As filed with the Securities and Exchange Commission on July 3, 2007

Registration No. 333-138740

 

UNITED STATES SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

 

 

 

Form S-1

Amendment No. 5

REGISTRATION STATEMENT

UNDER

THE SECURITIES ACT OF 1933

 

 

 

 

SIPEX CORPORATION

(Exact name of Registrant as specified in its charter)

 

 

 

 

233 South Hillview Drive,

Milpitas, California 95035

(408) 934-7500

(Address, including zip code, and telephone number, including area code, of Registrant’s principal executive offices)

 

 

 

 

Ralph Schmitt

Chief Executive Officer

Sipex Corporation

233 South Hillview Drive,

Milpitas, California 95035

(408) 934-7500

(Name, address, including zip code, and telephone number, including area code, of agent for service)

 

 

 

 

Copies to:

Robert G. Day, Esq.

Allison Berry Spinner, Esq.

Wilson Sonsini Goodrich & Rosati

Professional Corporation

650 Page Mill Road

Palo Alto, CA 94304

(650) 493-9300

 

 

 

 

Approximate date of commencement of proposed sale to the public:  From time to time after the effective date of this Registration Statement, as determined by the selling securityholders.

 

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.  þ

 

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.  o

 

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.  o

 

If this Form is a post-effective amendment filed pursuant to Rule 462(d) 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.  o

 

If delivery of the prospectus is expected to be made pursuant to Rule 434, please check the following box.  o

 

 

 

 

CALCULATION OF REGISTRATION FEE

 

 

 

 

 

 

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.

 

 

(SUBJECT TO COMPLETION)

 

PROSPECTUS

 

 

5.5% REDEEMABLE CONVERTIBLE SENIOR NOTES DUE 2026,

WARRANTS TO PURCHASE COMMON STOCK

AND THE COMMON STOCK ISSUABLE UPON EXERCISE OF THE WARRANTS OR CONVERSION OF THE NOTES

 

We issued the notes in a private placement in May 2006. This prospectus will be used by selling securityholders to resell their notes, warrants and the common stock issuable upon exercise of their warrants or conversion of their notes. In addition, this prospectus covers the issuance of any shares of common stock to a subsequent holder of a note or warrant upon the conversion of that note or exercise of that warrant. We will not receive any proceeds from this offering.

 

The notes mature on May 18, 2026. The notes bear interest at the rate of 5.5% per year semiannually in arrears on May 15 and November 15 of each year, beginning November 15, 2006. In addition, because the notes were issued as part of investment units with warrants, original issue discount, or OID, will accrue on the notes and, subject to certain exceptions, U.S. Holders will be required to recognize additional interest income on a constant yield to maturity basis, regardless of their regular method of tax accounting, even though we will not pay any additional interest in cash. You may convert the notes into shares of our common stock based on a conversion rate of approximately 186 shares of our common stock per $1,000 principal amount of notes (which is equal to an initial conversion price of $5.36 per share), subject to adjustment, under the circumstances described herein.

 

The warrants are exercisable at any time for shares of our common stock at an initial exercise price of $6.432 per share, subject to adjustment upon certain events. The warrants will expire on or before May 18, 2011. In addition, in order to exercise the warrants, the warrant holder is required to make certain representations and warranties contained in the warrants, including representations as to the warrant holder’s status as an “accredited investor” as defined in Rule 501 of the Securities Act and as a “qualified institutional buyer” as defined in Rule 144A of the Securities Act.

 

Currently, our common stock is quoted on the Nasdaq Capital Market under the symbol “SIPX.” On July 2, 2007, the last quoted sale price of our common stock was $9.14 per share.

 

Investing in the notes, warrants and the common stock into which the notes and warrants are convertible into or exercisable for involves risks. See “Risk Factors” beginning on page 5.

 

NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE SECURITIES COMMISSION HAS APPROVED OR DISAPPROVED OF THESE SECURITIES OR DETERMINED IF THIS PROSPECTUS IS TRUTHFUL OR COMPLETE. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.

 

The date of this prospectus is          , 2007

TABLE OF CONTENTS

 

 

 

You should rely only on the information contained in this prospectus. We have not authorized anyone to provide you with information different from that contained in this prospectus. We are offering to sell, and seeking offers to buy, shares of our common stock only in jurisdictions where offers and sales are permitted. The information contained in this prospectus is accurate only as of the date of this prospectus, regardless of the time of delivery of this prospectus or of any sale of our common stock.

 

On January 30, 2007, Sipex’s stockholders at a special meeting of stockholders approved a 1-for-2 reverse stock split. Sipex completed the reverse stock split effective at 1:31 p.m. Pacific Standard Time on February 23, 2007. All references to share and per share data have been retroactively adjusted to reflect the reverse stock split in this filing.

 

PROSPECTUS SUMMARY

 

THE OFFERING

Issuer		Sipex Corporation

Securities Offered		Pursuant to this prospectus, selling securityholders are offering for resale up to $15,000,000 aggregate principal amount of 5.5% Redeemable Convertible Senior Notes due 2026, warrants to purchase 419,776 shares of our common stock and 3,540,112 shares of our common stock, which represent 110% of the common stock issuable upon conversion of the notes and cash exercise of the warrants. In addition, we are offering the shares of common stock issuable to a subsequent holder of a note or warrant upon conversion of that note or exercise of that warrant.

Use of Proceeds		We will not receive any proceeds from sales of the notes, warrants or shares of common stock sold from time to time under this prospectus by the selling securityholders. Upon any exercise of the warrants by payment of cash, however, we will receive the exercise price of the warrants, which will be used for general corporate purposes.
Notes Interest		The notes bear interest at an annual rate of 5.5%. Interest is payable semi-annually on May 15 and November 15 of each year, beginning on November 15, 2006. Subject to the provisions of the indenture, interest on the notes is payable in either shares of common stock or cash. See “Description of Notes-Interest” below.
Original Issue Discount		The notes initially were issued together with the warrants as investment units and, accordingly, the purchase price of the investment units was required to be allocated between the notes and the warrants based on their relative fair market values. We have treated $63.35 of each

		$1,000.00 purchase price per unit as allocable to the warrants. As a result of this allocation, the principal amount of the note exceeds the adjusted issue price of the note by more than a de minimis amount, and the excess is characterized as OID for U.S. federal income tax purposes. The adjusted issue price of a note upon its acquisition by a U.S. Holder is the portion of the original issue price for the unit allocable to the note (which we have determined to be $936.65), plus the OID includible in the income of holders prior to a U.S. Holder’s acquisition of the note. Subject to certain exceptions, each U.S. Holder is required to include OID as ordinary interest income on a constant yield to maturity basis, regardless of the holder’s regular method of tax accounting, even though we will not pay any additional interest in cash. For additional information, see “Material U.S. Federal Income Tax Considerations” beginning on page 43.
Maturity Date		May 18, 2026.
Conversion		The notes are convertible at the holder’s option at any time prior to maturity into shares of our common stock, initially at a conversion price of $5.36 per share, subject to adjustment upon certain events.
Auto-Conversion		At any time prior to maturity (subject to certain limitations), we may elect to automatically convert some or all of the notes into shares of our common stock if (a) the average price of our common stock exceeds 150% of the conversion price for 20 trading days during any 30 trading day period ending within 5 trading days of the notice of automatic conversion, (b) the average daily trading volume of our common stock is not less than $375,000 during such period, and (c) certain equity conditions shall have been satisfied as of the date of the notice of automatic conversion and, subject to certain exceptions, remain satisfied through the automatic conversion date. See “Description of the Notes — Conversion Rights — Automatic Conversion.”
Adjustments to the Conversion Price		The conversion price of the notes will be subject to adjustment as set forth under the section entitled “Description of the Notes — Conversion Rights — Conversion Rate Adjustments” and you should review the indenture for a description of events that cause an adjustment to the conversion price as well as the mechanics of the adjustments.
Optional Redemption		At any time on or after May 21, 2009, we may redeem some or all of the notes at 100% of the principal amount plus accrued and unpaid interest to, but excluding, the redemption date, provided that certain equity conditions shall have been satisfied as of the date of the redemption notice and, subject to certain exceptions, remain satisfied through the redemption date. If we elect to redeem the notes, we will provide notice of redemption to the noteholders not less than 30 days and not more than 60 days before the redemption date.
Repurchase at Holder’s Option		A holder may require us to repurchase the holder’s notes for cash on May 15, 2011, May 15, 2016 or May 15, 2021, at a price equal to 100% of the principal amount plus accrued and unpaid interest, if any, to the applicable repurchase date.
Repurchase at Holder’s Option upon Certain Events		Upon a change of control or if our common stock is no longer authorized for quotation or listing on The New York Stock Exchange,

		Inc., the American Stock Exchange, Inc. or The Nasdaq Global Market or Capital Market after the time we are relisted on any such exchange, a holder may require us to repurchase the holder’s notes in cash at a price equal to 100% of the principal amount plus accrued and unpaid interest, if any, to the applicable repurchase date.
Ranking		The notes are our senior unsecured debt and will be structurally subordinated to any secured indebtedness (to the extent of its security), and rank on parity with all of our existing and future senior debt and be senior to all existing and future subordinated debt. As of March 31, 2007, we had $1.8 million secured indebtedness and approximately $30.6 million of senior debt, which consists of $30 million in principal indebtedness, ($15 million not on this registration statement) and approximately $0.6 million in accrued interest.
		The notes will also be effectively subordinated to the liabilities of our subsidiaries. As of March 31, 2007, our subsidiaries had outstanding liabilities of approximately $354,000 (excluding intercompany debt).
Covenants		We are subject to certain covenants with respect to our ability to incur indebtedness, to incur liens and our ability to make certain payments. See “Description of Notes — Certain Covenants” below.
Warrants Exercise		The warrants registered by this registration statement are exercisable for a total of 419,776 shares of our common stock at an initial exercise price of $6.432 per share, subject to adjustment upon certain events. The warrants are exercisable (in whole or in part) at any time on or before May 18, 2011. In addition, in order to exercise the warrants, the warrant holder is required to make certain representations and warranties contained in the warrants, including representations as to the warrant holder’s status as an “accredited investor” as defined in Rule 501 of the Securities Act and as a “qualified institutional buyer” as defined in Rule 144A of the Securities Act.
Expiration		Each of the warrants will expire at 5:00 p.m., Eastern Standard time, on May 18, 2011.
Trading		The notes, warrants and the underlying common stock have been registered under the Securities Act. Currently, there is no public market for the notes or warrants, and we cannot assure you that any such market will develop. The notes and warrants will not be listed on any securities exchange or included in any automated quotation system. Our common stock is currently traded on the Nasdaq Capital Market under the symbol “SIPX.”
Treatment of Notes and Warrants in the Exar Merger		In the event that our proposed merger with Exar Corporation (“Exar”) is completed, at the effective time of the merger, any outstanding notes will be guaranteed by Exar, subject to the same terms and conditions as were applicable before the merger, except that the notes will be convertible into shares of Exar common stock for an adjusted number of shares and with an adjusted conversion price based on the exchange ratio in the merger. In addition, each outstanding warrant will be converted into a warrant to purchase Exar common stock on the same terms and conditions as were applicable under the warrant to purchase Sipex common stock before the merger except for an adjusted number

		of shares and with an adjusted exercise price based on the exchange ratio in the merger. For additional information, see “Description of Notes — Treatment of Sipex Notes in the Exar Merger” and “Description of Warrants — Treatment of Sipex Warrants in the Exar Merger.”
CUSIP Numbers		The CUSIP numbers for the notes and the warrants after the registration of their resale with the SEC are 829909 AA 8 and 829909 11 8 respectively.
Material U.S. Federal Income Tax Considerations		For a discussion of material U.S. federal income tax consequences of purchasing, assuming and disposing of the notes, the warrants and the common stock into which they may be converted or exercised, see “Material U.S. Federal Income Tax Considerations” beginning on page 43.
Risk Factors		An investment in the notes involves a high degree of risk. See “Risk Factors” beginning on page 5 for a discussion of certain factors that you should consider when evaluating an investment in the notes, warrants and the underlying common stock.

 

Risks Related to the Business

 

If the proposed merger with Exar does not occur, we could be materially adversely affected.

 

On May 7, 2007, Sipex entered into a definitive merger agreement with Exar Corporation to combine the two companies. The completion of the proposed merger with Exar is subject to the satisfaction of closing conditions set forth in the merger agreement, including approval by the affirmative vote of a majority of the outstanding shares of our common stock and a majority of the outstanding shares of Exar’s common stock voting at the applicable Exar special meeting and the receipt of certain regulatory approvals. The proposed merger has resulted, and will continue to result, in significant costs and expenses for us, including costs for legal and financial advisory services, and our cash position may consequently continue to decline during the pendency of the merger. In addition, the proposed merger may have negative effects on our relationships with our employees or customers and on the operation of our business, and if the proposed merger does not close, we may not be able to reverse any such negative effects and may otherwise be materially adversely affected.

 

Our quarterly and annual operating results are volatile and difficult to predict and may cause our stock price to fluctuate.

 

Our quarterly and annual operating results are affected by a wide variety of factors that could materially and adversely affect net sales and profitability from period-to-period, including:

 

 

 

Due to the absence of substantial non-cancelable backlog, we typically plan our production and inventory levels based on internal forecasts of customer demand, which are highly unpredictable and can fluctuate substantially.

 

Our expense levels are based, in part, on expectations of future revenues and are, to a large extent, fixed in the short- term. For example, we have a minimum purchase arrangement with two of our suppliers based on requirements forecasted in advance. Our future revenues are difficult to predict and at times in the past we have failed to achieve revenue expectations. We may be unable to adjust spending in a timely manner to compensate for any unexpected revenue shortfall. If revenue levels are below expectations for any reason, operating results are likely to be unfavorably affected. We may also take steps to adjust our strategic product families and change our cost structure, which may result in our incurring additional restructuring, reorganization and other charges. Based on forecasts, we may increase our operating expenses for personnel and new product development and for inventory in anticipation of increasing sales levels; therefore, operating results would be worsened if increased sales are not achieved.

 

Our business depends on market demand for products using analog semiconductors. A less robust semiconductor market could negatively impact our net sales, results of operations and cash flows. As a result of the foregoing and other factors, we may experience material fluctuations in future operating results on a quarterly or annual basis, which could substantially negatively affect our business, financial condition and operating results.

 

We may need to obtain a significant amount of additional capital in the future and may not be able to secure adequate funds on a timely basis or on terms acceptable to us.

 

We believe that the cash, cash equivalents and investments on hand, the cash we expect to generate from operations and borrowings under our bank line of credit and unsecured promissory note facility will be sufficient to meet our liquidity and capital spending requirements for at least the next twelve months. However, it is possible that we may need to raise additional funds to fund our activities during and/or beyond that time. We could raise these funds by selling more stock to the public or to selected investors, or by borrowing money.

 

In addition, even though we may not need additional funds, we may still elect to sell additional equity securities or obtain credit facilities for other reasons. We may not be able to obtain additional funds on favorable terms, or at all. If adequate funds are not available, we may be required to curtail our operations significantly or to obtain funds through other arrangements. If we raise additional funds by issuing additional equity or convertible debt securities, the ownership percentages of existing stockholders would be reduced. In addition, the equity or debt securities that we issue may have rights, preferences or privileges senior to those of the holders of our common stock.

 

It is possible that our future capital requirements may vary materially from those now planned. The amount of capital that we will need in the future will depend on many factors, including:

 

 

 

In addition, we may require additional capital to accommodate planned growth, hiring, infrastructure and facility needs or to consummate acquisitions of other businesses, products or technologies.

 

Our management has identified certain “material weaknesses” in the design and operation of our internal controls, which, if not adequately addressed, could result in accounting errors, call into question the accuracy of our financial results.

 

For the year ended January 1, 2005, our management informed the Audit Committee that they identified “material weaknesses,” as defined by the Public Company Accounting Oversight Board (PCAOB), in the design and operation of our internal controls. These weaknesses related to entity-level control activities, revenue accounting and controls related to the financial closing process.

 

For the years ended December 31, 2005 and December 30, 2006, we were not an accelerated filer, and therefore we are not required to make the annual report on internal control over financial reporting required by Item 308(a) of Regulation S-K and our independent registered public accounting firm is not required to issue a separate attestation on management’s assessment of our internal control over financial reporting under Item 308(b).

 

During fiscal year 2006, our management continued efforts to improve our internal controls over financial reporting, in particular to remediate the material weaknesses reported as of January 1, 2005. Our management believes that these efforts have or are reasonably likely to have, a material improvement on the design and effectiveness of our internal controls over financial reporting and to remediate the material weaknesses. However, as we were not an accelerated filer, and therefore not subject to the requirements of Item 308(a) and Item 308(b) of Regulation S-K, as noted above, there can be no assurance that we have fully remediated the material weaknesses reported as of January 1, 2005 or that our internal control over financial reporting is effective.

 

Our ability to implement our business plan successfully in a volatile market requires effective management systems and a system of financial processes and controls. We have identified a need to further evaluate and improve our sell-through accounting systems and procedures as well as our inventory valuation estimation procedures and tools. In addition, we have begun the process of implementing a new enterprise requirements planning system, which is expected to be completed in 2008. During the process of preparing our consolidated financial statements, we have continued to experience some delays and difficulties due to reliance on manual reconciliations and analyses. If we are unable to maintain an adequate level of processes and controls and improve our systems and procedures, we may not be able to accurately report our financial performance on a timely basis and our business and stock price would be adversely affected.

 

If we are unable to accurately forecast demand for our products, we may be unable to efficiently manage our inventory.

 

Due to the absence of substantial non-cancelable backlog, we typically plan our production and inventory levels based on internal forecasts of customer demand, which are highly unpredictable and can fluctuate substantially. As a consequence of inaccuracies inherent in forecasting, inventory imbalances periodically occur that result in surplus amounts of some of our products and shortages of others. Such shortages can adversely affect customer relations and surpluses can result in larger-than-desired inventory levels, which can adversely affect our financial position. In the fourth quarter of 2006, we experienced an abrupt reduction in customer demand and internal forecast for sales of our products resulting in inventory write-down of $3.5 million and additional charges of $1.4 million related to provision for purchase commitments on excess inventories.

We may face unforeseen complications from the transfer our manufacturing processes to Silan in China and Episil Technologies in Taiwan.

 

We have transferred our manufacturing processes to foundries operated by Silan in China and Episil in Taiwan in conjunction with the closure of the Milpitas, California wafer fabrication facility. The transfer has been a complicated and time-consuming process that has been met with significant unforeseen complications that delayed the integration transfer and required additional allocation of our resources. There can be no guarantees that additional unforeseen integration issues will not arise in the future related to the integration that could cause additional delays which could materially adversely affect our ability to timely produce our products for distribution.

 

In addition, the parties may be unable to achieve all or any of the expected benefits of the relationship within the anticipated time-frames. The anticipated synergies between Sipex and Silan or Episil may not be as significant as originally expected. The market for our products in China may not grow as rapidly or as large as both parties currently anticipate. The manufacturing processes and wafer testing may not be qualified by Sipex following the transfer from Sipex to Silan or Episil or the qualification process may take significantly longer than currently expected. This could result in additional operating costs, loss of customers, and business disruption.

 

We may experience difficulties in developing and introducing new or enhanced products necessitated by technological advances.

 

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

 

 

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

 

The introduction of our new products may be delayed in order to test for and resolve design flaws.

 

Our products are complex and must meet stringent quality requirements. They may contain undetected errors or defects, especially when new products are first introduced or when new versions are released. We may delay the release of our new product lines. Such delays could have an adverse effect on our market reputation and ability to generate sales.

 

We depend on distributors who sell directly to OEMs and the loss of one or more of our significant distributors could have a material adverse effect on our business.

 

For the fiscal years 2006, 2005 and 2004, approximately 77%, 83% and 83%,respectively, of our net sales were from shipments of our products to distributors who sell directly to OEMs. Our agreements with distributors contain

limited provisions for return of our products, including stock rotations whereby distributors may return a percentage of their purchases from us based upon a percentage of their most recent three months of shipments. In addition, in certain circumstances upon termination of the distributor relationship, distributors may return some portion of their prior purchases. The loss of business from any of our significant distributors or the delay of significant orders from any of them, even if only temporary, could significantly reduce our income, delay recognition of revenue and impact our ability to accurately predict cash flow.

 

We derive a substantial portion of our revenues from Future Electronics Inc., or Future, a related party, and our revenues would likely decline significantly if Future elected not to make, cancel, reduce or defer purchases of our products.

 

Future is a related party and has historically accounted for a significant portion of our revenues. Future is our largest distributor worldwide and accounted for 43%, 44% and 39% of total net sales in fiscal 2006, 2005 and 2004, respectively. We anticipate that sales of our products to Future will continue to account for a significant portion of our revenues. The loss of Future as a distributor, or a significant reduction in orders from Future would materially and adversely affect our operating results, our business, our financial condition and our stock price.

 

We have a distributor agreement with Future that provides for Future to act as our sole distributor for certain products within North America and Europe. If Future were to cease distributing these products, we could experience a reduction in sales as we located replacement distributors for these products. Sales to Future are made under an agreement that provides protection against price reduction for their inventory of our products. As such, we could be exposed to significant liability if the inventory value of the products held by Future declined dramatically. Our distributor agreement with Future does not contain minimum purchase commitments. As a result, Future could cease purchasing our products with short notice to us. In addition, Future may defer or cancel orders without penalty, which would likely cause our revenues, our business, our financial condition and our stock price to decline.

 

Affiliates of Future, our largest distributor, beneficially own a significant percentage of our common stock, which will allow them to significantly influence matters requiring stockholder approval and could discourage potential acquisition of our Company.

 

As of December 30, 2006, the affiliates of Future held approximately 8.6 million shares of our common stock, or approximately 47%, of our outstanding common stock and held 50% of our outstanding 5.5% Redeemable Convertible Senior Notes due 2026. We have also entered into a Securities Purchase Agreement with an affiliate of Future pursuant to which we may issue up to $10.0 million of 9% unsecured Junior Notes. In addition, two members of our Board of Directors, Dan Casey and Pierre Guilbault, are representatives of Future. Due to their ownership of a significant percentage of our common stock and our convertible debts, Future will be able to exert significant influence over, and effectively control, actions requiring the approval of our stockholders, including the election of directors, many types of change of control transactions and amendments to our charter documents. The significant ownership percentage of Future could have the effect of delaying or preventing a change of control of Sipex or otherwise discouraging a potential acquirer from obtaining control of Sipex. Conversely, by virtue of Future’s percentage ownership of our stock and debt, Future could facilitate a takeover transaction that our board of directors did not approve.

 

Occasionally we enter into agreements that expose us to potential damages that exceed the value of the agreement.

 

We have given certain customers increased indemnification for product deficiencies that is in excess of the standard limited warranty indemnification and could possibly result in greater costs, in excess of the original contract value. In an attempt to limit this liability, we have also increased our errors and omission insurance policy to partially offset these potential additional costs; however, our insurance coverage could be insufficient to prevent us from suffering material losses if the indemnification amounts are large enough.

We may face significant risks related to our international operations.

 

We derive a significant portion of our net sales from international sales, including to Asia, which are subject to certain risks, including:

 

 

Our international sales (sales to customers outside the United States) for the year ended December 30, 2006 were $62.7 million, or 80% of total net sales and $58.0 million and $60.3 million for the years ended 2005 and 2004, respectively, or 80% of total net sales for both years of 2005 and 2004. There can be no assurance that economic and geopolitical troubles in any area of the world will not have a material adverse effect on our business, results of operations and financial condition.

 

Our inability to meet any increase in demand could reduce our market share.

 

Demand shifts in the semiconductor industry are rapid and difficult to predict, and we may not be able to respond quickly enough to an increase in demand, if any. Our ability to increase sales of our products depends, in part, upon our ability to optimize the use of our manufacturing capacity in a timely manner and, if necessary, expand our manufacturing capacity. If we are unable to respond to rapid increases in demand, if any, for our products on a timely basis or to manage any corresponding expansion of our manufacturing capacity effectively, our customers could increase their purchases from our competitors, which would reduce our market share.

 

If we are unable to compete effectively with existing or new competitors, we will experience fewer customer orders, reduced revenues, reduced gross margins and lost market share.

 

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

 

 

 

There can be no assurance that our design, development and introduction schedules for new products or enhancements to our existing and future products will be met. In addition, there can be no assurance that these products or enhancements will achieve market acceptance, or that we will be able to sell these products at prices that are favorable.

 

The implementation of a new management information system may disrupt our business.

 

We have begun the process of implementing a new enterprise resource planning and financial accounting and planning system, and integrating this new system with our customer relationship management system and our product management system. Implementation of the new management information system, including the integration with other systems, is a very complex and time consuming process that requires significant financial resources and personnel time, as well as unifying operating policies and procedures to ensure that the total system operates efficiently and effectively. Delays or errors in the implementation could result in additional costs and cause disruptions to our business, which could adversely affect our ability to accurately report our financial results on a timely basis, comply with our periodic reporting requirements on a timely basis and could have a material adverse effect on our business, financial condition and operating results.

 

A failure of our information systems would adversely impact our ability to process orders for and manufacture products.

 

We operate a multinational business enterprise with manufacturing, administration and sales groups located in Asia, Europe and the United States. These disparate groups are connected by a virtual private network-based enterprise resource planning system, where daily manufacturing operations and order entry functions rely on maintaining a reliable network among locations. Any failure of our computer network or our enterprise resource planning system would impede our ability to schedule orders, monitor production work in process and ship and bill our finished goods to our customers.

 

We have only limited protection for our proprietary technology.

 

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

 

There can be no assurance that foreign intellectual property laws will protect our intellectual property rights. Furthermore, there can be no assurance that others will not independently develop similar products, duplicate our products or design around any of our patents. We may be subject to, or may initiate, interference proceedings in the U.S. patent office, which can demand significant financial and management resources.

Our future success depends on retaining our key personnel and attracting and retaining additional highly qualified employees.

 

Our success depends upon the continued service of our executive officers and other key management and technical personnel, and on our ability to continue to attract, retain and motivate qualified personnel, such as experienced analog circuit designers. The competition for these employees is intense. Our employee’s are employed at-will, which means that they can terminate their employment at any time. There can be no assurance that we will be able to retain our design engineers, executive officers and other key personnel. The loss of the services of one or more of our design engineers, executive officers or other key personnel or our inability to recruit replacements for these personnel or to otherwise attract, retain and motivate qualified personnel could seriously impede our success.

 

Product defects or compatibility problems with our products could damage our reputation, decrease market acceptance of our technology, cause us to replace defective or incompatible products at a substantial cost and result in potentially costly litigation.

 

A number of factors, including design flaws, materials failures, manufacturing problems, and misapplication of our products may cause our products to contain undetected errors, defects or compatibility problems. Defects or compatibility problems with our products may:

 

 

If any of our products contain defects, or have reliability, quality or compatibility problems, our reputation might be damaged significantly and customers might be reluctant to buy our products. This could result in the loss of existing customers and impair our ability to attract new customers in the future. In addition, we may discover defects or failures in our products after they are installed by customers. In such cases, we may incur significant costs and devote substantial management resources to correcting these problems. Our customers may also sue us for, or otherwise seek to recover from us, any losses resulting from alleged defects or errors in our products.

 

Our manufacturing processes are very complex, which may result in manufacturing difficulties.

 

Our manufacturing processes and the processes of our suppliers 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 causing product introduction or delivery delays. In addition, yields can be adversely affected by minute impurities in the environment or other problems that occur in the complex manufacturing process. Many of these problems are difficult to diagnose and are time-consuming or expensive to remedy. From time to time we have experienced unfavorable 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 our foundries or the foundries of our suppliers will not experience unfavorable yield variances or other manufacturing problems that result in delayed product introduction or delivery delays. This risk is particularly significant in the near term as we transfer our manufacturing processes to Silan and Episil.

 

We rely on outside foundries to supply certain of our wafers and those foundries may not produce at acceptable levels.

 

Beginning in 2006, we began to increasingly rely on outside foundries to supply certain of our fully processed semiconductor wafers. This reliance on outside foundries presents the following potential risks:

 

 

Additionally, we do not have a guaranteed level of production capacity at any of these foundries with the exception of two of our foundries for whom we provide minimum purchase commitments in accordance with our supply agreements. The ability of each foundry to provide wafers to us is limited by the foundry’s available capacity, and the foundry’s allocation of its available capacity among multiple customers. There can be no assurance that our third party foundries will allocate sufficient capacity to satisfy our requirements. We have experienced decreased allocations of wafer supplies from our suppliers in the past, which reduced our capacity to ship products, and, thus, recognize revenues. Furthermore, 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 our products. If any other delays or shortages occur in the future, our business and operating results will be negatively impacted.

 

Our ability to meet current demand or any increase in demand for our products may be limited by our ability to test our semiconductor wafers.

 

As part of our manufacturing process, we must test all of our semiconductor wafers using certain “probe testing” equipment. As such, our ability to meet current demand or any increase in demand for our products depends, in part, on our ability to purchase and install sufficient testing equipment. Obtaining and installing this equipment is a time and capital intensive process and depends on our ability to accurately predict future sales. In the first quarter of 2006, due to a lack of sufficient “probe testing” equipment, we were unable to test an adequate number of wafers, incurred delays in shipping products and were unable to meet the demand for our products. If we are unable to estimate future sales correctly or we are unable to obtain the necessary testing equipment on a timely basis, we will continue to be unable to meet the current demand or any increased demand for our products.

 

The facilities of certain of our significant customers and third party wafer suppliers are located in areas susceptible to earthquakes and other natural disasters.

 

The facilities of certain of our significant customers and third-party wafer suppliers are located in areas that are susceptible to earthquakes and other natural disasters. Damage caused by earthquakes or other natural disasters may result in shortages in water or electricity or transportation, which could limit the production capacity of our wafer facility or the ability of certain of our subcontractors to provide needed products. Any reduction in production capacity or the ability to obtain fully processed semiconductor wafers could cause delays or shortages in our product supply, which would negatively impact our business. If the facilities of our customers or our third party wafer suppliers are damaged by future earthquakes or other natural disasters, it could have a materially adverse effect on our business.

 

We rely on outside suppliers to assemble, test and ship product to our customers.

 

We rely on outside assembly houses to assemble, test and ship our product to end customers. There can be no assurance that our third party suppliers will allocate sufficient capacity to us to meet our requirements. Any sudden reduction or elimination of a primary source could result in material delay in the shipment of our product and could have a material adverse affect on our business and operating results.

 

In addition, we may transition the testing of our products to new assembly houses. If the transition does not proceed smoothly, this could also result in delays in the shipment of our products.

 

Because we rely on outside assembly house to assemble, test and ship our products, we have limited control over quality assurance, manufacturing yields and production costs, and we have in the past experienced yield issues and delays. We could experience delays or yield issues in the future due to the transfer of products from development to production, which could negatively impact our business and operating results. In addition, if defects in our products are undetected, we may experience higher warranty expenses than anticipated, which could negatively impact our reputation, business and operating results.

 

We must comply with significant environmental regulations, employment tax regulations, employment practices and other governmental regulations which are difficult and expensive.

 

We are subject to a variety of international, federal, state and local governmental regulations related to employment taxes, employment practices and other governmental regulations and regulations regarding the use,

storage, discharge and disposal of toxic, volatile or otherwise hazardous chemicals used in our manufacturing processes or residing in our products. The failure to comply with present or future regulations could result in fines being imposed on us, suspension of production or a cessation of operations. Any failure by us to control the use of, or adequately restrict the discharge of hazardous substances, or otherwise comply with environmental regulations, could subject us to significant future liabilities. Any failure to conform to employment tax regulations, employment practices regulations and other governmental regulations, could result in remediation or other significant liabilities.

 

Our stock price has been volatile and could continue to remain volatile.

 

The trading price of our common stock may be subject to wide fluctuations in response to quarter-to-quarter variations in operating results, announcements of technological innovations or new products by us or our competitors, general conditions in the semiconductor manufacturing and electronic markets, changes in earnings estimates by analysts, or other events or factors. In addition, the public stock markets have experienced extreme price and trading volume volatility in recent months. This volatility has significantly affected the market prices of securities of many technology companies for reasons frequently unrelated to the operating performance of the specific companies. These broad market fluctuations may adversely affect the market price of our common stock.

 

Risks Relating to the Notes and the Warrants

 

The notes are structurally subordinate in right of payment to our secured debt.

 

The notes are our general obligations and are structurally subordinate in right of payment to all of our existing secured debt and any future secured debt that we incur to the extent of the security therefor and rank on parity with all of our existing and future senior debt. In the event of our bankruptcy, liquidation or reorganization or upon acceleration of the notes due to an event of default, our assets will be available to pay obligations on the notes only after all secured debt has been paid. As a result, there may not be sufficient assets remaining to pay amounts due on any or all of the outstanding notes. In addition, we will not make any payments on the notes in the event of payment defaults on any future secured debt financing that we may incur. As of December 30, 2006, we had no secured indebtedness (as defined in the indenture) outstanding. The notes are also effectively subordinated to the liabilities of our subsidiaries, and as of December 30, 2006, our subsidiaries had approximately $180,000 in outstanding liabilities (excluding intercompany debt).

 

We may not have sufficient funds to pay our debt and other obligations.

 

Our cash, cash equivalents, short-term investments and operating cash flows may be inadequate to meet our obligations under the notes or our other obligations. If we are unable to generate sufficient cash flow or otherwise obtain funds necessary to make required payments on the notes, we will be in default under the notes, which could cause defaults under any other of our indebtedness then outstanding. Any such default would have a material adverse effect on our business, prospects, financial condition and operating results. In addition, we cannot be sure that we would be able to repay amounts due in respect of the notes if payment of those notes were to be accelerated following the occurrence of an event of default as described in the indenture.

 

Because your right to require repurchase of the notes is limited, you may be unable to avoid a decline in the market price of the notes if we enter into a transaction that is not a “change in control” under the indenture.

 

The term “change in control” is limited and may not include every event that might cause the market price of the notes to decline or change the credit risk applicable to the notes. The term “change in control” does not apply to transactions in which at least 90% of the consideration paid for our common stock in a merger or similar transaction is publicly traded common stock, which means that you could receive common stock of an issuer other than Sipex upon conversion of your notes. Our obligation to repurchase the notes upon a change in control may not preserve the value of the notes in the event of a highly leveraged transaction, reorganization, merger or similar transaction not involving a “change in control” as defined by the indenture. See “Description of the Notes — Repurchase of Notes at Option of Holders.” Our proposed transaction with Exar would not be considered as a “change in control” if consummated as currently planned.

We may not have sufficient funds to purchase the notes upon a repurchase event.

 

We may not have the funds necessary to purchase the notes at the option of the holders upon certain repurchase events, including a change in control. If a repurchase event were to occur, we may not have sufficient funds to pay the purchase price for all tendered notes, or restrictions in our outstanding debt may not allow those purchases. We are only obligated to offer to repurchase the notes upon certain specified repurchase events. There may be other events that could hurt our financial condition that would not entitle you to have your notes repurchased by us.

 

The notes do not require us to achieve or maintain minimum financial results, the lack of which could negatively impact holders of the notes.

 

The notes do not require us to achieve or maintain any minimum financial results relating to our financial condition or results of operations. Our ability to recapitalize and take a number of other actions that are not limited by the terms of the indenture and the notes could have the effect of diminishing our ability to make payments on the notes when due. In addition, we are not restricted from repurchasing subordinated indebtedness or common stock by the terms of the indenture and the notes.

 

If you hold notes or warrants, you will not be entitled to any rights as a holder of our common stock, but you will be subject to all changes made with respect to our common stock.

 

If you hold the notes or the warrants, other than the right to adjustments in the conversion price of the notes and the exercise price of the warrants upon certain events, you will not be entitled to any rights with respect to our common stock (including, without limitation, voting rights and rights to receive any dividends or other distributions on our common stock), but you will be subject to all changes affecting the common stock. You will only be entitled to rights as a holder of common stock if and when we deliver shares of common stock to you upon conversion of your notes and exercise of your warrants. For example, in the event that an amendment is proposed to our charter or bylaws requiring stockholder approval and the record date for determining stockholders of record entitled to vote on the amendment occurs prior to conversion of your notes, you will not be entitled to vote on the amendment, although the common stock you receive upon conversion of your notes and exercise of your warrants will nevertheless be subject to any changes in the powers, preferences or special rights of our common stock or other classes of capital stock.

 

There is no public market for the notes or warrants, which could limit their market price or your ability to sell them.

 

There is no established trading market for the notes or the warrants. The notes are designated for trading by qualified institutional buyers in the PORTAL market. The notes sold using this prospectus, however, will no longer be eligible for trading in the PORTAL market. We do not intend to apply for listing of the notes or warrants on any securities exchange or to arrange for quotation on any automated dealer quotation system. As a result, an active trading market for the notes or warrants may not develop. If an active trading market does not develop or is not maintained, the market price and liquidity of the notes and warrants may be adversely affected. In that case, you may not be able to sell your notes or warrants at a particular time or at a favorable price. Future trading prices of the notes and warrants will depend on many factors, including:

 

 

Historically, the market for convertible debt has been subject to disruptions that have caused substantial fluctuations in the prices of the securities. Accordingly, you may be required to bear the financial risk of an investment in the notes for an indefinite period of time.

Your warrants may be subject to resale limitations imposed by the securities laws of some states.

 

While many states provide an exemption from state securities registration for sales of warrants or other rights to purchase listed securities, there is a risk that a particular state may not provide an applicable exemption from registration for a sale of warrants or other rights to purchasers in that state. Consequently, there is a risk that future transfers of warrants or other rights may be restricted due to the requirements of the securities law in those states.

 

You must be able to make certain representations and warranties in order to exercise the warrants.

 

The warrants provide that a holder must be able to make certain representations and warranties contained in the warrant, including verification of the holder’s status as an “accredited investor” as that term is defined under Rule 501 of the Securities Act and a “qualified institutional buyer” as that term is defined in Rule 144A under the Securities Act. If a warrant holder is unable to make those representations, the holder may be unable to exercise the warrants for the Company’s common stock.

 

If we automatically convert the notes, you should be aware that there is a substantial risk of fluctuation in the price of our common stock from the date we elect to automatically convert to the conversion date.

 

We may elect to automatically convert the notes on or prior to maturity if, among other things, the average price of our common stock has exceeded 150% of the conversion price for at least 20 trading days during any 30-day period ending within five trading days prior to the notice of automatic conversion. You should be aware that there is a risk of fluctuation in the price of our common stock between the time when we may first elect to automatically convert the notes and the automatic conversion date. These fluctuations may adversely affect the value of the shares of common stock into which the notes may be converted and the additional shares, if applicable, issued in satisfaction of the interest make-whole payment.

 

The notes were issued with original issue discount.

 

The notes initially were issued together with the warrants as investment units, and, accordingly, the purchase price of the investment units was required to be allocated between the notes and the warrants based on their relative fair market values. We have treated $63.35 of each $1,000.00 purchase price per unit as allocable to the warrant. As a result of this allocation, the principal amount of the note exceeds the adjusted issue price of the note by more than a de minimis amount, and the excess is characterized as OID for U.S. federal income tax purposes The adjusted issue price of a note upon its acquisition by a U.S. Holder is the portion of the original issue price of the unit allocable to the note (which we have determined to be $936.65), plus the OID includible in the income of holders prior to a U.S. Holder’s acquisition of the note. Subject to certain exceptions, each U.S. Holder is required to include OID as ordinary interest income on a constant yield to maturity basis, regardless of the holder’s regular method of tax accounting, even though we will not pay any additional interest in cash. For additional information, see “Material U.S. Federal Income Tax Considerations” beginning on page 43.

 

This prospectus contains forward-looking statements that involve risks and uncertainties. The statements that are not purely historical are forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, or the Securities Act, and Section 21E of the Securities Exchange Act of 1934, as amended, or the Exchange Act, including, without limitation, statements regarding our expectations, beliefs, intentions or strategies regarding the future. All forward-looking statements included in this prospectus are based on information available to us on the date hereof, and we assume no obligation to update any such forward-looking statements. These statements involve known and unknown risks, uncertainties and other factors, which may cause our actual results to differ materially from those implied by the forward-looking statements. In some cases, you can identify forward-looking statements by terminology such as “may,” “will,” “should,” “expects,” “plans,” “anticipates,” “believes,” “intends,” “estimates,” “predicts,” “potential,” or “continue” or the negative of these terms or other comparable terminology. Although we believe that the expectations reflected in the forward-looking statements are reasonable, we cannot offer any assurance of future results, levels of activity, performance or achievements. Important factors that may cause actual results to differ from expectations include those discussed under the

heading “Risk Factors” in the beginning of this document. The terms “Sipex,” “the Company,” “we,” “us,” “its” and “our” as used in this prospectus refer to Sipex Corporation and its subsidiaries and its predecessors as a combined entity, except where the context requires otherwise.

 

The selling securityholders will receive all of the proceeds from the sale of the notes, warrants and common stock offered by this prospectus. We will not receive any of the proceeds from the sale of the notes, warrants or common stock by the selling securityholders, although we may receive proceeds from the exercise of warrants by the selling securityholders, if exercised with cash. We cannot guarantee that the selling securityholders will exercise any warrants.

 

The following table sets forth our ratio of earnings to fixed charges on a historical basis for the periods indicated.

 

 

 

 

We have never declared or paid any cash dividends on our capital stock and we do not currently intend to pay any cash dividends on our common stock. We currently intend to retain all of our earnings to finance future growth and, therefore, do not anticipate paying any cash dividends on our common stock in the foreseeable future. We expect to retain future earnings, if any, to fund the development and growth of our business. In addition, payment of dividends by us to holders of our common stock is restricted by a loan and security agreement that we have entered into and by a securities purchase agreement that we entered into in connection with the sale of the notes. Any future determination to pay dividends on our common stock will be at the discretion of our board of directors and will depend upon, among other factors, our results of operations, financial condition, capital requirements and contractual restrictions.

 

From April 2, 1996, the date of our initial public offering, our common stock was available for quotation on the Nasdaq Global Market under the symbol “SIPX.” On June 23, 2005, we were delisted from the Nasdaq Global Market and our common stock was quoted on the Pink Sheets electronic quotation system until April 10, 2007. Our common stock is currently listed on the Nasdaq Capital Market under the trading symbol “SIPX.”

The following table sets forth, for the period indicated, the high and low closing sale prices per share as reported on the Nasdaq Global Market or on the Pink Sheets for the periods referenced:

 

Quarterly Stock Market Data

 

 

 

 

As of July 2, 2007, our stock price quoted on the Nasdaq Capital Market was $9.14.

 

As of March 31, 2007, there were 63 stockholders of record. We believe that as of March 31, 2007, the number of beneficial holders of common stock was approximately 2,800.

 

 

Selling Securityholders

 

On behalf of the selling securityholders named in the table below (including their donees, pledgees, transferees or other successors-in-interest who receive any of the notes, warrants or shares covered by this prospectus), we are registering, pursuant to the registration statement of which this prospectus is a part:

 

 

We are registering the notes, warrants and shares of common stock being offered under this prospectus pursuant to a registration rights agreement with the selling securityholders. See “DESCRIPTION OF CAPITAL STOCK — Registration Rights.” The above-described notes, warrants, and shares were issued to the selling securityholders in a private placement by us that closed on May 18, 2006. None of the selling securityholders has had any material relationship with us within the past three years other than as a result of the ownership of shares of our capital stock.

 

We are registering the notes, warrants and shares of common stock to permit the selling securityholders to offer these notes, warrants and shares of common stock for resale from time to time. The selling securityholders may sell all, some or none of the notes, warrants or shares covered by this prospectus. All information with respect to beneficial ownership has been furnished to us by the selling securityholders. The percentage of outstanding shares of common stock beneficially owned before the offering is based on 18,389,862 shares of common stock outstanding as of December 30, 2006. The number and percentage of outstanding notes, warrants, and shares of common stock beneficially owned after the offering are presented under the assumption that all of the notes, warrants and shares of common stock being offered by the selling securityholders are sold and no additional notes, warrants or shares of common stock are purchased by the selling securityholders prior to the completion of the offering. For more information, see the section of this prospectus entitled “PLAN OF DISTRIBUTION.”

 

The table below lists the selling securityholders and information regarding their ownership of our common stock as of December 30, 2006:

 

 

Note: Percentages may not aggregate to the total due to rounding.

 

Principal Stockholders

 

The following table sets forth as of May 7, 2007 information to the best of our knowledge, with respect to the beneficial ownership of our common stock by (i) each person who is known by us to be the beneficial owner of more than five percent of our common stock, (ii) each of our directors, (iii) each of our named executive officers, and (iv) all of our directors and named executive officers as a group.

 

We have determined beneficial ownership in accordance with the rules of the Securities and Exchange Commission. Except as indicated by the footnotes below, we believe, based on the information furnished to us, that the persons and entities named in the tables below have sole voting and investment power with respect to all shares of common stock that they beneficially own, subject to applicable community property laws. We have based our calculation of the percentage of beneficial ownership on 18,727,741 shares of common stock outstanding on May 7, 2007.

 

In computing the number of shares of common stock beneficially owned by a person and the percentage ownership of that person, we deemed outstanding shares of common stock subject to options or warrants held by that person that are currently exercisable or exercisable within 60 days of May 7, 2007. We did not deem these shares outstanding, however, for the purpose of computing the percentage ownership of any other person. Beneficial ownership representing less than 1% is denoted with an asterisk (*).

 

 

 

 

DESCRIPTION OF SECURITIES

 

DESCRIPTION OF THE 5.5% REDEEMABLE CONVERTIBLE SENIOR NOTES DUE 2026

 

We issued the notes under an indenture dated as of May 16, 2006, between us and Wells Fargo Bank, National Association, a national banking association, as trustee. Wells Fargo Bank, National Association also acts as paying agent, conversion agent and registrar for the notes. The terms of the notes include those provided in the notes, the indenture, the securities purchase agreement and the registration rights agreement, each of which we entered into with the buyers of the notes. The following description reflects all amendments and supplements to the operative documents to date.

 

The following description is only a summary of the material provisions of the notes, the indenture and the supplemental indenture. The form of note, the indenture, the securities purchase agreement, the registration rights agreement and other operative documents are filed as exhibits to the registration statement of which this prospectus is a part. We urge you to read these documents in their entirety because they, and not this description, define the rights of a holder of the notes.

 

General

 

The notes:

 

 

 

No sinking fund is provided for the notes.

 

Interest

 

The notes bear interest at the annual rate of 5.5%. Interest accrues on the notes from May 16, 2006. Interest will be paid on May 15 and November 15 of each year, beginning on November 15, 2006, subject to limited exceptions if the notes are converted, redeemed or repurchased prior to an interest payment date. Subject to limited exceptions, any accrued and unpaid interest which is not paid within 5 days of the interest payment date shall bear interest at the annual rate of 12% until the same is paid in full. The interest rate is subject to increase upon our failure to comply with any of the following events:

 

The record dates for payment of interest are May 4 and November 4. Interest is computed on the basis of a 360-day year consisting of twelve 30-day months.

 

Provided that the equity conditions are satisfied or waived by 662/3% of the aggregate principal amount of notes then outstanding, interest is payable in shares of common stock or, at our option, in cash. If interest is payable in shares of common stock, it will be valued at 90% of the current market price of the common stock as provided in the indenture.

 

The notes further provide that if by August 15, 2006, we have not filed all reports with the SEC that we are required to filed under Section 13 or 15(d) under the Exchange Act, then-applicable per annum interest rate of the notes will be increased by 1.5% for the period beginning on August 16, 2006 and ending on the date on which we have made all such filings with the SEC. We filed all reports required to be filed pursuant to this provision with the SEC on September 21, 2006.

 

The notes further provide that if our common stock is not listed for trading on one of The New York Stock Exchange, Inc., the American Stock Exchange, Inc., the Nasdaq Global Market or the Nasdaq Capital Market by December 31, 2006, the then-applicable per annum interest rate of the notes will be increased by 1.5% for the period beginning on January 1, 2007 and ending on the date on which our common stock is listed for trading on such a trading market.

 

The notes were issued with OID because they initially were issued together with the warrants as investment units. Accordingly, the purchase price of the investment units was required to be allocated between the notes and the warrants based on their relative fair market values. We have treated $63.35 of each $1,000.00 purchase price per unit as allocable to the warrant. As a result of this allocation, the principal amount of the note exceeds the adjusted issue price of the note by more than a de minimis amount, and the excess is characterized as OID for U.S. federal income tax purposes. The adjusted issue price of a note upon its acquisition by a U.S. Holder is the portion of the original issue price for the unit allocable to the note (which we have determined to be $936.65), plus the OID includible in the income of holders prior to a U.S. Holder’s acquisition of the note. Subject to certain exceptions, each U.S. Holder is required to include OID as ordinary interest income on a constant yield to maturity basis,

regardless of the holder’s regular method of tax accounting, even though we will not pay any additional interest in cash. Under the OID rules, a U.S. Holder will be required to include in gross income increasingly greater amounts of OID in each successive accrual period. Any amount of OID included in income will increase the U.S. Holder’s basis in the note. For additional information, see “Material U.S. federal Income Tax Considerations” beginning on page 43.

 

Conversion Rights

 

Conversion at Holder’s Option

 

A holder may convert any outstanding notes at any time prior to maturity into shares of our common stock at an initial conversion price of $5.36 per share of common stock. The conversion price is subject to adjustment as described below. We will not issue fractional shares of common stock upon conversion of the notes. Instead, we will pay the cash value of any fractional shares based upon the average price of our common stock on the business day immediately preceding the conversion date. A holder may convert notes only in denominations of $1,000 principal amount at maturity and integral multiples of $1,000.

 

If a holder delivers a notice regarding its election to require us to repurchase its notes following the occurrence of a repurchase event as described under “Repurchase of Notes at Option of Holders” (a “repurchase event”), the holder may convert such notes only if the holder withdraws its repurchase notice by delivering a written notice of withdrawal to us prior to the close of business on the last business day prior to the repurchase date.

 

We will pay in cash, on any note or portion of a note surrendered for conversion during the period from the close of business on any interest payment date to which interest has been fully paid through the close of business on the business day preceding the record date for the next such interest payment date, accrued and unpaid interest, if any, on the note or portion thereof surrendered for conversion to, but excluding, the date of conversion.

 

Conversion Procedures

 

A holder will not be required to pay any taxes or duties relating to the issuance or delivery of our common stock if the holder exercises its conversion rights, but will be required to pay any tax or duty which may be payable relating to any transfer involved in the issuance or delivery of the common stock in a name other than the holder’s. Certificates representing shares of common stock will be issued or delivered only after all applicable taxes and duties, if any, payable by the holder have been paid.

 

To convert a definitive note (a registered note held in certificated form), a holder must:

 

 

In the case of an interest in a global note, conversion notices may be delivered and a participant’s interest in a global note may be surrendered for conversion in accordance with the rules and procedures of The Depository Trust Company as in effect from time to time.

The conversion date will be the date on which all of the foregoing requirements have been satisfied. The notes will be deemed to have been converted immediately prior to the close of business on the conversion date. We will use our best efforts to, within three business days after the conversion date, (a) (1) in the case of shares of common stock issuable upon such conversion that will not, following issuance, be restricted securities, at the holder’s request, credit such aggregate number of full shares of common stock to which the holder shall be entitled to the holder’s or its designee’s balance account with The Depository Trust Company through its Deposit/Withdrawal At Custodian system or (2) issue and deliver a certificate for the number of shares of common stock into which the notes are converted to the converting holder, and (b) deliver to such holder a check or cash in lieu of any fractional shares arising upon such conversion. If we have not delivered the number of shares of common stock issued upon conversion of notes within three business days after the conversion date, we will pay liquidated damages to the holder of the notes being converted at the rate of 0.5% per month of the outstanding principal amount of notes converted by such holder.

 

Automatic Conversion

 

All of the notes may be automatically converted at any time prior to maturity, at our option, into shares of our common stock at the then-effective conversion price if (a) the average price of our common stock exceeds 150% of the then-effective conversion price for at least 20 trading days during any 30-day period ending within five trading days prior to the notice of automatic conversion, (b) the average daily trading volume of our common stock is not less than $375,000 during such period, and (c) the equity conditions shall have been satisfied as of the date of the notice of automatic conversion and, subject to certain exceptions, remain satisfied through the automatic conversion date. If we effect the automatic conversion, we will deliver a notice of automatic conversion to the holders at least five days but no more than 30 days prior to the automatic conversion date.

 

The “average price” with respect to any security on any day means the daily volume weighted average price of such security for all sales reported on such day by the principal national security exchange or quotation system on which such security is quoted or listed or admitted to trading or, if not quoted or listed or admitted to trading on any national securities exchange or quotation system, as reported by the National Quotation Bureau Incorporated, Pink Sheets LLC or a similar generally accepted reporting service, or, in case no sales of such security take place on such day, the average price for such security on such day shall be the closing price, as defined below.

 

The “closing price” with respect to any security on any day means the closing sale price regular way on such day or, in case no such sale takes place on such day, the average of the reported closing bid and asked prices, regular way, in each case on the Nasdaq Global Market or New York Stock Exchange, as applicable, or, if such security is not listed or admitted to trading on such Global Market or Exchange, on the principal national security exchange or quotation system on which such security is quoted or listed or admitted to trading, or, if not quoted or listed or admitted to trading on any national securities exchange or quotation system, the average of the closing bid and asked prices of such security on the over-the-counter market on the day in question as reported by the National Quotation Bureau Incorporated, Pink Sheets LLC or a similar generally accepted reporting service. If the average price cannot be calculated for a security on a particular date on any of the foregoing bases, the average price of such security on such date shall be the fair market value as mutually determined by us and the trustee. If we and the trustee are unable to agree upon the fair market value of such security, then such dispute shall be resolved pursuant to the indenture. All such determinations to be appropriately adjusted for any stock dividend, stock split, stock combination or other similar transaction during the applicable calculation period.

 

The term “Equity Conditions” means that each of the following conditions is satisfied:

 

 

 

Conversion Rate Adjustments

 

If any of the following occurs:

 

(1) issue common stock as a dividend or distribution on our common stock;

 

(2) we subdivide or combine our common stock;

 

(3) we issue to all or substantially all holders of our common stock specified rights, options or warrants to purchase our common stock;

 

(4) we distribute to all or substantially all holders of our common stock any class of our capital stock (other than those dividends or distributions listed in (1) above) or evidence of indebtedness or other assets, including securities but excluding:

 

(a) rights or warrants listed in (3) above; and

 

(b) dividends or distributions paid exclusively in cash (except as otherwise described below);

 

(5) we distribute to all holders of our common stock cash (excluding cash distributed upon merger or consolidation or as part of a distribution described in clauses (1) through (4) above); or

 

(6) we or one of our subsidiaries makes a payment in respect of a tender offer for our common stock where the payment per share exceeds the current market price of our common stock on the trading day prior to the last day on which tenders may be made pursuant to the tender.

we will adjust the conversion rate so that the holders of the notes either are put in the position they would have been in if they had converted immediately prior to such event or are given their pro rata share of the benefit received by the recipients of any such distribution or issuance.

 

To the extent, at the time of conversion of notes, we have a stockholder rights plan in effect, a holder will receive, in addition to the common stock, the rights under the stockholder rights plan whether or not the rights have separated from the common stock at the time of conversion, subject to limited exceptions.

 

We will not be required to make an adjustment in the conversion price unless the adjustment would require a change of at least one percent in the conversion price. However, we will carry forward any adjustments that are less than one percent of the conversion price and include them in any subsequent adjustment. Except as described above in this section, we will not adjust the conversion rate for any issuance of our common stock or convertible or exchangeable securities or rights to purchase our common stock or convertible or exchangeable securities.

 

In the event of:

 

 

in which holders of common stock would be entitled to receive stock, other securities, other property, assets or cash for their common stock, upon conversion of its notes, a holder will be entitled to receive the same type of consideration which the holder would have been entitled to receive if the holder had converted the notes into our common stock immediately prior to any of these events. If the type of consideration receivable is not the same for each share of common stock, then for purposes of this section the kind and amount of securities, cash or other property receivable upon the above events shall be deemed to be the kind and amount to receivable per share of common stock by a plurality of the holders not electing to exercise their conversion right prior to the above events

 

Optional Redemption by Sipex

 

Prior to May 21, 2009, the notes will not be redeemable at our option. Beginning on May 21, 2009, we may redeem the notes for cash at any time as a whole, or from time to time in part, at a redemption price equal to the principal amount of such notes, plus accrued and unpaid interest, if any, to, but excluding, the redemption date. We will give at least 30 days’ but not more than 60 days’ notice of redemption by mail to holders of notes. Notes or portions of notes called for redemption will be convertible by the holder until the close of business on the last business day prior to the redemption date, unless we fail to pay all amounts due on redemption. We may not redeem any notes unless the equity conditions (as defined above) shall have been satisfied as of the date of the redemption notice and, subject to certain exceptions, remain satisfied through the redemption date. In addition, we may only elect to redeem all or any part of the notes if we have, as of the date of the notice of redemption, sufficient shares of our common stock authorized and available for issuance to enable the holders of all of the notes (or parts thereof) called for redemption to convert such notes (or parts thereof) into our common stock.

 

If we do not redeem all of the notes, the trustee will select the notes to be redeemed in principal amounts at maturity of $1,000 or integral multiples of $1,000, solely on a pro rata basis. If any notes are to be redeemed in part only, we will issue a new note or notes with a principal amount at maturity equal to the principal at maturity of the unredeemed portion of the notes. If a portion of a holder’s notes is selected for partial redemption and the holder converts a portion of its notes, the converted portion will be deemed to be taken from the portion selected for redemption.

 

Repurchase of Notes at Option of Holders

 

If a “repurchase event,” as described below, occurs, a holder will have the right (subject to certain exceptions set forth below) to require us to repurchase all of his, her or its notes not previously called for redemption, or any portion of those notes that is equal to $1,000 in principal amount at maturity or integral multiples of $1,000. If the repurchase event occurs, such repurchase will be made in cash at a price equal to 100% of the principal amount of notes the holder elects to require us to repurchase, together, in each case, with accrued interest, if any, to, but

excluding, the applicable repurchase date; provided, that if the relevant repurchase date occurs after a record date or special record date and before the related interest payment date or special interest payment date, the amount payable on such interest payment date or special interest payment date shall be paid to the record holder at the close of business on the record date or special record date and shall not constitute part of the repurchase price.

 

In addition, the notes shall be purchased by us at the option of the holder on May 15, 2011, May 15, 2016 and May 15, 2021 at a price equal to 100% of the principal amount of notes the holder elects to require us to repurchase, together, in each case, with accrued interest, if any, to, but excluding, the applicable repurchase date.

 

Unless we have previously called for redemption all of the outstanding notes and deposited or set aside an amount of money sufficient to redeem such notes on the redemption date, on or before (1) the 10th calendar day following the occurrence of a repurchase event and (2) June 15, 2011, June 15, 2016 and June 15, 2021, we or the trustee will mail to the holders notice of the occurrence of the repurchase event and of the holders’ repurchase right arising as a result, or on June 15, 2011, June 15, 2016 or June 15, 2021, as applicable. We will also deliver a copy of such notice of a repurchase right to the trustee.

 

To exercise a repurchase right, a holder must deliver to the trustee on or before the close of business on the last business day prior to the repurchase date (as defined in the indenture) written notice to us of the exercise of such right, together with the notes with respect to which the repurchase right is being exercised, duly endorsed for transfer to us. An election to exercise a repurchase right will be revocable at any time prior to, but excluding, the repurchase date, by delivering written notice to that effect to the trustee prior to the close of business on the business day prior to the repurchase date.

 

If we fail to repurchase on the repurchase date any notes as to which the repurchase right has been properly exercised, then the principal amount of such notes will, until paid, bear interest to the extent permitted by applicable law from the repurchase date at the rate borne by the note, and each such note will be convertible into common stock. If we are unable to repurchase on the repurchase date all of the notes (or portions of the notes) as to which the repurchase right has been properly exercised, the aggregate amount of notes we may repurchase will be allocated pro rata among each note (or portion of a note) surrendered for repurchase, based on the principal amount of such note, in proportion to the aggregate amount of notes surrendered for repurchase.

 

A “repurchase event” will occur upon a change in control of Sipex or if our common stock is no longer authorized for quotation or listing on The New York Stock Exchange, Inc., the American Stock Exchange, Inc. or The Nasdaq Global Market or Capital Market after the time we are relisted on any such exchange.

 

A “change in control” will be deemed to have occurred when any of the following has occurred:

 

 

 

A change in control will not be deemed to have occurred if at least 90% of the consideration in the transaction or transactions constituting the change in control consists of (and the capital stock into which the notes would be convertible consists of) shares of capital stock that are, or upon issuance will be, traded on a United States national securities exchange or approved for trading on an established automated over-the-counter trading market in the United States.

 

The change in control purchase feature of the notes may in some circumstances make it more difficult to, or discourage, a takeover of our company. The change in control purchase feature, however, is not the result of our knowledge of any specific effort:

 

 

Instead, the change in control purchase feature is a standard term contained in securities similar to the notes.

 

Merger and Sales of Assets

 

The indenture provides that we may not consolidate with or merge into any other person or convey, transfer, sell or lease all or substantially all of our properties and assets to another person (other than a wholly-owned subsidiary of us) unless, among other things:

 

 

The occurrence of any of the foregoing transactions could constitute a change in control.

 

Treatment of Sipex Notes in the Exar Merger

 

On May 7, 2007 we entered into a definitive merger agreement with Exar to combine the two companies. In the merger, each share of our common stock outstanding at the effective time of the merger will be exchanged for 0.6679 of a share of Exar common stock. No fractional shares of Exar common stock will be issued in the merger and the cash equal to the value of a fractional share will be paid in place of a fractional share. Additional information regarding the merger can be found in the joint proxy statement/prospectus of Form S-4 (File No. 333-143243) filed by Exar with the SEC on May 24, 2007.

 

We have agreed to use our commercially reasonable efforts to cause the conversion of any outstanding notes immediately prior to the effective time of the merger. Any note that is not so converted will be guaranteed by Exar, subject to the same terms and conditions as were applicable before the merger, except that the notes will be convertible into shares of Exar common stock and the number of shares of common stock into which the notes are convertible and the conversion price immediately prior to the effective time of the merger will be adjusted based on the exchange ratio in the merger. Exar has agreed to take all action necessary so that from and after the effective

time of the merger, Exar and the surviving corporation of the merger will comply with the terms of the indenture relating to the notes, including execution of a supplemental indenture. Exar has also agreed to take all corporate actions necessary to reserve for issuance a sufficient number of shares of Exar common stock for delivery upon conversion of assumed notes.

 

We will file with the trustee for the notes, and will send to each holder of notes, a notice at least fifteen days prior to the estimated effective time of the Exar merger. We have also agreed to use our commercially reasonable efforts to effect an amendment to the indenture so that the requirement that the notes be continuously registered for 60 days in order for us to force automatic conversion of the notes pursuant to the indenture will either be (i) eliminated, or (ii) waived in connection with the merger to provide Exar with a reasonable period of time, but at least 15 days after the effective time, to file an S-3 registration statement covering the notes and for the registration statement to be declared effective by the SEC.

 

Events of Default

 

Each of the following constitutes an event of default under the indenture:

 

 

 

The indenture provides that the trustee will, within 90 days after the trustee obtains knowledge of the occurrence of a default, give to the registered holders of the notes notice of all uncured defaults known to it, but the trustee will be protected in withholding such notice if it, in good faith, determines that the withholding of such notice is in the best interest of such registered holders, except in the case of default in the payment of the principal of, or premium, if any, or interest on any of the notes.

 

If an event of default occurs and is continuing, the trustee may in its discretion proceed to protect and enforce the rights vested in it by the indenture by such appropriate judicial proceedings as the trustee will deem most effectual to protect and enforce any of such rights, either by suit in equity or by action at law or by proceeding in bankruptcy or otherwise, whether for the specific enforcement of any covenant or agreement contained in the indenture or in aid of the exercise of any power granted in the indenture, or to enforce any other legal or equitable right vested in the trustee by the indenture or by law.

 

The indenture contains a provision entitling the trustee, subject to the duty of the trustee during default to act with the required standard of care, to be indemnified by the holders of notes before proceeding to exercise any right or power under the indenture at the request of such holders. The indenture provides that the holders of 662/3% in aggregate principal amount of the notes then outstanding, through their written consent, may direct the time, method and place of conducting any proceeding for any remedy available to the trustee or exercising any trust or power conferred upon the trustee.

 

We are required to furnish annually to the trustee a statement as to the fulfillment of our obligations under the indenture and to notify the trustee within 3 business days of becoming aware of any default or event of default.

 

Modification and Waiver

 

Changes Requiring Approval of Each Affected Holder

 

The indenture (including the terms and conditions of the notes) cannot be modified or amended without the written consent or the affirmative vote of the holder of each note affected by such change to:

 

 

 

All of the holders of notes must consent to reduce the percentage of holders of notes which are required to consent to the above-described actions.

 

Changes Requiring Two-thirds Approval

 

The indenture (including the terms and conditions of the notes) may be modified or amended, subject to the provisions described above, with the written consent of the holders of at least 662/3% in aggregate principal amount of the notes then outstanding.

 

Changes Requiring No Approval

 

The indenture (including the terms and conditions of the notes) may be modified or amended by us and the trustee, without the consent of the holder of any note, for the purposes of, among other things:

 

 

Form, Denomination and Registration

 

The notes are issued in fully registered form, without coupons, in denominations of $1,000 principal amount at maturity and integral multiples of $1,000. Notes may be issued as definitive notes or global notes. Definitive notes are registered in the names of the registered holders. Global notes are registered in the name of a depositary or its nominee for the holders. As of the date of this prospectus, all of the notes have been issued as global notes.

 

Restrictions on Transfer; Legends

 

The notes are subject to restrictions on transfer set forth on the notes and in the indenture, and certificates evidencing the notes bear a legend regarding such transfer restrictions.

 

Governing Law

 

The indenture and the notes are governed by, and construed in accordance with, the laws of the State of New York.

 

Information Concerning the Trustee

 

Wells Fargo Bank, National Association, as trustee under the indenture, has been appointed by us as paying agent, conversion agent and registrar with regard to the notes. The trustee or its affiliates may from time to time in the future provide banking and other services to us in exchange for a fee.

 

Calculations in Respect of Notes

 

We or our agents are responsible for making all calculations called for under the notes. These calculations include, but are not limited to, determination of the market prices of the notes and of our common stock and amounts of interest and contingent payments, if any, on the notes. We or our agents will make all these calculations

in good faith and, absent manifest error, our and their calculations will be final and binding on holders of notes. We or our agents will provide a schedule of these calculations to the trustee, and the trustee is entitled to conclusively rely upon the accuracy of these calculations without independent verification.

 

Certain Covenants

 

Incurrence of Indebtedness

 

Unless and until the aggregate principal amount of the notes outstanding is less than one million United States dollars ($1,000,000), neither we, nor any of our subsidiaries, shall incur, guarantee, assume or suffer to exist any Indebtedness that is senior to or pari passu with the notes in excess of the Debt Limitation, without the prior written consent of 662/3% in aggregate principal amount of notes then outstanding, other than (i) the incurrence by us company of Indebtedness represented by the notes and (ii) Permitted Indebtedness.

 

Existence of Liens

 

Unless and until the aggregate principal amount of the notes outstanding is less than one million United States Dollars ($1,000,000), and we shall not permit any of our subsidiaries to allow or suffer to exist any mortgage, lien, pledge, charge, security interest or other encumbrance upon or in any property or assets (including accounts and contract rights) owned by we or any of our subsidiaries (collectively, “Liens”) other than Permitted Liens, as described below.

 

Restricted Payments

 

Unless and until the aggregate principal amount of the notes is less than one million United States dollars ($1,000,000), and we shall not permit any of our subsidiaries to, redeem, defease, repurchase, repay or make any payments in respect of, by the payment of cash or cash equivalents any Permitted Subordinated Indebtedness if at the time such payment is due or is otherwise made or, after giving effect to such payment, an event of default has occurred and is continuing under the notes.

 

Limitation on Cash Dividends

 

We have agreed to refrain from making any distributions of cash to our common stockholders, by dividend or otherwise, that would cause an adjustment to the conversion price, as described in “— Conversion Rights — Conversion Rate Adjustment” above.

 

Limitation on Tender Offers

 

We have agreed to refrain from making any payment in respect of a tender offer for our common stock where the payment per share exceeds the current market price of our common stock that would cause an adjustment to the conversion price, as described in “— Conversion Rights — Conversion Rate Adjustment” above.

 

Definitions

 

Set forth below are certain defined terms used in the indenture. Reference is made to the indenture for a full disclosure of all such terms.

 

The term “Average Daily Volume” shall mean the average of the amount determined for each trade day in the measurement period equal to the daily trading volume of our common stock on the principal market multiplied by the average price of our common stock for such trading day.

 

The term “Contingent Obligation” means, as to any person, any liability, contingent or otherwise, of that person with respect to any indebtedness, lease, dividend or other obligation of another person if the primary purpose or intent of the person incurring such liability, or the primary effect thereof, is to provide assurance to the obligee of such liability that such liability will be paid or discharged, or that any agreements relating thereto will be complied with, or that the holders of such liability will be protected (in whole or in part) against loss with respect thereto.

The term “Debt Limitation” shall be defined to mean Indebtedness in an aggregate principal amount not to exceed $7,500,000, which shall include the principal amount outstanding under that certain Loan and Security Agreement, dated as of July 21, 2005 by and between us and Silicon Valley Bank, as amended from time to time.

 

The term “Indebtedness” means, as to any person all indebtedness for borrowed money, whether or not a Contingent Obligation.

 

The term “Permitted Indebtedness” means:

 

 

The term “Permitted Liens” means:

 

 

 

The term “Permitted Subordinated Indebtedness” shall mean that Permitted Indebtedness the payment of which is subordinated to the Note.

 

The term “significant subsidiary” shall have the meaning assigned to that term in Rule 1-02(w) of Regulation S-X promulgated under the Securities Exchange Act of 1934, as amended, and shall also mean any subsidiary, including its subsidiaries, having liabilities exceeding 10% of the total liabilities of the company and its subsidiaries on a consolidated basis for the most recently completed fiscal year.

 

The term “Subsidiary” means a, entity more than 50% of the outstanding voting stock or equity interests of which is owned, directly or indirectly, by us or by one or more other Subsidiaries. For the purposes of this definition, “voting stock” means stock which ordinarily has voting power for the election of directors, whether at all times or only so long as no senior class of stock has such voting power by reason of any contingency.

 

We issued the warrants pursuant to the securities purchase agreement and entered into a warrant agent agreement with Wells Fargo Bank, National Association, a national banking association, as warrant agent.

 

The following description is only a summary of the material provisions of the warrants and the warrant agent agreement. The form of warrant and the warrant agent agreement are filed as exhibits to the registration statement of which this prospectus is a part. We urge you to read these documents in their entirety because they, and not this description, define your rights as holders of the warrants.

 

General

 

The warrants are exercisable for a total of 839,552 shares of our common stock, initially at an exercise price of $6.432 per share, subject to adjustment upon certain events. The warrants are exercisable at any time on or before May 18, 2011.

Warrant Agent

 

Wells Fargo Bank, National Association serves as the warrant agent under a warrant agent agreement in order to facilitate the transfer, exchange and exercise of warrants.

 

The warrant agent will register the transfer of any outstanding warrant certificates upon surrender of the warrant certificate duly endorsed for transfer or accompanied (if so required by us) by a duly executed written instrument of transfer in form satisfactory to us. Upon any such registration of transfer, a new warrant certificate will be issued to the transferee(s) and the surrendered warrant certificate will be cancelled by the warrant agent. Cancelled warrant certificates will thereafter be disposed of by the warrant agent in its customary manner.

 

Warrant certificates may be exchanged at the option of the holders, when surrendered to the warrant agent at its principal corporate trust office, which is currently located at 707 Wilshire Blvd., 17th Floor, Los Angeles, CA 90017, Attention: Corporate Trust Services, for another warrant certificate or other warrant certificates of like tenor and representing in the aggregate a like number of warrants. Any holder desiring to exchange a warrant certificate must deliver a written request to the warrant agent, and must surrender, duly endorsed for transfer or accompanied (if so required by the warrant agent) by a duly executed written instrument or instruments of transfer in form satisfactory to the warrant agent, the warrant certificate or certificates to be so exchanged. Warrant certificates surrendered for exchange will be cancelled by the warrant agent. Such cancelled warrant certificates will then be disposed of by the warrant agent in its customary manner.

 

Exercise of the Warrants

 

The warrants may be exercised in whole or in part. If a holder desires to exercise its warrants, it must deliver an exercise notice to us at the principal corporate trust office of the warrant agent and to our transfer agent that specifies the number of shares of common stock to be purchased upon exercise (“warrant shares”). In addition, the exercise notice, requires the warrant holder to affirm the representation and warranties contained in the warrants, including the holder’s status as an “accredited investor” as defined in Rule 501 of the Securities Act and as a “qualified institutional buyer” as defined in Rule 144A of the Securities Act. Unless the holder has elected a “cashless exercise” of the warrant as described below, the notice also must be accompanied by payment to the warrant agent of an amount equal to the per share exercise price multiplied by the number of warrant shares as to which the warrant is being exercised in cash or by delivery of a certified check or bank draft payable to the order of the warrant agent or wire transfer of immediately available funds. A holder may in its sole discretion elect, in lieu of making such cash payment, instead to receive upon such exercise the net number of shares of common stock (a “cashless exercise”) determined according to the following formula:

 

 

For purposes of the foregoing formula:

 

 

 

We will not be required to issue fractions of shares of common stock upon exercise of the warrants or to distribute certificates which evidence such fractional shares. In lieu of any fractional shares, there will be paid to the holder an amount of cash equal to the same.

 

We are generally obligated within three business days after exercise of a warrant to issue the holder a certificate for the number of shares of common stock to which the holder is entitled or to credit the holder’s or its designee’s balance account with DTC for the number of shares of common stock to which the holder is entitled upon the holder’s exercise of the warrant and, in the event that a warrant is exercised in part, to issue within five business days a new warrant identical in all respects to the warrant exercised except that it will represent rights to purchase the number of warrant shares purchasable immediately prior to the exercise of the warrant, less the number of warrant shares with respect to which the warrant is exercised. If we fail to complete the required share

issuance by such date (the “Warrant Share Delivery Date”) or fail to issue the warrant required by such date (the “Warrant Delivery Date”), we will pay as additional damages in cash to such holder on each day after we failed to take such action in an amount equal to 2.0% per month multiplied by the product of (1) the sum of the number of shares of common stock not issued to the holder on or prior to the Warrant Share Delivery Date and to which such holder is entitled and, in the event we have failed to deliver a warrant to the holder on or prior to the Warrant Delivery Date and to which such holder is entitled, the number of shares of common stock issuable upon exercise of the warrant as of the Warrant Delivery Date and (2) the closing price of the common stock on the Warrant Share Delivery Date, in the case of failure to deliver common stock, or on the Warrant Delivery Date, in the case of failure to deliver a warrant, provided that if the common stock is not listed on a principal market (as defined in the warrant), then the closing price shall be as determined in good faith by a majority of our Board of Directors.

 

We will pay any and all documentary, stamp, transfer and other similar taxes which may be payable with respect to the issuance and delivery of shares of common stock issued upon exercise of the warrants.

 

Adjustment of Exercise Price

 

If any of the following events occur:

 

(1) we issue common stock as a dividend or distribution on our common stock;

 

(2) we subdivide or combine our common stock;

 

(3) we issue to all holders of our common stock specified rights or warrants to purchase our common stock;

 

(4) we distribute to all holders of our common stock any class of our capital stock (other than those dividends or distributions listed in (1) above) or evidence of indebtedness or other assets, including securities but excluding:

 

(a) rights or warrants listed in (3) above; and

 

(b) dividends or distributions paid exclusively in cash (except as otherwise described below); or

 

(5) we distribute to all holders of our common stock cash (excluding cash distributed upon merger or consolidation or as part of a distribution described in clauses (1) through (4) above);

 

we will adjust the exercise price, the number of warrant shares issuable upon the exercise of each warrant or the number of warrants outstanding so that the holders of the warrants either are put in the position they would have been in if they had exercised immediately prior to such event or are given their pro rata share of the benefit received by the recipients of any such distribution or issuance.

 

To the extent that we have a stockholder rights plan in effect at the time of exercise of the warrants into common stock, each holder will receive, in addition to the common stock, the rights under the stockholder rights plan whether or not the rights have separated from the common stock at the time of exercise, subject to limited exceptions.

 

In the event of:

 

 

in which holders of common stock would be entitled to receive stock, other securities, other property, assets or cash for their common stock, upon exercise of a holder’s warrants, the holder will be entitled to receive the same type of consideration which the holder would have been entitled to receive if the holder had exercised the warrants immediately prior to any of these events.

 

We will not be required to make an adjustment to the exercise price unless the adjustment would require a change of at least one percent in the exercise price. However, we will carry forward any adjustments that are less

than one percent of the exercise price and include them in any subsequent adjustment. Except as described above in this section, we will not adjust the exercise price for any issuance of our common stock or convertible or exchangeable securities or rights to purchase our common stock or convertible or exchangeable securities.

 

We may also make such reductions in the exercise price as our Board of Directors considers to be advisable to avoid or diminish any income tax to holders of common stock or rights to purchase common stock resulting from any dividend or distribution of stock (or rights to acquire stock) or from any event treated as such for income tax purposes.

 

To the extent permitted by applicable law, we may reduce the exercise price by any amount for any period of time of at least 20 days, if the reduction is irrevocable during such period and our Board of Directors has made a determination that such reduction would be in our best interests.

 

Upon each adjustment of the exercise price, each warrant will evidence the right to purchase that number of shares of common stock (calculated to the nearest hundredth of a share) obtained by multiplying the number of shares of common stock purchasable immediately prior to such adjustment upon exercise of the warrant by the exercise price in effect immediately prior to such adjustment and dividing the product so obtained by the exercise price in effect immediately after such adjustment. The adjustment to the number of shares of common stock purchasable upon exercise of a warrant will be made each time an adjustment of the exercise price is made.

 

Treatment of Sipex Warrants in the Exar Merger

 

On May 7, 2007 we entered into a definitive merger agreement with Exar to combine the two companies. In the proposed merger, each share of our common stock outstanding at the effective time of the merger will be exchanged for 0.6679 of a share of Exar common stock. No fractional shares of Exar common stock will be issued in the merger and the cash equal to the value of a fractional share will be paid in place of a fractional share. Additional information regarding the merger can be found in the joint proxy statement/prospectus of Form S-4 (File No. 333-143243) filed by Exar with the SEC on May 24, 2007.

 

In the event that the Exar merger is completed, at the effective time of the merger, each unexpired and unexercised warrant to purchase Sipex common stock, whether or not currently exercisable, will be converted into a warrant to purchase Exar common stock on the same terms and conditions as were applicable under the warrant to purchase Sipex common stock before the merger, except the number of shares subject to the warrant will be multiplied by the exchange ratio in the merger (with the number of shares rounded down to the nearest whole share) and the exercise price per share immediately prior to the effective time shall be divided by the exchange ratio in the merger (with the exercise price rounded up to the nearest whole cent).

 

In addition, if the merger is completed and the warrants become exercisable for Exar common stock, the warrant holder will still be required to make certain representations and warranties contained in the warrants, including representations as to the warrant holder’s status as an “accredited investor” as defined in Rule 501 of the Securities Act and as a “qualified institutional buyer” as defined in Rule 144A of the Securities Act. If the warrant holder is unable to make these representations, the warrant holder may be unable to exercise the warrant.

 

Amendments

 

The warrants may be amended, changed, waived, discharged, or terminated only by an instrument in writing signed by us and the holder of such warrant; provided, however, that the warrant provisions providing for damages in the event of our untimely delivery of shares upon warrant exercises may be waived only by an instrument in writing signed by us and all of the warrantholders.

 

General

 

We are authorized to issue up to 60,000,000 shares of common stock, par value $0.01 per share, of which approximately 18,687,000 shares were issued and outstanding as of March 31, 2007. We are also authorized to issue

up to 1,000,000 shares of preferred stock, par value $0.01 per share, of which no shares were issued and outstanding as of March 31, 2007.

 

Common Stock

 

Holders of our common stock are entitled to one vote per share on all matters to be voted upon by stockholders. Shares of our common stock have no preemptive rights, no redemption or sinking fund provisions, and are not liable for further call or assessment.

 

Subject to preferences that may be applicable to any outstanding preferred stock, the holders of common stock are entitled to receive ratably such dividends, if any, as may be declared from time to time by the Board of Directors out of funds legally available for that purpose. We have never declared or paid any cash dividend on our capital stock and do not anticipate paying any cash dividends on our capital stock in the foreseeable future. In the event of a liquidation, dissolution or winding up of Sipex, the holders of common stock are entitled to share ratably in all assets remaining after payment of liabilities, subject to prior distribution rights of preferred stock, if any, then outstanding. The rights, preferences, and privileges of holders of common stock are subject to, and may be adversely affected by, the rights of the holders of shares of any series of preferred stock which we may designate and issue in the future.

 

Preferred Stock

 

Our articles of incorporation empower our board of directors to issue up to 1,000,000 shares of preferred stock from time to time in one or more series. Our board also may fix the rights, preferences, privileges, and restrictions of those shares, including dividend rights, conversion rights, voting rights, redemption rights, terms of sinking funds, liquidation preferences, and the number of shares constituting any series or the designation of the series. Any preferred stock terms selected by our board of directors could decrease the amount of earnings and assets available for distribution to holders of our common stock or adversely affect the rights and power, including voting rights, of the holders of our common stock without any further vote or action by the stockholders. The rights of holders of our common stock will be subject to, and may be adversely affected by, the rights of the holders of any preferred stock that may be issued by us in the future. The issuance of preferred stock could also have the effect of delaying or preventing a change in control of our company or make removal of management more difficult.

 

As of December 30, 2006, no shares of preferred stock were outstanding.

 

Stock Options

 

As of December 30, 2006, we had options which were granted under our various stock option plans to purchase approximately 3,761,000 shares of our common stock outstanding at a weighted-average exercise price of $5.88 per share.

 

Registration Rights

 

As part of the initial sale of the notes, on May 16, 2006 we also entered into a Registration Rights Agreement (the “Registration Rights Agreement”), pursuant to which we have agreed to file with the SEC a registration statement covering the resale of the notes, the warrants and the shares of our common stock issuable upon conversion of the notes and exercise of the warrants no later than August 15, 2006 and to have the registration statement declared effective no later than December 31, 2006. Since Sipex did not file the registration statement by August 15, 2006, Sipex is required to pay certain “registration delay payments,” as calculated in the Registration Rights Agreement, solely with respect to the notes. Rodfre Holdings, LLC has agreed to exclude their notes, warrants and shares of common stock from this Registration Statement.

 

Anti-Takeover Effects of Provisions of Our Amended and Restated Certificate of Incorporation, Our Bylaws and Delaware Law

 

Some provisions of Delaware law, our amended and restated certificate of incorporation and our bylaws contain provisions that could make the following transactions more difficult: acquisition of us by means of a tender

offer; acquisition of us by means of a proxy contest or otherwise; or removal of our incumbent officers and directors.

 

These provisions, summarized below, are expected to discourage coercive takeover practices and inadequate takeover bids. These provisions are also designed to encourage persons seeking to acquire control of us to first negotiate with our board of directors. We believe that the benefits of increased protection of our potential ability to negotiate with the proponent of an unfriendly or unsolicited proposal to acquire or restructure us outweigh the disadvantages of discouraging these proposals because negotiation of these proposals could result in an improvement of their terms.

 

We are subject to Section 203 of the Delaware General Corporation Law which prohibits persons deemed “interested stockholders” from engaging in a “business combination” with a Delaware corporation for three years following the date these persons become interested stockholders. Generally, an “interested stockholder” is a person who, together with affiliates and associates, owns, or within three years prior to the determination of interested stockholder status did own, 15% or more of a corporation’s voting stock. Generally, a “business combination” includes a merger, asset or stock sale, or other transaction resulting in a financial benefit to the interested stockholder. The existence of this provision may have an anti-takeover effect with respect to transactions not approved in advance by the board of directors.

 

The ability to authorize undesignated preferred stock makes it possible for our board of directors to issue preferred stock with voting or other rights or preferences that could impede the success of any attempt to change control of us. These and other provisions may have the effect of deferring hostile takeovers or delaying changes in control or management of our company.

 

Our amended and restated bylaws provide that stockholders seeking to present proposals before a meeting of stockholders or to nominate candidates for election as directors at a meeting of stockholders must provide timely notice in writing and also specify requirements as to the form and content of a stockholder’s notice. These provisions may delay or preclude stockholders from bringing matters before a meeting of stockholders or from making nominations for directors at a meeting of stockholders, which could delay or deter takeover attempts or changes in management.

 

Our amended and restated bylaws provide that special meetings of the stockholders may be called only by a majority of the whole board, the Chairman of the board, the CEO, the President or by the person designated in the written request of the holders of not less than 40% of all shares entitled to vote at the meeting.

 

Our board of directors is divided into three classes, with each class serving a staggered three-year term. The classification of our board of directors has the effect of requiring at least two annual stockholder meetings, instead of one, to replace a majority of our authorized directors, which could have the effect of delaying or preventing a change in our control or management.

 

Our amended and restated bylaws provide that all vacancies, including newly created directorships, may, except as otherwise required by law, be filled by the affirmative vote of a majority of directors then in office, even if less than a quorum. In addition, our amended and restated bylaws provide that our board of directors may fix the number of directors by resolution.

 

Our amended and restated articles of incorporation do not provide for cumulative voting for directors. The absence of cumulative voting may make it more difficult for stockholders who own an aggregate of less than a majority of our stock to elect any directors to our board.

 

Our Board of Directors is expressly authorized to make, alter, amend or repeal our bylaws, subject to the right of our stockholders entitled to vote thereon, who also may adopt, amend or repeal our bylaws in accordance with Delaware law.

 

These and other provisions contained in our amended and restated articles of incorporation and amended and restated bylaws could delay or discourage transactions involving an actual or potential change in control of us or our management, including transactions in which our stockholders might otherwise receive a premium for their shares over then current prices, and may limit the ability of stockholders to remove our current management or approve

transactions that our stockholders may deem to be in their best interests and, therefore, could adversely affect the price of our common stock.

 

Limitations of Liability and Indemnification Matters

 

We have adopted provisions in our amended and restated certificate of incorporation that limit the liability of our directors for monetary damages for breach of their fiduciary duties, except for liability that cannot be eliminated under the Delaware General Corporation Law. Delaware law provides that directors of a corporation will not be personally liable for monetary damages for breach of their fiduciary duties as directors, except liability for any of the following:

 

 

This limitation of liability does not apply to liabilities arising under the federal securities laws and does not affect the availability of equitable remedies such as injunctive relief or rescission.

 

Our amended and restated certificate of incorporation and our bylaws also provide that we shall indemnify our directors and executive officers and may indemnify our other officers and employees and other agents to the fullest extent permitted by law. We believe that indemnification under our bylaws covers at least negligence and gross negligence on the part of indemnified parties. Our bylaws also permit us to secure insurance on behalf of any officer, director, employee or other agent for any liability arising out of his or her actions in this capacity, regardless of whether our bylaws would permit indemnification.

 

We have entered into separate indemnification agreements with our directors and executive officers, in addition to indemnification provided for in our charter documents. These agreements, among other things, provide for indemnification of our directors and executive officers for expenses, judgments, fines and settlement amounts incurred by this person in any action or proceeding arising out of this person’s services as a director or executive officer or at our request. We believe that these provisions and agreements are necessary to attract and retain qualified persons as directors and executive officers.

 

Transfer Agent and Registrar

 

The transfer agent and registrar for our common stock is Computershare Investor Services located at 250 Royall Street, Canton, Massachusetts 02021.

 

Market Listing

 

Shares of our common stock are quoted on the Nasdaq Capital Market with a trading symbol “SIPX”.

 

We are registering $15 million in aggregate principal amount of 5.5% Redeemable Convertible Senior Notes due 2026, warrants to purchase 419,776 shares of common, as well as 3,540,112 shares of common stock issuable pursuant to conversion of the notes or exercise of the warrants, issued by us to the selling securityholders in a May 2006 private placement. We will not receive any of the proceeds from the sale by the selling securityholders of these shares of common stock. We will bear all fees and expenses incident to our obligation to register the shares of common stock, except that the selling securityholders will pay all applicable underwriting discounts and selling commissions, if any.

 

The selling securityholders may sell all or a portion of the notes, warrants or common stock beneficially owned by them and offered hereby from time to time directly or through one or more underwriters, broker-dealers or

agents. If the notes, warrants, or common stock are sold through underwriters or broker-dealers, then the selling securityholders will be responsible for underwriting discounts or commissions or agent’s commissions. The securities may be sold in one or more transactions at fixed prices, at prevailing market prices at the time of the sale, at varying prices determined at the time of sale, or at negotiated prices. The securities may be sold by one or more of, or a combination of, the following:

 

 

If the selling securityholders effect such transactions by selling notes, warrants or shares of common stock to or through underwriters, broker-dealers or agents, such underwriters, broker-dealers or agents may receive commissions in the form of discounts, concessions or commissions from the selling securityholder or commissions from purchasers of the securities for whom they may act as agent or to whom they may sell as principal (which discounts, concessions or commissions as to particular underwriters, broker-dealers or agents may be in excess of those customary in the types of transactions involved). In connection with sales of the securities or otherwise, the selling securityholders may enter into hedging transactions with broker-dealers, which may in turn engage in short sales of the securities in the course of hedging in positions they assume after the effective date of the registration statement of which this prospectus is a part. The selling securityholders may also sell securities short and deliver securities covered by this prospectus to close out short positions that were entered into after the effective date of the registration statement of which this prospectus is a part. The selling securityholders may also loan or pledge securities to broker-dealers that in turn may sell such securities.

 

Each selling securityholder may pledge or grant a security interest in the notes, warrants or shares of common stock owned by it and, if it defaults in the performance of its secured obligations, the pledgees or secured parties may offer and sell the securities from time to time pursuant to this prospectus or any amendment to this prospectus under Rule 424(b)(3) or other applicable provision of the Securities Act of 1933, as amended, amending, if necessary, the list of selling securityholders to include the pledgee, transferee or other successors-in-interest as selling securityholders under this prospectus. The selling securityholders also may transfer and donate the securities in other circumstances in which case the transferees, donees, pledgees or other successors-in-interest will be the selling beneficial owners for purposes of this prospectus.

 

The selling securityholders and any broker-dealer participating in the distribution of the securities may be deemed to be “underwriters” within the meaning of the Securities Act, and any commission paid, or any discounts or concessions allowed, to any such broker-dealer may be deemed to be underwriting commissions or discounts under the Securities Act. At the time a particular offering of securities is made, a prospectus supplement, if required, will be distributed that will set forth the aggregate amount of securities being offered and the terms of the offering, including the name or names of any broker-dealers or agents, any discounts, commissions and other terms constituting compensation from the selling securityholders and any discounts, commissions or concessions allowed or reallowed or paid to broker-dealers.

 

Under the securities laws of some states, the securities may be sold in such states only through registered or licensed brokers or dealers. In addition, in some states the securities may not be sold unless the securities have been

registered or qualified for sale in the state or an exemption from registration or qualification is available and is complied with.

 

There can be no assurance that the selling securityholders will sell any or all of the securities registered pursuant to the shelf registration statement of which this prospectus forms a part.

 

The selling securityholders and any other person participating in such distribution will be subject to applicable provisions of the Securities Exchange Act of 1934, as amended, and the rules and regulations thereunder, including, without limitation, Regulation M of the Exchange Act, which may limit the timing of purchases and sales of any of the securities by the selling securityholders and any other participating person. Regulation M may also restrict the ability of any person engaged in the distribution of the securities to engage in market-making activities with respect to the securities. All of the foregoing may affect the marketability of the securities and the ability of any person or entity to engage in market-making activities with respect to the securities.

 

We and the selling securityholders will distribute the prospectus only by hand or the mails and only in the form of this prospectus. Neither we nor the selling securityholders will distribute or deliver the prospectus electronically or in any form of prospectus other than the printed form of this prospectus.

 

We have agreed to pay all expenses in connection with this offering, but not including underwriting discounts or commissions of the selling securityholders, including, without limitation, Securities and Exchange Commission filing fees and expenses. We will indemnify the selling securityholders against liabilities, including some liabilities under the Securities Act, in accordance with the registration rights agreement, or the selling securityholders will be entitled to contribution. We may be indemnified by the selling securityholders against civil liabilities, including liabilities under the Securities Act, that may arise from any written information furnished to us by the selling securityholders specifically for use in this prospectus, in accordance with the registration rights agreement, or we may be entitled to contribution.

 

Once sold under the shelf registration statement, of which this prospectus forms a part, the notes, warrants and shares of common stock will be freely tradable in the hands of persons other than our affiliates.

 

This section is a discussion of material U.S. federal income tax considerations relating to the purchase, ownership and disposition of the notes, the warrants and the common stock into which the notes may be converted or for which the warrants may be exercised. This summary does not provide a complete analysis of all potential tax considerations. The information provided below is based on existing U.S. federal income tax authorities, all of which are subject to change or differing interpretations, possibly with retroactive effect. There can be no assurances that the Internal Revenue Service (the “IRS”) will not challenge one or more of the tax consequences described herein, and we have not obtained, nor do we intend to obtain, a ruling from the IRS with respect to the U.S. federal income tax consequences of purchasing, owning or disposing of the notes, warrants or common stock. The summary generally applies only to beneficial owners of the notes and warrants that hold the notes, warrants and common stock as “capital assets” (generally, for investment). This discussion does not purport to deal with all aspects of U.S. federal income taxation that may be relevant to a particular beneficial owner in light of the beneficial owner’s circumstances (for example, persons subject to the alternative minimum tax provisions of the Code, or a U.S. Holder (as defined below) whose “functional currency” is not the U.S. dollar). Also, it is not intended to be wholly applicable to all categories of investors, some of which may be subject to special rules (such as dealers in securities or currencies, traders in securities that elect to use a mark-to-market method of accounting, banks, thrifts, regulated investment companies, real estate investment trusts, insurance companies, tax-exempt entities, tax-deferred or other retirement accounts, certain former citizens or residents of the United States, persons holding notes or common stock as part of a hedging or conversion transaction or a straddle, or persons deemed to sell notes or common stock under the constructive sale provisions of the Code). Finally, the summary does not describe the effect of the U.S. federal estate and gift tax laws or the effects of any applicable foreign, state or local laws.

 

INVESTORS CONSIDERING THE PURCHASE OF NOTES, WARRANTS OR COMMON STOCK SHOULD CONSULT THEIR OWN TAX ADVISORS REGARDING THE APPLICATION OF THE U.S. FEDERAL INCOME TAX LAWS TO THEIR PARTICULAR SITUATIONS AND THE CONSEQUENCES OF

U.S. FEDERAL ESTATE OR GIFT TAX LAWS, FOREIGN, STATE AND LOCAL LAWS, AND TAX TREATIES.

 

U.S. Holders

 

As used herein, the term “U.S. Holder” means a beneficial owner of the notes, warrants or the common stock into which the notes may be converted or for which the warrants may be exercised that, for U.S. federal income tax purposes is (1) an individual who is a citizen or resident of the United States, (2) a corporation, or an entity treated as a corporation for U.S. federal income tax purposes, created or organized in or under the laws of the United States or any state of the United States, including the District of Columbia, or (3) an estate the income of which is subject to U.S. federal income taxation regardless of its source. A trust is a U.S. Holder if it (1) is subject to the primary supervision of a U.S. court and the control of one of more U.S. persons or (2) has a valid election in effect under applicable U.S. Treasury regulations to be treated as a U.S. person. A “Non-U.S. Holder” is a beneficial owner of the notes, the warrants or the common stock into which the notes may be converted or for which the warrants my be exercised (other than a partnership or an entity or arrangement treated as a partnership for U.S. federal income tax purposes) that, for U.S. federal income tax purposes, is not a U.S. Holder. If a partnership (including for this purpose any entity or arrangement, domestic or foreign, treated as a partnership for U.S. federal income tax purposes) is a beneficial owner of a note, warrant or common stock acquired upon conversion of a note or exercise of a warrant, the tax treatment of a partner in the partnership will depend upon the status of the partner and the activities of the partnership. A beneficial owner of a note, warrant or common stock acquired upon conversion of a note or exercise of a warrant that is a partnership, and partners in such partnership, should consult their own tax advisors about the U.S. federal income tax consequences of purchasing, owning and disposing of the notes, the warrants and the common stock into which the notes may be converted or for which the warrants may be exercised.

 

Taxation of Interest

 

U.S. Holders will be required to recognize as ordinary income any interest paid or accrued on the notes, in accordance with their regular method of tax accounting. In addition, because the notes were issued as part of investment units with the warrants, OID will accrue on the notes and, subject to certain exceptions, U.S. Holders will be required to recognize additional interest income on a constant yield to maturity basis, regardless of their regular method of tax accounting, even though we will not pay any additional interest in cash.

 

The OID that a U.S. Holder must include in gross income as it accrues is the sum of the daily portions of OID with respect to the note for each day during the taxable year or portion of a taxable year on which such U.S. Holder holds the note. The daily portion is determined by allocating to each day of an accrual period a pro rata portion of an amount equal to the adjusted issue price of the note at the beginning of the accrual period multiplied by the yield to maturity of the note. The accrual period of a note may be of any length a U.S. Holder chooses and may vary in length over the term of the note, provided that each accrual period is no longer than one year and each scheduled payment of principal or interest occurs either on the final day of an accrual period or on the first day of an accrual period.

 

The issue price of a note for OID purposes is the first price at which a substantial amount of notes are sold to investors (excluding sales to bond houses, brokers, or similar persons or organizations acting in the capacity of underwriters, placement agents, or wholesalers), which price we have determined to be approximately 94% of the principal amount of the note The adjusted issue price of the note at the start of any accrual period is the issue price of the note increased by the accrued original issue discount for each prior accrual period.

 

Under these rules, a U.S. Holder will be required to include in gross income increasingly greater amounts of OID in each successive accrual period. Any amount included in income as OID will increase the U.S. Holder’s basis in the note.

 

We are required to make payments of additional interest to holders of the notes in the event that, within certain time frames we have not (i) filed, or caused to be declared or kept effective, a registration statement, as described under “Description of the Notes — Registration Rights” above (ii) filed with the Securities and Exchange Commission all reports required to be filed in accordance with Section 13 or 15(d) under the Securities Exchange Act of 1934, as amended, and (iii) become listed for trading on one of the New York Stock Exchange, Inc., the American Stock Exchange, Inc., the Nasdaq National Market or the Nasdaq Capital Market, as described under

“Description of the Notes — Interest” above. The requirement to pay additional interest pursuant to certain of these provisions is currently in effect. Although it is not free from doubt, such additional interest should be taxable to a U.S. Holder as ordinary interest income at the time it accrues or is paid in accordance with the U.S. Holder’s regular method of tax accounting, although it is possible that such additional interest should instead be added to the stated redemption price at maturity of the note and taken into income under the OID rules. U.S. Holders should consult their own tax advisors regarding the treatment of such amounts.

 

Market Discount

 

If a U.S. Holder acquires a note other than in connection with its original issue at a price that is less than its issue price, the amount of such difference is treated as “market discount” for U.S. federal income tax purposes, unless such difference is less than 1/4 of one percent of the principal amount at maturity multiplied by the number of complete years to maturity from the date of acquisition. The adjusted issue price of a note is the sum of its issue price and all OID includible in the income of holders prior to the U.S. Holder’s acquisition of the note. Market discount accrues in addition to OID. However, in contrast to OID, a U.S. Holder is not required to include market discount in income periodically over the term of the notes before receipt of the cash or other payment attributable to such income. Instead, upon the sale, exchange, retirement or other disposition of a note any gain recognized is required to be treated as ordinary income to the extent of the accrued market discount that has not previously been included in income. If a U.S. Holder disposes of a note that has accrued market discount in certain nonrecognition transactions in which the U.S. Holder receives property the basis of which is determined in whole or in part by reference to the basis of the note, the accrued market discount generally is includible in income at the time of such transaction only to the extent of the gain recognized. To the extent not included in income at the time of the nonrecognition transaction, the accrued market discount attaches to the property received and is recognized as ordinary income upon the disposition of such property. In general, the amount of market discount that has accrued is determined on a ratable basis, by allocating an equal amount of market discount to each day of every accrual period. A U.S. Holder may elect, however, to determine the amount of accrued market discount allocable to any accrual period under the constant yield method. Any such election applies on a note-by-note basis and is irrevocable. A U.S. Holder also may elect to include market discount in income currently as it accrues. Any such election applies to all debt instruments acquired by the U.S. Holder on or after the first day of the first taxable year to which the election applies, and is irrevocable without the consent of the IRS. If such an election is made, the U.S. Holder’s tax basis in the notes will be increased by the amount of market discount included in income. Unless a U.S. Holder elects to include market discount in income as it accrues, such U.S. Holder may not be allowed to deduct on a current basis a portion of the interest expense on any indebtedness incurred or continued to purchase or carry notes with market discount.

 

Acquisition Premium and Amortizable Bond Premium

 

If a U.S. Holder purchases a note at a price that exceeds its adjusted issue price, the amount of such excess, referred to as “acquisition premium” for U.S. federal income tax purposes, would reduce the amount of OID that the U.S. Holder is required to include in income. If a U.S. Holder purchases a note at a price that exceeds the principal amount of the note, the amount of such excess is referred to as “bond premium” for U.S. federal income tax purposes. The U.S. Holder would not be required to include any OID in income, and may elect to amortize the bond premium against interest payable on the note, except to the extent that the bond premium is attributable to the conversion feature of the note. In addition, any bond premium in excess of the interest payable on the note may be deductible over the term of the note. If a U.S. Holder elects to amortize bond premium, the amount of bond premium allocable to each period will be based on a constant yield to maturity over the period the note is held. The amortized bond premium would reduce the U.S. Holder’s tax basis in the note. Any such election applies to all fully taxable bonds held by the U.S. Holder at the beginning of the first taxable year to which the election applies, and all fully taxable bonds acquired thereafter, and is irrevocable without the consent of the IRS. If the election is not made, a U.S. Holder must include the full amount of each interest payment in income as it accrues or is paid, and premium will not be taken into account until principal payments are received on the note or the note is sold or otherwise disposed of.

Sale, Exchange, Redemption or Other Disposition of Notes

 

A U.S. Holder generally will recognize capital gain or loss if the holder disposes of a note in a sale, exchange, redemption or other taxable disposition. The U.S. Holder’s gain or loss will equal the difference between the proceeds received by the holder (other than amounts attributable to accrued but unpaid interest) and the holder’s adjusted tax basis in the note. The U.S. Holder’s adjusted tax basis in the note will generally equal the amount the holder paid for the note (or, with respect to each initial holder of the notes, the portion of the $1,000.00 unit purchase price allocable to the note, which we have determined to be $936.65), increased by the amount of any OID or market discount, if any, previously included in income, and decreased by the amount of amortized bond premium, if any. The portion of any proceeds that is attributable to accrued interest will not be taken into account in computing the U.S. Holder’s capital gain or loss. Instead, that portion will be recognized as ordinary interest income to the extent that the U.S. Holder has not previously included the accrued interest in income. The gain or loss recognized by the U.S. Holder on the disposition of the note will be long-term capital gain or loss if the holder held the note for more than one year, or short-term capital gain or loss if the holder held the note for one year or less, at the time of the transaction. Long-term capital gains of non-corporate taxpayers currently are taxed at a maximum 15% federal rate (effective for tax years through 2010, after which the maximum rate is scheduled to increase to 20%). Short-term capital gains are taxed at ordinary income rates. The deductibility of capital losses is subject to limitations.

 

Conversion of Notes

 

A U.S. Holder generally will not recognize any income, gain or loss on the conversion of a note into common stock, except with respect to cash received in lieu of a fractional share of common stock and the fair market value of any common stock attributable to accrued and unpaid interest. The U.S. Holder’s aggregate tax basis in the common stock (including any fractional share for which cash is paid, but excluding shares attributable to accrued interest) will equal the U.S. Holder’s tax basis in the note. The U.S. Holder’s holding period in the common stock (other than shares attributable to accrued interest) will include the holding period in the note.

 

With respect to cash received in lieu of a fractional share of our common stock, a U.S. Holder would be treated as if the fractional share were issued and received and then immediately redeemed for cash. Accordingly, the U.S. Holder generally would recognize gain or loss equal to the difference between the cash received and that portion of the holder’s tax basis in the common stock attributable to the fractional share.

 

The value of any portion of our common stock that is attributable to accrued and unpaid interest on the notes not yet included in income by a U.S. Holder would be taxed as ordinary income. The basis in any shares of common stock attributable to accrued and unpaid interest would equal the fair market value of such shares when received. The holding period in any shares of common stock attributable to accrued and unpaid interest would begin on the day after the date of conversion.

 

A U.S. Holder that converts a note between a record date for an interest payment and the next interest payment date and consequently receives a payment of cash interest, should consult its own tax advisor concerning the appropriate treatment of such payments.

 

In the event that we undergo a business combination the conversion obligation may be adjusted so that holders would be entitled to convert the notes into the type of consideration that they would have been entitled to receive upon such business combination had the notes been converted into our common stock immediately prior to such business combination. Depending on the facts and circumstances at the time of such business combination, such adjustment may result in a deemed exchange of the outstanding debentures, which may be a taxable event for U.S. federal income tax purposes.

 

U.S. Holders are urged to consult their own tax advisors regarding the U.S. federal income tax consequences of such an adjustment upon a business combination.

 

Distributions

 

If, after a U.S. Holder acquires our common stock upon a conversion of a note or exercise of a warrant, we make a distribution in respect of such common stock from our current or accumulated earnings and profits as determined under U.S. federal income tax principles, the distribution will be treated as a dividend and will be

includible in a U.S. Holder’s income when paid. If the distribution exceeds our current and accumulated earnings and profits, the excess will be treated first as a tax-free return of the U.S. Holder’s investment, up to the U.S. Holder’s tax basis in its common stock, and any remaining excess will be treated as capital gain from the sale or exchange of the common stock. If the U.S. Holder is a U.S. corporation, it would generally be able to claim a dividend received deduction on a portion of any distribution taxed as a dividend, provided that certain holding period requirements are satisfied. Subject to certain exceptions, dividends received by non-corporate U.S. Holders currently are taxed at a maximum rate of 15% (effective for tax years through 2010), provided that certain holding period requirements are met.

 

Constructive Distributions

 

The terms of the notes and warrants allow for changes in the conversion rate under certain circumstances. A change in conversion rate that allows holders to receive more shares of common stock on conversion or exercise may increase the holders’ proportionate interests in our earnings and profits or assets. In that case, the holders may be treated as though they received a taxable distribution in the form of our common stock. A taxable constructive stock distribution would result, for example, if the conversion rate is adjusted to compensate holders for distributions of cash or property to our stockholders. Not all changes in the conversion rate that result in holders’ receiving more common stock on conversion or exercise, however, increase the holders’ proportionate interests in us. For instance, a change in conversion rate could simply prevent the dilution of the holders’ interests upon a stock split or other change in capital structure. Changes of this type, if made pursuant to bona fide reasonable adjustment formula, are not treated as constructive stock distributions. Conversely, if an event occurs that dilutes the holders’ interests and the conversion rate is not adjusted, the resulting increase in the proportionate interests of our stockholders could be treated as a taxable stock distribution to the stockholders. Any taxable constructive stock distributions resulting from a change to, or failure to change, the conversion rate that is treated as a distribution of common stock would be treated for U.S federal income tax purposes in the same manner as distributions on our common stock paid in cash or other property. They would result in a taxable dividend to the recipient to the extent of our current or accumulated earnings and profits (with the recipient’s tax basis in its note or common stock (as the case may be) being increased by the amount of such dividend), with any excess treated as a tax-free return of the holder’s investment in its note or common stock (as the case may be) or as capital gain. U.S. Holders should consult their own tax advisors regarding whether any taxable constructive stock dividend would be eligible for the maximum 15% rate or the dividends received deduction described in the previous paragraph as the requisite applicable holding period requirements might not be considered to be satisfied.

 

Sale or Exchange of Common Stock

 

A U.S. Holder generally will recognize capital gain or loss on a sale or exchange of common stock. The U.S. Holder’s gain or loss will equal the difference between the proceeds received by the holder and the holder’s tax basis in the stock. The proceeds received by the U.S. Holder will include the amount of any cash and the fair market value of any other property received for the stock. The gain or loss recognized by a U.S. Holder on a sale or exchange of common stock will be long-term capital gain or loss if the holder’s holding period in the common stock is more than one year, or short-term capital gain or loss if the holder’s holding period in the common stock is one year or less, at the time of the transaction. Long-term capital gains of non-corporate taxpayers are currently taxed at a maximum 15% federal rate (effective for tax years through 2010, after which the maximum rate is scheduled to increase to 20%). Short-term capital gains are taxed at ordinary income rates. The deductibility of capital losses is subject to limitations.

 

Sale or Exchange or Lapse of a Warrant

 

Upon a sale, exchange, redemption, lapse or other taxable disposition of a warrant, a U.S. Holder generally will recognize capital gain or loss in an amount equal to the difference between the sum of the amount of cash and the fair market value of any property received for the warrant and the U.S. Holder’s tax basis in the warrant. The U.S. Holder’s tax basis in the warrant generally will equal the amount the holder paid for the warrant (or, (or, with respect to each initial holder, the portion of the $1,000.00 unit purchase price allocable to the warrant, which we have determined to be $63.35). The gain or loss will be long-term capital gain or loss if the holding period for the

warrant is more than one year, or short-term capital gain or loss if the holding period is one year or less, on the date of the disposition. Long-term capital gains of non-corporate taxpayers are currently taxed at a maximum 15% federal rate (effective for tax years through 2010, after which the maximum rate is scheduled to increase to 20%). Short-term capital gains are taxed at ordinary income rates. The deductibility of capital losses is subject to limitations.

 

Exercise of a Warrant

 

The exercise of a warrant will not be a taxable event for the exercising U.S. Holder, except with respect to cash, if any, received in lieu of a fractional share. A U.S. Holder will have a tax basis in the shares of common stock received on exercise of a warrant equal to the sum of the U.S. Holder’s tax basis in the warrant surrendered, reduced by any portion of the basis allocable to a fractional share, plus the exercise price of the warrant. A U.S. Holder generally will have a holding period in shares of common stock acquired on exercise of a warrant that commences on the date of exercise of the warrant.

 

Non-U.S. Holders

 

The following discussion is limited to the U.S. federal income tax consequences relevant to a Non-U.S. Holder (as defined above).

 

Taxation of Interest

 

Payments of interest or attributable to OID to nonresident persons or entities are generally subject to U.S. federal income tax at a rate of 30% (or a reduced or zero rate under the terms of an applicable income tax treaty between the United States and the Non-U.S. Holder’s country of residence), collected by means of withholding by the payor. Payments of interest or attributable to OID on the notes to most Non-U.S. Holders, however, will qualify as “portfolio interest,” and thus will be exempt from U.S. federal income tax, including withholding of such tax, if the Non-U.S. Holders certify their nonresident status as described below. The portfolio interest exception will not apply to payments of interest to a Non-U.S. Holder that:

 

 

In general, a foreign corporation is a controlled foreign corporation if more than 50% of its stock is owned, actually or constructively, by one or more U.S. persons that each owns, actually or constructively, at least 10% of the corporation’s voting stock.

 

The portfolio interest exception, entitlement to treaty benefits and several of the special rules for Non-U.S. Holders described below apply only if the holder certifies its nonresident status. A Non-U.S. Holder can meet this certification requirement by providing a properly executed IRS Form W-8BEN or appropriate substitute form to us or our paying agent prior to the payment. If the Non-U.S. Holder holds the note through a financial institution or other agent acting on the holder’s behalf, the holder will be required to provide appropriate documentation to the agent. The Non-U.S. Holder’s agent will then be required to provide certification to us or our paying agent, either directly or through other intermediaries.

Additional Interest

 

In the event that, within certain timeframes, we have not (i) filed, or caused to be declared or kept effective, a registration statement, (ii) filed with the Securities and Exchange Commission all reports required to be filed in accordance with Section 13 or 15(d) under the Securities Exchange Act of 1934, as amended, and (iii) become listed for trading on one of The New York Stock Exchange, Inc., the American Stock Exchange, Inc., the Nasdaq National Market or The Nasdaq Capital Market, we are required to pay additional interest to holders of notes.

 

Absent further relevant guidance from the IRS, we may treat payments of such additional interest, to Non-U.S. Holders as subject to U.S. federal withholding tax. Therefore, we may withhold on such payments at a rate of 30% unless we timely receive a properly executed IRS Form W-8BEN or W-8ECI from the Non-U.S. Holder claiming that such payments are subject to reduction or elimination of withholding under an applicable treaty or are effectively connected with the Non-U.S. Holder’s conduct of a U.S. trade or business. If we withhold tax from any payment of additional interest made to a Non-U.S. Holder and such payment were determined not to be subject to U.S. federal income tax, a Non-U.S. Holder generally would be entitled to a refund of any tax withheld by timely filing an appropriate claim for refund with the IRS.

 

Sale, Exchange, Redemption, Conversion, Lapse or Other Disposition of Notes, Warrants or Common Stock

 

Non-U.S. Holders generally will not be subject to U.S. federal income or withholding tax on any gain realized on the sale, exchange, redemption, conversion or other disposition of notes (other than with respect to payments attributable to accrued interest, which will be taxed as described under “— Non-U.S. Holders — Taxation of Interest” above), unless:

 

 

The FIRPTA rules may apply to a sale, exchange, redemption or other disposition of notes by a Non-U.S. Holder if we currently are, or were at any time within five years (or, if shorter, the Non-U.S. Holder’s holding period for the notes disposed of) before the transaction, a “U.S. real property holding corporation” (or USRPHC). In very general terms, we would be a USRPHC if interests in U.S. real estate comprised at least 50% of our assets. We believe that we currently are not, and will not become in the future, a USRPHC.

 

Dividends

 

Dividends paid to a Non-U.S. Holder on common stock received on conversion of a note or exercise of a warrant, including any taxable constructive stock dividends resulting from certain adjustments, or failure to make adjustments, to the number of shares of common stock to be issued on conversion or exercise (as described under “— U.S. Holders — Constructive Distributions” above) generally will be subject to U.S. withholding tax at a 30% rate. Withholding tax applicable to any taxable constructive stock dividends received by a Non-U.S. Holder may be withheld from interest on the notes, distributions on the common stock, shares of common stock or proceeds subsequently paid or credited to the Non-U.S. Holder. The withholding tax on dividends (including any taxable constructive stock dividends), however, may be reduced under the terms of an applicable income tax treaty between

the United States and the Non-U.S. Holder’s country of residence. A Non-U.S. Holder should demonstrate its entitlement to treaty benefits by timely delivering a properly executed IRS Form W-8BEN or appropriate substitute form. A Non-U.S. Holder that is eligible for a reduced rate of withholding under the terms of an applicable income tax treaty may obtain a refund of any excess amounts withheld by timely filing an appropriate claim for refund with the IRS. Dividends on the common stock that are effectively connected with a Non-U.S. Holder’s conduct of a U.S. trade or business are discussed below under “— Non-U.S. Holders — Income or Gains Effectively Connected with a U.S. Trade or Business”.

 

Income or Gains Effectively Connected With a U.S. Trade or Business

 

The preceding discussion of the U.S. federal income and withholding tax considerations of the purchase, ownership or disposition of notes, warrants or common stock by a Non-U.S. Holder assumes that the holder is not engaged in a U.S. trade or business. If any interest on the notes, dividends on common stock, or gain from the sale, exchange, redemption, conversion, lapse or other disposition of the notes, warrants or common stock is effectively connected with a U.S. trade or business conducted by the Non-U.S. Holder, then the income or gain will be subject to U.S. federal income tax on a net income basis at the regular graduated rates and in the same manner applicable to U.S. Holders. If the Non-U.S. Holder is eligible for the benefits of a tax treaty between the United States and the holder’s country of residence, any “effectively connected” income or gain generally will be subject to U.S. federal income tax only if it is also attributable to a permanent establishment or fixed base maintained by the holder in the United States. Payments of interest or dividends that are effectively connected with a U.S. trade or business (and, if a tax treaty applies, attributable to a permanent establishment or fixed base), and therefore included in the gross income of a Non-U.S. Holder, will not be subject to the 30% withholding tax provided that the holder claims exemption from withholding. To claim exemption from withholding, the holder must certify its qualification, which can be done by timely filing a properly executed IRS Form W-8ECI or appropriate substitute form. If the Non-U.S. Holder is a corporation, that portion of its earnings and profits that is effectively connected with its U.S. trade or business (or, if an income tax treaty applies, is attributable to a permanent establishment) generally also would be subject to a “branch profits tax.” The branch profits tax rate is generally 30%, although an applicable income tax treaty might provide for a lower rate.

 

Backup Withholding and Information Reporting

 

The Code and the Treasury regulations require those who make specified payments to report the payments to the IRS. Among the specified payments are interest (including payments attributable to accrued OID), dividends, and proceeds paid by brokers to their customers. The required information returns enable the IRS to determine whether the recipient properly included the payments in income. This reporting regime is reinforced by “backup withholding” rules. These rules require the payers to withhold tax from payments subject to information reporting if the recipient fails to cooperate with the reporting regime by failing to provide his taxpayer identification number to the payor, furnishing an incorrect identification number, or repeatedly failing to report interest or dividends on his returns. The backup withholding tax rate is currently 28%.

 

Payments of interest (including payments attributable to accrued OID) or dividends to U.S. Holders of notes or common stock generally will be subject to information reporting, and will be subject to backup withholding, unless the holder (1) is an exempt payee, such as a corporation, or (2) provides the payor with a correct taxpayer identification number and complies with applicable certification requirements. Payments made to U.S. Holders by a broker upon a sale of notes, warrants or common stock will generally be subject to information reporting and backup withholding. If the sale is made through a foreign office of a foreign broker, however, the sale will generally not be subject to either information reporting or backup withholding. This exception may not apply if the foreign broker is owned or controlled by U.S. persons, or is engaged in a U.S. trade or business.

 

We must report annually to the IRS the interest (including payments attributable to accrued OID) and/or dividends paid to each Non-U.S. Holder and the tax withheld, if any, with respect to such interest, OID and/or dividends, including any tax withheld pursuant to the rules described under “— Non-U.S. Holders — Taxation of Interest” and “— Non-U.S. Holders — Dividends” above. Copies of these reports may be made available to tax authorities in the country where the Non-U.S. Holder resides. Payments to Non-U.S. Holders of dividends on our common stock or interest on the notes (including payments attributable to accrued OID) may be subject to backup

withholding unless the Non-U.S. Holder certifies its non-U.S. status on a properly executed IRS Form W-8BEN or appropriate substitute form. Payments made to Non-U.S. Holders by a broker upon a sale of the notes, warrants or our common stock will not be subject to information reporting or backup withholding as long as the Non-U.S. Holder certifies its non-U.S. status or otherwise establishes an exemption.

 

Any amounts withheld from a payment to a U.S. Holder or Non-U.S. Holder of notes, warrants or common stock under the backup withholding rules can be credited against any U.S. federal income tax liability of the holder, provided the required information is timely furnished to the IRS.

 

 

The validity of our common stock offered by this prospectus will be passed upon for us by Wilson Sonsini Goodrich & Rosati, Professional Corporation, Palo Alto, California.

 

 

The consolidated financial statements incorporated in this prospectus by reference from the Company’s Annual Report on Form 10-K/A (Amendment No. 2) for the year ended December 30, 2006 have been audited by Deloitte & Touche LLP, an independent registered public accounting firm, as stated in their report, which is incorporated herein by reference (which report expresses an unqualified opinion and includes an explanatory paragraph related to the adoption of Statement of Financial Accounting Standards No. 123 (revised 2004), “Share-based payment”, effective January 1, 2006), and have been so incorporated in reliance upon the report of such firm given upon their authority as experts in accounting and auditing.

 

 

The SEC allows us to “incorporate by reference” in this prospectus the information that we file with them. This means that we can disclose important information to you in this document by referring you to other filings we have made with the SEC. The information incorporated by reference is considered to be part of this prospectus. The information incorporated by reference in this prospectus is accurate only as of the date of the information on the front cover of the applicable document, or such earlier date as is expressly stated or otherwise apparent with respect to such incorporated information in the applicable document, regardless of the time of delivery of this prospectus or any sale of the common stock.

 

This prospectus incorporates by reference the documents listed below, which we have filed with the SEC:

 

 

 

 

 

This prospectus may contain information that updates, modifies or is contrary to information in one or more of the documents incorporated by reference in this prospectus. You should rely only on the information incorporated by reference or provided in this prospectus. We have not authorized anyone else to provide you with different information. You should not assume that the information in this prospectus is accurate as of any date other than the date of this prospectus or the date of the documents incorporated by reference in this prospectus.

 

Upon your written or oral request, we will provide at no cost to you a copy of any and all of the information that is incorporated by reference in this prospectus.

 

Requests for such documents should be directed to:

 

Attn. Corporate Secretary
Sipex Corporation
233 South Hillview Drive
Milpitas, California 95035
Telephone: (408) 934-7500

 

You may also access the documents incorporated by reference in this prospectus through our website www.sipex.com. Except for the specific incorporated documents listed above, no information available on or through our website shall be deemed to be incorporated in this prospectus or the registration statement of which it forms a part.

 

 

We are subject to the informational reporting requirements of the Securities Exchange Act of 1934, as amended. In accordance with the Exchange Act, we file reports, proxy statements and other information with the Securities and Exchange Commission. You can inspect and copy these reports, proxy statements and other information at the Public Reference Room of the Securities and Exchange Commission at 100 F Street NE, Washington, D.C. 20549, at prescribed rates. Please call the Securities and Exchange Commission at 1-800-SEC-0330 for further information on the operation of the Public Reference Room. Our Securities and Exchange Commission filings are also available on the Securities and Exchange Commission’s website. The address of this site is http://www.sec.gov.

 

We have filed with the Securities and Exchange Commission a registration statement (which term includes all amendments, exhibits and schedules thereto) on Form S-1 under the Securities Act of 1933, as amended, with respect to the shares offered by this prospectus. This prospectus is part of that registration statement and, as allowed by Securities and Exchange Commissions rules, does not contain all the information set forth in the registration statement and the exhibits to the registration statement. The registration statement may be inspected at the public reference facilities maintained by the Securities and Exchange Commission at 100 F Street NE, Washington, D.C. 20549 and is available to you on the Securities and Exchange Commission’s website.

 

PART II

 

INFORMATION NOT REQUIRED IN PROSPECTUS

 

 

The following table sets forth the fees and expenses, other than underwriting discounts and commissions, payable in connection with the registration of the common stock hereunder. All amounts are estimates except the SEC registration fee.

 

 

 

Section 145 of the Delaware General Corporation Law permits a corporation to include in its charter documents, and in agreements between the corporation and its directors and officers, provisions expanding the scope of indemnification beyond that specifically provided by the current law.

 

Our amended and restated certificate of incorporation provides for the indemnification of directors to the fullest extent permissible under Delaware law.

 

Our bylaws provide for the indemnification of officers, directors and third parties acting on our behalf if this person acted in good faith and in a manner reasonably believed to be in and not opposed to our best interest, and, with respect to any criminal action or proceeding, the indemnified party had no reason to believe his or her conduct was unlawful.

 

We have entered into indemnification agreements with our directors and executive officers, in addition to indemnification provided for in our charter documents, and we intend to enter into indemnification agreements with any new directors and executive officers in the future.

 

We intend to purchase and maintain insurance on behalf of any person who is or was a director or officer against any loss arising from any claim asserted against him or her and incurred by him or her in that capacity, subject to certain exclusions and limits of the amount of coverage.

 

 

(a) Since January 1, 2003, we have issued and sold the following unregistered securities:

 

On May 16, 2006, we placed the $30.0 million of 5.5% Redeemable Convertible Senior Notes due 2026 described in this registration statement in a private placement. Rodfre Holdings LLC, an affiliate of our largest stockholder and of our largest distributor, purchased 50% of the notes, or $15,000,000 aggregate principal amount, placed in this offering. The remainder of the notes were purchased by other accredited investors. We intend to use the net proceeds of approximately $28.7 million from the private placement for general corporate purposes. The notes are convertible into common stock at any time at a fixed conversion price of $5.36 per share. If fully converted, the principal amount of the 2006 Notes would convert into approximately 5,597,015 shares of our common stock. A more detailed description of the terms of our notes is provided in this registration statement under the heading “Description of Notes.” In connection with the issuance of the notes, we also issued warrant to purchase an aggregate of 839,552 shares of our common stock at a per share exercise price of $6.432.

The issuance of securities described above were deemed to be exempt from registration under the Securities Act in reliance on Section 4(2) of the Securities Act as transactions by an issuer not involving any public offering. The recipients of securities in each such transaction represented their intention to acquire the securities for investment only and not with a view to or for sale in connection with any distribution thereof and appropriate legends were affixed to the share certificates and other instruments issued in such transactions. The sales of these securities were made without general solicitation or advertising.

 

(b) From January 1, 2003 to March 31, 2007, we have granted an aggregate of approximately 5,921,000¹ options to purchase common stock at a weighted average exercise price of $6.85 to employees, directors and consultants under our various stock option plans and pursuant to stand-alone stock option grant agreements:

 

The foregoing grants and exercises were exempt from registration under the Securities Act of 1933, as amended, pursuant to Rule 701 thereof on the basis that the transactions were pursuant to compensatory benefit plans and contracts relating to compensation as provided under Rule 701.

 

The sales and issuances of securities in the transactions described above were deemed to be exempt from registration under the Securities Act of 1933, as amended, in reliance upon Section 4(2) of the Securities Act of 1933, as amended, Regulation D promulgated thereunder or Rule 701 promulgated under Section 3(b) of the Securities Act of 1933, as amended, as transactions by an issuer not involving any public offering or transactions pursuant to compensatory benefit plans and contracts relating to compensation as provided under Rule 701. The recipients of securities in each transaction represented their intentions to acquire the securities for investment only and not with a view to or for sale in connection with any distribution thereof and appropriate legends were affixed to the securities issued in these transactions. All recipients had adequate access, through their relationship with the Company, to information about us.

 

(c) There were no underwritten offerings employed in connection with any of the transactions set forth in Item 15(a) and (b).

 

 

(a) Exhibits

 

 

 

¹ This number includes 122,527 shares granted on May 12, 2003 at a price of $7.90, pursuant to a tender offer exchange and 1,227,983 granted on September 6, 2005 at an exercise price of $3.80, pursuit to an option repricing program.

 

 

 

(b) Financial Statement Schedules

 

Schedules not listed above have been omitted because the information required to be set forth therein is not applicable or is shown in the financial statements or notes thereto.