<PAGE> 1
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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 26, 1998
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
------------------------
SIPEX CORPORATION
(Exact name of registrant as specified in its charter)
<TABLE>
<S> <C>
MASSACHUSETTS 04-6135748
(State or other jurisdiction of
incorporation (I.R.S. Employer Identification No.)
or organization)
22 LINNELL CIRCLE, BILLERICA,
MASSACHUSETTS 01821
(Address of principal executive offices) (Zip Code)
</TABLE>
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 17,903,452 shares of the Registration's Common Stock issued and
outstanding as of October 28, 1998.
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<PAGE> 2
SIPEX CORPORATION
FORM 10-Q
NINE MONTHS ENDED SEPTEMBER 26, 1998
INDEX
<TABLE>
<CAPTION>
ITEM
NUMBER PAGE
------ ----
<S> <C> <C> <C>
Part I: Financial Information
Item 1. Financial Statements
Condensed Consolidated Balance Sheets at December 31, 1997
and September 26, 1998...................................... 3
Condensed Consolidated Statements of Operations for the
three months and nine months ended September 27, 1997 and
September 26, 1998.......................................... 4
Condensed Consolidated Statements of Cash Flows for the nine
months ended September 27, 1997 and September 26, 1998...... 5
Notes To Condensed Consolidated Financial Statements........ 6
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations................................... 7-10
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............................ 11
Exhibit 10.1 Promissory Note Dated July 31, 1998 by and
between the Company and Timothy J. Dhuyvetter
Exhibit 10.2 Pledge and Security Agreement Dated July 31,
1998 by and between the Company and Timothy J. Dhuyvetter
Exhibit 11.1 Computation of Earnings Per Common Share
Exhibit 27 Financial Data Schedule
Signatures..................................................................... 12
</TABLE>
- ---------------
* No information provided due to inapplicability of item.
2
<PAGE> 3
PART I: FINANCIAL INFORMATION
ITEM 1: FINANCIAL STATEMENTS
SIPEX CORPORATION
CONDENSED CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS)
(UNAUDITED)
<TABLE>
<CAPTION>
DECEMBER 31, SEPTEMBER 26,
1997 1998
------------ -------------
<S> <C> <C>
ASSETS:
Current Assets
Cash and cash equivalents.............................. $ 23,887 $ 21,126
Short-term investment securities....................... 16,099 22,128
Accounts receivable, less allowances of $596 and $566
at December 31, 1997 and September 26, 1998,
respectively.......................................... 8,693 13,323
Inventories............................................ 13,988 16,688
Prepaid expenses and other current assets.............. 1,842 2,685
-------- --------
Total current assets.............................. 64,509 75,950
Property, plant, and equipment, net......................... 8,345 10,153
Other assets................................................ 128 353
======== ========
Total assets...................................... $ 72,982 $ 86,456
======== ========
LIABILITIES AND SHAREHOLDERS' EQUITY:
Current Liabilities
Current portion of long term debt...................... $ 45 $ 17
Accounts payable....................................... 2,771 1,784
Accrued expenses....................................... 2,290 2,118
-------- --------
Total current liabilities......................... 5,106 3,919
Long term debt.............................................. 8 --
-------- --------
Total liabilities................................. 5,114 3,919
-------- --------
Shareholders' Equity:
Preferred stock, $.01 par value, 1,000,000 shares
authorized and no shares issued or outstanding at
December 31, 1997 and September 26, 1998,
respectively.......................................... -- --
Common stock, $.01 par value, 40,000,000 shares
authorized and 17,711,422 and 17,867,092 shares issued
and outstanding at December 31, 1997 and September 26,
1998, respectively.................................... 177 179
Additional paid-in capital............................. 97,586 98,433
Accumulated deficit.................................... (30,058) (16,193)
Cumulative translation adjustment...................... 163 118
-------- --------
Total shareholders' equity........................ 67,868 82,537
-------- --------
Total liabilities and shareholders' equity........ $ 72,982 $ 86,456
======== ========
</TABLE>
See accompanying notes to condensed consolidated financial statements.
3
<PAGE> 4
SIPEX CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT PER SHARE DATA)
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
----------------------------- -----------------------------
SEPTEMBER 27, SEPTEMBER 26, SEPTEMBER 27, SEPTEMBER 26,
1997 1998 1997 1998
------------- ------------- ------------- -------------
<S> <C> <C> <C> <C>
Net sales.................................. $13,297 $16,211 $36,282 $48,585
Cost of sales.............................. 6,835 7,976 19,167 23,964
------- ------- ------- -------
Gross profit.......................... 6,462 8,235 17,115 24,621
------- ------- ------- -------
Operating expenses
Research and development.............. 1,365 1,715 4,018 4,883
Marketing and selling................. 1,332 1,576 3,829 4,864
General and administrative............ 784 826 2,207 2,380
------- ------- ------- -------
Total operating expenses......... 3,481 4,117 10,054 12,127
------- ------- ------- -------
Income from operations..................... 2,981 4,118 7,061 12,494
Other income, net.......................... 385 441 995 1,372
------- ------- ------- -------
Income before income taxes................. 3,366 4,559 8,056 13,866
Income tax expense......................... 272 -- 773 --
------- ------- ------- -------
Net income................................. $ 3,094 $ 4,559 $ 7,283 $13,866
======= ======= ======= =======
Net income per common share-basic.......... $ 0.18 $ 0.26 $ 0.42 $ 0.78
======= ======= ======= =======
Net income per common share-assuming
dilution................................. $ 0.17 $ 0.25 $ 0.40 $ 0.74
======= ======= ======= =======
Weighted average common shares outstanding-
basic.................................... 17,502 17,841 17,354 17,794
======= ======= ======= =======
Weighted average common and common
equivalent shares outstanding............ 18,654 18,576 18,305 18,673
======= ======= ======= =======
</TABLE>
See accompanying notes to condensed consolidated financial statements.
4
<PAGE> 5
SIPEX CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
(UNAUDITED)
<TABLE>
<CAPTION>
NINE MONTHS ENDED
------------------------------
SEPTEMBER 27, SEPTEMBER 26,
1997 1998
------------- -------------
<S> <C> <C>
OPERATING ACTIVITIES:
Net income............................................. $ 7,283 $ 13,866
Adjustments to reconcile net income to net cash
provided by operating activities...................... -- --
Reductions to accounts receivable allowances........... (60) (30)
Depreciation and amortization.......................... 1,007 1,508
Changes in current assets and liabilities
Increase in accounts receivable........................ (4,085) (4,600)
Decrease (increase) in inventories..................... 404 (2,700)
Increase in prepaid expenses and other assets.......... (297) (1,068)
Increase (decrease) in accounts payable and accrued
expenses.............................................. 1,019 (1,159)
-------- ---------
Net cash provided by operating activities................... 5,271 5,817
-------- ---------
INVESTING ACTIVITIES:
Proceeds from maturity of investment securities........ 2,344 379,398
Purchase of investment securities...................... (10,598) (385,428)
Purchase of property, plant, and equipment............. (4,478) (3,316)
-------- ---------
Net cash used in investing activities................ (12,732) (9,346)
-------- ---------
FINANCING ACTIVITIES:
Proceeds from issuance of common stock................. 495 849
Payment of capital lease obligations................... (137) (36)
-------- ---------
Net cash provided by financing activities............ 358 813
Effect of foreign currency translation adjustments..... 28 (45)
-------- ---------
Decrease in cash and cash equivalents.................. (7,075) (2,761)
Cash and cash equivalents, beginning of period......... 14,787 23,887
======== =========
Cash and cash equivalents, end of period.................... $ 7,712 $ 21,126
======== =========
</TABLE>
See accompanying notes to condensed consolidated financial statements.
5
<PAGE> 6
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, 1997 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 26, 1998 are not necessarily indicative of the results to be expected
for the full fiscal year.
2. INVENTORIES
<TABLE>
<CAPTION>
(IN THOUSANDS)
DECEMBER 31, SEPTEMBER 26,
1997 1998
------------ -------------
<S> <C> <C>
Inventories consist of:
Raw materials.................................. $ 6,424 $ 6,632
Work in process................................ 4,237 5,775
Finished goods................................. 3,327 4,281
------- -------
$13,988 $16,688
======= =======
</TABLE>
3. NET INCOME PER SHARE
Net income per share is based upon the weighted average number of common
shares outstanding. Income per share assuming dilution 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.
4. NEW ACCOUNTING STANDARDS
Effective January 1, 1998, the Company adopted Financial Accounting
Standards Board Statement No. 130, "Reporting Comprehensive Income" which
establishes standards for reporting and display of comprehensive income and its
components in a full set of financial statements. For the Company, comprehensive
income includes net earnings and unrealized gains and losses from currency
translation. For 1997 and 1998, the impact of other elements of comprehensive
income were immaterial so net income as stated approximates comprehensive
income.
6
<PAGE> 7
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
circuits, data converters and power management products. Applications for the
Company's products include telecommunications, 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 27, 1997 and September 26, 1998 as a percentage
of net sales and provides the percentage increase of such items comparing the
interim periods ended September 26, 1998 to the corresponding period from the
prior fiscal year.
<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
------------------------------------------- -------------------------------------------
PERCENTAGE PERCENTAGE
SEPTEMBER 27, SEPTEMBER 26, INCREASE SEPTEMBER 27, SEPTEMBER 26, INCREASE
1997 1998 (DECREASE) 1997 1998 (DECREASE)
------------- ------------- ---------- ------------- ------------- ----------
<S> <C> <C> <C> <C> <C> <C>
Net sales..................... 100% 100% 21.9% 100% 100% 33.9%
Cost of sales................. 51.4 49.2 16.7 52.8 49.3 25.0
---- ---- ------ ---- ---- ------
Gross profit.................. 48.6 50.8 27.4 47.2 50.7 43.9
---- ---- ------ ---- ---- ------
Operating expenses
Research and
development............. 10.3 10.6 25.6 11.1 10.1 21.5
Marketing and selling..... 10.0 9.7 18.3 10.6 10.0 27.0
General and
administrative.......... 5.9 5.1 5.4 6.1 4.9 7.8
---- ---- ------ ---- ---- ------
Total operating
expenses........... 26.2 25.4 18.3 27.7 25.0 20.6
---- ---- ------ ---- ---- ------
Operating income.............. 22.4 25.4 38.1 19.5 25.7 76.9
Other income (expense)........ 2.9 2.7 14.5 2.7 2.8 37.9
---- ---- ------ ---- ---- ------
Income before income taxes.... 25.3 28.1 35.4 22.2 28.5 77.5
Income tax expense............ 2.0 0.0 (100.0) 2.1 0.0 (100.0)
==== ==== ====== ==== ==== ======
Net income.................... 23.3% 28.1% 47.3% 20.1% 28.5% 90.4%
==== ==== ====== ==== ==== ======
</TABLE>
7
<PAGE> 8
Net sales for both the third quarter and first nine months of 1998
increased 21.9% and 33.9% to $16.2 million and $48.6 million, respectively, as
compared to the same periods in the previous year. For the third quarter and
first nine months of 1998, net sales increased primarily due to higher unit
sales of the Company's proprietary interface circuits, application specific
circuits and electroluminescent driver circuits. The increase is due to the
strength in the electronic data, computer, and portable products markets. Both
domestic and international sales increased during the third quarter and first
nine months of 1998 as compared to the corresponding periods in the prior year.
Gross profit increased for both the third quarter and first nine months of
1998 by $1.8 million and $7.5 million, respectively as compared to the same
periods in the previous year. As a percentage of net sales, gross profit
increased to 50.8% and 50.7% for both the third quarter and first nine months of
1998 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 1998 increased $350,000 and $865,000, respectively, or 25.6% and 21.5%
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 creation of the Flanders Design
Center, increased use of test wafers, mask sets and capital equipment. As a
percentage of net sales, research and development increased slightly to 10.6%
for the third quarter and decreased to 10.1% for the first nine months of 1998,
as compared to the same periods in the previous year.
Marketing and selling expenses increased 18.3% and 27.0% to $1.6 million
and $4.9 million, respectively, for the third quarter and first nine months of
1998 as compared with $1.3 million and $3.8 million, respectively, for the same
periods of the previous year. The increase was due primarily to higher costs
associated with travel, 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 1998 declined slightly to 9.7% and 10.0% as
compared to 10.0% and 10.6%, 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 $42,000 and $173,000 for
the third quarter and first nine months of 1998, respectively, as compared to
the same period of the previous year. The increase in spending for the first
nine months of 1998 as compared to the same period a year ago was due to
increased professional fees and additional staffing related expense which were
initiated starting in the second quarter of 1997. As a percentage of net sales,
general and administrative expenses decreased slightly to 5.1% and 4.9%,
respectively for the third quarter and first nine months of 1998, a decrease
from the 5.9% and 6.1%, respectively for the comparable periods of the previous
year.
Other income/expense for the third quarter and first nine months of 1998
consists primarily of interest income on short-term investment securities. For
the third quarter and first nine months of 1998, other income/expense
represented income of $441,000 and $1,372,000 as compared to an income of
$272,000 and $773,000 for the same periods in the previous year. The increase
was due primarily to the interest income earned on short-term investment
securities.
The Company recorded no income tax expense for either the third quarter or
first nine months of 1998. 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
At September 26,1998, the Company had working capital of $71.8 million and
available funds of $43.3 million consisting of cash, cash equivalents and
short-term U.S. Government-backed investments. Up to $35,000,000 of this amount
was pledged in March 1998 as security for a lease which the Company entered into
for the construction and lease of a new facility in Milpitas, California. The
Company anticipates that available
8
<PAGE> 9
funds and cash provided from operations will be sufficient to meet cash and
working capital requirements through at least the end of 1999.
FACTORS AFFECTING FUTURE OPERATING RESULTS
Except for historical information contained herein, the matters set forth
in this Form 10-Q, including the statements in the management's discussion are
forward-looking statements that are dependent on certain risks and uncertainties
including such factors, among others, as the timing, volume and pricing of new
orders received and shipped during the quarter, whether customer cancellations
and delays of outstanding orders increase, timely ramp-up of new facilities, and
the timely introduction of new processes and products.
Past performance of the Company may not be a good indicator of future
performance due to factors affecting the Company, its competitors, the
semiconductor industry and the overall domestic and international economy, such
as the currency of, and other economic issues affecting, Asian countries. The
semiconductor industry is characterized by rapid technological change, price
erosion, cyclical market patterns, occasional shortages of materials, capacity
constraints, variation in manufacturing efficiencies and significant
expenditures for capital equipment and product development. Furthermore, new
product introductions and patent protection of existing products are critical
factors for future sales growth and sustained profitability.
Although the Company believes that it has sufficient product lines,
manufacturing facilities and technical and financial resources for its current
operations, sales and profitability can be significantly affected by the above
and other risks discussed from time to time in the Company's other filings with
the Securities and Exchange Commission, including its Annual Report on Form 10-K
for the year ended December 31, 1997. Additionally, the Company's common stock
could be subject to significant price volatility should sales and/or earnings
fail to meet expectations of the investment community.
YEAR 2000 ISSUE
The Year 2000 issue results from computer programs written using two digits
rather than four to define the applicable year. Any of the Company's internal
computer programs that have date-sensitive software may recognize a date using
"00" as the year 1900 rather than the Year 2000. This could result in a system
failure or miscalculations causing disruptions of operations, including, among
other things, a temporary inability to process transactions, send invoices, or
engage in similar normal business activities.
The Company has assessed its information technology systems and non-IT
systems (such as building security, voice mail, telephone and other systems
containing embedded microprocessors) and has determined the nature and extent of
the work required, if any, to make these internal systems Year 2000 compliant.
In the third quarter of fiscal 1998, the Company selected new enterprise and
manufacturing software systems which are Year 2000 compliant and are scheduled
to be fully implemented by September 1999. The Company's business is dependent
upon its information systems which are an integral part of all major business
processes. As the Company begins the implementation of these critical
operational and logistical modules, there is a risk that these implementations
could be delayed, could experience difficulties or in fact may not be successful
and could adversely affect future results of operations and cash flows. The
Company's current enterprise and manufacturing system is being upgraded to
become Year 2000 compliant in the fourth quarter of 1998 and will remain in
place until the new system is fully operational. In addition, the Company's
semiconductor manufacturing and payroll systems are being updated and are
expected to be Year 2000 compliant by September 1999. Future expenditures on the
general upgrade of internal computer systems are estimated to be $2 million, a
portion of which would be to become Year 2000 compliant. The majority of these
expenditures will be capitalized in 1999.
The Company has conducted a written survey of its foundries and other
suppliers of products and services with which it has a material relationship in
order to identify and assess their Year 2000 readiness and compliance, and any
negative impacts that any non-compliance could have on the Company. Based upon
the survey responses, the Company found that all of these principal suppliers to
be Year 2000 compliant. Although management believes the Company's systems will
be Year 2000 compliant, the failure of the Company's suppliers to address the
Year 2000 issue could result in disruption to the Company's operations
9
<PAGE> 10
and have a significant adverse impact on its results of operations, the extent
of which the Company has not yet estimated. In addition, the Company continues
to work with its customers to identify potential Year 2000 issues with their
products. Many of the Company's key customers are Fortune 500 companies, are
sensitive to Year 2000 issues and are expected to be Year 2000 compliant. The
Company is not actively engaged in preparing contingency plans in the event that
key customers or suppliers fail to become Year 2000 compliant. However, the
Company, in the ordinary course of business, seeks to expand its customer base
to lessen dependence on any one customer for a significant portion of its
revenues, and seeks second sources of supply for its key products and services
where appropriate. The Company is not presently in a position to determine what
would be its most reasonably likely worst case Year 2000 scenario or any plan
for handling such scenario.
Various statements in this discussion of Year 2000 issues are
forward-looking statements within the meaning of the Private Securities
Litigation Reform Act of 1995. These statements include statements of the
Company's expectation, statements with regard to schedules and expected
completion dates and statements regarding expected Year 2000 compliance. These
forward-looking statements are subject to various risk factors which may
materially affect the Company's efforts to achieve Year 2000 compliance. These
risk factors include the inability of the Company to complete the plans and
modifications that it has identified, the wide variety of information systems
and components, both hardware and software, that must be evaluated, the variety,
number and complexity of equipment used in the Company's operations and the
large number of vendors and customers with which the Company interacts. The
Company's assessments of the effect of Year 2000 on the Company are based, in
part, upon information received from third parties and the Company's reasonable
reliance on that information. Therefore, the risk that inaccurate information is
supplied by third parties upon which the Company reasonably relied must be
considered as a risk factor that might affect the Company's Year 2000 efforts.
The Company is attempting to reduce the risks by utilizing an organized
approach, extensive testing, and allowance of ample contingency time to address
issues identified by tests.
10
<PAGE> 11
PART II: OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
a) Exhibit 10.1 Promissory Note Dated July 31, 1998 by and between the
Company and Timothy J. Dhuyvetter.
Exhibit 10.2 Pledge and Security Agreement Dated July 31,1998 by and
between the Company and Timothy J. Dhuyvetter.
Exhibit 11.1 Computation of Earnings Per Common Share
Exhibit 27.1 Financial Data Schedule
Exhibit 27.2 Financial Data Schedule
b) Reports on Form 8-K
None
11
<PAGE> 12
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
BY /s/ FRANK R. DIPIETRO
----------------------------------
FRANK R. DIPIETRO
EXECUTIVE VICE PRESIDENT, FINANCE
&
CHIEF FINANCIAL OFFICER
(DULY AUTHORIZED OFFICER &
PRINCIPAL FINANCIAL OFFICER)
DATE: November 6, 1998
12
<PAGE> 1
EXHIBIT 10.1
PROMISSORY NOTE
JULY 31, 1998
$55,000.00
For value received, the undersigned, Timothy J. 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 FIFTY-FIVE THOUSAND DOLLARS AND NO CENTS
($55,000.00) 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, 1998 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 Promissory Note cancels and supersedes in its entirety that
certain Promissory Note dated July 31, 1997 for the principal sum of $100,000.
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
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.
13
<PAGE> 2
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 J. Dhuyvetter
----------------------------------
Timothy J. Dhuyvetter
14
<PAGE> 1
Exhibit 10.2
PLEDGE AND SECURITY AGREEMENT
PLEDGE AND SECURITY AGREEMENT, dated as of July 31, 1998 made by and
between Timothy J. Dhuyvetter, an individual with an address at 3006 Magnum
Drive, San Jose, CA 95135-1040 (the "PLEDGOR"), in favor of SIPEX CORPORATION, a
Massachusetts Corporation, having its principal place of business at 22 Linnell
Street, Billerica, Massachusetts 01821 ("SIPEX") (the "Agreement").
WHEREAS, that certain Pledge and Security Agreement dated July 31, 1997
is hereby canceled and superseded in its entirety by the Agreement.
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 $55,000 pursuant to
this Agreement, and such loan is to be evidenced by a Promissory Note in the
principal amount of $55,000, 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.
"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.
15
<PAGE> 2
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 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
16
<PAGE> 3
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.
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.
SECTION 13. OTHER AGREEMENTS. This Agreement replaces and supersedes
that certain Pledge and Security Agreement dated July 31, 1997 by and between
SIPEX and the Pledgor.
[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]
17
<PAGE> 4
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
18
<PAGE> 1
Exhibit 11.1
Computation of Shares Used in Computing
Net Income Per Share
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
----------------------------- ----------------------------
September 27, September 26, September 27, September 26,
1997 1998 1997 1998
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Common shares, beginning of period 17,068,398 17,711,422 17,068,398 17,711,422
Common stock equivalents 1,611,020 1,954,583 1,206,613 1,824,855
Treasury stock buyback (369,669) (1,219,107) (155,327) (946,033)
Weighted average shares issued 434,019 129,096 286,337 82,523
----------- ----------- ----------- -----------
18,743,768 18,575,994 18,406,021 18,672,767
=========== =========== =========== ===========
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONDENSED CONSOLIDATED BALANCE SHEET AS OF SEPTEMBER 26, 1998 AND FROM THE
INTERIM CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS FOR THE NINE MONTHS ENDED
SEPTEMBER 26, 1998 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH
FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<CURRENCY> U.S. DOLLARS
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> SEP-26-1998
<PERIOD-END> SEP-26-1998
<EXCHANGE-RATE> 1
<CASH> 21,126
<SECURITIES> 22,128
<RECEIVABLES> 13,323
<ALLOWANCES> 566
<INVENTORY> 16,688
<CURRENT-ASSETS> 75,756
<PP&E> 37,414
<DEPRECIATION> 27,261
<TOTAL-ASSETS> 86,456
<CURRENT-LIABILITIES> 3,919
<BONDS> 0
0
0
<COMMON> 179
<OTHER-SE> 98,433
<TOTAL-LIABILITY-AND-EQUITY> 86,456
<SALES> 0
<TOTAL-REVENUES> 48,585
<CGS> 0
<TOTAL-COSTS> 23,964
<OTHER-EXPENSES> 10,755
<LOSS-PROVISION> (30)
<INTEREST-EXPENSE> 1,562
<INCOME-PRETAX> 13,866
<INCOME-TAX> 0
<INCOME-CONTINUING> 13,866
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 13,866
<EPS-PRIMARY> 0.78
<EPS-DILUTED> 0.74
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
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> 1,000
<CURRENCY> U.S. DOLLARS
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> SEP-27-1997
<PERIOD-END> SEP-27-1997
<EXCHANGE-RATE> 1
<CASH> 7,712
<SECURITIES> 30,613
<RECEIVABLES> 9,544
<ALLOWANCES> 261
<INVENTORY> 11,220
<CURRENT-ASSETS> 59,392
<PP&E> 30,098
<DEPRECIATION> 23,314
<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> 9,058
<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> 0.42
<EPS-DILUTED> 0.40
</TABLE>
