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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
---------------
FORM 10-Q
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 27, 1997
-------------------
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from __________________ to _____________________
Commission file number: 0-27892
SIREX Corporation
- --------------------------------------------------------------------------------
(Exact name of registrant as specified in its charter)
Massachusetts 04-6135748
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(State or other jurisdiction (I.R.S. Employer Identification No.)
of incorporation or organization)
22 Linnell Circle, Billerica, Massachusetts 01821
- --------------------------------------------------------------------------------
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (978) 667-8700
--------------
- ------------------------------------------------------------------------------
Former name, former address and former fiscal year if changed since last report.
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15 (d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes X No
----- -----
There were 17,561,692 shares of the Registration's Common Stock issued and
outstanding as of October 14, 1997.
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SIPEX CORPORATION
FORM 10-Q
NINE MONTHS ENDED SEPTEMBER 27, 1997
INDEX
Item Number Page
- ----------- ----
Part I: Financial Information
Item 1. Financial Statements
Condensed Consolidated Balance Sheets at 3
December 31, 1996 and September 27, 1997.
Condensed Consolidated Statements of Operations
for the three months and nine months ended
September 28, 1996 and September 27, 1997. 4
Condensed Consolidated Statements of Cash Flows
for the nine months ended September 28, 1996 and
September 27, 1997. 5
Notes To Condensed Consolidated Financial Statements. 6
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations. 7-9
Part II: Other Information
Item 1. Legal Proceedings *
Item 2. Changes in Securities *
Item 3. Defaults Upon Senior Securities *
Item 4. Submission of Matters to a Vote of Security Holders *
Item 5. Other Information *
Item 6. Exhibits and Reports on Form 8-K 10
Signatures 11
* No information provided due to inapplicability of item.
2
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Part I: FINANCIAL INFORMATION
Item 1: Financial Statements
SIPEX CORPORATION
CONDENSED CONSOLIDATED BALANCE SHEETS
(In thousands)
(Unaudited)
<TABLE>
<CAPTION>
December 31, September 27,
1996 1997
------------ -------------
<S> <C> <C>
Assets:
Current assets
Cash and cash equivalents $ 14,787 $ 7,712
Short-term investment securities 22,359 30,613
Accounts receivable, less allowances of $255 and
$261 at December 31, 1996 and September 27, 1997,
respectively 5,138 9,283
Inventories 11,625 11,220
Prepaid expenses and other current assets 208 564
-------- --------
Total current assets 54,117 59,392
Property, plant, and equipment, net 3,313 6,784
Other assets 219 174
======== ========
Total assets $ 57,649 $ 66,350
======== ========
Liabilities and Shareholders' Equity:
Current liabilities
Current portion of long term debt $ 190 $ 84
Accounts payable 2,571 2,170
Accrued expenses 1,436 2,869
-------- --------
Total current liabilities 4,197 5,123
Long term debt 43 12
-------- --------
Total liabilities 4,240 5,135
-------- --------
Shareholders' equity:
Preferred stock, $.01 par value, 1,000,000 shares
authorized and no shares issued or outstanding at
December 31, 1996 and September 27, 1997, respectively -- --
Common stock, $.01 par value, 40,000,000 shares
authorized and 17,068,398 and 17,560,492 shares
issued and outstanding at December 31, 1996 and
September 27, 1997, respectively 171 176
Additional paid-in capital 96,386 96,876
Accumulated deficit (43,304) (36,021)
Cumulative translation adjustment 156 184
-------- --------
Total shareholders' equity 53,409 61,215
-------- --------
Total liabilities and shareholders' equity $ 57,649 $ 66,350
======== ========
</TABLE>
Data reflects 2:1 stock split
See accompanying notes to condensed consolidated financial statements
3
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SIPEX CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, except per share data)
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
------------------------------- --------------------------------
September 28, September 27, September 28, September 27,
1996 1997 1996 1997
------------ ------------- ------------- -------------
<S> <C> <C> <C> <C>
Net sales $ 9,529 $ 13,297 $ 27,169 $ 36,282
Cost of sales 5,360 6,835 15,836 19,167
-------- -------- -------- --------
Gross profit 4,169 6,462 11,333 17,115
-------- -------- -------- --------
Operating expenses
Research and development 1,285 1,365 3,439 4,018
Marketing and selling 1,116 1,332 3,349 3,829
General and administrative 534 784 1,528 2,207
-------- -------- -------- --------
Total operating expenses 2,935 3,481 8,316 10,054
-------- -------- -------- --------
Income from operations 1,234 2,981 3,017 7,061
Other income (expense) 1 385 (327) 995
-------- -------- -------- --------
Income before income taxes 1,235 3,366 2,690 8,056
Income tax expense 35 272 84 773
-------- -------- -------- --------
Net income $ 1,200 $ 3,094 $ 2,606 $ 7,283
======== ======== ======== ========
Net income per common and
equivalent share $ 0.08 $ 0.17 $ 0.19 $ 0.40
======== ======== ======== ========
Weighted average common and common
equivalent shares outstanding 15,311 18,654 13,723 18,305
======== ======== ======== ========
</TABLE>
Data Reflects 2 for 1 Stock Split.
See accompanying notes to condensed consolidated financial statements
4
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SIPEX CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
(Unaudited)
<TABLE>
<CAPTION>
Nine Months Ended
--------------------------------------
September 28, September 27,
1996 1997
-------------- -------------
<S> <C> <C>
Operating activities:
Net income $ 2,606 $ 7,283
Adjustments to reconcile net income
to net cash (used in) provided by operating activities
Additions (reductions) to accounts receivable allowances 270 (60)
Depreciation and amortization 761 1,007
Changes in current assets and liabilities
Increase in accounts receivable (49) (4,085)
(Increase) decrease in inventories (4,360) 404
Decrease (increase) in prepaid expenses and other assets 101 (297)
(Decrease) increase in accounts payable and accrued expenses (1,158) 1,019
-------- --------
Net cash (used in) provided by operating activities (1,829) 5,271
-------- --------
Investing activities:
Proceeds from maturity of investment securities -- 2,344
Purchase of investment securities -- (10,598)
Purchase of property, plant, and equipment (1,188) (4,478)
-------- --------
Net cash used in investing activities (1,188) (12,732)
-------- --------
Financing activities:
Proceeds from issuance of common stock 18,289 495
Proceeds from (payment of) long-term debt (11,710) --
Payment of capital lease obligations (151) (137)
-------- --------
Net cash provided by financing activities 6,428 358
Effect of foreign currency translation adjustments (14) 28
-------- --------
Increase (decrease) in cash and cash equivalents 3,397 (7,075)
Cash and cash equivalents, beginning of period 257 14,787
-------- --------
Cash and cash equivalents, end of period $ 3,654 $ 7,712
======== ========
</TABLE>
See accompanying notes to condensed consolidated financial statements
5
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SIPEX CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
1. BASIS OF PRESENTATION
The accompanying unaudited financial statements have been prepared by SIPEX
Corporation (the "Company") pursuant to the rules and regulations of the
Securities and Exchange Commission regarding interim financial reporting.
Accordingly, they do not include all of the information and footnotes
required by generally accepted accounting principles for complete financial
statements and should be read in conjunction with the financial statements
and notes thereto for the year ended December 31, 1996 included in the
Company's 10-K filing. The accompanying financial statements reflect all
adjustments (consisting solely of normal, recurring adjustments) which are,
in the opinion of management, necessary for a fair presentation of results
for the interim periods presented. The results of operations for the nine
month period ended September 27, 1997 are not necessarily indicative of the
results to be expected for the full fiscal year.
2. INVENTORIES
(In thousands)
December 31, September 27,
1996 1997
------- -------
Inventories consist of:
Raw materials $ 5,142 $ 5,126
Work in process 3,627 3,590
Finished goods 2,856 2,504
------- -------
$11,625 $11,220
======= =======
3. NET INCOME PER SHARE
Net income per share is based upon the weighted average number of common
and common equivalent shares outstanding. 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. For the quarters ended
September 28, 1996 and September 27, 1997, fully diluted income per share
approximates primary income per share.
6
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Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations
This 10-Q contains certain statements of a forward-looking nature relating to
future events or the future financial performance of the Company and the
Company's actual future results may differ significantly from such statements.
In evaluating such statements, the various factors identified over the caption
"Factors Affecting Future Operating Results" should be considered.
Overview
SIPEX Corporation (the "Company") was organized and commenced operations in
1965. The Company is a leading manufacturer of high performance, high
value-added analog integrated circuits. The Company serves the broad analog
signal processing market with single, dual and multiprotocol interface circuits,
low power and high voltage application specific circuits, electroluminescent
driver, data converters, and power management circuits. Applications for the
Company's products include telecommunications including personal computers and
peripherals, battery powered hand-held devices, cellular telephones, test
equipment, factory automation, networking, process controls and satellites. The
Company operates in the analog segment of the semiconductor industry.
Results of operations
The table below presents the statement of operations for the three months
and nine months ended September 28, 1996 and September 27, 1997 as a percentage
of net sales and provides the percentage increase of such items comparing the
interim periods ended September 27, 1997 to the corresponding period from the
prior fiscal year.
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
----------------------------------------- -----------------------------------------
Percentage Percentage
September 28, September 27, Increase September 28, September 27, Increase
1996 1997 (Decrease) 1996 1997 (Decrease)
------------- ------------- ---------- ------------- ------------- ----------
<S> <C> <C> <C> <C> <C> <C>
Net sales 100% 100% 39.5% 100% 100% 33.5%
Cost of sales 56.2 51.4 27.5 58.3 52.8 21.0
----- ----- ------- ----- ----- -----
Gross profit 43.8 48.6 55.0 41.7 47.2 51.0
----- ----- ------- ----- ----- -----
Operating expenses
Research and development 13.5 10.3 6.2 12.7 11.1 16.8
Marketing and selling 11.7 10.0 19.4 12.3 10.6 14.3
General and administrative 5.6 5.9 46.8 5.6 6.1 44.4
----- ----- ------- ----- ----- -----
Total operating expenses 30.8 26.2 18.6 30.6 27.7 20.9
----- ----- ------- ----- ----- -----
Operating income 13.0 22.4 141.6 11.1 19.5 134.0
Other income (expense) 0.0 2.9 38400.0 (1.2) 2.7 404.3
----- ----- ------- ----- ----- -----
Income before income taxes 13.0 25.3 172.6 9.9 22.2 199.5
Income tax expense 0.4 2.0 677.1 0.3 2.1 820.2
----- ----- ------- ----- ----- -----
Net income 12.6% 23.3% 157.8% 9.6% 20.1% 179.5%
===== ===== ======= ===== ===== =====
</TABLE>
7
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Net sales for both the third quarter and first nine months of 1997
increased 39.5% and 33.5% to $13.3 million and $36.3 million, respectively, as
compared to the same periods in the previous year. For the third quarter and
first nine months of 1997, net sales increased primarily due to higher unit
sales of the Company's proprietary interface circuits, application specific
circuits and electroluminescent driver circuits. Both domestic and international
sales increased during the third quarter and first nine months of 1997 as
compared to the corresponding periods in the prior year.
Gross profit increased for both the third quarter and first nine months of
1997 by $2.3 million and $5.8 million, respectively, as compared to the same
periods in the previous year. As a percentage of net sales, gross profit
increased to 48.6% and 47.2% for both the third quarter and first nine months of
1997 respectively, over comparable periods in the prior year primarily due to
the absorption of certain fixed costs over the increased sales volume and due to
increased market acceptance of the Company's proprietary interface circuits,
electroluminescent circuits and application specific circuits.
Research and development expenses for the third quarter and first nine
months of 1997 increased by $80,000 and $579,000, respectively, or 6.2% and
16.8% as compared to the same periods one year ago. The increase in spending was
due to salary and other expenses relating to the hiring of additional
engineering personnel, and expenses associated with the increased use of test
wafers and mask sets. As a percentage of net sales, research and development
decreased to 10.3% and 11.1% for the third quarter and first nine months of
1997, respectively, as compared to the same periods in the previous year.
Marketing and selling expenses increased 19.4% and 14.3% to $1.3 million
and $3.8 million, respectively, for the third quarter and first nine months of
1997 as compared with $1.1 million and $3.3 million, respectively, for the same
periods of the previous year. The increase was due primarily to higher costs
associated with commissions, marketing, advertising programs and increased
staffing. As a percentage of net sales, marketing and selling expenses for the
third quarter and first nine months of 1997 declined to 10.0% and 10.6% as
compared to 11.7% and 12.3%, respectively, as compared to the previous year due
to staffing and compensation increasing at a slower rate than sales growth.
General and administrative expenses increased by $250,000 and $679,000 for
the third quarter and first nine months of 1997, respectively, as compared to
the same period of the previous year. The increase in spending for the third
quarter and first nine months of 1997 as compared to the same periods a year ago
was due to increased professional fees and additional staffing related expense.
As a percentage of net sales, general and administrative expenses increased
slightly to 5.9% and 6.1%, respectively for the third quarter and first nine
months of 1997, an increase over the 5.6% for both of the comparable periods of
the previous year.
Other income/expense for the third quarter and first nine months of 1997
consists primarily of interest income on short-term investment securities. For
the third quarter and first nine months of 1997, other income/expense
represented income of $385,000 and $995,000 as compared to an income of $1,000
and an expense of ($327,000) for the same periods in the previous year. The
increase was due primarily to the interest income earned on short-term
8
<PAGE> 9
investment securities and reduced interest expense due to the repayment of the
Company's revolving line of credit and subordinated notes to affiliates in the
second quarter of 1996.
The Company recorded income tax expense of $272,000 and $773,000 for the
third quarter and first nine months of 1997, respectively, an effective rate of
8.1% and 9.6%, respectively, for these periods. This effective rate differs from
the statutory rate of 34% due to the Company's utilization of its net operating
loss carryforwards.
Liquidity and Capital Resources.
From fiscal 1994 through fiscal 1996, 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. In April 1996, the Company raised net
proceeds of approximately $18.0 million by issuing common stock in its initial
public offering. In November 1996, the Company raised additional net proceeds of
approximately $33.0 million from the issuance of common stock in a public
offering. The proceeds will be primarily used for capital equipment relating to
expansion of facilities and general corporate purposes including working
capital. On September 27, 1997, the Company had cash, cash equivalents and
short-term investment securities of $38.3 million. The Company believes that
cash generated from operations and the net proceeds of its public offerings will
fund necessary capital expenditures and provide adequate working capital for the
next twelve months.
Factors Affecting Future Operating Results.
From time to time, information provided by the Company, statements made by
its employees or information included in its filings with the Securities and
Exchange Commission (including statements in this Form 10-Q) may contain
statements which are not historical facts, so called "forward-looking
statements," and are made pursuant to the safe harbor provision of the Private
Securities Litigation Reform Act of 1995 and releases of the Securities and
Exchange Commission. In particular, certain statements contained in the
Management's Discussion and Analysis of Financial Condition and Results of
Operations which are not historical facts (including, but not limited to,
statements concerning anticipated availability of capital for working capital
and for capital expenditures) constitute "forward-looking" statements. The
Company's actual future results may differ significantly from those stated in
any forward-looking statements. Factors that may cause such differences include,
but are not limited to the overall economic conditions, the Company's reliance
on outside foundries, demand for the Company's products, inventory and lead-time
reduction cycle, raw material availability, availability of manufacturing
capacity, manufacturing risks such as yield variances, the absence of
substantial noncancellable backlog, the timely introduction and market
acceptance of new processes and products, changes in product mix, timing of
investments in research and development, the cyclical nature of the
semiconductor industry, competitors' actions and other risk factors described in
the Company's filings with the Securities and Exchange Commission, including but
not limited to, its Form 10-K for the year ended December 31, 1996.
9
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Part II: OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K
a) Exhibit 10.1 Promissory Note Dated July 31, 1997 by and Between the
Company and Timothy J. Dhuyvetter.
Exhibit 10.2 Pledge and Security Agreement Dated July 31, 1997 by and
Between the Company and Timothy J. Dhuyvetter.
Exhibit 11.1 Computation of Earnings Per Common Share
Exhibit 27 Financial Data Schedule
b) Reports on Form 8-K
None
10
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
SIPEX CORPORATION
DATE: October 24, 1997 BY /s/ Frank R. DiPietro
-------------------------------
Frank R. DiPietro
Executive Vice President, Finance &
Chief Financial Officer
(Duly Authorized Officer &
Principal Financial Officer)
11
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EXHIBIT 10.1
PROMISSORY NOTE
---------------
JULY 31, 1997
$ 100,000.00
FOR VALUE RECEIVED, the undersigned, Timothy Dhuyvetter ("Obligor") hereby
promises to pay to the order of SIPEX Corporation, a Massachusetts corporation
("Lender"), at its principal office at 22 Linnell Street, Billerica, MA 01821 or
at such other place as may be designated from time to time in writing by Lender,
the principal sum of ONE HUNDRED THOUSAND DOLLARS AND NO CENTS ($100,000.00)
together with interest in arrears from and including the date hereof on the
unpaid principal balance hereunder at the rate of nine percent (9%) per annum.
In the case of prepayment, interest shall be calculated at 9% based on daily
compounding on the basis of actual number of days elapsed over a year of 360
days. All payments received by Lender hereunder will be applied first to costs
of collection, if any, then to interest and the balance to principal. Principal
and interest shall be payable in lawful money of the United States of America.
Principal hereunder shall be paid on the first anniversary of the date
hereof; interest shall be paid monthly commencing on August 31, 1997 and
continuing on the same day of each successive month thereafter with final
payment of all unpaid interest at the time of payment of the principal.
This Promissory Note may be prepaid at any time, without premium or
penalty, in whole or in part. Any prepayment of principal shall be accompanied
by a payment of accrued interest in respect of the principal being prepaid.
This Note is issued pursuant to, secured by and entitled to the benefits of
a pledge of securities pursuant to that certain Pledge and Security Agreement,
dated as of the date hereof, by the Obligor in favor of the Lender (the "Pledge
Agreement").
This Promissory Note shall, at the option of the holder hereof, become due
and payable without notice or demand, upon the happening of any one of the
following specified events (each, an "Event of Default"): (1) failure to pay any
amount as herein set forth; (2) default in the performance of any other
obligation to Lender, which default is not cured within thirty (30) days after
written notice of such default from Lender; (3) insolvency (however evidenced)
or the commission of any act of insolvency; (4) the making of a general
assignment for the benefit of creditors; (5) the filing of any petition or the
commencement of any proceeding by Obligor or any endorser or guarantor of this
Promissory Note for any relief under any bankruptcy or insolvency laws, or any
laws relating to the relief of debtors, readjustment of indebtedness,
reorganizations, compositions, or extensions; (6) the filing of any petition or
the commencement of any proceeding against Obligor or any endorser or guarantor
of this Promissory Note for any relief under any bankruptcy or insolvency laws,
or any laws relating to the relief of debtors, readjustment of indebtedness,
reorganizations, compositions, or extensions, which proceeding is not dismissed
within sixty (60) days; (7) upon the termination of Holder's employment at SIPEX
12
<PAGE> 2
Corporation; or (8) the past or future making of a false representation or
warranty by Obligor in connection with any loan or loans by Lender.
If this Promissory Note is not paid in accordance with its terms, Obligor
shall pay to Lender, in addition to principal and accrued interest thereon, all
costs of collection of the principal and accrued interest, including, but not
limited to, reasonable attorneys' fees, court costs and other costs for the
enforcement of payment of this Promissory Note.
No waiver of any obligation of Obligor under this Promissory Note shall be
effective unless it is in a writing signed by Lender. A waiver by Lender of any
right or remedy under this Promissory Note on any occasion shall not be a bar to
exercise of the same right or remedy on any subsequent occasion or of any other
right or remedy at any time.
Any notice required or permitted under this Promissory Note shall be in
writing and shall be deemed to have been given on the date of delivery, if
personally delivered to the party to whom notice is to be given, or on the third
business day after mailing, if mailed to the party to whom notice is to be
given, by certified mail, return receipt requested, postage prepaid, and
addressed to the addressee at the address of the addressee set forth herein, or
to the most recent address, specified by written notice, given to the sender
pursuant to this paragraph.
This Promissory Note is delivered in and shall be enforceable in accordance
with the laws of the Commonwealth of Massachusetts, and shall be construed in
accordance therewith, and shall have the effect of a sealed instrument.
Obligor and every indorser or guarantor of this Promissory Note hereby
expressly waives presentment, demand, and protest, notice of demand, dishonor
and nonpayment of this Promissory Note, and all other notices or demands of any
kind in connection with the delivery, acceptance, performance, default or
enforcement hereof, and hereby consents to any delays, extensions of time,
renewals, waivers or modifications that may be granted or consented to by the
holder hereof with respect to the time of payment or any other provision hereof.
In the event any one or more of the provisions of this Promissory Note
shall for any reason be held to be invalid, illegal or unenforceable, in whole
or in part or in any respect, or in the event that any one or more of the
provisions of this Promissory Note operate or would prospectively operate to
invalidate this Promissory Note, then and in any such event, such provision(s)
only shall be deemed null and void and shall not affect any other provision of
this Promissory Note and the remaining provisions of this Promissory Note shall
remain operative and in full force and effect and in no way shall be affected,
prejudiced, or disturbed thereby.
IN WITNESS WHEREOF, this Promissory Note has been executed and delivered at
the place and on the date set forth above by the Obligor.
OBLIGOR:
/s/ Timothy Dhuyvetter
----------------------
Timothy Dhuyvetter
13
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EXHIBIT 10.2
PLEDGE AND SECURITY AGREEMENT
PLEDGE AND SECURITY AGREEMENT, dated as of July 31, 1997 made by and
between Timothy J. Dhuyvetter, an individual with an address at_________________
_________________________ (the "Pledgor"), in favor of SIPEX CORPORATION, a
Massachusetts Corporation, having its principal place of business at 22 Linnell
Street, Billerica, Massachusetts 01821 ("SIPEX").
WHEREAS, the Pledgor is the beneficial owner of shares of the Common Stock,
$.01 par value per share, of SIPEX (the "Shares");
WHEREAS, SIPEX has agreed to loan to the Pledgor $100,000 pursuant to this
Agreement, and such loan is to be evidenced by a Promissory Note in the
principal amount of $100,000, issued by the Pledgor in favor of SIPEX as of the
date hereof and attached hereto as Exhibit A (the "Note");
WHEREAS, the Pledgor's obligations arising under the Note and this
Agreement are to be secured by certain Collateral (as defined herein); and
WHEREAS, the obligation of SIPEX to advance said loan to the Pledgor under
the Note is subject to the condition that the Pledgor execute and deliver this
Agreement and grant the security interest hereinafter described.
NOW, THEREFORE, in consideration of the covenants and conditions set forth
herein and to induce SIPEX to advance the loan to the Pledgor, the Pledgor
hereby agrees with SIPEX as follows:
SECTION 1. DEFINED TERMS. The following terms have the following meanings:
"CODE" means the Uniform Commercial Code from time to time in effect in the
Commonwealth of Massachusetts.
"COLLATERAL" means the Pledged Stock and all Proceeds.
"FORECLOSURE DATE" means any date on which SIPEX sends to the Pledgor a
Foreclosure Notice.
"FORECLOSURE NOTICE" means written notice that SIPEX may give to the
Pledgor when an Event of Default occurs and is continuing, which notice shall
state (i) that SIPEX is exercising its rights under this Agreement and (ii) the
nature of the Event of Default.
"OBLIGATIONS" means the unpaid principal of and interest on the Note and
all other obligations and liabilities of the Pledgor to SIPEX, whether direct or
indirect, absolute or contingent, due or to become due, or now existing or
hereafter incurred, which may arise under or in connection with the Note or this
Agreement, whether on account of principal, interest, reimbursement obligations,
fees, indemnities, costs, expenses or otherwise.
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<PAGE> 2
"PLEDGED STOCK" means the number of Shares that Pledgor may acquire,
whether by stock option exercise or otherwise.
"PROCEEDS" means all "proceeds" as such term is defined in Section 9-306(1)
of the Uniform Commercial Code in effect in the Commonwealth of Massachusetts on
the date hereof and, in any event, includes, without limitation, all dividends
or other income from the Pledged Stock, collections thereon or distributions
with respect thereto.
SECTION 2. PLEDGE; GRANT OF SECURITY INTEREST. The Pledgor hereby pledges
to SIPEX the Pledged Securities and hereby grants to SIPEX a first priority
security interest in the Collateral, as collateral security for the prompt and
complete payment and performance when due of the Obligations.
SECTION 3. REPRESENTATIONS AND WARRANTIES. The Pledgor represents and
warrants that:
(a) this Agreement has been duly executed by the Pledgor, and
constitutes a valid and binding obligation of the Pledgor enforceable in
accordance with its terms;
(b) no consent or authorization of, filing with, or other act by or
with respect to, any arbitrator or governmental authority and no consent of any
other person (including, without limitation, any creditor of the Pledgor), is
required in connection with the execution, delivery, performance, validity or
enforceability of this Agreement; and
(c) the Pledgor will be the record and beneficial owner of any shares
that become pledged securities after the date hereof, and the Shares will be (in
the case of Shares acquired after the date hereof), free of any and all liens,
pledges, security interests, encumbrances or options in favor of, or claims of,
any other person, except the lien created by this Agreement.
SECTION 4. COVENANTS. The Pledgor covenants and agrees with SIPEX that,
from and after the date of this Agreement until the Obligations are paid in
full:
(a) The Pledgor shall deliver within five (5) business days of
acquisition of any Shares the stock certificate or certificates representing the
Pledged Stock, together with an undated stock power or powers covering such
certificate or certificates, duly executed in blank, and with, if SIPEX so
requests, signature guaranteed.
(b) At any time and from time to time, upon the written request of
SIPEX, and at the sole expense of the Pledgor, the Pledgor shall promptly and
duly execute and deliver such further instruments and documents and take such
further actions as SIPEX may reasonably request for the purposes of obtaining or
preserving the full benefits of this Agreement and of the rights and powers
herein granted. If any amount payable under or in connection with any of the
Collateral is or becomes evidenced by any promissory note, other instrument or
chattel paper, such note, instrument or chattel paper shall be promptly
delivered to SIPEX, duly endorsed in a manner satisfactory to SIPEX, to be held
as Collateral pursuant to this Agreement.
(c) The Pledgor agrees to pay, and to save SIPEX harmless from, any
and all liabilities with respect to, or resulting from any delay in paying, any
and all stamp, excise, sales
15
<PAGE> 3
or other taxes which may be payable or determined to be payable with respect to
any of the Collateral or in connection with any of the transactions contemplated
by this Agreement.
(d) The Pledgor shall not transfer, dispose of or otherwise alienate
his rights in the Collateral, except that the Pledgor may at any time and from
time to time sell a portion of the Shares, provided that upon completion of each
sale of Shares, the Pledgor shall remit the proceeds of such sale to SIPEX in
payment of the principal of the Note.
(e) Without the prior written consent of SIPEX, the Pledgor shall not
create, incur or permit to exist any lien or option in favor of, or any claim of
any person or entity with respect to, any of the Collateral or any interest
therein.
SECTION 5. CASH DIVIDENDS; VOTING RIGHTS. Until an Event of Default has
occurred and SIPEX has given a Foreclosure Notice in accordance with Section 11
hereof to the Pledgor, the Pledgor shall be permitted to receive all cash
dividends paid by SIPEX with respect to the Pledged Stock and to exercise all
voting and corporate rights with respect to the Pledged Stock.
SECTION 6. DEFAULT. The occurrence of any Event of Default (as defined in
the Note) shall constitute a default hereunder (an "Event of Default").
SECTION 7. RIGHTS OF SIPEX. (a) If an Event of Default occurs and SIPEX
gives a Foreclosure Notice to the Pledgor (i) SIPEX shall have the right to
receive any and all cash dividends paid with respect to the Pledged Stock and
make application thereof to the Note in such order as it may determine, and (ii)
all shares of the Pledged Stock shall be registered in the name of SIPEX or its
nominee, and SIPEX or its nominee may thereafter exercise (A) all voting,
corporate and other rights pertaining to such shares of the Pledged Stock at any
meeting of shareholders of SIPEX or otherwise and (B) any and all rights of
conversion, exchange, subscription and any other rights, privileges or options
pertaining to the option or any shares of the Pledged Stock as if it were the
absolute owner thereof (including, without limitation, the right to exchange at
its discretion any and all of the Pledged Stock upon the merger, consolidation,
reorganization, recapitalization or other fundamental change in the corporate
structure of SIPEX, or upon the exercise by the Pledgor or SIPEX of any right,
privilege or option pertaining to such shares of the Pledged Stock, and in
connection therewith, the right to deposit and deliver any and all of the
Pledged Stock with any committee, depository, transfer agent, registrar or other
designated agency upon such terms and conditions as it may determine), all
without liability except to account for property actually received by it, but
SIPEX shall have no duty to exercise any such right, privilege or option and
shall not be responsible for any failure to do so or delay in so doing.
(b) SIPEX shall not be under any obligation to sell or otherwise
dispose of any Collateral upon the request of the Pledgor or any other person or
to take any other action whatsoever with regard to the Collateral or any part
thereof.
(c) When the Obligations have been paid in full, the pledge of the
Collateral shall cease, and the Collateral shall revert to the Pledgor free and
clear of all liens securing any obligation or liability of the Pledgor to SIPEX,
and SIPEX's rights, title, and interest therein shall cease and become void.
16
<PAGE> 4
SECTION 8. SEVERABILITY. Any provision of this Agreement that is prohibited
or unenforceable in any jurisdiction shall, as to such jurisdiction, be
ineffective to the extent of such prohibition or unenforceability without
invalidating the remaining provisions hereof, and any such prohibition or
unenforceability in any jurisdiction shall not invalidate or render
unenforceable such provision in any other jurisdiction.
SECTION 9. NO WAIVER; CUMULATIVE REMEDIES. No failure to exercise, nor any
delay in exercising, on the part of SIPEX, any right, power or privilege
hereunder shall operate as a waiver thereof. No single or partial exercise of
any right, power or privilege hereunder shall preclude any other or further
exercise thereof or the exercise of any other right, power or privilege.
SECTION 10. WAIVERS AND AMENDMENTS; SUCCESSORS AND ASSIGNS; GOVERNING LAW.
None of the terms or provisions of this Agreement, may be waived, amended,
supplemented or otherwise modified except by a written instrument executed by
the Pledgor and SIPEX, provided that any provision of this Agreement may be
waived by SIPEX in a letter or agreement executed by SIPEX in favor of the
Pledgor and delivered to the Pledgor in accordance with Section 11. This
Agreement shall be binding upon the successors and assigns of the Pledgor and
shall inure to the benefit of SIPEX and its successors and assigns. This
Agreement shall be governed by, and construed and interpreted in accordance
with, the laws of the Commonwealth of Massachusetts. Each party hereto consents
to the jurisdiction of the state courts of the Commonwealth of Massachusetts and
the United States courts for the District of Massachusetts with respect to the
transactions contemplated hereby.
SECTION 11. NOTICES. Notices under this Agreement may be given by express
overnight courier service or by facsimile transmission, addressed to the parties
hereto at their respective addresses set forth in the first paragraph to this
Agreement and shall be effective when sent. Either party may change their
respective addresses by written notice to the other party.
SECTION 12. COUNTERPARTS. This Agreement may be executed in counterparts,
each of which shall constitute an original, but all of which, when taken
together, shall constitute but one agreement.
IN WITNESS WHEREOF, the undersigned has caused this Pledge and Security
Agreement to be duly executed and delivered as of the date first above.
PLEDGOR:
/s/ Timothy J. Dhuyvetter
-------------------------
Timothy J. Dhuyvetter
SIPEX CORPORATION
By: /s/ Frank R. DiPietro
-------------------------
Title: Executive Vice President Finance &
Chief Financial Officer
17
<PAGE> 1
EXHIBIT 11.1
Computation of Shares Used in Computing
Net Income Per Share
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
------------------------------------- ------------------------------------
September 28, September 27, September 28, September 27,
1996 1997 1996 1997
-------------- ------------- ------------- -------------
<S> <C> <C> <C> <C>
Common shares, beginning of period 13,801,322 17,398,742 9,370,612 17,068,398
Common stock equivalents 1,514,728 1,447,792 1,292,378 998,100
SAB shares (1) 231,630 163,228 231,630 208,513
Treasury stock buyback (306,266) (459,917) (174,988) (256,515)
Weighted average shares issued 70,076 103,676 3,003,682 286,337
----------- ----------- ----------- -----------
15,311,490 18,653,521 13,723,314 18,304,833
=========== =========== =========== ===========
</TABLE>
Data Reflects 2 for 1 Stock Split.
(1) In accordance with SEC Staff Accounting Bulletin No. 83 ("SAB" No. 83"),
issuance of Common Stock and common stock equivalents one year prior to the
initial filing date of the registration statement at share prices below the
public offering price of $9.50 per share, are considered to have been made
in anticipation of the public offering and have been included as if the
shares were outstanding for all periods presented until issued and
outstanding using the treasury stock method.
18
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONDENSED CONSOLIDATED BALANCE SHEET AS OF SEPTEMBER 27, 1997 AND FROM THE
INTERIM CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS FOR THE NINE MONTHS ENDED
SEPTEMBER 27, 1997 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH
FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-1-1997
<PERIOD-END> SEP-27-1997
<CASH> 7,712
<SECURITIES> 30,613
<RECEIVABLES> 9,544
<ALLOWANCES> 261
<INVENTORY> 11,220
<CURRENT-ASSETS> 59,392
<PP&E> 32,113
<DEPRECIATION> 25,329
<TOTAL-ASSETS> 66,350
<CURRENT-LIABILITIES> 5,123
<BONDS> 0
0
0
<COMMON> 176
<OTHER-SE> 61,039
<TOTAL-LIABILITY-AND-EQUITY> 66,350
<SALES> 0
<TOTAL-REVENUES> 36,282
<CGS> 0
<TOTAL-COSTS> 19,167
<OTHER-EXPENSES> 10,498
<LOSS-PROVISION> (60)
<INTEREST-EXPENSE> (1,470)
<INCOME-PRETAX> 8,056
<INCOME-TAX> 773
<INCOME-CONTINUING> 7,283
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 7,283
<EPS-PRIMARY> .40
<EPS-DILUTED> .40
</TABLE>
