scientific instrumentation. While the Company designs,
manufactures, markets and sells products across these broad, high-growth
markets, it has currently targeted three high-growth sectors that it believes
are especially compatible with its design and process capabilities -- data
communications and telecommunications, battery powered/portable products and
industrial controls/instrumentation.
The Company's strategy is to develop long-term partnering relationships
with leaders in targeted market sectors. This enables the Company to identify
applications and to provide innovative, cost-effective solutions to meet
customers' needs over the life cycles of their products. Having identified and
met the specific needs of market leaders with innovative analog solutions, the
Company is then able to migrate these solutions into standard products that meet
the needs of a wide variety of market participants. Sipex serves the broad
analog signal processing market and its target market sectors with three primary
product lines -- interface circuits, low power application-specific analog
circuits and data converters. The Company utilizes multiple process technologies
to manufacture these circuits.
In addition to and complementing its strategy of teaming with market
leaders, the Company offers a broad base of manufacturing process technologies
through its own foundry and third-party semiconductor foundries. This enables
the Company to design products for its customers utilizing the optimum process
technology for each application. By combining creative design techniques with a
broad base of process technologies, the Company can develop innovative, high
performance analog circuits that support its customers' requirements. The
Company has also focused on leveraging its specialized dielectrically isolated
BiCMOS technology, which the Company believes is particularly well-suited to the
low power, low voltage requirements of battery powered/portable products.
In 1990, the Company began a transition from a supplier of analog hybrid
products and integrated circuits for military applications to a supplier of
analog integrated circuits for commercial applications. The Company's net sales
of commercial products has grown from $9.4 million in 1991 to $24.0 million in
1995 and accounted for $7.5 million in the first quarter of 1996, representing
34.6%, 80.1% and 87.9% of total net sales, respectively. The Company believes
that the percentage of its net sales represented by sales of commercial products
will continue to increase in the future.
The Company sells its products to OEM customers either directly through its
direct sales force or with the assistance of a network of independent sales
representatives, or indirectly through independent distributors. The Company's
products have been incorporated into a broad range of electronic systems and
products by more than 2,400 customers worldwide. In 1995 and the first quarter
of 1996, international sales represented 35.4% and 37.9%, respectively, of the
Company's net sales. The Company's customers, none of which accounted for more
than ten percent of net sales in 1995 or the first quarter of 1996, include
Digital Equipment Corporation, Hewlett-Packard Co., Motorola, Inc., Philips
N.V., Siemens Corporation and Silicon Graphics Inc. in the data
communications/telecommunications markets; Federal Express Corp., Texas
Instruments Incorporated, Timex Corporation and Dassault Aviation S.A. in the
low
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power analog application areas; and Andover Controls Corp., LTX Corporation and
Honeywell Inc. in the industrial controls market.
INDUSTRY BACKGROUND
Semiconductor devices have permeated a wide range of industries, expanding
from the computer industry to communications, consumer products, automotive,
industrial equipment and many other industries. In general, semiconductor
devices can be grouped in two broad categories, based on the type of electrical
signals processed: digital and analog. Digital semiconductor devices, such as
microprocessors and memory devices, are comprised of discrete logic elements
that operate in two logic states, corresponding to on-off electrical signals.
Analog semiconductor devices have the ability to interpret continuous signals
that vary over a given operating range, and therefore can process real world
properties and events such as temperature, pressure, sound, color and light. An
example of an analog semiconductor device is an audio amplifier that accepts a
voice input from a microphone and outputs an amplified signal to a speaker.
Other analog circuits amplify, filter, transmit and modulate continuous analog
signals associated with physical properties. Certain analog devices, such as an
analog-to-digital converter, incorporate some amount of digital circuitry to
translate real world properties or events, such as the analog voltage output
from a temperature sensor, into a digital signal, which can then be manipulated
by a digital semiconductor device, such as a microprocessor. As the use of
analog and digital integrated circuits continues to converge in applications,
analog circuits will increasingly include some digital circuit technology in
integrated devices.
The proliferation of digital semiconductor devices in industrial, business
and consumer products has caused a corresponding increase in the demand for
analog semiconductors to interface to real world analog inputs. Further, while
digital processors have supplanted analog products in certain applications,
advances in digital circuit technology have enabled many new and varied
applications in the data processing, communications and instrumentation markets
for high performance analog circuits with higher speed, greater precision and
lower power consumption. In the data processing market, there is increasing
demand for analog interface circuits for peripheral components, including
printers and modems, as well as analog circuits that operate at the low voltage
and low power levels required by portable computers and other battery-powered
devices. Moreover, the convergence of telecommunications and computers has
created a need for devices that enable data, video and voice transmission
throughout local- and wide-area networks, as well as devices that are
incorporated into equipment for emerging applications such as Internet access,
video-on-demand and picture phones. Further, in the test and measurement
equipment and scientific and medical instrumentation markets, there is an
increasing demand for analog circuits to process and control real world events,
including automated test systems required for production and evaluation of
semiconductors, circuit boards or electronic systems and advanced medical
diagnostic instruments.
The increasing demand for high performance microprocessor-based electronics
in equipment ranging from personal computers to scientific instrumentation to
telecommunication and data communication networks has driven both analog and
digital semiconductor suppliers to create integrated circuit designs that
incorporate higher levels of integration in order to reduce space and power
requirements, lower cost and provide greater functionality. The analog
semiconductor market has been forecasted by industry sources to represent
approximately $17.5 billion in sales in 1995, an increase of approximately 25%
over 1994. Industry sources project growth rates for this market of 13% to 17%
over the next five years, to greater than $30 billion in sales in 2000.
The analog integrated circuit market is distinguished by the following
characteristics:
- Complex design requirements -- The successful development of analog
integrated circuits is generally more dependent on design techniques
rather than on achieving small feature sizes and high densities. Analog
circuits operate over a wide range of voltages, which limits the minimum
feature sizes that can be used in their design and implementation. For
example, a 12-bit analog-to-digital converter with a 5 volt input range
can convert analog input signals as low as 0.001 volt and as high as 5
volts. The nature of high precision analog circuits requires designs
having desirable isolation, grounding, noise rejection and voltage
breakdown features. Typically, designers of analog
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circuits must take into account complex interrelationships between the
manufacturing process, the physical layout of the circuit elements and
the packaging of the end product, all of which can significantly affect
performance. Moreover, the high performance characteristics required by
new and emerging applications for analog circuits involve increasingly
advanced designs, which require skilled analog designers, innovative
design strategies and rigorous design methodologies. The number of design
engineers who have the training, creativity and experience to design
complex analog circuits is limited.
- Long Product Life Cycles -- Analog integrated circuit products generally
have longer life cycles than digital integrated circuit products. Because
of the specialized requirements of analog circuit design, as well as the
relatively lower cost of analog integrated circuit products in proportion
to overall systems cost, technology changes in analog semiconductor
design and manufacturing have been more gradual or evolutionary than in
the digital semiconductor device market. Therefore, electronic equipment
designers have focused more on modifying, enhancing or revising the
digital portion of their products, while retaining proven analog
solutions over successive product generations.
- Broad Product Mix -- The analog integrated circuit market is
characterized by a wider range of application-specific solutions than the
digital integrated circuit market. The requirements of customers' system
designs are highly varied. Systems designers must consider such factors
as the power supply, the interaction of analog circuits with real world
attributes, environmental interference and the size of the circuit board.
These elements all affect analog circuit performance. Therefore, in order
to meet the specific and varied requirements of customers, analog
integrated circuit suppliers generate a larger number of products, which
tend to generate, on average, relatively smaller unit sales per product
than digital products.
Historically, the business strategy of major analog integrated circuit
manufacturers has been design-driven, that is, to identify opportunities for
incorporating analog integrated circuits into system product designs, and then
design, manufacture and distribute families of standard products generally
meeting anticipated market needs. This strategy, which permits the manufacturer
to introduce broad families of products, has been implemented by introducing
products that contain only that functionality that is expected to appeal to a
wide range of potential customers, rather than functions that optimize
performance of any specific customer's system. During the customer's "design-in"
stage (the time when the electronic systems or product designer evaluates
alternative components for implementing the product's architecture), the major
analog manufacturers may be offering the customer's system designer standard
analog integrated circuits that are generic solutions for their specific analog
needs. Sipex believes that significant market opportunities exist by targeting
application-specific solutions within emerging markets, and working with leading
edge participants in those markets to meet the customer's specific needs in
terms of features, functionality, integration, cost, and time to market.
STRATEGY
The Company's principal business objective is to be a leading supplier of
innovative, high performance analog semiconductor products that are targeted for
a wide variety of applications in high growth markets. In particular, the
Company seeks to develop proprietary products that solve specific problems for
system level companies that serve these high growth markets. The Company pursues
this objective by following the strategies listed below:
- ESTABLISH AND LEVERAGE CUSTOMER ALLIANCES WITH MARKET LEADERS
The Company focuses its product development and marketing efforts by
establishing long-term relationships with leading companies in
high-growth markets. The Company seeks to establish alliances with
market leaders having large volume requirements for analog solutions,
whose circuit needs can be met utilizing one or more of the Company's
process technologies. By teaming with industry leaders early in their
design-in stage, Sipex can identify their specific system level needs
and therefore design analog solutions that more precisely fit the
customers' exact requirements. By this "customer-centric" process, Sipex
seeks to position itself as a
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customer's supplier of choice with a proprietary product. Having
identified and met the specific needs of market leaders with innovative
analog solutions, the Company is then able to migrate its proprietary
circuit designs and accumulated market expertise to create standard
product families that will meet the needs of additional customers.
- OFFER A BROAD BASE OF PROCESS TECHNOLOGIES
The Company believes that customers' needs can best be served by
offering multiple manufacturing process capabilities. By having a broad
process technology base, Sipex is able to design its products utilizing
the optimum process technology for each application, thereby maximizing
the cost/performance equation for its customers. The Company has
established strategic relationships with outside foundries, as well as
maintained an internal foundry, to enable it to provide multiple
manufacturing process alternatives. The Company utilizes its expertise
in analog wafer foundry management, yield improvement and process
enhancements to control existing internal and external wafer fabrication
processes and to develop new leading edge processes for future products.
- MAINTAIN TECHNOLOGICAL LEADERSHIP
The Company believes that design expertise, creativity and experience,
coupled with broad and deep process technology capabilities, are
essential to market success. By investing in continued research and
development, the Company is able to add to its accumulated proprietary
technology and know-how in the design of innovative, high performance
analog circuits. For example, the Company has been able to penetrate the
high-growth LAN and WAN markets as a result of its investment in the
enabling technology for its SP500 series of highly integrated,
proprietary multi-protocol serial interface transceivers. Once a core
design (such as the SP500) has been developed, the Company can rapidly
introduce additional products utilizing the common core of enabling
technology, based on customer and market feedback.
- LEVERAGE LOW POWER ANALOG CAPABILITY
The Company possesses a specialized dielectrically isolated ("DI")
BiCMOS technology, which is well-suited for circuit applications
requiring low power and low operating voltage as well as high output
voltages. Few circuit manufacturers offer this technology. Demand for
low power, low voltage circuits is driven by the growth of battery
powered/portable applications. Sipex has, in conjunction with Timex
Corporation, developed a line of electroluminescent ("EL") driver
circuits for certain of Timex's watch lines, including the Indiglo
watch. The Company is leveraging this technology by providing EL lamp
drivers across various markets for a variety of other backlight
applications, including cellular phones, pagers, personal digital
assistants and other hand-held electronic devices.
- PROVIDE STRONG PRODUCT AND APPLICATIONS TECHNICAL SUPPORT
Since the core of the Company's strategy is customer-focused design
activity, the Company believes that strong technical support for its
customers and its sales personnel is critical to success. To provide
this support, the Company maintains a marketing and applications staff
of electrical engineers with in-depth market knowledge of analog
products. These engineers work closely with customers at the critical
"design-in" stage and maintain continuing relationships throughout the
customer's product life cycles. The Company is then able, as soon as one
design is completed and in production, to work with the customer's
systems engineers on future circuits to support their next generation of
systems. Sipex believes it differentiates itself from other suppliers by
its continuing close relationships with its customers at all stages of
the design and manufacturing process.
MARKETS
The Company serves a broad range of markets for analog integrated circuits,
including the data processing, communications, consumer, industrial and
military/aerospace markets. Within and across these broad markets, the Company
has currently targeted three high-growth areas -- data communications and
telecommunications, battery powered/portable products, and industrial
controls/instrumentation -- in
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which it believes that its design and manufacturing process capabilities can
address customers' needs in terms of product features and functionality,
integration and overall solution cost. By working closely and partnering with
established market leaders within these areas, the Company has been able to
identify and meet its partners' complex analog circuit requirements with
tailored products that are developed in conjunction with the customer's own
product design team, thus allowing the Company to address the customer's needs
as the customer identifies them. Having addressed the particular needs of market
leaders, the Company is then able to migrate these solutions into standard
products available to other equipment or device suppliers.
Data Communications and Telecommunications
The convergence of data processing and communications technology through
the deployment of data and voice networks has enabled OEM networking equipment
suppliers to achieve dramatic growth in recent years. Within LANs and WANs, a
variety of peripheral devices are linked into the network, including printers,
disk drives, and scanners. Analog integrated circuits are required at each
connection among computers, peripherals and networking interconnect equipment,
such as hubs, routers and bridges. Since no predominant standard has emerged for
the serial interfaces among peripherals, computers and the network equipment
linking them, WAN and LAN systems OEMs must have the ability to support most of
the popular interface standards to maintain compatibility. Wireless
communications such as cellular phones, two-way pagers, or digital radios
require analog-to-digital and digital-to-analog converter products to receive
and transmit signals. The Company believes that trends toward greater
connectivity of computers and peripherals into networks, the interconnection of
remote networks, the emergence of the Internet as both a communications network
and a business tool, as well as the integration of data, video and
telecommunications networks will continue.
Battery Powered/Portable Products
The rapid growth of sales of portable products, including computers,
hand-held electronic devices, cellular and portable telephones, pagers and
consumer electronic devices and products has created market opportunities for
analog semiconductor devices which can operate efficiently at low voltages.
Battery-powered devices require many of the same kinds of analog circuits as
non-portable equipment, including transceivers, converters and amplifiers, but
these circuits must be functional and efficient at the low voltages supplied by
their power source. Further, battery powered devices often require high voltage
functionality -- such as the ability to drive an electroluminescent device for a
light source for the portable product -- which requires complex analog
circuitry. The Company believes that analog semiconductor manufacturers that can
provide solutions which enable portable equipment and products manufacturers to
add functionality and reliability to their products with low battery usage will
be able to expand their markets substantially.
Industrial Controls/Instrumentation
The detection and measurement of analog information such as light, sound,
temperature, pressure, position, velocity, acceleration, angle, angular velocity
and speed in industrial controls, medical equipment, automated test equipment
and other measurement systems have been a traditional focus of analog circuits.
As systems grow more complex and information is processed at higher rates, there
is a corresponding requirement for higher speed analog circuits to process the
information in analog format, as well as for analog-to-digital and
digital-to-analog conversion for digital processing of the information
contained.
PRODUCTS AND CUSTOMERS
The Company offers a broad range of innovative, high performance, high
value-added analog integrated circuits. Since 1992, the Company has introduced
more than 100 high performance analog integrated circuit products. The Company's
products, which in 1995 were sold to more than 2,400 customers, are principally
focused in three product lines -- interface products, low power analog products
and data converter products. In addition, the Company supplies precision
high-reliability assembled products principally to commercial customers
supplying products for aerospace and military applications.
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Interface Products
Interface products act as an intermediary to transfer signals between or
within electronic systems. A simple example of an interface application is a
personal computer connected to a printer via the RS-232 serial interface
standard. The computer sends information through the connecting cable which is
received by the printer, and additional information can be sent back to the
computer. Serial interface is used in many market segments including computers,
peripherals, data communications, telecommunications, hand-held instrumentation,
medical equipment, test equipment and industrial controls.
In the networking area in particular, serial interface products are of
critical importance because diverse equipment and peripherals must be linked
together to permit data communications across local or remote locations. Because
a multiplicity of communications standards address the diverse requirements of
wide area networking, WAN equipment providers must provide compatibility in
their equipment with different communications standards. WAN equipment OEMs
traditionally addressed this need for systems compatibility through multiple and
often redundant board-level approaches, containing analog circuit designs made
up of many discrete interface drivers and receivers along with switches, jumpers
or relays to steer the appropriate signals to the connector. The Company's
solution was to develop the first single-chip multi-protocol interface
transceiver circuit. These circuits are programmable and dynamically support
signals compliant with up to eight different serial interface standards. The
Company's products provide network suppliers with the ability to replace
multiple chip and discrete device configurations with a single chip solution,
allowing systems designers to reduce space and power requirements in their
equipment. The Company's SP300 series of interface transceivers each support two
protocols, such as RS-232 and AppleTalk, while the Company's SP500 Series is the
industry's first fully integrated transceiver, supporting up to eight of the
most popular serial interface standards for WAN interfaces. The Company
introduced the SP500 Series of products in 1994 and since that time has secured
designs with many industry leaders in the WAN equipment market. In addition to
expanding its line of programmable serial interface products, the Company's
future interface product strategy includes developing with industry leaders
products involving higher speed interfaces supporting high speed data
communications, video communications and telecommunications interface
requirements. The diagram below demonstrates the semiconductor device and board
space savings possible with the Company's SP500 Series programmable series
transceivers.
[LOGO]
[Graphic depicting how Sipex single chip product can replace competitor's
multiple chip products.]
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In addition to its SP300 and SP500 families of multi-protocol transceiver
products, the Company also offers the SP200 and SP400 series of single protocol
serial interface transceiver products, primarily targeted to the personal
computer and peripherals and industrial controls markets.
<TABLE>
The following is a representative list of current applications and
customers for the Company's serial interface products:
<CAPTION>
- ---------------------------------------------------------------------------------------------------
INDUSTRY APPLICATION SELECTED CUSTOMERS
- ---------------------------------------------------------------------------------------------------
<S> <C> <C>
Data Communications/
Telecommunications CD Player Philips N.V.
Communications Controller Hewlett-Packard Co.
Internetworking Product Sync Research, Inc.
Frame Relay Toshiba Corporation
Hub/Router Digital Equipment Corp.
Hub/Router Samsung Group
Multiplexer Racal-Datacom
Portable Telephone AT&T Corp.
PBX Siemens Corporation
WANport AS400 International Business Machines
Corp.
WAN Server U.S. Robotics Inc.
- ---------------------------------------------------------------------------------------------------
Computers/Workstations/
Mainframes/Peripherals Computer Motherboard Eastman Kodak Company
Fault Tolerant Computer Motorola, Inc.
Hand-held Organizer Psion Plc
PC Modem Zoom Telephonics, Inc.
Point-of-Sale Machine VeriFone, Inc.
Printer Seiko/Epson
Workstation Silicon Graphics Inc.
- ---------------------------------------------------------------------------------------------------
</TABLE>
Low Power Analog Products
The Company has targeted the battery powered/portable products market to
leverage its design expertise and the process capability provided by the
Company's internal DI wafer fabrication production line. The DI process allows
single chip designs to operate efficiently with both very low voltage (1V) and
very high voltage (160V) without interference or breakdown between adjacent
circuits. The Company's designers, in cooperation with Timex Corporation,
developed a proprietary EL driver device, which provides the enabling technology
for the Timex Indiglo Watch. This custom integrated circuit creates a 100V AC
signal from a 3V DC battery within the watch to light the backlight material.
The Company is exploiting this technology and its design-specific resources to
offer low power analog products to a wide variety of market segments, including
providing backlighting solutions to the cellular phone and hand-held electronic
equipment markets.
Since 1993, the Company has shipped over 10 million low power analog
semiconductor devices. The Company intends to continue its focus in this area on
high volume commercial/consumer markets, in which the attributes of the DI
BiCMOS fabrication process or the Company's design capabilities can add value
for the customer.
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<TABLE>
The following is a representative list of current applications and
customers for the Company's low power analog products:
<CAPTION>
- -------------------------------------------------------------------------------------------------------
INDUSTRY APPLICATION SELECTED CUSTOMERS
- -------------------------------------------------------------------------------------------------------
<S> <C> <C>
Electroluminescent Backlighting
Products Watch Timex Corporation
Hand-Held Organizer Texas Instruments
Incorporated
Pager Inventel Systemes
Portable Point-of-Sale System Federal Express Corp.
- -------------------------------------------------------------------------------------------------------
Consumer/Commercial Avionics Dassault Aviation S.A.
Bar Code Scanner Welch Allyn, Inc.
Jet Engine Control Division Electronique de la
Snecma
Oven Control Robertshaw Control Co.
Touch Screen Elo Touch Systems
- -------------------------------------------------------------------------------------------------------
Medical Patient Monitoring Medico Industries, Inc.
- -------------------------------------------------------------------------------------------------------
</TABLE>
Data Converter Products
Data converter products are incorporated into systems that translate real
world (analog) events into digital data which can be manipulated by a
microprocessor. The Company'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. Since 1991, the Company has
introduced over 30 new converter integrated circuits. The main focus of the
Company's product offerings has been high performance 12-bit analog-to-digital
and digital-to-analog converters. The Company 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 are industrial
controls, instrumentation and test equipment. Future growth areas for new
products involve higher speed 12-bit analog-to-digital converters targeted for
telecommunications applications.
<TABLE>
The following is a representative list of current applications and
customers for the Company's data converter products:
<CAPTION>
- -------------------------------------------------------------------------------------------------------
INDUSTRY APPLICATION SELECTED CUSTOMERS
- -------------------------------------------------------------------------------------------------------
<S> <C> <C>
Industrial Controls Environmental Control Andover Controls Corp.
Motor Control Mitsubishi
Temperature Control Honeywell Inc.
- -------------------------------------------------------------------------------------------------------
Instrumentation Medical Instrumentation Marquette Electronics, Inc.
Medical Instrumentation Siemens Corporation
- -------------------------------------------------------------------------------------------------------
Test Equipment Digital IC Tester LTX Corporation
Linear IC Tester Megatest Corp.
- -------------------------------------------------------------------------------------------------------
</TABLE>
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Precision High Reliability Products
<TABLE>
The Company's precision high reliability assembled products are sold to
commercial customers engaged in various space and military programs. The
following represent selected commercial aerospace applications and customers for
the Company's precision high reliability assembled products:
<CAPTION>
- -------------------------------------------------------------------------------------------------------
PROJECT APPLICATION CUSTOMER
- -------------------------------------------------------------------------------------------------------
<S> <C> <C>
Milstar Current Control Loral Corp.
Ariane Launcher Current Control Matra Inc.
NASA Thematic Mapper Signal Conditioning Hughes Aircraft
U.S. Space Shuttle Thrust Control Honeywell Inc.
- -------------------------------------------------------------------------------------------------------
</TABLE>
Customers incorporating the Company's high reliability assembled products
for military applications include Texas Instruments Incorporated, Raytheon
Company and Lockheed Martin Corp. The Company is not currently designing new
products for the military market. The Company expects sales of products for
military applications to decline in the future as the Company continues to focus
its resources on its target markets in the commercial sector. In 1994, 1995 and
the first quarter of 1996, sales of high reliability products for military
applications accounted for approximately 39%, 20% and 12%, respectively, of the
Company's net sales. See "Risk Factors -- Declining Sales for Military
Applications" and "Management's Discussion and Analysis of Financial Condition
and Results of Operations."
CUSTOMER APPLICATIONS
The Company's products have been incorporated into a broad range of
electronic systems and products by more than 2400 customers. The following
examples of current customer applications illustrate the value of the Company's
customer-focused product development strategy:
SILICON GRAPHICS INC. requested that the Company enhance one of its
dual protocol designs for use in the SGI Indy workstation. The Company
developed its SP303 device, which allows that workstation to communicate
with either PC peripherals or Apple Macintosh peripherals via a serial
port. The single-chip SP303 replaces four discrete components, saving board
space while maintaining the same functionality. By customizing one of its
standard products, the Company was able to satisfy the customer's specific
requirements while simultaneously creating another new proprietary standard
product. Since the introduction of the SP303, Sipex has continued working
on next generation transceivers for Silicon Graphics' newest workstations.
Silicon Graphics is also a customer for the SP503 programmable transceiver,
incorporating that product into a WAN adapter box.
SYNC RESEARCH, INC. develops and markets wide area internetworking
products for large IBM-centric networked customers worldwide who deploy SNA
networks along with internetworked LANs. Sync Research has designed the
Company's SP503 product into the FrameNode (named a 1994 Hot Product of the
Year by Data Communications magazine). FrameNode supports users in banking
and financial services, insurance, transportation, manufacturing, federal
and state government, telecommunications, and other industries. The SP503
significantly reduces circuit board space and offers software control of
the serial port.
TEXAS INSTRUMENTS INCORPORATED designs and manufactures hand-held
organizers which display information on electroluminescent backlit LED
screens. The Company's SP4422 electroluminescent driver chip has been
designed into the latest models of the Texas Instruments Data Bank
organizers. The device converts the 3V battery voltage into the necessary
100V AC signal needed to drive the backlight panel. The SP4422 greatly
reduces the size of the discrete circuit and operates on a fraction of the
power.
TIMEX CORPORATION works closely with Sipex in the continued
development of its popular Indiglo watch series and other projects. The
electroluminescent backlighting material used in the Indiglo watch requires
a very high voltage power supply, even though the watch battery is limited
to 3 volts. The Company's DI bipolar and CMOS process technology enabled
Sipex design engineers to achieve a very low power, 3V DC to 100V AC
voltage converter circuit, referred to as an EL driver. Due to the success
of its initial collaboration with Timex, the Company has designed and
manufactured
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<PAGE> 36
four new EL driver circuits with Timex. The Company recognized the market
potential for the EL drivers and now includes the devices in the Company's
standard product offering.
SALES, SUPPORT AND DISTRIBUTION
The Company sells its products to OEM customers either directly through its
direct sales force or with the assistance of a network of independent sales
representatives, or indirectly through independent distributors. The Company is
seeking to broaden its customer base by increasing sales through its distributor
network, a sales channel that the Company believes offers significant growth
potential. In 1995, the Company added additional national distributors and
increased domestic and international distributor sales to approximately 39.6% of
net sales in 1995 from approximately 14.2% in 1994. Distributor sales accounted
for approximately 42.1% of the Company's net sales in the first quarter of 1996.
The Company's direct sales force consists of sales managers and field
application engineers who provide technical and applications support to
customers, independent sales representatives and distributors. The sales staff
and field application engineers are located at the Company's Billerica,
Massachusetts headquarters and in field sales offices in Munich, Paris, Tokyo
and California. The Company's sales staff and field application engineers also
manage, train and support the Company's network of distributors and
representatives.
In North America, the Company sells its products through 19 independent
sales representative organizations having a total of 39 offices, and 6
distributors having a total of 150 sales locations. These independent entities
are selected for their ability to provide effective field sales, marketing
communications and technical support to the Company's customers. The Company has
entered into Representative or Distributor Agreements with each of its
independent distributors and sales representatives. These agreements typically
provide for the independent distributor to act as a non-exclusive distributor
for one or more products within a specific territory and also permits sales
representatives to act as an exclusive or a non-exclusive sales representative
in appropriate circumstances. The Company maintains a separate price list for
products sold to distributors, which typically reflects discounts from the
prices charged to customers in direct sales transactions. Sales representatives
directly solicit orders for the Company's products, which the Company fills
directly with the customer, generating a commission from the Company to the
sales representative. On a semi-annual basis, distributors are permitted to
return for credit, against purchases of an equivalent dollar value of products,
up to 10.0% of their total purchases during the most recent six-month period.
Outside North America, the Company sells its products through 26
distributors having a total of 58 sales locations. International sales in 1994,
1995 and the first quarter of 1996 were approximately $5.8 million, $10.6
million and $3.2 million, respectively, representing 25.6%, 35.4% and 37.9% of
net sales, respectively, for such periods. The Company is seeking to appoint
additional distributors internationally in 1996 to further expand its
geographical markets. In connection with its international sales, the Company is
subject to the normal risks of conducting business internationally, including
exchange rate fluctuations. To date, the Company has not hedged the risks
associated with fluctuations in exchange rates but may undertake such
transactions in the future. The Company currently does not have a policy
relating to hedging. See "Risk Factors -- International Sales."
In 1993 and 1994, Raytheon Company represented 27.4% and 10.3%,
respectively, of net sales for such periods. No customer accounted for 10.0% or
more of net sales in 1995 or in the first quarter of 1996.
BACKLOG
At March 30, 1996, the Company's product backlog was approximately $23.6
million, compared to $23.1 million at December 31, 1995. The Company generally
includes in backlog all orders scheduled for delivery within one year. However,
the Company's business, and to a large extent the entire semiconductor industry,
is characterized by short-term orders and shipment schedules. The Company
generally permits orders to be canceled or rescheduled without significant
penalty to the customers. As a result, the quantities of the Company's products
to be delivered and their delivery schedules may be revised by
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customers to reflect changes in their needs. Since backlog can be canceled or
rescheduled, the Company's backlog at any time is not necessarily indicative of
future revenues.
TECHNOLOGY
Design Methodology
The Company's designers utilize a consistent and standardized design
approach that is intended to shorten the product development cycle, while
preserving and re-using fundamental building blocks that have been previously
proven. This disciplined approach decreases the time-to-market for new products
and makes maximum use of previously designed, manufactured and evaluated
intellectual property of the Company. The Company believes that the repeated
application of common design elements to new products promotes quality, speeds
products to market and increases the shared knowledge across the Company's
professional engineering staff. Product designs are implemented using a standard
complement of hardware and software design tools that facilitates the orderly
development of products. The Company has developed proprietary circuit element
models that allow accurate simulation of circuit designs and often permit the
successful implementation of circuits in first-pass silicon, thereby decreasing
design cycles and time to market.
In order to maximize the number of new product introductions per design,
the Company often relies on a "mosaic" or array approach to standard products.
This approach permits several products to be introduced by tailoring the
interconnections between the silicon and the package leads. The Company also
utilizes proprietary laser trimming at the wafer level to derive multiple
products from a single design.
Process Technologies
The Company utilizes multiple semiconductor processes and technologies in
order to implement its designs in a manner that closely matches technical
requirements with customers' cost objectives. The range of technologies utilized
by the Company permits well engineered, tailored, proprietary and cost-effective
solutions. The Company uses BiCMOS, dielectrically isolated BiCMOS, and
dielectrically isolated complementary bipolar technologies to implement its
designs. In addition, proprietary thin film materials are used in conjunction
with these technologies to offer differentiating capabilities and solutions.
BiCMOS Technology
The Company designs the majority of its monolithic standard products
utilizing BiCMOS processes. These processes merge the best characteristics of
bipolar transistors for analog and linear functional implementation, with those
of CMOS devices for digital and logic synthesis. This technology provides a
mixed mode semiconductor process in which the attributes of low power,
silicon-efficient digital CMOS are beneficially merged with higher bandwidth,
higher voltage bipolar devices to produce composite circuits that are efficient,
integrated silicon subsystems. The Company uses these processes for its
interface and converter standard products as well as for several custom and
application-specific standard products.
Dielectrically Isolated Bipolar Technology
The Company uses this complementary bipolar technology primarily for high
performance applications where high speed high voltage or very low voltages are
required to satisfy the circuit requirement. This technology permits more robust
designs while increasing certain desirable attributes such as breakdown voltage,
signal amplification and bandwidth. The technology further permits the
incorporation of a proprietary family of laser trimmable thin film materials,
enhancing further the capabilities of this process, and permitting high
performance analog signal processing circuits to be devised and manufactured.
The technology has been used to design custom products for both commercial and
military customers. The Company further manufactures for its own use, and for
resale in selected cases, unprocessed dielectrically isolated silicon wafers.
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<PAGE> 38
Dielectrically Isolated Bipolar and BiCMOS Technology
The Company uses this technology to integrate the benefits of low power
BiCMOS processes for digital logic synthesis, and both low- and high-voltage,
high-performance bipolar devices for linear function implementations. This
mixed-mode technology has resulted in efficient silicon solutions for several
target markets, including watches, pagers and controllers. The technology merges
the divergent requirements of low power and low operating voltage as well as
high output voltages which must be delivered to a load. This technology is
currently used in implementing the family of battery operated EL drivers
introduced by the Company.
RESEARCH AND DEVELOPMENT
The Company believes that continued introduction of new products in its
target markets is essential to its growth. The Company has assembled a team of
highly skilled analog design engineers, averaging more than ten years of analog
design experience. 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. The Company 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.
At May 25, 1996, the Company had 58 employees engaged in research,
development and manufacturing engineering. In 1993, 1994, 1995 and the first
quarter of 1996, the Company spent approximately $2.4 million, $3.0 million,
$4.4 million and $1.0 million, respectively, on research and development,
representing 8.6%, 13.0%, 14.7% and 11.9%, respectively, of net sales for such
periods. The Company expects that expenditures in support of research and
development activity will increase in absolute terms in the near future.
The Company's ability to compete depends, in part, upon its continued
introduction of technologically innovative products on a timely basis. The
Company's research and development efforts are directed primarily at designing
and introducing new products and technologies. The Company continually upgrades
its internal technology while also working with foundries to develop new
technologies for new generations of products. In addition, the Company
continually refines its manufacturing practices and technology to improve the
yields of its products.
Currently, the Company's major development programs include expanding its
proprietary product offerings of electroluminescent drivers and programmable
dual and multi-mode transceivers, as well as simultaneously sampling
analog-to-digital converters.
MANUFACTURING
The Company manufactures semiconductor wafers for its dielectric isolation
complementary bipolar products in its own facility to optimize the performance
of these products and maintain a high degree of manufacturing control. The
Company's manufacturing facilities in Milpitas, California include a four-inch
wafer fabrication facility and a clean room. The Company's facilities have been
certified as ISO-9001 compliant.
The Company broadens its manufacturing capabilities by using third-party
foundries to produce junction isolation BiCMOS processed wafers and CMOS
processed wafers. The use of third-party foundries enables the Company 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. The Company uses three different third-party foundries to
supply fully processed semiconductor wafers for its junction isolation BiCMOS
and CMOS products, all of which foundries have been certified as IS0-9001
compliant. Sales of these products collectively represented approximately 25.6%
of the Company's net sales in 1994, approximately 38.9% in 1995 and
approximately 37.8% in the first quarter of 1996, and are expected to remain a
significant percentage of net sales in the future. The Company believes it has
good long-term relationships with its third-party foundry suppliers and such
relationships are stable. The Company has qualified or is in the process of
qualifying second-source foundries for each of its current third-party foundries
in order to continue to be able to support its customers' product needs and to
reduce
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<PAGE> 39
the Company's dependence on any single foundry. However, any sudden demand for
increased amounts of semiconductor devices or elimination of existing sources of
fully processed semiconductor wafers could result in material delays in the
shipment of the Company's products.
The Company tests integrated circuits or "die" on the wafers produced by
the Company and its foundries for compliance with performance specifications
before assembly. Following assembly, the packaged units are returned to the
Company for final testing and inspection prior to shipment to customers. The
Company then performs 100 percent final testing on all circuits using advanced
automated test equipment to ensure that the circuits satisfy specified
performance levels.
The Company's commercial products are assembled by a variety of
subcontractors in Malaysia, Thailand and other locations in Asia, all of which
have been certified as ISO-9002 compliant. These subcontractors may also be
subject to capacity, yield and quality problems or may have difficulty obtaining
critical raw materials, which could result in disruptions in the supply of
assembled products. The Company's reliance on third-party foundries and
independent subcontractors involves a number of other risks, including reduced
control over delivery schedules, quality assurance and costs. The occurrence of
any supply or other problems resulting from such risks could have a material
adverse effect on the Company's business, financial condition and results of
operations. See "Risk Factors -- Dependence on Outside Third-Party Foundries."
The Company manufactures its precision high reliability assembled products
in Billerica, Massachusetts. The Company is in conformance with stringent
quality and reliability requirements for military and aerospace applications.
Currently, the overall semiconductor industry is experiencing significant
growth, which is creating 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 the Company's
performance. The Company is seeking to establish and maintain critical
inventories and alternate sources to minimize the impact of its vendors'
capacity limitations and to date has not experienced material shortages or
delays. However, there can be no assurance that there will not be future
shortages of key services that will materially and adversely affect the
Company's business, financial condition and results of operations. See "Risk
Factors -- The Semiconductor Industry."
The manufacturing processes utilized by the Company 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. In addition, yields can be 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
time-consuming or expensive to remedy. From time to time, the Company has
experienced yield variances. In particular, new process technologies or new
products can be subject to especially wide variations in manufacturing yields
and efficiency. There can be no assurance that yield variances previously
experienced by the Company will not recur or that the Company and its
independent foundries will not experience other manufacturing problems that
result in product introduction or delivery delays. Although previous
fluctuations in yield variances have not materially affected the Company's
business, financial condition or results of operations, there can be no
assurance that future yield variances and resulting delays would not materially
and adversely affect the Company's business and results of operations. The
Company is also subject to the risks associated with the shortage of raw
materials such as unprocessed wafers and packages used in the manufacture or
assembly of the Company's products. See "Risk Factors -- Manufacturing Risks."
The Company is 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 its manufacturing
process. Although the Company believes that its activities conform to presently
applicable environmental regulations, the failure to comply with present or
future regulations could result in fines being imposed on the Company,
suspension of production or a cessation of operations. Increasing public
attention has been focused on the environmental impact of semiconductor
manufacturing operations, and there can be no assurance that regulatory changes
or changes in regulatory interpretation or enforcement
37
<PAGE> 40
will not render compliance more difficult and costly. Any failure of the Company
to control the use of, or adequately restrict the discharge of, hazardous
substances, or otherwise comply with environmental regulations, could subject it
to significant future liabilities. In addition, although the Company believes
that its past operations conformed with then applicable environmental laws and
regulations, there can be no assurance that the Company has not in the past
violated applicable laws or regulations, which violations could result in
remediation or other 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
liabilities under current or future environmental laws or regulations.
The Company and approximately sixty other potentially responsible parties
("PRPs") received a Notice of Potential Liability from the United States
Environmental Protection Agency in June 1993 concerning the Shaffer Landfill
Operable Unit of the Iron Horse Park Superfund Site (the "Site") located in
Billerica, Massachusetts. In January 1995, federal and Massachusetts
governmental authorities filed suit against ten of the PRPs, alleging
responsibility for remediation and other costs. The ten PRPs named in the
lawsuit, together with a number of other PRPs not named, but not currently
including the Company, have been engaged in settlement discussions with such
authorities. If the PRP group and the governmental agencies reach a negotiated
settlement regarding the clean-up of the Site, there is no assurance that the
Company would join such a settlement. The Company believes that it has strong
defenses to liability; however, there can be no assurance that the Company will
not be pursued with respect to alleged liability for contamination of the Site.
The Company anticipates that it would vigorously defend against any such claims.
There can be no assurance, however, that any such defenses of any such claims
would be successful.
The future costs in connection with the Site are currently indeterminable
due to such factors as the unknown timing and extent of any future remedial
actions which may be required, the extent of any liability of the Company and of
other potentially responsible parties, and the financial resources of the other
potentially responsible parties. See "Risk Factors -- Environmental Regulation."
PATENTS AND INTELLECTUAL PROPERTY
The Company seeks to protect its proprietary technology through patents and
trade secret protection. Currently, the Company holds four United States patents
expiring on various dates between the years 1999 and 2014 and has additional
pending United States patent applications, although there can be no assurance
that any patents will result from these applications. While the Company intends
to continue to seek patent coverage for its products and manufacturing
technology where appropriate, the Company believes that its success depends more
heavily on the technical expertise and innovative abilities of its personnel
than on its patent position. Accordingly, the Company also relies on trade
secrets and confidential technological know-how in the conduct of its business.
There can be no assurance that the Company's patents or applicable trade secret
laws will provide adequate protection for the Company's technology against
competitors who may develop or patent similar technology or reverse engineer the
Company's products. In addition, the laws of certain territories in which the
Company's products are or may be developed, manufactured or sold, including
Asia, Europe and Latin America, may not protect the Company's products and
intellectual property rights to the same extent as the laws of the United
States. See "Risk Factors -- Patents and Intellectual Property Claims."
The semiconductor industry is characterized by frequent litigation
regarding patent and other intellectual property rights. Although the Company is
not aware of any pending or threatened patent litigation, there can be no
assurance that third parties will not assert claims against the Company with
respect to existing or future products or technologies and the Company has been
subject to such claims in the past. In the event of litigation to determine the
validity of any third-party claims, such litigation, whether or not determined
in favor of the Company, could result in significant expense to the Company and
divert the efforts of the Company's technical and management personnel from
productive tasks. In the event of an adverse ruling in such litigation, the
Company might 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
38
<PAGE> 41
assurance that licenses will be available on reasonable commercial terms, or at
all, with respect to disputed third-party technology. In the event of a
successful claim against the Company and the Company's failure to develop or
license a substitute technology at a reasonable cost, the Company's business,
financial condition and results of operations would be materially and adversely
affected. See "Risk Factors -- Patents and Intellectual Property Claims."
COMPETITION
The analog integrated circuit segment of the semiconductor industry is
intensely competitive, and many major semiconductor companies presently compete
or could compete in some segment of the Company's market. The Company's primary
competitors have substantially greater financial, technical, manufacturing,
marketing, distribution and other resources and broader product lines than
Sipex. The Company's current primary competitors in the high-performance segment
of the analog circuit market are Analog Devices, Inc., Linear Technology Corp.
and Maxim Integrated Products, Inc. As the Company expands its product line, it
expects that competition will increase with these and other domestic and foreign
companies. 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 there can be no assurance that they will not become
formidable competitors in the future.
The Company believes that its ability to compete successfully depends on a
number of factors, including the ability to develop and introduce new products
rapidly, product innovation, product quality and reliability, product
performance, the breadth of its product line, price, technical service and
support, adequacy of manufacturing quality and capacity and sources of raw
materials, efficiency of production, delivery capabilities and protection of the
Company's products by intellectual property laws. The Company believes that
product innovation, quality, reliability, performance and the ability to
introduce products rapidly are more important competitive factors than price in
its target markets because the Company competes primarily at the stage when
system manufacturers design analog products into their systems. At the design-in
stage, there is less price competition, particularly when there is only one
source for the product. The Company believes that, by virtue of its analog
expertise and rigorous design methodology, it competes favorably in the areas of
rapid product introduction, product innovation, quality, reliability and
performance, but it 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. See "Risk Factors -- Competition."
EMPLOYEES
At May 25, 1996, the Company had 239 full-time employees, including 163 in
manufacturing, 31 in research and development, 24 in sales and marketing and 21
in finance and administration. The Company believes that its future success will
depend, in part, on its 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 the Company's employees is subject to a collective bargaining agreement, and
the Company has never experienced a work stoppage. The Company believes that its
relations with its employees are good.
FACILITIES
The Company leases approximately 47,600 square feet located in Billerica,
Massachusetts for manufacturing, research and development, and administration.
See "Certain Transactions." In addition, the Company leases approximately 30,500
square feet in Milpitas, California and approximately 12,500 square feet in San
Jose, California for manufacture of its DI products. The Company also leases
approximately 2,200 square feet for each of its sales offices in Munich, Paris
and Tokyo. The Company believes that its current facilities are adequate to meet
its current requirements for the near term.
LEGAL PROCEEDINGS
The Company is not a party to any material legal proceedings.
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<PAGE> 42
MANAGEMENT
EXECUTIVE OFFICERS AND DIRECTORS
<TABLE>
The executive officers and directors of the Company as of June 1, 1996 are
as follows:
<CAPTION>
NAME AGE POSITION
- ---- --- --------
<S> <C> <C>
James E. Donegan........................ 50 Chairman of the Board, President, Chief
Executive Officer and Clerk
Frank R. DiPietro....................... 48 Senior Vice President, Treasurer and Chief
Financial Officer
Raymond W. B. Chow...................... 48 Senior Vice President of Interface Products
Sanford Cohen........................... 57 Senior Vice President of Technology
A. Neal Lambert......................... 54 Senior Vice President of Operations
Daniel Deroux........................... 59 Director
Manfred Loeb............................ 69 Director(1)
Lionel H. Olmer......................... 60 Director(2)
John L. Sprague......................... 65 Director(1)(2)
Philippe van Marcke..................... 51 Director
<FN>
- ---------------
(1) Member of Compensation Committee.
(2) Member of Audit Committee.
</TABLE>
Executive officers of the Company are elected by the Board of Directors on
an annual basis and serve until their successors are duly elected and qualified.
There are no family relationships among any of the executive officers or
directors of the Company.
Each director holds office until that director's successor has been duly
elected and qualified. The Company's Board of Directors is divided into three
classes. Messrs. Loeb and van Marcke serve in the class whose term expires in
1997; Messrs. Sprague and Olmer serve in the class whose term expires in 1998;
and Messrs. Donegan and Deroux serve in the class whose term expires in 1999.
Upon expiration of the term of each class of directors, directors comprising
such class will be elected for a three-year term at the annual meeting of
shareholders in the year in which such term expires.
Mr. Donegan joined the Company in April 1985 as Chairman of the Board,
Chief Executive Officer and President of the Company. Before joining the
Company, Mr. Donegan held the position of Group Vice President of the Electronic
Components Group at Midland Ross Corporation. Prior to Midland Ross, Mr. Donegan
was Vice President and General Manager at Cameron & Barkley and Company. Prior
to working at Cameron & Barkley and Company, Mr. Donegan spent ten years with
the General Electric Company in various manufacturing positions.
Mr. DiPietro joined the Company in December 1983 as Chief Financial Officer
and Treasurer. He was appointed Vice President of Finance in January 1985 and
Senior Vice President in June 1985. From November 1979 to November 1983, Mr.
DiPietro served as a Controller at Digital Equipment Corp.
Mr. Chow joined the Company in October 1988 as Director of Interface
Engineering. He was appointed Senior Vice President of Interface Products in
August 1994. From March 1982 to October 1988, Mr. Chow was President and Chief
Executive Officer of Barvon BiCMOS Technology, Inc. ("Barvon"), a company Mr.
Chow founded in 1982 and which was acquired by Sipex in October 1988. Prior to
founding Barvon, he served as Director of Engineering at Universal
Semiconductor, Inc. from 1979 to 1982. From 1972 to 1979, Mr. Chow was a Design
Manager at Intersil, Inc. and Senior Design Engineer at Fairchild Semiconductor.
Mr. Cohen has been the Company's Senior Vice President of Technology since
joining the Company in July 1988. Prior to joining Sipex, Mr. Cohen was a
Division Manager at the Charles Stark Draper Laboratory, formerly the
Instrumentation Laboratory of the Massachusetts Institute of Technology. He has
been a
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<PAGE> 43
member of several government advisory panels and has designed and developed
numerous circuits and systems.
Mr. Lambert joined the Company in July 1990 as Director of Wafer
Fabrication. He was appointed Senior Vice President of Semiconductor Operations
in January 1991 and Senior Vice President of Operations in May 1994. He joined
the Company after serving as Director of Operations at Cherry Semiconductor.
Mr. Deroux has been a director of the Company since 1992. From 1963 to
1993, he served Tractebel S.A. in various positions, most recently as the Chief
Executive Officer of the Electricity and Gas International Division of Tractebel
S.A. Since 1993, Mr. Deroux has served as the Managing Director of American
Tractebel Corporation, an affiliate of Tractebel S.A.
Mr. Loeb has been a director of the Company from 1982 to 1987 and from 1992
to the present. From 1983 to December 1992, he served as the Executive Director
of Tractebel S.A. and Chief Executive Officer of the Electricity and Gas
International Division of Tractebel S.A. Since 1993, Mr. Loeb has served as an
Advisor Director of Tractebel S.A. and Chairman of American Tractebel
Corporation. In addition to serving as a director of the Company, Mr. Loeb
currently serves as a director of Telfin S.A., an affiliate of Tractebel S.A.
Mr. Olmer has been a director of the Company since 1988. From 1985 until
the present, he has been a partner in the law firm of Paul, Weiss, Rifkind,
Wharton & Garrison, concentrating on international trade law. In addition to
serving as a director of the Company, Mr. Olmer currently serves as a director
of Dresser Industries, a manufacturer of products and provider of services for
the hydrocarbon energy industry.
Dr. Sprague has been a director of the Company since 1993. He has been the
president of John L. Sprague Associates, Inc., a consulting firm, since 1988. In
addition to serving as a director of the Company, Dr. Sprague currently serves
as a director of Aerovox, Inc., a manufacturer of electronic components, and
Allmerica Financial Corporation, a financial services company.
Mr. van Marcke has been a director of the Company since May 1994. For more
than five years prior to the date hereof, Mr. van Marcke served in various
management positions with American Tractebel Corporation and since 1993 as its
president. In addition to serving as director of the Company, Mr. van Marcke
serves as a director of American Tractebel Corporation.
DIRECTOR COMMITTEES AND COMPENSATION
Director Committees
The Audit Committee, established in January 1996, consists of Messrs. Olmer
and Sprague. The Audit Committee will review with the Company's independent
auditors the scope and timing of their audit services and any other services
they are asked to perform, the auditor's report on the Company's Consolidated
Financial Statements following completion of their audit and the Company's
policies and procedures with respect to internal accounting and financial
controls. In addition, the Audit Committee will make annual recommendations to
the Board of Directors for the appointment of independent auditors for the
ensuing year.
The Compensation Committee consists of Messrs. Loeb and Sprague. The
Compensation Committee will review and evaluate the compensation and benefits of
all officers of the Company, review general policy matters relating to
compensation and benefits of employees of the Company and make recommendations
concerning these matters to the Board of Directors. The Compensation Committee
administers the Company's 1988 Non-Statutory Stock Option Plan, 1991
Non-Statutory Stock Option Plan, 1993 Stock Option and Incentive Plan, 1994
Stock Option and Incentive Plan, the Company's 1996 Incentive Stock Option Plan,
1996 Non-Employee Director Stock Option Plan and 1996 Employee Stock Purchase
Plan. See "-- Stock Plans."
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<PAGE> 44
Director Compensation
Each of the Company's non-employee directors receives $500 for each board
meeting held by the Company, whether or not such director attends the meeting,
and an additional $1,000 for each meeting attended. The Company's non-employee
directors are also reimbursed expenses for each board meeting attended.
The Company's 1996 Non-Employee Director Stock Option Plan was adopted by
the Board of Directors on January 26, 1996 and approved by the Company's
shareholders on February 12, 1996. On the commencement of this plan, Messrs.
Deroux, Loeb, Olmer, Sprague, and van Marcke were each automatically granted a
non-qualified option to purchase 10,000 shares of the Common Stock at an
exercise price of $9.50 per share. See "-- Stock Plans."
<TABLE>
EXECUTIVE COMPENSATION
Summary Compensation. The following table sets forth certain information
relating to compensation earned by the Company's Chief Executive Officer and
each of the four other most highly compensated executive officers of the Company
whose total salary and bonus exceeded $100,000 (collectively, the "Named
Executive Officers") for services rendered in all capacities to the Company for
the year ended December 31, 1995:
SUMMARY COMPENSATION TABLE
<CAPTION>
LONG-TERM
COMPENSATION(1)
---------------
ANNUAL COMPENSATION SECURITIES ALL OTHER
---------------------- UNDERLYING COMPENSATION
NAME AND PRINCIPAL POSITION SALARY($) BONUS($) OPTIONS(#) (2)($)
- --------------------------- --------- -------- --------------- ------------
<S> <C> <C> <C> <C>
James E. Donegan............................ 226,800 25,000 -- 7,298
Chairman, Chief Executive Officer
and President
Frank R. DiPietro........................... 150,000 20,000 -- 2,869
Senior Vice President, Treasurer and
Chief Financial Officer
Raymond W. B. Chow.......................... 145,000 15,000 -- 3,737
Senior Vice President of Interface
Products
Sanford Cohen............................... 145,000 0 -- 5,572
Senior Vice President of Technology
A. Neal Lambert............................. 130,000 15,000 -- 2,300
Senior Vice President of Operations
<FN>
- ---------------
(1) The Company did not make any restricted stock awards, grant any stock
appreciation rights or make any long-term incentive payments during fiscal
1995.
(2) Consists of contributions made by the Company on behalf of the Named
Executive Officers to the Company's Tax Deferred Savings Plan and, in the
case of Messrs. Donegan, DiPietro and Cohen, insurance premiums paid by the
Company.
</TABLE>
OPTION EXERCISES AND UNEXERCISED OPTION HOLDINGS
The following table provides information regarding unexercised stock
options held as of December 31, 1995 by each of the Named Executive Officers.
None of the Named Executive Officers were granted stock options during the year
ended December 31, 1995. No options were exercised by any of the Named Executive
Officers during the fiscal year ended December 31, 1995.
42
<PAGE> 45
<TABLE>
AGGREGATE OPTION EXERCISES AND YEAR-END OPTION VALUES
<CAPTION>
SHARES OF COMMON STOCK VALUE OF UNEXERCISED
UNDERLYING UNEXERCISED IN-THE-MONEY
OPTIONS AT YEAR-END (#) OPTIONS AT YEAR-END($)(1)
----------------------------- -----------------------------
NAME EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
- ---- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C>
James E. Donegan....................... 119,396 48,599 1,086,504 442,251
Frank R. DiPietro...................... 42,000 48,000 382,200 436,800
Raymond W. B. Chow..................... 20,000 73,750 182,000 671,125
Sanford Cohen.......................... 22,000 43,000 200,200 391,300
A. Neal Lambert........................ 22,000 43,000 200,200 391,300
<FN>
- ---------------
(1) There was no public trading market for the Common Stock as of December 31,
1995. Accordingly, these values have been calculated on the basis of a price
of $9.50 per share, the price per share in the Company's initial public
offering, which was completed in April 1996, less the applicable exercise
price.
</TABLE>
EMPLOYMENT AGREEMENTS
The Company has entered into the following employment agreements with the
Named Executive Officers:
Mr. Donegan and the Company entered into an employment agreement on January
1, 1988. The employment agreement provides that Mr. Donegan will serve as
Chairman of the Board, President and Chief Executive Officer of the Company
until December 31, 1989 and for consecutive two-year terms thereafter unless the
Company provides at least six (6) months advance notice to the contrary prior to
expiration of any two year term; however, Mr. Donegan may voluntarily terminate
his employment and the Company may terminate his employment at any time for
cause. If the Company terminates Mr. Donegan's employment without cause, he will
be entitled to the salary and bonus benefits guaranteed under the employment
agreement until the end of the employment term. Pursuant to the employment
agreement, Mr. Donegan's salary is established annually by the Board of
Directors, but may not be less than $210,000 per year and his annual bonus may
not exceed $60,000. The amount of his annual bonus is calculated by a formula
based upon a comparison of the actual annual consolidated after-tax income or
loss of the Company to the budgeted income or loss approved by the Board of
Directors for that year. The Company must maintain a term life insurance policy
in the amount of $500,000 for Mr. Donegan's designees and a long term disability
insurance policy for up to $10,000 per month for the benefit of Mr. Donegan or
his designees. Furthermore, Mr. Donegan has agreed that he will not directly or
indirectly compete with the Company during the course of his employment and for
an additional one-year period thereafter if he voluntarily terminates his
employment or is terminated for cause.
Mr. DiPietro and the Company entered into an employment agreement on
January 1, 1988. The employment agreement provides that Mr. DiPietro will serve
as a Senior Vice President and Treasurer of the Company until December 31, 1989
and for consecutive two-year terms thereafter unless the Company provides at
least six (6) months advance notice to the contrary prior to expiration of any
two-year term; however, Mr. DiPietro may voluntarily terminate his employment or
the Company may terminate his employment for cause. If the Company terminates
Mr. DiPietro's employment without cause, he will be entitled to the salary
guaranteed under the employment agreement until the end of the employment term.
Pursuant to the employment agreement, Mr. DiPietro's salary is established
annually by the Board of Directors, but may not be less than $96,500 per year.
If Mr. DiPietro's employment is terminated for any reason by either party, the
employment agreement entitles the Company to retain him as a consultant pursuant
to specific terms. Furthermore, Mr. DiPietro has agreed that he will not
directly or indirectly compete with the Company during the course of his
employment and for an additional one-year period thereafter so long as the
Company is continuing to pay either his salary or consulting fees.
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<PAGE> 46
Mr. Chow and the Company entered into an employment agreement on January 1,
1996. The employment agreement provides that Mr. Chow will serve as Senior Vice
President of Interface Products of the Company until December 31, 1998 and for
consecutive two-year terms thereafter unless the Company provides at least six
(6) months advance notice to the contrary prior to expiration of any two-year
term; however, Mr. Chow may voluntarily terminate his employment or the Company
may terminate his employment for cause. If the Company terminates Mr. Chow's
employment without cause, he will be entitled to the salary guaranteed under the
employment agreement until the end of the employment term and he may not
directly or indirectly compete with the Company while the Company is continuing
to pay his salary. Pursuant to the employment agreement, Mr. Chow's salary is
established annually by the Board of Directors, but may not be less than
$145,000 per year.
Mr. Cohen and the Company entered into an employment agreement on July 18,
1988. The employment agreement provides that Mr. Cohen will serve as a Senior
Vice President of the Company until August 17, 1990 and for consecutive two-year
terms thereafter unless the Company provides at least six (6) months advance
notice to the contrary prior to expiration of any two-year term; however, Mr.
Cohen may voluntarily terminate his employment or the Company may terminate his
employment for cause. If the Company terminates Mr. Cohen's employment without
cause, he will be entitled to the salary guaranteed under the employment
agreement until the earlier of one year from the date of termination or the
obtainment of substantially equivalent employment. Furthermore, Mr. Cohen has
agreed that he will not directly or indirectly compete with the Company during
such period so long as the Company is continuing to pay his salary. Pursuant to
the employment agreement, Mr. Cohen's salary is established annually by the
Board of Directors, but may not be less than $135,000 per year.
Mr. Lambert and the Company entered into an employment agreement on August
1, 1993. The employment agreement provides that Mr. Lambert will serve as Senior
Vice President -- West Coast Operations of the Company until July 31, 1995 and
for consecutive two year terms thereafter unless the Company provides at least
six (6) months advance notice to the contrary. Mr. Lambert may voluntarily
terminate his employment or the Company may terminate his employment for cause.
If the Company terminates Mr. Lambert's employment without cause, he will be
entitled to the salary guaranteed under the employment agreement until the end
of the employment term and he may not directly or indirectly compete with the
Company while the Company is continuing to pay his salary. Pursuant to the
employment agreement, Mr. Lambert's salary is established annually by the Board
of Directors, but may not be less than $120,000 per year. Mr. Lambert became
Senior Vice President of Operations in May 1994.
STOCK PLANS
1988 Non-Statutory Stock Option Plan. The Company's 1988 Non-Statutory
Stock Option Plan (the "1988 Plan") was adopted by the Board of Directors on
October 22, 1988. The 1988 Plan provides for the issuance of a maximum of 62,500
shares of Common Stock pursuant to the grant of non-qualified stock options to
employees, officers and other individuals providing services or acting as
directors of the Company. Options granted under the 1988 Plan generally vest 20%
on the date of grant and an additional 20% annually on each subsequent
anniversary of the date of grant.
As of May 25, 1996, options to purchase 500 shares of Common Stock at an
exercise price of $11.00 per share were outstanding under the 1988 Plan. The
1988 Plan is administered by the Compensation Committee of the Board of
Directors. No further options may be granted or issued under this plan.
1991 Non-Statutory Stock Option Plan. The Company's 1991 Non-Statutory
Stock Option Plan (the "1991 Plan") was adopted by the Board of Directors on
April 12, 1991. The 1991 Plan provides for the issuance of a maximum of 239,245
shares of Common Stock pursuant to the grant of non-qualified stock options in
recognition of past services provided by and/or to provide a performance
incentive for certain key employees, officers and other individuals providing
services or acting as directors of the Company. Options granted under the 1991
Plan generally vest 20% on the date of grant and an additional 20% annually on
each subsequent anniversary of the date of grant.
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<PAGE> 47
As of May 25, 1996, options to purchase 211,654 shares of Common Stock at
an average exercise price of $0.40 per share were outstanding under the 1991
Plan. The 1991 Plan expired on June 30, 1991 and no further options may be
granted under this plan.
1993 Stock Option and Incentive Plan. The Company's 1993 Stock Option and
Incentive Plan (the "1993 Plan") was adopted by the Board of Directors on April
22, 1993 and approved by the Company's shareholders on May 27, 1993. The 1993
Plan provides for the issuance of a maximum of 132,908 shares of Common Stock
pursuant to the grant to employees and officers of "incentive stock options"
within the meaning of the Internal Revenue Code and the grant of non-qualified
stock options to service providers and directors of the Company. Options granted
under the 1993 Plan generally vest 20% on the date of grant and an additional
20% annually on each subsequent anniversary of the date of grant.
As of May 25, 1996, options to purchase 91,250 shares of Common Stock at an
average exercise price of $0.40 per share were outstanding under the 1993 Plan.
The 1993 Plan is administered by the Compensation Committee of the Board of
Directors. No further options may be granted or issued under this plan.
1994 Stock Option and Incentive Plan. The Company's 1994 Stock Option and
Incentive Plan (the "1994 Plan") was adopted by the Board of Directors on
October 3, 1994 and approved by the Company's shareholders on May 26, 1995. The
1994 Plan provides for the issuance of a maximum of 593,750 shares of Common
Stock pursuant to the grant to employees and officers of "incentive stock
options" within the meaning of the Internal Revenue Code and the grant of
non-qualified stock options to service providers and directors of the Company.
Options granted under the 1994 Plan generally vest 20% on the date of grant and
an additional 20% annually on each subsequent anniversary of the date of grant.
As of May 25, 1996, options to purchase 447,208 shares of Common Stock at
an average exercise price of $0.40 per share were outstanding under the 1994
Plan. The 1994 Plan is administered by the Compensation Committee of the Board
of Directors. No further options may be granted or issued under this plan.
1996 Incentive Stock Option Plan. The 1996 Incentive Stock Option Plan
("1996 ISO Plan") was adopted by the Board of Directors on January 26, 1996 and
approved by the Company's shareholders on February 12, 1996. The 1996 ISO Plan
provides for the grant of options to purchase shares of Common Stock of the
Company pursuant to the grant to employees and officers of "incentive stock
options" within the meaning of the Internal Revenue Code. The 1996 ISO Plan has
reserved for issuance a maximum of 600,000 shares.
As of June 1, 1996, options to purchase 62,500 shares of Common Stock at an
average exercise price of $17.50 per share were outstanding under the 1996 ISO
Plan. The 1996 ISO Plan is administered by the Compensation Committee of the
Board of Directors. Subject to the provisions of the 1996 ISO Plan, the
Compensation Committee has the authority to select the optionees and determine
the terms of the incentive stock options granted, including (i) the number of
shares, (ii) option exercise terms, (iii) the duration of the option and (iv)
the time, manner and form of payments for exercise of an option. An incentive
stock option is not transferable by the optionholder except by will or by the
laws of descent and distribution. The exercise price of the grants made under
the 1996 ISO Plan cannot be less than the market price of the Common Stock at
the date of grant. Generally, no incentive stock option may be exercised more
than 90 days following termination of employment unless the termination is due
to death or disability, in which case the option is exercisable for a maximum of
180 days after such termination.
1996 Non-Employee Director Stock Option Plan. The 1996 Non-Employee
Director Stock Option Plan (the "1996 Director Option Plan") was adopted by the
Board of Directors on January 26, 1996 and approved by the Company's
shareholders on February 12, 1996. The 1996 Director Option Plan provides for
the grant of options to purchase a maximum of 150,000 shares of Common Stock of
the Company to non-employee directors of the Company.
The 1996 Director Option Plan is administered by the Compensation Committee
of the Board of Directors. Upon the commencement of the 1996 Director Option
Plan, each director who was not also an
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<PAGE> 48
employee of the Company and who was a director on January 26, 1996, received an
option to purchase 10,000 shares of Common Stock. Any person who becomes a
director of the Company after January 26, 1996 shall receive an option to
purchase 5,000 shares of Common Stock. Options granted under the 1996 Director
Option Plan become exercisable in five equal annual installments beginning on
the first anniversary date of the grant provided that the optionee remains a
director over five years. Each non-employee director will automatically receive,
each year after his or her initial grant, an option to purchase an additional
2,500 shares which will vest annually over five years. All options granted under
the 1996 Director Option Plan will have an exercise price equal to the fair
market value of the Common Stock on the date of grant. The term of each option
will be for a period of ten years from the date of grant. Options may not be
assigned or transferred except by will or by the laws of descent and
distribution and are exercisable to the extent vested only while the optionee is
serving as a director of the Company or within 90 days after the optionee ceases
to serve as a director of the Company (except that if a director dies or becomes
disabled while he or she is serving as a director of the Company, the option is
exercisable for a maximum of 180 days after such death or disability). Pursuant
to the 1996 Director Option Plan, Messrs. Deroux, Loeb, Olmer, Sprague and van
Marcke were each automatically granted, on January 26, 1996, an option to
purchase 10,000 shares of Common Stock at an exercise price of $9.50 per share.
1996 Employee Stock Purchase Plan. The 1996 Employee Stock Purchase Plan
(the "1996 Purchase Plan") was adopted by the Board of Directors on January 26,
1996 and approved by the Company's shareholders on February 12, 1996. The 1996
Purchase Plan provides for the issuance of a maximum of 250,000 shares of Common
Stock pursuant to the exercise of nontransferable options granted to
participating employees.
The 1996 Purchase Plan is administered by the Compensation Committee of the
Board of Directors. All employees of the Company, except employees who own five
percent or more of the Company's stock, whose employment is 20 hours or more per
week and more than five months in any calendar year and who have completed at
least one year of employment are eligible to participate in the 1996 Purchase
Plan. Employees who own five percent or more of the Company's Common Stock and
directors who are not employees of the Company may not participate in the 1996
Purchase Plan. To participate in the 1996 Purchase Plan, an employee must
authorize the Company to deduct an amount (not less than one percent nor more
than ten percent of a participant's total cash compensation) from his or her pay
during the six-month periods commencing on January 1 and July 1 of each year
(each a "Plan Period"), but in no case shall an employee be entitled to purchase
more than 1,000 shares in any Plan Period. The exercise price for the option for
each Plan Period is 85% of the lesser of the market price of the Common Stock on
the first or last business day of the Plan Period. If an employee is not a
participant on the last day of the Plan Period, such employee is not entitled to
exercise his or her option, and the amount of his or her accumulated payroll
deductions will be refunded. An employee's rights under the 1996 Purchase Plan
terminate upon his or her voluntary withdrawal from the plan at any time or upon
termination of employment.
COMPENSATION COMMITTEE -- INTERLOCKS AND INSIDER PARTICIPATION
Prior to 1996, the Company had no Compensation Committee or any other board
committee performing similar functions. Decisions concerning compensation of
executive officers were made by the Board of Directors, which included Mr.
Donegan, the President and Chief Executive Officer of the Company. In April
1996, the Company established a Compensation Committee of its Board of
Directors, which consists of Messrs. Loeb and Sprague.
TAX DEFERRED SAVINGS PLAN
The Company maintains a Tax Deferred Savings Plan (the "Savings Plan"). All
employees of the Company who have completed at least 1,000 hours of service
within the year are eligible to participate in the Savings Plan. The Savings
Plan provides that each participant may contribute from 1% to 15% of his or her
pre-tax compensation (up to a statutorily prescribed annual limit, $9,500 in
1996) to the Savings Plan. The percentage elected by certain highly compensated
participants may be required to be lower. All amounts contributed to the Savings
Plan by employee participants and earnings on these contributions are
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<PAGE> 49
fully vested at all times. The Company makes matching contributions of 50% of
the first 6% of a participant's contribution. Such Company contributions become
fully vested upon a participant's completion of 6 years of service. Employee
participants may elect to invest their contributions in various established
funds, which include fixed income, growth and equity funds.
CERTAIN TRANSACTIONS
On December 31, 1993, $5.0 million in principal of a promissory note and
$400,000 of interest owed by the Company to American Tractebel Corporation
("American Tractebel"), an affiliate of Tractebel S.A., was forgiven by American
Tractebel.
During 1993 and 1994, Compagnie Europeenne de Financement S.A. ("CEF"), an
affiliate of Tractebel S.A., advanced $1.8 million and $1.2 million to the
Company in exchange for an unsecured subordinated promissory note. These loans
were extended on January 29, 1996 and mature on February 28, 1997. These
borrowings bear interest at the LIBOR three month rate plus a margin of 0.75%.
At March 30, 1996, the interest rate on these loans was approximately 6.24%. The
Company repaid this debt in full in April 1996.
On April 6, 1995, American Tractebel agreed to advance up to $1.0 million
to the Company in exchange for a subordinated promissory note bearing interest
at 7.0% per annum and payable in monthly installments from May 1, 1995 through
April 30, 2000 when any outstanding amounts under the note are due. Effective
September 22, 1995, American Tractebel agreed to advance an additional $500,000
to the Company, for an aggregate advance of $1.5 million, on the same terms as
the initial $1.0 million advance. The note is secured by certain equipment owned
by the Company. The Company repaid this debt in full in April 1996.
On August 10, 1995, American Tractebel advanced $300,000 to the Company in
exchange for an unsecured subordinated promissory note bearing interest at 7.0%
per annum and due January 1, 1997. The Company repaid this debt in full in April
1996.
Pursuant to an Agreement of Lease, dated January 31, 1996, the Company
leases its Billerica facility of approximately 47,600 square feet from ATC
Billerica Corporation, an affiliate of Tractebel S.A. Under a previous lease,
the Company paid rent to ATC Billerica Corporation in the amounts of $261,600,
$216,450 and $67,393 for 1993, 1994 and 1995, respectively. Under the Agreement
of Lease, the Company will pay monthly rent of $9,917 for the first year of the
lease, which payments are subject to an annual escalation. The Agreement of
Lease expires on January 31, 2001, subject to an option of the Company to extend
such lease for an additional five-year period.
As of March 30, 1996, the Company's Revolving Credit Agreement with
Generale Bank, as amended in February 1996, provided for a $7.5 million line of
credit due February 28, 1997, secured by the Company's inventories and accounts
receivable and bearing interest at Generale Bank's prime rate plus a commitment
fee in the amount of 0.25% per annum of the unused amount. As of March 30, 1996,
the Company had approximately $7.5 million outstanding under the line of credit.
Generale Bank is approximately 26% owned by Societe Generale de Belgique S.A.,
which in turn owns approximately 40% of the outstanding capital stock of
Tractebel S.A. The Company repaid this line of credit in full in April 1996 and
terminated this agreement with Generale Bank at that time.
The Company has adopted a policy whereby all future transactions between
the Company and its officers, directors and affiliates will be on terms no less
favorable to the Company than could be obtained from unrelated third parties and
will be approved by a majority of the disinterested members of the Company's
Board of Directors.
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<PAGE> 50
PRINCIPAL AND SELLING SHAREHOLDERS
<TABLE>
The following table sets forth certain information regarding beneficial
ownership of the Company's Common Stock as of June 1, 1996 and as adjusted to
reflect the sale of the shares offered hereby (i) by each person or entity known
by the Company to own beneficially more than 5% of the outstanding shares of
Common Stock, (ii) by each director of the Company, (iii) by each of the Named
Executive Officers and (iv) by all directors and executive officers of the
Company as a group. Unless otherwise indicated below, to the knowledge of the
Company, each person or entity listed below maintains a mailing address at c/o
SIPEX Corporation, 22 Linnell Circle, Billerica, Massachusetts 01821 and has
sole voting and investment power over the shares of Common Stock shown as
beneficially owned, except to the extent authority is shared by spouses under
applicable law.
<CAPTION>
SHARES BENEFICIALLY SHARES BENEFICIALLY
OWNED PRIOR OWNED
TO OFFERING(1) NUMBER OF AFTER OFFERING(1)
-------------------- SHARES --------------------
NAME AND ADDRESS OF BENEFICIAL OWNER NUMBER PERCENT OFFERED NUMBER PERCENT
- ------------------------------------ --------- ------- --------- --------- -------
<S> <C> <C> <C> <C> <C>
Tractebel S.A. and affiliate(2).......... 3,928,986 57.0% 1,950,000 1,978,986 25.1%
Place du Trone 1
1000 Brussels, Belgium
James E. Donegan(3)...................... 147,995 2.1% 10,000 137,995 1.7%
Frank R. DiPietro(4)..................... 50,250 * 10,000 40,250 *
Raymond W. B. Chow(5).................... 27,500 * 10,000 17,500 *
Sanford Cohen(6)......................... 25,000 * 10,000 15,000 *
A. Neal Lambert(7)....................... 25,000 * 10,000 15,000 *
Manfred Loeb(8).......................... 5,000 * -- 5,000 *
Lionel H. Olmer(9)....................... 1,000 * -- 1,000 *
Daniel Deroux(10)........................ 0 -- -- 0 --
John L. Sprague(11)...................... 0 -- -- 0 --
Philippe van Marcke(12).................. 0 -- -- 0 --
All directors and officers as a group (10
persons)(13)........................... 281,745 4.0% 50,000 231,745 2.8%
<FN>
- ---------------
* Less than 1.0% of the outstanding Common Stock.
(1) The number of shares of Common Stock deemed outstanding prior to this
offering includes 6,898,078 shares of Common Stock outstanding as of June
1, 1996. The number of shares of Common Stock deemed outstanding after this
offering includes an additional 1,000,000 shares of Common Stock which are
being offered for sale by the Company.
(2) Includes 3,552,362 shares of Common Stock owned by Tractebel S.A. and
376,624 shares of Common Stock owned by Telfin S.A., an affiliate of
Tractebel S.A. Telfin S.A. is selling all of its shares of Common Stock and
Tractebel S.A. is selling 1,573,376 shares of Common Stock in this
offering.
(3) Includes 142,995 shares issuable pursuant to stock options which are
exercisable prior to July 31, 1996. 10,000 of the exercisable stock options
will be exercised immediately before the closing of this offering for
inclusion in the number of shares offered. Excludes 20,000 shares issuable
pursuant to stock options which are exercisable after July 31, 1996.
(4) Shares issuable pursuant to stock options which are exercisable prior to
July 31, 1996. Also includes 250 shares of Common Stock purchased by Mr.
DiPietro's son, as to whose shares he disclaims beneficial ownership.
10,000 of the exercisable stock options will be exercised immediately
before the closing of this offering for inclusion in the number of shares
offered. Excludes 40,000 shares issuable pursuant to stock options which
are exercisable after July 31, 1996.
(5) Includes 7,500 shares issuable pursuant to stock options which are
exercisable prior to July 31, 1996. All of the exercisable stock options
will be exercised immediately before the closing of this offering
</TABLE>
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<PAGE> 51
for inclusion in the number of shares offered. Excludes 66,250 shares
issuable pursuant to stock options which are exercisable after July 31,
1996.
(6) Includes 20,000 shares issuable pursuant to stock options which are
exercisable prior to July 31, 1996. 10,000 of the exercisable stock options
will be exercised immediately before the closing of this offering for
inclusion in the number of shares offered. Excludes 40,000 shares issuable
pursuant to stock options exercisable after July 31, 1996.
(7) Includes 13,000 shares issuable pursuant to stock options which are
exercisable prior to July 31, 1996. 10,000 of the exercisable stock options
will be exercised immediately before the closing of this offering for
inclusion in the number of shares offered. Excludes 40,000 shares issuable
pursuant to stock options which are exercisable after July 31, 1996.
(8) Excludes all shares held by Tractebel S.A. and Telfin S.A. with which Mr.
Loeb is affiliated and as to whose shares he disclaims beneficial ownership
of, except to the extent of any individual interest in such entities.
Excludes 10,000 shares issuable pursuant to stock options exercisable after
July 31, 1996.
(9) Excludes 10,000 shares issuable pursuant to stock options exercisable after
July 31, 1996.
(10) Excludes all shares held by Tractebel S.A. and Telfin S.A. with which Mr.
Deroux is affiliated and as to whose shares he disclaims beneficial
ownership of, except to the extent of any individual interest in such
entities. Excludes 10,000 shares issuable pursuant to stock options
exercisable after July 31, 1996.
(11) Excludes 10,000 shares issuable pursuant to stock options exercisable after
July 31, 1996.
(12) Excludes all shares held by Tractebel S.A. and Telfin S.A., with which Mr.
van Marcke is affiliated and as to whose shares he disclaims beneficial
ownership of, except to the extent of any individual interest in such
entities. Excludes 10,000 shares issuable pursuant to stock options
exercisable after July 31, 1996.
(13) Includes 233,495 shares issuable pursuant to stock options which are
exercisable prior to July 31, 1996.
DESCRIPTION OF CAPITAL STOCK
The authorized capital stock of the Company consists of 40,000,000 shares
of Common Stock, par value $.01 per share, and 1,000,000 shares of Preferred
Stock, par value $.01 per share.
COMMON STOCK
As of June 1, 1996, there were 6,898,078 shares of Common Stock outstanding
and held of record by approximately 82 shareholders. Based upon the number of
shares outstanding as of that date and giving effect to the issuance of the
1,000,000 shares of Common Stock offered by the Company, there will be 7,898,078
shares of Common Stock outstanding upon the closing of this offering.
Holders of Common Stock are entitled to one vote for each share held on all
matters submitted to a vote of shareholders and do not have cumulative voting
rights. Accordingly, holders of a majority of the shares of Common Stock
entitled to vote in any election of directors may elect all of the directors
standing for election. Holders of Common Stock are entitled to receive ratably
such dividends, if any, as may be declared by the Board of Directors out of
funds legally available therefor, subject to any preferential dividend rights of
outstanding Preferred Stock. Upon the liquidation, dissolution or winding up of
the Company, the holders of Common Stock are entitled to receive ratably the net
assets of the Company available after the payment of all debts and other
liabilities and subject to the prior rights of any outstanding Preferred Stock.
Holders of the Common Stock have no preemptive, subscription, redemption or
conversion rights. The outstanding shares of Common Stock are, and the shares
offered by the Company in this offering will be, when issued and paid for, fully
paid and nonassessable. The rights, preferences and privileges of holders of
Common Stock are subject to, and may be adversely affected by, the rights of the
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<PAGE> 52
holders of shares of any series of Preferred Stock which the Company may
designate and issue in the future. Upon the closing of this offering, there will
be no shares of Preferred Stock outstanding.
PREFERRED STOCK
The Board of Directors is authorized, subject to certain limitations
prescribed by law, without further shareholder approval, to issue from time to
time up to an aggregate of 1,000,000 shares of Preferred Stock in one or more
series and to fix or alter the designations, preferences, rights and any
qualifications, limitations or restrictions of the shares of each such series
thereof, including the dividend rights, dividend rates, conversion rights,
voting rights, terms of redemption (including sinking fund provisions),
redemption price or prices, liquidation preferences and the number of shares
constituting any series or designations of such series. The issuance of
Preferred Stock may have the effect of delaying, deferring or preventing a
change of control of the Company. The Company has no present plans to issue any
shares of Preferred Stock.
MASSACHUSETTS LAW AND CERTAIN PROVISIONS OF THE COMPANY'S RESTATED ARTICLES OF
ORGANIZATION AND RESTATED BY-LAWS; ANTI-TAKEOVER EFFECTS
The Company is subject to Chapter 110F of the Massachusetts General Laws,
an anti-takeover law. Under Chapter 110F, a Massachusetts corporation with 200
or more shareholders may not engage in a "business combination" with an
"interested shareholder" for a period of three years after the date of the
transaction in which the person becomes an interested shareholder, unless (i)
prior to such date, the Board of Directors approves either the business
combination or the transaction which results in the shareholder becoming an
interested shareholder, (ii) upon consummation of the transaction which results
in the shareholder becoming an interested shareholder, the interested
shareholder owns at least 90% of the outstanding voting stock of the corporation
(excluding shares held by certain affiliates of the corporation), or (iii) on or
subsequent to such date, the business combination is approved by both the Board
of Directors and the holders of two-thirds of the outstanding voting stock of
the corporation (excluding shares held by the interested shareholder). An
"interested shareholder" is a person who, together with affiliates and
associates, owns (or at any time within the prior three years did own) 5% or
more of the outstanding voting stock of the corporation. A "business
combination" includes a merger, a stock or asset sale, and certain other
specified transactions resulting in a financial benefit to the interested
shareholder.
Massachusetts General Laws Chapter 156B, Section 50A requires that publicly
held Massachusetts corporations have a classified board of directors consisting
of three classes as nearly equal in size as possible, unless the corporation
elects not to be covered by Section 50A. The Company's Restated By-Laws, as
amended, (the "Restated By-Laws") contain provisions which give effect to
Section 50A. See "Management -- Executive Officers and Directors." The Restated
By-Laws also include a provision excluding the Company from the applicability of
Chapter 110D of the Massachusetts General Laws. Under Chapter 110D, any
shareholder of a corporation subject to this statute who acquires 20% or more of
the outstanding voting stock of a corporation subject to the statute may not
vote such stock unless shareholders holding a majority of the outstanding voting
stock (excluding the interested shares) of the corporation so authorize. The
Board of Directors may amend the Company's Restated By-Laws at any time to
subject the Company to this statute prospectively.
Massachusetts General Laws Chapter 156B, Section 67 provides that a
corporation may indemnify its directors and officers to the extent specified in
or authorized by (i) the articles of organization, (ii) a by-law adopted by the
shareholders, or (iii) a vote adopted by the holders of a majority of the shares
of stock entitled to vote on the election of directors. In all instances, the
extent to which a corporation provides indemnification to its directors and
officers under Section 67 is optional. Massachusetts General Laws Chapter 156B,
Section 67 forbids the indemnification of any person with respect to any matter
to which he shall have been adjudicated in any proceeding not to have acted in
good faith in the reasonable belief that his action was in the best interest of
the corporation. The United States Securities and Exchange Commission has
advised the Company that in its view indemnification of directors and officers
for violations of federal securities law is against public policy and is
therefore, unenforceable. If such a claim
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<PAGE> 53
for indemnification arises in the absence of controlling precedent overruling
the Securities and Exchange Commission's view, the Company has agreed to submit
the question to a court of appropriate jurisdiction.
The Company's Restated By-Laws indemnify the directors and officers against
liabilities arising out of legal proceedings brought against them by reason of
their status as directors and officers or by reason of their agreeing to serve,
at the request of the Company, as a director or officer of another organization.
Under the Restated By-Laws, each director and officer shall be indemnified by
the Company for all costs and expenses (including attorneys' fees), judgments,
liabilities and amounts paid in settlement of such proceedings, even if he is
not successful on the merits, if he acted in good faith in the reasonable belief
that his action was in the best interest of the Company. The Board of Directors
may authorize advancing litigation expenses to a director or officer at his
request upon receipt of an undertaking by such director or officer to repay such
expenses if it is ultimately determined that he is not entitled to
indemnification for such expense. The Restated By-Laws provide that the
directors and officers of the Company shall be indemnified by the Company to the
fullest extent authorized by Massachusetts law, as it now exists or may in the
future be amended. In addition, the Amended and Restated Articles of
Organization of the Company (the "Restated Articles") provide that the directors
of the Company will not be personally liable for monetary damages to the Company
for breaches of their fiduciary duty as directors, unless they violated their
duty of loyalty to the Company or its shareholders, acted in bad faith,
knowingly or intentionally violated the law, authorized illegal dividends or
redemptions or derived an improper personal benefit from their action as
directors.
The Restated Articles provide that any amendment to the Restated Articles,
the sale, lease or exchange of all or substantially all of the Company's
property and assets, or the merger or consolidation of the Company into or with
any other corporation may be authorized by the approval of the holders of a
majority of the shares of each class of stock entitled to vote thereon, rather
than by two-thirds as otherwise provided by statute, provided that the
transactions have been authorized by a majority of the members of the Board of
Directors and the requirement of any other applicable provisions of the Restated
Articles have been met. In addition, the Restated Articles provide that shares
of the Company's Preferred Stock may be issued in the future without shareholder
approval and upon such terms and conditions, and having such rights, privileges
and preferences, as the Board of Directors may determine. The Company's Restated
By-Laws further provide that special meetings of shareholders may only be called
by the President or a majority of the Board of Directors, or by the Clerk upon
the written request of the holders of at least 40% of the Company's outstanding
Common Stock. See " -- Preferred Stock."
The Company has entered into separate indemnification agreements with each
of its directors and executive officers, whereby the Company agreed, among other
things, (i) to indemnify them to the fullest extent permitted by the Business
Corporation Law of the Commonwealth of Massachusetts, subject to specified
limitations, against certain liabilities actually and reasonably incurred by
them in any proceeding in which they are a party that may arise by reason of
their status as directors, officers, employees or agents or may arise by reason
of their serving as such at the request of the Company for another entity and
(ii) to advance their expenses incurred as a result of any proceeding against
them as to which they could be indemnified. The Company intends to enter into
similar separate indemnification agreements with any directors or officers who
may join the Company in the future. There is no pending litigation or proceeding
involving a director, officer, employee or other agent of the Company as to
which indemnification is being sought nor is the Company aware of any pending or
threatened litigation that may result in claims for indemnification.
TRANSFER AGENT AND REGISTRAR
The transfer agent and registrar for the Common Stock is Boston EquiServe,
L.P., Boston, Massachusetts.
51
<PAGE> 54
SHARES ELIGIBLE FOR FUTURE SALE
Sales of a substantial number of shares of Common Stock in the public
market following the offering (pursuant to Rule 144 of the Securities Act or
otherwise), as well as the issuance of shares upon exercise of employee stock
options, could adversely affect the prevailing market price of the Common Stock
and impair the Company's ability to raise additional capital through the sale of
equity securities. The Company and all of its executive officers and directors,
including those who are Selling Shareholders, who will hold in the aggregate
45,750 shares of Common Stock and exercisable options to purchase 185,995 shares
of Common Stock after the offering, have agreed that they will not, without the
prior written consent of Alex. Brown & Sons Incorporated, offer, sell, contract
to sell, transfer or otherwise dispose of, directly or indirectly, any shares of
the Common Stock, or any securities convertible into, or exercisable or
exchangeable for, Common Stock or warrants or other rights to purchase Common
Stock, prior to the expiration of 90 days from the date of the consummation of
the offering, except, with respect to the Company, (i) shares of Common Stock
issued pursuant to the exercise of outstanding options and (ii) options granted
to its employees, officers and directors under its existing employee stock
option plans so long as none of such options become exercisable during said 90
day period. Tractebel S.A. will hold 1,978,986 shares of Common Stock after the
offering, and has agreed that it will not, without the prior written consent of
Alex. Brown & Sons Incorporated, sell, contract to sell, transfer or otherwise
dispose of, directly or indirectly, any shares of Common Stock, or any
securities convertible into, or exercisable or exchangeable for, Common Stock or
warrants or other rights to purchase Common Stock, prior to the expiration of
180 days from the date of the consummation of this offering.
52
<PAGE> 55
UNDERWRITING
<TABLE>
Subject to the terms and conditions of the Underwriting Agreement, the
Underwriters named below (the "Underwriters"), through their Representatives,
Alex. Brown & Sons Incorporated, UBS Securities LLC and Adams, Harkness & Hill,
Inc., have severally agreed to purchase from the Company and the Selling
Shareholders the following respective number of shares of Common Stock at the
public offering price less the underwriting discounts and commissions set forth
on the front cover of this Prospectus:
<CAPTION>
NUMBER OF
UNDERWRITER SHARES
- ----------- ---------
<S> <C>
Alex. Brown & Sons Incorporated..................................................
UBS Securities LLC...............................................................
Adams, Harkness & Hill, Inc......................................................
---------
Total.......................................................................... 3,000,000
=========
</TABLE>
The Underwriting Agreement provides that the obligations of the
Underwriters are subject to certain conditions precedent and that the
Underwriters will purchase all shares of the Common Stock offered hereby if any
of such shares are purchased.
The Company and the Selling Shareholders have been advised by the
Representatives of the Underwriters that the Underwriters propose to offer the
shares of Common Stock to the public at the public offering price set forth on
the cover page of this Prospectus, and to certain dealers at such price less a
concession not in excess of $ per share. The Underwriters may allow, and
such dealers may reallow, a concession not in excess of $ per share to
certain other dealers. After the public offering, the public offering price and
other selling terms may be changed by the Representatives of the Underwriters.
The Company has granted to the Underwriters an option, exercisable not
later than 30 days after the date of this Prospectus, to purchase up to 450,000
additional shares of Common Stock at the public offering price less the
underwriting discounts and commissions set forth on the cover page of this
Prospectus. To the extent that the Underwriters exercise such option, each of
the Underwriters will have a firm commitment to purchase approximately the same
percentage thereof that the number of shares of Common Stock to be purchased by
it shown in the above table bears to 3,000,000, and the Company will be
obligated, pursuant to the option, to sell such shares to the Underwriters. The
Underwriters may exercise such option only to cover over-allotments made in
connection with the sale of the Common Stock offered hereby. If purchased, the
Underwriters will offer such additional shares on the same terms as those on
which the 3,000,000 shares are being offered.
The Company and the Selling Shareholders have agreed to indemnify the
Underwriters against certain liabilities, including liabilities under the
Securities Act of 1933, as amended.
The Company and all executive officers and directors of the Company,
including those who are Selling Shareholders, who will hold in the aggregate
45,750 shares of Common Stock and exercisable options to purchase 185,995 shares
of Common Stock after the offering, have agreed that they will not, directly or
53
<PAGE> 56
indirectly, without the prior written consent of Alex. Brown & Sons
Incorporated, offer, sell, offer to sell, contract to sell, grant any option to
purchase or otherwise dispose of any shares of Common Stock or other capital
stock of the Company or any securities convertible into, or exercisable or
exchangeable for, any shares of Common Stock or other capital stock of the
Company for a period of 90 days after the date of this Prospectus. Tractebel
S.A. will hold 1,978,986 shares of Common Stock after the offering, and has
agreed that it will not, directly or indirectly, without the prior written
consent of Alex. Brown & Sons Incorporated, offer, sell, offer to sell, contract
to sell, grant any option to purchase or otherwise dispose of any shares of
Common Stock or other capital stock of the Company or any securities convertible
into, or exercisable or exchangeable for, any shares of Common Stock or other
capital stock of the Company for a period of 180 days after the date of this
Prospectus.
The Representatives of the Underwriters have advised the Company and the
Selling Shareholders that the Underwriters do not intend to confirm sales to any
account over which they exercise discretionary authority.
In connection with this offering, certain Underwriters and selling group
members (if any) or their respective affiliates who are qualified registered
market makers on the Nasdaq National Market may engage in passive market making
on the Nasdaq National Market in accordance with Rule 10b-6A under the
Securities Exchange Act of 1933, as amended (the "Exchange Act") during the two
business day period before the commencement of offers or sales of the Common
Stock in this offering. The passive market making transactions must comply with
applicable volume and price limits and be identified as such. In general, a
passive market maker may display its bid at a price not in excess of the highest
independent bid for such security; if all independent bids are lowered before
the passive market maker's bid, however, such bid must then be lowered when
certain purchase limits are exceeded.
LEGAL MATTERS
The validity of the shares of Common Stock offered hereby will be passed
upon for the Company by Testa, Hurwitz & Thibeault, LLP, Boston, Massachusetts.
Certain legal matters in connection with this offering will be passed upon for
the Underwriters by Ropes & Gray, Boston, Massachusetts.
EXPERTS
The consolidated financial statements of the Company as of December 31,
1995 and for the year ended December 31, 1995, have been included herein and in
the registration statement in reliance upon the report of KPMG Peat Marwick LLP,
independent auditors, appearing elsewhere herein, and upon the authority of such
firm as experts in accounting and auditing.
The consolidated financial statements of the Company as of December 31,
1994 and for each of the two years in the period ended December 31, 1994
included herein and in the registration statement have been audited by Ernst &
Young LLP, independent auditors, as set forth in their reports thereon appearing
elsewhere herein. The report of Ernst & Young LLP covering the financial
statements for the year ended December 31, 1994 contains an explanatory
paragraph that states that the Company has incurred substantial losses in each
of the last five years, had negative cash flow from operations in 1994 and has a
stockholders' deficit at December 31, 1994 and that these conditions raise
substantial doubt about the Company's ability to continue as a going concern.
The consolidated financial statements do not include any adjustments that might
result from the outcome of this uncertainty. Such consolidated financial
statements and selected financial data are included in reliance upon such
reports given upon the authority of such firm as experts in accounting and
auditing.
54
<PAGE> 57
CHANGE IN INDEPENDENT ACCOUNTANTS
The Company retained KPMG Peat Marwick LLP as its independent auditors and
replaced Ernst & Young LLP on September 15, 1995. The report of Ernst & Young
LLP on the Company's financial statements for the year ended December 31, 1994
contained an explanatory paragraph about the Company's ability to continue as a
going concern. Since the initial engagement of Ernst & Young LLP for the year
ended December 31, 1988 and through the date of replacement, there were no
disagreements between the Company and Ernst & Young LLP on any matter of
accounting principles or practices, financial statement disclosure, or auditing
scope or procedure. The change in independent accountants was approved by the
Board of Directors.
ADDITIONAL INFORMATION
The Company is subject to the informational requirements of the Exchange
Act, and in accordance therewith files reports, proxy statements and other
information with the Securities and Exchange Commission (the "Commission"). Such
reports, proxy statements and other information filed by the Company can be
inspected and copied at the public reference facilities maintained by the
Commission at 450 Fifth Street, N.W., Room 1024, Judiciary Plaza, Washington,
D.C. 20549, and at the Commission's Regional Offices at 500 West Madison Street,
Suite 1400, Chicago, Illinois 60661 and 7 World Trade Center, Suite 1300, New
York, New York 10048. Copies of such material can be obtained from the Public
Reference Section of the Commission at 450 Fifth Street, N.W., Room 1024,
Judiciary Plaza, Washington, D.C. 20549, at prescribed rates. The Commission
maintains a Web site that contains reports, proxy and information statements and
other information regarding the Company; the address of such site is
http://www.sec.gov.
The Company has filed with the Commission a Registration Statement on Form
S-1 (including all amendments and exhibits thereto, the "Registration
Statement"), under the Securities Act of 1933, as amended, with respect to the
Common Stock offered hereby. As permitted by the rules and regulations of the
Commission, this Prospectus omits certain information contained in the
Registration Statement. For further information with respect to the Company and
the Common Stock offered hereby, reference is hereby made to the Registration
Statement and to the exhibits and schedules filed therewith as a part thereof.
Statements contained in this Prospectus regarding the contents of any agreement
or other document filed as an exhibit to the Registration Statement are not
necessarily complete, and in each instance reference is made to the copy of such
agreement filed as an exhibit to the Registration Statement. The Registration
Statement, including the exhibits and schedules thereto, may be inspected at the
public reference facilities maintained by the Commission at Room 1024, Judiciary
Plaza, 450 Fifth Street, N.W., Washington, DC 20549, and at certain of its
Regional Offices located at 7 World Trade Center, 13th Floor, New York, NY 10048
and 500 West Madison Street, Chicago, IL 60661. Copies of all or any part
thereof may be obtained at prescribed rates by mail from the Public Reference
Section of the Commission at 450 Fifth Street, Washington, DC 20549 upon payment
of the prescribed fees.
The Company intends to furnish to its shareholders annual reports
containing Consolidated Financial Statements audited by an independent
accounting firm and quarterly reports containing unaudited Consolidated
Financial Statements for the first three quarters of each fiscal year.
55
<PAGE> 58
SIPEX CORPORATION
<TABLE>
CONSOLIDATED FINANCIAL STATEMENTS
CONTENTS
<S> <C>
Independent Auditors' Reports......................................................... F-2
Consolidated Financial Statements:
Consolidated Balance Sheets at December 31, 1994 and 1995 and (unaudited) March
30, 1996......................................................................... F-5
Consolidated Statements of Operations for the year ended December 31, 1993, 1994 and
1995 and (unaudited) for the three months ended April 1, 1995 and March 30,
1996............................................................................. F-6
Consolidated Statements of Stockholders' Equity (Deficit) for the year ended
December 31, 1993, 1994 and 1995 and (unaudited) for the three months ended March
30, 1996......................................................................... F-7
Consolidated Statements of Cash Flows for the year ended
December 31, 1993, 1994 and 1995 and (unaudited) for the three months ended April
1, 1995 and March 30, 1996....................................................... F-8
Notes to Consolidated Financial Statements.......................................... F-9
</TABLE>
F-1
<PAGE> 59
INDEPENDENT AUDITORS' REPORT
The Board of Directors and Stockholders
Sipex Corporation:
We have audited the accompanying consolidated balance sheet of Sipex
Corporation (the Company) as of December 31, 1995, and the related consolidated
statements of operations, stockholders' equity (deficit), and cash flows for the
year then ended. 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 audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the consolidated financial position of Sipex
Corporation as of December 31, 1995, and the consolidated results of their
operations and their cash flows for the year then ended in conformity with
generally accepted accounting principles.
/s/ KPMG PEAT MARWICK LLP
Boston, Massachusetts
February 12, 1996
F-2
<PAGE> 60
REPORT OF INDEPENDENT AUDITORS
The Board of Directors and Stockholders
Sipex Corporation
We have audited the accompanying consolidated balance sheet of Sipex Corporation
(the Company) as of December 31, 1994, and the related consolidated statements
of operations, stockholders' equity (deficit), and cash flows for the year then
ended. 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 audit.
We conducted our audit in accordance with generally accepted auditing standards.
Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the consolidated financial position of Sipex Corporation
as of December 31, 1994 and the consolidated results of its operations and its
cash flows for the year then ended in conformity with generally accepted
accounting principles.
The accompanying consolidated financial statements have been prepared assuming
that Sipex Corporation will continue as a going concern. As more fully described
in Note 1, the Company has incurred substantial losses in each of the last five
years, had negative cash flow from operations in 1994 and has a stockholders'
deficit at December 31, 1994. These conditions raise substantial doubt about the
Company's ability to continue as a going concern. Management's plans with regard
to these matters are also described in Note 1. The consolidated financial
statements do not include any adjustments to reflect the possible future effects
on the recoverability and classification of assets or the amounts and
classification of liabilities that may result from the outcome of this
uncertainty.
/s/ ERNST & YOUNG LLP
Boston, Massachusetts
February 3, 1995
F-3
<PAGE> 61
REPORT OF INDEPENDENT AUDITORS
The Board of Directors and Stockholders
Sipex Corporation
We have audited the accompanying consolidated statements of operations,
stockholders' equity, and cash flows of Sipex Corporation (the Company) for the
year ended December 31, 1993. 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 audit.
We conducted our audit in accordance with generally accepted auditing standards.
Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the consolidated results of operations and cash flows of
Sipex Corporation for the year ended December 31, 1993, in conformity with
generally accepted accounting principles.
/s/ ERNST & YOUNG LLP
Boston, Massachusetts
January 31, 1994
F-4
<PAGE> 62
SIPEX CORPORATION
<TABLE>
CONSOLIDATED BALANCE SHEETS
<CAPTION>
PRO FORMA
DECEMBER 31, MARCH 30, MARCH 30,
------------------------------ -------------- ------------
ASSETS 1994 1995 1996 1996
- ---------------------------------------- ------------ ------------ -------------- ------------
(UNAUDITED)
<S> <C> <C> <C> <C>
Current assets:
Cash and cash equivalents............. $ 175,783 $ 257,349 $ 173,401 $ 6,790,045
Accounts receivable, less allowances
of $200,000, $240,000 and $270,000
in 1994, 1995 and March 30, 1996,
respectively........................ 4,014,249 5,233,724 4,046,264 4,046,264
Inventories........................... 5,459,208 7,414,386 9,212,979 9,212,979
Prepaid expenses...................... 107,709 225,121 475,707 178,229
------------ ------------ ----------- ------------
Total current assets........... 9,756,949 13,130,580 13,908,351 20,227,517
Property, plant and equipment, net...... 1,860,735 2,448,108 2,389,421 2,389,421
Intangible assets, net.................. 1,409,969 -- -- --
Other assets............................ 332,569 291,006 290,911 290,911
------------ ------------ ----------- ------------
Total assets................... $ 13,360,222 $ 15,869,694 $ 16,588,683 $ 22,907,849
============ ============ =========== ============
<CAPTION>
LIABILITIES AND STOCKHOLDERS' EQUITY
(DEFICIT)
- ----------------------------------------
Current liabilities:
Current portion of long-term debt..... $ 83,761 $ 209,437 $ 10,710,483 $ 210,483
Accounts payable...................... 2,500,919 3,921,715 3,475,588 3,475,588
Accrued expenses...................... 1,230,425 1,692,149 1,829,728 1,656,455
------------ ------------ ------------ ------------
Total current liabilities...... 3,815,105 5,823,301 16,015,799 5,342,526
Long-term debt, net of current
portion............................. 212,486 220,654 168,637 168,637
Long-term debt to affiliates.......... 9,400,019 11,709,710 1,800,000 --
------------ ------------ ------------ ------------
Total liabilities.............. 13,427,610 17,753,665 17,984,436 5,511,163
Stockholders' equity (deficit):
Common stock, $.01 par value,
authorized 25,000,000 shares, issued
and outstanding 4,681,186,
4,685,306, 4,729,441 and 6,890,156
shares in 1994, 1995, March 30, 1996
and pro forma March 30, 1996,
respectively........................ 46,812 46,853 47,294 68,901
Additional paid-in capital............ 45,466,202 45,467,658 45,484,871 64,255,703
Accumulated deficit................... (45,778,625) (47,581,304) (47,098,877) (47,098,877)
Cumulative translation adjustment..... 198,223 182,822 170,959 170,959
------------ ------------ ------------ ------------
Total stockholders' equity
(deficit).................... (67,388) (1,883,971) (1,395,753) 17,396,686
------------ ------------ ------------ ------------
Total liabilities and
stockholders' equity
(deficit).................... $ 13,360,222 $ 15,869,694 $ 16,588,683 $ 22,907,849
============ ============ ============ ============
</TABLE>
See accompanying notes to consolidated financial statements.
F-5
<PAGE> 63
SIPEX CORPORATION
<TABLE>
CONSOLIDATED STATEMENTS OF OPERATIONS
<CAPTION>
THREE MONTHS ENDED
YEAR ENDED DECEMBER 31, ------------------------
----------------------------------------- APRIL 1, MARCH 30,
1993 1994 1995 1995 1996
----------- ----------- ----------- ---------- ----------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Net sales..................... $27,532,865 $22,822,678 $29,978,525 $6,294,289 $8,522,649
Cost of sales................. 22,384,486 18,230,488 19,078,986 4,125,921 5,161,939
----------- ----------- ----------- ---------- ----------
Gross profit........ 5,148,379 4,592,190 10,899,539 2,168,368 3,360,710
Operating expenses:
Research and development.... 2,357,390 2,960,329 4,399,490 1,184,013 1,017,888
Marketing and selling....... 4,174,059 4,077,855 4,244,872 1,069,831 1,111,422
General and
administrative........... 1,956,485 1,894,023 1,905,849 565,276 482,563
Write-off of intangible
assets................... -- -- 1,319,970 -- --
----------- ----------- ----------- ---------- ----------
Total operating
expenses.......... 8,487,934 8,932,207 11,870,181 2,819,120 2,611,873
----------- ----------- ----------- ---------- ----------
Income (loss) from
operations.................. (3,339,555) (4,340,017) (970,642) (650,752) 748,837
Other income (expense):
Interest expense............ (493,616) (605,152) (909,894) (217,548) (236,420)
Other, net.................. 124,233 143,277 105,144 65,526 (14,033)
----------- ----------- ----------- ---------- ----------
(369,383) (461,875) (804,750) (152,022) (250,453)
----------- ----------- ----------- ---------- ----------
Income (loss) before income
taxes....................... (3,708,938) (4,801,892) (1,775,392) (802,774) 498,384
Income tax expense
(benefit)................... 11,594 (93,171) 27,287 5,000 15,957
----------- ----------- ----------- ---------- ----------
Net income (loss)............. $(3,720,532) $(4,708,721) $(1,802,679) $ (807,774) $ 482,427
=========== =========== ===========
Net income (loss) per common
and common equivalent
share....................... $ (0.78) $ (0.99) $ (0.38) $ (0.17) $ 0.09
=========== =========== =========== ========== ==========
Weighted average common stock
and common stock equivalents
outstanding................. 4,757,671 4,757,671 4,759,727 4,758,058 5,524,029
=========== =========== =========== ========== ==========
Pro forma:
Net income (loss)........... $ (938,418) $ (651,888) $ 711,465
=========== ========== ==========
Net income (loss) per common
and common equivalent
share.................... $ (0.14) $ (0.09) $ 0.09
=========== ========== ==========
</TABLE>
See accompanying notes to consolidated financial statements.
F-6
<PAGE> 64
SIPEX CORPORATION
<TABLE>
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIT)
<CAPTION>
COMMON STOCK
------------------- TOTAL
$.01 ADDITIONAL CUMULATIVE STOCKHOLDERS'
NUMBER OF PAR PAID-IN ACCUMULATED TRANSLATION EQUITY
SHARES VALUE CAPITAL DEFICIT ADJUSTMENT (DEFICIT)
--------- ------- ----------- ------------ ---------- -------------
<S> <C> <C> <C> <C> <C> <C>
Balance at
December 31, 1992.............. 4,681,186 $46,812 $40,466,202 $(37,349,372) $218,632 $ 3,382,274
Capital contributed in
connection with debt
forgiveness................. 5,000,000 5,000,000
Net loss....................... (3,720,532) (3,720,532)
Currency translation
adjustments................. 64,266 64,266
--------- ------- ----------- ------------ -------- ----------
Balance at
December 31, 1993.............. 4,681,186 46,812 45,466,202 (41,069,904) 282,898 4,726,008
Net loss....................... (4,708,721) (4,708,721)
Currency translation
adjustment.................. (84,675) (84,675)
--------- ------- ----------- ------------ -------- ----------
Balance at
December 31, 1994.............. 4,681,186 46,812 45,466,202 (45,778,625) 198,223 (67,388)
Acquisition of treasury
stock....................... (3,378) (34) (1,316) (1,350)
Issuance of common stock under
option plans................ 7,498 75 2,772 2,847
Net loss....................... (1,802,679) (1,802,679)
Currency translation
adjustment.................. (15,401) (15,401)
--------- ------- ----------- ------------ -------- ----------
Balance at
December 31, 1995.............. 4,685,306 $46,853 $45,467,658 $(47,581,304) $182,822 $(1,883,971)
Issuance of common stock under
option plans................ 44,135 441 17,213 17,654
Net income..................... 482,427 482,427
Currency translation
adjustment.................. (11,863) (11,863)
--------- ------- ----------- ------------ -------- ----------
Balance at
March 30, 1996 (unaudited)..... 4,729,441 $47,294 $45,484,871 $(47,098,877) $170,959 $(1,395,753)
========= ======= =========== ============ ======== ==========
</TABLE>
See accompanying notes to consolidated financial statements.
F-7
<PAGE> 65
SIPEX CORPORATION
<TABLE>
CONSOLIDATED STATEMENTS OF CASH FLOWS
<CAPTION>
THREE MONTHS ENDED
YEAR ENDED DECEMBER 31, ----------------------
------------------------------------- APRIL 1, MARCH 30,
1993 1994 1995 1995 1996
----------- ----------- ----------- --------- -----------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Operating activities:
Net income (loss)............................ $(3,720,532) $(4,708,721) $(1,802,679) $(807,774) $ 482,426
Adjustments to reconcile net income (loss) to
net cash provided by (used in) operating
activities:
Depreciation and amortization............ 2,068,647 1,415,845 2,297,550 355,000 253,626
Loss on sale of machinery and
equipment............................. 30,835 84,901 -- -- --
Allowance for receivables................ 98,994 110,000 166,000 -- 30,000
Changes in assets and liabilities:
(Increase) decrease in accounts
receivable............................ 815,841 (325,206) (1,248,355) 150,943 1,157,460
(Increase) decrease in inventories....... 2,481,054 580,358 (1,951,792) (320,875) (1,798,593)
(Increase) decrease in prepaid
expenses.............................. 14,887 42,099 (74,598) (25,982) (250,586)
Decrease in other assets................. 63,814 54,547 3,818 -- 95
Increase (decrease) in accounts
payable............................... (622,756) 844,894 1,274,176 (304,652) (446,127)
Increase (decrease) in accrued
expenses.............................. 89,667 (263,802) 442,646 348,848 137,579
----------- ----------- ----------- --------- -----------
Net cash provided by (used in)
operating activities................ 1,320,451 (2,165,085) (893,234) (604,492) (434,120)
Investing activities:
Purchases of property, plant and equipment... (373,296) (443,644) (1,213,760) (51,000) (194,938)
----------- ----------- ----------- --------- -----------
Net cash used in investing
activities.......................... (373,296) (443,644) (1,213,760) (51,000) (194,938)
Financing activities:
Proceeds from (payments of) long-term debt... (2,599,981) 1,613,162 786,819 750,000 300,000
Proceeds from issuance of common stock,
net........................................ -- -- 1,497 -- 17,654
Payment of capital lease obligations......... (28,807) (154,595) (105,074) (56,157) (50,971)
Payment of promissory note................... (300,000) -- -- -- --
Proceeds from issuance of subordinated
debt....................................... 1,800,000 1,200,000 1,509,710 -- 290,290
----------- ----------- ----------- --------- -----------
Net cash provided by (used in)
financing activities................ (1,128,788) 2,658,567 2,192,952 693,843 556,973
Effect of foreign currency exchange rate
changes on cash and cash equivalents......... 3,985 (154,574) (4,392) 14,572 (11,863)
----------- ----------- ----------- --------- -----------
Increase (decrease) in cash and cash
equivalents.................................. (177,648) (104,736) 81,566 52,923 (83,948)
Cash and cash equivalents at beginning of
period....................................... 458,167 280,519 175,783 175,783 257,349
----------- ----------- ----------- --------- -----------
Cash and cash equivalents at end of period..... $ 280,519 $ 175,783 $ 257,349 $ 228,706 $ 173,401
=========== =========== =========== ========= ===========
Supplemental cash flow disclosure:
Capital contribution from affiliate.......... $ 5,000,000 $ -- $ -- $ -- $ --
Cash paid during the period for:
Income taxes............................... 11,594 15,126 11,755 11,755 15,957
Interest................................... $ 446,636 $ 406,176 $ 817,697 169,204 115,016
=========== =========== =========== ========= ===========
Supplemental disclosure of non-cash investing
activities:
Acquisition of assets from capital lease
obligations................................ $ 233,906 $ 232,581 $ 252,080 $ 252,080 $ --
=========== =========== =========== ========= ===========
</TABLE>
See accompanying notes to consolidated financial statements.
F-8
<PAGE> 66
SIPEX CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1993, 1994 AND 1995
(INFORMATION PERTAINING TO THE THREE MONTHS ENDED
APRIL 1, 1995 AND MARCH 30, 1996 IS UNAUDITED)
(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of Presentation
Sipex Corporation (the Company) is a majority-owned subsidiary of
Tractebel, S.A. (the Parent). Sipex designs, manufactures and markets a wide
variety of analog integrated circuits which are focused on niche applications
within the computer and computer networking, industrial controls, test
equipment, telecommunications and electronic product markets. The Company
operates in the analog segment of the semiconductor industry. The accompanying
consolidated financial statements include the accounts of the Company and its
wholly-owned subsidiaries. All intercompany balances and transactions have been
eliminated in consolidation.
During the last five fiscal years, the Company has incurred losses which
management believes are attributable to reductions in defense spending by the
federal government, coupled with significant continuing investments by the
Company in new product development which, if they continue to be successful,
will enable the sale of products with broader commercial application. During
this period, capital required to effect this transition has been provided by the
Parent, affiliates and a revolving line of credit from Generale Bank. At
December 31, 1994, the Company was not assured of being able to secure adequate
financing to fund operations for the coming year.
During 1995, the Company's commercial sales increased from $14,000,000 to
$24,000,000. This increase resulted in the Company's achieving profitable
operations in the third and fourth quarters of 1995 (unaudited). However, the
ultimate success of the Company is dependent upon its ability to secure adequate
financing to fund future growth and to achieve profitable operations. The
Company believes that cash flow from operations, existing borrowing arrangements
and additional equity or other financing will be sufficient to fund operations
for the next eighteen months.
Revenue Recognition
Revenue from product sales is recognized at the time of shipment. Revenue
from engineering service contracts is recorded as performance or other
contractually specified milestones are reached. Additionally, the Company
accrues for estimated sales returns upon shipment.
Cash and Cash Equivalents
For purposes of the statement of cash flows, the Company considers all
highly liquid debt securities with an original maturity of three months or less
to be cash equivalents.
Inventories
Inventories are stated at the lower of cost or market. Costs are determined
using the first-in, first-out method.
F-9
<PAGE> 67
SIPEX CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
DECEMBER 31, 1993, 1994 AND 1995
(INFORMATION PERTAINING TO THE THREE MONTHS ENDED
APRIL 1, 1995 AND MARCH 30, 1996 IS UNAUDITED)
Property, Plant and Equipment
<TABLE>
Property, plant and equipment are stated at cost. Depreciation is provided
by using the straight-line and accelerated methods over their useful lives as
follows:
<CAPTION>
USEFUL LIVES
------------
<S> <C>
Machinery and equipment......................................... 2-10 years
Furniture, fixtures and office equipment........................ 5-10 years
Building and leasehold improvements............................. Lease term
</TABLE>
The Company reviews its long-lived assets for impairment whenever events or
changes in circumstances indicate that the carrying amount of an asset may not
be recoverable. If it is determined that the carrying amount of an asset cannot
be fully recovered, an impairment loss is recognized.
Intangibles
The intangible assets pertained principally to the acquisition by the
Company of certain businesses involved in the development and design of custom
and standard products with military applications. Amortization was recorded
using the straight-line method over a period of 10 years. At December 31, 1994,
accumulated amortization totaled $2,596,508. In June 1995, the Company was
notified by its customer that the customer would not be receiving any additional
follow-on orders for the purchase of certain military products relating to the
processes acquired with the aforementioned businesses. The Company consequently
commenced a review of the net realizable value of the related intangibles
assets. In view of the significant reduction in sales and cash flows relating to
this product line, coupled with the growth in the Company's commercial product
sales which utilize a different process technology, the decision was made in
1995 to write-off the remaining book value assigned to intangible assets.
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
stockholders' equity. Such transaction gains and losses are immaterial for all
periods presented.
Income Taxes
The Company accounts for income taxes in accordance with Statement of
Financial Accounting Standards No. 109, Accounting for Income Taxes ("FAS 109").
Pursuant to FAS 109, 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 income in the period that
includes the enactment date.
F-10
<PAGE> 68
SIPEX CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
DECEMBER 31, 1993, 1994 AND 1995
(INFORMATION PERTAINING TO THE THREE MONTHS ENDED
APRIL 1, 1995 AND MARCH 30, 1996 IS UNAUDITED)
Concentration of Credit Risk
Financial instruments of the Company consist of cash, accounts receivable,
accounts payable and bank indebtedness. The carrying amounts of these financial
instruments approximate their fair value. The write-offs to accounts receivable
were $171,000 and $6,000 for the years ended December 31, 1994 and 1995,
respectively.
Use of Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles 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.
Unaudited Interim Consolidated Financial Statements
The consolidated financial statements as of and for the three months ended
April 1, 1995 and March 30, 1996 are unaudited; however, they include all
adjustments (consisting of normal recurring adjustments) considered necessary by
management for a fair presentation of the financial position and results of
operations for these periods. The result of operations for interim periods are
not necessarily indicative of the results that may be expected for the entire
year.
Unaudited Pro Forma Presentation
The unaudited pro forma consolidated balance sheet is presented to give pro
forma effect to the April 8, 1996 closing of the sale by the Company of
2,160,715 shares of Common Stock, which provided gross proceeds to the Company
of approximately $19.1 million and the application of these proceeds by the
Company as if it occurred on March 30, 1996. As described in Note 12, the
primary use of the offering proceeds was to repay amounts outstanding under the
Company's various credit facilities. The unaudited pro forma consolidated
statement of operations data is presented to give pro forma effect to the
closing of the sale of shares as if it occurred on January 1, 1995.
Net Income (Loss) Per Share
Net income (loss) per share is based upon the weighted average number of
common and common equivalent shares outstanding (using the treasury stock
method) after certain adjustments described below. Common equivalent shares,
consisting of outstanding stock options, are included in the per share
calculations where the effect of their inclusion would be dilutive. Pursuant to
Securities and Exchange Commission Staff Accounting Bulletin No. 83, all common
and common equivalent shares issued at prices less than the initial public
offering price during the twelve-month period prior to the initial filing of the
Registration Statement for the initial public offering have been included in the
calculation as if they were outstanding for all periods using the treasury stock
method and the aforementioned assumed initial public offering price. Fully
diluted income (loss) per share approximates primary income (loss) per share.
New Accounting Pronouncement
In October 1995, the Financial Accounting Standards Board (the "FASB")
issued SFAS No. 123, "Accounting for Stock-Based Compensation," which
established financial accounting and reporting standards for stock-based
employee compensation plans. Companies are encouraged, rather than required,
F-11
<PAGE> 69
SIPEX CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
DECEMBER 31, 1993, 1994 AND 1995
(INFORMATION PERTAINING TO THE THREE MONTHS ENDED
APRIL 1, 1995 AND MARCH 30, 1996 IS UNAUDITED)
to adopt a new method that accounts for stock compensation awards based on their
fair value using an option pricing model. Companies that do not adopt this new
method will be required to make pro forma footnote disclosures of net income as
if the fair value-based method of accounting required by SFAS No. 123 had been
applied. The Company is required to adopt SFAS No. 123 beginning in fiscal year
1996. Adoption of this pronouncement is not expected to have a material impact
on the Company's financial position or results of operations because the Company
intends to make pro forma footnote disclosures in its financial statements as of
and for the year ending December 31, 1996 instead of adopting the new accounting
method.
(2) INVENTORIES
<TABLE>
Inventories were as follows:
<CAPTION>
MARCH 30,
1994 1995 1996
---- ---- ---------
<S> <C> <C> <C>
Raw materials........................ $2,180,005 $3,315,490 $3,421,541
Work-in-process...................... 1,895,569 3,117,454 3,835,451
Finished goods....................... 1,383,634 981,442 1,955,987
---------- ---------- ----------
$5,459,208 $7,414,386 $9,212,979
========== ========== ==========
</TABLE>
(3) PROPERTY, PLANT AND EQUIPMENT
<TABLE>
Property, plant and equipment were as follows:
<CAPTION>
MARCH 30,
1994 1995 1996
---- ---- ---------
<S> <C> <C> <C>
Machinery and equipment........... $21,894,357 $23,084,365 $22,857,935
Furniture, fixtures and office
equipment....................... 1,329,663 1,328,364 1,320,760
Leasehold improvements............ 1,992,071 1,956,632 1,956,632
----------- ----------- -----------
25,216,091 26,369,361 26,135,327
Less accumulated depreciation and
amortization.................... 23,355,356 23,921,253 23,745,906
----------- ----------- -----------
$ 1,860,735 $ 2,448,108 $ 2,389,421
=========== =========== ===========
</TABLE>
(4) ACCRUED EXPENSES
<TABLE>
Accrued expenses were as follows:
<CAPTION>
MARCH 30,
1994 1995 1996
---- ---- ---------
<S> <C> <C> <C>
Accrued compensation................. $ 486,512 $ 614,248 $ 637,052
Accrued commissions.................. 148,212 464,272 398,680
Accrued interest on subordinated
notes to affiliates................ -- 55,562 96,061
Other................................ 595,701 558,067 697,935
---------- ---------- ----------
$1,230,425 $1,692,149 $1,829,728
========== ========== ==========
</TABLE>
F-12
<PAGE> 70
SIPEX CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
DECEMBER 31, 1993, 1994 AND 1995
(INFORMATION PERTAINING TO THE THREE MONTHS ENDED
APRIL 1, 1995 AND MARCH 30, 1996 IS UNAUDITED)
(5) LONG TERM DEBT
<TABLE>
The Company's long-term debt is summarized as follows:
<CAPTION>
MARCH 30,
1994 1995 1996
---- ---- ---------
<S> <C> <C> <C>
Revolving line of credit....................... $6,400,019 $ 7,200,000 $ 7,500,000
Subordinated note payable to CEF............... 3,000,000 3,000,000 3,000,000
Subordinated notes payable to affiliate........ -- 1,509,710 1,800,000
Capital lease obligations...................... 277,825 416,533 366,969
Other.......................................... 18,422 13,558 12,151
---------- ----------- -----------
9,696,266 12,139,801 12,679,120
Less current portion........................... 83,761 209,437 10,710,483
---------- ----------- -----------
$9,612,505 $11,930,364 $ 1,968,637
========== =========== ===========
</TABLE>
The Company has refinanced its revolving credit agreement with Generale
Bank, which is affiliated with the Company by virtue of common ownership,
effective February 29, 1996. This agreement provides for a $7,500,000 line of
credit which expires on February 28, 1997 and is secured by the Company's
inventories and accounts receivable. This line bears interest at the prime rate
plus a commitment fee in the amount of 1/4% per annum of the unused amount. The
line also prohibits the payment of cash dividends without the consent of
Generale Bank.
During 1993, the Company received advances of $1,800,000 in exchange for a
5.5% two year promissory note payable to Compagnie Europeenne de Financement
S.A. (CEF), an affiliate of the Parent. During 1994, an additional advance from
CEF of $1,200,000 was received in exchange for a 6.9% 18 month promissory note
payable. On January 29, 1996, both notes were extended through February 28,
1997, when the amounts borrowed and the accrued interest, which accrues interest
beginning January 29, 1996 at the London Interbank Offered Rate plus a margin of
3/4%, are payable in full. Early repayment is allowed with mutual consent of
both the lender and the Company without premium.
During 1993, a $5,000,000 promissory note and $400,000 in accrued interest
payable to American Tractebel Corporation (ATC), an affiliate, was forgiven.
During 1995, ATC made a loan to the Company for up to $1,500,000 at an interest
rate of 7%, of which $1,209,710 is outstanding at December 31, 1995. The loan
matures on April 30, 2000 and is secured by certain equipment owned by the
Company. Also during 1995, ATC loaned the Company $300,000, with interest at 7%
maturing on January 1, 1997. The amounts borrowed under these two loan
agreements, plus accrued interest, are payable in full upon maturity.
In 1994 and 1995, the Company entered into long-term capital leases for
equipment which extend through 2000, with imputed interest rates ranging from 9%
to 19%.
See note 12 regarding the use of proceeds from the Company's initial public
offering to repay amounts outstanding under the Company's various credit
facilities.
F-13
<PAGE> 71
SIPEX CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
DECEMBER 31, 1993, 1994 AND 1995
(INFORMATION PERTAINING TO THE THREE MONTHS ENDED
APRIL 1, 1995 AND MARCH 30, 1996 IS UNAUDITED)
<TABLE>
The following is a schedule of principal payments on notes payable and
lease obligations:
<CAPTION>
YEAR ENDING DECEMBER 31:
------------------------
<S> <C>
1996...................................................... $ 209,437
1997...................................................... 10,674,800
1998...................................................... 38,761
1999...................................................... 7,093
2000...................................................... 1,209,710
-----------
$12,139,801
===========
</TABLE>
(6) INCOME TAXES
<TABLE>
Total federal, state and foreign income tax expense (benefit) for the years
ended December 31, 1993, 1994 and 1995, all of which is current, consists of the
following:
<CAPTION>
1993 1994 1995
---- ---- ----
<S> <C> <C> <C>
Federal............................................. $ -- $ -- $ --
State............................................... 11,594 12,000 (3,365)
Foreign............................................. -- (105,171) 30,652
-------- --------- -------
$11,594 $ (93,171) $27,287
======== ========= =======
</TABLE>
<TABLE>
The actual tax expense (benefit) for 1993, 1994 and 1995 differs from the
"expected" tax expense (computed by applying the statutory U.S. federal
corporate tax rate of 34% to earnings before income taxes) as follows:
<CAPTION>
1993 1994 1995
---- ---- ----
<S> <C> <C> <C>
Computed "expected" tax benefit.............. $(1,261,039) $(1,632,643) $(603,633)
State income tax, net of federal income tax
benefit.................................... 7,652 7,920 (2,221)
Intangibles amortization..................... 70,238 70,238 269,213
Increase in valuation allowance for loss
carryforward............................... 1,187,639 1,433,755 345,890
Other........................................ 7,104 27,559 18,038
----------- ----------- ---------
$ 11,594 $ (93,171) $ 27,287
=========== =========== =========
</TABLE>
F-14
<PAGE> 72
SIPEX CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
DECEMBER 31, 1993, 1994 AND 1995
(INFORMATION PERTAINING TO THE THREE MONTHS ENDED
APRIL 1, 1995 AND MARCH 30, 1996 IS UNAUDITED)
<TABLE>
The tax effects of temporary differences that give rise to significant
portions of the deferred tax assets and liabilities at December 31, 1994 and
1995 are presented below.
<CAPTION>
1994 1995
---- ----
<S> <C> <C>
Deferred tax assets:
Net operating loss carryforwards..................... $ 15,775,520 $ 16,214,804
Tax credit carryforwards............................. 665,602 665,602
Inventories, primarily non-deductible reserves....... 421,565 318,876
Accounts receivable, primarily allowances............ 80,252 40,232
Accrued expenses, principally provisions not
currently deductible.............................. 137,547 192,605
Fixed assets, due to differences in depreciation..... 1,692,895 1,512,702
------------ ------------
Total gross deferred tax assets.............. 18,773,381 18,944,821
Valuation allowance.................................. (18,626,780) (18,944,821)
------------ ------------
Net deferred tax assets...................... 146,601 --
Deferred tax liabilities:
Intangible assets, due to differences in
amortization...................................... (146,601) --
------------ ------------
Net deferred tax assets (liabilities)........ $ -- $ --
============ ============
</TABLE>
At December 31, 1995, the Company had U.S. net operating loss carryforwards
of approximately $42,000,000, which are available to offset future federal
taxable income through December 31, 2010. As of December 31, 1995 these loss
carryforwards could be utilized without limitation to offset future taxable
income of the Company. The Company anticipates that a public offering of shares
in the third quarter of 1996 will cause an annual limitation on the use of its
net operating loss carryforwards pursuant to the "change in ownership"
provisions of Section 382 of the Internal Revenue Code. The Company currently
estimates that this limitation will not materially impact its utilization of its
net operating loss carryforwards in the near term. The Company also has general
business tax credit carryforwards for federal income tax purposes of
approximately $666,000 which are available to reduce future federal income taxes
through December 31, 2004.
The valuation allowance against deferred tax assets as of December 31, 1993
and January 1, 1993 was $16,918,860 and $15,627,250, respectively.
(7) STOCKHOLDERS' EQUITY
Effective upon the closing of its initial public offering of shares of
Common Stock on April 8, 1996, the number of authorized shares of Common Stock
was increased pursuant to an Amended and Restated Articles of Organization and
the Board of Directors were authorized to issue up to 1,000,000 shares of
preferred stock with terms to be established by the Board at the time of
issuance. In addition, the Company stockholders approved a 1-for-4 reverse split
of its issued and outstanding Common Stock. All shares and per share data
presented in the accompanying consolidated financial statements have been
restated to reflect the increased number of authorized and decreased number of
outstanding shares of Common Stock.
At December 31, 1993, the Company maintained three stock option plans for
its employees. During 1994, the Board of Directors authorized the Company to
cancel substantially all outstanding, unexercised, stock options granted between
October 30, 1984 and October 21, 1988 under the 1981, 1986 and 1988 plans and
issued replacement options under the 1994 Plan.
F-15
<PAGE> 73
SIPEX CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
DECEMBER 31, 1993, 1994 AND 1995
(INFORMATION PERTAINING TO THE THREE MONTHS ENDED
APRIL 1, 1995 AND MARCH 30, 1996 IS UNAUDITED)
In April 1991, the Board of Directors approved the 1991 Non-Statutory Stock
Option Plan (the 1991 Plan). Options to purchase 372,154 shares of common stock
have been reserved for issuance under the 1991 Plan. Options granted under the
plan vest ratably over five years from the date of grant and expire ten years
from the date of grant. Options for 239,245 and 216,745 shares are outstanding
at December 31, 1994 and 1995, respectively, under the 1991 Plan.
In April 1993, the Board of Directors approved the 1993 Incentive Stock
Option Plan (the 1993 Plan). Options to purchase 132,909 shares of common stock
have been reserved for issuance under the 1993 Plan. The 1993 Plan allows for
the granting of incentive stock options and nonqualified stock options. Options
granted under the plan vest ratably over five years from the date of grant and
expire ten years from the date of grant. Options for 111,250 and 105,750 shares
are outstanding at December 31, 1994 and 1995, respectively, under the 1993
Plan.
<TABLE>
In October 1994, the Board of Directors approved the 1994 Stock Option and
Incentive Plan (the 1994 Plan). Options to purchase 593,750 shares of common
stock have been reserved for issuance under the 1994 Plan. The 1994 Plan allows
for the granting of incentive stock options and nonqualified stock options which
vest ratably over five years from the date of grant and expire ten years from
the date of grant. Options for 437,850 and 485,960 shares are outstanding at
December 31, 1994 and 1995, respectively, under the 1994 Plan.
<CAPTION>
NUMBER OF EXERCISE
OPTIONS PRICE PER OPTION
--------- ----------------
<S> <C> <C>
Outstanding at December 31, 1992........................... 339,224 $0.40-11.00
Granted.................................................... 72,500 $0.40
Canceled................................................... (14,375) $0.40-11.00
-------
Outstanding at December 31, 1993........................... 397,349 $0.40-11.00
Granted.................................................... 482,851 $0.40
Canceled................................................... (87,053) $0.40-11.00
-------
Outstanding at December 31, 1994........................... 793,147 $0.40-11.00
Exercised.................................................. (7,487) $0.40
Granted.................................................... 79,675 $0.40
Canceled................................................... (52,630) $0.40
-------
Outstanding at December 31, 1995........................... 812,705 $0.40-11.00
Exercised.................................................. 44,135 $0.40
Granted.................................................... 50,000 $9.50
Canceled................................................... 23,982 $0.40-11.00
-------
Outstanding at March 30, 1996 (unaudited).................. 794,588 $0.40-11.00
=======
</TABLE>
In January 1996, the Board of Directors approved the 1996 Employee Stock
Purchase Plan (1996 Purchase Plan), the 1996 Incentive Stock Option Plan (1996
ISO Plan) and the 1996 Non-Employee Director Stock Option Plan (1996 Director
Option Plan), all of which became effective upon the closing of the initial
public offering. The 1996 Purchase Plan provides for the purchase of a maximum
of 250,000 shares of Common Stock by participating employees. The 1996 ISO Plan
provides for the grant of options to purchase a maximum of 600,000 shares of
Common Stock to employees and the 1996 Director Option Plan provides for the
grant of options to purchase a maximum of 150,000 shares of
F-16
<PAGE> 74
SIPEX CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
DECEMBER 31, 1993, 1994 AND 1995
(INFORMATION PERTAINING TO THE THREE MONTHS ENDED
APRIL 1, 1995 AND MARCH 30, 1996 IS UNAUDITED)
Common Stock to non-employee directors of the Company. 50,000 options were
granted as of January 26, 1996 under the 1996 Director Option Plan at an
exercise price equal to $9.50 per share.
Options exercisable at December 31, 1995 and March 30, 1996 were 288,481
and 235,631, respectively. The outstanding options expire at various dates
through 2006.
(8) EMPLOYEE BENEFIT PLAN
The Company has a defined contribution retirement plan (401(k)) covering
substantially all employees. The Company matches 50% of the contributions made
by employees up to 6% of their annual compensation. The Company 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 the
retirement fund assets which are held by a corporate trustee. During 1993, 1994
and 1995, Company contributions to the plan were $76,000, $108,000 and $171,000,
respectively.
(9) COMMITMENTS AND CONTINGENCIES
The Company leases facilities and certain equipment under operating leases
expiring through 2000. The Company leases its corporate headquarters and
manufacturing facility from ATC Billerica Corporation, an affiliate of Tractebel
S.A., under an operating lease for $9,917 per month for the first year of the
lease, which payments are subject to an annual escalation. The lease expires on
January 31, 2001, subject to an option of the Company to extend for an
additional five-year period. Rent expense was approximately $733,000, $639,900
and $450,300 for the years ended December 31, 1993, 1994 and 1995, respectively.
<TABLE>
The following is a schedule of future minimum lease commitments under
operating leases with terms in excess of one year at December 31, 1995:
<CAPTION>
OPERATING
CALENDAR YEAR LEASES
------------- ---------
<S> <C>
1996............................................................ $ 531,000
1997............................................................ 271,000
1998............................................................ 209,000
1999............................................................ 209,000
Thereafter...................................................... 239,000
----------
$1,459,000
==========
</TABLE>
The Company received a Notice of Potential Liability from the Environmental
Protection Agency ("EPA") in June 1993 concerning a landfill identified as a
Superfund Site. The Company has denied any liability and believes the ultimate
outcome of this matter will not have a material impact on the consolidated
financial statements.
F-17
<PAGE> 75
SIPEX CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
DECEMBER 31, 1993, 1994 AND 1995
(INFORMATION PERTAINING TO THE THREE MONTHS ENDED
APRIL 1, 1995 AND MARCH 30, 1996 IS UNAUDITED)
(10) EXPORT SALES AND MAJOR CUSTOMERS
<TABLE>
Revenues by geographic area are summarized as follows:
<CAPTION>
1993 1994 1995
---- ---- ----
<S> <C> <C> <C>
United States..................... $20,849,308 $16,973,109 $19,368,341
Europe............................ 5,697,428 4,807,315 7,407,463
Far East.......................... 427,070 600,742 1,867,341
Japan............................. 559,059 441,512 1,335,380
----------- ----------- -----------
$27,532,865 $22,822,678 $29,978,525
=========== =========== ===========
</TABLE>
The Company's customer base consists primarily of original equipment
manufacturers and distributors in various industries. Sales to one customer
during 1993 and 1994 were approximately $7,542,000 and $2,362,000, respectively.
No single customer constituted more than 10% of sales in 1995.
(11) DEPENDENCE ON OUTSIDE FOUNDRIES
The Company currently relies on three different third-party foundries for
their supply of fully-processed semiconductor wafers. Although a number of such
foundries exist, the interruption or termination of the Company's current
manufacturing relationships could adversely affect the Company's business.
(12) SUBSEQUENT EVENT (UNAUDITED)
On April 8, 1996, the Company closed the sale, through an initial public
offering, of 2,160,715 shares of Common Stock. The proceeds to the Company from
the offering were $19.1 million before deducting expenses of the offering of
approximately $800,000. Of its total proceeds, $7.5 million was used to pay down
the outstanding balance of the revolving line of credit and $4.8 million was
used to pay off subordinated notes payable to affiliates. The Company
subsequently terminated its revolving credit facility, and is evaluating
replacement bank credit facilities.
F-18
<PAGE> 76
[INSIDE BACK COVER]
[Graphic depicting Sipex product line and different serial
interface products supported by this product line.]
<PAGE> 77
================================================================================
NO PERSON HAS BEEN AUTHORIZED IN CONNECTION WITH THE OFFERING MADE HEREBY
TO GIVE ANY INFORMATION OR TO MAKE ANY REPRESENTATION NOT CONTAINED IN THIS
PROSPECTUS AND, IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATION MUST NOT BE
RELIED UPON AS HAVING BEEN AUTHORIZED BY THE COMPANY OR ANY UNDERWRITER. THIS
PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL OR A SOLICITATION OF ANY OFFER
TO BUY ANY OF THE SECURITIES OFFERED HEREBY TO ANY PERSON OR BY ANYONE IN ANY
JURISDICTION IN WHICH IT IS UNLAWFUL TO MAKE SUCH OFFER OR SOLICITATION. NEITHER
THE DELIVERY OF THIS PROSPECTUS NOR ANY SALE MADE HEREUNDER SHALL, UNDER ANY
CIRCUMSTANCES, CREATE ANY IMPLICATION THAT THE INFORMATION CONTAINED HEREIN IS
CORRECT AS OF ANY DATE SUBSEQUENT TO THE DATE HEREOF.
------------------
<TABLE>
TABLE OF CONTENTS
<CAPTION>
PAGE
----
<S> <C>
Prospectus Summary.................. 3
Risk Factors........................ 6
Use of Proceeds..................... 13
Price Range of Common Stock......... 13
Dividend Policy..................... 13
Capitalization...................... 14
Dilution............................ 15
Selected Consolidated Financial
Data.............................. 16
Management's Discussion and Analysis
of Financial Condition and Results
of Operations..................... 18
Business............................ 25
Management.......................... 40
Certain Transactions................ 47
Principal and Selling
Shareholders...................... 48
Description of Capital Stock........ 49
Shares Eligible for Future Sale..... 52
Underwriting........................ 53
Legal Matters....................... 54
Experts............................. 54
Change in Independent Accountants... 55
Additional Information.............. 55
Index to Consolidated Financial
Statements.......................... F-1
</TABLE>
================================================================================
================================================================================
3,000,000 SHARES
[SIPEX LOGO]
COMMON STOCK
------------------
PROSPECTUS
------------------
ALEX. BROWN & SONS
INCORPORATED
UBS SECURITIES
ADAMS, HARKNESS & HILL, INC.
, 1996
================================================================================
<PAGE> 78
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.
<TABLE>
Estimated expenses (other than underwriting discounts and commissions)
payable in connection with the sale of the Common Stock offered hereby are as
follows:
<S> <C>
Registration fee.......................................................... $ 21,117
NASD filing fee........................................................... 6,624
Nasdaq National Market listing fee........................................ 17,500
Printing and engraving expenses........................................... 55,000
Legal fees and expenses................................................... 125,000
Accounting fees and expenses.............................................. 50,000
Blue Sky fees and expenses (including legal fees)......................... 10,000
Transfer agent and registrar fees and expenses............................ 2,500
Miscellaneous............................................................. 27,259
--------
Total........................................................... $315,000
========
</TABLE>
The Company will bear all expenses shown above.
ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
The Restated By-Laws provide that the directors and officers of the Company
shall be indemnified by the Company to the fullest extent authorized by
Massachusetts law, as it now exists or may in the future be amended, against all
expenses and liabilities reasonably incurred in connection with service for or
on behalf of the Company. In addition, the Restated Articles of Organization, as
amended (the "Restated Articles"), provide that the directors of the Company
will not be personally liable for monetary damages to the Company for breaches
of their fiduciary duty as directors, unless they violated their duty of loyalty
to the Company or its shareholders, acted in bad faith, knowingly or
intentionally violated the law, authorized illegal dividends or redemptions or
derived an improper personal benefit from their action as directors.
The Underwriting Agreement provides that the Underwriters are obligated,
under certain circumstances, to indemnify directors, officers and controlling
persons of the Company against certain liabilities, including liabilities under
the Securities Act of 1933, as amended (the "Act"). Reference is made to the
form of Underwriting Agreement filed as Exhibit 1.1 hereto.
The Company has entered into separate indemnification agreements with each
of its directors and officers, whereby the Company agreed, among other things,
(i) to indemnify them to the fullest extent permitted by the Business
Corporation Law of the Commonwealth of Massachusetts, subject to specified
limitations against certain liabilities actually and reasonably incurred by them
in any proceeding in which they are a party that may arise by reason of their
status as directors, officers, employees or agents or may arise by reason of
their serving as such at the request of the Company for another entity and (ii)
to advance their expenses incurred as a result of any proceeding against them as
to which they could be indemnified.
ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES.
In the three years preceding the filing of this registration statement, the
Company has issued the following securities that were not registered under the
Act:
(a) Issuances of Capital Stock.
None.
II-1
<PAGE> 79
(b) Issuance of Promissory Notes and Warrants.
During 1993 and 1994, Compagnie Europeenne de Financement S.A., an
affiliate of Tractebel S.A., advanced $1.8 million and $1.2 million to the
Company in exchange for an unsecured promissory note.
On April 6, 1995, American Tractebel agreed to advance up to $1.0 million
to the Company in exchange for a promissory note bearing interest at 7.0% per
annum and payable in monthly installments from May 1, 1995 through April 30,
2000 when any outstanding amounts under the note are due. Effective September
22, 1995, American Tractebel agreed to advance an additional $500,000 to the
Company, for an aggregate advance of $1.5 million, on the same terms as the
initial $1.0 million advance.
On August 10, 1995, American Tractebel advanced $300,000 to the Company in
exchange for an unsecured promissory note bearing interest at 7.0% per annum and
due January 1, 1997.
(c) Certain Grants and Exercises of Stock Options.
On April 22, 1993, the Company issued 66,250 options under its 1993 Stock
Option and Incentive Plan at an exercise price of $0.40. On April 25, 1994, the
Company issued 12,500 options under its 1993 Stock Option and Incentive Plan at
an exercise price of $0.40. On July 14, 1994, the Company issued 5,000 options
under its 1993 Stock Option and Incentive Plan at an exercise price of $0.40. On
July 15, 1994, the Company issued 12,500 options under its 1993 Stock Option and
Incentive Plan at an exercise price of $0.40. On September 15, 1994, the Company
issued 15,000 options under its 1993 Stock Option and Incentive Plan at an
exercise price of $0.40. On November 29, 1994, the Company issued 437,850
options under its 1994 Stock Option and Incentive Plan at an exercise price of
$0.40. On April 18, 1995, the Company issued 15,625 options under its 1994 Stock
Option and Incentive Plan at an exercise price of $0.40. On July 27, 1995, the
Company issued 55,305 options under its 1994 Stock Option and Incentive Plan at
an exercise price of $0.40. On August 23, 1995, the Company issued 1,375 options
under its 1994 Stock Option and Incentive Plan at an exercise price of $0.40. On
September 29, 1995, the Company issued 7,375 options under its 1994 Stock Option
and Incentive Plan at an exercise price of $0.40. On January 26, 1996, the
Company issued an aggregate of 50,000 options under the 1996 Non-Employee
Director Stock Option Plan to its non-employee directors at the Price to Public
shown on the cover page of the Prospectus.
On January 2, 1996, A. Neal Lambert exercised stock options for 12,000
shares of Common Stock, at an exercise price of $0.40 per share.
On January 26, 1996, James E. Donegan exercised stock options for 5,000
shares of Common Stock, at an exercise price of $0.40 per share.
On January 26, 1996, Raymond W. B. Chow exercised stock options for 20,000
shares of Common Stock, at an exercise price of $0.40 per share.
On January 26, 1996, Sanford Cohen exercised stock options for 5,000 shares
of Common Stock, at an exercise price of $0.40 per share.
No underwriters were involved in the foregoing sales of securities. Such
sales were made in reliance upon an exemption from the registration provisions
of the Securities Act set forth in Section 4(2) thereof or Regulation D
thereunder relative to sales by an issuer not involving any public offering or
the rules and regulations thereunder, or, in the case of options to purchase
Common Stock, Rule 701 of the Securities Act. All of the foregoing securities
are deemed restricted securities for the purposes of the Securities Act.
II-2
<PAGE> 80
ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES.
<TABLE>
(a) Exhibits:
<CAPTION>
EXHIBIT NO. DESCRIPTION
- ----------- -----------
<C> <S>
1.1 Form of Underwriting Agreement
*3.1 Form of Restated Articles of Organization, as amended
*3.2 Restated By-Laws of the Company
*4.1 Specimen certificate representing the Common Stock
*4.2 Form of Indemnification Agreement for directors and officers
5.1 Opinion of Testa, Hurwitz & Thibeault, LLP
*10.1 1988 Non-Statutory Stock Option Plan
*10.2 1991 Non-Statutory Stock Option Plan
*10.3 1993 Stock Option and Incentive Plan
*10.4 1994 Stock Option and Incentive Plan
*10.5 1996 Incentive Stock Option Plan
*10.6 1996 Non-Employee Director Stock Option Plan
*10.7 1996 Employee Stock Purchase Plan
*10.8 Agreement of Lease, dated January 31, 1996, between the Company and ATC
Billerica Corporation pertaining to 22 Linnell Circle, Billerica,
Massachusetts
*10.9 Lease Agreement, as amended, dated June 12, 1986, between the Company
and Greenback Associates
*10.10 Employment Agreement, dated January 1, 1988, between the Company and
James E. Donegan
*10.11 Employment Agreement, dated January 1, 1988, between the Company and
Frank R. DiPietro
*10.12 Employment Agreement, dated January 1, 1996, between the Company and
Raymond W. B. Chow
*10.13 Employment Agreement, dated July 18, 1988, between the Company and
Sanford Cohen
*10.14 Employment Agreement dated August 1, 1993, between the Company and A.
Neal Lambert
*10.15 Form of Sales Representative Agreement
*10.16 Form of Distributor Agreement
**11.1 Computation of Shares Used in Computing Net Income (Loss) Per Share
16.1 Letter from Ernst & Young LLP, the Company's former independent auditors
*21.1 Subsidiaries of the Company
23.1 Consent of Ernst & Young LLP
23.2 Consent of KPMG Peat Marwick LLP
23.3 Consent of Testa, Hurwitz & Thibeault, LLP (included in Exhibit 5.1)
24.1 Power of Attorney (see page II-5)
(b) Financial Statement Schedules
All schedules are omitted because they are not applicable or the required
information is shown in the Consolidated Financial Statements or Notes thereto.
- ---------------
<FN>
*Filed as an exhibit to the Company's Registration Statement on Form S-1 (File
No. 333-1328) and incorporated herein by reference.
**Filed as an exhibit to the Company's Quarterly Report on Form 10-Q for the
quarterly period ended March 30, 1996 and incorporated herein by reference.
</TABLE>
II-3
<PAGE> 81
ITEM 17. UNDERTAKINGS.
Insofar as indemnification for liabilities arising under the Act may be
permitted to directors, officers and controlling persons of the registrant
pursuant to provisions described in Item 14 above, or otherwise, the registrant
has been advised that in the opinion of the Securities and Exchange Commission
such indemnification is against public policy as expressed in the Act and is,
therefore, unenforceable. In the event that a claim for indemnification against
such liabilities (other than the payment by the registrant of expenses incurred
or paid by a director, officer or controlling person of the registrant in the
successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities being
registered, the registrant will, unless in the opinion of its counsel the matter
has been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against public
policy as expressed in the Act and will be governed by the final adjudication of
such issue.
The undersigned registrant hereby undertakes (1) to provide to the
underwriters at the closing specified in the underwriting agreement certificates
in such denominations and registered in such names as required by the
underwriters to permit prompt delivery to each purchaser; (2) that for purposes
of determining any liability under the Act, the information omitted from the
form of prospectus filed as part of a registration statement in reliance upon
Rule 430A and contained in the form of prospectus filed by the registrant
pursuant to Rule 424(b)(1) or (4) or 497(h) under the Act shall be deemed to be
part of this registration statement as of the time it was declared effective;
and (3) that for the purpose of determining any liability under the Act, each
post-effective amendment that contains a form of prospectus shall be deemed to
be a new registration statement relating to the securities offered therein, and
the offering of such securities at that time shall be deemed to be the initial
bona fide offering thereof.
II-4
<PAGE> 82
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended, the
registrant has duly caused this registration statement to be signed on its
behalf by the undersigned, thereunto duly authorized, in the City of Billerica,
Commonwealth of Massachusetts, on this 27th day of June, 1996.
SIPEX CORPORATION
/s/ JAMES E. DONEGAN
By: ----------------------------------
JAMES E. DONEGAN
CHAIRMAN, CHIEF EXECUTIVE OFFICER,
PRESIDENT AND CLERK
POWER OF ATTORNEY AND SIGNATURES
The undersigned directors and officers of SIPEX Corporation do hereby
constitute and appoint James E. Donegan and Frank R. DiPietro, and each of them
singly, with full power of substitution, our true and lawful attorneys-in-fact
and agents to do any and all acts and things in our name and behalf in our
capacities as directors and officers, and to execute any and all instruments for
us and in our names in the capacities indicated below which such person may deem
necessary or advisable to enable SIPEX Corporation to comply with the Securities
Act of 1933, as amended, and any rules, regulations and requirements of the
Securities and Exchange Commission, in connection with this registration
statement, including specifically, but not limited to, power and authority to
sign for us, or any of us, in the capacities indicated below, any and all
amendments (including post-effect amendments filed pursuant to Rule 462(b) of
the Securities Act of 1933, as amended) hereto; and we do hereby ratify and
confirm all that such person or persons shall do or cause to be done by virtue
hereof.
<TABLE>
Pursuant to the requirements of the Securities Act of 1933, as amended,
this registration statement has been signed by the following persons in the
capacities and on the dates indicated.
<CAPTION>
SIGNATURE TITLE(S) DATE
- ----------------------------------- ----------------------------------- ---------------
<C> <S> <C>
/s/ JAMES E. DONEGAN Chairman, Chief Executive Officer, June 27, 1996
- ---------------------------------- President (Principal Executive
JAMES E. DONEGAN Officer) and Clerk
/s/ FRANK R. DIPIETRO Senior Vice President, Chief June 27, 1996
- ---------------------------------- Financial Officer and Treasurer
FRANK R. DIPIETRO (Principal Financial Officer and
Principal Accounting Officer)
/s/ DANIEL DEROUX Director June 27, 1996
- ----------------------------------
DANIEL DEROUX
/s/ MANFRED LOEB Director June 27, 1996
- ----------------------------------
MANFRED LOEB
/s/ LIONEL H. OLMER Director June 27, 1996
- ----------------------------------
LIONEL H. OLMER
/s/ JOHN L. SPRAGUE Director June 27, 1996
- ----------------------------------
JOHN L. SPRAGUE
/s/ PHILIPPE VAN MARCKE Director June 27, 1996
- ----------------------------------
PHILIPPE VAN MARCKE
</TABLE>
II-5
<PAGE> 1
3,000,000 Shares
SIPEX CORPORATION
Common Stock
($.01 Par Value)
UNDERWRITING AGREEMENT
----------------------
July __, 1996
Alex. Brown & Sons Incorporated
UBS Securities LLC
Adams, Harkness & Hill, Inc.
As Representatives of the Several Underwriters
c/o Alex. Brown & Sons Incorporated
135 East Baltimore Street
Baltimore, Maryland 21202
Gentlemen:
SIPEX Corporation, a Massachusetts corporation (the "Company"),
Tractebel S.A. and Telfin S.A., affiliates and shareholders of the Company (the
"Affiliate Shareholders"), and certain officers of the Company (the "Management
Shareholders" and, together with the Affiliate Shareholders, the "Selling
Shareholders") propose to sell to the several underwriters (the "Underwriters")
named in Schedule I hereto for whom you are acting as representatives (the
"Representatives") an aggregate of 3,000,000 shares of the Company's Common
Stock, $.01 par value (the "Firm Shares"), of which 1,000,000 shares will be
sold by the Company and 2,000,000 shares will be sold by the Selling
Shareholders. The respective amounts of the Firm Shares to be so purchased by
the several Underwriters are set forth opposite their names in Schedule I
hereto, and the respective amounts to be sold by the Selling Shareholders are
set forth opposite their names in Schedule II hereto. The Company and the
Selling Shareholders are sometimes referred to herein collectively as the
"Sellers." The Company also proposes to sell at the Underwriters' option an
aggregate of up to 450,000 additional shares of the Company's Common Stock (the
"Option Shares") as set forth below.
<PAGE> 2
As the Representatives, you have advised the Company and the Selling
Shareholders (a) that you are authorized to enter into this Agreement on behalf
of the several Underwriters, and (b) that the several Underwriters are willing,
acting severally and not jointly, to purchase the numbers of Firm Shares set
forth opposite their respective names in Schedule I, plus their pro rata portion
of the Option Shares if you elect to exercise the over-allotment option in whole
or in part for the accounts of the several Underwriters. The Firm Shares and the
Option Shares (to the extent the aforementioned option is exercised) are herein
collectively called the "Shares."
In consideration of the mutual agreements contained herein and of the
interests of the parties in the transactions contemplated hereby, the parties
hereto agree as follows:
1. REPRESENTATIONS AND WARRANTIES OF THE COMPANY AND THE SELLING
-------------------------------------------------------------
SHAREHOLDERS.
------------
(a) The Company represents and warrants to each of the Underwriters
as follows:
(i) A registration statement on Form S-1 (File No. 333- ____)
with respect to the Shares has been carefully prepared by the Company
in conformity with the requirements of the Securities Act of 1933, as
amended (the "Act"), and the Rules and Regulations (the "Rules and
Regulations") of the Securities and Exchange Commission (the
"Commission") thereunder and has been filed with the Commission. Copies
of such registration statement, including any amendments thereto, the
preliminary prospectuses (meeting the requirements of the Rules and
Regulations) contained therein and the exhibits, financial statements
and schedules, as finally amended and revised, have heretofore been
delivered by the Company to you. Such registration statement, together
with any registration statement filed by the Company pursuant to Rule
462(b) of the Act, herein referred to as the "Registration Statement,"
which shall be deemed to include all information omitted therefrom in
reliance upon Rule 430A and contained in the Prospectus referred to
below, has become effective under the Act and no post-effective
amendment to the Registration Statement has been filed as of the date
of this Agreement. "Prospectus" means the form of prospectus first
filed with the Commission pursuant to Rule 424(b). Each preliminary
prospectus included in the Registration Statement prior to the time it
becomes effective is herein referred to as a "Preliminary Prospectus."
Any reference herein to the Prospectus shall be deemed to refer to and
include any supplements or amendments thereto filed with the Commission
after the date of filing of the Prospectus under Rules 424(b) or 430A,
and prior to the termination of the offering of the Shares by the
Underwriters.
(ii) The Company has been duly organized and is validly existing
as a corporation in good standing under the laws of The Commonwealth of
Massachusetts,
- 2 -
<PAGE> 3
with corporate power and authority to own or lease its properties and
conduct its business as described in the Registration Statement. Each
of the subsidiaries of the Company as listed in Schedule III hereto
(collectively, the "Subsidiaries") has been duly organized and is
validly existing as a corporation in good standing under the laws of
the jurisdiction of its incorporation, with corporate power and
authority to own or lease its properties and conduct its business as
described in the Registration Statement. The Subsidiaries are the only
subsidiaries, direct or indirect, of the Company. The Company and each
of the Subsidiaries are duly qualified to transact business in all
jurisdictions in which the conduct of their business requires such
qualification except where the failure to be so qualified could not
result in any material adverse change in the earnings, business,
management, properties, assets, rights, operations or condition
(financial or otherwise) of the Company and of the Subsidiaries taken
as a whole (a "Material Adverse Effect"). The outstanding shares of
capital stock of each of the Subsidiaries have been duly authorized and
validly issued, are fully paid and non-assessable and are owned by the
Company or another Subsidiary free and clear of all liens, encumbrances
and equities and claims; and no options, warrants or other rights to
purchase, agreements or other obligations to issue or other rights to
convert any obligations into shares of capital stock or ownership
interests in the Subsidiaries are outstanding.
(iii) The outstanding shares of Common Stock of the Company,
including all shares to be sold by the Selling Shareholders, have been
duly authorized and validly issued and are fully paid and
non-assessable; the portion of the Shares to be issued and sold by the
Company have been duly authorized and when issued and paid for as
contemplated herein will be validly issued, fully paid and
non-assessable; and no preemptive rights of stockholders exist with
respect to any of the Shares or the issue and sale thereof. Neither the
filing of the Registration Statement nor the offering or sale of the
Shares as contemplated by this Agreement gives rise to any rights,
other than those which have been waived or satisfied, for or relating
to the registration of any shares of Common Stock.
(iv) The information set forth under the caption
"Capitalization" in the Prospectus is true and correct. All of the
Shares conform to the description thereof contained in the Registration
Statement. The form of certificates for the Shares conforms to the
corporate law of the jurisdiction of the Company's incorporation.
(v) The Commission has not issued an order preventing or
suspending the use of any Prospectus relating to the proposed offering
of the Shares nor instituted proceedings for that purpose. The
Registration Statement contains, and the Prospectus and any amendments
or supplements thereto will contain, all statements which are required
to be stated therein by, and will conform to, the requirements of the
Act and the Rules and Regulations. The Registration Statement and any
amendment thereto do
- 3 -
<PAGE> 4
not contain, and will not contain, any untrue statement of a material
fact and do not omit, and will not omit, to state any material fact
required to be stated therein or necessary to make the statements
therein not misleading. The Prospectus and any amendments and
supplements thereto do not contain, and will not contain, any untrue
statement of material fact and do not omit, and will not omit, to state
any material fact required to be stated therein or necessary to make
the statements therein, in the light of the circumstances under which
they were made, not misleading; provided, however, that the Company
makes no representations or warranties as to information contained in
or omitted from the Registration Statement or the Prospectus, or any
such amendment or supplement, in reliance upon, and in conformity with,
written information furnished to the Company by or on behalf of any
Underwriter through the Representatives, specifically for use in the
preparation thereof.
(vi) The consolidated financial statements of the Company and
the Subsidiaries, together with related notes and schedules as set
forth in the Registration Statement, present fairly the financial
position and the results of operations and cash flows of the Company
and the consolidated Subsidiaries, at the indicated dates and for the
indicated periods. Such financial statements and related schedules have
been prepared in accordance with generally accepted principles of
accounting, consistently applied throughout the periods involved,
except as disclosed herein, and all adjustments necessary for a fair
presentation of results for such periods have been made. The summary
financial and statistical data included in the Registration Statement
presents fairly the information shown therein and such data has been
compiled on a basis consistent with the financial statements presented
therein and the books and records of the Company.
(vii) Each of Ernst & Young LLP and KPMG Peat Marwick LLP, who
have certified certain of the financial statements filed with the
Commission as part of the Registration Statement, are independent
public accountants as required by the Act and the Rules and
Regulations.
(viii) There is no action, suit, claim or proceeding pending or,
to the knowledge of the Company, threatened against the Company or any
of the Subsidiaries before any court or administrative agency or
otherwise which if determined adversely to the Company or any of its
Subsidiaries would have a Material Adverse Effect or prevent the
consummation of the transactions contemplated hereby, except as set
forth in the Registration Statement.
(ix) The Company and the Subsidiaries have good and marketable
title to all of the properties and assets reflected in the financial
statements (or as described in the Registration Statement) hereinabove
described, subject to no lien, mortgage, pledge, charge or encumbrance
of any kind except those reflected in such financial statements
- 4 -
<PAGE> 5
(or as described in the Registration Statement) or which are not
material in amount. The Company and the Subsidiaries occupy their
leased properties under valid and binding leases conforming in all
material respects to the description thereof set forth in the
Registration Statement.
(x) The Company and the Subsidiaries have filed all Federal,
State, local and foreign income tax returns which have been required to
be filed and have paid all taxes indicated by said returns and all
assessments received by them or any of them to the extent that such
taxes have become due and are not being contested in good faith. All
tax liabilities have been adequately provided for in the financial
statements of the Company.
(xi) Since the respective dates as of which information is given
in the Registration Statement, as it may be amended or supplemented,
there has not been any material adverse change or any development
involving a prospective material adverse change in or affecting the
earnings, business, management, properties, assets, rights, operations,
condition (financial or otherwise), or prospects of the Company and its
Subsidiaries taken as a whole, whether or not occurring in the ordinary
course of business, and there has not been any material transaction
entered into or any material transaction that is probable of being
entered into by the Company or the Subsidiaries, other than
transactions in the ordinary course of business and changes and
transactions described in the Registration Statement, as it may be
amended or supplemented. The Company and the Subsidiaries have no
material contingent obligations which are not disclosed in the
Company's financial statements which are included in the Registration
Statement.
(xii) Neither the Company nor any of the Subsidiaries is or with
the giving of notice or lapse of time or both, will be, in violation of
or in default under its Articles of Organization or By-Laws or under
any agreement, lease, contract, indenture or other instrument or
obligation to which it is a party or by which it, or any of its
properties, is bound and which default is of material significance in
respect of the condition, financial or otherwise, of the Company and
its Subsidiaries taken as a whole or the business, management,
properties, assets, rights, operations, condition (financial or
otherwise) of the Company and the Subsidiaries taken as a whole. The
execution and delivery of this Agreement and the consummation of the
transactions herein contemplated and the fulfillment of the terms
hereof will not conflict with or result in a breach of any of the terms
or provisions of, or constitute a default under, any material
indenture, mortgage, deed of trust or other agreement or instrument to
which the Company or any Subsidiary is a party, or of the Articles of
Organization or By-laws of the Company or any order, rule or regulation
applicable to the Company or any Subsidiary of any court or of any
regulatory body or administrative agency or other governmental body
having jurisdiction.
- 5 -
<PAGE> 6
(xiii) Each approval, consent, order, authorization,
designation, declaration or filing by or with any regulatory,
administrative or other governmental body necessary in connection with
the execution and delivery by the Company of this Agreement and the
consummation of the transactions herein contemplated (except such
additional steps as may be required by the Commission, the National
Association of Securities Dealers, Inc. (the "NASD") or such additional
steps as may be necessary to qualify the Shares for public offering by
the Underwriters under state securities or Blue Sky laws) has been
obtained or made and is in full force and effect.
(xiv) The Company and each of the Subsidiaries holds all
material licenses, certificates and permits from governmental
authorities which are necessary to the conduct of their businesses.
(xv) The Company and each Subsidiary owns or possesses
enforceable licenses or other rights to use all patents, patent
applications, trademarks and trademark applications, service marks,
service mark applications, trade names, copyrights, manufacturing
processes, formulae, trade secrets and know-how or other information,
(collectively "Intellectual Property") described in the Prospectus as
owned or used by them or which are necessary to the conduct of their
business as described in the Prospectus, except where the failure to
own or possess any such licenses or rights would not have a Material
Adverse Effect individually or in the aggregate. To the knowledge of
the Company, none of the patent rights owned or licensed by the Company
are unenforceable or invalid. The Company is not aware of any
infringement of or conflict with the rights or claims of others with
respect to any of the Company's products or Intellectual Property, or
any claim of any such infringement or conflict. The Company has not
granted any rights in the Intellectual Property to third parties and
the Company is not aware of the filing of patent application by third
parties or any other rights of third parties that would limit or
restrict the exploitation by the Company of any of the Company's
Intellectual Property. The Company is not aware of any ongoing
infringement of any of the Company's Intellectual Property rights by
any third party which could have a Material Adverse Effect individually
or in the aggregate. The Company has duly and properly filed or caused
to be filed with the United States Patent and Trademark Office all
United States patent applications referred to in the Prospectus or
listed on Exhibit A to the legal opinion of Testa, Hurwitz & Thibeault
LLP, furnished pursuant to Section 6(c) hereof.
- 6 -
<PAGE> 7
(xvi) Neither the Company nor any Subsidiary is an "investment
company" within the meaning of such term under the Investment Company
Act of 1940 and the rules and regulations of the Commission thereunder.
(xvii) The Company maintains a system of internal accounting
controls sufficient to provide reasonable assurances that (i)
transactions are executed in accordance with management's general or
specific authorization; (ii) transactions are recorded as necessary to
permit preparation of financial statements in conformity with generally
accepted accounting principles and to maintain accountability for
assets; (iii) access to assets is permitted only in accordance with
management's general or specific authorization; and (iv) the recorded
accountability for assets is compared with existing assets at
reasonable intervals and appropriate action is taken with respect to
any differences.
(xviii) The Company and each of its Subsidiaries carry, or are
covered by, insurance in such amounts and covering such risks as the
Company believes is adequate for the conduct of their respective
businesses and the value of their respective properties and as is
customary for companies engaged in similar industries.
(xix) The Company is in compliance in all material respects with
all presently applicable provisions of the Employee Retirement Income
Security Act of 1974, as amended, including the regulations and
published interpretations thereunder ("ERISA"); no "reportable event"
(as defined in ERISA) has occurred with respect to any "pension plan"
(as defined in ERISA) for which the Company would have any liability;
the Company has not incurred and does not expect to incur liability
under (i) Title IV of ERISA with respect to termination of, or
withdrawal from, any "pension plan" or (ii) Sections 412 or 4971 of the
Internal Revenue Code of 1986, as amended, including the regulations
and published interpretations thereunder (the "Code"); and each
"pension plan" for which the Company would have any liability that is
intended to be qualified under Section 401(a) of the Code is so
qualified in all material respects and nothing has occurred, whether by
action or by failure to act, which would cause the loss of such
qualification.
(xx) The Company confirms as of the date hereof that it is in
compliance with all provisions of Section 1 of Laws of Florida, Chapter
92-198, AN ACT RELATING TO DISCLOSURE OF DOING BUSINESS WITH CUBA, and
the Company further agrees that if it commences engaging in business
with the government of Cuba or with any person or affiliate located in
Cuba after the date the Registration Statement becomes or has become
effective with the Commission or with the Florida Department of Banking
and Finance (the "Department"), whichever date is later, or if the
information reported or incorporated by reference in the Prospectus, if
any, concerning the Company's business
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<PAGE> 8
with Cuba or with any person or affiliate located in Cuba changes in
any material way, the Company will provide the Department notice of
such business or change, as appropriate, in a form acceptable to the
Department.
(xxi) Neither the Company, nor to the Company's best knowledge,
any of its affiliates, has taken, or may take, directly or indirectly,
any action designed to cause or result in, or which has constituted the
stabilization or manipulation of the price of shares of Common Stock to
facilitate the sale or resale of the Shares. The Company acknowledges
that the Underwriters may engage in passive market making transactions
in the Shares on The Nasdaq National Market in accordance with Rule
10b-6A under the Exchange Act.
(xxii) No contract or document of a character required to be
described in the Registration Statement or the Prospectus or to be
filed as an exhibit to the Registration Statement is not so described
or filed as required.
(b) Each of the Selling Shareholders, severally and not jointly (except
with respect to the Affiliate Shareholders, each of whom shall be jointly and
severally liable for the representations and warranties of the other Affiliate
Shareholder), represents and warrants as follows:
(i) Such Selling Shareholder now has, or will have upon the
exercise of options to purchase such Firm Shares, and at the Closing
Date (as such date is hereinafter defined) will have good and
marketable title to the Firm Shares to be sold by such Selling
Shareholder, free and clear of any liens, encumbrances, equities and
claims, and full right, power and authority to effect the sale and
delivery of such Firm Shares; and upon the delivery of, against payment
for, such Firm Shares pursuant to this Agreement, the Underwriters will
acquire good and marketable title thereto, free and clear of any liens,
encumbrances, equities and claims.
(ii) Such Selling Shareholder has full right, power and, if not
an individual, authority to execute and deliver this Agreement, and to
perform its obligations hereunder. The execution and delivery of this
Agreement and the consummation by such Selling Shareholder of the
transactions herein contemplated and the fulfillment by such Selling
Shareholder of the terms hereof will not require any consent, approval,
authorization, or other order of any court, regulatory body,
administrative agency or other governmental body (except as may be
required under the Act, state securities laws or Blue Sky laws) and
will not result in a breach of any of the terms and provisions of, or
constitute a default under, organizational documents of such Selling
Shareholder, if not an individual, or any indenture, mortgage, deed of
trust or other agreement or instrument to which such Selling
Shareholder is a party, or of any order, rule or regulation applicable
to such Selling Shareholder of any court or of any
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<PAGE> 9
regulatory body or administrative agency or other governmental body
having jurisdiction.
(iii) Such Selling Shareholder has not taken and will not take,
directly or indirectly, any action designed to, or which has
constituted, or which might reasonably be expected to cause or result
in the stabilization or manipulation of the price of the Common Stock
of the Company and, other than as permitted by the Act, such Selling
Shareholder will distribute any prospectus or other offering material
in connection with the offering of the Shares.
(iv) Such Selling Shareholder is familiar with the Registration
Statement and has no knowledge of any material fact, condition or
information not disclosed in the Registration Statement which has
adversely affected or may adversely affect the business of the Company
or any of the Subsidiaries. The sale of the Firm Shares by such Selling
Shareholder pursuant hereto is not prompted by any information
concerning the Company or any of the Subsidiaries which is not set
forth in the Registration Statement. The information pertaining to such
Selling Shareholder under the caption "Principal and Selling
Shareholders" in the Prospectus is complete and accurate in all
material respects.
2. PURCHASE, SALE AND DELIVERY OF THE FIRM SHARES.
----------------------------------------------
(a) On the basis of the representations, warranties and covenants
herein contained, and subject to the conditions herein set forth, the Sellers
agree to sell to the Underwriters and each Underwriter agrees, severally and not
jointly, to purchase, at a price of $_____ per share, the number of Firm Shares
set forth opposite the name of each Underwriter in Schedule I hereof, subject to
adjustments in accordance with Section 9 hereof. The number of Firm Shares to be
purchased by each Underwriter from each Seller shall be as nearly as practicable
in the same proportion to the total number of Firm Shares being sold by each
Seller as the number of Firm Shares being purchased by each Underwriter bears to
the total number of Firm Shares to be sold hereunder. The obligations of the
Company and each of the Selling Shareholders shall be several and not joint
(except with respect to the Affiliate Shareholders, each of whom shall be
jointly and severally liable for the obligations of the other Affiliate
Shareholder).
(b) Payment for the Firm Shares to be sold hereunder is to be made
in immediately available funds by certified or bank cashier's checks drawn to
the order of the Company for the shares to be sold by it and to the order of the
Selling Shareholders for the shares to be sold by them, in each case against
delivery of certificates therefor to the Representatives for the several
accounts of the Underwriters. Such payment and delivery are to be made at the
offices of Alex. Brown & Sons Incorporated, 135 East Baltimore Street,
Baltimore, Maryland, at
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<PAGE> 10
10:00 a.m., Baltimore time, on the third business day after the date of this
Agreement or at such other time and date not later than five business days
thereafter as you and the Company shall agree upon, such time and date being
herein referred to as the "Closing Date." (As used herein, "business day" means
a day on which the New York Stock Exchange is open for trading and on which
banks in New York are open for business and not permitted by law or executive
order to be closed.) The certificates for the Firm Shares will be delivered in
such denominations and in such registrations as the Representatives request in
writing not later than the second full business day prior to the Closing Date,
and will be made available for inspection by the Representatives at least one
business day prior to the Closing Date.
(c) In addition, on the basis of the representations and warranties
herein contained and subject to the terms and conditions herein set forth, the
Company hereby grants an option to the several Underwriters to purchase the
Option Shares at the price per share as set forth in the first paragraph of this
Section 2. The option granted hereby may be exercised in whole or in part by
giving written notice (i) at any time before the Closing Date and (ii) only once
thereafter within 30 days after the date of this Agreement, by you, as
Representatives of the several Underwriters, to the Company, setting forth the
number of Option Shares as to which the several Underwriters are exercising the
option, the names and denominations in which the Option Shares are to be
registered and the time and date at which such certificates are to be delivered.
The time and date at which certificates for Option Shares are to be delivered
shall be determined by the Representatives but shall not be earlier than three
nor later than 10 full business days after the exercise of such option, nor in
any event prior to the Closing Date (such time and date being herein referred to
as the "Option Closing Date"). If the date of exercise of the option is three or
more days before the Closing Date, the notice of exercise shall set the Closing
Date as the Option Closing Date. The number of Option Shares to be purchased by
each Underwriter shall be in the same proportion to the total number of Option
Shares being purchased as the number of Firm Shares being purchased by such
Underwriter bears to the total number of Firm Shares, adjusted by you in such
manner as to avoid fractional shares. The option with respect to the Option
Shares granted hereunder may be exercised only to cover over-allotments in the
sale of the Firm Shares by the Underwriters. You, as Representatives of the
several Underwriters, may cancel such option at any time prior to its expiration
by giving written notice of such cancellation to the Company. To the extent, if
any, that the option is exercised, payment for the Option Shares shall be made
on the Option Closing Date in immediately available funds by certified or bank
cashier's check drawn to the order of the Company against delivery of
certificates therefor at the offices of Alex. Brown & Sons Incorporated, 135
East Baltimore Street, Baltimore, Maryland.
3. OFFERING BY THE UNDERWRITERS.
----------------------------
It is understood that the several Underwriters are to make a public
offering of the Firm Shares as soon as the Representatives deem it advisable to
do so. The Firm Shares are to be initially offered to the public at the initial
public offering price set forth in the Prospectus. The
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<PAGE> 11
Representatives may from time to time thereafter change the public offering
price and other selling terms. To the extent, if at all, that any Option Shares
are purchased pursuant to Section 2 hereof, the Underwriters will offer them to
the public on the foregoing terms.
It is further understood that you will act as the Representatives for
the Underwriters in the offering and sale of the Shares in accordance with a
Master Agreement Among Underwriters entered into by you and the several other
Underwriters.
4. COVENANTS OF THE COMPANY AND THE SELLING SHAREHOLDERS.
-----------------------------------------------------
(a) The Company covenants and agrees with the several Underwriters
that:
(i) The Company will (A) use its best efforts to cause the
Registration Statement to become effective or, if the procedure in Rule
430A of the Rules and Regulations is followed, to prepare and timely
file with the Commission under Rule 424(b) of the Rules and Regulations
a Prospectus in a form approved by the Representatives containing
information previously omitted at the time of effectiveness of the
Registration Statement in reliance on Rule 430A of the Rules and
Regulations, and (B) not file any amendment to the Registration
Statement or supplement to the Prospectus of which the Representatives
shall not previously have been advised and furnished with a copy or to
which the Representatives shall have reasonably objected in writing or
which is not in compliance with the Rules and Regulations.
(ii) The Company will advise the Representatives promptly (A)
when the Registration Statement or any post-effective amendment thereto
shall have become effective, (B) of receipt of any comments from the
Commission, (C) of any request of the Commission for amendment of the
Registration Statement or for supplement to the Prospectus or for any
additional information, and (D) of the issuance by the Commission of
any stop order suspending the effectiveness of the Registration
Statement or the use of the Prospectus or of the institution of any
proceedings for that purpose. The Company will use its best efforts to
prevent the issuance of any such stop order preventing or suspending
the use of the Prospectus and to obtain as soon as possible the lifting
thereof, if issued.
(iii) The Company will cooperate with the Representatives in
endeavoring to qualify the Shares for sale under the securities laws of
such jurisdictions as the Representatives may reasonably have
designated in writing and will make such applications, file such
documents, and furnish such information as may be reasonably required
for that purpose, provided the Company shall not be required to qualify
as a foreign corporation or to file a general consent to service of
process in any jurisdiction where it is not now so qualified or
required to file such a consent. The Company will, from time to time,
prepare and file such statements, reports, and other documents as
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<PAGE> 12
are or may be required to continue such qualifications in effect for so
long a period as the Representatives may reasonably request for
distribution of the Shares.
(iv) The Company will deliver to, or upon the order of, the
Representatives, from time to time, as many copies of any Preliminary
Prospectus as the Representatives may reasonably request. The Company
will deliver to, or upon the order of, the Representatives during the
period when delivery of a Prospectus is required under the Act, as many
copies of the Prospectus in final form, or as thereafter amended or
supplemented, as the Representatives may reasonably request. The
Company will deliver to the Representatives at or before the Closing
Date, three signed copies of the Registration Statement and all
amendments thereto including all exhibits filed therewith, and will
deliver to the Representatives such number of copies of the
Registration Statement (including such number of copies of the exhibits
filed therewith that may reasonably be requested), including documents
incorporated by reference therein, and of all amendments thereto, as
the Representatives may reasonably request.
(v) The Company will comply with the Act and the Rules and
Regulations, and the Securities Exchange Act of 1934 (the "Exchange
Act"), and the rules and regulations of the Commission thereunder, so
as to permit the completion of the distribution of the Shares as
contemplated in this Agreement and the Prospectus. If during the period
in which a prospectus is required by law to be delivered by an
Underwriter or dealer, any event shall occur as a result of which, in
the judgment of the Company or in the reasonable opinion of the
Underwriters, it becomes necessary to amend or supplement the
Prospectus in order to make the statements therein, in the light of the
circumstances existing at the time the Prospectus is delivered to a
purchaser, not misleading, or, if it is necessary at any time to amend
or supplement the Prospectus to comply with any law, the Company
promptly will prepare and file with the Commission an appropriate
amendment to the Registration Statement or supplement to the Prospectus
so that the Prospectus as so amended or supplemented will not, in the
light of the circumstances when it is so delivered, be misleading, or
so that the Prospectus will comply with the law.
(vi) The Company will make generally available to its security
holders, as soon as it is practicable to do so, but in any event not
later than 15 months after the effective date of the Registration
Statement, an earning statement (which need not be audited) in
reasonable detail, covering a period of at least 12 consecutive months
beginning after the effective date of the Registration Statement, which
earning statement shall satisfy the requirements of Section 11(a) of
the Act and Rule 158 of the Rules and Regulations and will advise you
in writing when such statement has been so made available.
(vii) The Company will, for a period of three years from the
Closing Date, deliver to the Representatives copies of annual reports
and copies of all other
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<PAGE> 13
documents, reports and information furnished by the Company to its
stockholders or with the Commission pursuant to the Act (other than
registration statements on Form S-8) or Section 13 of the Securities
Exchange Act of 1934, as amended. The Company will deliver to the
Representatives similar reports with respect to significant
subsidiaries, as that term is defined in the Rules and Regulations,
which are not consolidated in the Company's financial statements.
(viii) No offering, sale, short sale or other disposition of any
shares of Common Stock of the Company or other securities convertible
into or exchangeable or exercisable for shares of Common Stock or
derivative of Common Stock (or agreement for such) will be made for a
period of 180 days after the date of this Agreement, directly or
indirectly, by the Company otherwise than hereunder or with the prior
written consent of Alex. Brown & Sons Incorporated, except that the
Company may, without such consent, (A) issue shares upon the exercise
of options outstanding on the date of this Agreement issued pursuant to
its 1988 Non-Statutory Stock Option Plan, 1991 Non-Statutory Stock
Option Plan, 1993 Stock Option and Incentive Plan, 1994 Stock Option
and Incentive Plan, 1996 Non-Employee Director Stock Option Plan, 1996
Incentive Stock Option Plan or 1996 Employee Stock Purchase Plan and
(B) grant options, offer to sell and sell shares of Common Stock to its
employees and directors pursuant to the plans listed in clause (A).
(ix) The Company will use its best efforts to list, subject to
notice of issuance, the Shares being sold by the Company on The Nasdaq
National Market.
(x) The Company has caused each director of the Company to
furnish to you, on or prior to the date of this agreement, a letter or
letters, in form and substance satisfactory to the Underwriters,
pursuant to which each such person shall agree not to offer, sell, sell
short or otherwise dispose of any shares of Common Stock of the Company
or other capital stock of the Company, or any other securities
convertible, exchangeable or exercisable for Common Shares or
derivative of Common Shares owned by such person or request the
registration for the offer or sale of any of the foregoing (or as to
which such person has the right to direct the disposition of) for a
period of 90 days after the date of this Agreement, directly or
indirectly, except with the prior written consent of Alex. Brown & Sons
Incorporated ("Lockup Agreements").
(xi) The Company shall apply the net proceeds of its sale of the
Shares as set forth in the Prospectus and shall file such reports with
the Commission with respect to the sale of the Shares and the
application of the proceeds therefrom as may be required in accordance
with Rule 463 under the Act.
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<PAGE> 14
(xii) The Company shall not invest, or otherwise use the
proceeds received by the Company from its sale of the Shares in such a
manner as would require the Company or any of the Subsidiaries to
register as an investment company under the Investment Company Act of
1940, as amended (the "1940 Act").
(xiii) The Company will maintain a transfer agent and, if
necessary under the jurisdiction of incorporation of the Company, a
registrar for the Common Stock.
(xiv) The Company will not take, directly or indirectly, any
action designed to cause or result in, or that has constituted or might
reasonably be expected to constitute, the stabilization or manipulation
of the price of any securities of the Company.
(b) Each of the Affiliate Shareholders jointly and severally
covenants and agrees with the several Underwriters that:
(i) No offering, sale, short sale or other disposition of any
shares of Common Stock of the Company or other capital stock of the
Company or other securities convertible, exchangeable or exercisable
for Common Stock or derivative of Common Stock owned by such Affiliate
Shareholder or request for registration of the offer or sale of any of
the foregoing will be made for a period of 180 days after the date of
this Agreement, directly or indirectly, by such Affiliate Shareholder
otherwise than hereunder or with the prior written consent of Alex.
Brown & Sons Incorporated.
(ii) In order to document the Underwriters' compliance with the
reporting and withholding provisions of the Tax Equity and Fiscal
Responsibility Act of 1982 and the Interest and Dividend Tax Compliance
Act of 1983 with respect to the transactions herein contemplated, such
Affiliate Shareholder agrees to deliver to you prior to or at the
Closing Date a properly completed and executed United States Treasury
Department Form W-8 (or other applicable form or statement specified by
Treasury Department regulations in lieu thereof).
(iii) Such Affiliate Shareholder will not take, directly or
indirectly, any action designed to cause or result in, or that has
constituted or might reasonably be expected to constitute, the
stabilization or manipulation of the price of any securities of the
Company.
(c) Each of the Management Shareholders, severally and not jointly,
covenants and agrees with the several Underwriters that:
(i) No offering, sale, short sale or other disposition of any
shares of Common Stock of the Company or other capital stock of the
Company or other securities
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<PAGE> 15
convertible, exchangeable or exercisable for Common Stock or derivative
of Common Stock owned by such Management Shareholder or request for
registration of the offer or sale of any of the foregoing will be made
for a period of 90 days after the date of this Agreement, directly or
indirectly, by such Management Shareholder otherwise than hereunder or
with the prior written consent of Alex. Brown & Sons Incorporated.
(ii) In order to document the Underwriters' compliance with the
reporting and withholding provisions of the Tax Equity and Fiscal
Responsibility Act of 1982 and the Interest and Dividend Tax Compliance
Act of 1983 with respect to the transactions herein contemplated, such
Management Shareholder agrees to deliver to you prior to or at the
Closing Date a properly completed and executed United States Treasury
Department Form W-9 (or other applicable form or statement specified by
Treasury Department regulations in lieu thereof).
(iii) Such Management Shareholder will not take, directly or
indirectly, any action designed to cause or result in, or that has
constituted or might reasonably be expected to constitute, the
stabilization or manipulation of the price of any securities of the
Company.
5. COSTS AND EXPENSES.
------------------
The Company will pay all costs, expenses and fees incident to the
performance of the obligations of the Company under this Agreement, including,
without limiting the generality of the foregoing, the following: accounting fees
of the Company; the fees and disbursements of counsel for the Company and the
Management Shareholders; the cost of printing and delivering to, or as requested
by, the Underwriters copies of the Registration Statement, Preliminary
Prospectuses, the Prospectus, this Agreement, the Underwriters' Selling
Memorandum, the Underwriters' Invitation Letter, the Blue Sky Survey and any
supplements or amendments thereto; the filing fees of the Commission; the filing
fees and expenses (including legal fees and disbursements) incident to securing
any required review by the National Association of Securities Dealers, Inc. (the
"NASD") of the terms of the sale of the Shares; any fees of the Nasdaq National
Market; and the expenses, including the fees and disbursements of counsel for
the Underwriters, incurred in connection with the qualification of the Shares
under State securities or Blue Sky laws. The Affiliate Shareholders will pay all
fees and disbursements of counsel for the Affiliate Shareholders. Any transfer
taxes imposed on the sale of the Shares to the several Underwriters will be paid
by the Sellers pro rata. The Sellers shall not, however, be required to pay for
any of the Underwriters expenses (other than those related to qualification
under NASD regulation and State securities or Blue Sky laws) except that, if
this Agreement shall not be consummated because the conditions in Section 6
hereof are not satisfied, or because this Agreement is terminated by the
Representatives pursuant to Section 11 hereof, or by reason of any failure,
refusal or inability on the part of the Company or the Selling Shareholders to
perform any undertaking or satisfy any condition of this Agreement or to comply
with any of the
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<PAGE> 16
terms hereof on their part to be performed, unless such failure to satisfy said
condition or to comply with said terms be due to the default or omission of any
Underwriter, then the Company shall reimburse the several Underwriters for
reasonable out-of-pocket expenses, including fees and disbursements of counsel,
reasonably incurred in connection with investigating, marketing and proposing to
market the Shares or in contemplation of performing their obligations hereunder;
but the Company and the Selling Shareholders shall not in any event be liable to
any of the several Underwriters for damages on account of loss of anticipated
profits from the sale by them of the Shares.
6. CONDITIONS OF OBLIGATIONS OF THE UNDERWRITERS.
---------------------------------------------
The several obligations of the Underwriters to purchase the Firm Shares
on the Closing Date and the Option Shares, if any, on the Option Closing Date
are subject to the accuracy, as of the Closing Date or the Option Closing Date,
as the case may be, of the representations and warranties of the Company and the
Selling Shareholders contained herein, and to the performance by the Company and
the Selling Shareholders of their covenants and obligations hereunder and to the
following additional conditions:
(a) The Registration Statement and all post-effective amendments
thereto shall have become effective and any and all filings required by Rule 424
and Rule 430A of the Rules and Regulations shall have been made, and any request
of the Commission for additional information (to be included in the Registration
Statement or otherwise) shall have been disclosed to the Representatives and
complied with to their reasonable satisfaction. No stop order suspending the
effectiveness of the Registration Statement, as amended from time to time, shall
have been issued and no proceedings for that purpose shall have been taken or,
to the knowledge of the Company or the Selling Shareholders, shall be
contemplated by the Commission and no injunction, restraining order, or order of
any nature by a Federal or state court of competent jurisdiction shall have been
issued as of the Closing Date which would prevent the issuance of the Shares.
(b) The Representatives shall have received on the Closing Date or
the Option Closing Date, as the case may be, the opinion of Testa, Hurwitz &
Thibeault LLP, counsel for the Company and the Management Shareholders, dated
the Closing Date or the Option Closing Date, as the case may be, addressed to
the Underwriters (and stating that it may be relied upon by counsel to the
Underwriters) substantially to the effect that:
(i) The Company has been duly organized and is validly existing
as a corporation in good standing under the laws of The Commonwealth of
Massachusetts, with corporate power and authority to own or lease its
properties and conduct its business as described in the Registration
Statement and the Company is duly qualified to transact business in
each jurisdiction listed on Schedule IV attached hereto.
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<PAGE> 17
(ii) The Company has authorized and outstanding capital stock as
set forth under the caption "Capitalization" in the Prospectus; the
authorized shares of the Company's Common Stock have been duly
authorized; the outstanding shares of the Company's Common Stock,
including the Shares to be sold by the Selling Shareholders, have been
duly authorized and validly issued and, to the best of such counsel's
knowledge based solely on a certificate of the Treasurer of the
Company, are fully paid and non-assessable; all of the Shares conform
to the description thereof contained in the Prospectus; the
certificates for the Shares, assuming they are in the form filed with
the Commission, are in due and proper form; the shares of Common Stock,
including the Option Shares, if any, to be sold by the Company pursuant
to this Agreement have been duly authorized and will be validly issued,
fully paid and non-assessable when issued and paid for as contemplated
by this Agreement; and no preemptive rights of stockholders exist with
respect to any of the Shares or the issue or sale thereof.
(iii) Except as described in or contemplated by the Prospectus,
to the knowledge of such counsel, there are no outstanding securities
of the Company convertible or exchangeable into or evidencing the right
to purchase or subscribe for any shares of capital stock of the Company
and there are no outstanding or authorized options, warrants or rights
of any character obligating the Company to issue any shares of its
capital stock or any securities convertible or exchangeable into or
evidencing the right to purchase or subscribe for any shares of such
stock; and except as described in the Prospectus, to the knowledge of
such counsel, no holder of any securities of the Company or any other
person has the right, contractual or otherwise, which has not been
satisfied or effectively waived, to cause the Company to sell or
otherwise issue to them, or to permit them to underwrite the sale of,
any of the Shares or the right to have any Common Shares or other
securities of the Company included in the Registration Statement or the
right, as a result of the filing of the Registration Statement, to
require registration under the Act of any shares of Common Stock or
other securities of the Company.
(iv) The Registration Statement has become effective under the
Act and, to the best of the knowledge of such counsel, no stop order
proceedings with respect thereto have been instituted or are pending or
threatened under the Act.
(v) The Registration Statement, the Prospectus and each
amendment or supplement thereto comply as to form in all material
respects with the requirements of the Act and the applicable rules and
regulations thereunder (except that such counsel need express no
opinion as to the financial statements and related schedules therein).
(vi) The statements under the captions "Risk Factors -- Shares
Eligible for Future Sale," "Management -- Stock Plans," "Description of
Capital Stock" and "Shares Eligible for Future Sale" in the Prospectus,
insofar as such statements
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<PAGE> 18
constitute a summary of documents referred to therein or matters of
law, fairly summarize in all material respects the information called
for with respect to such documents and matters.
(vii) Such counsel does not know of any contracts or documents
required to be filed as exhibits to or incorporated by reference in the
Registration Statement or described in the Registration Statement or
the Prospectus which are not so filed, incorporated by reference or
described as required, and such contracts and documents as are
summarized in the Registration Statement or the Prospectus are fairly
summarized in all material respects.
(viii) Such counsel knows of no material legal or governmental
proceedings pending or threatened against the Company or any of the
Subsidiaries except as set forth in the Prospectus.
(ix) The execution and delivery of this Agreement and the
consummation of the transactions herein contemplated do not and will
not conflict with or result in a breach of any of the terms or
provisions of, or constitute a default under, the Articles of
Organization or By-laws of the Company, or any material agreement or
instrument listed as an Exhibit to the Registration Statement to which
the Company or any of the Subsidiaries is a party or by which the
Company or any of the Subsidiaries may be bound.
(x) This Agreement has been duly authorized, executed and
delivered by the Company.
(xi) No approval, consent, order, authorization, designation,
declaration or filing by or with any regulatory, administrative or
other governmental body is necessary in connection with the execution
and delivery of this Agreement and the consummation of the transactions
herein contemplated (other than as may be required by the NASD or as
required by State securities and Blue Sky laws as to which such counsel
need express no opinion) except such as have been obtained or made,
specifying the same.
(xii) The Company is not, and will not become as a result of the
consummation of the transactions contemplated by this Agreement and
application of the net proceeds therefrom as described in the
Prospectus, required to register as an investment company under the
1940 Act.
(xiii) This Agreement has been duly executed and delivered on
behalf of each of the Management Shareholders.
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<PAGE> 19
(xiv) To the knowledge of such counsel, each Management
Shareholder has full legal right and power, and any approval required
by law (other than as required by State securities and Blue Sky laws as
to which such counsel need express no opinion), to sell, assign,
transfer and deliver the portion of the Shares to be sold by such
Management Shareholder.
(xv) The Underwriters (assuming that they are bona fide
purchasers within the meaning of the Uniform Commercial Code) will have
acquired good and marketable title to the Shares being sold by each of
the Management Shareholders on the Closing Date, free and clear of all
liens, encumbrances, equities and claims.
In rendering such opinion Testa, Hurwitz & Thibeault LLPmay rely as to
matters governed by the laws of states other than Massachusetts or Federal laws
on local counsel in such jurisdictions, provided that in each case Testa,
Hurwitz & Thibeault LLPshall state that they believe that they and the
Underwriters are justified in relying on such other counsel. In addition to the
matters set forth above, such opinion shall also include a statement to the
effect that nothing has come to the attention of such counsel which leads them
to believe that (i) the Registration Statement, at the time it became effective
under the Act, contained an untrue statement of a material fact or omitted to
state a material fact required to be stated therein or necessary to make the
statements therein not misleading, and (ii) the Prospectus, or any supplement
thereto, on the date it was filed pursuant to the Rules and Regulations and as
of the Closing Date or the Option Closing Date, as the case may be, contained an
untrue statement of a material fact or omitted to state a material fact
necessary in order to make the statements, in the light of the circumstances
under which they are made, not misleading (except that such counsel need express
no view as to financial statements, schedules and statistical information
therein). With respect to such statement, Testa, Hurwitz & Thibeault LLPmay
state that their belief is based upon the procedures set forth therein, but is
without independent check and verification.
(c) The Representatives shall have received on the Closing Date the
opinion of the General Counsel of Tractebel S.A., counsel for the Affiliate
Shareholders, dated the Closing Date, addressed to the Underwriters (and stating
that it may be relied upon by counsel to the Underwriters) substantially to the
effect that:
(i) This Agreement has been duly authorized, executed and
delivered by or on behalf of each of the Affiliate Shareholders.
(ii) Each Affiliate Shareholder has full legal right, power and
authority, and any approval required by law (other than as required by
State securities and Blue Sky laws as to which such counsel need
express no opinion), to sell, assign, transfer and deliver the portion
of the Shares to be sold by such Affiliate Shareholder.
- 19 -
<PAGE> 20
(iii) The Underwriters (assuming that they are bona fide
purchasers within the meaning of the Uniform Commercial Code) will have
acquired good and marketable title to the Shares being sold by each of
the Affiliate Shareholders on the Closing Date, free and clear of all
liens, encumbrances, equities and claims.
(d) The Representatives shall have received on the Closing Date or
the Option Closing Date, as the case may be, the opinion of Testa, Hurwitz &
Thibeault LLP, intellectual property counsel for the Company, dated the Closing
Date or the Option Closing Date, as the case may be, addressed to the
Underwriters to the effect that such counsel has read the Registration Statement
and the Prospectus, including particularly the portions of the Registration
Statement and the Prospectus titled "Risk Factors -- Patents and Intellectual
Property Claims" and "Business -- Patents and Intellectual Property" (together,
the "Referenced Sections"), and:
(i) To the best of such counsel's knowledge, neither of the
Referenced Sections (A) contains any untrue statement of a material
fact with respect to trademarks, patents or other intellectual property
rights owned or used by the Company, or any allegation on the part of
any person or entity that the Company is infringing any trademarks,
patent rights or other intellectual property rights of any such person
or entity or (B) omits to state any fact relating to trademarks,
patents or other intellectual property rights owned or used by the
Company, which rights the Company has advised such counsel are material
to its business;
(ii) To the best of such counsel's knowledge, there are no legal
or governmental proceedings pending relating to trademarks, trade
names, patent rights, copyrights, licenses, trade secrets or other
intellectual property rights of the Company other than prosecution by
the Company of its patent and trademark/service mark applications
before the United States Patent and Trademark Office and appropriate
foreign governmental agencies, and to the best of such counsel's
knowledge no such proceedings are threatened or contemplated by
governmental authorities or others;
(iii) To the best of such counsel's knowledge, the Company duly
and properly holds the patents and trademark/service marks identified
on Schedules A and B attached to such counsel's opinion, and has duly
and properly filed patent and/or trademark/service mark applications
listed or otherwise referred to in the Prospectus under the Referenced
Sections;
(iv) Such counsel does not know of any contracts or other
documents relating to the Company's trademarks, patents or other
intellectual property rights which the Company has advised such counsel
that its business is dependent upon to a material extent;
- 20 -
<PAGE> 21
(v) Such counsel is not aware of any infringements by the
Company of any patents, trademarks or intellectual property rights of
others and such counsel is not aware of any infringements by others of
any patents, trademarks or intellectual property rights of the Company;
and
In rendering such opinion, such counsel may, to the extent stated
therein, rely as to matters of fact on certificates of officers of the Company,
copies of which shall be attached to the opinion. In rendering such opinion,
such counsel need not have conducted any independent investigation or conducted
searches to locate any third party patents, mask works, copyrights or other
intellectual property rights that might impact the Company's activities.
(e) The Representatives shall have received from Ropes & Gray,
counsel for the Underwriters, an opinion dated the Closing Date or the Option
Closing Date, as the case may be, substantially to the effect specified in
subparagraphs (ii), (iii), (iv), (v), (x) and (xiii) of Paragraph (b) and
subparagraph (i) of Paragraph (c) of this Section 6, and that the Company is a
duly organized and validly existing corporation under the laws of The
Commonwealth of Massachusetts. In rendering such opinion Ropes & Gray may rely
as to all matters governed other than by the laws of The Commonwealth of
Massachusetts or Federal laws on the opinions of local counsel referred to in
Paragraph (b) of this Section 6, and with respect to the matters set forth in
subparagraph (xiii) of Paragraph (b) and subparagraph (i) of Paragraph (c) of
this Section 6 on the opinions of counsel representing such Management
Shareholders and Affiliate Shareholders, respectively. In addition to the
matters set forth above, such opinion shall also include a statement to the
effect that nothing has come to the attention of such counsel which leads them
to believe that (i) the Registration Statement, or any amendment thereto, as of
the time it became effective under the Act (but after giving effect to any
modifications incorporated therein pursuant to Rule 430A under the Act) as of
the Closing Date or the Option Closing Date, as the case may be, contained an
untrue statement of a material fact or omitted to state a material fact required
to be stated therein or necessary to make the statements therein not misleading,
and (ii) the Prospectus, or any supplement thereto, on the date it was filed
pursuant to the Rules and Regulations and as of the Closing Date or the Option
Closing Date, as the case may be, contained an untrue statement of a material
fact or omitted to state a material fact, necessary in order to make the
statements, in the light of the circumstances under which they are made, not
misleading (except that such counsel need express no view as to financial
statements, schedules and statistical information therein). With respect to such
statement, Ropes & Gray may state that their belief is based upon the procedures
set forth therein, but is without independent check and verification.
(f) The Representatives shall have received at or prior to the
Closing Date from Ropes & Gray a memorandum or summary, in form and substance
satisfactory to the Representatives, with respect to the qualification for
offering and sale by the Underwriters of the Shares under the State securities
or Blue Sky laws of such jurisdictions as the Representatives may reasonably
have designated to the Company.
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<PAGE> 22
(g) You shall have received, on each of the dates hereof, the
Closing Date and the Option Closing Date, as the case may be, a letter dated the
date hereof, the Closing Date or the Option Closing Date, as the case may be, in
form and substance satisfactory to you, of KPMG Peat Marwick LLP confirming that
they are independent public accountants within the meaning of the Act and the
applicable published Rules and Regulations thereunder and stating that in their
opinion the financial statements and schedules examined by them and included in
the Registration Statement comply in form in all material respects with the
applicable accounting requirements of the Act and the related published Rules
and Regulations; and containing such other statements and information as is
ordinarily included in accountants' "comfort letters" to Underwriters with
respect to the financial statements and certain financial and statistical
information contained in the Registration Statement and Prospectus.
(h) The Representatives shall have received on the Closing Date or
the Option Closing Date, as the case may be, a certificate or certificates of
the Chief Executive Officer and the Chief Financial Officer of the Company to
the effect that, as of the Closing Date or the Option Closing Date, as the case
may be, each of them severally represents as follows:
(i) The Registration Statement has become effective under the
Act and no stop order suspending the effectiveness of the Registrations
Statement has been issued, and no proceedings for such purpose have
been taken or are, to his knowledge, contemplated by the Commission;
(ii) The representations and warranties of the Company contained
in Section 1 hereof are true and correct as of the Closing Date or the
Option Closing Date, as the case may be;
(iii) All filings required to have been made pursuant to Rules
424 or 430A under the Act have been made;
(iv) He has carefully examined the Registration Statement and
the Prospectus and, in his opinion, as of the effective date of the
Registration Statement, the statements contained in the Registration
Statement were true and correct, and such Registration Statement and
Prospectus did not omit to state a material fact required to be stated
therein or necessary in order to make the statements therein not
misleading, and since the effective date of the Registration Statement,
no event has occurred which should have been set forth in a supplement
to or an amendment of the Prospectus which has not been so set forth in
such supplement or amendment; and
(v) Since the respective dates as of which information is given
in the Registration Statement and Prospectus, there has not been any
material adverse change or any development involving a prospective
material adverse change in or affecting the
- 22 -
<PAGE> 23
condition, financial or otherwise, of the Company and its Subsidiaries
taken as a whole or the earnings, business, management, properties,
assets, rights, operations, condition (financial or otherwise) or
prospects of the Company and the Subsidiaries taken as a whole, whether
or not arising in the ordinary course of business.
(i) The Company and the Selling Shareholders shall have furnished to
the Representatives such further certificates and documents confirming the
representations and warranties, covenants and conditions contained herein and
related matters as the Representatives may reasonably have requested.
(j) The Firm Shares and Option Shares, if any, have been authorized
for inclusion on The Nasdaq National Market.
(k) The Lockup Agreements described in Section 4(x) shall be in full
force and effect.
The opinions and certificates mentioned in this Agreement shall be
deemed to be in compliance with the provisions hereof only if they are in all
material respects reasonably satisfactory to the Representatives and to Ropes &
Gray, counsel for the Underwriters.
If any of the conditions hereinabove provided for in this Section 6
shall not have been fulfilled when and as required by this Agreement to be
fulfilled, the obligations of the Underwriters hereunder may be terminated by
the Representatives by notifying the Company and the Selling Shareholders of
such termination in writing or by telegram at or prior to the Closing Date or
the Option Closing Date, as the case may be. In such event, the Selling
Shareholders, the Company and the Underwriters shall not be under any obligation
to each other (except to the extent provided in Sections 5 and 8 hereof).
7. CONDITIONS OF THE OBLIGATIONS OF THE SELLERS.
--------------------------------------------
The obligations of the Sellers to sell and deliver the portion of the
Shares required to be delivered as and when specified in this Agreement are
subject to the conditions that at the Closing Date or the Option Closing Date,
as the case may be, no stop order suspending the effectiveness of the
Registration Statement shall have been issued and in effect or proceedings
therefor initiated or threatened.
8. INDEMNIFICATION.
---------------
(a) The Company and the Selling Shareholders jointly and severally
agree to indemnify and hold harmless each Underwriter and each person, if any,
who controls any Underwriter within the meaning of the Act, against any losses,
claims, damages or liabilities to which such Underwriter or any such controlling
person may become subject under the Act
- 23 -
<PAGE> 24
or otherwise, insofar as such losses, claims, damages or liabilities (or actions
or proceedings in respect thereof) arise out of or are based upon (i) any untrue
statement or alleged untrue statement of any material fact contained in the
Registration Statement, any Preliminary Prospectus, the Prospectus or any
amendment or supplement thereto, or (ii) the omission or alleged omission to
state therein a material fact required to be stated therein or necessary to make
the statements therein not misleading; and will reimburse each Underwriter and
each such controlling person upon demand for any legal or other expenses
reasonably incurred by such Underwriter or such controlling person in connection
with investigating or defending any such loss, claim, damage or liability,
action or proceeding or in responding to a subpoena or governmental inquiry
related to the offering of the Shares, whether or not such Underwriter or
controlling person is a party to any action or proceeding; provided, however,
that the Company and the Selling Shareholders will not be liable in any such
case to the extent that any such loss, claim, damage or liability arises out of
or is based upon an untrue statement or alleged untrue statement, or omission or
alleged omission made in the Registration Statement, any Preliminary Prospectus,
the Prospectus, or such amendment or supplement, in reliance upon and in
conformity with written information furnished to the Company by or through the
Representatives specifically for use in the preparation thereof. This indemnity
agreement will be in addition to any liability which the Company or the Selling
Shareholders may otherwise have.
(b) Each Underwriter severally and not jointly will indemnify and
hold harmless the Company, each of its directors, each of its officers who have
signed the Registration Statement, each of the Selling Shareholders, and each
person, if any, who controls the Company or any Selling Shareholder within the
meaning of the Act, against any losses, claims, damages or liabilities to which
the Company or any such director, officer, Selling Shareholder or controlling
person may become subject under the Act or otherwise, insofar as such losses,
claims, damages or liabilities (or actions or proceedings in respect thereof)
arise out of or are based upon (i) any untrue statement or alleged untrue
statement of any material fact contained in the Registration Statement, any
Preliminary Prospectus, the Prospectus or any amendment or supplement thereto,
or (ii) the omission or the alleged omission to state therein a material fact
required to be stated therein or necessary to make the statements therein not
misleading in the light of the circumstances under which they were made; and
will reimburse any legal or other expenses reasonably incurred by the Company or
any such director, officer, Selling Shareholder or controlling person in
connection with investigating or defending any such loss, claim, damage,
liability, action or proceeding; provided, however, that each Underwriter will
be liable in each case to the extent, but only to the extent, that such untrue
statement or alleged untrue statement or omission or alleged omission has been
made in the Registration Statement, any Preliminary Prospectus, the Prospectus
or such amendment or supplement, in reliance upon and in conformity with written
information furnished to the Company by or through the Representatives
specifically for use in the preparation thereof. This indemnity agreement will
be in addition to any liability which such Underwriter may otherwise have.
- 24 -
<PAGE> 25
(c) In case any proceeding (including any governmental
investigation) shall be instituted involving any person in respect of which
indemnity may be sought pursuant to this Section 8, such person (the
"indemnified party") shall promptly notify the person against whom such
indemnity may be sought (the "indemnifying party") in writing. No
indemnification provided for in Section 8(a) or (b) shall be available to any
party who shall fail to give notice as provided in this Section 8(c) if the
party to whom notice was not given was unaware of the proceeding to which such
notice would have related and was materially prejudiced by the failure to give
such notice, but the failure to give such notice shall not relieve the
indemnifying party or parties from any liability which it or they may have to
the indemnified party for contribution or otherwise than on account of the
provisions of Section 8(a) or (b). In case any such proceeding shall be brought
against any indemnified party and it shall notify the indemnifying party of the
commencement thereof, the indemnifying party shall be entitled to participate
therein and, to the extent that it shall wish, jointly with any other
indemnifying party similarly notified, to assume the defense thereof, with
counsel satisfactory to such indemnified party and shall pay as incurred the
fees and disbursements of such counsel related to such proceeding. In any such
proceeding, any indemnified party shall have the right to retain its own counsel
at its own expense. Notwithstanding the foregoing, the indemnifying party shall
pay as incurred (or within 30 days of presentation) the fees and expenses of the
counsel retained by the indemnified party in the event (i) the indemnifying
party and the indemnified party shall have mutually agreed to the retention of
such counsel, (ii) the named parties to any such proceeding (including any
impleaded parties) include both the indemnifying party and the indemnified party
and representation of both parties by the same counsel would be inappropriate
due to actual or potential differing interests between them or (iii) the
indemnifying party shall have failed to assume the defense and employ counsel
acceptable to the indemnified party within a reasonable period of time after
notice of commencement of the action. It is understood that the indemnifying
party shall not, in connection with any proceeding or related proceedings in the
same jurisdiction, be liable for the reasonable fees and expenses of more than
one separate firm for all such indemnified parties. Such firm shall be
designated in writing by you in the case of parties indemnified pursuant to
Section 8(a) and by the Company and the Selling Shareholders in the case of
parties indemnified pursuant to Section 8(b). The indemnifying party shall not
be liable for any settlement of any proceeding effected without its written
consent but if settled with such consent or if there be a final judgment for the
plaintiff, the indemnifying party agrees to indemnify the indemnified party from
and against any loss or liability by reason of such settlement or judgment. In
addition, the indemnifying party will not, without the prior written consent of
the indemnified party, settle or compromise or consent to the entry of any
judgment in any pending or threatened claim, action or proceeding of which
indemnification may be sought hereunder (whether or not any indemnified party is
an actual or potential party to such claim, action or proceeding) unless such
settlement, compromise or consent includes an unconditional release of each
indemnified party from all liability arising out of such claim, action or
proceeding.
- 25 -
<PAGE> 26
(d) If the indemnification provided for in this Section 8 is
unavailable to or insufficient to hold harmless an indemnified party under
Section 8(a) or (b) above in respect of any losses, claims, damages or
liabilities (or actions or proceedings in respect thereof) referred to therein,
then each indemnifying party shall contribute to the amount paid or payable by
such indemnified party as a result of such losses, claims, damages or
liabilities (or actions or proceedings in respect thereof) in such proportion as
is appropriate to reflect the relative benefits received by the Company and each
of the Selling Shareholders on the one hand and the Underwriters on the other
from the offering of the Shares. If, however, the allocation provided by the
immediately preceding sentence is not permitted by applicable law then each
indemnifying party shall contribute to such amount paid or payable by such
indemnified party in such proportion as is appropriate to reflect not only such
relative benefits but also the relative fault of the Company and each of the
Selling Shareholders on the one hand and the Underwriters on the other in
connection with the statements or omissions which resulted in such losses,
claims, damages or liabilities (or actions or proceedings in respect thereof),
as well as any other relevant equitable considerations. The relative benefits
received by the Company and each of the Selling Shareholders on the one hand and
the Underwriters on the other shall be deemed to be in the same proportion as
the total net proceeds from the offering (before deducting expenses) received by
the Company and each of the Selling Shareholders bear to the total underwriting
discounts and commissions received by the Underwriters, in each case as set
forth in the table on the cover page of the Prospectus. The relative fault shall
be determined by reference to, among other things, whether the untrue or alleged
untrue statement of a material fact or the omission or alleged omission to state
a material fact relates to information supplied by the Company or any of the
Selling Shareholders on the one hand or the Underwriters on the other and the
parties' relative intent, knowledge, access to information and opportunity to
correct or prevent such statement or omission.
The Company, the Selling Shareholders and the Underwriters agree that
it would not be just and equitable if contributions pursuant to this Section
8(d) were determined by pro rata allocation (even if the Underwriters were
treated as one entity for such purpose) or by any other method of allocation
which does not take account of the equitable considerations referred to above in
this Section 8(d). The amount paid or payable by an indemnified party as a
result of the losses, claims, damages or liabilities (or actions or proceedings
in respect thereof) referred to above in this Section 8(d) shall be deemed to
include any legal or other expenses reasonably incurred by such indemnified
party in connection with investigating or defending any such action or claim.
Notwithstanding the provisions of this subsection (d), (i) no Underwriter shall
be required to contribute any amount in excess of the underwriting discounts and
commissions applicable to the Shares purchased by such Underwriter and (ii) no
person guilty of fraudulent misrepresentation (within the meaning of Section
11(f) of the Act) shall be entitled to contribution from any person who was not
guilty of such fraudulent misrepresentation. The Underwriters' obligations in
this Section 8(d) to contribute are several in proportion to their respective
underwriting obligations and not joint.
- 26 -
<PAGE> 27
(e) In any proceeding relating to the Registration Statement, any
Preliminary Prospectus, the Prospectus or any supplement or amendment thereto,
each party against whom contribution may be sought under this Section 8 hereby
consents to the jurisdiction of any court having jurisdiction over any other
contributing party, agrees that process issuing from such court may be served
upon him or it by any other contributing party and consents to the service of
such process and agrees that any other contributing party may join him or it as
an additional defendant in any such proceeding in which such other contributing
party is a party.
(f) Any losses, claims, damages, liabilities or expenses for which
an indemnified party is entitled to indemnification or contribution under this
Section 8 shall be paid by the indemnifying party to the indemnified party as
such losses, claims, damages, liabilities or expenses are incurred. The
indemnity and contribution agreements contained in this Section 8 and the
representations and warranties of the Company and the Selling Shareholders set
forth in this Agreement shall remain operative and in full force and effect,
regardless of (i) any investigation made by or on behalf of any Underwriter or
any person controlling any Underwriter, the Company, its directors or officers
or any persons controlling the Company, (ii) acceptance of any Shares and
payment therefor hereunder, and (iii) any termination of this Agreement. A
successor to any Underwriter, or to the Company, its directors or officers, or
any person controlling the Company, shall be entitled to the benefits of the
indemnity, contribution and reimbursement agreements contained in this
Section 8.
(g) In no event shall the liability for indemnification and/or
contribution under this Section 8 for any Management Shareholder exceed the
proceeds (net of underwriting discounts and commissions) received by such
Management Shareholder from the Underwriters in the offering.
9. DEFAULT BY UNDERWRITERS.
-----------------------
If on the Closing Date or the Option Closing Date, as the case may be,
any Underwriter shall fail to purchase and pay for the portion of the Shares
which such Underwriter has agreed to purchase and pay for on such date
(otherwise than by reason of any default on the part of the Company or a Selling
Shareholder), you, as Representatives of the Underwriters, shall use your
reasonable efforts to procure within 36 hours thereafter one or more of the
other Underwriters, or any others, to purchase from the Company and the Selling
Shareholders such amounts as may be agreed upon and upon the terms set forth
herein, the Firm Shares or Option Shares, as the case may be, which the
defaulting Underwriter or Underwriters failed to purchase. If during such 36
hours you, as such Representatives, shall not have procured such other
Underwriters, or any others, to purchase the Firm Shares or Option Shares, as
the case may be, agreed to be purchased by the defaulting Underwriter or
Underwriters, then (a) if the aggregate number of shares with respect to which
such default shall occur does not exceed 10% of the Firm Shares or Option
Shares, as the case may be,
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<PAGE> 28
covered hereby, the other Underwriters shall be obligated, severally, in
proportion to the respective numbers of Firm Shares or Option Shares, as the
case may be, which they are obligated to purchase hereunder, to purchase the
Firm Shares or Option Shares, as the case may be, which such defaulting
Underwriter or Underwriters failed to purchase, or (b) if the aggregate number
of shares of Firm Shares or Option Shares, as the case may be, with respect to
which such default shall occur exceeds 10% of the Firm Shares or Option Shares,
as the case may be, covered hereby, the Company and the Selling Shareholders or
you as the Representatives of the Underwriters will have the right, by written
notice given within the next 36-hour period to the parties to this Agreement, to
terminate this Agreement without liability on the part of the non-defaulting
Underwriters or of the Company or of the Selling Shareholders except to the
extent provided in Section 8 hereof. In the event of a default by any
Underwriter or Underwriters, as set forth in this Section 9, the Closing Date or
Option Closing Date, as the case may be, may be postponed for such period, not
exceeding seven days, as you, as Representatives, may determine in order that
the required changes in the Registration Statement or in the Prospectus or in
any other documents or arrangements may be effected. The term "Underwriter"
includes any person substituted for a defaulting Underwriter. Any action taken
under this Section 9 shall not relieve any defaulting Underwriter from liability
in respect of any default of such Underwriter under this Agreement.
10. NOTICES.
-------
All communications hereunder shall be in writing and, except as
otherwise provided herein, will be mailed, delivered, telecopied or telegraphed
and confirmed as follows: if to the Underwriters, to Alex. Brown & Sons
Incorporated, 135 East Baltimore Street, Baltimore, Maryland 21202. Attention:
General Counsel; if to the Company or the Management Shareholders, to SIPEX
Corporation, 22 Linnell Circle, Billerica, MA 02181, Attention: James E.
Donegan, Chairman and Chief Executive Officer with a copy to Timothy C. Maguire,
Esq., Testa, Hurwitz & Thibeault, High Street Tower, 125 High Street, Boston, MA
02110; if to the Affiliate Shareholders, to Telfin S.A., Place du Trone, 1000
Brussels, Belgium, Attention: Manfred Loeb.
11. TERMINATION.
-----------
This Agreement may be terminated by you by notice to the Sellers as
follows:
(a) at any time prior to the earlier of (i) the time the Shares are
released by you for sale by notice to the Underwriters, or (ii) 11:30 a.m. on
the date of this Agreement;
(b) at any time prior to the Closing Date if any of the following
has occurred: (i) since the respective dates as of which information is given in
the Registration Statement and the Prospectus, any material adverse change or
any development involving a prospective material adverse change in or affecting
the condition, financial or otherwise, of the Company
- 28 -
<PAGE> 29
and its Subsidiaries taken as a whole or the earnings, business, management,
operations or condition (financial or otherwise) of the Company and its
Subsidiaries taken as a whole, whether or not arising in the ordinary course of
business, (ii) any outbreak or escalation of hostilities or declaration of war
or national emergency or other national or international calamity or crisis or
change in economic or political conditions if the effect of such outbreak,
escalation, declaration, emergency, calamity, crisis or change on the financial
markets of the United States would, in your reasonable judgment, make it
impracticable to market the Shares or to enforce contracts for the sale of the
Shares, or (iii) suspension of trading in securities generally on the New York
Stock Exchange or limitation on prices (other than limitations on hours or
numbers of days of trading) for securities on the New York Stock Exchange, (iv)
the enactment, publication, decree or other promulgation of any statute,
regulation, rule or order of any court or other governmental authority which in
your opinion materially and adversely affects or may materially and adversely
affect the business or operations of the Company, (v) declaration of a banking
moratorium by United States or New York State authorities, (vi) the suspension
of trading of the Company's common stock by the Commission or the Nasdaq Stock
Market or (vii) the taking of any action by any governmental body or agency in
respect of its monetary or fiscal affairs which in your reasonable opinion has a
material adverse effect on the securities markets in the United States; or
(c) as provided in Sections 6 and 9 of this Agreement.
12. SUCCESSORS.
----------
This Agreement has been and is made solely for the benefit of the
Underwriters, the Company and the Selling Shareholders and their respective
successors, executors, administrators, heirs and assigns, and the officers,
directors and controlling persons referred to herein, and no other person will
have any right or obligation hereunder. No purchaser of any of the Shares from
any Underwriter shall be deemed a successor or assign merely because of such
purchase.
13. INFORMATION PROVIDED BY UNDERWRITERS.
------------------------------------
The Company, the Selling Shareholders and the Underwriters acknowledge
and agree that the only information furnished or to be furnished by any
Underwriter to the Company for inclusion in any Prospectus or the Registration
Statement consists of the information set forth in the last paragraph on the
front cover page (insofar as such information relates to the Underwriters),
legends required by Item 502(d) of Regulation S-K under the Act and the
information under the caption "Underwriting" in the Prospectus.
14. MISCELLANEOUS.
-------------
The reimbursement, indemnification and contribution agreements
contained in this
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<PAGE> 30
Agreement and the representations, warranties and covenants in this Agreement
shall remain in full force and effect regardless of (a) any termination of this
Agreement, (b) any investigation made by or on behalf of any Underwriter or
controlling person thereof, or by or on behalf of the Company or its directors
or officers and (c) delivery of and payment for the Shares under this Agreement.
This Agreement may be executed in two or more counterparts, each of
which shall be deemed an original, but all of which together shall constitute
one and the same instrument.
This Agreement shall be governed by, and construed in accordance with,
the laws of The Commonwealth of Massachusetts (without regard to the choice of
law provisions thereof).
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<PAGE> 31
If the foregoing letter is in accordance with your understanding of our
agreement, please sign and return to us the enclosed duplicates hereof,
whereupon it will become a binding agreement among the Selling Shareholders, the
Company and the several Underwriters in accordance with its terms.
Very truly yours,
SIPEX CORPORATION
By
--------------------------------------
President
TELFIN S.A.
By
--------------------------------------
----------------------------------------
James E. Donegan
----------------------------------------
Frank R. DiPietro
----------------------------------------
Raymond W.B. Chow
----------------------------------------
Sanford Cohen
----------------------------------------
A. Neal Lambert
- 31 -
<PAGE> 32
The foregoing Underwriting Agreement is
hereby confirmed and accepted as of the date
first above written.
ALEX. BROWN & SONS INCORPORATED
UBS SECURITIES LLC
ADAMS, HARKNESS & HILL, INC.
As Representatives of the several Underwriters
listed on Schedule I
By: ALEX. BROWN & SONS
INCORPORATED
By
--------------------------------
Authorized Officer
By: UBS SECURITIES LLC
By
--------------------------------
Authorized Officer
By: ADAMS, HARKNESS & HILL, INC.
By
--------------------------------
Authorized Officer
- 32 -
<PAGE> 33
SCHEDULE I
<TABLE>
SCHEDULE OF UNDERWRITERS
------------------------
<CAPTION>
Number of Firm Shares
Underwriter to be Purchased
- ----------- ---------------------
<S> <C> <C>
Alex Brown & Sons Incorporated
UBS Securities LLC
Adams, Harkness & Hill, Inc.
TOTAL
---------
3,000,000
</TABLE>
<PAGE> 34
SCHEDULE II
<TABLE>
LIST OF SELLING SHAREHOLDERS
----------------------------
<CAPTION>
Number of Firm Shares
Selling Shareholder to be Sold
- ------------------- ---------------------
<S> <C> <C>
Tractebel S.A.
Telfin S.A.
James E. Donegan 10,000
Frank R. DiPietro 10,000
Raymond W.B. Chow 10,000
Sanford Cohen 10,000
A. Neal Lambert 10,000
TOTAL
---------
2,000,000
</TABLE>
- 34 -
<PAGE> 35
SCHEDULE III
SUBSIDIARIES OF THE COMPANY
---------------------------
1. Nippon Sipex Corporation.
2. Sipex S.A.R.L.
3. Sipex GmbH.
<PAGE> 36
SCHEDULE IV
JURISDICTIONS IN WHICH QUALIFIED TO TRANSACT BUSINESS
-----------------------------------------------------
1. Massachusetts
2. California
- 36 -
<PAGE> 1
Exhibit 5.1
-------------------------------
TESTA, HURWITZ & THIBEAULT, LLP
-------------------------------
ATTORNEYS AT LAW
HIGH STREET TOWER 125 HIGH STREET
OFFICE (617) 248-7000 BOSTON, MASSACHUSETTS 02110 FAX (617) 248-7100
June 26, 1996
SIPEX Corporation
22 Linnell Circle
Billerica, Massachusetts 01821
Re: Registration Statement on Form S-1
Relating to 3,450,000 Shares of Common Stock
--------------------------------------------
Dear Sir or Madam:
This opinion relates to an aggregate of 3,450,000 shares of Common
Stock, par value $.01 per share (the "Common Stock"), of SIPEX Corporation (the
"Company"), which are the subject matter of a Registration Statement on Form S-
1 initially filed with the Securities and Exchange Commission on June 27, 1996
(the "Registration Statement").
The 3,450,000 shares of Common Stock covered by the Registration
Statement consist of 1,000,000 shares being sold by the Company, 2,000,000
shares being sold by certain selling shareholders of the Company (the "Selling
Shareholders") and an additional 450,000 shares subject to an over-allotment
option granted by the Company to the underwriters to be named in the prospectus
(the "Prospectus") included in the Registration Statement.
Based upon such investigation as we have deemed necessary, we are of
the opinion that the shares of Common Stock being sold by the Selling
Shareholders have been legally issued and are fully paid and nonassessable and
that when the 1,450,000 shares of Common Stock to be sold by the Company
pursuant to the Prospectus have been issued and paid for in accordance with the
terms described in the Prospectus, such shares of Common Stock will have been
validly issued and will be fully paid and nonassessable.
We hereby consent to the filing of this opinion as Exhibit 5.1 to the
Registration Statement and to the reference to our firm in the Prospectus under
the caption "Legal Matters."
Very truly yours,
/s/ Testa, Hurwitz & Thibeault, LLP
----------------------------------------
TESTA, HURWITZ & THIBEAULT, LLP
<PAGE> 1
Exhibit 16.1
June 26, 1996
Securities and Exchange Commission
450 Fifth Street N.W.
Washington, D.C.20549
Ladies and Gentlemen:
We have read the paragraph under the caption "Change in Independent
Accountants" in the Registration Statement on Form S-1 of Sipex Corporation to
be filed with the Securities and Exchange Commission and are in agreement with
the statements contained therein concerning our firm.
Very truly yours,
/s/ Ernst & Young LLP
Ernst & Young LLP
Boston, Massachusetts
<PAGE> 1
EXHIBIT 23.1
CONSENT OF INDEPENDENT AUDITORS
We consent to the reference to our firm under the caption "Experts" and
"Selected Financial Data" and the use of our reports dated February 3, 1995,
which contains an explanatory paragraph regarding the Company's ability to
continue as a going concern as described in Note 1 to the consolidated financial
statements, and January 31, 1994 with respect to the consolidated financial
statements of Sipex Corporation included in the Registration Statement (Form
S-1) and related Prospectus of Sipex Corporation for the registration of
3,450,000 shares of its common stock.
/s/ERNST & YOUNG LLP
Boston, Massachusetts
June 26, 1996
<PAGE> 1
EXHIBIT 23.2
INDEPENDENT AUDITORS' CONSENT
-----------------------------
The Board of Directors and Stockholders
Sipex Corporation:
We consent to the use of our report included herein and to the reference to our
firm under the heading "Selected Consolidated Financial Data" and "Experts" in
the prospectus.
/s/ KPMG Peat Marwick
---------------------
Boston, Massachusetts
June 26, 1996
