Pre-Effective Amendment to Registration of Securities Issued in a Business-Combination Transaction — Form S-4
Filing Table of Contents
Document/Exhibit Description Pages Size
1: S-4/A Pre-Effective Amendment to Registration of 278 1.49M
Securities Issued in a
Business-Combination Transaction
2: EX-4.1 Rights Agreement 66 255K
3: EX-23.1 Consent of Pricewaterhousecoopers 1 6K
6: EX-27 Financial Data Schedule 2 9K
4: EX-99.1 Form of Proxy 2 8K
5: EX-99.2 Letter to Stock Holders With Q & A 3 12K
S-4/A — Pre-Effective Amendment to Registration of Securities Issued in a Business-Combination Transaction
Document Table of Contents
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON MARCH 10, 1999
REGISTRATION NO. 333-67797
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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AMENDMENT NO. 2 TO
FORM S-4
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
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PE CORPORATION
(FORMERLY KNOWN AS THE PERKIN-ELMER CORPORATION)
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
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DELAWARE 3826 06--1534213
(STATE OR OTHER JURISDICTION (PRIMARY STANDARD INDUSTRIAL (I.R.S. EMPLOYER
OF CLASSIFICATION CODE NUMBER) IDENTIFICATION
INCORPORATION OR ORGANIZATION) NO.)
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PE CORPORATION
761 MAIN AVENUE
NORWALK, CT 06859-0001
(203) 762-1000
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(ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE, OF
REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES)
WILLIAM B. SAWCH
761 MAIN AVENUE
NORWALK, CT 06859-0001
(203) 761-2900
(NAME AND ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA
CODE, OF AGENT FOR SERVICE)
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WITH COPIES TO:
RAYMOND W. WAGNER FRANCIS J. MORISON
SIMPSON THACHER & BARTLETT DAVIS POLK & WARDWELL
425 LEXINGTON AVENUE 450 LEXINGTON AVENUE
NEW YORK, NEW YORK 10017 NEW YORK, NEW YORK 10017
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APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC:
AS SOON AS PRACTICABLE AFTER THE REGISTRATION STATEMENT BECOMES EFFECTIVE.
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If any of the securities being registered on this form are being offered in
connection with the formation of a holding company and there is compliance with
General Instruction G, check the following box: / /
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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: / /
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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: / /
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CALCULATION OF REGISTRATION FEE
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PROPOSED MAXIMUM PROPOSED MAXIMUM
TITLE OF EACH CLASS OF AMOUNT TO OFFERING PRICE AGGREGATE
SECURITIES TO BE REGISTERED BE REGISTERED PER SHARE OFFERING PRICE
PE Corporation-PE Biosystems Group Common Stock, par
value $.01 per share (1).............................. N/A N/A N/A
Rights to Purchase Series A Participating Junior
Preferred Stock, par value $.01 per share (2)......... N/A N/A N/A
PE Corporation-Celera Genomics Group Common Stock, par
value $.01 per share (1)(3)........................... N/A N/A $333,667,000
Rights to Purchase Series B Participating Junior
Preferred Stock, par value $.01 per share (2)......... N/A N/A N/A
TITLE OF EACH CLASS OF AMOUNT OF
SECURITIES TO BE REGISTERED REGISTRATION FEE
PE Corporation-PE Biosystems Group Common Stock, par
value $.01 per share (1).............................. N/A
Rights to Purchase Series A Participating Junior
Preferred Stock, par value $.01 per share (2)......... N/A
PE Corporation-Celera Genomics Group Common Stock, par
value $.01 per share (1)(3)........................... $92,800
Rights to Purchase Series B Participating Junior
Preferred Stock, par value $.01 per share (2)......... N/A
(1) If the Recapitalization Proposal described herein is approved by the
shareholders and the reincorporation merger (the "Merger") of The
Perkin-Elmer Corporation, a New York corporation ("Perkin-Elmer New York"),
with a subsidiary of PE Corporation, a Delaware corporation ("PE Delaware"),
becomes effective, each share of the Common Stock, par value $1.00 per
share, of Perkin-Elmer New York (the "Existing Common Stock"), outstanding
at the effective time (the "Effective Time") of the Merger will be converted
into one share of PE Corporation-PE Biosystems Group Common Stock, par value
$.01 per share ("PE Biosystems Stock"), and .5 of a share (the "Ratio") of
PE Corporation-Celera Genomics Group Common Stock, par value $.01 per share
("Celera Genomics Stock"). The number of shares of PE Biosystems Stock being
registered is equal to the number of shares of Existing Common Stock
outstanding at the Effective Time, and the number of shares of Celera
Genomics Stock being registered is equal to the Ratio times the number of
shares of Existing Common Stock outstanding at the Effective Time. In
accordance with Rule 457(o) under the Securities Act of 1933, as amended
(the "Securities Act"), the number of shares being registered is not
included in the table.
(2) Prior to the occurrence of certain events, the rights to purchase Series A
Participating Junior Preferred Stock, par value $.01 per share, and the
rights to purchase Series B Participating Junior Preferred Stock, par value
$.01 per share (collectively, the "Rights"), will not be evidenced
separately from the related PE Biosystems Stock or Celera Genomics Stock.
The value, if any, of the Rights is reflected in the market price of the
related PE Biosystems Stock or Celera Genomics Stock. Accordingly, no
separate fee is paid.
(3) Previously paid based upon the book value of Perkin-Elmer New York's
historical interests in the Celera Genomics Group of $333,667,000 as of
September 30, 1998.
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, AS AMENDED, OR UNTIL THIS REGISTRATION STATEMENT
SHALL BECOME EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID
SECTION 8(A), MAY DETERMINE.
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Information contained herein is subject to completion or amendment. A
registration statement relating to these securities has been filed with the
Securities and Exchange Commission. These securities may not be sold nor may
offers to buy be accepted prior to the time the registration statement becomes
effective. This prospectus shall not constitute an offer to sell or the
solicitation of an offer to buy nor shall there be any sale of these securities
in any State in which such offer, solicitation or sale would be unlawful prior
to registration or qualification under the securities laws of any such State.
SUBJECT TO COMPLETION, DATED MARCH 10, 1999
PROXY STATEMENT OF
THE PERKIN-ELMER CORPORATION
SPECIAL MEETING OF SHAREHOLDERS TO BE
HELD AT 50 DANBURY ROAD, WILTON, CONNECTICUT AT
10 A.M., EASTERN TIME, ON APRIL , 1999
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PROSPECTUS OF
PE CORPORATION
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PE BIOSYSTEMS GROUP CELERA GENOMICS GROUP
COMMON STOCK COMMON STOCK
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TO OUR SHAREHOLDERS
You are invited to attend a special meeting of our shareholders where you
will be asked to consider and adopt a recapitalization proposal recommended by
our board of directors.
We propose to create two new classes of common stock called "PE Biosystems
Stock" and "Celera Genomics Stock." PE Biosystems Stock is intended to reflect
separately the performance of our established PE Biosystems' life sciences
business and to benefit from the earnings growth and cash flows provided by it.
Celera Genomics Stock is intended to reflect separately the performance of our
Celera Genomics business and to benefit from the anticipated success and
progress of its research and development efforts rather than near-term earnings
since it is expected to incur significant losses during its start-up period.
If shareholders approve the recapitalization, each share of your existing
common stock will be converted into one share of PE Biosystems Stock and .5 of a
share of Celera Genomics Stock.
We will also change our state of incorporation from New York to Delaware and
change our name to PE Corporation as part of this recapitalization. We expect
this recapitalization to be tax-free to you and us.
We will list the PE Biosystems Stock on the New York Stock Exchange and the
Pacific Stock Exchange under the symbol "PEB." We will list the Celera Genomics
Stock on these stock exchanges under the symbol "CRA."
At the special meeting, you will also be asked to consider and approve
related proposals to adopt separate new stock incentive plans for each business
group.
Our board of directors unanimously recommends that you vote in favor of the
recapitalization and each of the related proposals. This proxy statement and
prospectus provides you with detailed information about the recapitalization and
related proposals. We encourage you to read this entire document carefully.
Tony L. White
Chairman of the Board, President
and Chief Executive Officer
THE RECAPITALIZATION AND RELATED PROPOSALS INVOLVE CERTAIN RISKS. PLEASE READ
THE "RISK FACTORS" BEGINNING ON PAGE 11.
NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE SECURITIES
COMMISSION HAS APPROVED OR DISAPPROVED OF THESE SECURITIES OR DETERMINED IF
THIS PROXY STATEMENT AND PROSPECTUS IS TRUTHFUL OR COMPLETE. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
This proxy statement and prospectus is dated March , 1999 and is first being
mailed to shareholders on March , 1999.
HOW YOU CAN OBTAIN MORE INFORMATION
This proxy statement incorporates important business and financial
information that is not included in or delivered with this document. You may
request a copy of this information at no cost, by writing or telephoning us at
the following address:
c/o The Perkin-Elmer Corporation
761 Main Avenue
Norwalk, Connecticut 06859
Attention: Secretary
Telephone: 1-203-762-1000
TO OBTAIN TIMELY DELIVERY, YOU MUST MAKE THIS REQUEST NO LATER THAN FIVE
BUSINESS DAYS BEFORE APRIL , 1999, THE DATE OF THE SPECIAL MEETING.
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NOTICE OF SPECIAL MEETING
OF SHAREHOLDERS
TO BE HELD ON APRIL , 1999
March , 1999
We hereby give notice that a special meeting of our shareholders will be
held in our auditorium at 50 Danbury Road, Wilton, Connecticut. The special
meeting will begin at 10:00 a.m., eastern time, and will be held for the
following purposes and to transact any other business as may properly come
before the meeting or any adjournments of the meeting:
1. To consider and act upon a proposal to adopt an agreement and plan of
merger under which:
- we will merge with a subsidiary of PE Corporation, a Delaware corporation
newly formed by us for this purpose, and
- each outstanding share of our existing common stock will be converted
into one share of that Delaware corporation's PE Biosystems Stock and .5
of a share of that Delaware corporation's Celera Genomics Stock;
2. To consider and act upon a proposal to adopt the PE Corporation/PE
Biosystems Group 1999 Stock Incentive Plan; and
3. To consider and act upon a proposal to adopt the PE Corporation/Celera
Genomics Group 1999 Stock Incentive Plan.
The attached proxy statement and prospectus contains information relating to
the three proposals.
Your board of directors has fixed the close of business on March 15, 1999 as
the record date to determine the shareholders entitled to notice of and to vote
at the special meeting. Only the shareholders of record at the close of business
on that date will be entitled to vote at the meeting. A list of those
shareholders will be available for inspection before or at the meeting. The
transfer books of Perkin-Elmer will not be closed.
By order of the board
of directors,
William B. Sawch
SECRETARY
TABLE OF CONTENTS
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PAGE
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Questions and Answers About the Recapitalization
Proposal...................................... 1
Proxy Statement Summary......................... 3
The Perkin-Elmer Corporation Selected Financial
Information................................... 8
PE Biosystems Group Selected Financial
Information................................... 9
Celera Genomics Group Selected Financial
Information................................... 10
Risk Factors.................................... 11
Special Note Regarding Forward-Looking
Statements.................................... 24
Documents Incorporated by Reference............. 24
Information About the Special Meeting and
Voting........................................ 24
Date, Time and Place of Meeting............. 24
Record Date................................. 24
Proposals to be Considered at the Meeting... 25
Vote Required to Approve the Proposals...... 25
Quorum...................................... 25
Procedure for Voting by Proxy............... 25
Proposal 1--The Recapitalization Proposal....... 25
Description of the Recapitalization......... 25
Background of and Reasons for the
Recapitalization Proposal................. 26
Recommendation of the Board of Directors.... 29
Management and Allocation Policies.......... 29
Dividend Policy............................. 35
Description of PE Biosystems Stock and
Celera Genomics Stock..................... 35
Celera Genomics Designated Shares........... 44
Rights Agreement............................ 44
Comparison of Shareholder Rights............ 46
Certain Anti-Takeover Provisions of Delaware
Law and the New Certificate of
Incorporation, the New By-laws and the New
Rights Agreement.......................... 52
United States Federal Income Tax
Considerations............................ 53
Stock Exchange Listings..................... 54
Exchange Procedures......................... 54
Stock Transfer Agent and Registrar.......... 54
Financial Advisors.......................... 54
Effect on Existing Options and Warrants..... 55
Options for Celera Genomics Stock to be
Issued Upon the Recapitalization.......... 55
No Dissenters' Rights....................... 55
The Perkin-Elmer Corporation --
Management's Discussion and Analysis.......... 56
PE Biosystems Group -- Business................. 71
PE Biosystems Group --
Management's Discussion and Analysis.......... 82
Celera Genomics Group -- Business............... 96
Celera Genomics Group --
Management's Discussion and Analysis.......... 117
Proposals 2 and 3--Adoption of PE Corporation/PE
Biosystems Group 1999 Stock Incentive Plan and
PE Corporation/Celera Genomics Group 1999
Stock Incentive Plan.......................... 123
Price Range and Dividends on Existing Common
Stock......................................... 130
Information About Stockholder Proposals......... 130
Expenses of Solicitation........................ 131
Legal Opinions.................................. 131
Experts......................................... 131
Index to Financial Statements................... F-1
The Perkin-Elmer Corporation -- Accountants'
Report and Financial Statements............... F-2
PE Biosystems Group -- Accountants' Report and
Financial Statements.......................... F-35
Celera Genomics Group -- Accountants' Report and
Financial Statements.......................... F-70
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Annex I: Agreement and Plan of Merger
Annex II: New Certificate of Incorporation
Annex III: PE Corporation/PE Biosystems
Group 1999 Stock Incentive Plan
Annex IV: PE Corporation/Celera Genomics
Group 1999 Stock Incentive Plan
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QUESTIONS AND ANSWERS
ABOUT THE RECAPITALIZATION PROPOSAL
IF YOU HAVE ANY QUESTIONS RELATING TO THE MATTERS DISCUSSED IN THIS
DOCUMENT, PLEASE CALL OUR INVESTOR RELATIONS DEPARTMENT AT (203) 761-5400.
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Q. WHY AM I RECEIVING THIS PROXY
STATEMENT?
A. We are distributing this proxy
statement and prospectus to you in
connection with a recapitalization
proposal that would create two new
classes of common stock. We are also
distributing this proxy statement in
connection with related proposals to
adopt two new stock incentive plans.
Q. WHAT ARE THE NEW COMMON STOCKS?
A. The new common stocks consist of the
PE Biosystems Stock and the Celera
Genomics Stock. We refer to the PE
Biosystems Stock and the Celera
Genomics Stock together as the
"common stock."
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- The PE Biosystems Stock is
intended to reflect the separate
performance of our established
PE Biosystems' life sciences
business. We refer to this
business as the "PE Biosystems
Group."
- The Celera Genomics Stock is
intended to reflect the separate
performance of our Celera
Genomics business. We refer to
this business as the "Celera
Genomics Group."
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Investors commonly refer to this
type of common stock as "tracking
stock," "targeted stock" or "letter
stock," because the stock is
intended to "track" or "target" the
separate performance of a group of
assets or a division of a company.
Q. HOW WILL I BENEFIT FROM THE
RECAPITALIZATION PROPOSAL?
A. You will be able to separately value
the PE Biosystems Stock and the
Celera Genomics Stock. You will be
able to invest in either or both
stocks depending on your investment
objectives.
Q. WHAT KIND OF FINANCIAL INFORMATION
WILL I RECEIVE IN THE FUTURE?
A. You will continue to receive our
consolidated financial information
for our company as a whole. In
addition, you will receive separate
operating results and other business
and financial information for both
the PE Biosystems Group and the
Celera Genomics Group.
Q. WHAT WILL MY EXISTING SHARES
REPRESENT IF EVERYTHING TAKES PLACE
AS PROPOSED?
A. Each share of our existing common
stock will be converted into one
share of PE Biosystems Stock and .5
of a share of Celera Genomics Stock.
Q. WHY ARE WE BECOMING A DELAWARE
CORPORATION?
A. A number of other large corporations
with similar capital structures,
such as General Motors Corporation
and USX Corporation, are also
incorporated in Delaware. By
becoming a Delaware corporation, we
will be able to benefit from
Delaware's comprehensive and
well-developed corporate laws. We
believe that Delaware law will offer
clearer guidance with respect to
legal issues that may arise as a
result of the existence of separate
classes of common stock.
Q. WILL THE RECAPITALIZATION PROPOSAL
RESULT IN A CHANGE OF CONTROL?
A. No.
Q. WILL THE RECAPITALIZATION PROPOSAL
RESULT IN A SPIN-OFF?
A. No. This proposal will not result in
a distribution or spin-off of our
assets or liabilities. Holders of PE
Biosystems
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Stock and Celera Genomics Stock will
continue to be stockholders of a
single company and subject to all
risks associated with an investment
in PE and all of our businesses,
assets and liabilities.
Q. WHAT HAPPENS TO MY FUTURE DIVIDENDS?
A. We currently intend to pay a
quarterly dividend of $.17 per share
on the PE Biosystems Stock, the same
rate we now pay on our existing
common stock. We currently do not
anticipate paying dividends on
Celera Genomics Stock in the
foreseeable future.
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PROXY STATEMENT SUMMARY
THIS SUMMARY, TOGETHER WITH THE "QUESTIONS AND ANSWERS" ON THE PRECEDING
PAGES, HIGHLIGHTS IMPORTANT SELECTED INFORMATION FROM THIS DOCUMENT. TO
UNDERSTAND THE RECAPITALIZATION FULLY AND FOR A MORE COMPLETE DESCRIPTION OF THE
LEGAL TERMS OF THE RECAPITALIZATION, YOU SHOULD READ CAREFULLY THIS ENTIRE
DOCUMENT AND THE DOCUMENTS WE HAVE REFERRED YOU TO. WE HAVE INCLUDED PAGE
REFERENCES PARENTHETICALLY TO DIRECT YOU TO A MORE COMPLETE DESCRIPTION OF THE
TOPICS PRESENTED IN THIS SUMMARY.
THE COMPANY
Our businesses are the PE Biosystems Group and the Celera Genomics Group.
Our principal executive offices are located at 761 Main Avenue, Norwalk,
Connecticut 06859, and our telephone number is (203) 762-1000.
PE BIOSYSTEMS GROUP (PAGE 71)
The PE Biosystems Group is principally comprised of our established PE
Biosystems' life sciences and Analytical Instruments businesses.
PE Biosystems is a diversified leader in the life sciences industry. It is
engaged in:
- research, development, manufacture, sale and support of instrument
systems, reagents and software; and
- related consulting and contract research and development services.
In its Analytical Instruments business, the PE Biosystems Group develops,
manufactures, markets, sells and services analytical instruments used in a
variety of markets. In March 1999, we entered into an agreement for the sale of
the Analytical Instruments business.
For the fiscal year ended June 30, 1998, the PE Biosystems Group had net
revenues of $940.1 million and income from continuing operations of $24.0
million. Its total assets at December 31, 1998 were $1.2 billion.
CELERA GENOMICS GROUP (PAGE 96)
The Celera Genomics Group is principally comprised of our new Celera
Genomics business. The Celera Genomics Group is engaged in:
- generation, sale and support of genomic information and related
information management and analysis software;
- discovery, validation and licensing of proprietary gene products, genetic
markers and information concerning genetic variability; and
- related consulting and contract research and development services.
For the fiscal year ended June 30, 1998, the Celera Genomics Group had net
revenues of $4.2 million and net losses of $8.3 million. Its total assets at
December 31, 1998 were $339.0 million.
THE SPECIAL MEETING
PROPOSALS TO BE CONSIDERED AT THE MEETING
(PAGE 25)
You are asked to consider and vote upon the following proposals at the
special meeting:
- Proposal 1: The recapitalization proposal.
- Proposal 2: A proposal to adopt the PE Biosystems Group 1999 Stock
Incentive Plan to provide for the granting of stock awards and options in
PE Biosystems Stock.
- Proposal 3: A proposal to adopt the Celera Genomics Group 1999 Stock
Incentive Plan to provide for the granting of stock awards and options in
Celera Genomics Stock.
If Proposal 1 is approved, we will implement it whether or not Proposals 2 or 3
are approved. If Proposal 1 is not approved, we will not implement Proposals 2
and 3.
VOTE REQUIRED TO APPROVE THE PROPOSALS (PAGE 25)
The following shareholder votes are required for approval of the proposals:
- Proposal 1: The favorable vote of the holders of two-thirds of the
outstanding shares of our existing common stock.
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- Proposals 2 and 3: The favorable vote of the holders of a majority of the
votes cast at the special meeting.
Our directors and executive officers beneficially own approximately 2% of
the outstanding shares of our existing common stock.
COMPARISON OF EXISTING COMMON STOCK WITH PE BIOSYSTEMS STOCK AND CELERA GENOMICS
STOCK (PAGE 35)
We have set forth in the table a comparison of our existing common stock and
the PE Biosystems Stock and Celera Genomics Stock. You should keep in mind that
you will remain stockholders of a single company. The PE Biosystems Group and
the Celera Genomics Group are not separate legal entities. As a result, you will
continue to be subject to all of the risks associated with an investment in PE
and all of our businesses, assets and liabilities. Financial effects from one
group that affect our consolidated results of operations or financial condition
could, if significant, affect the results of operations or financial condition
of the other group.
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EXISTING THE RECAPITALIZATION PROPOSAL
COMMON --------------------------------------------------------
STOCK PE BIOSYSTEMS STOCK CELERA GENOMICS STOCK
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DIVIDENDS: Our quarterly dividend We currently intend to We currently do not intend
rate is currently $.17 pay dividends on the PE to pay dividends on the
per share of existing Biosystems Stock at an Celera Genomics Stock.
common stock. Dividends initial quarterly rate of Dividends are at the
are at the discretion of $.17 per share. Dividends discretion of our board of
our board of directors. are at the discretion of directors.
our board of directors.
VOTING RIGHTS: One vote per share. The PE Biosystems Stock Celera Genomics Stock may
will have one vote per have more than, less than
share. or exactly one vote per
share depending on the
relative market values of
the two classes of common
stock.
The holders of PE The holders of Celera
Biosystems Stock and Celera Genomics Stock and PE
Genomics Stock will vote Biosystems Stock will vote
together as a single class together as a single class
except in limited except in limited
circumstances. circumstances.
RIGHTS ON SALE OF ALL OR None. If we sell all or If we sell all or
SUBSTANTIALLY ALL ASSETS substantially all of the substantially all of the
OF A GROUP: assets attributed to the PE assets attributed to the
Biosystems Group, we must Celera Genomics Group, we
either (1) distribute to must either (1) distribute
holders of PE Biosystems to holders of Celera
Stock an amount equal to Genomics Stock an amount
the net equal to the net
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EXISTING THE RECAPITALIZATION PROPOSAL
COMMON --------------------------------------------------------
STOCK PE BIOSYSTEMS STOCK CELERA GENOMICS STOCK
------------------------ --------------------------- ---------------------------
proceeds of the sale, or proceeds of the sale, or
(2) convert each share of (2) convert each share of
PE Biosystems Stock into a Celera Genomics Stock into
number of shares of Celera a number of shares of PE
Genomics Stock at a 10% Biosystems Stock at a 10%
premium. We will not be premium. We will not be
required to do so if we required to do so if we
receive in the sale receive in the sale
primarily equity securities primarily equity securities
of the acquiror or its of the acquiror or its
parent and it is primarily parent and it is primarily
engaged in one or more engaged in one or more
businesses similar or businesses similar or
complementary to the complementary to the
business of the PE business of the Celera
Biosystems Group. Genomics Group.
CONVERSION AT OPTION OF None. Yes, at a 10% premium at Yes, at a 10% premium at
COMPANY: any time and, if there are any time and, if there are
adverse U.S. federal income adverse U.S. federal income
tax law developments, tax law developments,
without any premium. without any premium.
REDEMPTION IN EXCHANGE FOR None. We may redeem the PE We may redeem the Celera
STOCK OF SUBSIDIARY: Biosystems Stock for stock Genomics Stock for stock of
of our subsidiaries that our subsidiaries that hold
hold all of the assets and all of the assets and
liabilities attributed to liabilities attributed to
the PE Biosystems Group. the Celera Genomics Group.
LIQUIDATION: Holders of our existing Holders of PE Biosystems Holders of Celera Genomics
common stock share our Stock will share assets Stock will share assets
net assets remaining for remaining for distribution remaining for distribution
distribution to holders to holders of common stock to holders of common stock
of common stock. on a per share basis in on a per share basis in
proportion to the proportion to the
liquidation units per share liquidation units per share
of PE Biosystems Stock. of Celera Genomics Stock.
Each share of PE Biosystems The number of liquidation
Stock will have one units for the Celera
liquidation unit. Genomics Stock will be
determined approximately
two months after the
recapitalization based on
the relative market values
of the two classes of
common stock.
GOVERNING LAW: New York Delaware Delaware
5
RISK FACTORS (PAGE 11)
When evaluating the recapitalization proposal, you should be aware that
there are many risks, including:
- the risks associated with an investment in a single company and all of
our businesses, assets and liabilities;
- holders of each class of common stock to have limited rights related to
their group;
- risks associated with the relative voting power of the two classes of
common stock which will fluctuate based on their relative average market
values;
- limited stockholder remedies for breach of fiduciary duties;
- the potential for stockholders of each class of common stock to have
diverging or conflicting interests;
- the ability of our board of directors to change management and allocation
policies without stockholder approval;
- the ability to transfer funds between the groups;
- the ability of our board of directors to allocate financing costs between
groups that do not reflect the separate borrowing costs of the groups;
- the possibility that the Celera Genomics Group could be charged a greater
portion of the total corporate tax liability;
- limits on consideration to be received upon disposition of assets of a
group;
- the effects of our capital structure and variable vote per share on
potential acquisitions of a group or class of common stock;
- decisions that affect market values of a class of common stock could
affect stockholder rights;
- no assurances as to the market price or liquidity of the PE Biosystems
Stock or Celera Genomics Stock following the recapitalization;
- anti-takeover considerations could prevent stockholders from profiting
from an increase in the market value of their shares; and
- the lack of legal precedent and the recent Clinton Administration
proposal relating to the tax treatment of tracking stock.
MANAGEMENT AND ALLOCATION POLICIES (PAGE 29)
We have established policies designed to accomplish the fundamental
objective of the recapitalization proposal, which is to separate the business
and operations of the Celera Genomics Group from those of the PE Biosystems
Group and to operate each group on a stand-alone basis. These policies establish
guidelines to help us allocate debt, corporate overhead, interest, taxes and
other shared activities between the two groups on an objective basis and, except
as referred to below, to ensure that transactions between the PE Biosystems
Group and the Celera Genomics Group are made on terms that approximate terms
that could be obtained from unaffiliated third parties.
Our inter-group policies include:
- the centralized management of most financial activities;
- the allocation of indebtedness and preferred stock between groups or
entirely to one group;
- the accounting for transfers of cash or other property from one group to
the other group;
- the financial effects of issuances of additional PE Biosystems Stock or
Celera Genomics Stock;
- the free access to our technology and know-how, other than products and
services, between groups, subject to certain exceptions;
- transfers of assets between groups at fair value, including sales of
products and services between groups on terms
6
that would be available from third parties in commercial transactions,
subject to certain exceptions;
- the allocation of corporate opportunities in the best interests of PE;
and
- the requirement that groups not engage in each other's principal
businesses, subject to an exception for joint transactions with each
other and with third parties, but permitting indirect competition in
certain situations.
Our board of directors may modify or rescind these policies, or may adopt
additional policies, in its sole discretion without stockholder approval.
However, our board of directors has no present intention to do so.
UNITED STATES FEDERAL INCOME TAX CONSIDERATIONS (PAGE 53)
We have been advised by our counsel that no gain or loss will be recognized
by you for federal income tax purposes as a result of the recapitalization,
except for any cash received by you instead of fractional shares of Celera
Genomics Stock. However, there are no court decisions or other authorities
bearing directly on transactions similar to the recapitalization proposal. In
addition, the Internal Revenue Service has announced that it will not issue
rulings on the characterization of stock with characteristics similar to the PE
Biosystems Stock and the Celera Genomics Stock. Therefore, the tax treatment of
the recapitalization is subject to some uncertainty.
CLINTON ADMINISTRATION PROPOSAL
A recent proposal by the Clinton Administration would impose a corporate
level tax on the issuance of stock similar to the PE Biosystems Stock or the
Celera Genomics Stock. If this proposal is enacted, we could be subject to tax
on an issuance of PE Biosystems Stock or Celera Genomics Stock after the date of
enactment. If our shareholders approve the recapitalization proposal, our board
of directors currently intends to implement the recapitalization, subject to
further legislative developments relating to this tax proposal.
NO DISSENTERS' RIGHTS
You will not have dissenters' or appraisal rights under New York law if the
recapitalization proposal is implemented.
NO REGULATORY APPROVALS
No state or federal regulatory approvals are required for the
recapitalization.
RECOMMENDATION OF THE BOARD OF DIRECTORS
YOUR BOARD OF DIRECTORS HAS CAREFULLY CONSIDERED EACH PROPOSAL AND BELIEVES
THAT THE APPROVAL OF THESE PROPOSALS BY THE SHAREHOLDERS IS IN THE BEST
INTERESTS OF OUR COMPANY AND OUR SHAREHOLDERS. YOUR BOARD OF DIRECTORS
UNANIMOUSLY RECOMMENDS THAT YOU APPROVE EACH OF THESE PROPOSALS.
7
THE PERKIN-ELMER CORPORATION SELECTED FINANCIAL INFORMATION
This summary of financial information of PE for the fiscal years 1994 to
1998 and for the six months ended December 31, 1997 and 1998 should be read
along with the audited and unaudited financial statements contained in this
proxy statement. Such financial information, other than for fiscal years 1994
and 1995, was taken from these financial statements. The financial statements
for those fiscal year periods are audited. The condensed financial statements
for those six month periods are unaudited and we believe that they fairly
present our financial position and results of operations and cash flows for
those periods.
A number of items affect the comparability of this information. Pre-tax
amounts include:
- Restructuring and other merger costs of $15.5 million for fiscal 1995, $17.5
for fiscal 1996, $48.1 million for fiscal 1998 and $2.0 million for the six
months ended December 31, 1998;
- Gains on investments of $20.8 million for fiscal 1995, $11.7 million for
fiscal 1996, $64.9 million for fiscal 1997 and $1.6 million for fiscal 1998;
- Acquired research and development charges of $14.7 million for fiscal 1994,
$33.9 million for fiscal 1996, $26.8 million for fiscal 1997 and $28.9
million for fiscal 1998; and
- Charges for the impairment of assets of $9.9 million for fiscal 1996 and $.7
million for fiscal 1997.
[Enlarge/Download Table]
FOR THE SIX MONTHS
ENDED
FOR THE YEARS ENDED JUNE 30, DECEMBER 31,
(DOLLAR AMOUNTS IN THOUSANDS ----------------------------------------------------- --------------------
EXCEPT PER SHARE AMOUNTS) 1994 1995 1996 1997 1998 1997 1998
-------------------------------------------- --------- --------- --------- --------- --------- --------- ---------
(UNAUDITED)
FINANCIAL OPERATIONS
Net revenues................................ $ 447,935 $ 543,945 $ 642,218 $ 768,368 $ 944,306 $ 411,246 $ 543,238
Income from continuing operations........... 11,637 38,569 1,310 102,492 15,694 10,113 36,095
Per share of common stock
Basic................................... .25 .87 .03 2.16 .32 .21 .73
Diluted................................. .24 .85 .03 2.07 .31 .20 .71
Income (loss) from discontinued operations
(net of income taxes)..................... 5,478 7,738 (37,833) 27,906 40,694 17,278 (4,037)
Net income (loss)........................... 17,115 46,307 (36,523) 130,398 56,388 27,391 32,058
Per share of common stock
Basic................................... .37 1.04 (.80) 2.74 1.16 .57 .65
Diluted................................. .36 1.02 (.77) 2.63 1.12 .55 .63
Dividends per share......................... .68 .68 .68 .68 .68 .34 .34
OTHER INFORMATION
Cash and short-term
investments............................... $ 50,605 $ 103,826 $ 121,145 $ 217,222 $ 84,091 $ 97,983 $ 75,479
Working capital............................. 171,068 256,607 229,639 354,742 287,991 304,723 330,015
Capital expenditures........................ 28,088 33,891 28,198 58,057 71,820 39,765 49,984
Total assets................................ 823,476 797,970 809,856 1,006,793 1,135,276 1,084,571 1,241,051
Long-term debt.............................. 61,500 64,524 33,694 59,152 33,726 57,479 35,548
Total debt.................................. 145,052 123,224 89,801 89,068 45,825 86,578 66,839
Shareholders' equity........................ 364,123 369,807 373,727 504,270 564,248 518,906 622,229
Book value per share........................ 8.04 8.17 7.90 10.43 11.44 10.70 12.38
8
PE BIOSYSTEMS GROUP SELECTED FINANCIAL INFORMATION
This summary of financial information of the PE Biosystems Group for the
fiscal years 1994 to 1998 and for the six months ended December 31, 1997 and
1998 should be read along with the audited and unaudited combined financial
statements contained in this proxy statement. Such information, other than for
fiscal years 1994 and 1995, was taken from these financial statements. The
combined financial statements for those fiscal year periods are audited. The
combined financial statements for those six month periods are unaudited and we
believe that they fairly present the financial position and results of
operations and cash flows of the PE Biosystems Group for those periods.
A number of items affect the comparability of this information. Pre-tax
amounts include:
- Restructuring and other merger costs of $15.5 million for fiscal 1995,
$17.5 million for fiscal 1996, $48.1 million for fiscal 1998 and $2.0
million for the six months ended December 31, 1998;
- Gains on investments of $20.8 million for fiscal 1995, $11.7 million for
fiscal 1996, $64.9 million for fiscal 1997 and $1.6 million for fiscal
1998;
- Acquired research and development charges of $31.8 million for fiscal
1996 and $28.9 million for fiscal 1998; and
- Charges for the impairment of assets of $9.9 million for fiscal 1996 and
$.7 million for fiscal 1997.
Historical per share information is omitted because PE Biosystems Stock was
not part of the capital structure for the periods presented. However, pro forma
earnings per share, reflecting PE Biosystems Stock issued under the
recapitalization proposal, is presented for fiscal 1998 and the six months ended
December 31, 1998.
[Enlarge/Download Table]
FOR THE SIX MONTHS
ENDED
FOR THE YEARS ENDED JUNE 30, DECEMBER 31,
(DOLLAR AMOUNTS IN THOUSANDS ----------------------------------------------------- --------------------
EXCEPT PER SHARE AMOUNTS) 1994 1995 1996 1997 1998 1997 1998
----------------------------------------------- --------- --------- --------- --------- --------- --------- ---------
(UNAUDITED)
FINANCIAL OPERATIONS
Net revenues................................... $ 447,935 $ 543,945 $ 642,059 $ 767,465 $ 940,095 $ 409,385 $ 547,431
Income from continuing operations.............. 11,637 38,569 3,899 132,739 24,009 12,381 49,093
Unaudited pro forma income per share from
continuing operations........................
Basic........................................ .49 .99
Diluted...................................... .48 .97
Income (loss) from discontinued operations (net
of income taxes)............................. 5,478 7,738 (37,833) 27,906 40,694 17,278 (4,037)
Net income (loss).............................. 17,115 46,307 (33,934) 160,645 64,703 29,659 45,056
Unaudited pro forma net income per share
Basic........................................ $ 1.33 $ .91
Diluted...................................... $ 1.29 $ .89
OTHER INFORMATION
Cash and short-term investments................ $ 50,605 $ 103,826 $ 121,145 $ 217,222 $ 84,091 $ 97,983 $ 75,479
Working capital................................ 171,068 256,607 226,414 355,163 289,151 304,796 15,410
Capital expenditures........................... 28,088 33,891 27,125 57,646 68,172 38,734 39,412
Total assets................................... 823,476 797,970 809,856 1,003,810 1,128,937 1,080,454 1,224,505
Long-term debt................................. 61,500 64,524 33,694 59,152 33,726 57,479 35,548
Note payable to the Celera Genomics Group...... -- -- -- -- -- -- 311,281
Total allocated debt........................... 145,052 123,224 89,801 89,068 45,825 86,578 66,839
Group equity................................... 364,123 369,807 373,116 507,734 565,507 521,320 297,951
9
CELERA GENOMICS GROUP SELECTED FINANCIAL INFORMATION
This summary of financial information of the Celera Genomics Group for the
1996, 1997 and 1998 fiscal years and for the six months ended December 31, 1997
and 1998 was taken from and should be read along with the audited and unaudited
combined financial statements contained in this proxy statement. There is no
selected financial information for fiscal 1994 and 1995 since the Celera
Genomics Group commenced business in fiscal 1996.
The combined financial statements for those fiscal year periods are audited.
The combined financial statements for those six month periods are unaudited and
we believe that they fairly present the financial position and results of
operations and cash flows of the Celera Genomics Group for those periods.
Results included acquired research and development charges of $2.1 million
for fiscal 1996 and $26.8 million for fiscal 1997 which affect the comparability
of the information presented for those periods.
Historical per share information is omitted from the Combined Statements of
Operations because Celera Genomics Stock was not part of the capital structure
for the periods presented. However, pro forma loss per share, reflecting Celera
Genomics Stock issued under the recapitalization proposal, is presented for
fiscal 1998 and the six months ended December 31, 1998.
[Enlarge/Download Table]
FOR THE SIX MONTHS
ENDED
FOR THE YEARS ENDED JUNE 30, DECEMBER 31,
------------------------------- --------------------
(DOLLAR AMOUNTS IN THOUSANDS EXCEPT PER SHARE
AMOUNTS) 1996 1997 1998 1997 1998
--------------------------------------------- --------- --------- --------- --------- ---------
(UNAUDITED)
FINANCIAL OPERATIONS
Net revenues................................. $ 159 $ 903 $ 4,211 $ 1,861 $ 5,631
Net loss..................................... (2,589) (30,247) (8,315) (2,268) (11,736)
Unaudited pro forma net loss per share
Basic...................................... $ (.34) $ (.47)
Diluted.................................... $ (.34) $ (.47)
OTHER INFORMATION
Cash and short-term investments.............. $ -- $ -- $ -- $ -- $ --
Working capital.............................. (340) (421) (1,160) (73) 309,059
Capital expenditures......................... 1,073 411 3,648 1,031 17,380
Total assets................................. 977 2,983 6,339 4,117 339,011
Long-term debt............................... -- -- -- -- --
Total debt................................... -- -- -- -- --
Group equity (deficit)....................... 611 (3,464) (1,259) (2,414) 325,540
10
RISK FACTORS
The risk factors included through page 19 discuss risks arising from a
capital structure with two separate classes of common stock. Beginning on page
19, we discuss risks which are specific to a particular group.
YOU WILL REMAIN STOCKHOLDERS OF ONE COMPANY: FINANCIAL EFFECTS ON ONE GROUP
COULD ADVERSELY AFFECT THE OTHER
Holders of PE Biosystems Stock and Celera Genomics Stock will be
stockholders of a single company. The PE Biosystems Group and the Celera
Genomics Group are not separate legal entities. As a result, stockholders will
continue to be subject to all of the risks of an investment in PE and all of our
businesses, assets and liabilities. The issuance of the PE Biosystems Stock and
the Celera Genomics Stock and the allocation of assets and liabilities and
stockholders' equity between the PE Biosystems Group and the Celera Genomics
Group will not result in a distribution or spin-off to stockholders of any of
our assets or liabilities and will not affect ownership of our assets or
responsibility for our liabilities or those of our subsidiaries. The assets we
attribute to one group could be subject to the liabilities of the other group,
whether such liabilities arise from lawsuits, contracts or indebtedness that we
attribute to the other group. If we are unable to satisfy one group's
liabilities out of the assets we attribute to it, we may be required to satisfy
those liabilities with assets we have attributed to the other group.
Financial effects from one group that affect our consolidated results of
operations or financial condition could, if significant, affect the results of
operations or financial condition of the other group and the market price of the
common stock relating to the other group. In addition, net losses of either
group and dividends or distributions on, or repurchases of, either class of
common stock or repurchases of certain preferred stock will reduce the funds we
can pay as dividends on each class of common stock under Delaware law. For these
reasons, you should read our consolidated financial information with the
financial information we provide for each group.
HOLDERS OF GROUP COMMON STOCK WILL HAVE LIMITED RIGHTS RELATED TO THEIR GROUP
Holders of PE Biosystems Stock and Celera Genomics Stock will have only the
rights customarily held by common stockholders. They will have only the
following rights related to their corresponding group:
- certain rights with regard to dividends and liquidation;
- requirements for a mandatory dividend, redemption or conversion upon the
disposition of all or substantially all of the assets of their
corresponding group; and
- a right to vote on matters as a separate voting class in the limited
circumstances provided under Delaware law, by stock exchange rules or as
determined by our board of directors.
We will not hold separate meetings for holders of PE Biosystems Stock and
Celera Genomics Stock.
LIMITS ON VOTING POWER
PE BIOSYSTEMS STOCK WILL INITIALLY CONTROL OUTCOME OF STOCKHOLDER VOTING
We expect that initially the PE Biosystems Stock will have a substantial
majority of the voting power of the common stock. Except in limited
circumstances requiring separate class voting, either class of common stock that
is entitled to more than the number of votes required to approve any stockholder
action could control the outcome of such vote--even if the matter involves a
divergence or conflict of the interests of the holders of the PE Biosystems
Stock and the Celera Genomics Stock. These matters may include mergers and other
extraordinary transactions.
11
GROUP COMMON STOCK WITH LESS THAN MAJORITY VOTING POWER CAN BLOCK ACTION IF
CLASS VOTE IS REQUIRED
If Delaware law, stock exchange rules or our board of directors requires a
separate vote on a matter by the holders of either the PE Biosystems Stock or
the Celera Genomics Stock, those holders could prevent approval of the
matter--even if the holders of a majority of the total number of votes cast or
entitled to be cast, voting together as a class, were to vote in favor of it.
VOTING POWER OF GROUP COMMON STOCK MAY DECREASE
Since the relative voting power per share of PE Biosystems Stock and Celera
Genomics Stock will fluctuate based on the market values of the two classes of
common stock, the relative voting power of a class of common stock could
decrease. As a result, holders of shares of only one of the two classes of
common stock cannot ensure that their voting power will be sufficient to protect
their interests.
LIMITED STOCKHOLDER REMEDIES FOR BREACH OF FIDUCIARY DUTIES
Stockholders may not have any remedies if any action or decision of our
directors or officers has a disadvantageous effect on the PE Biosystems Stock or
the Celera Genomics Stock compared to the other class of common stock. We are
not aware of any legal precedent under Delaware law involving the fiduciary
duties of directors and officers of corporations having two classes of common
stock, or separate classes or series of capital stock, the rights of which, like
the PE Biosystems Stock and Celera Genomics Stock, are defined by reference to
separate businesses of the corporation.
Principles of Delaware law established in cases involving differing
treatment of two classes of capital stock or two groups of holders of the same
class of capital stock provide that a board of directors owes an equal duty to
all stockholders regardless of class or series. Under these principles of
Delaware law and the related principle known as the "business judgment rule,"
absent abuse of discretion, a good faith business decision made by a
disinterested and adequately informed board of directors, board of directors'
committee or officer with respect to any matter having different effects on
holders of PE Biosystems Stock and holders of Celera Genomics Stock would be a
defense to any challenge to such determination made by or on behalf of the
holders of either class of common stock.
STOCK OWNERSHIP OF DIRECTORS AND OFFICERS COULD CREATE CONFLICTS OF INTEREST
Our directors and officers will initially own more shares, including shares
subject to stock options, of the Celera Genomics Group than the PE Biosystems
Group. As a policy, our board of directors will periodically monitor the
ownership of shares of PE Biosystems Stock and shares of Celera Genomics Stock
by our directors and senior officers and our option grants to them so that their
interests are generally aligned with the two classes of common stock and with
their duty to act in the best interests of our company and our stockholders as a
whole. However, because the actual value of their interests in the PE Biosystems
Stock and Celera Genomics Stock is anticipated to vary significantly, it is
possible that they could favor one group over the other due to their stock and
option holdings. See "Proposal 1--The Recapitalization Proposal--Management and
Allocation Policies--Common Stock Ownership of Directors and Senior Officers."
NUMEROUS POTENTIAL CONFLICTING INTERESTS BETWEEN CLASSES OF COMMON STOCK
The existence of separate classes of common stock could give rise to
occasions when the interests of the holders of PE Biosystems Stock or Celera
Genomics Stock diverge or conflict. Examples include determinations by our
directors or officers to:
- pay or omit the payment of dividends on PE Biosystems Stock or Celera
Genomics Stock;
- allocate consideration to be received by holders of each of the classes
of common stock in connection with a merger or consolidation involving
PE:
12
- convert one class of common stock into shares of the other;
- approve certain dispositions of the assets of either group;
- allocate the proceeds of future issuances of Celera Genomics Stock either
to the Celera Genomics Group or the PE Biosystems Group, to the extent
the PE Biosystems Group has an equity interest in the Celera Genomics
Group;
- allocate corporate opportunities between the groups;
- permit or prevent indirect competition between the groups; or
- make other operational and financial decisions with respect to one group
that could be considered detrimental to the other group.
When making decisions with regard to matters that create potential diverging
or conflicting interests, our directors and officers will act in accordance with
their fiduciary duties, the terms of the new certificate of incorporation, and,
to the extent applicable, the management and allocation policies described in
"Proposal 1--The Recapitalization Proposal--Management and Allocation Policies."
Each of the potential conflicts of interest listed above is discussed below.
NO ASSURANCE OF PAYMENT OF DIVIDENDS
Subject to the limitations referred to below, our board of directors has the
authority to declare and pay dividends on the PE Biosystems Stock and the Celera
Genomics Stock in any amount and could, in its sole discretion, declare and pay
dividends exclusively on the PE Biosystems Stock, exclusively on the Celera
Genomics Stock, or on both, in equal or unequal amounts. Our board of directors
will not be required to consider the amount of dividends previously declared on
each class, the respective voting or liquidation rights of each class or any
other factor.
In addition, Delaware law and the new certificate of incorporation impose
limitations on the amount of dividends which may be paid on each class of common
stock. Any net losses of either group, dividends and distributions on either
class of common stock or our preferred stock, and any repurchases of PE
Biosystems Stock, Celera Genomics Stock or certain preferred stock, will reduce
the amount of the future dividends which may be paid under these limitations.
See "Proposal 1--The Recapitalization Proposal--Dividend Policy" and
"--Description of PE Biosystems Stock and Celera Genomics Stock--Dividends."
PROCEEDS OF MERGERS OR CONSOLIDATIONS MAY BE ALLOCATED UNFAVORABLY
The recapitalization proposal does not contain any provisions governing how
consideration to be received by holders of common stock in connection with a
merger or consolidation involving our company is to be allocated among holders
of each class of common stock. Our board of directors will determine the
percentage of the consideration to be allocated to holders of each class of
common stock in any such transaction. Such percentage may be materially more or
less than that which might have been allocated to such holders had our board of
directors chosen a different method of allocation.
HOLDERS OF EITHER CLASS OF COMMON STOCK MAY BE ADVERSELY AFFECTED BY A
CONVERSION OF GROUP COMMON STOCK
Our board of directors could, in its sole discretion and without stockholder
approval, determine to convert shares of Celera Genomics Stock into shares of PE
Biosystems Stock, or vice versa, at a 10% premium and, if there are adverse U.S.
federal income tax law developments, without any premium. In addition, our board
of directors could, if all or substantially all of the assets of a group are
sold, determine to convert the common stock relating to that group at a 10%
premium. We could make such determination at a time when either or both classes
of common stock may be considered to be overvalued or undervalued. Any such
conversion would dilute the interests in PE of the holders of the class of
common stock being issued in the conversion.
13
Any such conversion would also preclude holders of both classes of common
stock from retaining their investment in a security that is intended to reflect
separately the performance of the relevant group. It would also give holders of
shares of the class of common stock converted a greater or lesser premium than
any premium that was paid or might be paid by a third-party buyer of all or
substantially all of the assets of the group whose stock is converted.
We cannot predict the impact on the market prices of the PE Biosystems Stock
or the Celera Genomics Stock of our ability to convert one class of common stock
or the effect that the exercise by us of our conversion right would have on the
market price of the PE Biosystems Stock or Celera Genomics Stock at the time we
announce it.
In determining whether to convert one class of common stock into the other
class, our board of directors will act in accordance with its good faith
business judgment that the conversion is in the best interests of our company
and all of our stockholders as a whole. See "Proposal 1--The Recapitalization
Proposal--Description of PE Biosystems Stock and Celera Genomics
Stock--Conversion and Redemption."
PROCEEDS OF NEWLY ISSUED CELERA GENOMICS STOCK COULD BE ALLOCATED TO EITHER
GROUP
If and to the extent the PE Biosystems Group has an equity interest in the
Celera Genomics Group in the form of "Celera Genomics Designated Shares" at the
time of any sale of Celera Genomics Stock, our board of directors could allocate
all of the proceeds of that sale to either the PE Biosystems Group or the Celera
Genomics Group or between the groups. Any such decision could favor one group
over the other group. For example, the decision to obtain funds for one group
may adversely affect the other group's ability to obtain funds to finance its
growth strategies. See "Proposal 1-- The Recapitalization Proposal--Celera
Genomics Designated Shares."
ALLOCATION OF CORPORATE OPPORTUNITIES COULD FAVOR ONE GROUP OVER THE OTHER
Our board of directors may be required to allocate corporate opportunities
between the groups. In some cases, our directors could determine that a
corporate opportunity, such as a business that we are acquiring, should be
shared by the groups. Any such decisions could favor one group at the expense of
the other. Our board of directors will make these decisions in its good faith
business judgment that such allocation is in the best interests of PE and all of
our stockholders as a whole. See "Proposal 1-- The Recapitalization
Proposal--Management and Allocation Policies--Review of Corporate
Opportunities."
COMPETITION BETWEEN GROUPS
Our board of directors has adopted a policy that neither the PE Biosystems
Group nor the Celera Genomics Group will engage in the principal businesses of
the other, except for certain joint transactions with each other and third
parties. However, with the approval of our Chief Executive Officer or, in
appropriate circumstances, our board of directors, the groups may engage in
indirect competition in their principal businesses from time to time. This
competition could involve, for example:
- the Celera Genomics Group selling its products to a third party for use
in the third party's products which compete with the PE Biosystems
Group's products;
- the PE Biosystems Group's inclusion of a third party's products, rather
than the Celera Genomics Group's products, in the PE Biosystems Group's
products; or
- a group licensing technology to a third party that is a competitor of the
other group.
Our Chief Executive Officer or our board of directors will permit indirect
competition between the groups based on his or its good faith business judgment
that such competition is in the best interests of PE and all of our stockholders
as a whole. In addition, the groups
14
may compete in a business that is not a principal business of the other group.
See "The Recapitalization Proposal--Management and Allocation
Policies--Competition Between Groups."
OTHER OPERATIONAL AND FINANCIAL DECISIONS WHICH MAY FAVOR ONE GROUP OVER THE
OTHER
Our board of directors or our senior officers will review other operational
and financial matters affecting the PE Biosystems Group and the Celera Genomics
Group, including the allocation of financing resources and capital, technology
and know-how and corporate overhead, taxes, debt, interest and other matters.
Any decision of our board of directors or our senior officers in these matters
could favor one group at the expense of the other. All such decisions will be
made in their good faith business judgment and in accordance with procedures and
policies adopted by our board of directors from time to time. For further
discussion of potential divergences or conflicts of interests, see "--Limited
Stockholder Remedies For Breach of Fiduciary Duties," "--Funds May Be
Transferred Between Groups and Accounted For in a Number of Ways," "--Potential
Costs and Detriments Relating to Ways of Allocating Debt and Preferred Stock,"
and "Proposal 1-- The Recapitalization Proposal--Management and Allocation
Policies."
MANAGEMENT AND ALLOCATION POLICIES SUBJECT TO CHANGE WITHOUT STOCKHOLDER
APPROVAL
Our board of directors may modify or rescind our policies with respect to
the allocation of corporate overhead, taxes, debt, interest and other matters,
or may adopt additional policies, in its sole discretion without stockholder
approval. However, our board of directors has no present intention to do so. A
decision to modify or rescind these policies, or adopt additional policies could
have different effects on holders of PE Biosystems Stock and holders of Celera
Genomics Stock or could result in a benefit or detriment to one class of
stockholders compared to the other class. Our board of directors will make any
such decision in accordance with its good faith business judgment that the
decision is in the best interests of our company and all of our stockholders as
a whole.
FUNDS MAY BE TRANSFERRED BETWEEN GROUPS AND ACCOUNTED FOR IN A NUMBER OF WAYS
We anticipate that we will transfer cash and other property between groups
to finance their business activities. We will account for those transfers in one
of the following ways:
- as a reallocation of pooled debt or preferred stock;
- as a short-term or long-term loan between groups or as a repayment of a
previous borrowing;
- as an increase or decrease in the PE Biosystems Group's equity interest
in the Celera Genomics Group; or
- as a sale of assets between groups.
Our board of directors has not adopted specific criteria for determining
when we will transfer cash or other property as a loan or repayment, an increase
or decrease in equity interest or a sale of assets. Our board of directors
expects to make these determinations, either in specific instances or by setting
generally applicable policies, after considering the financing requirements and
objectives of the receiving group, the investment objectives of the transferring
group and the availability, cost and time associated with alternative financing
sources, prevailing interest rates and general economic conditions. See
"Proposal 1--The Recapitalization Proposal--Management and Allocation
Policies--Financing Activities."
POTENTIAL COSTS AND DETRIMENTS RELATING TO WAYS OF ALLOCATING DEBT AND PREFERRED
STOCK
We will allocate a portion of our pooled debt and preferred stock to each
group, and we will charge the related interest or dividend expense to each
group, based on the weighted average interest or dividend rate of this debt or
preferred stock, calculated on a quarterly basis. Changes in the amount and the
weighted average interest rate of our pooled debt will increase or decrease the
interest expense charged to each group for its debt. In addition,
15
each group will receive a "benefit" to the extent the weighted average cost is
lower, or a "detriment" to the extent the weighted average cost is higher, than
the market rate for a hypothetical borrowing by such group if such group were a
stand-alone corporation. At December 31, 1998, the total debt of our Company
allocated to the PE Biosystems Group was $66.8 million and the Celera Genomics
Group had no debt.
We may also allocate debt and preferred stock in its entirety to a
particular group in circumstances that our board of directors determines. When
we do so, that debt will bear interest at a rate that we determine. If we
allocate preferred stock in its entirety to one group, we will charge the
dividend cost in a similar manner. If the interest or dividend cost is higher
than actual cost, the other group will receive a credit for an amount equal to
the difference as compensation for use of our credit capacity.
If we decide a transfer of cash or other property from one group to another
should be accounted for as a loan, we will decide the terms of such loan,
including interest rate, payment maturity and payment schedule and redemption
and prepayment terms. The group receiving the funds would receive a "benefit" to
the extent the rate determined is lower, or a "detriment" to the extent the rate
we determine is higher, than the market rate that the receiving group would
incur for a hypothetical borrowing for that purpose if it were a stand-alone
corporation.
We cannot assure you that any terms that we fix for debt we allocate
entirely to one group or for inter-group loans will approximate those that could
have been obtained by the borrowing group if it were a stand-alone corporation.
EQUITY CONTRIBUTIONS TO BE REFLECTED AS AN INCREASE IN CELERA GENOMICS
DESIGNATED SHARES
We will determine the number of Celera Genomics Designated Shares resulting
from a future equity contribution by the PE Biosystems Group to the Celera
Genomics Group or any repurchase by the Celera Genomics Group of Celera Genomics
Designated Shares using the average market value of the Celera Genomics Stock
during a 20-day period prior to the transfer of cash or other property between
the groups. We could decide to make such a transfer at a time when the Celera
Genomics Stock may be considered to be overvalued or undervalued. See "Proposal
1--The Recapitalization Proposal--Celera Genomics Designated Shares."
PE BIOSYSTEMS GROUP MAY USE TAX BENEFITS GENERATED BY THE CELERA GENOMICS GROUP
Our management and allocation policies provide that tax benefits generated
but not used by the Celera Genomics Group may be used by the PE Biosystems
Group. The aggregate amount reimbursed to the Celera Genomics Group for such use
may not exceed $75 million. All subsequent tax benefits in excess of this amount
will not be credited to the Celera Genomics Group and the Celera Genomics Group
will not be reimbursed for those tax benefits, unless the Celera Genomics Group
can use those tax benefits. Accordingly, any tax benefits that can not be used
by the Celera Genomics Group will not be carried forward to reduce its future
taxes. This could result in the Celera Genomics Group being charged a greater
portion of the total corporate tax liability and reporting lower net income
after taxes in the future than would have been the case if the Celera Genomics
Group had retained its tax benefits.
LIMITS ON CONSIDERATION TO BE RECEIVED UPON DISPOSITION OF ASSETS OF A GROUP
The new certificate of incorporation provides that if a disposition of all
or substantially all of the assets of either group occurs, we must, subject to
certain exceptions:
- distribute to holders of the class of common stock relating to such group
an amount equal to the net proceeds of such disposition, or
- convert at a 10% premium such common stock into shares of the class of
common stock relating to the other group.
16
If the group subject to the disposition were a separate, independent company and
its shares were acquired by another person, certain costs of that disposition,
including corporate level taxes, might not be payable in connection with that
acquisition. As a result, stockholders of the separate, independent company
might receive a greater amount than the net proceeds that would be received by
holders of the class of common stock relating to that group if the assets of
such group were sold. In addition, we can not assure you that the net proceeds
per share of the common stock relating to that group will be equal to or more
than the market value per share of such common stock prior to or after
announcement of a disposition. See "Proposal 1--The Recapitalization
Proposal--Description of PE Biosystems Stock and Celera Genomics
Stock--Conversion and Redemption--Mandatory Dividend, Redemption or Conversion
of Common Stock If Disposition of Group Assets Occurs."
EFFECTS OF OUR CAPITAL STRUCTURE AND VARIABLE VOTE PER SHARE ON POTENTIAL
ACQUISITIONS OF A GROUP OR A CLASS OF COMMON STOCK
A potential acquiror could acquire control of PE by acquiring shares of
common stock having a majority of the voting power of all shares of common stock
outstanding. Such a majority could be obtained by acquiring a sufficient number
of shares of both classes of common stock or, if one class of common stock has a
majority of such voting power, only shares of that class. We expect that
initially the PE Biosystems Stock will have a substantial majority of the voting
power. As a result, initially, it might be possible for an acquiror to obtain
control of our company by purchasing only shares of PE Biosystems Stock. See
"Proposal 1--The Recapitalization Proposal-- Description of PE Biosystems Stock
and Celera Genomics Stock--Voting Rights."
DECISIONS BY DIRECTORS AND OFFICERS THAT AFFECT MARKET VALUES COULD AFFECT
STOCKHOLDER RIGHTS
The relative voting power per share of the PE Biosystems Stock and the
Celera Genomics Stock and the number of shares of one class of common stock
issuable upon the conversion of the other class of common stock will vary
depending upon the relative market values of the PE Biosystems Stock and the
Celera Genomics Stock. The market value of either or both classes of common
stock could be affected by market reaction to decisions by our board of
directors or our management that investors perceive to affect differently one
class of common stock compared to the other. These decisions could involve
changes to our management and allocation policies, transfers of assets between
groups, allocations of corporate opportunities and financing resources between
groups and changes in dividend policies.
MARKET VALUE OF PE BIOSYSTEMS STOCK AND CELERA GENOMICS STOCK RECEIVED IN THE
RECAPITALIZATION MAY NOT EQUAL OR EXCEED MARKET VALUE OF EXISTING COMMON STOCK
We can not assure you that the combined market values of a share of PE
Biosystems Stock and the .5 of a share of Celera Genomics Stock received in the
recapitalization will equal or exceed the market value of a share of our
existing common stock prior to the recapitalization.
INVESTORS MAY NOT VALUE COMMON STOCK BASED ON GROUP FINANCIAL INFORMATION AND
POLICIES
We can not assure you that investors will value the PE Biosystems Stock and
the Celera Genomics Stock based on the reported financial results and prospects
of the separate groups or the dividend policies established by our board of
directors with respect to such groups.
ADVERSE EFFECT ON MARKET PRICE OF COMMON STOCK NOT INCLUDED IN STOCK MARKET
INDICES
We do not anticipate that the Celera Genomics Stock initially will be
included in any stock market index. As a result, holders of a substantial number
of shares of our existing common stock that are required to own only stocks
included in such an index will be required to sell immediately the Celera
Genomics Stock received by them in the recapitalization. Further, we can not
assure you that the PE Biosystems Stock will continue to be included in any
particular index. Not being included in a
17
particular index in the case of the PE Biosystems Stock or any index in the case
of the Celera Genomics Stock could adversely affect the market price of that
class of common stock.
PROVISIONS WHICH COULD HAVE ANTI-TAKEOVER EFFECTS
Our stockholder rights plan and the existence of the two classes of common
stock could, under certain circumstances, prevent stockholders from profiting
from an increase in the market value of their shares as a result of a change in
control of PE by delaying or preventing such change in control. Rights under our
rights plan to purchase stock will cause substantial dilution to a person or
group that attempts to acquire PE on terms not approved by our board of
directors and, therefore, deter hostile takeover attempts. In addition, the
existence of two classes of common stock could present complexities and could,
in certain circumstances, pose obstacles, financial and otherwise, to an
acquiring person. See
"-- Effects of Our Capital Structure and Variable Vote Per Share on Potential
Acquisitions of a Group or Class of Common Stock." We could, in the sole
discretion of our board of directors and without stockholder approval, exercise
the right to convert the shares of one class of common stock into shares of the
other at a 10% premium over their respective average market values. This
conversion could result in additional dilution to persons seeking control of PE.
Although our board of directors has no present intention of doing so, it
could issue shares of preferred stock or common stock that could be used to
create voting or other impediments or to discourage persons seeking to gain
control of PE and could also be privately placed with purchasers favorable to
our board of directors in opposing such action. In addition, certain provisions
of the Delaware law, the new certificate of incorporation and the new by-laws
may also deter hostile takeover attempts. See "Proposal 1--The Recapitalization
Proposal-- Rights Agreement" and "--Certain Anti-Takeover Provisions of Delaware
Law and the New Certificate of Incorporation, the New By-laws and Rights
Agreement."
LACK OF LEGAL PRECEDENT REGARDING THE TAX TREATMENT OF THE COMMON STOCK
We have been advised by our counsel that no income, gain or loss will be
recognized by you for federal income tax purposes as a result of the
recapitalization proposal, except for any cash received instead of fractional
shares of Celera Genomics Stock. However, there are no court decisions or other
authorities bearing directly on the effect of the features of the PE Biosystems
Stock and the Celera Genomics Stock. In addition, the Internal Revenue Service
has announced that it will not issue rulings on the characterization of stock
with characteristics similar to the PE Biosystems Stock and the Celera Genomics
Stock. It is possible, therefore, that the Internal Revenue Service could assert
that the receipt of the PE Biosystems Stock or the Celera Genomics Stock as well
as the subsequent exchange of such common stock could be taxable to you and to
us.
RECENT CLINTON ADMINISTRATION PROPOSAL COULD RESULT IN TAXATION OF ISSUANCES OF
COMMON STOCK
A recent proposal by the Clinton Administration would impose a corporate
level tax on the issuance of stock similar to the PE Biosystems Stock or the
Celera Genomics Stock. If this proposal is enacted, we could be subject to tax
on an issuance of PE Biosystems Stock or Celera Genomics Stock after the date of
enactment. If our shareholders approve the recapitalization proposal, our board
of directors currently intends to implement the recapitalization, subject to
further legislative developments relating to the Clinton Administration tax
proposal.
Under the new certificate of incorporation, we may convert the PE Biosystems
Stock or the Celera Genomics Stock into shares of the other class without any
premium if there are adverse federal income tax law developments. The proposal
of the Clinton Administration would be such an adverse development if it is
implemented or receives certain legislative action. See "Proposal 1--The
Recapitalization Proposal--Description of PE Biosystems Stock and Celera
Genomics Stock--Conversion and
18
Redemption--Conversion of Common Stock at Our Option at Any Time" and "--United
States Federal Income Tax Considerations."
FACTORS RELATING TO THE PE BIOSYSTEMS GROUP
FUTURE SUCCESS DEPENDENT ON ABILITY TO IMPROVE EXISTING PRODUCTS AND DEVELOP
NEW PRODUCTS
A significant portion of the net revenues for the PE Biosystems Group each
year is derived from products that did not exist in the prior year. The PE
Biosystems Group's future success will depend on its ability to continually
improve its current products and to develop and introduce, on a timely and
cost-effective basis, new products that address the evolving needs of its
customers. The PE Biosystems Group's products are based on complex technology
which is subject to rapid change as new technologies are developed and
introduced in the marketplace. Unanticipated difficulties or delays in replacing
existing products with new products could adversely affect the PE Biosystems
Group's future operating results.
SALES DEPENDENT ON CUSTOMERS' CAPITAL SPENDING POLICIES AND GOVERNMENT
SPONSORED RESEARCH
A significant portion of the PE Biosystems Group's instrument products are
capital purchases for its customers. The PE Biosystems Group's customers include
pharmaceutical, environmental, research and chemical companies, and the capital
spending policies of these companies can have a significant effect on the demand
for the PE Biosystems Group's products. These policies are based on a wide
variety of factors, including the resources available to make purchases, the
spending priorities among various types of research equipment and policies
regarding capital expenditures during recessionary periods. Any decrease in
capital spending or change in spending policies of these companies could
significantly reduce the demand for the PE Biosystems Group's products.
In addition, a substantial portion of the PE Biosystems Group's sales are to
customers at universities or research laboratories whose funding is dependent on
both the level and timing of funding from government sources. As a result, the
timing and amount of revenues from these sources may vary significantly due to
factors that can be difficult to forecast. Although research funding has
increased during the past several years, grants have, in the past, been frozen
for extended periods or otherwise become unavailable to various institutions,
sometimes without advance notice. Budgetary pressures, particularly in the
United States and Japan, may result in reduced allocations to government
agencies that fund research and development activities. If government funding
necessary to purchase the PE Biosystems Group's products were to become
unavailable to researchers for any extended period of time or if overall
research funding were to decrease, the business of the PE Biosystems Group could
be adversely affected.
RISK OF CLAIMS FOR PATENT INFRINGEMENT
The PE Biosystems Group's products are based on complex, rapidly-developing
technologies. These products could be developed without knowledge of previously
filed but unpublished patent applications that cover some aspect of these
technologies. In addition, there are relatively few decided court cases
interpreting the scope of patent claims in these technologies. The PE Biosystems
Group could be made a party to litigation regarding intellectual property
matters in the future. The PE Biosystems Group has from time to time been
notified that it may be infringing certain patents and other intellectual
property rights of others. It may be necessary or desirable in the future to
obtain licenses relating to one or more products or relating to current or
future technologies, and we cannot assure you that the PE Biosystems Group will
be able to obtain these licenses or other rights on commercially reasonable
terms.
DEPENDENCE ON FOREIGN SALES, RISKS OF FLUCTUATING CURRENCIES AND DOING
BUSINESS IN FOREIGN COUNTRIES
Approximately 51% of the PE Biosystems Group's net revenues during the six
months ended December 31, 1998 were derived from sales to customers outside of
the United States.
19
The majority of these sales were based on the relevant customer's local
currency. As a result, the PE Biosystems Group's reported and anticipated
operating results and cash flows are subject to fluctuations due to material
changes in foreign currency exchange rates that are beyond the PE Biosystems
Group's control.
International sales and operations may also be adversely affected by many
factors, including the imposition of governmental controls, export license
requirements, restrictions on the export of critical technology, political and
economic instability, trade restrictions, changes in tariffs and taxes,
difficulties in staffing and managing international operations and general
economic conditions.
DEPENDENCE ON ACQUIRED TECHNOLOGIES FOR GROWTH
The future growth of the PE Biosystems Group depends in part on its ability
to acquire complementary technologies through acquisitions and investments.
Since January 1, 1996, the PE Biosystems Group has acquired a number of
companies, including PerSeptive Biosystems, Inc., Molecular Informatics, Inc.
and Tropix, Inc., and made investments in others. The consolidation of
employees, operations and marketing and distribution methods presents
significant managerial challenges. For example, the PE Biosystems Group may
encounter operational difficulties in the integration of manufacturing or other
facilities. In addition, technological advances resulting from the integration
of technologies may not be achieved as successfully or rapidly as anticipated,
if at all.
UNCERTAINTY OF SUCCESS OF YEAR 2000 COMPLIANCE PLAN
In fiscal 1997, we initiated a world-wide program to assess the expected
impact of the Year 2000 date recognition problem on our existing computer
systems; non-information technology systems, including embedded and
process-control systems; product offerings; and significant suppliers. Portions
of this program are not expected to be completed before December 31, 1999. If we
are not successful in implementing our Year 2000 compliance plan, or there are
delays in and/or increased costs associated with implementing those changes, the
Year 2000 problem could have a material adverse effect on the PE Biosystems
Group's results of operations and financial condition. In addition, we have not
fully determined the likely impact of third parties' compliance efforts on the
PE Biosystems Group's interface systems and business.
EARTHQUAKES COULD DISRUPT OPERATIONS IN CALIFORNIA
A significant portion of the PE Biosystems Group's operations is located
near major California earthquake faults. The ultimate impact of earthquakes on
the PE Biosystems Group, significant suppliers and the general infrastructure is
unknown, but operating results could be materially affected in the event of a
major earthquake.
FACTORS RELATING TO THE CELERA GENOMICS GROUP
EARLY STAGE OF OPERATIONS
The Celera Genomics Group plans to begin sequencing the DROSOPHILA (fruit
fly) genome in early 1999 and does not expect its sequencing operations to reach
projected operational levels until Spring 1999, when it expects to begin
sequencing the human genome. As a new business, the Celera Genomics Group faces
significant challenges in simultaneously launching and integrating its
operations, pursuing key scientific goals and attracting customers for its
information products and services.
NO PRECEDENT FOR CELERA GENOMICS'
BUSINESS PLAN
No organization has ever attempted to combine in one business organization
all of the Celera Genomics Group's businesses. The creation of a genomics
database targeted at a wide variety of customers, from pharmaceutical companies
to university researchers, has a number of risks, including pricing and volume
issues, technology and access concerns, computer security, pursuit of key
scientific goals and protection of intellectual property. As a result, the
creation of a business that includes all of the Celera Genomics Group's
businesses has unique risks.
20
NEED TO MANAGE RAPID GROWTH
The Celera Genomics Group expects to grow significantly, from approximately
220 employees at December 31, 1998 to over 370 in April 1999. This growth will
require substantial effort to hire new employees and train and integrate them in
the Celera Genomics Group's business and to develop and implement management
information systems, financial controls and facility plans. In addition, the
Celera Genomics Group will be required to create a sales and marketing
organization and develop customer support resources as sales of its information
products increase. The Celera Genomics Group's inability to manage growth
effectively would have a material adverse effect on its future operating
results.
UNCERTAINTY OF SUCCESSFUL INTEGRATION
OF GENSCOPE AND AGGEN
The success of the Celera Genomics Group depends in part on its ability to
integrate the businesses of GenScope and AgGen, which were previously operated
by the PE Biosystems Group. In particular, we believe that coordinating the
separate scientific research efforts will be a challenge to the Celera Genomics
Group. In addition, integrating the operations of geographically distant
facilities may lead to unexpected disruptions and costs.
UNCERTAINTY OF SEQUENCING STRATEGY
Some genomic scientists have criticized the Celera Genomics Group's
sequencing strategy, known as "whole genome shotgun sequencing," as having
limitations when applied on a large scale in sequencing the human genome. Others
have stated that the human genome cannot be sequenced using whole genome shotgun
sequencing. Although scientists at The Institute for Genomic Research have used
the whole genome shotgun strategy to sequence the genomes of other organisms,
the strategy has not been used to sequence a genome with the size and complexity
of the human genome. Failure to sequence or assemble the human genome in a
timely manner may have a material adverse effect on the Celera Genomics Group's
ability to satisfy customer requirements and achieve its business goals.
UNCERTAINTY OF SUCCESSFUL OPERATION OF NEW SEQUENCERS
The Celera Genomics Group's success is heavily dependent on the successful
operation of the PE Biosystems Group's new DNA sequencer. The Celera Genomics
Group plans to use more than 200 of the new DNA sequencers on a full-time basis,
a scale of operation never before attempted. Failure of the DNA sequencers to
perform at expected levels, or failure of the Celera Genomics Group to integrate
successfully its DNA sequencers in its laboratory, would materially adversely
affect the Celera Genomics Group's ability to sequence at the rate required to
complete the human genome on a timely basis, to achieve milestones in contracts
with customers and to perform research services effectively.
UNCERTAINTY OF SEQUENCING OPERATIONS
The successful operation of the sequencing facility at the levels required
for successful business operations will also be dependent on the integration of
materials, technology and operations necessary to support sequencing at the rate
and levels expected. Sequencing requires a significant amount of laboratory
preparation, organization and training of personnel, integration of technology
and proper maintenance of the equipment. In addition, sequencing requires that
adequate quantities of materials are available on a timely basis. The Celera
Genomics Group depends on the PE Biosystems Group for several critical materials
required for sequencing. For certain of these materials, the PE Biosystems Group
is the sole supplier, and for other materials the Celera Genomics Group believes
that the PE Biosystems Group provides the highest quality materials available.
Any interruption in the availability of materials could adversely affect and, in
some cases, shut down sequencing operations.
21
UNCERTAINTY OF VALUE OF POLYMORPHISM
DATA
The Celera Genomics Group believes that the polymorphisms it discovers will
add considerable value to its integrated information system. Polymorphism data
reveals information about genetic variability between individuals. Its use in
the testing of new drugs and the diagnosis of disease, however, is largely
untested. Although there has been some early success in linking certain
polymorphisms to susceptibility to disease and outcomes of drug therapy,
pharmaceutical companies are not yet certain how polymorphism data can be used,
or if it can be used on a cost-effective basis, in clinical trials or in drug
development. Furthermore, public acceptance of the use of polymorphism data is
uncertain. Current and future patient privacy and health care laws and
regulations issued by the U.S. Food and Drug Administration may also limit the
use of this data.
The ability of the Celera Genomics Group to protect its intellectual
property rights will affect its polymorphism program. Such protection is
uncertain due to the uncertainty of patent law relating to genomics in general
and the novelty of this particular aspect of genomics. In addition, the Celera
Genomics Group will be dependent on new technology, including technology
provided by the PE Biosystems Group, to make the use of polymorphism information
cost-effective so as to make it marketable to the public. This technology is
still in early stages of development and its application to this area remains
uncertain.
INITIAL RELIANCE ON PHARMACEUTICAL INDUSTRY
The Celera Genomics Group believes that for the next few years it will
derive a significant portion of its revenues from fees paid by pharmaceutical
companies and larger biotechnology companies for its information products and
services. The Celera Genomics Group has also had preliminary discussions with
certain universities and similar research organizations about becoming
customers, but expects this market to develop at a slower rate. The number of
subscribers for the Celera Genomics Group's products during this period may be
limited due to their nature and price. Pharmaceutical and biotechnology
companies could decide not to subscribe to some or all of the Celera Genomics
Group's information products or services, or could decide to conduct their own
polymorphism discovery and analysis or work with the Celera Genomics Group's
competitors. There have been published reports of a proposed consortium of
pharmaceutical companies to create and make public polymorphism information.
ANTICIPATED FUTURE LOSSES; UNCERTAINTY
OF OPERATING RESULTS
The Celera Genomics Group has earned small amounts of revenues to date and
expects that it will continue to incur net operating losses at least through
2001. The Celera Genomics Group has a small number of customers, the revenues
from which will offset only a small portion of its expenses. In order to meet
its business plan, the Celera Genomics Group will require additional customers
in the next few years. In addition, even if the Celera Genomics Group is able to
enter into contracts with additional customers, those contracts may be subject
to milestones that may not be achieved. As a result, there is a high degree of
uncertainty that the Celera Genomics Group will be able to achieve profitable
operations.
HIGHLY DEPENDENT ON KEY EMPLOYEES
The Celera Genomics Group is highly dependent on the principal members of
its scientific and management staff, particularly Dr. Venter, its President. For
the sequencing and assembly of the human genome, the Celera Genomics Group
believes the following members of its staff are essential: Dr. Venter; Dr. Mark
Adams, Vice President for Genome Programs; and Drs. Eugene Myers and Granger
Sutton, who are responsible for assembling the genome. Additional members of its
medical, scientific and bioinformatics staff are important to the development of
information, tools and services required for implementation of its business
plan, including Dr. Sam Broder, Executive Vice President and Chief Medical
Officer.
22
The Celera Genomics Group does not have employment agreements or non-compete
agreements with any of its employees. It also does not maintain key man life
insurance on any of them. The loss of any of these persons could have a material
adverse effect on the Celera Genomics Group's ability to achieve its goals,
particularly the completion of its information products.
Product development and commercialization will require additional employees
in such areas as software and bioinformatics development and customer support.
The inability to acquire such services or develop such expertise could have a
material adverse effect on the Celera Genomics Group.
UNCERTAIN PROTECTION OF INTELLECTUAL
PROPERTY AND PROPRIETARY RIGHTS
The Celera Genomics Group's ability to compete and to achieve profitability
may be affected by its ability to protect its proprietary technology and
intellectual property. While Celera Genomics will be primarily dependent on
revenues from access fees to its discovery and information system, obtaining
patent protection may also be important to its business. Patent law affecting
Celera Genomics' business, particularly gene sequences and polymorphisms, is
uncertain.
Moreover, the Celera Genomics Group may be dependent on protecting, through
copyright law or otherwise, its databases to prevent other organizations from
taking information from databases and copying and reselling it. Copyright law
currently provides uncertain protection to organizations like the Celera
Genomics Group that seek to prevent others from reselling their data. Changes in
copyright and patent law could expand or reduce the extent to which the Celera
Genomics Group and its customers are able to protect their intellectual
property.
ADVERSE EFFECT OF PUBLIC DISCLOSURE OF
GENOMIC SEQUENCE DATA
The Celera Genomics Group has committed to make available to the public
basic human sequence data. The release of sequence data could undermine the
ability of the Celera Genomics Group and its customers to obtain intellectual
property protection. Customers may conclude that uncertainties of such
protection decrease the value of the Celera Genomics Group's information
products and services and, as a result, it may not be able to charge fees
sufficient to allow it to achieve profitability.
HIGHLY COMPETITIVE BUSINESS
A number of companies, institutions and government-financed entities are
engaged in various genomics initiatives. At least two other companies, Genset,
S.A. and Incyte Pharmaceuticals, Inc., have announced their intention to market
to the pharmaceutical industry products and services similar to those being
offered by the Celera Genomics Group. Additional competitors may attempt to
compete with the Celera Genomics Group in the future, including companies that
may seek to resell publicly available genomic data. In addition, there have been
published reports of a proposed consortium of pharmaceutical companies to create
and make public polymorphism information.
UNCERTAINTY OF SUCCESS OF YEAR 2000 COMPLIANCE PLAN
In fiscal 1997, we initiated a world-wide program to assess the expected
impact of the Year 2000 date recognition problem on our existing computer
systems; non-information technology systems, including embedded and
process-control systems; product offerings; and significant suppliers. Portions
of this program are not expected to be completed before December 31, 1999. If we
are not successful in implementing our Year 2000 compliance plan, or there are
delays in and/or increased costs associated with implementing those changes, the
Year 2000 problem could have a material adverse effect on the Celera Genomics
Group's results of operations and financial condition. In addition, we have not
fully determined the likely impact of third parties' compliance efforts on the
Celera Genomics Group's interface systems and business.
23
SPECIAL NOTE REGARDING
FORWARD-LOOKING STATEMENTS
Many of the statements under the captions "Proxy Statement Summary--The
Recapitalization Proposal," "Risk Factors," "PE Biosystems Group--Management's
Discussion and Analysis," "Celera Genomics Group--Business" and "Celera Genomics
Group--Management's Discussion and Analysis" are forward looking. These may be
identified by the use of forward-looking words or phrases such as "believe,"
"expect," "anticipate," "should," "planned," "estimated" and "potential," among
others. These forward-looking statements are based on our current expectations.
The Private Securities Litigation Reform Act of 1995 provides a "safe harbor"
for such forward-looking statements.
In order to comply with the terms of the safe harbor, we note that a variety
of factors that we discuss in detail under "Risk Factors" could cause our actual
results and experience to differ materially from the anticipated results or
other expectations expressed in such forward-looking statements.
DOCUMENTS INCORPORATED BY REFERENCE
We file annual, quarterly and special reports, proxy statements and other
information with the SEC. Our SEC filings are available to the public over the
Internet at the SEC's web site at http://www.sec.gov. You may also read and copy
any document we file at the SEC's public reference room at 450 Fifth Street,
N.W. Washington, D.C. 20549. Please call the SEC at 1-800-SEC-0330 for further
information on the public reference room.
The SEC allows us to "incorporate by reference" the information we file with
it, which means that we can disclose important information to you by referring
you to those documents. The information incorporated by reference is an
important part of this proxy statement, and information that we file later with
the SEC will automatically update and supersede this information.
We incorporate by reference our documents listed below and any future
filings we make with the SEC under Sections 13(a), 13(c), 14 or 15(d) of the
Securities Exchange Act of 1934 until the special meeting:
- Annual Report on Form 10-K for the fiscal year ended June 30, 1998 of The
Perkin-Elmer Corporation;
- Quarterly Reports on Form 10-Q for the quarters ended September 30 and
December 31, 1998 of The Perkin-Elmer Corporation; and
- Current Reports on Form 8-K filed July 10 and September 24, 1998 of The
Perkin-Elmer Corporation.
You should rely only on the information incorporated by reference or
provided in this proxy statement. We have not authorized anyone else to provide
you with different information. You should not assume that the information in
this proxy statement is accurate as of any date other than the date on the front
of this document.
INFORMATION ABOUT THE SPECIAL MEETING AND VOTING
DATE, TIME AND PLACE OF MEETING
We are providing this proxy statement to you in connection with the
solicitation of proxies by our board of directors for use at the special
meeting. The special meeting will be held on April , 1999, at 10:00 a.m.,
eastern time, in our auditorium at 50 Danbury Road, Wilton, Connecticut. This
proxy statement is first being mailed to our shareholders on or about March ,
1999.
RECORD DATE
We have established March 15, 1999 as the record date for the special
meeting. Only holders of record of shares of our existing common stock at the
close of business on this date will be eligible to vote at the special meeting.
24
PROPOSALS TO BE CONSIDERED AT THE MEETING
You will be asked to consider and vote on the three proposals described in
this proxy statement.
If the recapitalization proposal is approved, we will implement it whether
or not either of the two related stock incentive plan proposals are approved. If
the recapitalization proposal is not approved, we will not implement the other
proposals.
We do not expect that any other matter will be brought before the special
meeting. If, however, other matters are properly presented, the individuals
named on your proxy card will vote in accordance with their judgment with
respect to those matters.
VOTE REQUIRED TO APPROVE THE PROPOSALS
The recapitalization proposal will require the favorable vote of the holders
of two-thirds of the outstanding shares of existing common stock. As a result,
abstentions and broker non-votes on the recapitalization proposal will have the
same effect as negative votes. Broker non-votes occur when a broker returns a
proxy but does not have authority to vote on a particular proposal.
Each of the related stock incentive plan proposals will be decided by the
favorable vote of a majority of the votes cast at the special meeting. As a
result, abstentions and broker non-votes will not affect the outcome on these
two proposals.
Each outstanding share of existing common stock is entitled to one vote on
each proposal. As of March 9, 1999, the most recent practicable date prior to
the date of this proxy statement, we had issued and outstanding 50,558,163
shares of existing common stock. The shares of existing common stock held in our
treasury will not be entitled to vote or counted in determining the number of
outstanding shares.
Our directors and executive officers beneficially own approximately 2% of
the outstanding shares of our existing common stock.
QUORUM
In order to carry on the business of the special meeting, we must have a
quorum. This means a majority of the outstanding shares of our existing common
stock must be represented in person or by proxy at the special meeting.
Abstentions and broker non-votes will count for quorum purposes.
PROCEDURE FOR VOTING BY PROXY
If you properly fill in your proxy card and send it to us in time to vote,
your shares will be voted as you have directed. If you sign the proxy card but
do not make specific choices, the individuals named on your proxy card will vote
your shares in favor of approval and adoption of each proposal. If you mark
"abstain" on your proxy card, your shares will be counted as present for
purposes of determining the presence of a quorum. If necessary, unless you have
indicated on your proxy card that you wish to vote against one or more of the
proposals, the individuals named on your proxy card may vote in favor of a
proposal to adjourn the special meeting to a later date in order to solicit and
obtain sufficient votes for any of the proposals.
A PROXY CARD IS ENCLOSED FOR YOUR USE. TO VOTE WITHOUT ATTENDING THE SPECIAL
MEETING IN PERSON, YOU SHOULD COMPLETE, SIGN, DATE AND RETURN THE PROXY CARD IN
THE ACCOMPANYING ENVELOPE, WHICH IS POSTAGE-PAID IF MAILED IN THE UNITED STATES.
If you have completed and returned a proxy card, you can still vote in
person at the special meeting. You may revoke your proxy before it is voted by
submitting a new proxy card with a later date; by voting in person at the
special meeting; or by filing with the Secretary of our company a written
revocation of proxy. Attendance at the special meeting will not of itself
constitute revocation of a proxy.
PROPOSAL 1--THE RECAPITALIZATION PROPOSAL
DESCRIPTION OF THE RECAPITALIZATION
You are being asked to consider and approve the recapitalization under
which:
- our existing company will merge with a subsidiary of PE Corporation, a
Delaware corporation newly formed by us for the purpose of implementing
the recapitalization; and
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- each outstanding share of our existing common stock will be automatically
converted in the merger into one share of PE Biosystems Stock of PE
Corporation and .5 of a share of Celera Genomics Stock of PE Corporation.
Your vote approving the recapitalization will also constitute adoption of the
agreement and plan of merger governing the merger. Accordingly, you should
carefully read the agreement and plan of merger, which is attached to this proxy
statement as Annex I.
If the recapitalization is implemented, our existing company will become a
wholly owned subsidiary of PE Corporation, which will initially
own no assets other than our existing company. In addition, your rights as
shareholders will cease to be governed by New York law and our existing
certificate of incorporation and existing by-laws. Instead, your rights as
stockholders will be governed by the Delaware law and a new certificate of
incorporation of PE Corporation which is attached as Annex II and new by-laws of
PE Corporation which have been filed with the SEC. The new certificate of
incorporation also contains the terms of the PE Biosystems Stock and the Celera
Genomics Stock. Accordingly, you should also carefully read the new certificate
of incorporation.
IF THE RECAPITALIZATION PROPOSAL IS NOT APPROVED, THE RECAPITALIZATION WILL
NOT BE CONSUMMATED AND OUR EXISTING COMMON STOCK WILL NOT BE CONVERTED INTO PE
BIOSYSTEMS STOCK AND CELERA GENOMICS STOCK.
If the recapitalization proposal is approved, we plan to implement the
recapitalization by filing a certificate of merger with the Secretary of State
of New York. We presently anticipate that this filing will be made as soon as
possible after the special meeting. No state or federal regulatory approvals are
required for the consummation of the recapitalization.
Our board of directors may terminate the agreement and plan of merger and
not implement the recapitalization proposal for any reason at any time prior to
the effective time of the recapitalization, either before or after shareholder
approval. In addition, the agreement and plan of merger may be amended prior to
the effective time of the recapitalization. However, the agreement and plan of
merger may not be amended after the recapitalization has been approved if, in
the judgment of our board of directors, the amendment would have a material
adverse effect on the rights of our shareholders.
BACKGROUND OF AND REASONS FOR THE RECAPITALIZATION PROPOSAL
Our board of directors approved the recapitalization proposal following its
review of various alternatives for enhancing the overall return to our
shareholders, advancing our financial and strategic objectives and creating
flexibility for our future growth.
The recapitalization proposal is designed to separate the performance of our
Celera Genomics business from the rest of our company and to charge the managers
of each group with the responsibility of maximizing the returns from their
businesses. Holders of PE Biosystems Stock are expected to benefit from the
earnings growth and cash flow provided by our PE Biosystems' life sciences
business. Holders of Celera Genomics Stock are expected to benefit from the
anticipated success and progress of Celera Genomics' research and development
efforts rather than near-term earnings since Celera Genomics is expected to
incur significant losses during its start-up period.
The recapitalization proposal is consistent with our efforts to maximize
shareholder value by focusing our business on accelerated discovery and enabling
technology in the life sciences sector. In connection with this objective, we
have announced the following key initiatives since June 30, 1997:
- In November 1997, we acquired Molecular Informatics, a pioneer in the
bioinformatics industry, and have combined it with PE Nelson, our own
informatics division, to create PE Informatics, a software-focused
business that provides genomic and other data management products
directed toward drug discovery and research;
- In January 1998, we announced the completion of our acquisition of
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Perseptive Biosystems, a publicly-traded company with fiscal 1997
revenues of $96 million, furthering our commitment to provide the
expanding pharmaceutical marketplace with a fully integrated platform to
compress the time and cost of new drug discovery and development;
- In May 1998, we signed letters of intent with Dr. Venter and The
Institute for Genomics Research to form our Celera Genomics subsidiary
with a strategy to complete the sequencing of the human genome by
December 31, 2001, enabling us to potentially become the definitive
source for biomedical and genomics information; and
- On March 8, 1999, we announced an agreement to sell the Analytical
Instruments business, thereby completing the redefinition of Perkin-
Elmer.
At a meeting held on August 20, 1998, our board of directors considered a
variety of proposals to increase the overall value of our existing common stock
to our shareholders. Our board of directors evaluated alternatives available to
us in view of its strategic objective of financing the near-term business plan
of the newly formed Celera Genomics unit. Our board of directors expects Celera
Genomics to incur significant losses during its start-up period due to the
considerable research and development expenditures required by the human genome
sequencing project. Our board of directors had extensive discussions with our
senior financial and legal officers, as well as representatives of Morgan
Stanley Dean Witter, one of our financial advisors. Among the alternatives which
they considered were:
- the preservation of our current equity and operating structure;
- the creation of two classes of common stock to reflect separately the
results of our established PE Biosystems' life sciences and Analytical
Instruments businesses and our new Celera Genomics business;
- an initial public offering of common stock of Celera Genomics and the
spin-off of the balance of that company to holders of existing common
stock; and
- the formation of a subsidiary which would develop Celera Genomics's
technology and license it to us and the spin-off of this subsidiary to
holders of existing common stock ("R&D Spin-off").
Our board of directors used several criteria to contrast the benefits and
drawbacks of these transaction alternatives to our shareholders including:
- tax efficiency;
- capital markets acceptance;
- likelihood of success;
- flexibility to provide equity incentives for Celera Genomics' employees;
- ability of Celera Genomics to raise equity capital in the future;
- maintenance of control by our board of directors over both groups; and
- long-term maximization of our initial investment in Celera Genomics.
Our board of directors concluded that an initial public offering and
spin-off of our Celera Genomics subsidiary would not be feasible at this time
because Celera Genomics does not have the access to capital and the full
complement of resources to be an independent public company. These include
audit, legal, public relations and tax, services which could easily be supplied
by us. These transactions would also limit our board of directors' ability to
guide the PE Biosystems and Celera Genomics' relationship and the access by PE
Biosystems and Celera Genomics to the technology of the other.
Our board of directors concluded that an R&D Spin-off would not provide a
vehicle for either raising equity capital or providing true equity incentives to
Celera Genomics' employees. An R&D Spin-off also would limit our board of
directors' ability to guide the PE Biosystems and Celera Genomics' relationship
and the access by PE Biosystems and Celera Genomics to the technology of the
other.
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On November 19, 1998, our board of directors confirmed its prior conclusions
concerning available alternatives and identified the following as the advantages
of the recapitalization proposal:
- The creation of two classes of common stock intended to reflect
separately the performance of the PE Biosystems Group and the Celera
Genomics Group should increase shareholder value by more specifically
tracking the earnings, cash flows and investment results of each group.
The PE Biosystems Stock should continue to be valued in the market based
on growth in earnings and cash flows. We believe that the Celera Genomics
Stock will not be valued on earnings since the Celera Genomics Group is
expected to incur significant losses during its start-up period. Instead,
Celera Genomics' valuation will be based on the success of its research
and development efforts and progress in meeting its business plan. As a
result, we expect that holders of PE Biosystems Stock and Celera Genomics
Stock will be distinct investor groups;
- The creation of two classes of common stock should enhance the autonomy
of the groups by allowing each group and its management to focus on that
group's own identity, business strategy, financial model and culture and
to structure employee incentives which are tied directly to the share
performance of that group;
- The recapitalization proposal, in contrast to other alternatives, will
retain for us the advantages of doing business as a single company and
allow each group to capitalize on relationships with the other group. As
part of one company, each group will be in a position to benefit from
cost savings and synergies with the other compared to the costs each
group would incur if it operated separately. As part of a single
organization, we expect to incur significant savings in corporate
overhead expenses while preserving the benefits of tax consolidation,
credit availability and a shared strategic vision;
- The recapitalization proposal, in contrast to other alternatives, permits
our board of directors to review technology sharing arrangements between
the PE Biosystems Group and the Celera Genomics Group. This should allow
for the shortest path to commercialization of new technologies either
into instrument systems and reagents sold by the PE Biosystems Group to
its customers or through information and related discovery services
provided by the Celera Genomics Group to its pharmaceutical partners;
- The financial and strategic flexibility, after the recapitalization for
us to raise capital for the PE Biosystems Group and the Celera Genomics
Group and to engage in mergers, acquisitions, strategic investments,
capital restructurings and other transactions affecting either the PE
Biosystems Group or the Celera Genomics Group will be enhanced as a
result of the availability of two different equity securities. In the
ordinary course of business, our board of directors may consider such
transactions from time to time but it has no current plans or intentions
with respect to any specific transaction; and
- The implementation of the recapitalization proposal is not expected to be
taxable to us or you, except for cash received instead of fractional
shares of Celera Genomics Stock.
Our board of directors also considered the following potential disadvantages
of the recapitalization proposal:
- The recapitalization proposal requires a complex capital structure that
may not be well-understood by investors and thus
28
could inhibit the efficient valuation of either or both classes of common
stock;
- There is limited experience with the use of targeted stock by companies
having a business unit with an established history of earnings and
another business unit in the start-up stage;
- The potential diverging or conflicting interests of the two groups and
the issues that could arise in resolving any conflicts;
- Investors in PE Biosystems Stock and Celera Genomics Stock will be
exposed to the risks of our consolidated businesses and liabilities
because both groups remain legally a part of PE;
- The market values of PE Biosystems Stock and Celera Genomics Stock could
be affected by market reaction to decisions by our board of directors and
management that investors perceive to affect differently one class of
common stock compared to the other, such as decisions regarding the
allocation of assets, expenses, liabilities and corporate opportunities
and financing resources between the groups; and
- The possible inability to use the pooling method of accounting in
connection with future acquisitions using Celera Genomics Stock, and the
possible inability or increased difficulty of receiving a ruling from the
Internal Revenue Service in connection with a proposed acquisition to be
effected using either PE Biosystems Stock or Celera Genomics Stock.
Our board of directors determined that on balance the potential advantages
of the recapitalization proposal outweigh the potential disadvantages and
concluded that the recapitalization proposal is in the best interests of our
company and our shareholders.
On January 21, 1999, our board of directors unanimously approved the
agreement and plan of merger implementing the recapitalization and the calling
of the special meeting.
RECOMMENDATION OF THE BOARD OF DIRECTORS
Our board of directors has carefully considered the recapitalization
proposal and believes that the approval of the recapitalization proposal by the
shareholders is in the best interests of PE and our shareholders. OUR BOARD OF
DIRECTORS UNANIMOUSLY RECOMMENDS THAT YOU APPROVE THE RECAPITALIZATION PROPOSAL.
MANAGEMENT AND ALLOCATION POLICIES
Because the PE Biosystems Group and the Celera Genomics Group will each be a
part of a single company, we have carefully considered a number of issues with
respect to the financing of the PE Biosystems Group and the Celera Genomics
Group, competition between groups, inter-group business transactions, access to
technology and know-how, corporate opportunities and the allocation of debt,
corporate overhead, interest, taxes and other charges between the two groups.
Our board of directors and management have established policies to accomplish
the fundamental objective of the recapitalization proposal, which is to separate
the business and operations of the Celera Genomics Group from those of the PE
Biosystems Group and to operate each group on a stand-alone basis. These
policies establish guidelines to help us to allocate costs and charges between
the two groups on an objective basis and, except as described below, to ensure
that transactions between the PE Biosystems Group and the Celera Genomics Group
are made on terms that approximate the terms that could be obtained from
unaffiliated third parties.
POLICIES SUBJECT TO CHANGE WITHOUT STOCKHOLDER APPROVAL
We have summarized our management and allocation policies as we expect them
to be effective upon the recapitalization. We are not requesting shareholder
approval of these policies.
Our board of directors may modify or rescind these policies, or may adopt
additional policies, in its sole discretion without stockholder approval.
However, our board of directors has no present plans to do so. A board of
directors' decision to modify or rescind such policies, or
29
adopt additional policies could have different effects upon holders of PE
Biosystems Stock and holders of Celera Genomics Stock or could result in a
benefit or detriment to one class of stockholders compared to the other class.
Our board of directors would make any such decision in accordance with its good
faith business judgment that such decision is in the best interests of PE and
all of our stockholders as a whole.
FIDUCIARY AND MANAGEMENT RESPONSIBILITIES
Because the PE Biosystems Group and the Celera Genomics Group will continue
to be a part of a single company, our directors and officers will have the same
fiduciary duties to holders of the PE Biosystems Stock and the Celera Genomics
Stock that they currently have to the holders of our existing common stock.
Under Delaware law, absent an abuse of discretion, a director or officer will be
deemed to have satisfied his or her fiduciary duties to PE and our stockholders
if that person is disinterested and acts in accordance with his or her good
faith business judgment in the interests of PE and all of our stockholders as a
whole. Our board of directors and our chief executive officer, in establishing
policies with regard to intracompany matters such as business transactions
between groups and allocations of assets, liabilities, debt, corporate overhead,
taxes, interest, corporate opportunities and other matters, will consider
various factors and information which could benefit or cause detriment to the
stockholders of the respective groups and will make determinations in the best
interests of PE and all of our stockholders as a whole.
Because the recapitalization will result in no change in our corporate
structure, Tony L. White, the Chairman of the Board of Directors, President and
Chief Executive Officer, will have the same duties and responsibilities for the
management of our assets and businesses which comprise the PE Biosystems Group
and the Celera Genomics Group following the recapitalization as he has now. The
individuals named below will hold the positions listed next to their names and
will continue to have the same general responsibilities that they had prior to
the recapitalization. The costs attributable to their responsibilities will be
allocated as discussed below under "--Financial Statements; Allocation
Matters--Corporate Overhead and Administrative Shared Services."
[Download Table]
OFFICER POSITION
------------------------ ----------------------------
Tony L. White Chairman, President and
Chief Executive Officer
Noubar B. Afeyan, Ph.D. Senior Vice President and
Chief Business Officer
Michael W. Hunkapiller, Senior Vice President and
Ph.D. President of the PE
Biosystems Group
William B. Sawch Senior Vice President,
General Counsel and
Secretary
J. Craig Venter, Ph.D. Senior Vice President and
President of the Celera
Genomics Group
Dennis L. Winger Senior Vice President and
Chief Financial Officer
We refer to the individuals with these positions as "senior officers" in this
proxy statement.
Our chief executive officer, with the approval of our board of directors,
has designated separate management teams for each of the PE Biosystems Group and
the Celera Genomics Group to ensure that the efforts of each team of managers
are focused on the business and operations for which they have responsibility.
These individuals are named in "PE Biosystems Group--Business-- Management" and
"Celera Genomics Group-- Business--Scientific Staff and Management."
COMMON STOCK OWNERSHIP OF DIRECTORS AND SENIOR OFFICERS
As a policy, our board of directors will periodically monitor the ownership
of shares of PE Biosystems Stock and shares of Celera Genomics Stock by our
directors and senior officers and our option grants to them so that their
interests are generally aligned with the two
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classes of common stock and with their duty to act in the best interests of PE
and our stockholders as a whole. However, because of the anticipated differences
in trading values between the PE Biosystems Stock and the Celera Genomics Stock,
the actual value of their interests in the PE Biosystems Stock and Celera
Genomics Stock will vary significantly. Accordingly, it is possible that
directors or senior officers could favor one group over the other due to their
stock and option holdings.
FINANCING ACTIVITIES
We will continue to manage most financial activities on a centralized basis.
These activities include the investment of surplus cash, the issuance and
repayment of short-term and long-term debt and the issuance and repurchase of
any preferred stock. If we transfer cash or other property allocated to one
group to the other group, we will account for such transfer in one of the
following ways, as determined by our board of directors:
- As a reallocation of "pooled" debt or preferred stock, as described under
"Company Debt and Preferred Stock" below;
- As a short-term or long-term loan from one group to the other, or as a
repayment of a previous borrowing, as described under "Inter-Group Loans"
below;
- As an increase or decrease in the number of Celera Genomics Designated
Shares, as described under "Future Equity Contributions to be Reflected as
Celera Genomics Designated Shares" below; or
- As a sale of assets between the two groups.
Our board of directors has not adopted specific criteria to determine which
of the foregoing will be applied to a particular transfer of cash or property
from one group to the other. Our board of directors will make these
determinations, either in specific instances or by setting applicable policies
generally, in the exercise of its business judgment based on all relevant
circumstances, including the financing needs and objectives of the receiving
group, the investment objectives of the transferring group, the availability,
cost and time associated with alternative financing sources, prevailing interest
rates and general economic conditions. We will make all transfers of material
assets from one group to the other on a fair value basis for the foregoing
purposes, as determined by our board of directors. See "--Transfers of Assets
Between Groups."
Although we may allocate our debt and preferred stock between groups, the
debt and preferred stock will remain our obligations and all of our stockholders
will be subject to the risks associated with those obligations. See "Risk
Factors--You Will Remain Stockholders of One Company; Financial Effects on One
Group Could Adversely Affect the Other."
COMPANY DEBT AND PREFERRED STOCK. We will allocate our debt between the
groups or, if we so determine, in its entirety to a particular group. We will
allocate preferred stock, if issued, in a similar manner. We refer to such debt
and preferred stock as being "pooled."
Cash allocated to one group that is used to repay pooled debt or redeem
pooled preferred stock will decrease such group's allocated portion of the
pooled debt or preferred stock. Cash or other property allocated to one group
that is transferred to the other group will, if so determined by our board of
directors, decrease the transferring group's allocated portion of the pooled
debt or preferred stock and, correspondingly, increase the recipient group's
allocated portion of the pooled debt or preferred stock.
Pooled debt will bear interest for group financial statement purposes at a
rate equal to the weighted average interest rate of the debt calculated on a
quarterly basis and applied to the average pooled debt balance during the
period. Preferred stock, if issued and if pooled in a manner similar to the
pooled debt, will bear dividends for group financial statement purposes at a
rate based on the weighted average dividend rate of the preferred stock
similarly calculated and applied. Any expense related to increases in pooled
debt or preferred stock will be reflected in the weighted average interest or
dividend rate of such pooled debt or preferred stock as a whole.
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If we allocate debt for a particular financing in its entirety to one group,
that debt will bear interest for group financial statement purposes at the rate
that we determine. If we allocate preferred stock in its entirety to one group,
we will charge the dividend cost to that group in a similar manner. If the
interest or dividend cost is higher than our actual cost, the other group will
receive a credit for an amount equal to the difference as compensation for the
use of our credit capacity. Any expense related to debt or preferred stock that
is allocated in its entirety to a group will be allocated in whole to that
group.
INTER-GROUP LOANS. Cash or other property that we allocate to one group
that is transferred to the other group, could, if so determined by our board of
directors, be accounted for either as a short-term loan or as a long-term loan.
Short-term loans will bear interest at a rate equal to the weighted average
interest rate of our pooled debt. If we do not have any pooled debt, our board
of directors will determine the rate of interest for such loan. Our board of
directors will establish the terms on which long-term loans between the groups
will be made, including interest rate, amortization schedule, maturity and
redemption terms.
FUTURE EQUITY CONTRIBUTIONS TO BE REFLECTED AS CELERA GENOMICS DESIGNATED
SHARES. Cash or other property that we allocate to the PE Biosystems Group that
is contributed as additional equity to the Celera Genomics Group will increase
the number of Celera Genomics Designated Shares. Cash or other property that we
allocate to the Celera Genomics Group that is transferred to the PE Biosystems
Group will, if so determined by our board of directors, decrease the number of
Celera Genomics Designated Shares.
EQUITY ISSUANCES AND REPURCHASES AND DIVIDENDS. We will reflect all
financial effects of issuances and repurchases of shares of PE Biosystems Stock
or shares of Celera Genomics Stock entirely in the financial statements of that
group except as described in the next sentence. We will reflect all financial
effects of issuances of additional shares of Celera Genomics Stock, which have
been reflected as a reduction in the number of Celera Genomics Designated
Shares, entirely in the financial statements of the PE Biosystems Group. We will
reflect financial effects of dividends or other distributions on, and purchases
of, shares of PE Biosystems Stock or Celera Genomics Stock entirely in the
respective financial statements of the PE Biosystems Group and the Celera
Genomics Group.
COMPETITION BETWEEN GROUPS
Neither the PE Biosystems Group nor the Celera Genomics Group will engage in
each other's principal businesses, except for joint transactions with each
other. Joint transactions may include joint ventures or other collaborative
arrangements to develop, market, sell and support new products and services.
Third parties may also participate in such joint transactions. See "--Transfers
of Assets Between Groups-- Joint Transactions." The terms of any joint
transactions will be determined by our chief executive officer or, in
appropriate circumstances, our board of directors.
Our chief executive officer or, in appropriate circumstances, our board of
directors will make decisions whether to permit indirect competition between the
groups. Indirect competition could occur if and when:
- one group uses products of third parties in that group's products rather
than using the other group's products;
- a third party uses a product of one group in the third party's products
which compete with the other group's products; or
- a group licenses technology allocated to that group to a third party that
is a competitor of the other group.
The groups may compete in a business which is not a principal business of
the other group.
TRANSFERS OF ASSETS BETWEEN GROUPS
The new certificate of incorporation permits the transfer of assets between
groups without stockholder approval. Our board of directors has determined that
all such transfers will be made
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at fair value, as determined by our board of directors, except as described
below. The consideration for such transfers may be paid by one group to the
other in cash or other consideration, as determined by our board of directors.
Our board of directors has adopted specific policies for the sale of
products and services between groups and joint transactions with each other and
third parties as set forth below.
SALES OF PRODUCTS AND SERVICES BETWEEN GROUPS. A group will sell products
or services to the other group on terms that would be available from third
parties in commercial transactions. If terms for such transactions are not
available from a third party, the purchasing group will (1) pay for such
products at fair value as determined by our board of directors and (2) pay for
such services at fair value, as determined by our board of directors, or at the
cost, including overhead, of the selling group.
JOINT TRANSACTIONS. The groups may from time to time engage in transactions
jointly, including with third parties, as described under "--Competition Between
Groups." Research and development and other services performed by one group for
a joint venture or other collaborative arrangement will be charged at fair
value, as determined by our board of directors.
ACCESS TO TECHNOLOGY AND KNOW-HOW
Each group will have free access to all of our technology and know-how,
excluding products and services of the other group, that may be useful in that
group's business, subject to obligations and limitations applicable to our
company and to such exceptions that our board of directors may determine. The
groups will consult with each other on a regular basis concerning technology
issues that affect both groups.
REVIEW OF CORPORATE OPPORTUNITIES
Our board of directors will review any matter which involves the allocation
of a corporate opportunity to either the PE Biosystems Group or the Celera
Genomics Group or in part to the PE Biosystems Group and in part to the Celera
Genomics Group. In accordance with Delaware law, our board of directors will
make its determination with regard to the allocation of any such opportunity and
the benefit of such opportunity in accordance with their good faith business
judgment of the best interests of PE and all of our stockholders as a whole.
Among the factors that our board of directors may consider in making this
allocation is whether a particular corporate opportunity is principally related
to the business of the PE Biosystems Group or the Celera Genomics Group; whether
one group, because of its managerial or operational expertise, will be better
positioned to undertake the corporate opportunity; and existing contractual
agreements and restrictions.
FINANCIAL STATEMENTS; ALLOCATION MATTERS
We will prepare financial statements in accordance with generally accepted
accounting principles, consistently applied, for the PE Biosystems Group and the
Celera Genomics Group, and these financial statements, taken together, will
comprise all of the accounts included in our corresponding consolidated
financial statements. The financial statements of each of the PE Biosystems
Group and the Celera Genomics Group will reflect the financial condition,
results of operations and cash flows of the businesses included therein.
Group financial statements will also include allocated portions of our debt,
interest, corporate overhead and costs of administrative shared services and
taxes. We will make these allocations for the purpose of preparing each group's
financial statements; however, holders of PE Biosystems Stock and Celera
Genomics Stock will continue to be subject to all of the risks associated with
an investment in PE and all of our businesses, assets and liabilities. See "Risk
Factors--You Will Remain Stockholders of One Company; Financial Effects on One
Group Could Adversely Affect the Other" and the historical financial statements
for the PE Biosystems Group and the Celera Genomics Group included in this proxy
statement.
In addition to allocating debt and interest as described above under
"--Financing Activities"
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and assets as described above under "Transfers of Assets Between Groups," our
board of directors has adopted the following allocation policies, each of which
is reflected in the combined financial statements of the respective groups
included in this proxy statement:
- CORPORATE OVERHEAD AND ADMINISTRATIVE SHARED SERVICES. We will allocate a
portion of our corporate overhead to the PE Biosystems Group and the
Celera Genomics Group based upon the use of services by that group.
Corporate overhead includes costs of our executive management, human
resources, legal, accounting and auditing, tax, treasury, strategic
planning and environmental services functions. We will allocate in a
similar manner a portion of our costs of administrative shared services,
such as information technology services. Where determinations based on
use alone are not practical, we will use other methods and criteria that
we believe are equitable and provide a reasonable estimate of the cost
attributable to the groups.
- TAXES. We will determine the federal income taxes of PE and our
subsidiaries which own assets allocated between the groups on a
consolidated basis. We will allocate consolidated federal income tax
provisions and related tax payments or refunds between the groups based
principally on the taxable income and tax credits directly attributable
to each group. Such allocations will reflect each group's contribution,
whether positive or negative, to PE's consolidated federal taxable income
and the consolidated federal tax liability and tax credit position. We
will credit tax benefits that can not be used by the group generating
those benefits but can be used on a consolidated basis to the group that
generated such benefits. Inter-group transactions will be treated as
taxed as if each group was a stand-alone company. Tax benefits generated
by the Celera Genomics Group commencing July 1, 1998, which can then be
utilized on a consolidated basis, will be credited to the Celera Genomics
Group up to a maximum amount of $75 million.
Had the groups filed separate tax returns, the provision for income taxes
and net income for each group would not have differed from the amounts
reported in the groups' statements of income for the year ended June 30,
1998 or for the six-month periods ended December 31, 1997 and 1998.
However, the amounts of current and deferred taxes and taxes payable or
refundable allocated to each group in these historical financial
statements may differ from those that would have been allocated to each
group had they filed separate income tax returns.
Depending on the tax laws of the respective jurisdictions, we calculate
state and local income taxes on either a consolidated or combined basis
or on a separate corporation basis. We will allocate state income tax
provisions and related tax payments or refunds determined on a
consolidated or combined basis between the groups based on their
respective contributions to such consolidated or combined state taxable
incomes. We will allocate state and local income tax provisions and
related tax payments which we determine on a separate corporation basis
between the groups in a manner designed to reflect the respective
contributions of the groups to the corporation's separate state or local
taxable income.
------------------------
34
DIVIDEND POLICY
We currently pay a quarterly dividend of $.17 per share on our existing
common stock, or a total of $.68 per share per year. We initially intend to pay
the same quarterly dividend of $.17 per share on the PE Biosystems Stock. We do
not anticipate paying dividends on the Celera Genomics Stock for the foreseeable
future. Under the recapitalization proposal and Delaware law, our board of
directors would not be required to pay dividends in accordance with the
foregoing dividend policies. We do not believe that the recapitalization
proposal will adversely affect our ability to pay cash dividends on the PE
Biosystems Stock.
In making its dividend decisions regarding the PE Biosystems Stock and the
Celera Genomics Stock, our board of directors will rely on the respective
financial statements of the PE Biosystems Group and the Celera Genomics Group.
See the historical financial statements of the PE Biosystems Group and the
Celera Genomics Group included in this proxy statement. The method of
calculating net income (loss) per share for the PE Biosystems Stock and the
Celera Genomics Stock is set forth in the new certificate of incorporation in
Annex II under the definitions of PE Corporation Earnings (Loss) Attributable to
the PE Biosystems Group and PE Corporation Earnings (Loss) Attributable to the
Celera Genomics Group. We encourage you to carefully read these definitions.
Our board of directors does not currently intend to change the
above-described dividend policy but reserves the right to do so at any time
based primarily on the financial condition, results of operations and business
requirements of the respective groups and of our company as a whole. Future
dividends on the PE Biosystems Stock and Celera Genomics Stock will be payable
when, as and if declared by our board of directors out of the lesser of (1) all
funds of our company legally available therefor and (2) the amount calculated
under the definition of that Group's Available Dividend Amount contained in the
new certificate of incorporation in Annex II. We encourage you to carefully read
these definitions. Each group's Available Dividend Amount is intended to be
similar to the amount that would be legally available for the payment of
dividends on the stock for that group under Delaware law if that group were a
separate company. See "--Description of PE Biosystems Stock and Celera Genomics
Stock-- Dividends."
DESCRIPTION OF PE BIOSYSTEMS STOCK AND CELERA GENOMICS STOCK
We have summarized below the material terms of the PE Biosystems Stock and
the Celera Genomics Stock. The summary is not complete. We encourage you to read
the new certificate of incorporation which is attached as Annex II.
AUTHORIZED AND OUTSTANDING SHARES
Our existing certificate of incorporation authorizes us to issue 181,000,000
shares of stock, consisting of 180,000,000 shares of common stock, par value
$1.00 per share, and 1,000,000 shares of preferred stock, par value $1.00 per
share. Our board of directors may issue shares of preferred stock in series,
without shareholder approval. As of March 9, 1999, 50,558,163 shares of existing
common stock and no shares of preferred stock were issued and outstanding.
The new certificate of incorporation will authorize us to issue 735,000,000
shares of stock as follows: 500,000,000 shares of a class of common stock,
designated as PE Corporation-- PE Biosystems Group Common Stock (the "PE
Biosystems Stock"), 225,000,000 shares of a class of common stock, designated as
PE Corporation--Celera Genomics Group Common Stock (the "Celera Genomics
Stock"), and 10,000,000 shares of preferred stock. Shares of each class of stock
will have a par value of $.01 per share. We will be able to issue shares of
preferred stock in series, without stockholder approval. Of the 10,000,000
authorized shares of preferred stock, our board of directors has designated a
total of 80,000 shares of two series of participating junior preferred stock in
35
connection with our new stockholder rights plan. See "--Rights Agreement."
As a result of the recapitalization, assuming the number of shares of
existing common stock then outstanding is the same as the number outstanding on
March 9, 1999, 50,558,163 shares of PE Biosystems Stock and 25,279,081 shares of
the Celera Genomics Stock will be issued and outstanding.
REASONS FOR INCREASE IN AUTHORIZED COMMON STOCK
The increase in authorized shares is necessary in order to implement the
various aspects of the recapitalization proposal. The authorization of at least
50,316,445 shares of PE Biosystems Stock and at least 25,158,222 shares of
Celera Genomics Stock is needed for the recapitalization to occur. Further, as
described under "--Conversion and Redemption," our board of directors has the
right to convert one class of common stock into the other at a 10% premium. The
number of shares issuable in a conversion will vary based on the relative market
values of the two classes of common stock and the number of outstanding shares
of common stock being converted.
Our board of directors may also pay a share dividend in one class of common
stock on that class of common stock. If the PE Biosystems Group is entitled to
Celera Genomics Designated Shares, our board of directors may also declare a
share dividend in shares of Celera Genomics Stock on the PE Biosystems Stock. If
our board of directors determines that a conversion or a stock dividend is in
the best interests of PE, but at that time sufficient authorized shares of
common stock are not available, our stockholders would be required to approve an
amendment to the new certificate of incorporation.
Our board of directors believes that an increase in the number of authorized
shares of common stock at this time is in the best interests of PE so that we
have available the number of shares needed for a possible future conversion,
dividends, acquisitions, capital raising, our new stockholder rights plan and
employee benefit plans.
Other than the issuance of shares under our employee benefit plans or our
outstanding warrants and the issuance of options for Celera Genomics Stock
discussed under "--Options for Celera Genomics Stock to be Issued Upon the
Recapitalization," we have no present understanding or agreement for the
issuance of any additional shares of PE Biosystems Stock or Celera Genomics
Stock. Although our board of directors has no present intention of doing so, the
additional shares that would be authorized for issuance if the recapitalization
is implemented could be issued in one or more transactions that would make a
takeover of PE more difficult and, therefore, less likely, even though a
takeover might be financially beneficial to PE and our stockholders. See
"--Certain Anti-Takeover Provisions of Delaware Law and the New Certificate of
Incorporation, the New By-laws and the New Rights Agreement." We have no
knowledge of any person or entity that intends to seek a controlling interest in
PE or to make a takeover proposal.
We may issue the authorized but unissued shares of PE Biosystems Stock and
Celera Genomics Stock for any proper corporate purpose, which could include any
of the purposes set forth above. We will not solicit the approval of our
stockholders for the issuance of additional authorized shares of PE Biosystems
Stock or Celera Genomics Stock unless our board of directors believes that
approval is advisable or is required by stock exchange regulations or Delaware
law.
DIVIDENDS
Dividends on the PE Biosystems Stock and the Celera Genomics Stock will be
subject to similar limitations as dividends on our existing common stock.
Dividends on our existing common stock are limited to our legally available
assets under New York law and subject to the prior payment of dividends on any
outstanding shares of preferred stock. See "--Comparison of Shareholders
Rights--Restrictions on Dividends."
Dividends on the PE Biosystems Stock and dividends on the Celera Genomics
Stock will be limited to an amount not greater than the
36
Available Dividend Amount for the relevant group.
Delaware law limits the amount of distributions on capital stock to our
legally available funds, which are determined on the basis of our entire
company, and not only the respective groups. As a result, the amount of legally
available funds will reflect the amount of any net losses of each group, any
distributions on PE Biosystems Stock, Celera Genomics Stock or any preferred
stock and any repurchases of PE Biosystems Stock, Celera Genomics Stock or
certain preferred stock. Dividend payments on the PE Biosystems Stock and on the
Celera Genomics Stock could be precluded because legally available funds are not
available under Delaware law, even though the Available Dividend Amount test for
the particular relevant group was met. We can not assure you that there will be
an Available Dividend Amount for either group.
Subject to the prior payment of dividends on any outstanding shares of
preferred stock and the limitations described above, our board of directors will
be able, in its sole discretion, to declare and pay dividends exclusively on the
PE Biosystems Stock, exclusively on the Celera Genomics Stock or on both, in
equal or unequal amounts. In making its dividend decisions, our board of
directors will not be required to take into account the relative Available
Dividend Amounts for the two groups, the amount of prior dividends declared on
either class, the respective voting or liquidation rights of either class or any
other factor.
CONVERSION AND REDEMPTION
Our existing certificate of incorporation currently does not provide for
either mandatory or optional conversion or redemption of our existing common
stock. The recapitalization proposal will permit the conversion or redemption of
the PE Biosystems Stock and the Celera Genomics Stock as described below.
MANDATORY DIVIDEND, REDEMPTION OR CONVERSION OF COMMON STOCK IF DISPOSITION
OF GROUP ASSETS OCCURS. If we sell, transfer, assign or otherwise dispose of,
in one transaction or a series of related transactions, all or substantially all
of the properties and assets attributed to either group (a "disposition"), we
are required, except as described below, to:
- pay a dividend in cash and/or securities or other property to the holders
of shares of the class of common stock relating to the group subject to
the disposition having a fair value equal to the net proceeds of the
disposition; or
- (A) if the disposition involves all, but not merely substantially all, of
such properties and assets, redeem all outstanding shares of common stock
relating to that group in exchange for cash and/or securities or other
property having a fair value equal to the net proceeds of the
disposition; or
(B) if the disposition involves substantially all, but not all, of such
properties and assets, redeem that number of whole shares of the class of
common stock relating to that group as have in the aggregate an average
market value, during the period of ten consecutive trading days beginning
on the 26th trading day immediately succeeding the consummation date,
closest to the net proceeds of the disposition; and the redemption price
will be cash and/or securities or other property having a fair value
equal to such net proceeds; or
- convert each outstanding share of such class of common stock into a
number of shares of common stock relating to the other group equal to
110% of the ratio of the average market value of one share of common
stock relating to the group subject to the disposition to the average
market value of one share of common stock relating to the other group
during the 10-trading day period beginning on the 26th trading day
following the disposition date.
We may only pay a dividend or redeem shares of common stock as set forth above
if we have legally available funds under Delaware law and the amount to be paid
to holders is less than or equal to the Available Dividend Amount for the
37
group. We are required to pay such dividend or complete such redemption or
conversion on or prior to the 95th trading day following the disposition.
For purposes of determining whether a disposition has occurred,
"substantially all of the properties and assets" attributed to either group
means a portion of such properties and assets:
- that represents at least 80% of the then fair value of the properties and
assets attributed to that group; or
- from which were derived at least 80% of the aggregate revenues of that
group for the immediately preceding twelve fiscal quarterly periods.
The "net proceeds" of a disposition means an amount equal to what remains of
the gross proceeds of the disposition after any payment of, or reasonable
provision is made as determined by our board of directors for:
- any taxes payable by us, or which would have been payable but for the
utilization of tax benefits attributable to the group not subject to the
disposition, in respect of the disposition or in respect of any resulting
dividend or redemption;
- any transaction costs, including, without limitation, any legal,
investment banking and accounting fees and expenses; and
- any liabilities of or attributed to the group subject to the disposition,
including, without limitation, any liabilities for deferred taxes, any
indemnity or guarantee obligations incurred in connection with the
disposition or otherwise, any liabilities for future purchase price
adjustments and any preferential amounts plus any accumulated and unpaid
dividends in respect of the preferred stock attributed to that group.
We may elect to pay the dividend or redemption price in connection with a
disposition either in the same form as the proceeds of the disposition were
received or in any other combination of cash, securities or other property that
our board of directors or, in the case of securities that have not been publicly
traded for a period of at least 15 months, an independent investment banking
firm, determines will have an aggregate market value of not less than the fair
value of the net proceeds.
THE FOLLOWING ILLUSTRATION DEMONSTRATES THE PROVISIONS REQUIRING A MANDATORY
DIVIDEND, REDEMPTION OR CONVERSION IF A DISPOSITION OCCURS. If:
- 100 million shares of PE Biosystems Stock and 50 million shares of Celera
Genomics Stock were outstanding,
- the net proceeds of the disposition of substantially all, but not all, of
the assets of the Celera Genomics Group equals $500 million,
- the average market value of the Celera Genomics Stock during the
10-trading day valuation period was $15 per share and
- the average market value of the PE Biosystems Stock during the same
valuation period was $80 per share,
then we could do any of the following:
(1) pay a dividend to the holders of shares of Celera Genomics Stock equal to:
[Download Table]
net proceeds
--------------------------- =
number of outstanding shares
of Celera Genomics Stock
$500 million
-------------- =
50 million shares $10 per share
(2) redeem for $15 per share a number of shares of Celera Genomics Stock equal
to:
[Download Table]
net proceeds
----------------------
average market value
of Celera Genomics =
Stock
$500 million
-----------
$15 per share = 33,333,333
shares
38
(3) convert each outstanding share of Celera Genomics Stock into a number of
shares of PE Biosystems Stock equal to:
[Download Table]
average market value
of Celera Genomics Stock
1.1 X ---------------------- =
average market value
of PE Biosystems Stock
$15 per share
1.1 X ----------- = .20625
$80 per share shares
EXCEPTIONS TO THE DIVIDEND, REDEMPTION OR CONVERSION REQUIREMENT IF A
DISPOSITION OCCURS. We are not required to take any of the above actions for any
disposition of all or substantially all of the properties and assets attributed
to either group in a transaction or series of related transactions that results
in our receiving for such properties and assets primarily equity securities of
any entity which:
- acquires such properties or assets or succeeds to the business conducted
with such properties or assets or controls such acquiror or successor;
and
- is primarily engaged or proposes to engage primarily in one or more
businesses similar or complementary to the businesses conducted by that
group prior to the disposition, as determined by our board of directors.
The purpose of this exception is to enable us technically to "dispose" of
properties or assets of a group to other entities engaged or proposing to engage
in businesses similar or complementary to those of that group without requiring
a dividend on, or a conversion or redemption of, the class of common stock of
that group, so long as we hold an equity interest in that entity. A joint
venture in which we own a direct or indirect equity interest is an example of
such an acquiror. We are not required to control that entity, whether by
ownership or contract provisions.
We are also not required to effect a dividend, redemption or conversion if
the disposition is:
- of all or substantially all of our properties and assets in one
transaction or a series of related transactions in connection with our
dissolution, liquidation or winding up and the distribution of our assets
to stockholders;
- on a pro rata basis, such as in a spin-off, to the holders of all
outstanding shares of the class of common stock relating to the group
subject to the disposition; or
- made to any person or entity controlled by us, as determined by our board
of directors.
NOTICES IF DISPOSITION OF GROUP ASSETS OCCURS. Not later than the 20th
trading day after the consummation of a disposition, we will announce publicly
by press release:
- the estimated net proceeds of the disposition;
- the number of shares outstanding of the class of common stock relating to
the group subject to the disposition; and
- the number of shares of such class of common stock into or for which
convertible securities are then convertible, exchangeable or exercisable
and the conversion, exchange or exercise price thereof.
Not earlier than the 36th trading day and not later than the 40th trading
day after the consummation of the disposition, we will announce publicly by
press release whether we will pay a dividend or redeem shares of common stock
with the net proceeds of the disposition or convert the shares of common stock
of the group subject to the disposition into the other class of common stock.
We are required to cause to be mailed to each holder of shares of the class
of common stock relating to the group subject to the disposition the additional
notices and other information required by the new certificate of incorporation.
CONVERSION OF COMMON STOCK AT OUR OPTION AT ANY TIME. Our board of
directors may at any time convert each share of PE Biosystems Stock into a
number of shares of
39
Celera Genomics Stock equal to 110% of the ratio of the average market values of
the PE Biosystems Stock to the Celera Genomics Stock over a 20-trading day
period. Conversely, our board of directors may also at any time convert each
share of Celera Genomics Stock into a number of shares of PE Biosystems Stock
equal to 110% of the ratio of the average market values of the Celera Genomics
Stock to the PE Biosystems Stock over a 20-trading day period. We will calculate
the ratio as of the fifth trading day prior to the date we mail the conversion
notice to holders.
However, if a Tax Event occurs at any time, a factor of 100% rather than
110% will be applied to the ratio of the average market values. This means that
the holders of the class of common stock being converted will not receive any
premium in such conversion.
"Tax Event" means the receipt by PE of an opinion of its tax counsel that,
as a result of:
- any amendment to, or change in, the laws or regulations interpreting such
laws of the United States or any political subdivision or taxing
authority, including any announced proposed change by an applicable
legislative committee or its chair in such laws or by an administrative
agency in such regulations, or
- any official or administrative pronouncement, action or judicial decision
interpreting or applying such laws or regulations,
it is more likely than not that for United States federal income tax purposes:
- PE or our stockholders are, or, at any time in the future, will be
subject to tax upon the issuance of shares of either PE Biosystems Stock
or Celera Genomics Stock, or
- either PE Biosystems Stock or Celera Genomics Stock is not or, at any
time in the future, will not be treated solely as stock of PE.
For purposes of rendering such an opinion, tax counsel will assume that any
legislative or administrative proposals will be adopted or enacted as proposed.
These provisions allow us the flexibility to recapitalize the two classes of
common stock into one class of common stock that would, after such
recapitalization, represent an equity interest in all of our businesses. The
optional conversion or redemption could be exercised at any future time if our
board of directors determines that, under the facts and circumstances then
existing, an equity structure consisting of two classes of common stock was no
longer in the best interests of all of our stockholders. Such exchange could be
exercised, however, at a time that is disadvantageous to the holders of one of
the classes of common stock. See "Risk Factors--Limited Stockholder Remedies For
Breach of Fiduciary Duties" and "--Numerous Potential Conflicting Interests
Between Classes of Common Stock."
Many factors could affect the market values of the PE Biosystems Stock or
the Celera Genomics Stock, including our results of operations and those of each
of the groups, trading volume and general economic and market conditions. Market
values could also be affected by decisions by our board of directors or our
management that investors perceive to affect differently one class of common
stock compared to the other. These decisions could include changes to our
management and allocation policies, transfers of assets between groups,
allocations of corporate opportunities and financing resources between the
groups and changes in dividend policies.
40
THE FOLLOWING ILLUSTRATION DEMONSTRATES THE CALCULATION OF THE NUMBER OF
SHARES ISSUABLE UPON CONVERSION OF ONE CLASS OF COMMON STOCK INTO SHARES OF THE
OTHER CLASS AT OUR OPTION. If:
- a Tax Event has not occurred,
- 50 million shares of Celera Genomics Stock and 100 million shares of PE
Biosystems Stock were outstanding immediately prior to a conversion,
- the average market value of one share of the Celera Genomics Stock over
the 20-trading day valuation period was $15, and
- the average market value of one share of PE Biosystems Stock over the
same valuation period was $80,
then each share of Celera Genomics Stock could be converted into .20625 shares
of PE Biosystems Stock based on the following calculation:
[Download Table]
$15 .20625
1.1 X --- = shares
$80
REDEMPTION IN EXCHANGE FOR STOCK OF SUBSIDIARY. Our board of directors may
redeem on a pro rata basis all of the outstanding shares of PE Biosystems Stock
or Celera Genomics Stock for shares of the common stock of one or more of our
wholly-owned subsidiaries which own all of the assets and liabilities attributed
to the relevant group. If at the time of any such redemption of PE Biosystems
Stock, the PE Biosystems Group is entitled to Celera Genomics Designated Shares,
we will also issue an equal number of shares of Celera Genomics Stock either to
(1) the holders of the PE Biosystems Stock or (2) one or more of those PE
Biosystems Group subsidiaries. We may redeem shares of common stock for
subsidiary stock only if we have legally available funds under Delaware law.
These provisions are intended to give us increased flexibility with respect
to spinning-off the assets of one of the groups by transferring the assets of
that group to one or more wholly-owned subsidiaries and redeeming the shares of
common stock related to that group in exchange for stock of such subsidiary or
subsidiaries. As a result of any such redemption, holders of each class of
common stock would hold securities of separate legal entities operating in
distinct lines of business. Such a redemption could be authorized by our board
of directors at any time in the future if it determines that, under the facts
and circumstances then existing, an equity structure comprised of the PE
Biosystems Stock and the Celera Genomics Stock is no longer in the best
interests of all of our stockholders as a whole.
SELECTION OF SHARES FOR REDEMPTION. If less than all of the outstanding
shares of a class of common stock are to be redeemed, we will redeem such shares
proportionately from among the holders of outstanding shares of such common
stock or by such method as may be determined by our board of directors to be
equitable.
FRACTIONAL INTERESTS; TRANSFER TAXES. We will not be required to issue
fractional shares of any capital stock or any fractional securities to any
holder of either class of common stock upon any conversion, redemption, dividend
or other distribution described above. If a fraction is not issued to a holder,
we will pay cash instead of such fraction.
We will pay all documentary, stamp or similar issue or transfer taxes that
may be payable in respect of the issue or delivery of any shares of capital
stock and/or other securities on conversion or redemption of shares.
VOTING RIGHTS
Currently, holders of our existing common stock have one vote per share on
all matters submitted to shareholders.
Under the new certificate of incorporation the entire voting power of our
stockholders will be vested in the holders of common stock, who will be entitled
to vote on any matter on which our stockholders are entitled to vote, except as
otherwise provided by law, by the terms of any outstanding preferred stock or by
any provision of the new certificate of incorporation restricting
41
the power to vote on a specified matter to other stockholders.
Holders of common stock will vote as a single class on each matter on which
holders of common stock are generally entitled to vote.
On all matters as to which both classes of common stock will vote together
as a single class:
- each share of PE Biosystems Stock will have one vote; and
- each share of Celera Genomics Stock will have a number of votes equal to
the quotient of the average market value of a share of Celera Genomics
Stock over the 20-trading day period ending on the 10th trading day prior
to the record date for determining the holders of common stock entitled
to vote, divided by the average market value of a share of PE Biosystems
Stock over the same period.
Accordingly, the relative per share voting rights of the PE Biosystems Stock
and the Celera Genomics Stock will fluctuate depending on changes in the
relative market values of shares of such classes of common stock.
We expect that, upon completion of the recapitalization, the PE Biosystems
Stock will have a substantial majority of the voting power because we expect
that the aggregate market value of the outstanding shares of PE Biosystems Stock
will be substantially greater than the aggregate market value of the outstanding
shares of Celera Genomics Stock.
We will set forth the number of outstanding shares of PE Biosystems Stock
and Celera Genomics Stock in our Annual Report on Form 10-K and our Quarterly
Reports on Form 10-Q filed under the Securities Exchange Act of 1934. We will
disclose in any proxy statement for a stockholders' meeting the number of
outstanding shares and per share voting rights of the PE Biosystems Stock and
the Celera Genomics Stock.
If shares of only one class of common stock are outstanding, each share of
that class will have one vote. If either class of common stock is entitled to
vote as a separate class with respect to any matter, each share of that class
will, for purpose of such vote, have one vote on such matter.
Fluctuations in the relative voting rights of the PE Biosystems Stock and
the Celera Genomics Stock could influence an investor interested in acquiring
and maintaining a fixed percentage of the voting power of our stock to acquire
such percentage of both classes of common stock, and would limit the ability of
investors in one class to acquire for the same consideration relatively more or
less votes per share than investors in the other class.
The holders of PE Biosystems Stock and Celera Genomics Stock will not have
any rights to vote separately as a class on any matter coming before our
stockholders, except for certain limited class voting rights provided under
Delaware law. In addition to the approval of the holders of a majority of the
voting power of all shares of common stock voting together as a single class,
the approval of a majority of the outstanding shares of the PE Biosystems Stock
or the Celera Genomics Stock, voting as a separate class, would be required
under Delaware law to approve any amendment to the new certificate of
incorporation that would change the par value of the shares of the class or
alter or change the powers, preferences or special rights of the shares of such
class so as to affect them adversely. As permitted by Delaware law, the new
certificate of incorporation will provide that an amendment to the new
certificate of incorporation that increases or decreases the number of
authorized shares of PE Biosystems Stock or Celera Genomics Stock will only
require the approval of the holders of a majority of the voting power of all
shares of common stock, voting together as a single class, and will not require
the approval of the holders of the class of common stock affected by such
amendment, voting as a separate class.
THE FOLLOWING ILLUSTRATION DEMONSTRATES THE CALCULATION OF THE NUMBER OF
VOTES EACH SHARE OF CELERA GENOMICS STOCK WOULD BE ENTITLED ON ALL MATTERS ON
WHICH HOLDERS OF PE BIOSYSTEMS STOCK AND CELERA GENOMICS STOCK VOTE AS A SINGLE
CLASS. If the average market value for the 20-trading
42
day valuation period was $15 for the Celera Genomics Stock and $80 for the PE
Biosystems Stock, each share of PE Biosystems Stock would have one vote and each
share of Celera Genomics Stock would have 0.188 votes based on the following
calculation:
[Download Table]
$15
--- = 0.188
$80 votes
Assuming 100 million shares of PE Biosystems Stock and 50 million shares of
Celera Genomics Stock were outstanding, the shares of PE Biosystems Stock would
represent approximately 91.4% of our total voting power and the shares of Celera
Genomics Stock would represent approximately 8.6% of our total voting power.
LIQUIDATION
Currently, in the event of our liquidation, dissolution or termination,
after payment, or provision for payment, of our debts and other liabilities and
the payment of full preferential amounts to which the holders of any preferred
stock are entitled, holders of existing common stock are entitled to share
equally in our remaining net assets.
Under the new certificate of incorporation, in the event of our dissolution,
liquidation or winding up, after payment or provision for payment of the debts
and other liabilities and full preferential amounts to which holders of any
preferred stock are entitled, regardless of the group to which such shares of
preferred stock were attributed, the holders of PE Biosystems Stock and Celera
Genomics Stock will be entitled to receive our assets remaining for distribution
to holders of common stock on a per share basis in proportion to the liquidation
units per share of such class.
Each share of PE Biosystems Stock will have one liquidation unit. Each share
of Celera Genomics Stock will have a number of liquidation units equal to the
quotient of the average market value of a share of Celera Genomics Stock over
the 20-trading day period ending on the 40th trading day after the effective
date of the recapitalization, divided by the average market value of a share of
PE Biosystems Stock over the same period.
After the number of liquidation units to which each share of Celera Genomics
Stock is entitled has been calculated in accordance with this formula, that
number will not be changed without the approval of holders of the class of
common stock adversely affected except as described below. As a result, after
the date of the calculation of the number of liquidation units to which the
Celera Genomics Stock is entitled the liquidation rights of the holders of the
respective classes of common stock may not bear any relationship to the relative
market values or the relative voting rights of the two classes. We consider that
liquidation is a remote contingency, and our financial advisors believe that, in
general, these liquidation provisions are immaterial to trading in the PE
Biosystems Stock and the Celera Genomics Stock.
No holder of PE Biosystems Stock will have any special right to receive
specific assets of the PE Biosystems Group and no holder of Celera Genomics
Stock will have any special right to receive specific assets of the Celera
Genomics Group in the case of our dissolution, liquidation or winding up.
If we subdivide or combine the outstanding shares of either class of common
stock or declare a dividend or other distribution of shares of either class of
common stock to holders of such class of common stock, the number of liquidation
units of either class of common stock will be appropriately adjusted, as
determined by our board of directors, to avoid any dilution in the aggregate,
relative liquidation rights of any class of common stock.
Neither a merger nor consolidation of PE into or with any other corporation,
nor any sale, transfer or lease of all or any part of our assets, will, alone,
be deemed a liquidation or winding up of PE, or cause the dissolution of PE, for
purposes of these liquidation provisions.
DETERMINATIONS BY THE BOARD OF DIRECTORS
Any determinations made in good faith by our board of directors under any
provision described under "Description of PE Biosystems
43
Stock and Celera Genomics Stock," and any determinations with respect to any
Group or the rights of holders of shares of either class of common stock, will
be final and binding on all of our stockholders, subject to the rights of
stockholders under applicable Delaware law and under the federal securities
laws.
PREEMPTIVE RIGHTS
Neither the holders of the PE Biosystems Stock nor the holders of the Celera
Genomics Stock will have any preemptive rights or any rights to convert their
shares into any other securities of PE.
CELERA GENOMICS DESIGNATED SHARES
The PE Biosystems Group may hold in the future an equity interest in the
Celera Genomics Group in the form of "Celera Genomics Designated Shares" as a
result of future contributions of cash or property to the Celera Genomics Group
described below. Our board of directors could create Celera Genomics Designated
Shares if it determines that (1) the Celera Genomics Group requires additional
capital to finance its business, (2) the PE Biosystems Group should supply that
capital and (3) the PE Biosystems Group should in exchange receive an equity
interest in the Celera Genomics Group.
Celera Genomics Designated Shares are authorized shares of Celera Genomics
Stock that are not issued and outstanding, but which our board of directors,
pursuant to the management and allocation policies, may from time to time issue
without allocating the proceeds or other benefits of such issuance to the Celera
Genomics Group. The Celera Genomics Designated Shares are not eligible to
receive dividends and can not be voted.
The number of Celera Genomics Designated Shares will initially be zero but
from time to time will be:
- increased by a number equal to the quotient obtained by dividing (1) the
fair value of all cash or other property that we allocate to the PE
Biosystems Group that is contributed to the Celera Genomics Group by (2)
the average market value of Celera Genomics Stock over the 20-trading day
period immediately prior to the date of contribution;
- decreased by a number equal to the quotient obtained by dividing (1) the
fair value of all cash or other property that we allocate to the Celera
Genomics Group that is transferred to the PE Biosystems Group to reduce
the number of Celera Genomics Designated Shares by (2) the average market
value of Celera Genomics Stock over the 20-trading day period immediately
prior to the date of transfer;
- decreased by the number of newly issued shares of Celera Genomics Stock,
the proceeds of which have been allocated to the PE Biosystems Group, or
issued as a dividend or distribution or by reclassification, exchange or
otherwise to holders of PE Biosystems Stock; and
- adjusted as appropriate to reflect subdivisions and combinations of the
Celera Genomics Stock and dividends or distributions of shares of Celera
Genomics Stock to holders of Celera Genomics Stock and other
reclassifications of Celera Genomics Stock.
RIGHTS AGREEMENT
We have issued participating preferred stock purchase rights (the "existing
rights") to all holders of our existing common stock under our rights agreement
dated as of April 30, 1989 with our rights agent, The First National Bank of
Boston. Each existing right entitles the holder to purchase shares of
participating preferred stock under conditions described in the existing rights
agreement. The existing rights expire on April 30, 1999. If the recapitalization
proposal is implemented, we will amend the existing rights agreement so as not
to apply to the recapitalization.
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Pursuant to the recapitalization, our board of directors has determined to
issue under a new rights agreement, substantially similar to the existing rights
agreement:
- one right for each share of PE Biosystems Stock (a "PE Biosystems
Right"), which will allow holders to purchase shares of a newly
designated Series A participating junior preferred stock of PE if a
"distribution date" occurs; and
- issue one right for each share of Celera Genomics Stock (a "Celera
Genomics Right"), which will allow holders to purchase shares of a newly
designated Series B participating junior preferred stock of PE if a
"distribution date" occurs.
We refer to the PE Biosystems Rights and the Celera Genomics Rights as the
"Rights." The new rights agreement contains provisions designed to, among other
things:
- reflect our new equity structure;
- reset the prices at which rights issued under the new rights agreement
may be exercised for shares of participating preferred stock; and
- reflect our reincorporation in Delaware.
A "distribution date" will occur upon the earlier of:
- the tenth day after a public announcement that a person or group of
affiliated or associated persons other than us or our employee benefit
plans (an "acquiring person") has acquired beneficial ownership of (1)
15% or more of the shares of PE Biosystems Stock then outstanding or (2)
15% or more of the shares of Celera Genomics Stock then outstanding; or
- the tenth business day or a later day determined by our board of
directors following the commencement of a tender or exchange offer that
would result in such person or group beneficially owning such number of
shares.
Until the distribution date, the Rights will be transferred only with the common
stock.
Following the distribution date, holders of Rights will be entitled to
purchase from PE:
- in the case of a PE Biosystems Right, one one-thousandth of a share of
Series A participating junior preferred stock at a purchase price of
$425, subject to adjustment (the "Series A Purchase Price"); and
- in the case of a Celera Genomics Right, one one-thousandth of a share of
Series B participating junior preferred stock at a purchase price of
$125, subject to adjustment (the "Series B Purchase Price").
An existing right entitles the holder to purchase one one-hundredth of a share
of participating preferred stock at a purchase price of $90 upon the occurrence
of a distribution date under the existing rights agreement. In adopting the new
rights agreement, our board of directors determined that $90 would not represent
the long term value of a share of PE Biosystems Stock or Celera Genomics Stock.
If any person or group becomes an acquiring person:
- a PE Biosystems Right will entitle its holder to purchase, at the Series
A Purchase Price, a number of shares of PE Biosystems Stock with a market
value equal to twice the Series A Purchase Price; and
- a Celera Genomics Right will entitle its holder to purchase, at the
Series B Purchase Price, a number of shares of Celera Genomics Stock with
a market value equal to twice the Series B Purchase Price.
In certain circumstances after the Rights have been triggered, we may
exchange the Rights, other than Rights owned by an acquiring person, at an
exchange ratio of one share of PE Biosystems Stock per PE Biosystems Right and
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one share of Celera Genomics Stock per Celera Genomics Right.
If, following the time a person becomes an acquiring person:
- PE is acquired in a merger or other business combination transaction and
PE is not the surviving corporation;
- any person consolidates or merges with PE and all or part of the common
stock is converted or exchanged for securities, cash or property of any
other person; or
- 50% or more of PE's assets or earnings power is sold or transferred,
each PE Biosystems Right and each Celera Genomics Right will entitle its holder
to purchase, for the Series A Purchase Price or Series B Purchase Price, a
number of shares of common stock of the surviving entity in any such merger,
consolidation or other business combination or the purchaser in any such sale or
transfer with a market value equal to twice the Series A Purchase Price or
Series B Purchase Price.
The Rights will expire on the tenth anniversary of the adoption of the new
rights agreement unless we extend or terminate them as described below.
At any time until a person becomes an acquiring person, our board of
directors may redeem all of the Rights at a price of $.01 per Right. On the
redemption date, the right to exercise the Rights will terminate and the only
right of the holders of Rights will be to receive this price.
A holder of a Right will not have any rights as a stockholder of PE,
including the right to vote or to receive dividends, until a Right is exercised.
At any time prior to the time that any person becomes an acquiring person,
we may, without the approval of any holders of Rights, supplement or amend any
provision of the new rights agreement in any manner, whether or not such
supplement or amendment is adverse to any holders of the Rights. From and after
the time a person becomes an acquiring person, we may, without the approval of
any holders of Rights, supplement or amend the new rights agreement:
- to cure any ambiguity,
- to correct or supplement any provision that may be defective or
inconsistent, or
- in any manner that we may deem necessary or desirable and which does not
adversely affect the interests of the holders of Rights, other than an
acquiring person.
The new rights agreement contains provisions designed to prevent the
inadvertent triggering of the Rights. For example, it gives a person who has
inadvertently acquired 15% or more of the outstanding shares of a class of
common stock and does not have any intention of changing or influencing the
control of PE the opportunity to sell a sufficient number of shares so that such
acquisition would not trigger the Rights. In addition, the Rights will not be
triggered and a divestiture of shares will not be required by our repurchase of
shares of common stock outstanding which could raise the proportion of shares
held by a person to over the applicable 15% threshold. However, any person who
exceeds such threshold as a result of our stock repurchases will trigger the
Rights if such person subsequently acquires any additional shares of common
stock.
We have filed a copy of the form of the new rights agreement with the SEC as
an exhibit to the registration statement of which this proxy statement is a
part. Upon request, we will provide you with a copy of the new rights agreement
free of charge.
COMPARISON OF SHAREHOLDER RIGHTS
Following the recapitalization, your rights as shareholders will cease to be
governed by New York law, the existing certificate of incorporation and the
existing by-laws. Instead, your rights will be governed by the Delaware law, the
new certificate of incorporation and the new by-laws.
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The following discussion summarizes all material differences between your
rights as a shareholder of PE as a New York corporation and your rights as a
stockholder of PE as a Delaware corporation. Except as described below, the
material provisions of the new certificate of incorporation and the new by-laws
are substantially similar to those of the existing certificate of incorporation
and the existing by-laws. For additional information regarding the specific
rights relating to the PE Biosystems Stock and Celera Genomics Stock, you should
read "--Description of PE Biosystems Stock and Celera Genomics Stock."
AMENDMENTS TO CERTIFICATE OF INCORPORATION
Under New York law and Delaware law, our board of directors must propose an
amendment to the certificate of incorporation and then a majority of all
outstanding shares entitled to vote must approve it. Under New York law, a
separate vote of a class or series of capital stock is required for amendments
which exclude or limit the voting rights of such stock, provide for a conversion
of such stock into another class or series, change the conversion rights of such
stock, or authorize shares which have preferences in any respect superior to
that stock. Under Delaware law and the new certificate of incorporation,
amendments which make changes regarding the capital stock by increasing or
decreasing the par value or otherwise adversely affecting the rights of such
class must be approved by a majority vote of each class or series of stock
affected, even if such stock would not otherwise have voting rights.
AMENDMENTS TO BY-LAWS
Under New York law and the existing by-laws, either the affirmative vote of
the holders of a majority of the outstanding shares entitled to vote or the
affirmative vote of a majority of the members of our board of directors can
amend or repeal our by-laws. Under Delaware law, the new certificate of
incorporation and the new by-laws, either the affirmative vote of the holders of
shares having a majority of the votes cast affirmatively or negatively and
present in person or by proxy at the meeting or the affirmative vote of a
majority of the members of our board of directors can amend or repeal our
by-laws.
VOTE REQUIRED FOR MERGER AND CERTAIN OTHER TRANSACTIONS
Under New York law, our board of directors must adopt a plan of merger or
consolidation or share exchange or approve a sale, lease, exchange or other
disposition of all of our assets. The holders of two-thirds of all shares
entitled to vote must then adopt the plan.
Under Delaware law, our board of directors must approve an agreement of
merger or a sale, lease or exchange of all or substantially all of our assets.
The holders of a majority of the outstanding shares entitled to vote must then
adopt that board of directors action. Delaware law does not have a share
exchange provision.
SHAREHOLDER APPROVAL OF STOCK PLANS
Under New York law, the issuance of stock options or similar incentives to
directors, officers or employees must be authorized by a majority of the votes
cast at a shareholders' meeting by the shareholders entitled to vote thereon.
Delaware law does not have a similar requirement.
NUMBER OF DIRECTORS
Under the existing certificate of incorporation and existing by-laws, the
number of directors will not be less than three and not more than 15. The
existing by-laws and new by-laws provide that our board of directors or a by-law
amendment may fix the number of directors.
Under the new certificate of incorporation and new by-laws, the number of
directors will not be less than three and not more than 13. The new certificate
of incorporation provides that the number of directors will be fixed by
resolution of our board of directors.
REMOVAL OF DIRECTORS
New York law provides that any director may be removed for cause by a vote
of the
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shareholders entitled to vote. New York law further allows an action to obtain a
judgment removing a director for cause to be brought by the attorney-general or
by holders of 10% of the outstanding shares, whether or not entitled to vote.
The existing by-laws also provide that a director may be removed for cause by a
vote of a majority of our board of directors. In addition, under New York law
and the existing by-laws, shareholders may remove any director with or without
cause by the vote of a majority of the outstanding shares entitled to vote at a
special meeting called for that purpose.
Under Delaware law and the new certificate of incorporation, stockholders
may remove any director with or without cause by the vote of the holders of
shares entitled to cast a majority of the votes entitled to be cast by all
outstanding shares entitled to vote at an election of directors.
FILLING NEWLY CREATED DIRECTORSHIPS AND VACANCIES
Under New York law and the existing by-laws, a majority of the directors
then in office, even if less than a quorum, may fill vacancies in our board of
directors resulting from any reason other than the removal of a director without
cause, including vacancies resulting from newly created directorships. Only a
vote of the shareholders may fill vacancies resulting from the removal of a
director by shareholders without cause.
Under Delaware law and the new by-laws, a majority of directors then in
office, even if less than a quorum, may fill vacancies and newly created
directorships.
CUMULATIVE VOTING
Under New York law and the existing certificate of incorporation, as well as
Delaware law and the new certificate of incorporation, stockholders will not
have cumulative voting in electing directors.
LIMITATION ON DIRECTOR'S LIABILITY
As permitted by both New York law and Delaware law, both the existing
certificate of incorporation and the new certificate of incorporation eliminate
or limit the personal liability of a director to PE or our stockholders for
money damages based on his or her breach of fiduciary duty. A director's
liability is not eliminated or limited, however, for any breach of the
director's duty of loyalty to our company or our stockholders, for acts or
omissions not in good faith, which is the Delaware standard, or in bad faith,
which is the New York standard, or which involve intentional misconduct or a
knowing violation of law, or for any transaction from which he or she derived an
improper personal benefit, or for liability arising under Delaware law relating
to unlawful payment of dividends or unlawful stock purchase or redemption.
INDEMNIFICATION OF DIRECTORS AND OFFICERS
The existing by-laws provide that we will indemnify any director, officer or
employee against any damage, judgment, settlement, penalty, fine, cost or
expense, including attorneys' fees, incurred in connection with any legal
proceeding, except where their acts or omissions:
- were in breach of their duty of loyalty to PE or our shareholders;
- were in bad faith or involved intentional misconduct or a knowing
violation of law; or
- resulted in their receipt of an improper personal benefit.
The new by-laws generally provide that we will indemnify any director or
officer to the fullest extent authorized by Delaware law against any expense,
liability and loss, including attorneys' fees, judgments, fines, ERISA excise
taxes or penalties and amounts paid in settlement.
The existing by-laws and the new by-laws generally provide that we will also
pay reasonable expenses of the indemnified director, officer or employee in
advance of the final disposition of the proceeding to the fullest extent
permitted by law.
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SPECIAL MEETINGS OF STOCKHOLDERS
Under New York law and the existing by-laws, as well as Delaware law, the
new certificate of incorporation and the new by-laws, only our board of
directors or our chairman, president or secretary may call a special meeting of
the stockholders.
ACTION BY WRITTEN CONSENT OF STOCKHOLDERS
Under New York law , any action required or permitted to be taken at a
shareholders' meeting may be taken without a meeting if all of the shareholders
entitled to vote consent to the action in writing.
Under Delaware law, unless the certificate of incorporation states
otherwise, stockholders may take action with the written consent of the holders
who would need to vote in favor of the action in a meeting at which all shares
entitled to vote were present. The new certificate of incorporation provides
that, in order to be effective, written consent of all of the stockholders
entitled to vote must be obtained.
STOCKHOLDER PROPOSALS AND NOMINATIONS
The existing by-laws provide that any shareholder may present a proposal for
action at an annual or special meeting of shareholders only if such proposal has
been submitted in writing to PE and received by the secretary of PE at least 60
days, but not more than 90 days, before such annual or special meeting. If the
date of the meeting is first publicly announced or disclosed in writing to the
shareholders less than 70 days before the meeting, however, such notice may be
given not more than ten days after that announcement or writing. To be
considered at all, however, such proposal must be an appropriate subject of
shareholder action. In addition, such shareholder must provide certain specified
information regarding his or her share ownership and interest in such proposal.
The new by-laws provide that any stockholder may present a nomination for a
directorship or a proposal for action at an annual meeting of stockholders only
if such nomination or proposal has been delivered in writing to the secretary of
PE not less than 45 or more than 75 days prior to the first anniversary of the
date on which our company first mailed proxy materials for the preceding year's
annual meeting of stockholders. If the date of the annual meeting is advanced to
more than 30 days prior to, or delayed by more than 30 days after, the
anniversary of the preceding year's annual meeting, notice by the stockholder
must be so delivered not later than the close of business on the later of the
90th day prior to the date of the annual meeting or the tenth day following the
day on which public announcement of the date of such meeting is first made. The
notice must contain certain information regarding the proposal or nomination as
well as certain specified information regarding the stockholder giving the
notice and his or her interest in such proposal, as well as a statement whether
such stockholder intends to solicit proxies. In addition, any stockholder
proposal must be an appropriate subject of stockholder action.
BUSINESS COMBINATIONS FOLLOWING A CHANGE IN CONTROL
Under Section 912 of the New York Business Corporation Law, an "interested
shareholder" is defined as a holder of 20% or more of the outstanding voting
stock. An interested shareholder may engage in a business combination
transaction, such as a merger, consolidation or sale of substantially all the
assets of the corporation, with PE only if:
- our board of directors approved the transaction before such shareholder
became an interested shareholder;
- the holders of a majority of the outstanding voting stock held by all
disinterested shareholders approve the transaction after a five-year
waiting period; or
- following the five-year waiting period, the transaction satisfies certain
fair price provisions.
Under Section 203 of the Delaware General Corporation Law, an "interested
stockholder" is defined as a holder of 15% or more of the outstanding voting
stock. An interested
49
stockholder may engage in a business combination transaction with PE only if:
- our board of directors approved the transaction before such stockholder
became an interested stockholder or approved the transaction in which
such stockholder became an interested stockholder;
- the interested stockholder acquired at least 85% of the voting stock in
the transaction in which it became an interested stockholder; or
- our board of directors and the holders of shares entitled to cast
two-thirds of the votes entitled to be cast by all of the outstanding
voting shares held by all disinterested stockholders approve the
transaction.
TRANSACTIONS WITH CONTROL PERSONS; GREENMAIL
The existing certificate of incorporation prevents transactions between PE
and a holder of one percent or more of the voting power of PE unless the
transaction (1) is approved by a majority of disinterested directors or
two-thirds of the voting power of shares held by disinterested shareholders or
(2) satisfies specified fair price criteria. The new certificate of
incorporation does not include provisions restricting transactions between PE
and significant stockholders. However, as described under "--Business
Combinations Following a Change in Control," Section 203 of the Delaware General
Corporation Law limits the ability of a 15% or more holder of the outstanding
voting stock to engage in a business combination transaction with our company.
Under the existing certificate of incorporation and the existing by-laws, we
are prevented from purchasing shares of common stock from a 1% holder at a price
above the average price paid by the 1% holder for such shares over the previous
two years unless the purchase is approved by at least a majority of
disinterested shares. The new certificate of incorporation and the new by-laws
do not contain provisions limiting our ability to repurchase shares of common
stock from stockholders.
DISSENTERS' RIGHTS
Under New York law, a shareholder who complies with prescribed statutory
procedures is entitled to dissent and obtain payment of the fair value of its
shares in the event of consummation of:
- a plan of merger or consolidation upon which the shareholder is entitled
to vote, unless the corporation is the surviving corporation or its
shares are listed on a national securities exchange or quoted as a
national market system security;
- a plan of share exchange to which the corporation is a party as the
corporation whose shares will be acquired; or
- a sale, lease, exchange or other disposition of all, or substantially
all, of the corporation's property if a shareholder vote is required for
such disposition.
Generally, stockholders of a Delaware corporation who object to certain
mergers or a consolidation of the corporation are entitled to appraisal rights,
requiring the surviving corporation to pay the fair value of the dissenting
shares. There are, however, no statutory rights of appraisal with respect to
stockholders of a Delaware corporation whose shares of stock are either (1)
listed on a national securities exchange or designated as a national market
system security on an inter-dealer quotation system by the National Association
of Securities Dealers, Inc. or (2) held of record by more than 2,000
stockholders. However, appraisal rights will be available to holders of shares
if they are the required by the merger terms to accept anything other than
shares of the survivor, listed or quoted shares or cash in lieu of fractional
shares. In addition, no appraisal rights are available for any shares of stock
of a surviving corporation in a merger if the merger did not require the
approval of the stockholders of such corporation. Further, Delaware law does not
provide appraisal rights
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to stockholders who dissent from the sale of all or substantially all of the
corporation's assets unless the certificate of incorporation provides otherwise.
The new certificate of incorporation will not provide for appraisal rights upon
the sale of all or substantially all of our assets.
The meaning of "fair value" in payment for shares upon exercise of
dissenters' rights is different under New York law and Delaware law. Delaware
law provides that "fair value" does not include any element of value arising
from the completion or expectation of the transaction. New York law mandates
that the court should consider the nature of the transaction, its effect on the
corporation and its shareholders, and the concepts and methods of valuation then
customary in the relevant financial and securities markets.
RESTRICTIONS ON DIVIDENDS
Under New York law , a dividend may be paid on common stock, out of surplus,
which is defined as the excess of net assets over stated capital, only, unless,
after payment of the dividend, we are insolvent or would be rendered insolvent.
Under Delaware law, a dividend may be paid on common stock out of either
surplus, which is defined as the excess of net assets over capital, or if no
surplus exists, out of net profits for the fiscal year in which the dividend is
declared and/or the preceding fiscal year. Dividends may not be paid out of net
profits if our capital is less than the aggregate amount of the capital
represented by the issued and outstanding stock of all classes having a
preference upon the distribution of assets. The payment of dividends on the PE
Biosystems Stock and the Celera Genomics Stock will also be restricted by
provisions in the new certificate of incorporation. See "--Description of PE
Biosystems Stock and Celera Genomics Stock."
RESTRICTIONS ON STOCK REPURCHASES
Under New York law, we may not purchase or redeem shares if we are insolvent
or would be rendered insolvent.
Under Delaware law, we may not purchase or redeem shares when our capital is
impaired or when such purchase or redemption would cause any impairment of our
capital, except that (1) we may purchase or redeem out of capital any shares
which are entitled to a preference over another class or series of its stock or
(2) if no shares entitled to a preference are outstanding, we may purchase or
redeem shares out of capital. We also may not purchase any shares which are
redeemable at our option for more than the price at which they are then
redeemable.
TRANSACTIONS WITH DIRECTORS
Under New York law, certain contracts or transactions in which a director
has an interest are not void or voidable solely by reason of that interest if
the contract or transaction:
- is approved by the shareholders or by a majority of the disinterested
directors if the material facts are disclosed in good faith or known; or
- was fair and reasonable to the corporation at the time of approval.
However, New York law prohibits the corporation from making loans to a director
unless the loans are authorized by vote of its shareholders.
Delaware law contains provisions regarding transactions with directors that
are substantially similar to those of New York law. However, Delaware law
provides that we may make loans or provide guarantees for our officers,
including those who are also directors, if our board of directors reasonably
expects that such action will benefit PE.
STOCKHOLDER INSPECTION OF CORPORATE RECORDS
Under New York law, a shareholder who has been a shareholder of record for
at least six months, or who holds at least 5% of any class of outstanding
shares, is entitled to inspect our stock ledger, minutes of shareholders'
meetings, records of all actions taken by shareholders without a meeting, and
certain financial statements.
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Under Delaware law, any stockholder may inspect for any proper purpose our
stock ledger, list of stockholders and other books and records, and may make
copies or extracts from them.
PREEMPTIVE RIGHTS
As permitted by New York law, the existing certificate of incorporation
provides that shareholders do not have preemptive rights.
Under Delaware law, stockholders do not have preemptive rights unless
specifically granted in the certificate of incorporation. The new certificate of
incorporation will not grant preemptive rights.
CERTAIN ANTI-TAKEOVER PROVISIONS OF DELAWARE LAW AND THE NEW CERTIFICATE OF
INCORPORATION, THE NEW BY-LAWS AND THE NEW RIGHTS AGREEMENT
The following discussion concerns certain provisions of the new certificate
of incorporation, the new by-laws, and the new rights agreement that could be
viewed as having the effect of discouraging an attempt to obtain control of PE.
These provisions are similar in many respects to those currently applicable to
us. Since this is only a summary, you should also carefully read the discussion
of the rights of our stockholders under Delaware law and New York law under
"--Comparison of Shareholder Rights."
DELAWARE LAW
SECTION 203 OF THE DELAWARE GENERAL CORPORATION LAW. Under certain
circumstances, Section 203 of the Delaware General Corporation Law, which is
summarized under "--Comparison of Shareholder Rights," limits the ability of an
"interested stockholder" to effect various business combinations with PE for a
three-year period following the time that such stockholder became an interested
stockholder.
SPECIAL MEETINGS. Under Delaware law, unless the certificate of
incorporation or the by-laws provide otherwise, stockholders are not permitted
to call a special meeting of stockholders. The new certificate of incorporation
and the new by-laws do not permit stockholders to call a special meeting.
CERTIFICATE OF INCORPORATION AND BY-LAWS
AUTHORIZED SHARES. The new certificate of incorporation will provide that
we may from time to time issue shares of preferred stock in one or more series,
the terms of which will be determined by our board of directors, and common
stock of either class. We will not solicit approval of our stockholders unless
our board of directors believes that approval is advisable or is required by
stock exchange regulations or Delaware law. This could enable our board of
directors to issue shares to persons friendly to current management which could
render more difficult or discourage an attempt to obtain control of PE by means
of a merger, tender offer, proxy contest or otherwise, and thereby protect the
continuity of our management. Such additional shares also could be used to
dilute the stock ownership of persons seeking to obtain control of PE.
STOCKHOLDER ACTION BY WRITTEN CONSENT. The new certificate of incorporation
provides that stockholders may act by written consent only if the written
consent of all stockholders entitled to vote is obtained. Therefore, as a
practical matter, stockholders seeking to obtain control of PE may only take
actions at an annual or special meeting of stockholders.
STOCKHOLDER PROPOSALS AND NOMINATIONS. As summarized under "--Comparison of
Shareholder Rights--Stockholder Proposals and Nominations," the new by-laws
provide an advance notice procedure for stockholders to bring business before an
annual meeting of stockholders or to nominate directors for election at an
annual or special meeting. These procedural requirements could have the effect
of delaying or preventing the submission of certain matters proposed by any
stockholder to a vote of the stockholders.
RIGHTS AGREEMENT
As described under "--Rights Agreement," the new rights agreement will
permit disinterested stockholders to acquire additional shares of PE or of an
acquiring company at a
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substantial discount in the event of certain described changes in control. The
new rights agreement is intended to discourage anyone from buying shares of
common stock having more than 15% of the voting power of either class of common
stock without board of directors' approval.
UNITED STATES FEDERAL INCOME TAX CONSIDERATIONS
The following discussion is a summary of the principal United States federal
income tax consequences of the implementation of the recapitalization proposal.
The discussion is based on the Internal Revenue Code of 1986, as amended,
Treasury Department regulations, published positions of the Internal Revenue
Service, and court decisions now in effect, all of which are subject to change.
In particular, Congress could enact legislation affecting the treatment of stock
with characteristics similar to the PE Biosystems Stock and the Celera Genomics
Stock, or the Treasury Department could issue regulations that change current
law. Any future legislation or regulations could apply retroactively to the
implementation of the recapitalization proposal.
This discussion addresses only those of you who hold your existing common
stock and would hold your PE Biosystems Stock and Celera Genomics Stock as a
capital asset. This discussion does not discuss all aspects of United States
federal income taxation that may be relevant to you in light of your particular
tax circumstances. This discussion does not apply to you if you are a tax-exempt
organization, S corporation or other pass-through entity, mutual fund, small
business investment company, regulated investment company, insurance company or
other financial institution, broker-dealer or are otherwise subject to special
treatment under the federal income tax laws. This discussion also does not apply
to those of you who hold your existing common stock as part of a straddle,
hedging or conversion transaction. YOU SHOULD CONSULT YOUR OWN TAX ADVISOR WITH
REGARD TO THE APPLICATION OF THE FEDERAL INCOME TAX LAWS, AS WELL AS TO THE
APPLICABILITY AND EFFECT OF ANY STATE, LOCAL OR FOREIGN TAX LAWS TO WHICH YOU
MAY BE SUBJECT.
TAX IMPLICATIONS TO YOU OF THE IMPLEMENTATION OF THE RECAPITALIZATION
PROPOSAL
In the opinion of our counsel, Simpson Thacher & Bartlett, the
implementation of the recapitalization proposal will, except to the extent
described below, be tax-free to you. This means that:
- You will not recognize any income, gain or loss on the exchange of your
existing common stock for shares of PE Biosystems Stock and Celera
Genomics Stock;
- You will recognize capital gain or loss on any cash received in lieu of
fractional shares of Celera Genomics Stock equal to the difference
between the amount of cash received and the basis allocated to such
fractional shares;
- Your basis in the existing common stock held immediately before the
implementation of the recapitalization proposal will be allocated between
the PE Biosystems Stock and the Celera Genomics Stock received, including
any fractional shares deemed received, in proportion to the fair market
value of such PE Biosystems Stock and Celera Genomics Stock on the date
of the distribution;
- Your holding period of the PE Biosystems Stock and the Celera Genomics
Stock will include the holding period of the existing common stock; and
- Any gain or loss recognized upon a subsequent sale or exchange of either
the PE Biosystems Stock or the Celera Genomics Stock will be capital gain
or loss.
TAX IMPLICATIONS TO YOU OF A CONVERSION OF
PE BIOSYSTEMS STOCK OR CELERA
GENOMICS STOCK
Simpson Thacher & Bartlett has advised that if we exercise any of our
options to convert one class of common stock into the other class
53
of common stock, that conversion will be tax-free to you. You will have a
carryover adjusted tax basis in the shares of common stock that you receive and
generally a holding period that includes the holding period of the common stock
you surrendered in the exchange.
NO INTERNAL REVENUE SERVICE RULING
No ruling has been sought from the Internal Revenue Service. The Internal
Revenue Service has announced that it will not issue any advance rulings on the
classification of an instrument that has certain voting and liquidation rights
in an issuing corporation but whose dividend rights are determined by reference
to the earnings of a segregated portion of the issuing corporation's assets,
including assets held by a subsidiary. Simpson Thacher & Bartlett's opinion is
not binding on the Internal Revenue Service. In addition, there are no court
decisions or other authorities that bear directly on the effect of the features
of the PE Biosystems Stock and Celera Genomics Stock. It is possible, therefore,
that the Internal Revenue Service could assert that the receipt of the PE
Biosystems Stock or the Celera Genomics Stock as well as the subsequent exchange
of the PE Biosystems Stock and Celera Genomics Stock could be taxable to you and
to us. Simpson Thacher & Bartlett, however, is of the opinion that the Internal
Revenue Service would not prevail in such an assertion.
CLINTON ADMINISTRATION PROPOSAL
A recent proposal by the Clinton Administration would impose a corporate
level tax on the issuance of stock similar to the PE Biosystems Stock or the
Celera Genomics Stock. If this proposal is enacted, we could be subject to tax
on an issuance of PE Biosystems Stock or Celera Genomics Stock after the date of
enactment. We can not predict, however, whether the proposal will be enacted by
Congress and, if enacted, whether it will be in the form proposed by the Clinton
Administration. If our shareholders approve the recapitalization proposal, our
board of directors currently intends to implement the recapitalization, subject
to further legislative developments relating to this tax proposal.
Under the new certificate of incorporation, we may convert the PE Biosystems
Stock or the Celera Genomics Stock into shares of the other class without any
premium if there are adverse federal income tax law developments. See
"Description of PE Biosystems Stock and Celera Genomics Stock--Conversion and
Redemption-- Conversion of Common Stock at Our Option at Any Time." The proposal
of the Clinton Administration would be such an adverse development if it is
implemented or receives certain legislative action.
STOCK EXCHANGE LISTINGS
We will list the PE Biosystems Stock on the New York Stock Exchange and the
Pacific Stock Exchange under the symbol "PEB." We will list the Celera Genomics
Stock on such exchanges under the symbol "CRA."
EXCHANGE PROCEDURES
Upon consummation of the recapitalization, your stock certificates for our
existing common stock will represent shares of PE Biosystems Stock. Shortly
after the recapitalization, you will be mailed stock certificates representing
your shares of Celera Genomics Stock. You will also receive instructions on how
you may, at your option, exchange your existing stock certificates for new
certificates representing your PE Biosystems Stock.
STOCK TRANSFER AGENT AND REGISTRAR
Our existing transfer agent, BankBoston, N.A. will act as the registrar and
transfer agent for both the PE Biosystems Stock and the Celera Genomics Stock.
FINANCIAL ADVISORS
Morgan Stanley Dean Witter is acting as our sole advisor with respect to the
structuring of the recapitalization proposal. We have agreed to pay Morgan
Stanley Dean Witter a fee of $2,750,000.
In addition, we have engaged Bear Stearns & Company, Inc., SG Cowen
Securities Corporation and Deutsche Bank Securities Inc. as financial advisors.
We have agreed to pay
54
Bear Stearns a fee of $1,000,000, SG Cowen a fee of $750,000 and Deutsche Bank a
fee of $750,000.
We have also agreed to reimburse these advisors for their reasonable
out-of-pocket expenses, including the fees and expenses of their lawyers, and to
indemnify them against liabilities under the Securities Act and certain other
liabilities.
EFFECT ON EXISTING OPTIONS AND WARRANTS
If the recapitalization is implemented, each outstanding stock option under
our existing stock option plans will be converted into separately exercisable
options to acquire one share of PE Biosystems Stock and .5 of a share of Celera
Genomics Stock. The exercise price for the resulting PE Biosystems Stock options
and Celera Genomics Stock options will be calculated by multiplying the exercise
price under such existing stock option by a fraction, the numerator of which is
the average of the high and low price of the applicable class of common stock
underlying such option on the first date such stocks are traded, regular way,
after the recapitalization, and the denominator of which is the sum of such
prices for the PE Biosystems Stock and the Celera Genomics Stock.
If the recapitalization is implemented, pursuant to the terms of the Class F
and Class G warrants to purchase shares of existing common stock, each such
warrant will become exercisable for a number of shares of PE Biosystems Stock
and a number of shares of Celera Genomics Stock equal to the numbers of shares
which the holder of such warrant would receive in the recapitalization had such
warrant been exercised immediately prior to the recapitalization. The warrants
will not be separately exercisable into solely PE Biosystems Stock or solely
Celera Genomics Stock. The exercise price and expiration date of each warrant
will not be affected by the recapitalization.
OPTIONS FOR CELERA GENOMICS STOCK TO BE ISSUED UPON THE RECAPITALIZATION
In connection with the recapitalization, we have granted, pursuant to the
new Celera Genomics Stock incentive plan described under "Proposals 2 and
3--Adoption of PE Corporation/PE Biosystems Group 1999 Stock Incentive Plan and
PE Corporation/Celera Genomics Group 1999 Stock Incentive Plan," options to
purchase a total of 3,613,931 shares of Celera Genomics Stock to certain
executive officers and directors of our company and employees of the Celera
Genomics Group. These options include options to purchase 1,421,585 shares of
Celera Genomics Stock granted to Dr. Venter in recognition of his contributions
to the organization of the Celera Genomics Group and his continuing efforts
towards its future success.
We also expect to issue options to purchase 5% of the outstanding shares of
Celera Genomics Stock to The Institute of Genomics Research for its agreement
not to compete with the Celera Genomics Group and other consideration. These
options, which will not be granted under our stock incentive plan, are expected
to have a ten-year term and to be immediately exercisable.
NO DISSENTERS' RIGHTS
Under New York law, shareholders who dissent from the recapitalization
proposal will not have appraisal rights.
55
THE PERKIN-ELMER CORPORATION --
MANAGEMENT'S DISCUSSION AND ANALYSIS
MANAGEMENT'S DISCUSSION OF CONTINUING OPERATIONS
You should read this discussion with our consolidated financial statements.
Historical results and percentage relationships are not necessarily indicative
of operating results for any future periods.
Throughout the following discussion of operations we refer to the impact on
our reported results of the movement in foreign currency exchange rates from one
reporting period to another as "foreign currency translation."
DISCONTINUED OPERATIONS
On January 21, 1999, we announced a plan to sell our Analytical Instruments
business. On March 8, 1999, we announced an agreement for the sale of the
business to EG&G, Inc. for $425 million. Under the terms of the agreement, we
will receive $275 million in cash and a $150 million one-year note. We expect
the sale to close in the fourth quarter of fiscal 1999 subject to regulatory
approval and other normal closing conditions. Amounts previously reported for
Analytical Instruments have been reclassified and stated as discontinued
operations. See Note 15 to the consolidated financial statements.
EVENTS IMPACTING COMPARABILITY
ACQUISITIONS AND INVESTMENTS. On January 22, 1998, we acquired PerSeptive
Biosystems, Inc. The acquisition has been accounted for as a pooling of
interests and, accordingly, our financial results have been restated to include
the combined operations. See Note 2 to the consolidated financial statements.
We acquired Molecular Informatics, Inc. and a 14.5% interest, and
approximately 52% of the voting rights, in Tecan AG during the second quarter of
fiscal 1998, and GenScope, Inc. during the third quarter of fiscal 1997. The
results of operations for the above acquisitions, each of which was accounted
for as a purchase, have been included in the consolidated financial statements
since the date of each respective acquisition. A discussion of our significant
acquisitions and investments is provided in Note 2 to the consolidated financial
statements.
RESTRUCTURING AND OTHER MERGER COSTS. We incurred merger-related period
costs of $2.0 million in the first six months of fiscal 1999 in connection with
the integration of PerSeptive into PE. During fiscal 1998, we recorded $48.1
million of before-tax charges, or $.87 per diluted share after-tax, for
restructuring and other merger costs to integrate PerSeptive into PE. The charge
included $4.1 million of inventory-related write-offs, recorded in cost of
sales, associated with the rationalization of certain product lines. The
objectives of the integration plan are to lower PerSeptive's cost structure by
reducing excess manufacturing capacity, achieve broader worldwide distribution
of PerSeptive's products, and combine sales, marketing and administrative
functions.
In fiscal 1996, a before-tax charge of $17.5 million, or $.38 per diluted
share after-tax, was recorded by PerSeptive for restructuring actions and other
related costs. A discussion of our restructuring programs is provided in Note 10
to the consolidated financial statements.
ACQUIRED RESEARCH AND DEVELOPMENT. During fiscal 1998, 1997 and 1996, we
recorded charges for purchased in-process research and development in connection
with certain acquisitions. The charges recorded in fiscal 1998, 1997 and 1996
were $28.9 million, $26.8 million and $33.9 million, or $.57, $.54 and $.72 per
diluted share after-tax, respectively. See Note 2 to the consolidated financial
statements.
In the second quarter of fiscal 1998, we expensed $28.9 million of the
Molecular Informatics acquisition cost as in-process research and development,
representing 53.6% of the purchase price. This amount was attributed and
supported by a discounted probable cash flow analysis on a project-by-project
basis.
We attributed approximately 10% of the in-process research and development
value to BioLIMS, a software system that manages data, initiates analysis
programs, and captures the results in a centralized, relational database for
56
sequencing instruments; 6% to GA SFDB, a client-side add-on product to several
existing gene sequencing instruments; 38% to BioMERGE, a client-server
management and integration system that organizes proprietary, public and
third-party results in a single relational database for the drug discovery and
genomic research markets; 9% to BioCLINIC, a client-server management and
integration system that organizes proprietary, public and third-party results
generated from DNA and protein sequence analysis in a single database for the
clinical trials phase of drug development; and 37% to SDK, an open architecture
software platform from which all of Molecular Informatics' future software
applications are expected to be derived.
As of the acquisition date, all of the major functionality for BioLIMS 2.0
had been completed and the product was subsequently released in September 1998.
As of the acquisition date, BioLIMS 3.0 was in the design and scoping phase and
is expected to be released in June 1999. As of the acquisition date, GA SFDB was
in early alpha phase and had been completed concurrent with the development of
BioLIMIS 2.0 and was released in September 1998. As of the acquisition date,
BioMerge 3.0 functional scope was defined and the requirements assessment had
been completed and was subsequently released in November 1998. As of the
acquisition date, the BioClinic product requirements had been specified and
discussions had begun with two potential customers to begin the specific
software modifications. Development efforts were terminated in April 1998 due to
unsuccessful marketing efforts. As of the acquisition date, the SDK requirements
assessment had been completed and the functional scope had been defined.
Currently, one successful prototype has been completed and additional
development efforts continue in this area.
At the date of the acquisition, management expected to complete the majority
of these projects and commence generating significant revenues in fiscal 1999 at
an additional research and development cost of approximately $6.9 million. We
attributed $11.8 million of the purchase price to core technology and existing
products, primarily related to the BioMERGE product. We applied a risk-adjusted
discount to the projects' cash flows of 20% for existing technology and 23% for
in-process technology. The risk premium of 3% for in-process technologies was
determined by management based on the associated risks of releasing these
in-process technologies versus the existing technologies for the emerging
bioinformatics software industry. The significant risks associated with these
products include the limited operating history of Molecular Informatics,
uncertainties surrounding market acceptance of such in-process products,
competitive threats from other bioinformatics companies and other risks.
Management is primarily responsible for estimating the fair value of such
existing and in-process technology.
During the third quarter of fiscal 1997, we acquired GenScope, Inc., for
$26.8 million. GenScope, founded in 1995, represented a development stage
venture with no operating history and effectively no revenues. At the time of
the acquisition, GenScope had limited R&D contract services only. We acquired
the right to utilize AFLP-based gene expression technology in the field of human
health, but did not obtain any core technology or other rights. GenScope's
limited balance sheet, consisting of assets of approximately $.2 million, had
yet to deliver commercial value. Accordingly, we recorded a charge of $25.4
million attributable to the in-process technology purchased. We based this
amount on the early development stage of this life science business acquired,
the technological hurdles to the application of this technology to the field of
human health and the underlying cash flow projections. The acquisition
represented the purchase of development stage technology, not at the time
considered commercially viable in the health care applications that our company
intends to pursue. Our intent was to first develop the technology into a set of
molecular screening tools for use in the enhancement of pharmaceutical product
development. We allocated $1.4 million of the purchase price to technology
rights attributable to GenScope's AFLP gene expression technology. AFLP is an
enhancement of the polymerase chain reaction ("PCR") process that
57
allows selective analysis of any portion of genetic material without the
specific, prior sequence information normally required for PCR. Of the $25.4
million expensed as in-process research and development, $5.5 million
represented a contingent liability due on the issuance of a process patent for
technology under development.
Through June 30, 1998, we incurred approximately $4.9 million in additional
research and development costs to further develop the AFLP technology in the
field of human health. We anticipate spending an additional $13.9 million in
fiscal 1999 and 2000 to substantially complete such project. Such costs
approximate those anticipated at the date of acquisition.
During the fourth quarter of fiscal 1996, we acquired Tropix, Inc., a world
leader in the development, manufacture and sale of chemiluminescent detection
technology for life sciences. The acquisition cost, net of cash acquired, was
$36.0 million and was accounted for as a purchase. The purchase price was
allocated to the net assets acquired and to purchased in-process research and
development. Purchased in-process research and development included the value of
products in the development stage and not considered to have reached
technological feasibility. We expensed $22.3 million of the Tropix acquisition
cost as in-process research and development, representing 60.3% of the purchase
price. This amount was attributed and supported by a discounted probable cash
flow analysis on a project-by-project basis. The remaining purchase price was
allocated as follows: $10.2 million to proprietary patents and core technology,
$1.4 million to trademarks and tradenames, $.2 million to assembled workforce
and $1.9 million to working capital and property, plant and equipment acquired.
Approximately 56% of the in-process research and development value was
attributed to the pharmaceutical screening products project, a project designed
to incorporate existing proprietary technologies of Tropix into assay methods
for pharmaceutical customers and to perform the screening required by those
customers on-site. Additionally, there was to be continued development of
suitable assays to improve and expand the technology covered by Tropix patents.
The intent was to be a one-stop service where Tropix would develop and perform
screening for pharmaceutical customers. Assets in place for this project were
the intellectual property of Tropix and the scientific expertise required to
customize both the reagents and the methods necessary for the intended use of
the customers. Approximately 44% of the in-process research and development
value was attributed to the diagnostics products project, a project related to
the continued development of the reagent product line. Derivatives of the
proprietary technology and expansion of the patents surrounding it were planned
to exploit the leadership that Tropix held in its core chemiluminescent
products. Also, work was being performed on ancillary reagents to enhance both
reactions and stability of existing Tropix dioxetanes. Development of new kits
and applications based on the Gal-Star substrate, in particular, were
in-process. All of these activities were focused on expanding the existing
product line in consumables in order to maintain Tropix's leadership in
chemiluminescence.
Through June 30, 1998, we incurred approximately $2.8 million in additional
research and development costs to further develop these projects. The diagnostic
products project was completed in fiscal 1997. We anticipate spending an
additional $.8 million in fiscal 1999 to complete the pharmaceutical screening
project. Such costs approximate those anticipated at the date of acquisition.
A risk-adjusted discount rate of 23% was employed to value the in-process
projects. The significant risks associated with these products include the
limited operating history of Tropix, uncertainties surrounding market acceptance
of such in-process products and other competitive risks. Management is primarily
responsible for estimating the fair value of such existing and in-process
technologies.
In fiscal 1996, we acquired Zoogen, Inc., a leading provider of genetic
analysis services for $2.1 million, a minority equity interest in Paracel, Inc.,
a provider of information filtering technologies for $4.5 million and PerSeptive
Technologies Corporation, a research and development company formed to fund the
58
development of novel tools for clinical diagnostics and screening of biological
compounds for drug discovery, for $19.3 million. In connection with these life
science acquisitions, $11.6 million of purchased in-process research and
development was expensed in fiscal 1996.
IMPAIRMENT OF ASSETS. Cost of sales for fiscal 1997 included $.7 million,
or $.01 per diluted share after-tax, for the write-down of certain impaired
assets. The fiscal 1997 charge was a result of adopting Statement of Financial
Accounting Standards ("SFAS") No. 121, "Accounting for the Impairment of
Long-Lived Assets and for Long-Lived Assets to Be Disposed Of." In fiscal 1996,
we recorded a before-tax cost of sales charge of $9.9 million, or $.21 per
diluted share after-tax, for the impairment of certain production assets
associated with the realignment of the product offerings of PerSeptive. See Note
1 to the consolidated financial statements.
GAIN ON INVESTMENTS. The first six months of fiscal 1998 included a
before-tax gain of $.8 million, or $.02 per diluted share after-tax, related to
the release of contingencies on a minority equity investment. Fiscal 1998, 1997,
and 1996 included before-tax gains of $1.6 million, $64.9 million, and $11.7
million, respectively, related to the sale and release of contingencies on
minority equity investments. The fiscal 1998, 1997, and 1996 after-tax gains per
diluted share were $.03, $1.15, and $.19, respectively. See Note 2 to the
consolidated financial statements.
RESULTS OF CONTINUING OPERATIONS FOR THE SIX MONTHS ENDED DECEMBER 31, 1998
COMPARED WITH THE SIX MONTHS ENDED DECEMBER 31, 1997
We reported income from continuing operations of $36.1 million, or $.71 per
diluted share, for the first six months of fiscal 1999 compared with income from
continuing operations of $10.1 million, or $.20 per diluted share, for the first
six months of fiscal 1998. Excluding merger-related costs of $2.0 million
incurred in fiscal 1999, and acquired research and development costs of $28.9
million recorded in fiscal 1998, income for the first six months of fiscal 1999
decreased 3.5% compared with the prior year.
Net revenues were $543.2 million for the first six months of fiscal 1999
compared with $411.2 million for the first six months of fiscal 1998, an
increase of 32.1%. Excluding the results of Tecan, which were not included in
the prior year, revenues increased 18.2%. The effects of foreign currency
translation decreased net revenues by approximately 1% compared with the prior
year.
Geographically, excluding Tecan, we reported revenue growth in all regions.
Revenues increased 24% in the United States, 18% in Europe, 5% in the Far East,
and 10% in Latin America and other markets, compared with the prior year. Demand
for the PE Biosystems Group's new ABI PRISM-TM- 3700 DNA Analyzer, which began
shipping in the second quarter of fiscal 1999, was strong. Shipments for our
sequence detection systems and LC/MS products also contributed to the growth.
Gross margin as a percentage of net revenues was 54.9% in the first six
months of fiscal 1999 compared with 53.8% in the first six months of fiscal
1998. This was primarily the result of a change in product mix for the PE
Biosystems Group which reported higher unit sales of reagents to support genetic
analysis systems and increased royalty revenues. Continued growth in instrument
sales of the PE Biosystems Group's higher margin genetic analysis product
offerings and increased contract licensing revenues for the Celera Genomics
Group also contributed to the growth.
SG&A expenses were $164.4 million in the first six months of fiscal 1999
compared with $127.2 million in fiscal 1998. Excluding Tecan, SG&A expenses
increased 15.2% in the first six months of fiscal 1999 compared with the prior
year. This increase was due to higher planned expenses for the PE Biosystems
Group and expenses associated with establishing facilities and staff for the
Celera Genomics Group. As a percentage of net revenues, SG&A expenses were 30%
for fiscal 1999 compared with 31% for the prior year.
R&D expenses increased $27.8 million, or 58.6%, to $75.2 million compared
with
59
$47.4 million in the prior year. Excluding Tecan, R&D expenses increased 41%
compared with the prior year. Spending by the PE Biosystems Group for R&D
totaled $57 million, an increase of 35% over last year in support of new product
launches and to accelerate product development. The Celera Genomics Group's R&D
investments associated with establishing the infrastructure for core sequencing
operations and information systems contributed to the increase in R&D expense.
As a percentage of net revenues, our R&D expenses were 13.8% compared with 11.5%
for the prior year.
We incurred merger-related costs of $2.0 million in the first six months of
fiscal 1999 for training, relocation and communication costs in connection with
the integration of PerSeptive. See Note 10 to the condensed consolidated
financial statements. Additional merger-related period costs of approximately
$3.0 million to $5.0 million are expected to be incurred through the remaining
quarters of fiscal 1999.
Operating income increased to $56.8 million for the second quarter of fiscal
1999 compared with operating income of $17.7 million for the prior year. On a
comparable basis excluding the results of Tecan, merger-related costs of $2.0
million in fiscal 1999 and the acquired research and development charge of $28.9
million recorded in the second quarter of fiscal 1998, operating income
increased 3% compared with the prior year.
Including operating income derived from revenues of $9.8 million from sales
to the Celera Genomics Group, the PE Biosystems Group's operating income
increased 48.8% in the first six months of fiscal 1999. On a comparable basis,
excluding Tecan and operating income on revenues to the Celera Genomics Group,
the PE Biosystems Group's operating income increased 22.5% compared with the
prior year. Excluding Tecan, operating income for the PE Biosystems rose to
$89.4 million, or 18% of sales, for the first six months of fiscal 1999 compared
with $67.4 million, or 16% of sales, in fiscal 1998. The PE Biosystems Group
benefited from higher gross margins and lower SG&A expenses as a percentage of
net revenues. The PE Biosystems Group's increase was partially offset by
operating losses at the Celera Genomics Group. The Celera Genomics Group
incurred $15.7 million of operating losses for the first six months of fiscal
1999 compared with an operating loss of $3.2 million in the prior year. The
effects of currency translation for the PE Biosystems Group for the first six
months of fiscal 1999 decreased operating income by approximately $3 million
compared with the prior year.
Interest expense was $2.1 million for the first six months of fiscal 1999
compared with $2.7 million for the prior year. This decrease was primarily due
to the refinancing of PerSeptive's 8 1/4% Convertible Subordinated Notes and
lower average interest rates. Interest income was $.7 million for the first six
months of fiscal 1999 compared with $3.9 million for the prior year, primarily
because of lower average cash balances.
Other expense, net in fiscal 1999 was $.5 million compared with other
income, net of $1.3 million for the prior year. Other expense recognized in the
second quarter of fiscal 1999, primarily related to the revaluation of foreign
exchange contracts, more than offset other income related to a legal settlement
which was recognized in the first quarter of fiscal 1999. The other income, net
for fiscal 1998 resulted from a gain on the sale of certain non-operating
assets.
Our effective income tax rate was 19% for the first six months of fiscal
1999. Excluding Tecan, our effective income tax rate was 18% for the first six
months of fiscal 1999. Excluding special items in fiscal 1998, our effective
income tax rate was 25%. The fiscal 1999 tax rate was favorably affected by
reduced income in the United States resulting from the operating losses at the
Celera Genomics Group.
We recognized minority interest expense of $8.2 million in the first six
months of fiscal 1999 relating to our 14.5% interest in Tecan.
RESULTS OF CONTINUING OPERATIONS--1998 COMPARED WITH 1997
We reported net income from continuing operations of $15.7 million, or $.31
per diluted share, for fiscal 1998, compared with net income from continuing
operations of $102.5 million, or $2.07 per diluted share, for fiscal 1997. On a
60
comparable basis, excluding the special items previously described, net income
increased 17.3% to $86.4 million for fiscal 1998 compared with $73.7 million for
fiscal 1997, and earnings per diluted share increased 21.1% to $1.78 for fiscal
1998 from $1.47 for fiscal 1997. Excluding the effects of currency translation
and special items, earnings per diluted share would have increased approximately
39% compared with the prior year.
Net revenues were $944.3 million for fiscal 1998, compared with $768.4
million for fiscal 1997, an increase of 22.9%. Excluding Tecan, revenues
increased 16.3% compared with the prior year. The effects of currency
translation decreased net revenues by approximately $33 million, or 4%, compared
with the prior year, as the U.S. dollar strengthened against most European and
Far Eastern currencies. On a worldwide basis, excluding Tecan and the effects of
currency translation, revenues would have increased approximately 21% compared
with the prior year. Increased demand for genetic analysis, liquid
chromatography/mass spectrometry ("LC/MS"), and PCR product lines was the
primary contributor.
All geographic markets reported increased revenues over the prior year.
Excluding Tecan, net revenues in the United States, Europe and the Far East
increased 24.9%, 10.7% and 4.6%, respectively. Before the effects of currency
translation, and excluding Tecan, revenues in Europe and the Far East would have
increased approximately 18% and 14%, respectively, compared with the prior year.
We believe slower Japanese government funding in the second half of fiscal 1998
and the lack of a supplemental budget, which added to fiscal 1997 revenues,
contributed to a lower growth rate of only 3% in the Japanese market.
Gross margin as a percentage of net revenues was 53.8% for fiscal 1998
compared with 52.9% for fiscal 1997. Fiscal 1998 gross margin included $4.1
million of inventory-related write-offs associated with the rationalization of
certain product lines in connection with the acquisition of PerSeptive, and
fiscal 1997 included a charge of $.7 million for the write-down of certain
impaired assets. Excluding the special items, fiscal 1998 gross margin increased
to 54.3% of revenues compared with 53.0% for fiscal 1997. Benefits realized from
the sale of higher-margin genetic analysis products and increased royalty
revenues in the United States, more than offset the negative effects of currency
translation.
SG&A expenses were $283.4 million for fiscal 1998 compared with $229.9
million for the prior year. The 23.3% increase in expenses, or 16.5% excluding
Tecan, was due to higher planned worldwide selling and marketing expenses,
commensurate with the substantially higher revenue and order growth. Before the
effects of currency translation and Tecan, SG&A expenses increased approximately
19% compared with the prior year. As a percentage of net revenues, SG&A expenses
remained essentially unchanged from the prior year at 30%.
R&D expenses of $111.7 million increased 37.5% over the prior year. R&D
spending increased 42.9%, or 35.9% excluding Tecan, over the prior year as we
continued our product development efforts and preparation for new product
launches. As a percentage of net revenues, our R&D expenses increased to 11.8%
compared with 10.6% for the prior year.
During fiscal 1998, we recorded $48.1 million of charges for restructuring
and other merger costs to integrate PerSeptive following the acquisition. See
Note 10 to the consolidated financial statements. The objectives of the
integration plan are to lower PerSeptive's cost structure by reducing excess
manufacturing capacity, achieve broader worldwide distribution of PerSeptive's
products, and combine sales, marketing, and administrative functions. The charge
included: $33.9 million for restructuring the combined operations; $8.6 million
for transaction costs; and $4.1 million of inventory-related write-offs,
recorded in cost of sales, associated with the rationalization of certain
product lines. Additional non-recurring acquisition costs of $1.5 million for
training, relocation, and communication costs were recognized as period expenses
in the third and fourth quarters and were classified as other merger-related
costs. We expect to incur an additional $6.5 million to $8.5 million of
acquisition-related costs for training, relocation, and communication in fiscal
1999. These costs
61
will be recognized as period expenses when incurred and will be classified as
other merger costs.
The $33.9 million restructuring charge includes $13.8 million for
severance-related costs and workforce reductions of approximately 170 employees,
consisting of 114 employees in production labor and 56 employees in sales and
administrative support. The remaining $20.1 million represents facility
consolidation and asset-related write-offs and includes: $11.7 million for
contract and lease terminations and facility related expenses in connection with
the reduction of excess manufacturing capacity; $3.2 million for dealer
termination payments, sales office consolidations, and consolidation of sales
and administrative support functions; and $5.2 million for the write-off of
certain tangible and intangible assets and the termination of certain
contractual obligations. These restructuring actions are expected to be
substantially completed by the end of fiscal 1999. Transaction costs of $8.6
million include acquisition-related investment banking and professional fees. As
of June 30, 1998, approximately 12 employees were separated under the plan and
the actions are proceeding as planned.
Fiscal 1998 included $28.9 million of purchased in-process research and
development associated with the acquisition of Molecular Informatics. In fiscal
1997, we recorded a charge of $26.8 million primarily for in-process research
and development related to the acquisition of GenScope.
OPERATING INCOME
[Download Table]
(DOLLAR
AMOUNTS IN
MILLIONS)
-----------
1997
Operating income before special items...... $ 95.7
Acquired R&D............................... (26.8)
Impairment of assets....................... (.7)
-----------
Operating income......................... $ 68.2
-----------
-----------
1998
Operating income before special items...... $ 117.6
Restructuring and other merger costs....... (48.1)
Acquired R&D............................... (28.9)
-----------
Operating income......................... $ 40.6
-----------
-----------
Operating income decreased to $40.6 million for fiscal 1998 compared with
$68.2 million for fiscal 1997. Excluding the special charges for restructuring
and other merger costs, acquired research and development, and the impairment of
assets, operating income increased $21.9 million, or 22.9%, primarily as a
result of increased volume and improved margins. Excluding Tecan, operating
income before special items increased 14.9% compared with the prior year. Before
the effects of currency translation and excluding Tecan, fiscal 1998 operating
income before special items increased 32.8% compared with the prior year.
Geographically, excluding Tecan, fiscal 1998 operating income before special
items increased 29.7% in the United States, 20.1% in the Far East, and 8.0% in
Europe compared with fiscal 1997. A 23.5% increase in operating income from
higher-margin sequencing and mapping systems was the primary contributor. As a
percentage of net revenues, operating income before special items remained
essentially unchanged compared with the prior year.
In fiscal 1998 and 1997, we recorded gains of $1.6 million and $64.9
million, respectively, on the sale and release of contingencies on minority
equity investments. See Note 2 to the consolidated financial statements.
Interest expense was $4.9 million for fiscal 1998 compared with $5.9 million
for the prior year. This decrease was primarily due to the refinancing of the
PerSeptive Notes together with slightly lower outstanding debt balances and
lower average interest rates. Interest income was
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$5.9 million for fiscal 1998 compared with
$8.8 million for the prior year, primarily because of lower cash balances
resulting from the use of cash to fund our continued investments and
acquisitions, as well as from lower interest rates.
Other income, net for fiscal 1998 of $3.1 million, primarily related to the
sale of certain operating and non-operating assets, compared with other income,
net of $1.9 million for the prior year.
Our effective tax rate was 54% for fiscal 1998 and 26% for fiscal 1997.
Excluding Tecan in fiscal 1998, and special items in fiscal 1998 and fiscal
1997, the effective income tax rate was 24% for fiscal 1998 compared with 27%
for fiscal 1997. Increased earnings in low tax jurisdictions reduced our rate
for fiscal 1998. An analysis of the differences between the federal statutory
income tax rate and the effective rate is provided in Note 4 to the consolidated
financial statements.
Minority interest expense of $5.6 million was recognized in fiscal 1998
relating to our company's 14.5% financial interest in Tecan. See Note 2 to the
consolidated financial statements.
RESULTS OF CONTINUING OPERATIONS--1997 COMPARED WITH 1996
We reported net income from continuing operations of $102.5 million, or
$2.07 per diluted share, for fiscal 1997 compared with net income from
continuing operations of $1.3 million, or $.03 per diluted share, for fiscal
1996. On a comparable basis, excluding the special items previously described,
net income and earnings per diluted share increased 37.6% and 27.8%,
respectively.
Net revenues for fiscal 1997 were $768.4 million, an increase of 19.6% over
the $642.2 million reported for fiscal 1996. The effects of currency rate
movements decreased net revenues by approximately $25 million, or 4%, as the
U.S. dollar strengthened against the Japanese Yen and certain European
currencies.
All geographic markets experienced revenue growth for fiscal 1997. Net
revenues in the United States, Europe, and the Far East increased 20.2%, 22.0%,
and 16.3%, respectively. Increased demand for genetic analysis, LC/MS, and the
PCR product lines was the primary contributor. Excluding currency effects,
revenues in Europe and the Far East would have increased approximately 26% and
29%, respectively.
Gross margin as a percentage of net revenues was 52.9% for fiscal 1997
compared with 50.5% for fiscal 1996. Excluding the $.7 million and $9.9 million
charges for impaired assets, recorded in cost of sales, for fiscal 1997 and
1996, respectively, gross margin was 53.0% compared with 52.0%. The improved
gross margin was the result of the overall unit volume increase and product mix.
SG&A expenses were $229.9 million for fiscal 1997 compared with $188.3
million for fiscal 1996, an increase of 22.1%, reflecting a 16% increase in
worldwide marketing expenses, commensurate with the growth in revenues, and
increased costs for our restricted stock and performance-based compensation
programs. The total expense for the restricted stock and performance-based
programs was $20.4 million and $7.9 million for fiscal 1997 and 1996,
respectively. As a percentage of net revenues, our SG&A expenses remained
essentially unchanged at approximately 30% for both fiscal 1997 and fiscal 1996.
R&D expenses were $81.2 million for fiscal 1997 compared with $62.4 million
for fiscal 1996. R&D spending increased 30.1% over the prior year as we
continued our product development efforts for the bioresearch markets. As a
percentage of net revenues, R&D expenses increased to 10.6% for fiscal 1997
compared with 9.7% for fiscal 1996.
OPERATING INCOME
[Download Table]
(DOLLAR
AMOUNTS IN
MILLIONS)
-----------
1996
Operating income before special items...... $ 83.3
Restructuring.............................. (17.5)
Acquired R&D............................... (33.9)
Impairment of assets....................... (9.9)
-----------
Operating income......................... $ 22.0
-----------
-----------
1997
Operating income before special items...... $ 95.7
Acquired R&D............................... (26.8)
Impairment of assets....................... (.7)
-----------
Operating income......................... $ 68.2
-----------
-----------
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Operating income for fiscal 1997 was $68.2 million compared with $22.0
million for fiscal 1996. Fiscal 1997 and 1996 included charges of $26.8 million
and $33.9 million, respectively, for acquired research and development related
to acquisitions. We incurred a charge of $.7 million in fiscal 1997 and $9.9
million in fiscal 1996 for impairment of assets. Fiscal 1996 also included a
restructuring charge of $17.5 million for restructuring actions and other
related costs associated with PerSeptive. On a comparable basis, excluding
special items in both years, operating income increased 14.9% compared with the
prior year as a result of increased volume and improved gross margins.
All geographic markets contributed to the improved operating income before
special items. An increase in operating income from high-margin sequencing
systems was the primary contributor. The strongest growth was in Europe, where
fiscal 1997 operating income before special items increased 29.8% compared with
fiscal 1996. Excluding currency translation effects, operating income before
special items would have increased approximately 28%. As a percentage of net
revenues, operating income before special items decreased to 12.5% for fiscal
1997 from 13.0% for fiscal 1996.
In fiscal 1997 and 1996, we recorded before-tax gains of $64.9 million and
$11.7 million, respectively, on the sale and release of contingencies on
minority equity investments.
Interest expense was $5.9 million for fiscal 1997 compared with $8.4 million
for fiscal 1996. Lower average borrowing levels for fiscal 1997 and lower
weighted average interest rates on short-term debt accounted for the reduction
in interest costs. As a result of maintaining higher cash and cash equivalent
balances, interest income increased by $3.5 million to $8.8 million for fiscal
1997.
Other income, net was $1.9 million for fiscal 1997 compared with other
expense, net of $2.1 million for fiscal 1996. The fiscal 1997 amount consisted
primarily of a fourth quarter gain on the sale of real estate.
The effective income tax rate for fiscal 1997 was 26%. Fiscal 1996 incurred
a provision of $27.3 million on before-tax income of $28.6 million. Special
items affected both years. The charges for acquired research and development
were not deductible for tax purposes. In addition, the fiscal 1996 charge for
restructuring and the fiscal 1997 charge for impairment of assets were only
partially deductible and no tax benefit was recognized for PerSeptive's fiscal
1996 net operating loss, which resulted in a significant increase in the tax
rate for the fiscal year.
In the fourth quarter of fiscal 1997, we reduced our deferred tax valuation
allowance, resulting in the recognition of a $50.0 million deferred tax benefit.
The benefit resulting from the valuation allowance release was substantially
offset by a fourth quarter accrual for tax costs related to gains on foreign
reorganizations.
MARKET RISK
We operate internationally, with manufacturing and distribution facilities
in various countries throughout the world. For the first six months of fiscal
1999 and for fiscal 1998, we derived approximately 51% and 52%, respectively, of
our revenues from countries outside of the United States. Results continue to be
affected by market risk, including fluctuations in foreign currency exchange
rates and changes in economic conditions in foreign markets.
Our risk management strategy utilizes derivative financial instruments,
including forwards, swaps, purchased options, and synthetic forward contracts to
hedge certain foreign currency and interest rate exposures, with the intent of
offsetting losses and gains that occur on the underlying exposures with gains
and losses on the derivatives. We do not use derivative financial instruments
for trading or other speculative purposes, nor is our company a party to
leveraged derivatives. At December 31, 1998 and June 30, 1998, outstanding hedge
contracts covered approximately 80% of the estimated foreign currency exposures
related to cross-currency cash flows to be realized for the next twelve months.
The outstanding hedges were a combination of forward, option, and synthetic
forward contracts maturing in the next twelve months.
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We performed sensitivity analyses as of December 31, 1998 and June 30, 1998.
Assuming a hypothetical adverse change of 10% in foreign exchange rates (i.e., a
weakening of the U.S. Dollar) at December 31, 1998 and June 30, 1998, we
calculated hypothetical losses in future cash flows of $3.7 million at December
31, 1998 and $4.1 million at June 30, 1998. We calculated the hypothetical
losses by comparing the difference between the change in market value of both
the foreign currency contracts outstanding and the underlying exposures being
hedged at December 31, 1998 and June 30, 1998, assuming the 10% adverse change
in exchange rates. Actual gains and losses in the future could, however, differ
materially from these analyses, based on changes in the timing and amount of
foreign currency exchange rate movements and our actual exposures and hedges.
Interest rate swaps are used to hedge underlying debt obligations. In fiscal
1997, we executed an interest rate swap in conjunction with our entering into a
five-year Japanese Yen debt obligation. Under the terms of the swap agreement,
we pay a fixed rate of interest at 2.1% and receives a floating LIBOR interest
rate. At December 31, 1998 and June 30, 1998, the notional amount of
indebtedness covered by the interest rate swap was Yen 3.8 billion, which was
$33.1 million at December 31, 1998 and $27.0 million at June 30, 1998. The
maturity date of the swap coincides with the maturity of the Yen loan in March
2002.
A change in interest rates would have no impact on our reported interest
expense and related cash payments because the floating rate debt and fixed rate
swap contract have the same maturity and are based on the same rate index.
MANAGEMENT'S DISCUSSION OF FINANCIAL RESOURCES AND LIQUIDITY
The following discussion of financial resources and liquidity focuses on the
Consolidated Statements of Financial Position and the Consolidated Statements of
Cash Flows.
Cash and cash equivalents from continuing operations were $75.5 million at
December 31, 1998, $82.9 million at June 30, 1998, and $213.0 million at June
30, 1997, with total debt from continuing operations of $66.8 million at
December 31, 1998, $45.8 million at June 30, 1998, and $89.1 million at June 30,
1997.
Working capital was $330.0 million at December 31, 1998, $288.0 million at
June 30, 1998, and $354.7 million at June 30, 1997. Debt to total capitalization
increased to 10% at December 31, 1998 from 8% at June 30, 1998, as a result of
an increase in loans payable to fund current operating requirements. Debt to
total capitalization was 15% at June 30, 1997.
SIGNIFICANT CHANGES IN THE CONSOLIDATED
STATEMENTS OF FINANCIAL POSITION
Accounts receivable increased by $31.9 million and inventory balances
increased by $23.2 million from June 30, 1998 to December 31, 1998, reflecting
the growth in revenues and orders for the PE Biosystems Group. Accounts
receivable and inventory balances increased from June 30, 1997 to June 30, 1998
by $50.1 million and $25.9 million, respectively. Excluding Tecan, accounts
receivable and inventory balances increased by $28.6 million and $16.2 million,
respectively, from June 30, 1997 to June 30, 1998, reflecting the growth in
revenues and orders.
We reduced our total deferred tax asset and related valuation allowance from
$124.3 million and $69.7 million at June 30, 1997 to $115.5 million and $62.8
million at June 30, 1998. The valuation allowance relates primarily to foreign
and domestic tax loss carryforwards, domestic tax credit carryforwards and other
domestic deferred tax assets. A portion of the valuation allowance is
attributable to tax loss and credit carryforwards and other deferred tax assets
which we acquired as part of the purchase of PerSeptive in fiscal 1998. In
evaluating our need for a valuation allowance, we considered all available
positive and negative evidence, including historical information supplemented by
information about future years. The following factors significantly influenced
our conclusion regarding the need for a valuation allowance including:
- the historical profitability of our domestic Analytical Instruments
operations,
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- the limitation under the Internal Revenue Code on the amount of annual
utilization of domestic loss carryforwards and credits of PerSeptive,
- the long-term nature of a significant portion of the remaining domestic tax
asset, and
- the various expiration dates of the foreign loss carryforwards.
We evaluate the need for the valuation allowance periodically for each
taxpaying component in each tax jurisdiction.
Other long-term assets increased to $241.8 million at June 30, 1998 from
$156.8 million at June 30, 1997. The change included $70.9 million of intangible
assets associated with the acquisition of Tecan and Molecular Informatics, $11.5
million of minority equity investments, and a $10.2 million increase in prepaid
pension asset, partially offset by the sale of certain non-operating assets.
The increase of $21.0 million in total debt from June 30, 1998 to December
31, 1998 included $9.9 million of foreign currency translation. The $43.3
million decrease in total debt from June 30, 1997 to June 30, 1998 was due in
part to the redemption of PerSeptive's 8 1/4% Convertible Subordinated Notes Due
2001 on March 23, 1998. The redemption price was $1,055.81 per $1,000 principal
amount of the PerSeptive Notes, which represented the redemption premium and
aggregate principal plus accrued and unpaid interest to the redemption date. The
aggregate outstanding principal amount of the PerSeptive Notes was $27.2 million
at March 23, 1998. A total of $26.1 million was paid in cash, representing $24.7
million of principal and $1.4 million of accrued interest and premium relating
to the PerSeptive Notes. Additionally, $2.5 million of the principal amount of
the PerSeptive Notes was converted by the holders thereof into 35,557 shares of
our existing common stock.
Other accrued expenses increased by $19.9 million to $142.4 million at
December 31, 1998 from $122.5 million at June 30, 1998 as a result of higher
warranty and installation accruals, reflecting the increase in volume, and an
increase in deferred revenues and benefit accruals. Accounts payable decreased
by $9.5 million to $110.1 million at December 31, 1998 from $119.6 million at
June 30, 1998 as a result of payments made for higher purchases incurred during
the fourth quarter of fiscal 1998 in support of increased production and
operating requirements. Accounts payable increased $34.0 million to $119.6
million at June 30, 1998 from $85.6 million at June 30, 1997. The increase
resulted from higher purchases to support production and operating requirements.
At December 31, 1998 and June 30, 1998, $54.8 million and $43.8 million,
respectively, of minority interest was recognized in connection with Tecan.
STATEMENTS OF CASH FLOWS
Net cash provided by operating activities from continuing operations was
$15.9 million for the first six months of fiscal 1999 compared with $19.8
million for the same period in fiscal 1998. Higher accounts receivable balances
in support of the increased volume contributed to the decrease.
Operating activities from continuing operations generated $68.1 million of
cash in fiscal 1998 compared with $73.4 million in fiscal 1997 and $45.0 million
in fiscal 1996. In fiscal 1998, higher income-related cash flow was more than
offset by a net increase in operating assets and liabilities reflecting the
continued growth.
Net cash used by investing activities from continuing operations was $35.1
million for the first six months of fiscal 1999 compared with $112.9 million for
the first six months of fiscal 1998. In fiscal 1999, we generated $14.3 million
in net cash proceeds from the sale of certain non-operating assets, compared
with $16.2 million in the prior year from the sale of certain non-operating
assets and the collection of a note receivable. Capital expenditures for PE
totaled $50.0 million. Fiscal 1999 capital expenditures included $24.9 million
for the PE Biosystems Group, which included $4.7 million related to improvement
of our information technology infrastructure, $7.6 million for the Celera
Genomics Group, and $17.5 million for the acquisition of a corporate airplane.
The fiscal 1998 capital expenditures were $39.8 million, primarily related to
improvement of our
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information technology infrastructure, and $90.6 million related to various
investments and collaborations, primarily Tecan and Molecular Informatics.
In fiscal 1998 net cash used by investing activities from continuing
operations was $129.3 million compared with net cash provided by investing
activities from continuing operations of $24.7 million in fiscal 1997. During
fiscal 1998, we generated $19.5 million in net cash proceeds from the sale of
assets and $9.7 million from the collection of a note receivable. The proceeds
were more than offset by $60.5 million of capital expenditures, which included
$33.8 million as part of the strategic program to improve our information
technology infrastructure, and $98.0 million for acquisitions and investments,
primarily Tecan and Molecular Informatics. See Note 2 to the consolidated
financial statements.
For fiscal 1997, we generated $99.7 million in net cash proceeds from the
sale of our equity interests in Etec Systems, Inc. and Millennium
Pharmaceuticals, Inc. and from the sale of certain other non-operating assets.
These proceeds were partially offset by the $27.7 million used for acquisitions,
primarily related to GenScope, and $52.3 million for capital expenditures, which
included $9.5 million for information technology infrastructure improvements and
$12.1 million for the acquisition of a corporate airplane. See Note 2 to the
consolidated financial statements for a discussion of our acquisitions.
In fiscal 1996, $119.2 million of cash was used for acquisitions and $23.5
million was used for capital expenditures. This was partially offset by $102.3
million of cash proceeds generated from the sale of minority equity investments
and non-operating assets.
Net cash provided by financing activities was $40.6 million in the first six
months of fiscal 1999 compared with a net cash use of $5.8 million in the prior
period. In the first six months of fiscal 1999, we received $37.9 million in
proceeds from employee stock option plan exercises compared with $6.3 million in
fiscal 1998. Loans payable and debt increased $11.1 million in the first six
months of fiscal 1999 to fund our current operating requirements.
In fiscal 1998 net cash used by financing activities was $37.7 million
compared with $15.9 million for fiscal 1997, and $22.2 million for fiscal 1996.
During fiscal 1998, proceeds from employee stock plan exercises were $33.6
million. This was more than offset by shareholder dividend payments and the
redemption of the PerSeptive Notes.
During fiscal 1997, we generated $1.8 million from the sale of equity put
warrants and $33.6 million in proceeds from employee stock plan exercises,
compared with $65.0 million from employee stock plan exercises in fiscal 1996.
See Note 8 to the consolidated financial statements for a further discussion
regarding the sale of equity put warrants. This was more than offset by
shareholder dividends of approximately $29 million for both fiscal 1997 and
1996, and for the purchase of common stock for treasury. During fiscal 1997, .4
million shares were repurchased at a cost of $25.1 million, compared with .8
million shares at a cost of $41.0 million in fiscal 1996. Common stock purchases
for treasury were made in support of our various stock plans. No shares were
repurchased during fiscal 1998.
As previously mentioned, we recorded before-tax restructuring charges and
other merger costs of $48.1 million and $17.5 million in fiscal 1998 and 1996,
respectively, in the results from continuing operations. During fiscal 1998, we
made cash payments of $11.9 million for obligations related to restructuring
plans and other merger costs. Liabilities remaining at June 30, 1998 were $22.5
million for the fiscal 1998 plan. See Note 10 to the consolidated financial
statements for a discussion of our restructuring actions. The funding for the
remaining restructuring liabilities will be from current cash balances and funds
generated from operating activities.
We believe our cash and short-term investments, funds generated from
operating activities, and available borrowing facilities are sufficient to
provide for our anticipated financing needs over the next two years. At June 30,
1998,
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we had unused credit facilities totaling $343 million.
IMPACT OF INFLATION AND CHANGING PRICES
Inflation and changing prices are continually monitored. Our attempts to
minimize the impact of inflation by improving productivity and efficiency
through continual review of both manufacturing capacity and operating expense
levels. When operating costs and manufacturing costs increase, we attempt to
recover such costs by increasing, over time, the selling price of our products
and services. We believe the effects of inflation have been appropriately
managed and therefore have not had a material impact on our historic operations
and resulting financial position.
YEAR 2000
In fiscal 1997, we initiated a worldwide program to assess the expected
impact of the Year 2000 date recognition problem on our existing internal
computer systems; our non-information technology systems, including embedded and
process-control systems; our product offerings; and our significant suppliers.
The purpose of this program is to ensure the event does not have a material
adverse effect on our business operations.
Regarding our existing internal computer systems, the program involves a mix
of purchasing new systems and modifying existing systems, with the emphasis on
replacement of applications developed in-house. Replacement projects are
currently underway, and are anticipated to be substantially completed for all
business-critical systems worldwide by December 31, 1999. The program includes
replacement of applications that, for reasons other than Year 2000
noncompliance, had been previously selected for replacement. The replacement
projects, which began in fiscal 1997, are expected to offer improved
functionality and commonality over current systems, while at the same time
addressing the Year 2000 problem.
With respect to our current product offerings, the program involves
performing an inventory of current products, assessing their compliance status,
and constructing a remediation plan where appropriate. Significant progress has
been made in each of these three phases and we expect our current product
offerings to be Year 2000 compliant by December 31, 1999. A substantial portion
of our current product offerings is Year 2000 compliant.
The program also addresses the Year 2000 compliance efforts of our
significant suppliers, vendors, and third-party interface systems. As part of
this analysis, we are seeking written assurances from these suppliers, vendors,
and third parties that they will be Year 2000 compliant. While we have begun
such efforts, there can be no assurance that the systems of other companies with
which we deal, or on which our systems rely will be timely converted, or that
any such failure to convert by another company could not have a material adverse
effect on PE. We have not fully determined the extent to which our interface
systems may be impacted by third parties' systems, which may not be Year 2000
compliant.
Our preliminary estimate of the total cost for this multi-year program
covering 3-4 years is approximately $150 million. This includes amounts
previously budgeted for information technology infrastructure improvements and
estimates of remediation costs on components not yet fully assessed. Incremental
spending has not been and is not expected to be material because most Year 2000
compliance costs will be met with amounts that are normally budgeted for
procurement and maintenance of our information systems, production and
facilities equipment. The redirection of spending to implement Year 2000
compliance plans may in some instances delay productivity improvements.
We have also engaged a consulting firm to provide periodic assessments of
our Year 2000 project plans and progress. Because of the importance of
addressing the Year 2000 problem, we have created a Year 2000 business
continuity planning team to review and develop, by April 1999, business
contingency plans to address any issues that may not be corrected by
implementation of our Year 2000 compliance plan in a timely manner. If we are
not successful in implementing our Year 2000 compliance plan, or there are
delays in and/or increased costs associated with implementing such changes, the
Year 2000 problem could have a material
68
adverse effect on our consolidated results of operations and financial
condition.
At this stage of the process, we believe that it is difficult to
specifically identify the cause of the most reasonable worst case Year 2000
scenario. A reasonable worst case Year 2000 scenario would be the failure of
significant suppliers and vendors to have corrected their own Year 2000 issues
which could cause disruption of our operations and have a material adverse
effect on our financial condition. The impact of such disruption cannot be
estimated at this time. In the event we believe that any of our significant
suppliers or vendors are unlikely to be able to resolve their own Year 2000
issues, our contingency plan would include seeking additional sources of supply.
EURO CONVERSION
A single currency called the euro was introduced in Europe on January 1,
1999. Eleven of the fifteen member countries of the European Union agreed to
adopt the euro as their common legal currency on that date. Fixed conversion
rates between these participating countries' existing currencies (the "legacy
currencies") and the euro were established as of that date. The legacy
currencies are scheduled to remain legal tender as denominations of the euro
until at least January 1, 2002, but not later than July 1, 2002. During this
transition period, parties may settle transactions using either the euro or a
participating country's legal currency.
We are currently evaluating the impact of the euro conversion on our
computer and financial systems, business processes, market risk, and price
competition. We do not expect this conversion to have a material impact on our
results of operations, financial position or cash flows.
RECENTLY ISSUED ACCOUNTING STANDARDS
In June 1998, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standards ("SFAS") No. 133, "Accounting for
Derivative Instruments and Hedging Activities." The provisions of the statement
require the recognition of all derivatives as either assets or liabilities in
the statement of financial position and the measurement of those instruments at
fair value. The accounting for changes in the fair value of a derivative depends
on the intended use of the derivative and the resulting designation. We are
required to implement the statement in the first quarter of fiscal 2000. We are
currently analyzing the statement to determine the impact, if any, on the
consolidated financial statements.
The FASB issued the following Statement of Financial Accounting Standards,
which will become effective for our fiscal 1999 annual financial statements:
SFAS No. 132, "Employers' Disclosures about Pensions and other Postretirement
Benefits," which requires additional disclosures relating to a company's pension
and postretirement benefit plans; and SFAS No. 131, "Disclosure about Segments
of an Enterprise and Related Information," which requires certain financial and
descriptive information about a company's reportable operating segments. The
adoption of these new accounting standards may require additional disclosures
but should not have a material effect, if any, on our consolidated financial
statements.
We continue to apply APB No. 25 in accounting for our stock based
compensation plans. Accordingly, no compensation expense has been recognized for
these plans, as all options have been issued at fair value. The effect of
accounting for such plans at fair value, under SFAS No. 123, "Accounting for
Stock Based Compensation," would be to decrease fiscal 1998 net income by $31
million and diluted earnings per share by $.61. The method used to determine the
fair value is the Black-Scholes options pricing model. Accordingly, changes in
dividend yield, volatility, interest risks and option life could have a material
effect on the fair value. See Note 8 to the consolidated financial statements
for a more detailed discussion regarding the accounting for stock-based
compensation at fair value.
OUTLOOK
We expect the PE Biosystems Group to continue to grow and maintain
profitability for fiscal 1999 on the strength of robust demand and several new
products. As previously indicated, the PE Biosystems Group received more than 70
69
third-party orders for the ABI PRISM-TM- 3700 DNA Analyzer, in addition to the
230 ordered by the Celera Genomics Group. The 3700 provides technology that
enables the generation of sequencing data at a new level of throughput.
We are on schedule in establishing operations at the Celera Genomics Group.
The Celera Genomics Group employed approximately 220 employees as of December
31, 1998, and its laboratories, data center, and related facilities are coming
on line. We have extended the Celera Genomics Group's business to include
capabilities in functional genomics. This addition broadens the products and
services that the Celera Genomics Group can offer its customers and does so
sooner than planned. In addition, we announced that Amgen, Inc. had become the
first customer for the Celera Genomics Group's databases.
On March 8, 1999, we announced an agreement for the sale of our Analytical
Instruments business, which had been classified as a discontinued operation.
We remain concerned about adverse currency effects because approximately 51%
of our revenues were derived from regions outside the United States for the six
months ended December 31, 1998. Recently, the U.S. dollar has weakened, which
should moderate the effects of currency translation for fiscal 1999.
70
PE BIOSYSTEMS GROUP --
BUSINESS
The PE Biosystems Group consists of our established PE Biosystems' life
sciences and Analytical Instruments businesses.
PE Biosystems is a leader in the life sciences industry. It is engaged in:
(1) research, development, manufacture, sale and support of instrument systems,
reagents and software; and (2) related consulting and contract research and
development services.
The PE Biosystems Group's products are used in the pharmaceutical,
biotechnology, environmental testing, food, human identification, agriculture
and chemical manufacturing industries. Universities, government agencies and
other non-profit organizations engaged in research activities also use the PE
Biosystems Group's products.
In its Analytical Instruments business, the PE Biosystems Group develops,
manufactures, markets, sells and services analytical instruments used in a
variety of markets.
On January 21, 1999, we announced a plan to sell our Analytical Instruments
business and classified Analytical Investments as a discontinued operation. On
March 8, 1999, we announced an agreement for the sale of the business to EG&G,
Inc. for $425 million. Under the terms of the agreement, we will receive $275
million in cash and a $150 million one-year note. We expect the sale to close in
the fourth quarter of fiscal 1999 subject to regulatory approval and other
normal closing conditions.
PE BIOSYSTEMS
GENERAL
PE Biosystems is a world leader in the development, manufacture, sale and
service of instrument systems and associated consumable products for life
science research and related applications. Its products are used for the
synthesis, amplification, purification, isolation, analysis and sequencing of
nucleic acids, proteins and other biological molecules. For the fiscal year
ended June 30, 1998, PE Biosystems had net revenues of $940.1 million and
operating income, before special items, of $130.4 million.
PE Biosystems consists of four operating units and a shared service
organization consisting of human resources, finance, sales, marketing
communications, manufacturing, legal, quality control and advanced research. It
also receives from our company general and administrative services, such as
executive management, human resources, legal, accounting and auditing, tax,
treasury, strategic planning and environmental services. The operating units
that make up PE Biosystems are Applied Biosystems, PerSeptive Biosystems, PE
Informatics and Tropix. Each unit is responsible for the development and
marketing of products within its particular area of business. The operating
units serve substantially the same customer base but have little overlap in
their product offerings. As a result, PE Biosystems is able to enhance the
operating efficiency of these units through cross-selling and reduced
administrative costs.
PE Biosystems has an installed base of approximately 50,000 instrument
systems in approximately 100 countries. Approximately 54% of PE Biosystems'
sales in fiscal year 1998 was derived from sales of instruments, while the
remaining 46% was derived from sales of reagents, service and software.
OVERVIEW OF THE LIFE SCIENCES MARKET
All living organisms contain four basic biomolecules: nucleic acids, which
include DNA and RNA; proteins; carbohydrates; and lipids. Biomolecules are
typically much larger and more complex than common molecules. These structural
differences make the analysis of biomolecules significantly more complex than
the analysis of smaller compounds.
Although all of these biomolecules are critical for a cell to function
normally, historically, key advances in therapeutics have come from an
understanding of proteins or DNA. DNA molecules provide instructions that
ultimately control the synthesis of proteins within a cell. DNA molecules
consist of long chains of chemical subunits, called nucleotides. There are four
nucleotides -- adenine, cytosine, guanine, and thymine -- often abbreviated with
their first letters A, C, G, and T. DNA molecules consist of two long chains of
nucleotides bound together to form a double helix. Genes are individual segments
of these DNA molecules that carry the
71
specific information necessary to construct particular proteins. Genes may
contain from several dozen to tens of thousands of nucleotides. The entire
collection of DNA in an organism, called the genome, may contain between 4
million nucleotides for simple bacteria and 3.5 billion base pairs of
nucleotides or more for human beings.
Increasingly, and principally driven by the "biotechnology revolution,"
researchers are developing an understanding of and focusing on DNA's role in
human disease. An increased appreciation of how DNA ultimately determines the
functions of living organisms has generated a worldwide effort to identify and
sequence genes of many organisms, including the estimated 50,000 to 150,000
genes that make up the human genome.
Individual research efforts generally fall into two broad categories,
sequencing and sizing. In sequencing procedures, the goal is to determine the
exact order of the individual nucleotides in a DNA strand so that this
information can be related to the genetic activity influenced by that piece of
DNA. In DNA sizing, a particular fragment of a DNA molecule, isolated from a
specific sample, is tested to determine whether it contains a particular
category of size or nucleotide order. This testing does not seek to determine
the complete structure of the segment, but rather merely tries to determine if
the particular piece is a certain length or contains a specific short sequence.
Genetic research is expected to increase in the near future in part because
of a need by the pharmaceutical and biotechnology industries to accelerate their
drug discovery and development efforts. This need has also created a demand for
increased automation and efficiency in pharmaceutical and biotechnology
laboratories. PE Biosystems' products address this need by combining the
detection capabilities of bioanalytical instruments with advances in automation.
PRODUCTS AND SERVICES
APPLIED BIOSYSTEMS. Applied Biosystems ("AB"), the genetic analysis and
genomics technology unit of PE Biosystems, develops, markets and services
instrument systems for nucleic acid synthesis, Polymerase Chain Reaction
("PCR"), DNA sequencing, genetic analysis and cellular detection. These products
and services are used in both research and commercial applications for
purifying, analyzing, synthesizing, sequencing and amplifying genetic material.
AB's products can be broadly classified into the following categories:
- PCR PRODUCTS. PCR is a process in which a short strand of DNA is
duplicated, or "amplified," so that it can be more readily detected and
analyzed. AB's PCR amplification instruments, otherwise known as thermal
cyclers, are well regarded in the industry and have a reputation for
innovative features and reliability. PCR products include 24, 48 and 96
sample amplification systems, several combination thermal cyclers and PCR
detection systems, various reagents and software. AB recently released a
dual 384 sample thermal cycler which is expected to complement its Model
3700 DNA Analyzer and fill a significant market need for laboratories
involved in high volume genomic research.
The Sequence Detection Systems product line, introduced in 1996, uses a
unique PCR reagent discovered by the Roche Group and developed by AB,
TaqMan-Registered Trademark-, to quantitatively detect PCR products
during the thermal cycling process. This product line, which includes the
Model 7700, has been widely accepted in the pharmaceutical discovery
research market.
- GENETIC ANALYSIS. Genetic analysis primarily uses electrophoresis
techniques for separating molecules based on their differential mobility
in an electric field. AB's genetic analysis products generally perform
both DNA sequencing and fragment analysis.
DNA sequencing is used to determine the exact order of nucleotides that
make up a strand of DNA. Typically, fluorescent tags are used to generate
labeled products, each with a different colored tag. The tagged fragments
are run through an electrophoresis gel and are detected at the bottom of
the gel. DNA fragment analyzers are then used
72
to determine the size, quantity or pattern of DNA fragments. Fragment
analysis applications include gene mapping and forensic typing, using
microsatellite markers, single-strand conformation polymorphism analysis
to screen for unknown mutations within genes, and oligonucleotide
(synthetic nucleotide) ligation assay analysis to detect known mutations
within certain genes.
AB's DNA sequencing products include a sequencer expandable to 96
capillaries (Model 377), a one capillary sequencer (Model 310),
sequencing reagents and analysis software. These products have been used
by researchers to analyze DNA fragments in genetic linkage studies and
for comparative sequencing in human diagnostic and food contamination
applications.
A newly developed product, the Model 3700 DNA Analyzer, is first
scheduled for shipment during the last quarter of calendar year 1998.
This product is designed to enable applications requiring tens of
thousands of samples produced weekly by combining proven capillary
electrophoresis hardware and separation polymer chemistry with new
detection technology and automation. It will be the principal instrument
used by the Celera Genomics Group for its sequencing projects.
- DNA SYNTHESIS. DNA synthesizers produce synthetic DNA for genetic
analysis. The synthetic DNA is used for PCR and DNA sequencing primers
and is also used in drug discovery applications. AB currently markets
several models of synthesizers and supporting reagents. It also provides
custom synthesis, in which oligonucleotides are made-to-order and shipped
to customers.
- PNA. AB has an exclusive license to manufacture and sell peptide nucleic
acid ("PNA") for molecular biology research and various other
applications. PNA is a synthetic copy of a DNA molecule with a modified
uncharged peptide-like "backbone." The unique chemical structure of PNA
enhances its affinity and specificity as a DNA or RNA probe.
- APPLIED MARKETS. AB has formed product development and marketing groups
to develop products and services specially designed for individual
markets. The focus of these groups is in the food and environmental
testing and human identification (mainly forensic) markets.
The Molecular Microbiology Group is principally responsible for the
development and marketing of technologies for bacterial and fungal
detection, characterization and identification. This group has developed
the MicroSeq 16S rDNA Bacterial Sequencing Kit to sequence information to
accurately identify microorganisms. This kit is compatible with all of
AB's sequencing instruments. Additional TaqMan-Registered Trademark-
Pathogen Detection Kits relying on Sequence Detection Systems instrument
platforms are also under development by this group to establish rapidly
the presence of bacterial contamination.
The Human Identification Group develops systems that are used by crime
laboratories and other agencies to identify individuals based on their
DNA. These systems are most often used in cases of violent crime where
DNA found at the crime scene is matched with DNA from suspects, and there
is growing potential for DNA databases of known criminals. The systems
are also used in the identification of human remains at disaster sites.
- HUMAN DIAGNOSTICS. AB has a license from the Roche Group to use PCR
techniques in the development and marketing of products for human
diagnostics based on fluorescent sequencing. Products developed for human
diagnostics fall into the following general categories: immunology;
genetic disease carrier identification; infectious
73
disease; and cancer. The group expects to develop tests based on this
technology to support HLA typing in bone marrow transplants and for HIV
resistance diagnosis. Tests have also been developed for carrier
identification for cystic fibrosis, fragile X syndrome, and loss of
heterozygosity associated with specific forms of colorectal cancer.
- CELLULAR DETECTION SYSTEMS. Through its strategic alliance with Biometric
Imaging, Inc., AB is co-developing a fluorometric microvolume assay
technology system. This instrument system uses proprietary scanning
technology to detect and measure fluorescence associated with objects as
small as a single cell. This system is expected to satisfy market needs
in pharmaceutical development for a cell-based, high throughput screening
system.
PERSEPTIVE BIOSYSTEMS. PerSeptive Biosystems ("PB" or "PerSeptive")
develops, manufactures and markets proprietary consumable products and
instrument systems for the purification, analysis and synthesis of proteins and
related molecules. The study of the role of proteins, which are the mediators of
most chemical reactions within a cell, in the evolution of a disease, or in
evaluating a drug's ability to modulate the disease by binding to those specific
proteins, is a crucial step in understanding the ways diseases develop in the
body. PerSeptive's products are used in the life science markets to reduce the
time and cost required for the discovery, development and manufacture of
pharmaceutical products.
PB's products can be broadly classified into the following categories:
- MASS SPECTROMETRY. PerSeptive's mass spectrometry products are used for
the analysis of both large molecules such as proteins and small molecules
including those that might be used as drugs. These systems may be sold
and used on a stand alone basis or coupled with a liquid chromatograph
("LC/MS"). LC/MS systems are able to separate and analyze the components
of complex mixtures. All mass spectrometry systems include an ionization
source which creates charged molecules and a mass separation component
which separates these charged molecules on the basis of their mass.
Until recently, mass spectrometry was not very useful for the analysis of
large molecules of biological importance such as proteins because the
classical methods for creating ions caused these complex molecules to
disintegrate into many small pieces. This resulted in the destruction of
the information about the original large molecule. The mass separation
component was also problematic because it was not possible to distinguish
between large molecules of nearly the same mass. The PE Biosystems Group
believes that its Matrix-Assisted, Laser Desorption Ionization
Time-of-Flight ("MALDI-TOF") technology overcomes those deficiencies for
proteins and many other large molecules of biological importance.
PerSeptive has one of the largest market shares of installed MALDI-TOF
instruments, primarily due to its instrument performance and software.
Since MALDI-TOF instruments do not include a separation device such as a
liquid chromatograph, mixtures are often separated before analysis. This
is often accomplished with PerSeptive's purification products such as the
Integral 100Q, an integrated separation device which gives rapid
separation of proteins or other large molecules. MALDI-TOF instruments
are expected to be critical in the expanding field of proteomics, or
large scale studies of many proteins at one time.
Mass spectrometry systems are also used to identify and quantify smaller
molecules and are especially important for the measurement of drugs and
their metabolites, which are compounds resulting from the body's acting
upon the drug, in bodily fluids such as blood or urine. This information
is required for FDA and other regulatory approvals of drugs. This
application is very
74
demanding because the amounts of the drugs and their metabolites are very
low and the mixtures are very complex. In order to analyze this mixture,
scientists use LC/MS/MS systems, which consist of a liquid chromatograph
which separates the components of the mixture, usually an extract of
blood or urine, and two mass separation components in tandem. The use of
a general mass separation device followed by a second, more specific
device allows the detection to be more specific, so there are fewer
potential interferences. For these instruments, it is important to get as
much of the sample as possible to become charged so that sensitivity will
be maximized. This is done with components which have been developed and
refined by Perkin-Elmer Sciex ("PE Sciex"), a joint venture between PE
and MDS Health Group Limited. PE Sciex has also developed the MS/MS
portion of the instrument which creates the sensitivity and specificity
required for this demanding application. The PE Biosystems Group believes
that it has the largest market share in instruments for the analysis of
drugs and their metabolites in clinical trials and that its instruments
have the highest sensitivity of any systems of this type.
The PE Biosystems Group also believes that there is the potential for
significant synergy between the various types of mass spectrometry
technologies available within PerSeptive. For example, the Time-of-Flight
("TOF") mass separation component can be used with PE Sciex ion source to
create systems which will give more accurate mass measurements and
therefore more specific identification of unknown compounds. Similarly,
the PE Sciex mass separation device can be used in tandem with the TOF
mass separation device to achieve more specificity.
- PURIFICATION. As the human genome is sequenced and becomes known, the
information obtained will be used to study the expression profiles of
genes (proteins). Consequently, tens of thousands of proteins will need
to be purified and characterized because these proteins may be used as
drug targets or as therapeutics. PerSeptive's purification products can
be incorporated readily into any stage of the development process of a
pharmaceutical product and offer productivity advantages over
conventional counterparts. Companies using conventional purification
technology usually make several significant changes in materials,
equipment and processes in moving from the development stage to
commercial manufacture. As a result, an integrated line of purification
products should enhance productivity by reducing or eliminating these
costly and time-consuming changes. Moreover, because the U.S. Food and
Drug Administration must approve significant changes in manufacturing
processes, an integrated line of purification products may simplify and
expedite the process of obtaining FDA approvals.
PerSeptive's patented Perfusion Chromatography technology, which uses
proprietary flow-through particles, and BioCad-Registered Trademark-
Chromatography workstation reduce the time necessary for the purification
and analysis of biomolecules. This technology separates biomolecules 10
to 1000 times faster than conventional liquid chromatography or
high-pressure liquid chromatography (HPLC) without compromising
resolution or capacity. PerSeptive's Vision-TM- Workstation is the first
robotic-equipped HPLC platform introduced to the life science markets
that allows for the separation of proteins followed by analysis of the
fractions collected in an unattended operation. Together, the automated
platform and flow-through particles are designed to increase throughput
and efficiency for the purification of biomolecules.
- PROTEIN SEQUENCING AND SYNTHESIS. Protein sequencers provide information
about the amino acids that make up a given protein by chemically
disassembling the
75
protein and analyzing its components. PerSeptive's
Procise-Registered Trademark- Protein Sequencing system uses Edman
protein sequencing to disassemble a protein one amino acid at a time to
render the sequence of that protein.
Synthetically produced peptides are used in understanding antibody
reactions and as potential drugs or drug analogs. PerSeptive's
Solaris-TM- 530 is an automated chemical synthesis system that assembles
organic compounds for screening or analysis. PerSeptive's Pioneer-TM-
Peptide Synthesis system is designed to assemble amino acids for the
synthesis of peptides, peptide analogs, and small proteins. PerSeptive
also manufactures and sells proprietary reagents and fine chemicals for
use with these and other products.
PE INFORMATICS. PE Informatics, the information management unit of PE
Biosystems, develops, markets and distributes bioinformatics software for the
pharmaceutical, biotechnology and agrochemical industries. PE Informatics
provides a comprehensive software system researchers can use to manage and
analyze genomic data. Its products include software for science professionals
who analyze gene sequences in an effort to discover and develop drugs and
perform clinical trials. These products are necessary to meet the need for
software and services to manage, integrate and analyze the vast amounts of
information related to bioscience discovery processes.
Bioinformatics is a new science that enables researchers to transform
massive amounts of data into an organized knowledge database. PE Informatics'
customers are typically attempting breakthroughs in gene mapping, drug
discovery, drug development and molecular diagnostics, and its products provide
the vehicles for transforming raw data into the organized body of knowledge that
enables those breakthrough discoveries. The business is dedicated to the
development of infrastructure software for genome data collection and
management, gene mapping, drug discovery and clinical and diagnostic genetic
research.
PE Informatics currently provides genomic data management products for both
discovery and development.
Discovery oriented products include: BioMerge-TM-, a product that allows
research groups to store, retrieve and analyze genetic information; BioLIMS-TM-,
a product that manages automated DNA sequencing for AB's products; and
SQL*GT-TM-, a product for sample tracking and sample management for high
throughput laboratories.
Development-oriented products include: SQL*Lims-Registered Trademark-, a
product designed to optimize information processing and provide information
management tools for the analytical laboratory; and TurboChrom-TM- Client/Server
Chromatography Data System which delivers distributed computing resources across
an entire organization, while managing key data processes centrally.
TROPIX. Tropix develops, manufactures and markets chemiluminescent
substrates and related products for the life science markets. Chemiluminescent
technology is used in life science research and commercial applications
including drug discovery and development, clinical diagnostics, gene function
study, molecular biology and immunology research. Tropix also licenses its
technology to companies selling bioanalytical and clinical diagnostic tests.
Chemiluminescence is the conversion of chemical energy stored within a
molecule into light. Chemiluminescent enzyme substrates are used that emit light
in the presence of a target substance that is "labeled" or connected to an
enzyme.
Tropix's products include reagents and chemiluminescent plate readers which
measure light emitted by a sample. Tropix also operates a facility devoted to
drug discovery services for the pharmaceutical, biotech and agricultural
markets. The services offered by this facility include custom assay development
using proprietary technologies and high throughput drug screening with an
initial capacity of 100,000 tests per day.
ANALYTICAL INSTRUMENTS.
GENERAL
Analytical Instruments is a world leader in the development, manufacture,
marketing, sales
76
and service of analytical instrument systems. For the six months ended December
31, 1998, Analytical Instruments had net revenues of $261.1 million and an
operating loss of $1.9 million.
Analytical chemistry is the science of experimentally determining the
elemental, chemical and physical characteristics that make up a particular
sample. Analytical instruments are the tools used to perform analytical
chemistry. These systems detect, identify and measure changes in properties of
solids, liquids and gases. For example, certain types of analytical instruments
are targeted toward determining chemical composition; others are used to study
molecular structure; and still others measure physical characteristics.
Analytical instruments are also used for testing and analysis applications, both
inside and outside of laboratories.
The principal markets for Analytical Instruments' products and services
include: agricultural analysis, automotive industries, petrochemical industries,
clinical, and biological analysis industries, environmental testing and
monitoring, materials research, food quality management, pharmaceutical and
semiconductors.
PRODUCTS
Analytical Instruments' products tend to vary significantly in terms of
their technologies, test methodologies, applications, performance and cost.
Moreover, there is rarely any overlap of instruments across categories of
inorganic elements, organic compounds or attribute levels. That is, an
instrument can be applied for use in analyzing elements, compounds or
attributes, but typically not more than one of these applications.
Analytical Instruments' products can be broadly classified into four
categories:
- CHROMATOGRAPHY. Chromatography instruments are designed to analyze
complex mixtures by first separating them into their components and then
measuring them quantitatively. Analytical Instruments offers two types of
chromatography products: liquid and gas.
- INORGANIC ANALYSIS. These instruments are intended for analysis of
inorganic elements such as lead, mercury, arsenic or gold in a wide variety of
samples from oils and water to geological materials. Analytical Instruments
offers three types of inorganic analysis products: atomic absorption
spectrometers; inductively coupled plasma optical emission spectrometers; and
inductively coupled plasma/mass spectrometers. These inductively coupled plasma/
mass spectrometers are provided by PE Sciex.
- ORGANIC ANALYSIS. These instruments are designed to provide qualitative
and quantitative information for molecular and organic compounds in the broadest
range of samples. Analytical Instruments' organic analysis products include:
infrared and near infrared spectrometers; thermal analyzers; ultraviolet,
visible and near infrared spectrometers; fluorescence spectrometers; analytical
balances; and polarimeters.
- LABORATORY INFORMATION MANAGEMENT SYSTEMS. These systems provide data
handling and data management for analytical laboratories.
JOINT VENTURE
The PE Biosystems Group is engaged in the manufacture and sale of mass
spectrometry instrument systems through PE Sciex, a joint venture with MDS
Health Group Limited. Both PE Biosystems and Analytical Instruments sell these
products.
MARKETING AND DISTRIBUTION
The markets for PE Biosystems products and services span the spectrum of the
life sciences industry, including basic human disease research, genetic
analysis, pharmaceutical drug discovery, development and manufacturing, human
identification, agriculture and food and environmental testing. Each of these
markets has unique requirements and expectations that PE Biosystems seeks to
address in its product offerings. PE Biosystems' customers are continually
searching for processes and systems that can perform tests faster, more
efficiently, and at lower costs. PE Biosystems believes that its focus on
automated and high throughput systems enables it to respond to this need.
The size and growth of PE Biosystems' markets are influenced by a number of
factors, including:
77
- technological innovation in bioanalytical practice;
- government funding for basic and disease-related research, such as in
heart disease, AIDS and cancer;
- application of biotechnology in basic agriculture processes;
- increased awareness of biological contamination in food and the
environment; and
- research and development spending by biotechnology and pharmaceutical
companies.
PE Biosystems and Analytical Instruments use similar marketing and
distribution practices. In the United States, PE Biosystems and Analytical
Instruments market the largest portion of their products directly through their
own sales and distribution organizations, although certain products are marketed
through independent distributors and sales representatives. Sales to major
markets outside of the United States are generally made by the PE Biosystems
Group's foreign based sales and service staff, although some sales are made
directly from the United States to foreign customers. In some foreign countries,
sales are made through various representative and distributorship arrangements.
The PE Biosystems Group owns or leases sales and service offices in strategic
regional locations in the United States and in foreign countries through its
foreign sales subsidiaries and distribution operations. None of the PE
Biosystems Group's products are distributed through retail outlets.
RAW MATERIALS
There are no specialized raw materials that are particularly essential to
the operation of the PE Biosystems Group's business. The PE Biosystems Group's
manufacturing operations require a wide variety of raw materials, electronic and
mechanical components, chemical and biochemical materials, and other supplies,
some of which are occasionally found to be in short supply. The PE Biosystems
Group has multiple commercial sources for most components and supplies, but it
is dependent on single sources for a limited number of such items, in which case
the PE Biosystems Group normally secures long-term supply contracts. In some
cases, if a supplier discontinues a product, it could temporarily interrupt the
business of PE Biosystems.
PATENTS, LICENSES, AND FRANCHISES
The PE Biosystems Group has pursued a policy of seeking patent protection in
the United States and other countries for developments, improvements, and
inventions originating within its organization that are incorporated in the PE
Biosystems Group's products or that fall within its fields of interest. Some
licenses under patents have been granted to, and received from, other entities.
The PE Biosystems Group has certain rights from the Roche Group under patents
relating to PCR, one of which expires in 2004. The PE Biosystems Group also has
rights under a patent issued to the California Institute of Technology relating
to DNA sequencing which expires in 2009. In the PE Biosystems Group's opinion,
no other single patent or license, or group of patents or licenses, or any
franchise, is material to its business as a whole or to either PE Biosystems or
Analytical Instruments.
From time to time, the PE Biosystems Group has asserted that various
competitors and others are infringing its patents; and similarly, from time to
time, others have asserted that the PE Biosystems Group was infringing patents
owned by them. In most cases, these claims are settled by mutual agreement on a
satisfactory basis and result in the granting of licenses by or to the PE
Biosystems Group.
The PE Biosystems Group has also established a successful licensing program,
providing industry access to its intellectual property.
BACKLOG
The PE Biosystems Group's total recorded backlog on June 30, 1998 was $208.6
million, consisting of $119.3 million for PE Biosystems and $89.3 million for
Analytical Instruments. On June 30, 1997, the PE Biosystems Group's total
recorded backlog was $176.4 million, consisting of $86.3 million for PE
Biosystems and $90.1 million for Analytical Instruments. It is the PE Biosystems
Group's general policy to include in backlog only purchase orders or production
releases that have firm delivery dates within one year. Recorded backlog may not
result in sales because of cancellation or other factors. It is
78
anticipated that all orders included in the current backlog will be delivered
before the close of fiscal year 1999.
COMPETITION
The industry segments in which the PE Biosystems Group operates are highly
competitive and are characterized by the application of advanced technology. A
number of the PE Biosystems Group's competitors are well-known manufacturers
with a high degree of technical proficiency. In addition, competition is
intensified by the ever-changing nature of the technologies in the industries in
which the PE Biosystems Group is engaged.
PE Biosystems' principal competition comes from specialized manufacturers
that have strengths in narrow segments of the life science markets. In the
analytical instruments markets, there are numerous companies that specialize in,
and a number of larger companies that devote a significant portion of their
resources to, the development, manufacture and sale of products that compete
with those manufactured or sold by Analytical Instruments. PE Biosystems and
Analytical Instruments compete principally in terms of the breadth and quality
of their product offerings, and their service and distribution capabilities.
While the absence of reliable statistics makes it difficult to determine the PE
Biosystems Group's relative market position in its industry segments, the PE
Biosystems Group is confident it is one of the principal manufacturers in its
fields, marketing a broad line of analytical instruments and life science
systems.
RESEARCH, DEVELOPMENT AND ENGINEERING
The PE Biosystems Group is actively engaged in basic and applied research,
development and engineering programs designed to develop new products and to
improve existing products. The PE Biosystems Group spent $62.2 million in fiscal
1996, $78.1 million in fiscal 1997, and $109.9 million in fiscal 1998 on
company-sponsored research, development and engineering activities.
The PE Biosystems Group's new products originate from four sources: internal
research and development programs; external collaborative efforts with
individuals in academic institutions and technology companies; devices or
techniques that are generated in customers' laboratories; and business and
technology acquisitions.
Research and development projects at PE Biosystems include the development
of improved electrophoresis techniques for DNA analysis, real-time PCR for
nucleic acid quantification, innovative approaches to cellular analysis, sample
preparation, information technologies, and mass spectroscopy.
MANAGEMENT
The senior management of the PE Biosystems Group will consist of the
following individuals:
[Download Table]
OFFICER RESPONSIBILITIES
------------------------------- -------------------------
Michael W. Hunkapiller, Ph.D. President
Irena Y. Bronstein, Ph.D. Group Vice President and
General Manager, Tropix
Elaine J. Heron, Ph.D. Group Vice President and
General Manager, AB
Robert C. Jones Group Vice President and
General Manager, PE
Informatics
Joseph E. Malandrakis Group Vice President and
General Manager, PB
MICHAEL W. HUNKAPILLER, PH.D. has served as Senior Vice President of PE and
President of PE Biosystems since June 1998. He joined the research and
development department of Applied Biosystems, Inc. ("ABI"), the predecessor to
AB, in 1983 and has served in various operational and managerial positions,
including President of AB from October 1997 to June 1998 and General Manager of
AB from June 1995 to October 1997.
IRENA Y. BRONSTEIN, PH.D. has served as Division Vice President and
President and General Manager of Tropix since June 1998. She founded Tropix and
served as its Chairman and Chief Scientific Officer from its inception in 1986
to 1990 when she was named Chief Executive Officer. Dr. Bronstein held that
position until our company acquired Tropix in May 1996. Prior to founding
Tropix, she was employed by Polaroid Corporation where she held a number of
scientific and management positions including director of biotechnology.
ELAINE J. HERON, PH.D. has served as Vice President of PE since October 1996
and General Manager of AB since July 1998. She previously
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served as Division Vice President, Worldwide Sales and Marketing from December
1995 to July 1998. Dr. Heron served as Vice President of Marketing at
Affymetrix, Inc., a supplier of genetic analysis equipment, for the year prior
to this appointment, and previously served as Director of Marketing for AB and
ABI from 1990 to 1994.
ROBERT C. JONES has served as Division Vice President and General Manager of
PE Informatics since June 1998. He joined ABI in 1984 and has served in various
operational and managerial positions, including Vice President, PCR Business
Unit of AB from 1994 to 1998.
JOSEPH E. MALANDRAKIS has served as Vice President of PE since 1993 and
General Manager of PB since June 1998. He joined PE in 1973 and served in
various operational and management positions, including Vice President of
Manufacturing for our company and General Manager of the Inorganic Analysis
Division of Analytical Instruments.
EMPLOYEES
As of December 31, 1998, the PE Biosystems Group employed approximately
7,200 persons worldwide, including approximately 3,100 employed by Analytical
Instruments. None of the PE Biosystems Group's United States employees are
subject to collective bargaining agreements.
PROPERTIES
The PE Biosystems Group owns or leases various facilities for manufacturing,
research and development and administrative purposes. All of these facilities
are maintained in good working order and, except for those held for sale or
lease, are used in the ordinary course of business.
The following is a list of facilities owned or leased by the PE Biosystems
Group.
[Download Table]
PE BIOSYSTEMS
OWNED OR
LEASED
(EXPIRATION
LOCATION (APPROXIMATE DATE(S) OF
FLOOR AREA IN SQ. FT.) LEASES)
-------------------------- ----------------
Leased
Foster City, CA (543,000)* (1999-2007)
San Jose, CA (81,000) Owned
Bedford, MA (28,000) Leased (2000)
Framingham, MA (196,000) Leased (2009)
Leased
Santa Fe, NM (14,000) (1998-2005)
Houston, TX (21,000) Leased (1999)
Warrington, England
(22,000) Owned
Singapore (30,000) Leased (1999)
[Download Table]
ANALYTICAL INSTRUMENTS
OWNED OR
LEASED
(EXPIRATION
LOCATION (APPROXIMATE FLOOR DATE(S) OF
AREA IN SQ. FT.) LEASES)
--------------------------------- -------------
Irvine, CA (22,000) Owned
Norwalk, CT (402,000) Owned
Wilton, CT (221,000) Owned
Beaconsfield, England (70,000) Owned
Beaconsfield, England (8,000) Leased (2005)
Llantrisant, Wales (113,000) Leased**
Meersburg, Germany (24,000) Leased (2001)
Ueberlingen, Germany (39,000) Owned
Ueberlingen, Germany (121,000) Leased (2001)
------------------------
* Consists of three principal facilities totaling 330,000 square feet, and
additional facilities totaling 213,000 square feet.
** Leased on a month-to-month basis as the facility is being closed.
The PE Biosystems Group also leases space in several industrial centers for
use as regional sales and service offices, technical demonstration centers and
warehouses. The PE Biosystems Group also owns undeveloped land in Vacaville,
California, and Ueberlingen, Germany.
In addition to the properties used in its operations, the PE Biosystems
Group owns a 42,000 square foot facility in Wilton, Connecticut leased to a
third party on a long-term basis.
ENVIRONMENTAL MATTERS
We are subject to federal, state and local laws and regulations regulating
the discharge of materials into the environment, or otherwise relating to the
protection of the environment, in
80
those jurisdictions where the PE Biosystems Group operates or maintains
facilities. The PE Biosystems Group believes any liability and compliance with
all environmental regulations will have no material effect on its business, and
no material capital expenditures are expected for environmental control.
LEGAL PROCEEDINGS
We have been named as a defendant in various legal actions arising from the
conduct of the PE Biosystems Group's normal business activities. Although the
amount of any liability that might arise with respect to any of these matters
cannot be accurately predicted, the resulting liability, if any, will not, in
the opinion of management of the PE Biosystems Group, have a material adverse
effect on the financial statements of the PE Biosystems Group.
81
PE BIOSYSTEMS GROUP --
MANAGEMENT'S DISCUSSION AND ANALYSIS
MANAGEMENT'S DISCUSSION OF CONTINUING OPERATIONS
You should read this discussion with our combined financial statements and
the consolidated financial statements. Historical results and percentage
relationships are not necessarily indicative of operating results for any future
periods.
Throughout the following discussion of operations we refer to the impact on
our reported results of the movement in foreign currency exchange rates from one
reporting period to another as "foreign currency translation."
DISCONTINUED OPERATIONS
On January 21, 1999, we announced a plan to sell our Analytical Instruments
business. On March 8, 1999, we announced an agreement for the sale of this
business to EG&G, Inc. for $425 million. Under the terms of the agreement, we
will receive $275 million in cash and a $150 million one-year note. We expect
the sale to close in the fourth quarter of fiscal 1999 subject to regulatory
approval and other normal closing conditions. Amounts previously reported for
Analytical Instruments have been reclassified and stated as discontinued
operations. See Note 15 to the PE Biosystems Group combined financial
statements.
EVENTS IMPACTING COMPARABILITY
ACQUISITIONS AND INVESTMENTS. On January 22, 1998, we acquired PerSeptive.
The acquisition has been accounted for as a pooling of interests and,
accordingly, the PE Biosystems Group's financial results have been restated to
include the combined operations.
We acquired Molecular Informatics and a 14.5% interest, and approximately
52% of the voting rights, in Tecan during the second quarter of fiscal 1998. The
results of operations for the above acquisitions, each of which was accounted
for as a purchase, have been included in the combined financial statements since
the date of each respective acquisition. A discussion of significant
acquisitions and investments is provided in Note 2 to the PE Biosystems Group
combined financial statements.
RESTRUCTURING AND OTHER MERGER COSTS. The PE Biosystems Group incurred
merger-related period costs of $2.0 million in the first six months of fiscal
1999 in connection with the integration of PerSeptive into the PE Biosystems
Group. During fiscal 1998, $48.1 million of before-tax charges were recorded for
restructuring and other merger costs to integrate PerSeptive into the PE
Biosystems Group. The charge included $4.1 million of inventory-related
write-offs, recorded in cost of sales, associated with the rationalization of
certain product lines. The objectives of the integration plan are to lower
PerSeptive's cost structure by reducing excess manufacturing capacity, achieve
broader worldwide distribution of PerSeptive's products, and combine sales,
marketing, and administrative functions.
In fiscal 1996, a before-tax charge of $17.5 million, was recorded by
PerSeptive for restructuring actions and other related costs. A discussion of
the PE Biosystems Group's restructuring programs is provided in Note 10 to the
PE Biosystems Group combined financial statements.
ACQUIRED RESEARCH AND DEVELOPMENT. During fiscal 1998 and 1996, the PE
Biosystems Group recorded charges for purchased in-process research and
development in connection with certain acquisitions. The charges recorded in
fiscal 1998 and 1996 were $28.9 million and $31.8 million, respectively. See
Note 2 to the PE Biosystems Group combined financial statements.
In the second quarter of fiscal 1998, we expensed $28.9 million of the
Molecular Informatics acquisition cost as in-process research and development,
representing 53.6% of the purchase price. This amount was attributed and
supported by a discounted probable cash flow analysis on a project-by-project
basis.
82
We attributed approximately 10% of the in-process research and development
value to BioLIMS, a software system that manages data, initiates analysis
programs, and captures the results in a centralized, relational database for
sequencing instruments; 6% to GA SFDB, a client-side add-on product to several
existing gene sequencing instruments; 38% to BioMERGE, a client-server
management and integration system that organizes proprietary, public and
third-party results in a single relational database for the drug discovery and
genomic research markets; 9% to BioCLINIC, a client-server management and
integration system that organizes proprietary, public and third-party results
generated from DNA and protein sequence analysis in a single database for the
clinical trials phase of drug development; and 37% to SDK, an open architecture
software platform from which all of Molecular Informatics' future software
applications are expected to be derived.
As of the acquisition date, all of the major functionality for BioLIMS 2.0
had been completed and the product was subsequently released in September 1998.
As of the acquisition date, BioLIMS 3.0 was in the design and scoping phase and
is expected to be released in June 1999. As of the acquisition date, GA SFDB was
in early alpha phase and had been completed concurrent with the development of
BioLIMIS 2.0 and was released in September 1998. As of the acquisition date,
BioMerge 3.0 functional scope was defined and the requirements assessment had
been completed and was subsequently released in November 1998. As of the
acquisition date, the BioClinic product requirements had been specified and
discussions had begun with two potential customers to begin the specific
software modifications. Development efforts were terminated in April 1998 due to
unsuccessful marketing efforts. As of the acquisition date, the SDK requirements
assessment had been completed and the functional scope had been defined.
Currently, one successful prototype has been completed and additional
development efforts continue in this area.
At the date of the acquisition, management expected to complete the majority
of these projects and commence generating significant revenues in fiscal 1999 at
an additional research and development cost of approximately $6.9 million. We
attributed $11.8 million of the purchase price to core technology and existing
products, primarily related to the BioMERGE product. We applied a risk-adjusted
discount to the project's cash flows of 20% for existing technology and 23% for
in-process technology. The risk premium of 3% for in-process technologies was
determined by management based on the associated risks of releasing these
in-process technologies versus the existing technologies for the emerging
bioinformatics software industry. The significant risks associated with these
products include the limited operating history of Molecular Informatics,
uncertainties surrounding the market acceptance of such in-process products,
competitive threats from other bioinformatics companies and other risks.
Management is primarily responsible for estimating the fair value of such
existing and in-process technology.
During the fourth quarter of fiscal 1996, PE acquired Tropix, Inc., a world
leader in the development, manufacture and sale of chemiluminescent detection
technology for life sciences. The acquisition cost, net of cash acquired, was
$36.0 million and was accounted for as a purchase. The purchase price was
allocated to the net assets acquired and to purchased in-process research and
development. Purchased in-process research and development included the value of
products in the development stage and not considered to have reached
technological feasibility. We expensed $22.3 million of the Tropix acquisition
cost as in-process research and development, representing 60.3% of the purchase
price. This amount was attributed and supported by a discounted probable cash
flow analysis on a project-by-project basis. The remaining purchase price was
allocated as follows: $10.2 million to proprietary patents and core technology,
$1.4 million to trademarks and tradenames, $.2 million to assembled workforce,
and $1.9 million to working capital and property, plant and equipment acquired.
83
Approximately 56% of the in-process research and development value was
attributed to the pharmaceutical screening products project, a project designed
to incorporate existing proprietary technologies of Tropix into assay methods
for pharmaceutical customers and to perform the screening required by those
customers on-site. Additionally, there was to be continued development of
suitable assays to improve and expand the technology covered by Tropix patents.
The intent was to be a one-stop service where Tropix would develop and perform
screening for pharmaceutical customers. Assets in place for this project were
the intellectual property of Tropix and the scientific expertise required to
customize both the reagents and the methods necessary for the intended use of
the customers. Approximately 44% of the in-process research and development
value was attributed to the diagnostics products project, a project related to
the continued development of the reagent product line. Derivatives of the
proprietary technology and expansion of the patents surrounding it were planned
to exploit the leadership that Tropix held in its core chemiluminescent
products. Also, work was being performed on ancillary reagents to enhance both
reactions and stability of existing Tropix dioxetanes. Development of new kits
and applications based on the Gal-Star substrate, in particular, were
in-process. All of these activities were focused on expanding the existing
product line in consumables in order to maintain Tropix's leadership in
chemiluminescence.
Through June 30, 1998, PE incurred approximately $2.8 million in additional
research and development costs to further develop these projects. The diagnostic
products project was completed in fiscal 1997. PE anticipates spending an
additional $.8 million in fiscal 1999 to complete the pharmaceutical screening
project. Such costs approximate those anticipated at the date of acquisition.
A risk-adjusted discount rate of 23% was employed to value the in-process
projects. The significant risks associated with these products include the
limited operating history of Tropix, uncertainties surrounding market acceptance
of such in-process products and other competitive risks. Management is primarily
responsible for estimating the fair value of such existing and in-process
technologies.
In fiscal 1996, the Company acquired a minority equity interest in Paracel,
Inc., a provider of information filtering technologies for $4.5 million and
PerSeptive Technologies Corporation, a research and development company formed
to fund the development of novel tools for clinical diagnostics and screening of
biological compounds for drug discovery, for $19.3 million. In connection with
these life science acquisitions, $9.5 million of purchased in-process research
and development was expensed in fiscal 1996.
IMPAIRMENT OF ASSETS. Cost of sales for fiscal 1997 included $.7 million
for the write-down of certain impaired assets. The fiscal 1997 charge was a
result of adopting SFAS No. 121, "Accounting for the Impairment of Long-Lived
Assets and for Long-Lived Assets to Be Disposed Of." In fiscal 1996, the PE
Biosystems Group recorded a before-tax cost of sales charge of $9.9 million for
the impairment of certain production assets associated with the realignment of
the product offerings of PerSeptive. See Note 1 to the PE Biosystems Group
combined financial statements.
GAIN ON INVESTMENTS. The first quarter of fiscal 1998 included a before-tax
gain of $.8 million related to the release of contingencies on a minority equity
investment. Fiscal 1998, 1997, and 1996 included before-tax gains of $1.6
million, $64.9 million, and $11.7 million, respectively, related to the sale and
release of contingencies on minority equity investments, respectively. See Note
2 to the PE Biosystems Group combined financial statements.
RESULTS OF CONTINUING OPERATIONS FOR THE SIX MONTHS ENDED DECEMBER 31, 1998
COMPARED WITH THE SIX MONTHS ENDED DECEMBER 31, 1997
The PE Biosystems Group reported income from continuing operations of $49.1
million for the first six months of fiscal 1999 compared with income from
continuing operations of $12.4 million for the first six months of fiscal 1998.
Excluding merger-related costs of
84
$2.0 million incurred in fiscal 1999, and acquired research and development
costs of $28.9 million recorded in fiscal 1998, income for the first six months
of fiscal 1999 increased 22.7% compared with the prior year.
Net revenues were $547.4 million for the first six months of fiscal 1999
compared with $409.4 million for the first six months of fiscal 1998, an
increase of 33.7%. Excluding the results of Tecan, which were not included in
the prior year, revenues increased 19.7%. The effects of foreign currency
translation decreased net revenues by approximately 1% compared with the prior
year.
Geographically, excluding Tecan, the PE Biosystems Group reported revenue
growth in all regions. Revenues increased 27% in the United States, 18% in
Europe, 5% in the Far East and 10% in Latin America and other markets, compared
with the prior year. Demand for the PE Biosystems Group's new ABI PRISM-TM- 3700
DNA Analyzer, which began shipping in the second quarter of fiscal 1999, was
strong. Shipments for sequence detection systems and LC/MS products also
contributed to the growth.
Gross margin as a percentage of net revenues was 55.3% in the first six
months of fiscal 1999 compared with 54.0% in the first six months of fiscal
1998. This was primarily the result of a change in product mix for the PE
Biosystems Group which reported higher unit sales of reagents to support genetic
analysis systems and increased royalty revenues. Continued growth in instrument
sales of higher margin genetic analysis product offerings also contributed to
the growth.
SG&A expenses were $153.6 million in the first six months of fiscal 1999
compared with $125.5 million in fiscal 1998. Excluding Tecan, SG&A expenses
increased 8.3% in the first six months of fiscal 1999 compared with the prior
year. This increase was due to higher planned expenses, reflecting the growth in
sales and orders. As a percentage of net revenues, SG&A expenses were 28% for
fiscal 1999 compared with 31% for the prior year.
R&D expenses increased $20.0 million, or 43.8%, to $65.6 million compared
with $45.6 million in the prior year. Excluding Tecan, R&D expenses increased
25.3% compared with the prior year in support of new product launches and to
accelerate product development. As a percentage of net revenues, the PE
Biosystems Group's R&D expenses were 12.0% compared with 11.1% for the prior
year.
The PE Biosystems Group incurred merger-related costs of $2.0 million in the
first six months of fiscal 1999 for training, relocation and communication costs
in connection with the integration of PerSeptive. See Note 10 to the PE
Biosystems Group combined financial statements. Additional merger-related period
costs of approximately $3.0 million to $5.0 million are expected to be incurred
through the remaining quarters of fiscal 1999.
Operating income increased to $81.7 million for the first six months of
fiscal 1999 compared with operating income of $21.2 million for the prior year.
On a comparable basis excluding the results of Tecan, merger-related costs of
$2.0 million in fiscal 1999 and the acquired research and development charge of
$28.9 million recorded in the second quarter of fiscal 1998, operating income
increased 45.5% compared with the prior year. The PE Biosystems Group benefited
from higher gross margins and lower SG&A expenses as a percentage of net
revenues. The effects of currency translation for the PE Biosystems Group for
the first six months of fiscal 1999 decreased operating income by approximately
$3 million compared with the prior year.
Interest expense was $2.1 million for the first six months of fiscal 1999
compared with $2.7 million for the prior year. This decrease was primarily due
to the refinancing of PerSeptive's 8 1/4% Convertible Subordinated Notes and
lower average interest rates. Interest income was $.7 million for the first six
months of fiscal 1999 compared with $3.9 million for the prior year, primarily
because of lower average cash balances.
Other expense, net for the first six months of fiscal 1999 was $.5 million
compared with other income, net of $1.3 million for the prior year. Other
expense recognized in the second quarter of fiscal 1999, primarily related to
the
85
revaluation of foreign exchange contracts, more than offset other income related
to a legal settlement which was recognized in the first quarter of fiscal 1999.
The other income, net for fiscal 1998 resulted from a gain on the sale of
certain non-operating assets.
The PE Biosystems Group's effective income tax rate was 28% for the first
six months of fiscal 1999. Excluding Tecan, the PE Biosystems Group's effective
income tax rate was 29% for the first six months of fiscal 1999. Excluding
special items in fiscal 1998, the PE Biosystem Group's effective income tax rate
was 20.5%.
The PE Biosystems Group recognized minority interest expense of $8.2 million
in the first six months of fiscal 1999 relating to the 14.5% interest in Tecan.
RESULTS OF CONTINUING OPERATIONS--1998 COMPARED WITH 1997
The PE Biosystems Group reported net income from continuing operations of
$24.0 million for fiscal 1998, compared with net income from continuing
operations of $132.7 million for fiscal 1997. On a comparable basis, excluding
the special items previously described, net income increased 24.7% to $96.2
million for fiscal 1998 compared with $77.1 million for fiscal 1997.
Net revenues were $940.1 million for fiscal 1998, compared with $767.5
million for fiscal 1997, an increase of 22.5%. Excluding Tecan, revenues
increased 15.9% compared with the prior year. The effects of currency
translation decreased net revenues by approximately $33 million, or 4%, compared
with the prior year, as the U.S. dollar strengthened against most European and
Far Eastern currencies. On a worldwide basis, excluding Tecan and the effects of
currency translation, revenues would have increased approximately 20% compared
with the prior year. Increased demand for genetic analysis, liquid
chromatography/mass spectrometry ("LC/MS"), and polymerase chain reaction
("PCR") product lines was the primary contributor.
All geographic markets reported increased revenues over the prior year.
Excluding Tecan, net revenues in the United States, Europe, and the Far East
increased 24.0%, 10.7%, and 4.6%, respectively. Before the effects of currency
translation, and excluding Tecan, revenues in Europe and the Far East would have
increased approximately 18% and 14%, respectively, compared with the prior year.
The PE Biosystems Group believes slower Japanese government funding in the
second half of fiscal 1998 and the lack of a supplemental budget, which added to
fiscal 1997 revenues, contributed to a lower growth rate of only 3% in the
Japanese market.
Gross margin as a percentage of net revenues was 54.1% for fiscal 1998
compared with 52.9% for fiscal 1997. Fiscal 1998 gross margin included $4.1
million of inventory-related write-offs associated with the rationalization of
certain product lines in connection with the acquisition of PerSeptive, and
fiscal 1997 included a charge of $.7 million for the write-down of certain other
assets. Excluding the special items, fiscal 1998 gross margin increased to 54.4%
of revenues compared with 53.0% for fiscal 1997. Benefits realized from the sale
of higher-margin genetic analysis products and increased royalty revenues in the
United States, more than offset the negative effects of currency translation.
SG&A expenses were $276.7 million for fiscal 1998 compared with $227.7
million for the prior year. The 21.5% increase in expenses, or 14.7% excluding
Tecan, was due to higher planned worldwide selling and marketing expenses
commensurate with the substantially higher revenue and order growth. Before the
effects of currency translation and Tecan, SG&A expenses increased 17.7%
compared with the prior year. As a percentage of net revenues, SG&A expenses for
the PE Biosystems Group decreased to 29.4% compared with 29.7% in the prior
year.
R&D expenses of $105.5 million increased 35.0% over the prior year, or 27.7%
excluding Tecan. R&D spending increased 40.6%, or 33.3% excluding Tecan, over
the prior year as the PE Biosystems Group continued its product development
efforts and preparation for new product launches. As a percentage of net
revenues, the PE Biosystems Group's R&D
86
expenses increased to 11.2% compared with 10.2% for the prior year.
During fiscal 1998, $48.1 million of charges were recorded for restructuring
and other merger costs to integrate PerSeptive into the PE Biosystems Group
following the acquisition. See Note 10 to the PE Biosystems Group combined
financial statements. The objectives of the integration plan are to lower
PerSeptive's cost structure by reducing excess manufacturing capacity, achieve
broader worldwide distribution of PerSeptive's products, and combine sales,
marketing, and administrative functions. The charge included: $33.9 million for
restructuring the combined operations; $8.6 million for transaction costs; and
$4.1 million of inventory-related write-offs, recorded in cost of sales,
associated with the rationalization of certain product lines. Additional
non-recurring acquisition costs of $1.5 million for training, relocation, and
communication costs were recognized as period expenses in the third and fourth
quarters and were classified as other merger-related costs. The PE Biosystems
Group expects to incur an additional $6.5 million to $8.5 million of
acquisition-related costs for training, relocation, and communication in fiscal
1999. These costs will be recognized as period expenses when incurred and will
be classified as other merger-related costs.
The $33.9 million restructuring charge includes $13.8 million for
severance-related costs and workforce reductions of approximately 170 employees,
consisting of 114 employees in production labor and 56 employees in sales and
administrative support. The remaining $20.1 million represents facility
consolidation and asset-related write-offs and includes: $11.7 million for
contract and lease terminations and facility related expenses in connection with
the reduction of excess manufacturing capacity; $3.2 million for dealer
termination payments, sales office consolidations, and consolidation of sales
and administrative support functions; and $5.2 million for the write-off of
certain tangible and intangible assets and the termination of certain
contractual obligations. These restructuring actions are expected to be
substantially completed by the end of fiscal 1999. Transaction costs of $8.6
million include acquisition-related investment banking and professional fees. As
of June 30, 1998, approximately 12 employees were separated under the plan and
the actions are proceeding as planned.
Fiscal 1998 included $28.9 million of purchased in-process research and
development associated with the acquisition of Molecular Informatics.
[Download Table]
OPERATING INCOME
(DOLLAR AMOUNTS
IN MILLIONS)
-----------------
1997
Operating income before
special items............... $ 101.0
Impairment of assets.......... (.7)
------
Operating income............ $ 100.3
------
------
1998
Operating income before
special items............... $ 130.4
Restructuring and other merger
costs....................... (48.1)
Acquired R&D.................. (28.9)
------
Operating income............ $ 53.4
------
------
Operating income decreased to $53.4 million for fiscal 1998 compared with
$100.3 million for fiscal 1997. Excluding the special charges for restructuring
and other merger costs, acquired research and development, and the impairment of
assets, operating income increased $29.4 million, or 29.1%, primarily as a
result of increased volume and improved margins. A 23.5% increase in operating
income from higher-margin sequencing and mapping systems was the primary
contributor. Excluding Tecan, operating income before special items increased
21.6% compared with the prior year. Before the effects of currency translation
and excluding Tecan, fiscal 1998 operating income increased 38.5% compared with
the prior year. Geographically, excluding Tecan, fiscal 1998 operating income
before special items increased 48.0% in the United States, 20.1% in the Far
East, and 8.0% in Europe compared with fiscal 1997. As a percentage of net
revenues, operating income before special items increased to 13.9% in fiscal
1998 compared with 13.2% for the prior year.
In fiscal 1998 and 1997, the PE Biosystems Group recorded gains of $1.6
million and $64.9 million, respectively, on the sale and
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release of contingencies on minority equity investments. See Note 2 to the PE
Biosystems Group combined financial statements.
Interest expense was $4.9 million for fiscal 1998 compared with $5.9 million
for the prior year. This decrease was primarily due to the refinancing of the
PerSeptive Notes together with slightly lower outstanding debt balances and
lower average interest rates. Interest income was $5.9 million for fiscal 1998
compared with $8.8 million for the prior year, primarily because of lower cash
balances resulting from the use of cash to fund the PE Biosystems Group's
continued investments and acquisitions, as well as from lower interest rates.
Other income, net for fiscal 1998 of $3.1 million, primarily related to the
sale of certain operating and non-operating assets, compared with other income,
net of $1.9 million for the prior year.
Our effective income tax rate was 50% for fiscal 1998 and 22% for fiscal
1997. Excluding Tecan in fiscal 1998, and special items in fiscal 1998 and
fiscal 1997, the effective income tax rate was 25% for fiscal 1998 compared with
27% for fiscal 1997. Increased earnings in low tax jurisdictions reduced our tax
rate for fiscal 1998. An analysis of the differences between the federal
statutory income tax rate and the effective rate is provided in Note 4 to the PE
Biosystems Group combined financial statements.
Minority interest expense of $5.6 million was recognized in fiscal 1998
relating to our company's 14.5% financial interest in Tecan. See Note 2 to the
PE Biosystems Group combined financial statements.
RESULTS OF CONTINUING OPERATIONS--1997 COMPARED WITH 1996
The PE Biosystems Group reported net income of $132.7 million from
continuing operations for fiscal 1997 compared with net income of $3.9 million
from continuing operations for fiscal 1996. On a comparable basis, excluding the
special items previously described, net income increased 42.7%.
Net revenues for fiscal 1997 were $767.5 million, an increase of 19.5% over
the $642.1 million reported for fiscal 1996. The effects of currency rate
movements decreased net revenues by approximately $25 million, or 4%, as the
U.S. dollar strengthened against the Japanese Yen and certain European
currencies.
All geographic markets experienced revenue growth for fiscal 1997. Net
revenues in the United States, Europe, and the Far East increased 20.0%, 22.0%,
and 16.3%, respectively. Increased demand for genetic analysis, LC/MS, and the
PCR product lines was the primary contributor. Excluding currency effects,
revenues in Europe and the Far East would have increased approximately 26% and
29%, respectively.
Gross margin as a percentage of net revenues was 52.9% for fiscal 1997
compared with 50.5% for fiscal 1996. Excluding the $.7 million and $9.9 million
charges for impaired assets, recorded in cost of sales, for fiscal 1997 and
1996, respectively, gross margin was 53.0% compared with 52.0%. The improved
gross margin was the result of the overall unit volume increase and product mix.
SG&A expenses were $227.7 million for fiscal 1997 compared with $187.6
million for fiscal 1996, an increase of 21.3%, reflecting a 16% increase in
worldwide marketing expenses, commensurate with the growth in revenues, and
increased costs for PE's restricted stock and performance-based compensation
programs. The total expense for the restricted stock and performance-based
programs was $20.4 million and $7.9 million for fiscal 1997 and 1996,
respectively. As a percentage of net revenues, SG&A expenses for the PE
Biosystems Group remained essentially unchanged at approximately 30% for both
fiscal 1997 and fiscal 1996.
R&D expenses were $78.1 million for fiscal 1997 compared with $62.2 million
for fiscal 1996. R&D spending increased 25.6% over the prior year as the PE
Biosystems Group continued its product development efforts for the bioresearch
markets. As a percentage of net revenues, R&D expenses increased to 10.2% for
fiscal 1997 compared with 9.7% for fiscal 1996.
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[Download Table]
OPERATING INCOME
(DOLLAR AMOUNTS
IN MILLIONS)
-----------------
1996
Operating income before
special items............... $ 84.1
Restructuring................. (17.5)
Acquired R&D.................. (31.8)
Impairment of assets.......... (9.9)
------
Operating income............ $ 24.9
------
------
1997
Operating income before
special items............... $ 101.0
Impairment of assets.......... (.7)
------
Operating income............ $ 100.3
------
------
Operating income for fiscal 1997 was $100.3 million compared with $24.9
million for fiscal 1996. We incurred a charge of $.7 million in fiscal 1997 and
$9.9 million in fiscal 1996 for impairment of assets. Fiscal 1996 included a
charge of $31.8 million for acquired research and development related to
acquisitions. Fiscal 1996 also included a charge of $17.5 million for
restructuring actions and other related costs associated with PerSeptive. On a
comparable basis, excluding special items in both years, operating income
increased 20.1% compared with the prior year as a result of increased volume and
improved margins, primarily from high-margin sequencing systems.
All geographic markets contributed to the improved operating income before
special items. The strongest growth was in Europe, where fiscal 1997 operating
income before special items increased 29.8% compared with fiscal 1996. Excluding
currency translation effects, operating income before special items would have
increased approximately 33%. As a percentage of net revenues, operating income
before special items remained essentially unchanged at 13% for both fiscal 1997
and fiscal 1996.
In fiscal 1997 and 1996, the PE Biosystems Group recorded before-tax gains
of $64.9 million and $11.7 million, respectively, on the sale and release of
contingencies on minority equity investments.
Interest expense was $5.9 million for fiscal 1997 compared with $8.4 million
for fiscal 1996. Lower average borrowing levels for fiscal 1997 and lower
weighted average interest rates on short-term debt accounted for the reduction
in interest costs. As a result of maintaining higher cash and cash equivalent
balances, interest income increased by $3.5 million to $8.8 million for fiscal
1997.
Other income, net was $1.9 million for fiscal 1997 compared with other
expense, net of $2.1 million for fiscal 1996. The fiscal 1997 amount consisted
primarily of a fourth quarter gain on the sale of real estate.
The effective income tax rate for fiscal 1997 was 22%. Fiscal 1996 incurred
a provision of $27.6 million on before-tax income of $31.5 million. Special
items affected both years. The charges for acquired research and development
were not deductible for tax purposes. Additionally, the fiscal 1996 charge for
restructuring and the fiscal 1997 charge for impairment of assets were only
partially deductible, and no tax benefit was recognized for PerSeptive's fiscal
1996 net operating loss, which resulted in a significant increase in the tax
rate for the fiscal year.
In the fourth quarter of fiscal 1997, we reduced our deferred tax valuation
allowance, resulting in the recognition of a $50.0 million dollar deferred tax
benefit. The benefit resulting from the valuation allowance release was
substantially offset by a fourth quarter accrual for tax costs related to gains
on foreign reorganizations.
MARKET RISK
The PE Biosystems Group operates internationally, with manufacturing and
distribution facilities in various countries throughout the world. For the first
six months of fiscal 1999 and for fiscal 1998, the PE Biosystems Group derived
approximately 51% and 52%, respectively, of its revenues from countries outside
of the United States. Results continue to be affected by market risk, including
fluctuations in foreign currency exchange rates and changes in economic
conditions in foreign markets.
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The PE Biosystems Group's risk management strategy utilizes derivative
financial instruments, including forwards, swaps, purchased options, and
synthetic forward contracts to hedge certain foreign currency and interest rate
exposures, with the intent of offsetting losses and gains that occur on the
underlying exposures with gains and losses on the derivatives. The PE Biosystems
Group does not use derivative financial instruments for trading or other
speculative purposes, nor is the PE Biosystems Group a party to leveraged
derivatives. At December 31, 1998 and June 30, 1998, outstanding hedge contracts
covered approximately 80% of the estimated foreign currency exposures related to
cross-currency cash flows to be realized for the next twelve months. The
outstanding hedges were a combination of forward, option, and synthetic forward
contracts maturing in the next twelve months.
We performed sensitivity analyses as of December 31, 1998 and June 30, 1998.
Assuming a hypothetical adverse change of 10% in foreign exchange rates, i.e., a
weakening of the U.S. Dollar, at December 31, 1998 and June 30, 1998, we
calculated hypothetical losses in future cash flows of $3.7 million at December
31, 1998 and $4.1 million at June 30, 1998. We calculated the hypothetical
losses by comparing the difference between the change in market value of both
the foreign currency contracts outstanding and the underlying exposures being
hedged at December 31, 1998 and June 30, 1998, assuming the 10% adverse change
in exchange rates. Actual gains and losses in the future could, however, differ
materially from these analyses, based on changes in the timing and amount of
foreign currency exchange rate movements and the PE Biosystems Group's actual
exposures and hedges.
Interest rate swaps are used to hedge underlying debt obligations. In fiscal
1997, PE executed an interest rate swap allocated to the PE Biosystems Group in
conjunction with PE entering into a five-year Japanese Yen debt obligation.
Under the terms of the swap agreement, PE pays a fixed rate of interest at 2.1%
and receives a floating LIBOR interest rate. At June 30, 1998, the notional
amount of indebtedness covered by the interest rate swap was Yen 3.8 billion or
$27.0 million. The maturity date of the swap coincides with the maturity of the
Yen loan in March 2002.
A change in interest rates would have no impact on our reported interest
expense and related cash payments because the floating rate debt and fixed rate
swap contract have the same maturity and are based on the same rate index.
MANAGEMENT'S DISCUSSION OF FINANCIAL RESOURCES AND LIQUIDITY
The following discussion of financial resources and liquidity focuses on the
Combined Statements of Financial Position and the Combined Statements of Cash
Flows.
As the results of the Celera Genomics Group were not significant for any of
the periods presented, all historical cash and debt balances of our company have
been allocated to the PE Biosystems Group.
Cash and cash equivalents of continuing operations were $75.5 million at
December 31, 1998, $82.9 million at June 30, 1998, and $213.0 million at June
30, 1997, with total debt of continuing operations of $66.8 million at December
31, 1998, $45.8 million at June 30, 1998, and $89.1 million at June 30, 1997.
Working capital was $15.4 million at December 31, 1998. Excluding the note
payable to the Celera Genomics Group, working capital was $326.7 million at
December 31, 1998. Working capital was $289.2 million at June 30, 1998, and
$355.1 million at June 30, 1997. Debt to total capitalization increased to 18%
at December 31, 1998 from 7%, excluding the note payable, at June 30, 1998, as a
result of an increase in loans payable to fund current operating requirements.
At December 31, 1998, including the note payable, debt to total capitalization
increased to 56%. Debt to total capitalization was 15% at June 30, 1997.
The initial capitalization of the Celera Genomics Group included a $330
million short-term note of the PE Biosystems Group payable to the Celera
Genomics Group. The note payable will not result in the PE Biosystems Group
holding an equity interest in the Celera
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Genomics Group. The note is expected to be paid with the proceeds from the sale
of our Analytical Instruments business. Accordingly, no interest will be
ascribed to the note. At December 31, 1998, the outstanding balance of the note
was $311.3 million.
In addition, our board of directors has adopted a financing policy, included
in Note 1 to the PE Biosystems Group combined financial statements, which will
permit the PE Biosystems Group to make loans to the Celera Genomics Group and
make equity contributions to the Celera Genomics Group in exchange for Celera
Genomics Designated Shares.
SIGNIFICANT CHANGES IN THE COMBINED
STATEMENTS OF FINANCIAL POSITION
Accounts receivable increased by $31.7 million and inventory balances
increased by $23.2 million from June 30, 1998 to December 31, 1998, reflecting
the growth in revenues and orders for the PE Biosystems Group.
Accounts receivable and inventory balances increased from June 30, 1997 to
June 30, 1998 by $49.7 million and $25.9 million, respectively. Excluding Tecan,
accounts receivable and inventory balances increased by $28.3 million and $25.9
million, from June 30, 1997 to June 30, 1998 reflecting the growth in the PE
Biosystems Group's sales and orders.
We reduced our total deferred tax asset and related valuation allowance from
$124.3 million and $69.7 million at June 30, 1997 to $115.5 million and $62.8
million at June 30, 1998. The valuation allowance relates primarily to foreign
and domestic tax loss carryforwards, domestic tax credit carryforwards and other
domestic deferred tax assets. A portion of the valuation allowance is
attributable to tax loss and credit carryforwards and other deferred tax assets
which we acquired as part of the purchase of PerSeptive in fiscal 1998. In
evaluating our need for a valuation allowance, we considered all available
positive and negative evidence, including historical information supplemented by
information about future years. We evaluate the need for the valuation allowance
periodically for each tax-paying component in each tax jurisdiction. The
following factors significantly influenced our conclusion regarding the need for
a valuation allowance included: (1) the historical profitability of our domestic
Analytical Instruments operations (2) the limitation under the Internal Revenue
Code on the amount of annual utilization of domestic loss carryforwards and
credits of PerSeptive, (3) as the long-term nature of a significant portion of
the remaining domestic tax asset and (4) the various expiration dates of the
foreign loss carryforwards.
Other long-term assets increased to $240.6 million at June 30, 1998 from
$155.4 million at June 30, 1997. The change included $70.9 million of intangible
assets associated with the acquisition of Tecan and Molecular Informatics, $11.5
million of minority equity investments, and a $10.2 million increase in prepaid
pension asset, partially offset by the sale of certain non-operating assets.
At December 31, 1998, total debt increased to $378.1 million primarily as a
result of the allocation of the $330 million note payable to the Celera Genomics
Group. The increase of $21.0 million in allocated debt from June 30, 1998
included $9.9 million of foreign currency translation. Total short-term and
long-term borrowings were $45.8 million at June 30, 1998 compared with $89.1
million at June 30, 1997. The decrease was due in part to the redemption of
PerSeptive's 8 1/4% Convertible Subordinated Notes Due 2001 on March 23, 1998.
The redemption price was $1,055.81 per $1,000 principal amount of the PerSeptive
Notes, which represented the redemption premium and aggregate principal plus
accrued and unpaid interest to the redemption date. The aggregate outstanding
principal amount of the PerSeptive Notes was $27.2 million at March 23, 1998. A
total of $26.1 million was paid in cash, representing $24.7 million of principal
and $1.4 million of accrued interest and premium relating to the PerSeptive
Notes. Additionally, $2.5 million of the principal amount of the PerSeptive
Notes was converted by the holders thereof into 35,557 shares of the existing
common stock.
Other accrued expenses increased by $17.0 million to $138.2 million at
December 31, 1998 from $121.2 million at June 30, 1998 as a result of higher
warranty and installation accruals, reflecting the increase in volume, and an
increase in deferred revenues and benefit accruals. Accounts payable decreased
$11.5 million to
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$107.6 million at December 31, 1998 from $119.1 million at June 30, 1998 as a
result of payments made for higher purchases incurred during the fourth quarter
of fiscal 1998 in support of increased production and operating requirements.
Accounts payable increased $33.7 million to $119.1 million at June 30, 1998 from
$85.4 million at June 30, 1997. The increase resulted from higher purchases to
support production and operating requirements.
At December 31, 1998 and June 30, 1998, $54.8 million and $43.8 million,
respectively, of minority interest was recognized in connection with Tecan.
COMBINED STATEMENTS OF CASH FLOWS
Net cash provided by operating activities from continuing operations was
$32.6 million for the first six months of fiscal 1999 compared with $22.1
million for the same period in fiscal 1998. Higher income-related cash flow
contributed to the increase. Operating activities from continuing operations
generated $74.9 million of cash in fiscal 1998 compared with $76.5 million in
fiscal 1997 and $45.1 million in fiscal 1996. In fiscal 1998, higher
income-related cash flow was more than offset by a net increase in operating
assets and liabilities reflecting the continued growth.
Net cash used by investing activities from continuing operations was $24.5
million for the first six months of fiscal 1999 compared with $111.8 million for
the first six months of fiscal 1998. In fiscal 1999, the PE Biosystems Group
generated $14.3 million in net cash proceeds from the sale of certain
non-operating assets, compared with $16.2 million in the prior year from the
sale of certain non-operating assets and the collection of a note receivable.
Capital expenditures for the PE Biosystems Group totaled $39.4 million, which
included $4.7 million related to improvement of its information technology
infrastructure, and $17.5 million for the acquisition of a corporate airplane.
The fiscal 1998 capital expenditures were $37.4 million, primarily related to
improvement of the PE Biosystems Group's information technology infrastructure,
and $90.6 million related to various investments and collaborations, primarily
Tecan and Molecular Informatics.
In fiscal 1998, net cash used by investing activities from continuing
operations was $125.7 million compared with net cash provided by investing
activities from continuing operations of $47.8 million in fiscal 1997. During
fiscal 1998, the PE Biosystems Group generated $19.5 million in net cash
proceeds from the sale of assets and $9.7 million from the collection of a note
receivable. The proceeds were more than offset by $56.8 million of capital
expenditures, which included $33.7 million as part of the strategic program to
improve our information technology infrastructure, and $98.0 million for
acquisitions and investments, primarily Tecan and Molecular Informatics. See
Note 2 to the PE Biosystems Group combined financial statements for a discussion
of our restructuring actions.
For fiscal 1997, the PE Biosystems Group generated $99.7 million in net cash
proceeds from the sale of our company's equity interests in Etec Systems, Inc.
and Millennium Pharmaceuticals, Inc. and from the sale of certain other
non-operating assets. These proceeds were partially offset by $5.0 million used
for acquisitions and $51.9 million for capital expenditures which included $9.5
million for information technology infrastructure improvements and $12.1 million
for the acquisition of an airplane. See Note 2 to the PE Biosystems Group
combined financial statements for a discussion of our restructuring actions.
In fiscal 1996, $117.1 million of cash was used for acquisitions and $22.4
million was used for capital expenditures. This was partially offset by $102.3
million of cash proceeds generated from the sale of minority equity investments
and non-operating assets.
Net cash provided by financing activities was $13.3 million in the first six
months of fiscal 1999 compared with a net cash use of $9.1 million in the prior
period. In the first six months of fiscal 1999, the PE Biosystems Group received
$37.9 million in proceeds from employee stock option plan exercises compared
with $6.3 million in fiscal 1998. Allocated loans payable and debt increased
$11.1 million in the first six months of fiscal 1999 to fund the PE Biosystems
Group's current operating requirements.
In fiscal 1998 net cash used by financing activities was $48.2 million
compared with
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$42.1 million for fiscal 1997, and $25.4 million for fiscal 1996.
During fiscal 1998, proceeds from employee stock plan exercises were $33.6
million. This was more than offset by shareholder dividend payments and the
redemption of the PerSeptive Notes.
During fiscal 1997, we generated $1.8 million from the sale of equity put
warrants and $33.6 million in proceeds from employee stock plan exercises,
compared with $65.0 million from employee stock plan exercises in fiscal 1996.
This was more than offset by shareholder dividends of approximately $29 million
for both fiscal 1997 and 1996, and for the purchase of common stock for
treasury. During fiscal 1997, .4 million shares were repurchased at a cost of
$25.1 million, compared with .8 million shares at a cost of $41.0 million in
fiscal 1996. Common stock purchases for treasury were made in support of PE's
various stock plans. No shares were repurchased during fiscal 1998.
As previously mentioned, the PE Biosystems Group recorded before-tax
restructuring charges and other merger costs of $48.1 million and $17.5 million
in fiscal 1998 and 1996, respectively, in the results for continuing operations.
During fiscal 1998, the PE Biosystems Group made cash payments of $11.9 million
for obligations related to restructuring plans and other merger costs.
Liabilities remaining at June 30, 1998 were $26.9 million for the fiscal 1998
plan. See Note 10 to the PE Biosystems Group combined financial statements. The
funding for the remaining restructuring liabilities will be from current cash
balances and funds generated from operating activities.
The PE Biosystems Group believes its cash and short-term investments, funds
generated from operating activities, and available borrowing facilities are
sufficient to provide for its anticipated financing needs over the next two
years. At June 30, 1998, PE had unused credit facilities totaling $343 million.
IMPACT OF INFLATION AND CHANGING PRICES
Inflation and changing prices are continually monitored. The PE Biosystems
Group attempts to minimize the impact of inflation by improving productivity and
efficiency through continual review of both manufacturing capacity and operating
expense levels. When operating costs and manufacturing costs increase, the PE
Biosystems Group attempts to recover such costs by increasing, over time, the
selling price of its products and services. The PE Biosystems Group believes the
effects of inflation have been appropriately managed and therefore have not had
a material impact on its historic operations and resulting financial position.
YEAR 2000
In fiscal 1997, PE initiated a worldwide program to assess the expected
impact of the Year 2000 date recognition problem on our existing internal
computer systems; our non-information technology systems, including embedded and
process control systems; our product offerings; and our significant suppliers.
The purpose of this program is to ensure the event does not have a material
adverse effect on our business operations.
The operations of the PE Biosystems Group are included within this program.
At this time, PE is not able to determine the relative resources required to
implement this program in the PE Biosystems Group. However, PE believes that a
substantial portion of the resources required was allocated to the PE Biosystems
Group.
Regarding PE's existing internal computer systems, the program involves a
mix of purchasing new systems and modifying existing systems, with the emphasis
on replacement of applications developed in-house. Replacement projects are
currently underway, and are anticipated to be substantially completed for all
business-critical systems worldwide by December 31, 1999. The program includes
replacement of applications that, for reasons other than Year 2000
noncompliance, had been previously selected for replacement. The replacement
projects, which began in fiscal 1997, are expected to offer improved
functionality and commonality over current systems, while at the same time
addressing the Year 2000 problem.
With respect to PE's current product offerings, the program involves
performing an inventory of current products, assessing their compliance status,
and constructing a
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remediation plan where appropriate. Significant progress has been made in each
of these three phases and PE expects the PE Biosystems Group's current product
offerings to be Year 2000 compliant by December 31, 1999. A substantial portion
of the PE Biosystems Group's current product offerings is Year 2000 compliant.
The program also addresses the Year 2000 compliance efforts of PE's
significant suppliers, vendors, and third-party interface systems. As part of
this analysis, PE is seeking written assurances from these suppliers, vendors,
and third parties that they will be Year 2000 compliant. While PE has begun such
efforts, there can be no assurance that the systems of other companies with
which PE deals, or on which PE's systems rely will be timely converted, or that
any such failure to convert by another company could not have a material adverse
effect on PE. PE has not fully determined the extent to which PE's interface
systems may be impacted by third parties' systems, which may not be Year 2000
compliant.
PE's preliminary estimate of the total cost for this multi-year program
covering 3-4 years is approximately $150 million. This includes amounts
previously budgeted for information technology infrastructure improvements and
estimates of remediation costs on components not yet fully assessed. Incremental
spending has not been and is not expected to be material because most Year 2000
compliance costs will be met with amounts that are normally budgeted for
procurement and maintenance of PE's information systems, production and
facilities equipment. The redirection of spending to implement Year 2000
compliance plans may in some instances delay productivity improvements.
PE has also engaged a consulting firm to provide periodic assessments of
PE's Year 2000 project plans and progress. Because of the importance of
addressing the Year 2000 problem, PE has created a Year 2000 business continuity
planning team to review and develop, by April 1999, business contingency plans
to address any issues that may not be corrected by implementation of PE's Year
2000 compliance plan in a timely manner. If PE is not successful in implementing
its Year 2000 compliance plan, or there are delays in and/or increased costs
associated with implementing such changes, the Year 2000 problem could have a
material adverse effect on PE's consolidated results of operations and financial
condition.
At this stage of the process, PE believes that it is difficult to
specifically identify the cause of the most reasonable worst case Year 2000
scenario. A reasonable worst case Year 2000 scenario would be the failure of
significant suppliers and vendors to have corrected their own Year 2000 issues
which could cause disruption of PE's operations and have a material adverse
effect on PE's financial condition. The impact of such disruption cannot be
estimated at this time. In the event PE believes that any of its significant
suppliers or vendors are unlikely to be able to resolve their own Year 2000
issues, PE's contingency plan would include seeking additional sources of
supply.
EURO CONVERSION
A single currency called the euro was introduced in Europe on January 1,
1999. Eleven of the fifteen member countries of the European Union agreed to
adopt the euro as their common legal currency on that date. Fixed conversion
rates between these participating countries' existing currencies (the "legacy
currencies") and the euro were established as of that date. The legacy
currencies are scheduled to remain legal tender as denominations of the euro
until at least January 1, 2002, but not later than July 1, 2002. During this
transition period, parties may settle transactions using either the euro or a
participating country's legal currency.
The PE Biosystems Group is currently evaluating the impact of the euro
conversion on its computer and financial systems, business processes, market
risk, and price competition. The PE Biosystems Group does not expect this
conversion to have a material impact on its results of operations, financial
position, or cash flows.
RECENTLY ISSUED ACCOUNTING STANDARDS
In June 1998, the FASB issued SFAS No. 133, "Accounting for Derivative
Instruments and Hedging Activities." The provisions of the statement require the
recognition of all
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derivatives as either assets or liabilities in the statement of financial
position and the measurement of those instruments at fair value. The accounting
for changes in the fair value of a derivative depends on the intended use of the
derivative and the resulting designation. The PE Biosystems Group is required to
implement the statement in the first quarter of fiscal 2000. The PE Biosystems
Group is currently analyzing the statement to determine the impact, if any, on
its combined financial statements.
The FASB issued the following Statement of Financial Accounting Standards,
which will become effective for the PE Biosystems Group's fiscal 1999 annual
financial statements: SFAS No. 132, "Employers' Disclosures about Pensions and
other Postretirement Benefits," which requires additional disclosures relating
to a company's pension and postretirement benefit plans; and SFAS No. 131,
"Disclosure about Segments of an Enterprise and Related Information," which
requires certain financial and descriptive information about a company's
reportable operating segments. The adoption of these new accounting standards
may require additional disclosures but should not have a material effect, if
any, on the combined financial statements of the PE Biosystems Group.
We continue to apply APB No. 25 in accounting for our stock based
compensation plans. Accordingly, no compensation expense has been recognized for
these plans, as all options have been issued at fair value. The effect of
accounting for such plans at fair value, under SFAS No. 123, "Accounting for
Stock Based Compensation," would be to decrease fiscal 1998 net income by $31
million and diluted earnings per share by $.61. The method used to determine the
fair value is the Black-Scholes options pricing model. Accordingly, changes in
dividend yield, volatility, interests risks and option life could have a
material effect on the fair value. See Note 8 to the PE Biosystems Group
combined financial statements for a more detailed discussion regarding the
accounting for stock-based compensation at fair value.
OUTLOOK
The PE Biosystems Group expects to continue to grow and maintain
profitability for fiscal 1999 on the strength of robust demand and several new
products. As previously indicated, the PE Biosystems Group received more than 70
third-party orders for the ABI PRISM-TM- 3700 DNA Analyzer, in addition to the
230 ordered by the Celera Genomics Group. The 3700 provides technology that
enables the generation of sequencing data at a new level of throughput.
On March 8, 1999, we announced an agreement for the sale of our Analytical
Instruments business, which had been classified as a discontinued operation.
We remain concerned about adverse currency effects because approximately 51%
of our revenues were derived from regions outside the United States for the six
months ended December 31, 1998. Recently, the U.S. dollar has weakened, which
should moderate the effects of currency translation for fiscal 1999.
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CELERA GENOMICS GROUP --
BUSINESS
OVERVIEW
The Celera Genomics Group is engaged principally in the generation, sale and
support of genomic information and related information management and analysis
software; discovery, validation and licensing of proprietary gene products,
genetic markers and information concerning genetic variability; and related
consulting and contract research and development services.
We and Dr. J. Craig Venter, a leading genomic scientist and founder of The
Institute for Genomic Research ("TIGR"), announced the intent to form the Celera
Genomics business in May 1998. This business commenced operations in August
1998. This business was formed for the purpose of generating and commercializing
genomic information to accelerate the understanding of biological processes; and
assisting pharmaceutical, biotechnology and life science research entities in
areas of research including:
- new drugs and improved drug development processes;
- novel genes and factors that regulate and control gene expression; and
- interrelationships between genetic variability, disease and drug
response.
The foundation of the Celera Genomics Group's strategy is the sequencing of
the human genome, which it expects it will complete by December 31, 2001. The
underlying human genetic sequence will be the basis for the Celera Genomics
Group's development of a value-added, integrated information and discovery
system. The system will include increasing layers of functional information,
such as gene expression data, comparative data from other model organisms, such
as DROSOPHILA (fruit fly) and mouse, genetic variation and ultimately gene
function. Users of the system will have the ability to view, browse and analyze
the data in an integrated way that should assist scientists and commercial
enterprises in accelerating their understanding of the human genetic code. The
Celera Genomics Group anticipates using its genomic data as a platform upon
which to develop tools and services. The Celera Genomics Group anticipates that
this genomic data, together with such tools and services, will become a
comprehensive scientific and medical resource for a wide range of customers.
Other genomics companies have focused on strategies that emphasize finding
and sequencing particular genes within the human genome to find specific drug or
disease targets. In contrast, the Celera Genomics Group plans to sequence the
entire human genome using whole genome shotgun sequencing, a unique sequencing
strategy designed to produce genomic data rapidly and efficiently. The Celera
Genomics Group's goal is to create a comprehensive knowledge base of the human
genome that will allow multiple scientific and commercial applications. The
Celera Genomics Group believes that its shotgun sequencing strategy will not
only accelerate the discovery of new genes, but will help generate genomic
information that has not yet been the focus of research. This information
includes rarely expressed genes and the proteins they code for and other
factors, such as regulatory regions, that control gene expression.
Dr. Venter and his team at TIGR were the first to apply the whole genome
shotgun strategy to the sequencing of several genomes, including the first three
in history. To date, ten of the 26 microbial genomes that have been completely
sequenced and are (or are expected to be) in the public domain have been
sequenced by TIGR using this strategy, and no other entity has sequenced more
than two.
The Celera Genomics Group includes GenScope, which our company acquired in
February 1997. GenScope is a provider of genomics-related products and services,
gene discovery, target discovery and validation, efficacy and safety assessment,
and pharmacogenomics study services. GenScope's core technology, GeneTag-TM-, is
a proprietary process for analysis of gene expression. This technology provides
a method with which to compare many samples in order to quickly identify which
genes are affected by a disease or treatment.
The Celera Genomics Group also includes AgGen which was formed in July 1997
for the
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purpose of developing an application group specializing in providing services to
the agriculture market. AgGen provides genetic testing services for plant and
animal breeding programs. In addition, AgGen provides expertise in plant and
animal functional genomics. The Celera Genomics Group also includes the Advanced
Center for Genomic Technology, which is engaged in DNA cloning and
characterization and sequencing technology and development.
The Celera Genomics Group believes that it has competitive advantages that
differentiate it from other genomic companies. These advantages include:
- EXPERTISE OF KEY SCIENTIFIC PERSONNEL
-- Recognized leading scientific expertise of the Celera Genomics
Group's key personnel, including Dr. Venter, and their experience at
TIGR and other organizations in shotgun sequencing and the assembly,
interpretation and application of genomic information; and
-- Key GenScope personnel with expertise in gene expression profiling
and the interpretation of data in a biological context.
- WHOLE GENOME SHOTGUN SEQUENCING STRATEGY
-- Permits accelerated sequencing of the entire human genome; and
-- Produces comprehensive polymorphism information necessary to
understand genetic variability between individuals.
- ADVANCED GENOMIC AND COMPUTING TECHNOLOGY
-- Unique sequencing facility with capacity at a level never before
attempted. The facility will contain the PE Biosystems Group's new DNA
sequencers, which use unique high-throughput sequencing technology;
-- GenScope's GeneTag-TM- expression technology, which allows rapid and
simultaneous profiling to monitor known genes and discover novel genes
and provides data to build databases to assist in identifying gene
function;
-- Early access to the PE Biosystems Group's other technologies and
products, such as automated sample handling, sequencing chemistries,
gene expression, genetic variation analysis and bioinformatics; and
-- Strategic alliance with Compaq Computer Corporation to assist in the
development of computational capacity and tools required to acquire,
analyze and distribute sequence information.
- PE'S RESOURCES AND MARKET EXPERIENCE
-- Access to PE's financial resources that provide a source of capital
for the Celera Genomics Group's business;
-- Administrative shared services provided by PE that permit the Celera
Genomics Group to focus on its mission;
-- PE's established track record in developing new applications and
technologies in life sciences markets; and
-- PE's extensive relationships with users of life sciences products.
GENOMICS INDUSTRY BACKGROUND
GENES, GENETIC VARIABILITY AND ITS
RELATIONSHIP TO DISEASE
The human genome governs all cellular function, which, in turn, determines
human physiology, such as metabolism, susceptibility to disease and reactions to
certain drugs. The human genome is organized into 23 pairs of chromosomes, which
include the X and Y chromosomes that determine sex. These chromosome sets, in
turn, are comprised of strands of DNA molecules that consist of long chains of
chemical subunits, called nucleotides. There are four nucleotides--adenine,
cytosine, guanine, and thymine--often abbreviated with their first letters A, C,
G, and T. DNA molecules consist of two long chains of nucleotides bound together
by base pairs of nucleotides. Approximately 3.5 billion nucleotide base pairs,
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or 7 billion total bases, make up the entire human genome. It is the unique
sequence of the nucleotide arrangement that determines cellular structure and
function.
Certain sequences of nucleotides, called genes, carry the specific
information necessary to construct proteins that regulate every aspect of human
life. Genes may contain from several dozen to tens of thousands of nucleotides.
The Celera Genomics Group believes the best scientific evidence to date
indicates that the number of genes in the human genome is between 50,000 and
80,000, although some have estimated the number to be as high as 150,000. Less
than 6,000 genes have been well "characterized." Between 40,000 and 50,000
segments, however, have been partially tagged through partial gene sequencing
(ESTs, also known as expressed sequence tags) although most of these are without
known function. Most importantly, genes not only regulate human physiology but
are also an important determinant of human health and disease pathways. Despite
what has been discovered to date, only a limited amount is known about the human
genome, and significant additional discoveries are necessary to develop a more
comprehensive understanding of the human genome.
Human variability arises from both differences in the sequences of genes and
from differences in gene expression. The normal sequence of a gene may be
altered by replication errors or environmental factors. These variations, also
known as polymorphisms, may have little or no effect on a gene's ability to
function. Some polymorphisms, however, may affect gene function and result in
the development of particular diseases, most notably cancer.
Gene expression is the process by which a gene's coded information is
translated into the production of proteins within a cell. While all cells
contain the full set of DNA, different cells express different sets of genes
depending on cell type and environmental conditions. Certain diseases also arise
from the "over" or "under" expression of genes.
VALUE OF GENOMIC RESEARCH
Genomics--the study of genetic information, its relationship to disease and
its use in identifying targets for drug development-- is a relatively new and
evolving field. Industry analysts expect genomics to lead a medical "revolution"
in the identification and treatment of disease based on growing evidence that
genes play a significant role among most major diseases.
The Celera Genomics Group believes that the field of genomics will affect
medicine in at least three significant ways:
- TARGET IDENTIFICATION AND DRUG DISCOVERY. The Celera Genomics Group
expects genomics to play a long-term role in the discovery of targets for
small molecule drugs and novel protein drugs in the future. Prozac is an
example of a small molecule drug, and insulin, growth hormone and EPO are
examples of novel protein drugs, all of which are significant products
for pharmaceutical companies today. The Celera Genomics Group expects
that discoveries of targets for small molecule drugs and novel protein
drugs will affect virtually every aspect of the treatment of diseases,
including cardiovascular diseases, infectious diseases, neuropsychiatric
disorders, asthma, obesity, diabetes and cancers.
- PHARMACOGENOMICS AND DRUG DEVELOPMENT. Pharmacogenomics, an outgrowth of
genomic research, is also a rapidly evolving field and focuses on
identifying genetic variability factors that may affect an individual's
response to a specific drug. The Celera Genomics Group expects the
application of pharmacogenomics to improve the drug development process.
- DIAGNOSTICS AND DISEASE MANAGEMENT. As the understanding of genetic
causes of disease improves, the Celera Genomics Group expects genomics to
enhance physicians' ability to diagnose particular diseases. As a result,
genomic research should also lead to better treatment and monitoring of
diseases.
GENOMIC RESEARCH EFFORTS TO DATE
Sequencing technology generally permits only small amounts of DNA to be
sequenced at a time. That technology has limited the
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generation of genomic data and the understanding of biological systems.
Moreover, substantial amounts of time and money are required for mapping the
human genome and the preparation of samples prior to sequencing. As a result,
less than 5%-7% of the entire human genome has been sequenced. In addition,
there are other limitations in these technologies. For example, genomic
scientists have been able to generate only limited genetic information relating
primarily to highly expressed genes. Scientists have been unable to develop a
meaningful information base that addresses rarely expressed genes, regulatory
factors and polymorphisms. Furthermore, currently available tools to measure and
detect polymorphisms are technologically immature and expensive. Significant
research is required to fully understand the interrelationship of genes,
regulatory factors and polymorphisms in biological processes.
Most early genomic research was funded under the auspices of the Human
Genome Project, a worldwide coordinated effort to sequence the human genome,
undertaken largely by governments and nonprofit organizations in the United
States, England, Japan, France and other nations. In the United States, most
public funding for the Human Genome Project has come from the National
Institutes of Health ("NIH") and the Department of Energy, although there has
been an increasing amount of work in support of the Human Genome Project by
private businesses like the Celera Genomics Group. The Human Genome Project has
generated interest in genomics and encouraged the development of technology for
and commercial interest in genomic research. Commercialization of genomic
research began in the early 1990's and led to the development of
privately-funded gene discovery initiatives focused on supplementing drug
discovery efforts within the pharmaceutical industry.
PUBLIC HUMAN GENOME RESEARCH EFFORTS. As DNA sequencing technology improved
and computational capacity increased, scientists began a focused effort to
sequence the entire human genome. The project was first funded by the U.S.
Government in 1990 with a 15-year budget of $3 billion and an announced
objective of compiling a public database of the complete human genome sequence
by 2005. Significant additional amounts are being spent by other governments and
organizations around the world. After the announcement by the Celera Genomics
Group of its goals, the NIH and one private foundation announced their intention
to accelerate the projected completion date for sequencing the entire human
genome to 2003.
The underlying strategy of the public effort to sequence the human genome is
based on breaking up the genome into discrete sections of DNA that are mapped to
chromosomes and then sequenced one section at a time. This strategy provides an
overall map of the genome upon which areas can be incrementally sequenced along
the map. As a result, the Celera Genomics Group believes the public approach has
two commercial limitations in addition to its high cost:
- The human genome sequence information will be available at a slower rate;
and
- It will not produce the quantity of polymorphism information to support
the study of genetic variability that would result from sequencing the
entire genome from multiple individuals.
The NIH recently announced a program relying, in part, on Human Genome
Project data to address the absence of polymorphism information. The Celera
Genomics Group believes that the NIH's funded efforts to generate a significant
amount of information will be limited by its sequencing and polymorphism
detection strategies.
PRIVATE HUMAN GENOME RESEARCH EFFORTS. A number of companies are sequencing
segments of the human genome. However, these efforts have been limited to small,
targeted areas of the genome due to the technical and financial hurdles
associated with sequencing the entire human genome. Prior to the Celera Genomics
Group's announcement, no private organization had announced that it planned to
sequence the entire human genome.
The first genomics companies generally relied on the expressed sequence tag
("EST") approach, a shortcut sequencing strategy using partial gene sequences as
markers, developed by Dr. Venter when he was at the NIH. ESTs are
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derived from tissues in which individual genes are expressed and help identify
specific genes that may be involved in particular diseases. Due to the nature of
the EST approach, the genes identified are typically more highly expressed
genes. Rarely expressed genes that may be of more interest in studying disease
are not as likely to be identified by the EST approach. Although the EST
approach has been considerably faster than other methods and successful in
identifying some genes, it provides only a starting point in the gene
identification process.
Some genomics companies use ESTs in a strategy known as "gene mapping." Gene
mapping refers to the process by which DNA samples are taken from members of
families with high incidences of a particular disease. These samples are used to
identify ESTs to help locate the exact position in the genome of a gene that may
be partially or fully responsible for the disease. Gene mapping offers the
advantage of much higher certainty in associating a gene with a particular
disease, but it tends to be a considerably slower and more expensive process of
gene identification than the EST method alone.
Some genomics companies offer fee-based access to their genomics databases.
These databases are built primarily with data sequenced using the EST and gene
mapping techniques. By not sequencing the entire genome, these companies are not
as likely to identify rarely expressed genes, which the Celera Genomics Group
believes are likely to provide medically-significant information. These
companies typically require customers that access their data to share
intellectual property rights on discoveries made from the data provided by the
database company, regardless of the database company's involvement in a
discovery.
Other companies are developing detailed maps of the human genome, but these
maps are expected to show substantially less than all of the sequences in the
genome. These maps are being used to discover genes and their relevance to
broader patient populations. Some companies use genomic maps and special
techniques to identify limited polymorphisms and other data to be used in
pharmacogenomics.
Even with the use of partial genomic information, private genomic companies
have achieved the following:
- Numerous partnering and collaborative relationships with pharmaceutical
companies involving significant research funding; and
- Significant gene discoveries from both the EST and gene mapping methods.
By focusing their efforts on identifying specific genes and disease targets,
however, genomic companies have identified only a fraction of the 3%-5% of the
human genome believed to be responsible for gene coding. Unlike its competitors,
many of which believe that the remaining 95% to 97% is composed of "junk" DNA,
the Celera Genomics Group believes that gaining an understanding of the whole
human genome will yield valuable biological and medical information. Such
information includes novel genes, polymorphisms and gene timing and tissue
localization instructions not found in gene transcripts, i.e., cDNA and EST
sequences. The Celera Genomics Group believes that it will create the foundation
for discovery from the wealth of genomic information that cannot be discovered
through the EST or gene mapping approaches alone. Moreover, the Celera Genomics
Group believes that by overlaying the expression profiles for different tissues
and multiple species, it can facilitate accurate pathway identification and the
determination of possible gene function. These discoveries, in turn, should lead
to a more comprehensive understanding of the genome and the genomic factors
influencing diseases and drug responses in patients.
CELERA GENOMICS' APPROACH TO GENOMICS
Since the early 1990's, with the commencement of the Human Genome Project,
scientists have generally believed that technology would limit the pace at which
the entire human genome might be sequenced. The development of the PE Biosystems
Group's higher-volume sequencing equipment, together with the advances in
sequencing strategy developed by Dr. Venter and his scientific team at TIGR, led
our company to believe that it might be possible to sequence the entire human
genome efficiently. This combination of advanced
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technology and the shotgun sequencing approach allowed PE and Dr. Venter and his
team to conclude that whole genome sequencing could be commercially viable.
The Celera Genomic Group's plan is to develop, on an accelerated basis,
comprehensive genomic information on the entire human genome and related
comparative genomic information from other model organisms. The advantages of
complete and comparative genomic information should include:
- Integrated information products that permit a level of analysis and
interpretation that databases derived from ESTs and gene mapping
approaches do not provide. For example, the whole genome approach will
disclose rarely expressed genes, regulatory regions and other
discoveries.
- Identification of a far greater number of polymorphisms than can be
identified by the current gene mapping approaches.
The Celera Genomics Group also anticipates adding significant value to its
information products by providing software tools and analysis capabilities to
facilitate access to the data and by annotating them with interpretive
information, including information resulting from collaborations with key life
science researchers. For example, the Celera Genomics Group expects to employ
GeneTag-TM- gene expression sequence technology, a leading technology for
identifying rarely-expressed genes.
The Celera Genomics Group expects to derive its revenues primarily from
access fees from database customers, fees for collaborative polymorphic
services, fees from collaborative gene discovery arrangements, and, in certain
cases, from licensing intellectual property.
The Celera Genomics Group expects to sell access to its genomics information
to customers for their internal use. For certain information products, the
Celera Genomics Group does not expect to seek intellectual property rights from
customers on such use. For these products, this policy should promote use of its
information by a wide variety of users and will distinguish the Celera Genomics
Group from other genomics companies that seek intellectual property rights in
their customers' discoveries based solely upon access to those companies'
database information. The Celera Genomics Group expects to collaborate with
customers to identify targets that can be used in the discovery and development
of new diagnostics and drugs and in the development of polymorphism information.
For such collaborations, the Celera Genomics Group intends to share with its
customers intellectual property rights on discoveries resulting from those
collaborations.
The Celera Genomics Group has adopted a policy to make available, to the
research community for free, the basic reference human sequence information
generated by its sequencing and assembly efforts. The Celera Genomics Group
intends to make available this information on a quarterly basis in the form of
unordered consensus human sequence data in excess of specified lengths.
The Celera Genomics Group has not yet determined the precise form in which
the data will be made available, whether in viewable form on the Celera Genomics
Group's Web site or by contribution to GenBank, the U.S. Government's genome
database. The ultimate form of data release will be affected by, among other
things, the evolution of intellectual property law and the Celera Genomics
Group's assessment of the likelihood that other organizations may seek to obtain
the Celera Genomics Group's data and resell it to their own customers. The
Celera Genomics Group believes that current efforts by some companies to obtain
data made publicly available for the purpose of private resale may continue, and
that the need to protect the value of its information while honoring its
intention to share this data with the research community will affect its data
disclosure strategy.
After completion of sequencing, the Celera Genomics Group expects to release
a detailed ordered consensus human genome assembly.
The Celera Genomics Group believes that disclosing consensus sequence data
will not affect the value of its information products and services to customers
and will encourage researchers to use its data and ultimately become the Celera
Genomics Group's customers. The Celera Genomics Group will make available to its
customers, on a subscription basis, the assets that are most responsible for the
value of its products and
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services--extensive integrated genomic information systems, including
proprietary annotations, certain polymorphism information, comparative genomics
information, search tools and algorithms, and assay and other services.
BUSINESS STRATEGY
The Celera Genomics Group's mission is to become the definitive source of
genomic and associated biological and medical information that will facilitate a
better understanding of human biological processes and accelerate future
improvements in health care. The Celera Genomics Group intends to use the
genomic information derived from its human genome sequencing program as a
platform upon which to develop an integrated information and discovery system.
The Celera Genomics Group believes that its information platform, along with
the assay systems it will develop, will be used by pharmaceutical, biotechnology
and other private entities and academic and other life science research
institutions. The Celera Genomics Group will seek to make its discovery and
information system the fundamental resource in molecular medicine for
acceleration of the development of new drugs, targeted diagnostics and
personalized medicine.
Key elements of the Celera Genomics Group's strategy include:
- "SHOTGUN" SEQUENCING OF THE ENTIRE HUMAN GENOME
The Celera Genomics Group intends to sequence the entire human genome on
an accelerated and cost-effective basis. It believes that its shotgun
sequencing strategy will produce a highly marketable source of genomic
information and build a foundation for a series of comprehensive
information products, tools and services to analyze data.
- INTEGRATED INFORMATION AND DISCOVERY SYSTEM
The Celera Genomics Group intends to develop an integrated information
system that will include the most comprehensive and integrated databases
of genomic and medically-related information available. The Celera
Genomics Group expects to integrate its proprietary information with
information from external sources. The discovery and information system
will also include software tools that provide the ability to view,
browse and analyze this information in an integrated way to facilitate
discovery. The Celera Genomics Group also expects to offer a variety of
services to customers to assist in the analysis and interpretation of
the data.
The Celera Genomics Group intends to supplement the base-level, human
genome sequence data it generates with other information to increase the
value of its information system. This additional information may include
comparative genomic information and associated tissue-specific gene
expression profiles from human and other model organisms. Comparative
genomic information from model organisms, such as DROSOPHILA and mouse,
are often used as a mechanism by which to better analyze specific areas
of the genome and develop the interrelationships of the genetic code to
disease and drug response. This information, which will permit better
understanding of how genes are controlled by regulatory elements, has
significant implications for better molecular control of genes and gene
therapy.
For example, the Celera Genomics Group intends to sequence the
DROSOPHILA genome, as a pilot project, prior to starting to sequence the
human genome. This sequence information will represent the first level
of the Celera Genomics Group's comparative genomic information and is
intended to add to the understanding of human genomic data, particularly
in furthering the understanding of neurological function.
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- POLYMORPHIC DISCOVERIES AND BIOLOGICAL ASSAY SYSTEMS
The Celera Genomics Group believes that its sequencing efforts using the
DNA from multiple individuals will likely result in the discovery of
millions of polymorphic sites. This level of discovery should
significantly exceed the efforts of its competitors. Polymorphic sites
are locations on the genome where variations in genetic sequence can
occur and which may lead to the development of certain diseases or
influence the effect of a drug on a patient. Scientists believe that
polymorphism information is important in understanding the relationship
of genetic factors to disease and how and why certain patients react
favorably to certain drugs while others do not. Because the
identification of polymorphic sites is very difficult using current
methods and few polymorphic discovery programs exist, the Celera
Genomics Group believes that the polymorphisms it discovers will add
considerable value to its integrated information system.
After it generates the polymorphism data, the Celera Genomics Group
intends to develop biological assay systems to screen for genetic
variances that may predispose individuals to diseases, such as diabetes,
heart disease, stroke, cancer and obesity, and their interaction with
specific drugs. The assay systems that the Celera Genomics Group intends
to develop will be flexible systems that allow for this study of genetic
variances at various levels of detail.
Use of the Celera Genomics Group's polymorphism information will depend
on the cost of applying polymorphism assays to large clinical trials and
patient samples in drug discovery and drug development. The Celera
Genomics Group believes that, through its relationship with the PE
Biosystems Group and early access to its developing technologies, it
will be able to reduce the cost of this technology to a level that will
permit widespread application of polymorphism assay technology.
COMPETITIVE ADVANTAGES
The Celera Genomics Group believes that it has competitive advantages that
differentiate it from other genomic companies. These advantages should enable it
to sequence and assemble the large and complex human genome and build and market
its information products and services. These advantages include:
- EXPERTISE OF KEY SCIENTIFIC PERSONNEL
The Celera Genomics Group has recruited a team of recognized leading
scientists, led by Dr. Venter, with substantial expertise and experience
in the techniques required to build genomic databases. These scientists
are widely recognized as experts in the following areas:
-- Genome sequencing;
-- Bioinformatics, including genomic data assembly;
-- Genomic data and functional analysis;
-- Gene expression profiling; and
-- Medical application of genomic information.
Dr. Venter and certain of these scientists, while employed by TIGR,
participated in TIGR's sequencing of the entire genome of the first
living organism in 1995 and of the nine other whole microbial genomes
sequenced and published (or expected to be published) by TIGR. The whole
genome shotgun sequencing approach to be used by the Celera Genomics
Group was used to sequence each of these genomes.
The team also includes personnel from GenScope and TIGR who provide
expertise in gene discovery and functional analysis; personnel from TIGR
and other organizations with the computational expertise required for
analysis and the difficult process of assembling genomic sequence data;
and personnel with the medical expertise
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required to develop potential medical applications for genomic
information.
- WHOLE GENOME SHOTGUN SEQUENCING STRATEGY
The Celera Genomics Group will use whole genome shotgun sequencing to
assemble a complete human genome. The shotgun method breaks the genome
up into many tiny, random fragments of different lengths. These
fragments are sequenced and then using newly developed and specialized
algorithms, the raw data is assembled into contiguous blocks and
assigned to the correct location in the genome.
The Celera Genomics Group believes that the benefits to its customers
from its whole genome shotgun sequencing strategy include:
-- FASTER ACCESS TO GENOMIC SEQUENCE INFORMATION THAT HAS NOT BEEN
PREVIOUSLY PRODUCED BY OTHER PUBLIC OR PRIVATE INITIATIVES. The rapid
production of genomic information will provide pharmaceutical and
biotechnology companies and the scientific community with the ability
to "mine" this information for novel genomic information and pursue
intellectual property rights on discoveries.
-- COMPREHENSIVE GENOMIC INFORMATION. The Celera Genomics Group intends
to significantly increase the level of genomic information available
to pharmaceutical and biotechnology companies and to the scientific
community. As more information is generated by the Celera Genomics
Group's sequencing, assembly and annotation programs, it will begin to
develop a comprehensive genomic map with increasing resolution over
time. With the incorporation of EST data and other levels of
annotation, users will begin to gain a more thorough understanding of
the location, function and interrelationships of genomic material.
-- MORE COMPREHENSIVE POLYMORPHISM DATA. Compared to other organizations
developing polymorphism programs, which are expected to produce
thousands or perhaps up to two hundred thousand polymorphisms, the
Celera Genomics Group expects to produce millions of polymorphisms in
the near term as a result of its sequencing strategy.
- ADVANCED GENOMICS AND COMPUTING TECHNOLOGY
-- UNIQUE SEQUENCING FACILITY. The Celera Genomics Group will use the PE
Biosystems Group's new high-throughput 3700 DNA sequencers to produce
significantly more sequence information than that being produced by
other sequencing efforts. The Celera Genomics Group expects that this
facility will have the capacity to sequence more than 100 million base
pairs of DNA daily. The Celera Genomics Group believes the capacity of
this facility will exceed the worldwide sequencing capacity in
operation today.
-- EARLY ACCESS TO OTHER PE BIOSYSTEMS GROUP TECHNOLOGIES AND PRODUCTS.
The Celera Genomics Group expects to capitalize on opportunities to
apply the PE Biosystems Group's developing technologies in areas such
as automated sample handling, sequencing chemistries, gene expression,
genetic variation analysis and bioinformatics, to its genomics
information business. Through its unique relationship with the PE
Biosystems Group, the Celera Genomics Group expects to stay at the
leading edge of technology.
-- INCORPORATION OF GENSCOPE TECHNOLOGY. The Celera Genomics Group
expects to apply GenScope's technology and expertise in gene
expression profiling which will provide value-added technology for the
Celera Genomics Group's gene
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discovery and functional analysis programs.
-- STRATEGIC ALLIANCE WITH COMPAQ COMPUTER CORPORATION. The Celera
Genomics Group has formed a strategic alliance with Compaq Computer
Corporation to provide computer hardware and software and the
expertise required for complex scientific applications and for the
computational capacity and tools needed to analyze sequence
information.
- PE'S RESOURCES AND MARKET EXPERIENCE
-- ACCESS TO CAPITAL. As part of PE, the Celera Genomics Group has
access to capital.
-- ADMINISTRATIVE SHARED SERVICES. PE provides other resources, such as
accounting, human resources and other corporate services, to the
Celera Genomics Group that it would otherwise have to provide for
itself if it were an independent company. As a result, the Celera
Genomics Group is able to focus on its mission.
-- ESTABLISHED TRACK RECORD. PE has an established track record in
developing new applications and technologies in life sciences markets.
-- CUSTOMER RELATIONSHIPS. PE has extensive relationships with users of
life sciences products.
COMMERCIAL APPLICATIONS OF GENOMICS
The Celera Genomics Group expects that the use of genomic information will
transform life sciences by increasing the understanding of biological processes
and allowing scientists to target specific processes once a given genome has
been mapped. The commercial markets that the Celera Genomics Group believes will
benefit from genomic information include pharmaceutical drug discovery and
development, medical diagnostics, agriculture and other applied medical markets.
DRUG DISCOVERY AND DEVELOPMENT
The Celera Genomics Group believes that genomics will not only assist in the
discovery and toxic profiling of new drugs, but also will be used to segment
patient populations to develop more personalized disease management strategies.
DRUG DISCOVERY. One of the most important factors limiting the development
of new drugs is the limited number of known disease target molecules for which
new drugs can be developed. Disease target molecules are those which can be
affected by a drug and cause a subsequent, desired biological reaction in the
body. Historically, the process of discovering new target molecules has been
extremely slow and very expensive due to reliance on trial and error approaches
to discovery. Many believe genomic research will reduce the reliance on
historical approaches and will contribute to the discovery of new and viable
drugs by accelerating the rate at which new target molecules are identified and
ultimately reduce the cost of the discovery process.
MOLECULAR TOXICOLOGY. Approximately 2.2 million Americans per year are
admitted to hospitals as a result of adverse side effects from drugs; more than
100,000 die annually from these side effects. Organ-specific gene expression
profiles for drugs already available will enable researchers to study toxicity
of new drug compounds with more certainty. In addition, gene expression data,
combined with polymorphism information related to metabolic pathways, will
provide important indications regarding how people individually react to drugs
of various dosage levels.
DRUG DEVELOPMENT AND CLINICAL TRIALS. A new area of genomic research, known
as pharmacogenomics, focuses on identifying genetic variances among patients
that may affect the efficacy of drug treatment (an individual's absorption and
metabolism of a specific drug) in order to develop more personalized drug
therapy. Pharmacogenomics has become more important in the pharmaceutical and
biotechnology communities due to increasing evidence that a given drug does not
have the same effect on all people.
In particular, pharmacogenomics is believed to offer at least three
different market applications:
- Increasing the success rate of clinical trials by improving the process
of patient population selection;
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- Identifying new uses for existing drugs; and
- "Rescuing" drugs that have failed previous drug trials by identifying
more appropriate populations for using the drug; candidates for rescued
drugs include those where particular sub-populations react adversely to
that drug.
DIAGNOSTICS
The Celera Genomics Group expects that two major areas of diagnostics--risk
assessment and personalized medicine--will benefit from genomics.
RISK ASSESSMENT. Diagnostic risk assessment has historically focused on
measuring general indicators in the body, such as blood pressure and cholesterol
levels. These measurements are based on general symptoms rather than the
specific genetic basis of disease. As a consequence, these diagnostic tests do
not address the underlying cause of disease and can result in compromised
medical care for patients and increased risk of litigation.
New genomic-based diagnostics will focus on determining an individual's risk
to develop a particular disease by looking at specific genes and any
disease-related changes in a particular patient. These new diagnostics will
likely lead to better preventative care by offering more accurate assessments of
a patient's potential risk for developing a particular disease.
PERSONALIZED MEDICINE. The Celera Genomics Group expects that genomic
information will be used to develop molecular diagnostic tests to identify the
genetic make-up of individuals. These diagnostic tests will contribute to a more
personalized approach to medicine. For example, there are many types of cancer
that have similar symptoms. Because these symptoms may be similar between one
genetic type of cancer and another, it may be important to discriminate between
the actual type of disease rather than just the symptoms in prescribing an
effective treatment. It is believed that rather than prescribing a drug based
solely on symptoms, physicians will be able to use a molecular diagnostic test
to help select the most effective drug with the minimum number of side effects.
As a result, this approach should benefit the patient with more customized care,
reduced illness length, and ultimately, better treatment results.
AGRICULTURE
After health care, agriculture is the next largest market likely to benefit
from genomic research. The ability to diagnose plant and animal diseases and
develop treatments targeted against those diseases should produce better
agricultural products and improve yields. For example, the comparison of genetic
information from disease or pest-resistant plant strains with non-resistant
strains and the use of selective breeding programs for favorable traits will
significantly increase the number and success of new strains available to
various agricultural areas around the world.
OTHER APPLICATIONS
Genomic information should also be important in forensics and veterinary
medicine, as well as in non-traditional life science markets such as textile
production, waste control and environmental remediation.
PRODUCTS AND SERVICES
The Celera Genomics Group anticipates generating genomic information as a
platform for developing the following products and services:
- Genomic information databases consisting of comprehensive and integrated
human sequence information and information from other model organisms;
- Software systems and tools to facilitate customer access, viewing,
browsing, analysis and discovery;
- Polymorphism data and assay services for the pharmaceutical and health
care industry, including through collaborative service agreements using
the polymorphism data resulting from the Celera Genomics Group's
sequencing;
- Gene discovery services in collaboration with customers to pursue novel
discoveries;
- Other business extensions, involving the Celera Genomics Group's own gene
discoveries, population genetics analysis, sequencing of additional
genomes and contract sequencing; and
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- Advanced genomics technologies, including technologies offered by
GenScope, such as gene expression profiling, high throughput DNA
sequencing, complementary DNA (cDNA) cloning and bioinformatics, to
accelerate drug discovery and development efforts.
ANTICIPATED REVENUE SOURCES
The Celera Genomics Group expects to offer its information products on a
subscription basis for multiple year subscriptions. The information products
will include a variety of databases, including the Human Gene Index, the
DROSOPHILA Genome Database, the Human Genome Database, a Gene Expression
Database, a Comparative Genomics Database that would include data from model
organisms, and additional databases over time.
The structure of customer subscriptions, including the databases to be
offered, the access fees to be charged, the intellectual property terms, and the
nature of any services provided to customers, will vary according to customer
requirements and are expected to change over time. The Celera Genomics Group
expects to continue to generate revenues through GenScope's services in gene
expression analysis.
The Celera Genomics Group expects to realize revenues from its genomics
information products in several phases:
INITIAL PHASE. In the initial phase, expected to last until sequencing
begins in early 1999, the Celera Genomics Group expects to enter into agreements
with a limited number of early access subscribers to its information and
discovery system. The Celera Genomics Group's strategy in seeking these
customers is to offer them early access to genomic data as it is being
generated, to enhance their opportunities for early gene discovery and to permit
them to seek intellectual property rights in connection with their own
discoveries. The Celera Genomics Group may make available, in some cases, early
access to gene expression information, interfaced with customers' internal
biological and clinical "know-how," to help the customers focus on biological
pathways for gene identification, including rarely transcribed genes, and aid
data mining efforts. Early access customers will also be offered the opportunity
to provide input into the design of the Celera Genomics Group's product and
service offerings. The first early access customer is Amgen Inc., which has
entered into a five-year subscription agreement under which it will pay annual
subscription fees conditioned upon the Celera Genomics Group meeting specified
milestones. Other early access candidates are likely to be other companies with
experience in genomics, such as pharmaceutical companies and larger companies
with businesses focused on gene discovery. The Celera Genomics Group also
expects to receive revenues under a three-year agreement to provide expression-
based gene discovery services in the agricultural market.
SECOND PHASE. The Celera Genomics Group anticipates that the second phase
of its business development should start after the commencement of sequencing
and will involve expanded efforts to seek additional database subscriptions.
Terms offered to customers in this phase are expected to differ from those
offered in the initial phase. The Celera Genomics Group believes that customers
in this phase are also likely to be leading pharmaceutical companies and other
larger companies with focused gene discovery efforts. Targeted customers will
also include universities and other research institutions with substantial
genomic research interests. The Celera Genomics Group expects that its strategy
for expanding the number of subscriptions will be based, in part, on its
demonstrating early success in high volume sequencing, assembly and annotation
of the DROSOPHILA genome.
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THIRD PHASE. The Celera Genomics Group expects that the third phase of its
business development will expand to include the development of related products
and services to existing and new customers. These expanded products and services
include the development of its polymorphism information business, targeted to
pharmaceutical and biotechnology companies, and the development of assay and
related services through collaborative arrangements. The Celera Genomics Group
expects to share intellectual property rights in this area with its customers,
and to derive service-based fee income from polymorphism database access and
assay services. While the polymorphism information and assay business is at an
early stage of development, the Celera Genomics Group believes these products
and services could generate significant revenues over time.
In this phase, the Celera Genomics Group also anticipates broadening its
analysis capability by incorporating more sophisticated search and other
software tools in its product offerings. The Celera Genomics Group expects also
to emphasize at this stage collaborations with key partners already in the
genomics business or those seeking to utilize genomic information in gene
discovery. The Celera Genomics Group also expects to generate licensing revenues
from its own gene discovery efforts.
LATER STAGES. In the later stages of its business development, the Celera
Genomics Group anticipates developing the technological capabilities to provide
access to its databases to broader customer groups, including physicians,
patients and individual researchers. The Celera Genomics Group expects that
access for these customers will be available on a different basis than access
for its other genomics customers.
INFORMATION PRODUCTS
The Celera Genomics Group's information products may include the following
features:
- A comprehensive information and analysis system built on the foundation
of the human genome;
- A human genome reference sequence and a comprehensive genetic map;
- Continual annotation of genomic sequence information, through internal
research and integration of information obtained from public and private
sources, including the following:
-- location of identified genes;
-- specific identification of regulatory regions; and
-- medically-related information on genetic disease;
- Gene expression software that allows customers to access their data for
tracking projects and analyzing proprietary data;
- Proprietary bioinformatics software that allows users to visualize
information and interrelationships and perform their own analysis;
- The capability to perform comparative analysis on other genomes,
including those of DROSOPHILA and mouse, to permit researchers to better
understand gene function and the ways in which genes and proteins operate
within cells; and
- The ability to permit customers to integrate their proprietary data and
annotations.
The Celera Genomics Group is initially offering the following information
products:
HUMAN GENE INDEX. The Celera Genomics Group intends that this database
represent the most current view available of the set of human genes. It will be
the extension of the TIGR Human Gene Index, which has been in development at
TIGR for over three years and will be licensed to the Celera Genomics Group on a
non-exclusive basis. The sequence data will be derived from transcripts derived
from genomic sequences, assemblies of ESTs and related data used to develop the
ESTs. This database will contain an extensive network of links to other sources
of biological information,
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including information from mapping data, genomic sequences, expression data and
the Human Genome Project's databases.
DROSOPHILA GENOME DATABASE. The Celera Genomics Group expects that the
first complete sequence of available data generated by the Celera Genomics
Group's sequencing activity will be the DROSOPHILA genome. Scientists have
widely studied DROSOPHILA, which has been shown to share similar genes with
humans. This new genomic information will allow valuable comparisons of both
sequences and genes for the drug discovery process. Initially, the content of
the DROSOPHILA database will include DNA sequence information generated by the
Celera Genomics Group. Over time, the Celera Genomics Group will assemble and
supplement this data with data obtained from other accessible resources. The
database will include, as a minimum, the following annotations: protein matches,
exon predictions, EST matches and marker locations on chromosome maps.
HUMAN GENOME DATABASE. This information base will be the foundation for
developing an information and discovery source that ultimately links genomic
data to relevant biological and medical information. The Celera Genomics Group
anticipates that it will sequence the human genome at full capacity at a rate of
100 million base pairs of DNA per day and assemble sequenced data daily. In
addition, it will order the information using existing available data from its
own and third party sources. Concurrent with the sequencing project, separate
teams will be designated for annotating specific chromosomes. The Human Genome
Database will include, as a minimum, the following annotations: protein matches,
exon predictions, EST matches and marker locations on chromosome maps.
GENETAG-TM- EXPRESSION DATABASES. These databases will consist of human and
animal gene expression information to provide rapid, in-depth analysis of where
genes are expressed and in what quantities. This will include the GeneTag-TM-
rat database, which is the largest rat gene database in the world. GenScope has
identified 30,000 unique GeneTags-TM- in four months and that number is rapidly
increasing. The rat is an important model organism for pharmaceutical discovery
and development. Currently, these databases are used internally to expedite
internal research and gene identification for contract projects.
The Celera Genomics Group expects to develop and offer additional databases
over time, including those that contain polymorphism data and comparative data
from other genomes.
POLYMORPHISM DATA AND ASSAY SERVICES
The polymorphism data and services program will focus on understanding
genetic variations among individuals. This program will provide collaborators
with access to the Celera Genomics Group's polymorphism database as well its
assay development capability. The Celera Genomics Group intends to pursue
scientific collaborations with a number of customers to leverage the use of the
Celera Genomics Group's polymorphism information in customers' research and
development efforts. From its shotgun sequencing strategy and the use of DNA
from three to five individuals, the Celera Genomics Group expects to generate
from 10 million to 30 million polymorphisms, which will be included in a
database accessible by the Celera Genomics Group's customers and collaborators.
From that information, the Celera Genomics Group expects to work with
collaborators to select polymorphisms for additional validation testing on broad
populations. The database will include both all known candidate and validated
polymorphisms, and will be continually updated as candidate polymorphisms are
validated. The Celera Genomics Group intends to seek protection of intellectual
property rights in such polymorphism information.
The Celera Genomics Group also expects to offer a program to develop
customized assay systems that will be used by customers in collaborative
arrangements for both population studies undertaken for purposes of gene
discovery and pharmacogenomics studies undertaken for the purpose of
understanding individual drug response. The Celera Genomics Group intends to
utilize technology developed by the PE Biosystems Group and other companies
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to create biological assays that will be used to perform diagnostic tests on
patient populations. These assays systems will be based on flexible formats that
may use a variety of technologies including mass spectrometry detection,
Taqman-Registered Trademark- chemistry and GeneTag-Registered Trademark- (AFLP)
technology. A variety of customized options are expected to be available from
high resolution of localized genome areas to whole genome wide scans. Customers
will be able to carry out these studies by entering into collaborative service
agreements with the Celera Genomics Group.
GENE DISCOVERY SERVICES
The Celera Genomics Group intends to enter into collaborative arrangements
with customers to pursue novel discoveries in the customers' specific areas of
interest. It anticipates that the terms of these collaborative arrangements will
generally provide for research fees and joint ownership of any discoveries made
through the collaborative relationship.
GenScope GeneTag-TM- technology provides the Celera Genomics Group with
additional capabilities in the field of gene discovery. GenScope provides gene
expression profiling technology that simultaneously discovers novel genes,
including rarely-expressed genes, and monitors known genes for applications such
as molecular toxicology, gene discovery and pharmacogenomics.
BUSINESS EXTENSIONS
The Celera Genomics Group believes that its investment in staff and
technology and its integrated information systems should permit it to expand its
business into several areas. These additional areas may include licensing of
proprietary intellectual property rights from its own gene discovery efforts and
collaborative endeavors and establishment of collaborative relationships to
develop genomic information related to other organisms.
The Celera Genomics Group intends to conduct its own gene discovery
initiatives as part of its analysis of genomic data generated through its
sequencing efforts. The Celera Genomics Group currently intends to pursue
intellectual property protection on a limited number of novel gene discoveries.
If the Celera Genomics Group is successful in making novel discoveries and
generally establishing intellectual property rights, it expects to license most
of its discoveries broadly.
The Celera Genomics Group may also enter into other collaborative
arrangements with customers to develop genomic information specific to a
particular customer's interest. Such arrangements could involve an extensive
population genetics study on behalf of a pharmaceutical company or the
sequencing of certain plant, animal or insect genomes on behalf of customers in
the agriculture industry. In addition, customers may build proprietary gene
expression databases using GeneTag-TM- sequencing technology through a
collaborative arrangement. These arrangements may also include providing to
customers biological materials, such as full length cDNA clones, and sequencing
of clones of novel genes. The Celera Genomics Group anticipates that the terms
of these collaborative arrangements will generally provide for up-front license
fees, research fees and joint ownership of any discoveries or royalties and
milestone payments.
GENSCOPE
GenScope, a unit of the Celera Genomics Group, offers customers advanced
genomics information, including gene expression profiling, gene discovery, DNA
sequencing, complementary DNA (cDNA) cloning and bioinformatics to accelerate
their drug discovery and development efforts.
GenScope has exclusive worldwide rights to GeneTag-TM- AFLP technology (for
human health care applications). AFLP technology was invented and patented by
Keygene N.V. of The Netherlands as a DNA fingerprinting technique for use in
genomics-based plant breeding programs and offers substantial advantages over
other gene fingerprinting techniques. This technique is an enhancement of
polymerase chain reaction ("PCR") that allows selective analysis of any portion
of genetic material without the specific, prior sequence information normally
required for PCR.
GenScope products include gene expression profiling technology that
simultaneously
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discovers novel genes and monitors known genes for applications such as
molecular toxicology, gene discovery, including rarely expressed genes, and
pharmacogenomics. This capability, enabled by the GeneTag-TM- expression
technology, allows rapid gene expression profiling, simultaneously monitoring
known genes and discovering novel genes in a tissue or cell line. The rapid data
generated allows for fast construction of expression databases for specific
animal models and tissue. This information can then be used to develop
differential gene expression assays for genes identified in the global gene
expression studies to analyze disease and target specific pathways and drug to
drug or drug to organ side effects.
GenScope also offers software and bioinformatics services which allow
customers to access proprietary data via a secure Internet or Intranet
connection, allowing them to rapidly analyze and distribute information from
public and private sources throughout their research and development
organizations. Using these resources, GenScope also is building databases of
model organism gene expression data for gene identification and other research.
COMPETITION
The Celera Genomics Group's principal competitors will be those public and
private entities that are currently or intend to become involved in providing
genomic information and related genomic analysis capabilities in such areas as
genetic variability and gene discovery. The Celera Genomics Group's market and
financial success will be dependent, in large part, upon its ability to maintain
a competitive position in each of these areas. Entities with which the Celera
Genomics Group will be directly competing include Curagen, Genset, Inc. and
Incyte Pharmaceuticals, Inc. There are also a number of companies with which the
Celera Genomics Group will indirectly compete in particular lines of business,
such as in gene discovery and the development of drug targets. In addition, some
of the Celera Genomics Group's potential customers, such as pharmaceutical
companies, may choose to develop technologies and information similar to those
offered by the Celera Genomics Group. There have been published reports of a
proposed consortium of pharmaceutical companies to create and make public
polymorphism information. Finally, new technologies that improve the gene
analysis and discovery process may emerge over time and could compete with those
being developed by the Celera Genomics Group, or otherwise affect its business
strategy.
Some competitors may add data made available to the public by the Celera
Genomics Group to their own databases for resale to their customers. To prevent
this, the Celera Genomics Group intends to seek contractual and intellectual
property protection.
The Celera Genomics Group does not believe it is competing with the U.S.
government's efforts to sequence the human genome, and has sought to coordinate
its efforts with those funded by the U.S. government. The Celera Genomics Group
has signed a Memorandum of Understanding with the publicly funded Berkeley
Drosophila Genome Project Group to sequence and assemble the Drosophila genome.
The Celera Genomics Group expects to continue to seek ways to supplement and
benefit from coordinating its activities with those of the NIH and the
Department of Energy.
INTELLECTUAL PROPERTY AND PROPRIETARY TECHNOLOGY
The Celera Genomics Group's business and competitive position is dependent,
in part, upon its ability to protect its database information, proprietary gene
sequence methods, software technology and the novel genes it identifies. The
Celera Genomics Group's commercial success will be affected by, but is not
directly dependent on, the ability to obtain patent protection on genes and
polymorphisms discovered by it and/or by the Celera Genomics Group's customers
on their own behalf and by collaborators. The Celera Genomics Group plans to
seek intellectual property protection, including copyright protection, for the
information and discovery system including its content, the software and methods
it creates to manage, store, analyze and search novel information.
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The Celera Genomics Group's current plan is to apply for patent protection
upon the identification of candidate novel genes, novel gene fragments and their
biological function or utility. The Celera Genomics Group also plans to apply
for patent protection for certain novel polymorphisms. This plan includes
applying for claims to the gene sequences as well as equivalent sequences and
their variant forms. Although obtaining patent protection based on partial gene
sequences might enhance the Celera Genomics Group's business, the Celera
Genomics Group does not believe that its commercial success will be materially
dependent on its ability to do so. When gene discovery or analysis has been
performed on behalf of customers or collaborators, the Celera Genomics Group
anticipates that these patent rights will be jointly owned by the Celera
Genomics Group and the customer or collaborator. If a gene product was
developed, the Celera Genomics Group anticipates it would receive various forms
of consideration including license fees, milestone payments and royalty payments
on sales of the gene product and related products.
The granting of patents on genomic discoveries is uncertain worldwide and is
currently under review and revision in many countries. Moreover, publication of
information concerning partial gene sequences prior to the time that the Celera
Genomics Group applies for patent protection based on the full-length gene
sequences or different partial gene sequences in the same gene may affect the
Celera Genomics Group's ability to obtain patent protection. Certain court
decisions suggest that disclosure of a partial sequence may not be sufficient to
support the patentability of a full-length sequence and that patent claims to a
partial sequence may not cover a full-length sequence inclusive of that partial
sequence.
In January 1997, TIGR, in collaboration with the National Center for
Biological Information, disclosed full-length DNA sequences assembled from ESTs
available in publicly accessible databases or sequenced at TIGR. The National
Human Genome Research Institute also plans to release sequence information to
the public. Such disclosures might limit the scope of the Celera Genomics
Group's claims or make subsequent discoveries related to full-length genes
unpatentable. While the Celera Genomics Group believes that the publication of
sequence data will not preclude it or others from being granted patent
protection on genes, there can be no assurances that such publication has not
and will not affect the ability to obtain patent protection.
The Celera Genomics Group can not ensure that these or other uncertainties
will not result in changes in, or interpretations of, the patent laws that will
adversely affect its patent position. The Celera Genomics Group anticipates that
there will be significant litigation in the industry regarding genomic patent
and other intellectual property rights. If the Celera Genomics Group becomes
involved in such litigation, it could consume a substantial portion of the
Celera Genomics Group's resources.
The Celera Genomics Group also intends to rely on trade secret protection
for its confidential and proprietary information. The Celera Genomics Group
believes it has developed proprietary procedures for sequencing and analyzing
genes and for assembling the genes in their naturally occurring order. In
addition, the Celera Genomics Group believes it has developed novel methods for
searching and identifying particularly important regions of genetic information
or whole genes of interest. The Celera Genomics Group currently protects these
methods and procedures by trade secret and has not sought patent protection,
although it may decide to do so in the future.
The Celera Genomics Group has taken security measures to protect its
databases concerning genes identified by it, including entering confidentiality
agreements with employees and academic collaborators who are provided or have
access to confidential or proprietary information. The Celera Genomics Group
continues to explore ways to further enhance the security for its data,
including copyright protection for its databases.
Intellectual property derived from the GenScope gene-profiling service
provided to current GenScope customers is owned by the customers. GenScope has
retained rights to markers for clinical research, human and animal
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diagnostics or pharmacogenomics. GenScope service agreements negotiated to date
have also provided for clinical milestones and royalty payments on products
derived from the deliverables in gene discovery contracts.
SCIENTIFIC STAFF AND MANAGEMENT
The Celera Genomics Group's senior scientific staff and management include
the following persons:
J. CRAIG VENTER, Ph.D., President and Chief Scientific Officer, was the
founder and President of TIGR, a not-for-profit genomics research institution,
from 1992 until August 1998. He also was a scientific founder of Human Genome
Sciences, Inc. Dr. Venter has been Chief Scientific Officer at TIGR since August
1998, and remains Chairman of the Board of TIGR since being appointed in 1992.
Prior to 1992, he was a Section Chief and a Lab Chief in the National Institute
of Neurological Disorders and Strokes at the NIH. At the NIH, Dr. Venter
developed the EST method, a new strategy for gene discovery. Using this method
at TIGR, Dr. Venter and other TIGR scientists discovered and published one half
of all human genes that have been sequenced. Using new algorithms developed at
TIGR, TIGR developed the whole genome shotgun method that led TIGR to completing
the first three genomes ever sequenced.
MARK ADAMS, Ph.D., Vice President for Genome Programs, was Director of DNA
Sequencing at TIGR from 1992 until August 1998 and Director of Eukaryotic
Genomes from 1996 to 1998. Prior to joining TIGR, Dr. Adams was a post doctoral
fellow in Dr. Venter's lab at NIH and is a co-developer of the EST method of
sequencing. He also participates in projects devoted to sequencing and
characterization of other eukaryotic and prokaryotic genomes.
PETER BARRETT, Ph.D., Executive Vice President and Chief Business Officer,
was Vice President, Corporate Planning and Business Development of our company
since 1995. Dr. Barrett was a member of the team of corporate officers
responsible for the Company's direction and management, focusing on strategic
planning, mergers and acquisitions, and new business development for life
science businesses. Dr. Barrett joined our company in 1979 and has held a number
of managerial positions in the United States and Europe, including executive
management in our company's life science business from 1990 to 1995.
STEPHEN BATES, Vice President and General Manager of AgGen, started PE
Biosystem's agriculture business in 1993 and was responsible for a number of
acquisitions, which led to the formation of AgGen. He joined PE in 1987 and has
held a number of managerial positions in the United States and Europe including
European Marketing manager for PE Biosystems.
SAMUEL BRODER, M.D., Executive Vice President and Chief Medical Officer, was
Senior Vice President for Research and Development at IVAX Corporation, from
1995 until August 1998. Dr. Broder was Presidentially-appointed director of the
National Cancer Institute ("NCI") at NIH, which had over 2,000 employees and an
annual budget of more than $2 billion, from 1989 to 1995. His laboratory played
a major role in the discovery or development of several marketed drugs. As NCI
director, he initiated and directed several large-scale clinical studies in
prevention, diagnosis and treatment of cancer.
ANNE DESLATTES MAYS, Vice President of Software Systems, was the principal
software engineer at TIGR from 1997 to 1998, responsible for developing software
solutions for the closure process. Prior to this, she designed and developed
software solutions for a variety of industries including the telecommunications,
biotechnology and air traffic industries. The applications that she developed
for these industries included instrument control, modeling and simulation, and
user interface software.
DENNIS A. GILBERT, Ph.D., Vice President and General Manager of GenScope,
has been with GenScope since its acquisition by Perkin-Elmer. Mr. Gilbert is
responsible for the development and commercialization of its proprietary gene
expression technology. At GenScope, he directs a multidisciplinary functional
genomics research and production operation. From 1993 to 1997, Dr. Gilbert was
Manager of Molecular Genetic Applications for PE Biosystems where he
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developed technology on the ABI 377 and ABI 310 instruments for linkage mapping
and characterization of genes involved in human diseases. Prior to joining our
company, he was Program Manager, Genetics at W.R. Grace, where he applied
molecular genetic technologies to the identification of economically important
traits in agricultural animals.
J. PAUL GILMAN, Ph.D., Director of Policy Planning, was Executive Director
of the Commission on Life Sciences of the National Academy of Science's National
Research Council. Before joining the Academy in 1993, Dr. Gilman served in the
Executive Office of the President as Associate Director of the Office of
Management and Budget for formulation and oversight for the Environmental
Protection Agency, the Department of the Interior, the National Sciences
Foundation, the Department of Agriculture, the Department of Energy and other
agencies. Dr. Gilman also served as executive assistant and technical advisor to
the Secretary of Energy. From 1985 to 1991 he served as Chief of Staff to
Senator Pete V. Domenici where, among other responsibilities, he coordinated the
Senator's efforts to promote the federal project to map and sequence the human
genome.
ANTHONY R. KERLAVAGE, Ph.D., Director of Gene Discovery, served as TIGR's
Director of the Department of Bioinformatics and Director of the TIGR Database,
a collection of publicly accessible biology databases before joining the Celera
Genomics Group. Prior to TIGR, he worked in the Receptor Biochemistry and
Molecular Biology Section of NINDS at the NIH. His research has included various
aspects of computational biology, including DNA and protein sequence analysis,
prediction of protein structure, protein structure/function relationships, gene
families, molecular evolution, and design of informatics systems and databases
for large-scale DNA sequencing projects.
EUGENE W. MYERS, JR., Ph.D., Director of Informatics Research, has worked in
the field of computational biology as a scientist and Full Professor at the
University of Arizona for the last 17 years. His work has focused primarily on
developing efficient sequence analysis and sequence assembly algorithms and
co-proposed use of the whole genome shotgun approach for sequencing the human
genome in 1996. Dr. Myers is also widely known for being one of the
co-developers of BLAST, one of the most widely used analysis tools for genomics.
MARSHALL PETERSON, Director of Infrastructure Technology, was a program
manager at Digital Equipment Corporation responsible for complex mission
critical systems implementations for its customers. Prior to this, he was a
solutions architect and project manager responsible for developing and
implementing hardware and software solutions for a variety of industries,
including manufacturing, defense and finance. The applications included process
control and monitoring, document management, management information and
messaging, as well as flight and battlefield simulations.
HAMILTON O. SMITH, M.D., Director of DNA Resources, was Professor of
Molecular Biology and Genetics at the Johns Hopkins School of Medicine until
mid-1998. He is best known for the discovery of the first Type II restriction
enzyme, for which he received a Nobel Prize in 1968, soon after joining the
Hopkins faculty. He has made a number of contributions to nucleic acid
biochemistry and microbial genetics. In the past 20 years, he and his laboratory
co-workers have isolated and characterized more than a dozen genes involved in
the DNA transformation mechanism of the bacterium, HAEMOPHILUS INFLUENZAE. He
was also a part time investigator at TIGR from 1997 to 1998, prior to joining
the Celera Genomics Group.
GRANGER SUTTON, Ph.D., Principal Scientist, joined TIGR in 1992 where he
developed algorithms for multiple sequence alignment, DNA versus protein
alignment allowing for frameshifts and streamlining of homology searching. His
primary focus, in recent years, has been shotgun fragment assembly resulting in
the TIGR Assembler, which is used for assembling microbial genomes.
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SCIENTIFIC ADVISORY BOARD
The Celera Genomics Group's scientific advisory board consists of the
following persons:
ARTHUR L. CAPLAN, Ph.D. is a renowned scholar and leading authority on
ethical issues surrounding biomedical advances and scientific discovery. Since
1994 Dr. Caplan has served as Director of the Center for Bioethics and as
Trustee Professor of Bioethics at the University of Pennsylvania. He is, in
addition, Professor of Molecular and Cellular Engineering, Professor of
Philosophy and Chief, Division of Bioethics, University of Pennsylvania Medical
Center. Dr. Caplan is Chairman of the Advisory Committee to the U.S. Department
of Health and Human Services, Centers for Disease Control and the U.S. Food and
Drug Administration.
ARNOLD J. LEVINE, Ph.D. is a cancer biologist and is President of
Rockefeller University. Previously, Dr. Levine was the Harry C. Wiess Professor
of the Life Sciences at Princeton University, where he founded the University's
molecular biology department during a 12-year tenure that saw the department
grow to include two research laboratories and 35 faculty members. Prior to his
work at Princeton, Dr. Levine was chairman at SUNY/Stony Brook School of
Medicine. Dr. Levine is also a director of our company.
VICTOR A. MCKUSICK, M.D. is University Professor of Medical Genetics at The
Johns Hopkins University and a physician at Johns Hopkins Hospital. Previously,
he was Director of the Division of Medical Genetics in the Department of
Medicine at The Johns Hopkins University School of Medicine. Dr. McKusick is
editor-in-chief of the journal "Medicine" and founding editor of "Genomics", the
international journal of gene mapping and nucleotide sequencing emphasizing
analyses of the human and other complex genomes. He served as founder president
of The Human Genome Organization from 1988 to 1990.
RICHARD J. ROBERTS, Ph.D., Chairman of the Scientific Advisory Board, is a
research director at New England Biolabs in Beverly, Massachusetts. He was
awarded the Nobel Prize for Physiology Medicine in 1993 and is a leading pioneer
in the applications of computer methods in protein and nucleic acid sequence
analysis. From 1972 to 1992, Dr. Roberts held a series of senior research
positions at Cold Spring Harbor Laboratory.
MELVIN I. SIMON, Ph.D. is chairman and professor, Division of Biology, at
California Institute of Technology with which he has been associated since 1982.
Previously, he was with the University of California, San Diego where he served
as assistant professor, associate professor, and professor in the Department of
Biology from 1965 to 1982. Dr. Simon serves on a number of boards including
those of the Agouron Institute where he is chairman.
NORTON D. ZINDER, Ph.D. is the John D. Rockefeller, Jr. professor and head
of the Laboratory of Genetics of The Rockefeller University. An internationally
acclaimed expert in molecular biology, Dr. Zinder was first chairman of the
NIH's Program Advisory Committee on the Human Genome.
MATERIALS
The Celera Genomics Group depends on the PE Biosystems Group for several
critical materials, including reagents and capillary arrays, required for
sequencing. For certain of these materials, the PE Biosystems Group is the sole
supplier, and for other materials the Celera Genomics Group believes that the PE
Biosystems Group provides the highest quality materials available. Any
interruption in the availability of these materials could adversely affect and,
in come cases, shut down sequencing operations.
EMPLOYEES
The Celera Genomics Group had approximately 220 employees as of December 31,
1998. None of the Celera Genomics Group's employees are subject to collective
bargaining agreements.
PROPERTIES
The Celera Genomics Group's headquarters are in Rockville, Maryland, where
its administrative facilities, sequencing facility,
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laboratories and bioinformatics facilities are located. The Celera Genomics
Group has leased approximately 220,000 square feet of space in two adjacent
buildings with a lease term of 10 years. GenScope leases approximately 11,000
square feet of space in one building in Foster City, California from the PE
Biosystems Group. AgGen leases a total of approximately 30,000 square feet of
space for its two locations in Davis, California and Salt Lake City, Utah.
LEGAL PROCEEDINGS
On October 19, 1998, Amersham Pharmacia Biotech, Inc. filed a patent
infringement action against the Celera Genomics Group in the United States
District Court for the District of Delaware. The complaint alleges that the
Celera Genomics Group is directly, contributorily or by inducement, infringing
U.S. Patent No. 5,688,648, entitled "Probes Labeled with Energy Transfer Coupled
Dyes." The complaint seeks declaratory judgment that the use of the Perkin-Elmer
BigDye-TM- Primer and BigDye-TM- Terminator kits would infringe this patent, as
well as injunctive and monetary relief. The Celera Genomics Group answered the
complaint, alleging that this patent is invalid and that the Celera Genomics
Group has not infringed this patent.
While the BigDye detection technology is a preferred technology with which
to carry out the Celera Genomics Group's planned DNA sequencing activities, a
number of viable alternatives exist. For example, the PE Biosystems Group
currently markets DNA sequencing reagents that do not incorporate BigDye
fluorescent labels, but rather utilize alternative labels. Therefore, even in
the event of an unfavorable outcome to this litigation, the Celera Genomics
Group would be able to carry out its planned large-scale DNA sequencing program
and would not experience a material adverse effect on its business.
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CELERA GENOMICS GROUP --
MANAGEMENT'S DISCUSSION AND ANALYSIS
MANAGEMENT'S DISCUSSION OF OPERATIONS
You should read this discussion with our combined financial statements and
our consolidated financial statements. Historical results and percentage
relationships are not necessarily indicative of operating results for any future
periods.
OVERVIEW
The Celera Genomics Group was formed for the purpose of generating and
commercializing genomic information to accelerate the understanding of
biological processes and assisting pharmaceutical, biotechnology and life
science research entities. The Celera Genomics Group is engaged principally in
the generation, sale and support of genomic information databases and related
information management and analysis software; discovery, validation and
licensing of proprietary gene products, genetic markers and information
regarding genetic variability; and related consulting and contract research and
development services. The foundation of the Celera Genomics Group's strategy is
the sequencing of the entire human genome, which it expects to complete by
December 31, 2001.
The Celera Genomics Group also includes the business and operations of
GenScope and AgGen. GenScope provides genomic-related contract research and
discovery services, utilizing AFLP gene expression profiling technology. AgGen
is a provider of genetic analysis services for plant and animal breeding. The
purchase of Linkage Genetics, Inc. and Zoogen, Inc. were combined with our
company's applied agriculture unit to form AgGen.
Operations to date have been principally funded from PE's working capital,
GenScope's collaborative arrangements and AgGen's contract research services.
GenScope and AgGen have accounted for all of the Celera Genomics Group's
revenues to date. Net losses for the six months ended December 31, 1998 and
1997, were $11.7 million and $2.3 million, respectively. Net losses for the
fiscal years ended June 30, 1998, 1997 and 1996 were $8.3 million, $30.2 million
and $2.6 million, respectively. Results through fiscal 1998 have primarily
reflected the operations of GenScope and AgGen. Fiscal 1997 and 1996 included
charges of $26.8 million and $2.1 million, respectively, for purchased
in-process research and development. The Celera Genomics Group anticipates that
net operating losses will continue and will increase through at least 2001.
EVENTS IMPACTING COMPARABILITY
During the third quarter of fiscal 1997, our company acquired GenScope,
Inc., for $26.8 million. GenScope, founded in 1995, represented a development
stage venture with no operating history. GenScope had effectively no revenues
and limited R&D contract services only. We obtained the right to utilize AFLP-
based gene expression technology in the field of human health, but did not
obtain any core technology or other rights. GenScope's limited balance sheet,
with assets of approximately $.2 million, had yet to deliver commercial value.
Accordingly, we recorded a charge of $25.4 million attributable to the
in-process technology purchased. We based this amount upon the early development
stage of this life science business acquired, the technological hurdles to apply
this technology to the field of human health and the underlying cash flow
projections. The acquisition represented the purchase of development stage
technology, not at the time considered commercially viable in the health care
applications that our company intends to pursue. Our company's intent was to
first develop the technology into a set of molecular screening tools for use in
the enhancement of pharmaceutical product development. We allocated $1.4 million
of the purchase price to technology rights attributable to GenScope's AFLP gene
expression technology. AFLP is an enhancement of the polymerase chain reaction
("PCR") process that allows selective analysis of any portion of genetic
material without the specific, prior sequence information normally required for
PCR. Of the
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$25.4 million expensed as in-process research and development, $5.5 million
represented a contingent liability due on the issuance of a process patent for
technology under development. Through June 30, 1998, our Company incurred
approximately $4.9 million in additional research and development costs to
further develop the AFLP technology in the field of human health. We anticipate
spending an additional $13.9 million in fiscal 1999 and 2000 to substantially
complete such project. Such costs approximate those anticipated at the date of
acquisition.
We acquired Linkage, a company solely engaged in genetic R&D activities in
the agriculture industry, during the fourth quarter of fiscal 1997. We expensed
the acquisition cost of $1.4 million as purchased in-process research and
development.
During the fourth quarter of fiscal 1996, we acquired Zoogen, a company
solely engaged in genetic R&D activities in the animal healthcare market for
$2.1 million. We expensed the acquisition cost as purchased in-process R&D.
RESULTS OF OPERATIONS FOR THE SIX MONTHS ENDED DECEMBER 31, 1998 COMPARED
WITH THE SIX MONTHS ENDED DECEMBER 31, 1997
The Celera Genomics Group reported a net loss of $11.7 million for the first
six months of fiscal 1999 compared with a net loss of $2.3 million for the first
six months of fiscal 1998. The significant increase in net loss reflected the
establishment and start-up of operations to support the expanded sequencing
activities of the business.
Net revenues for the Celera Genomics Group were $5.6 million for the first
six months of fiscal 1999, compared with $1.9 million for the first six months
of fiscal 1998, an increase of $3.7 million. Revenues for both periods related
primarily to contract research services of the AgGen business. The increase in
revenues for AgGen was comprised of $1.1 million for the animal business and
$2.3 million for the genomics business. During the first quarter of fiscal 1999,
PE entered into a three year contract to provide expression-based gene discovery
services in the agricultural market. Revenues from this contract will be
recognized in accordance with the provisions of the agreement.
In the first quarter of fiscal 1999, PE also entered into a collaborative
agreement whereby GenScope will provide certain genomic information on
biological samples of tumors or other cell tissues utilizing AFLP technology.
Upon execution of the agreement, a $1.0 million payment was received and
recorded as deferred revenues.
SG&A expenses were $10.8 million for the first six months of fiscal 1999.
The first six months of fiscal 1999 included the allocation of $2.5 million of
corporate overhead and administrative shared services. See Note 1 to the Celera
Genomics Group combined financial statements. The amount of corporate overhead
and administrative shared services allocated to the Celera Genomics Group was
$.2 million for the first six months of fiscal 1998. SG&A expenses for the first
six months of fiscal 1998 reflected only the costs associated with the GenScope
and AgGen businesses. The first six months of fiscal 1999 included the
establishment and start-up of operations at the Celera Genomics Group's
headquarters in Rockville, Maryland and, to a lesser extent, increased staffing
for GenScope. The headquarters includes administrative facilities, sequencing
facilities, laboratories and bioinformatics facilities. On July 10, 1998, PE
entered into a ten-year non-cancelable lease for the Celera Genomics Group's
Rockville facility. Approximately 220 employees were employed by the Celera
Genomics Group at December 31, 1998, compared with approximately 124 at June 30,
1998.
R&D expenses were $11.0 million for the first six months of fiscal 1999
compared with $1.8 million for the prior period. The first six months of fiscal
1999 included a cost of $1.4 million, including overhead, for research performed
by the PE Biosystems Group on behalf of the Celera Genomics Group. GenScope's
related R&D expenses increased $4.2 million for the first six months of fiscal
1999 over the comparable period resulting from costs incurred to support the
continuing development of transitioning its in-process technology into a
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commercially viable product for the health care industry. For the first six
months of fiscal 1999, AgGen's R&D expenses increased $.3 million, or 33%, over
the first six months of fiscal 1998, primarily related to research in the animal
business. Fiscal 1999 included $1.0 million of R&D expense for the ACGT
business.
The income tax benefit was computed using an effective tax rate of 35% for
the first six months of fiscal 1999 and fiscal 1998. See Note 1 to the Celera
Genomics Group combined financial statements for a discussion of allocations of
federal and state income taxes.
RESULTS OF OPERATIONS--1998 COMPARED WITH 1997
The Celera Genomics Group reported a net loss of $8.3 million for fiscal
1998, compared with a net loss of $30.2 million for fiscal 1997. Fiscal 1997
included a $26.8 million charge for purchased in-process research and
development in connection with the GenScope and Linkage acquisitions.
Net revenues for the Celera Genomics Group were $4.2 million for fiscal 1998
compared with $.9 million for fiscal 1997. Revenues for AgGen increased $3.0
million over the prior period to $3.9 million for fiscal 1998. The animal
business represented 56% of the total revenues for fiscal 1998. Net revenues of
$.3 million for fiscal 1998 were derived from a contract research program
directed towards the identification of diagnostic DNA markers for rat liver
genes using GenScope's AFLP technology. The requirements of the contract were
completed in fiscal 1998. In the fourth quarter of fiscal 1998 our company also
entered into a pilot study contract research services agreement. The total
amount of this latter agreement was $.3 million and the agreement requires
GenScope to deliver AFLP expressed gene profiles on biological samples. The
entire amount has been deferred and will be recognized in accordance with the
provisions of the agreement. No revenues were reported for GenScope in fiscal
1997.
SG&A expenses were $6.7 million for fiscal 1998 compared with $2.2 million
for fiscal 1997. Fiscal 1998 included $1.7 million of corporate overhead and
administrative shared services. The amount of allocated corporate overhead and
shared services for fiscal 1997 was $.2 million. Fiscal 1997 included the
operations of GenScope and Linkage from the date of acquisition.
R&D expenses were $6.2 million for fiscal 1998 compared with $3.1 million
for fiscal 1997. Fiscal 1997 included the operations of GenScope and Linkage
from the date of acquisition.
The effective income tax rate was 35% for fiscal 1998 and fiscal 1997.
Fiscal 1997 included a tax benefit of $1.9 million on a before-tax loss of $32.1
million. The fiscal 1997 charge of $26.8 million for acquired research and
development was not deductible for tax purposes. See Note 1 to the Celera
Genomics Group combined financial statements for a discussion of allocations of
federal and state income taxes.
RESULTS OF OPERATIONS--1997 COMPARED WITH 1996
The Celera Genomics Group reported a net loss of $30.2 million for fiscal
1997, compared with a net loss of $2.6 million for fiscal 1996. During fiscal
1997 and 1996, charges of $26.8 million and $2.1 million, respectively, were
recorded for purchased in-process research and development in connection with
certain acquisitions for the Celera Genomics Group. See Note 2 to the Celera
Genomics Group combined financial statements.
Net revenues for the Celera Genomics Group were $.9 million for fiscal 1997,
compared with $.2 million for fiscal 1996. Revenues in both fiscal years were
derived from the AgGen business. The increase was primarily in the animal
business. No revenues were reported in fiscal 1997 for GenScope since the date
of acquisition.
SG&A expenses were $2.2 million for fiscal 1997, compared with $.6 million
for fiscal 1996, an increase of $1.6 million. The AgGen business comprised $1.5
million of the increase, with fiscal 1997 reflecting a full year of operations
for Zoogen. Fiscal 1997 and 1996 included $.2 million and $.1 million,
respectively, of
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allocated corporate overhead and administrative shared services.
R&D expenses of $3.1 million for fiscal 1997, increased $2.9 million
compared with the prior year. Fiscal 1997 included $.6 million of R&D expenses
for the GenScope business, since the date of acquisition, and $2.5 million for
the AgGen business. Fiscal 1997 reflected the operations of Zoogen for a full
year.
Fiscal 1997 and fiscal 1996 included a tax benefit of $1.9 million and $.3
million, respectively, on a before-tax loss of $32.1 million for fiscal 1997 and
$2.9 million for fiscal 1996. The acquired research and development charges of
$26.8 million for fiscal 1997 and $2.1 million for fiscal 1996, were not
deductible for tax purposes. See Note 1 to the Celera Genomics Group combined
financial statements for a discussion of allocations of federal and state income
taxes.
MANAGEMENT'S DISCUSSION OF FINANCIAL RESOURCES AND LIQUIDITY
OVERVIEW
The Celera Genomics Group has relied principally on PE to fund its
operations and capital expenditures. At December 31, 1998 the Celera Genomics
Group was not allocated cash or cash equivalents from our company. Working
capital was $309.1 million at December 31, 1998. Working capital at December 31,
1998 included the note receivable from the PE Biosystems Group.
The development of the Celera Genomics Group's products and services will
require substantial funding. No organization has ever attempted to combine in
one business organization all of the Celera Genomics Group's businesses. The
initial capitalization of the Celera Genomics Group included a $330 million
short-term note receivable from the PE Biosystems Group established at September
30, 1998. The note will not result in the PE Biosystems Group holding an equity
interest in the Celera Genomics Group. The note is expected to be repaid with
the proceeds from the sale of the Analytical Instruments business of the PE
Biosystems Group. Accordingly, no interest will be ascribed to the note. At
December 31, 1998, the outstanding balance of the note was $311.3 million.
PE also intends to allocate tax benefits to the Celera Genomics Group for
losses incurred, resulting in up to $75 million of additional cash resources for
the Celera Genomics Group. We believe that the note receivable, allocated tax
benefits, and anticipated revenues of the Celera Genomics Group should be
sufficient to fund its current business objectives through 2001.
In addition, our board of directors has adopted a financing policy, included
in Note 1 to the Celera Genomics Group combined financial statements, which will
permit the PE Biosystems Group to make loans to the Celera Genomics Group and to
make equity contributions to the Celera Genomics Group in exchange for Celera
Genomics Designated Shares.
SIGNIFICANT CHANGES IN THE COMBINED STATEMENTS OF FINANCIAL POSITION
Tax benefit receivable from the PE Biosystems Group was $4.4 million at
December 31, 1998. This amount represents the tax benefit for the second quarter
of fiscal 1999. Management intends to settle the tax benefit receivable on a
quarterly basis. See Note 1 to the Celera Genomics Group combined financial
statements for a discussion of allocations of federal and state income taxes.
Accounts payable increased by $2.1 million to $2.6 million at December 31,
1998 from $.5 million at June 30, 1998 as a result of the Celera Genomics
Group's rapid progress in establishing its infrastructure.
Accrued salaries and wages increased $.8 million at December 31, 1998 from
June 30, 1998. The increase reflects the growth in the number of employees from
June 30, 1998 to December 31, 1998.
Other accrued expenses increased by $2.9 million, to $4.2 million at
December 31, 1998, from $1.3 million at June 30, 1998. Increased deferred
contract research service revenues of $.7 million, pertaining to the contract
entered into by GenScope in the first quarter of fiscal 1999, and $.9 million of
deferred technology access fees associated with a
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three year contract entered into during the first quarter of fiscal 1999,
primarily accounted for the change. A $.4 million accrual for services provided
by The Institute of Genomic Research to the Celera Genomics Group, accounted for
a significant portion of the increase in other accrued expenses from June 30,
1997 to June 30, 1998.
COMBINED STATEMENTS OF CASH FLOWS
Cash used by operating activities was $9.9 million for the first six months
of fiscal 1999 compared with $2.3 million for the prior year period. The
increase in cash used by operating activities resulted primarily from net
operating losses and an increase in the tax benefit receivable from the PE
Biosystems Group, partially offset an increase of $.9 million in deferred
revenues. For fiscal 1998, net cash used by operating activities was $6.9
million, compared with $3.1 million for fiscal 1997. An increase in net losses
from operating activities for fiscal 1998 and an increase in the tax benefit
receivable from the PE Biosystems Group of $4.5 million was partially offset by
an increase in current liabilities.
Net cash used by investing activities was $17.4 million for the six months
ended December 31, 1998 compared with $1.0 million for the prior year period,
primarily as a result of increased capital spending for the establishment and
start-up of operations at the Celera Genomics Group's headquarters. The capital
spending for the six months ended December 31, 1998 included $7.8 million for
the PE Biosystems Group's ABI PRISM-TM- 3700 DNA Analyzers and $.5 million for
other instrumentation purchased from the PE Biosystems Group. Net cash used by
investing activities of $3.6 million for fiscal 1998 primarily reflected our
company's capital investment in the GenScope business. Net cash used for
investing activities for fiscal 1997 was $23.1 million and was related to the
acquisition of GenScope in the third quarter of fiscal 1997 and Linkage in the
fourth quarter of fiscal 1997. See Note 2 to the Celera Genomics Group combined
financial statements.
YEAR 2000
In fiscal 1997, PE initiated a worldwide program to assess the expected
impact of the Year 2000 date recognition problem on our existing internal
computer systems; our non-information technology systems, including embedded and
process control systems; our product offerings; and our significant suppliers.
The purpose of this program is to ensure the event does not have a material
adverse effect on our business operations.
The operations of the Celera Genomics Group are included within this
program. At this time, PE is not able to determine the relative resources
required to implement this program in the Celera Genomics Group. However, PE
believes that a substantial portion of the resources required will be allocated
to the PE Biosystems Group.
Regarding PE's existing internal computer systems, the program involves a
mix of purchasing new systems and modifying existing systems, with the emphasis
on replacement of applications developed in-house. Replacement projects are
currently underway, and are anticipated to be substantially completed for all
business-critical systems worldwide by December 31, 1999. The program includes
replacement of applications that, for reasons other than Year 2000
noncompliance, had been previously selected for replacement. The replacement
projects, which began in fiscal 1997, are expected to offer improved
functionality and commonality over current systems, while at the same time
addressing the Year 2000 problem.
With respect to PE's current product offerings, the program involves
performing an inventory of current products, assessing their compliance status,
and constructing a remediation plan where appropriate. All of the Celera
Genomics Group's current product offerings are Year 2000 compliant.
The program also addresses the Year 2000 compliance efforts of PE's
significant suppliers, vendors, and third-party interface systems. As part of
this analysis, PE is seeking written assurances from these suppliers, vendors,
and third parties that they will be Year 2000
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compliant. While PE has begun such efforts, there can be no assurance that the
systems of other companies with which PE deals, or on which PE's systems rely
will be timely converted, or that any such failure to convert by another company
could not have a material adverse effect on PE. PE has not fully determined the
extent to which PE's interface systems may be impacted by third parties'
systems, which may not be Year 2000 compliant.
PE's preliminary estimate of the total cost for this multi-year program
covering 3-4 years is approximately $150 million. This includes amounts
previously budgeted for information technology infrastructure improvements and
estimates of remediation costs on components not yet fully assessed. Incremental
spending has not been and is not expected to be material because most Year 2000
compliance costs will be met with amounts that are normally budgeted for
procurement and maintenance of PE's information systems, production and
facilities equipment. The redirection of spending to implement Year 2000
compliance plans may in some instances delay productivity improvements.
PE has also engaged a consulting firm to provide periodic assessments of
PE's Year 2000 project plans and progress. Because of the importance of
addressing the Year 2000 problem, PE has created a Year 2000 business continuity
planning team to review and develop, by April 1999, business contingency plans
to address any issues that may not be corrected by implementation of PE's Year
2000 compliance plan in a timely manner. If PE is not successful in implementing
its Year 2000 compliance plan, or there are delays in and/or increased costs
associated with implementing such changes, the Year 2000 problem could have a
material adverse effect on PE's consolidated results of operations and financial
condition.
At this stage of the process, PE believes that it is difficult to
specifically identify the cause of the most reasonable worst case Year 2000
scenario. A reasonable worst case Year 2000 scenario would be the failure of
significant suppliers and vendors to have corrected their own Year 2000 issues
which could cause disruption of PE's operations and have a material adverse
effect on PE's financial condition. The impact of such disruption cannot be
estimated at this time. In the event PE believes that any of its significant
suppliers or vendors are unlikely to be able to resolve their own Year 2000
issues, PE's contingency plan would include seeking additional sources of
supply.
RECENTLY ISSUED ACCOUNTING STANDARDS
In June 1998, the FASB issued SFAS No. 133, "Accounting for Derivative
Instruments and Hedging Activities." The provisions of the statement require the
recognition of all derivatives as either assets or liabilities in the statement
of financial position and the measurement of those instruments at fair value.
The accounting for changes in the fair value of a derivative depends on the
intended use of the derivative and the resulting designation. The Celera
Genomics Group is required to implement the statement in the first quarter of
fiscal 2000. The Celera Genomics Group currently believes the statement will not
have a material impact on its combined financial statements.
The FASB issued the following Statement of Financial Accounting Standards,
which will become effective for the Celera Genomics Group's fiscal 1999 annual
financial statements: SFAS No. 132, "Employers' Disclosures about Pensions and
other Postretirement Benefits," which requires additional disclosures relating
to a company's pension and postretirement benefit plans; and SFAS No. 131,
"Disclosure about Segments of an Enterprise and Related Information," which
requires certain financial and descriptive information about a company's
reportable operating segments. The adoption of these new accounting standards
may require additional disclosures but should not have a material effect, if
any, on the combined financial statements of the Celera Genomics Group.
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PROPOSALS 2 AND 3-- ADOPTION OF PE CORPORATION/PE BIOSYSTEMS GROUP 1999 STOCK
INCENTIVE PLAN AND PE CORPORATION/CELERA GENOMICS GROUP 1999 STOCK INCENTIVE
PLAN
BACKGROUND AND REASONS FOR THE PROPOSALS
Proposal 2 pertains to PE Corporation/PE Biosystems Group 1999 Stock
Incentive Plan (the "PE Biosystems Plan") and Proposal 3 pertains to PE
Corporation/Celera Genomics Group 1999 Stock Incentive Plan (the "Celera
Genomics Plan"). Those plans are identical except as otherwise noted.
On November 19, 1998, our board of directors adopted the PE Biosystems Plan
and the Celera Genomics Plan (collectively, the "Incentive Plans").
The PE Biosystems Plan authorizes grants of awards with respect to PE
Biosystems Stock only and the Celera Genomics Plan authorizes grants of awards
with respect to Celera Genomics Stock only. Directors and certain officers and
key employees who will continue to have responsibilities involving both the PE
Biosystems Group and the Celera Genomics Group and certain key employees of each
group will be granted awards under both Incentive Plans in a manner which
reflects their responsibilities. Our board of directors believes that granting
participants awards tied to the performance of the group in which the
participants work and, in certain cases, the other group, is in the best
interests of PE and our stockholders.
If approved by the shareholders, the Incentive Plans will become effective
upon the recapitalization. We believe that the Incentive Plans will promote the
interests of our company and our shareholders by helping to attract and retain
exceptional employees, officers, directors and consultants, motivating the
participants by means of stock options, restricted shares and
performance-related incentives to achieve long-term performance goals, and
enabling the employees, officers, directors and consultants to participate in
our long-term growth and financial success.
If the recapitalization is implemented and Proposals 2 and 3 are approved,
no additional grants of awards will be made from our previously approved stock
incentive plans, including our 1998 Stock Incentive Plan. As of January 25,
1999, options for 12,000 shares had been granted under that plan.
This summary highlights all material information from the Incentive Plans.
To understand the Incentive Plans more fully, you should read carefully the
Incentive Plans attached to this proxy statement as Annexes III and IV.
SUMMARY OF THE INCENTIVE PLANS
SHARES SUBJECT TO THE PLANS
Subject to adjustment as provided below, we will make available 2,400,000
shares of PE Biosystems Stock for issuance under the PE Biosystems Plan and
5,000,000 shares of Celera Genomics Stock for issuance under the Celera Genomics
Plan. Shares delivered under the Incentive Plans may be newly issued shares or
treasury shares.
TYPES OF INCENTIVES
Incentives granted under the Incentive Plans may be:
- stock options, consisting of incentive stock options within the meaning
of Section 422 of the Code and non-qualified stock options (collectively,
"Options");
- shares of PE Biosystems Stock or Celera Genomics Stock which may be
subject to restrictions ("Employee Stock Awards");
- shares of PE Biosystems Stock or Celera Genomics Stock, subject to
performance goals ("Performance Shares"); or
- director stock awards, which will be shares of PE Biosystems Stock or
Celera Genomics Stock, subject to restrictions ("Director Stock Awards").
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ELIGIBILITY
Under the terms of the Incentive Plans:
- all of our regular salaried employees, including executive officers, may
receive Options, Employee Stock Awards and Performance Shares
(collectively, "Employee Awards");
- all consultants performing significant services for us may receive
non-qualified stock options; and
- all of our non-employee directors may receive non-qualified stock options
and Director Stock Awards.
As of January 25, 1999, approximately 7,200 employees, consultants and
directors were eligible to participate in the Incentive Plans.
ADMINISTRATION
The Incentive Plans will be administered by the Management Resources
Committee (the "Committee") of our board of directors, all of the members of
which qualify as outside directors as defined under Section 162(m) of the Code
and non-employee directors as defined under Rule 16b-3 of the Securities
Exchange Act of 1934. The Committee will determine, subject to the Incentive
Plans, the employees, non-employee directors and consultants to whom, and the
time or times at which, it will grant awards, as well as the terms and
provisions of each award.
STOCK OPTIONS
The purchase price of a share of PE Biosystems Stock or Celera Genomics
Stock covered by an Option will be equal to 100% of the fair market value of the
underlying stock on the date of the grant. The vesting period and all other
terms and conditions of each Option will be determined by the Committee, except
each Option will expire not more than ten years from the date of the grant.
If the employment of an employee, the service of a non-employee director or
the service of a consultant to whom an Option has been granted is terminated,
other than by reason of retirement, disability or death, the employee,
non-employee director or consultant may exercise the Option, to the extent that
person would be entitled to do so at the termination date, for 30 days after the
termination, but not after the Option expires.
If an employee to whom an Option has been granted retires from PE under any
qualified pension plan provided by our company or if an employee or a consultant
to whom an Option has been granted becomes totally and permanently disabled, the
Option may be fully exercised without regard to the period of continuous
employment or service at any time: (1) in the case of an incentive stock option,
within three months after retirement or disability, but not after the Option
expires; or (2) in the case of a non-qualified stock option, within one year
after retirement or disability, but not after the Option expires. If a
non-employee director (1) retires from our board of directors on reaching normal
retirement age, (2) resigns or declines to stand for reelection with the
approval of our board of directors or (3) becomes totally and permanently
disabled, the Option may be fully exercised, without regard to the period of
continuous service, at any time within three years after retirement, resignation
or disability, but not after the Option expires.
If an employee, non-employee director or consultant to whom an Option has
been granted dies while employed by or engaged to provide services to us or
while serving as a member of our board of directors, the Option may be exercised
to the extent that person was entitled to do so at the date of death by his or
her executor or administrator or other person at the time entitled by law to the
employee's, non-employee director's or consultant's rights under the Option. The
person exercising the Option must do so within one year after the death, as
shall be stated in the option agreement, but not after the Option expires.
Options will be exercisable only by the optionee or his or her guardian or
legal representative, and may not be transferred, except under a domestic
relations order. However, the Committee may, in its sole discretion, permit an
optionee to transfer a non-qualified stock option to (1) a member of the
optionee's immediate family, (2) a trust, the beneficiaries of which consist
only of the
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members of the optionee's immediate family, or (3) a partnership, the partners
of which consist only of members of the optionee's immediate family. After the
death of an optionee, the Option may be transferred pursuant to the laws of
descent and distribution.
A condition to the exercise of an Option following termination of employment
or service is that the optionee has not (1) rendered services or engaged
directly or indirectly in any business which, in the opinion of the Committee,
competes with or is in conflict with the interests of PE or (2) violated any
written agreement with our company. An optionee's violation of either of these
conditions will result in the forfeiture of all Options held.
Except as discussed below, no one individual may be granted an Option or
Options under either Incentive Plan during any fiscal year for an aggregate
number of shares of stock which exceeds 10% of the total number of shares
reserved for issuance under the respective Incentive Plan. The Celera Genomics
Plan permits the grant of options to the President of the Celera Genomics Group
representing up to 30% of the total number of shares reserved for issuance under
that plan during the fiscal year ending June 30, 1999.
EMPLOYEE STOCK AWARDS
Employee Stock Awards may be subject to restrictions, as determined by the
Committee. Until those conditions are met, the recipient may not sell, assign,
bequeath, transfer, pledge or otherwise dispose of the shares. Recipients of
Employee Stock Awards will otherwise be entitled to the rights of a stockholder
with respect to the shares of stock subject to Employee Stock Awards as the
Committee may determine, including the right to vote and receive dividends and
other distributions made with respect to the stock.
If a recipient of an Employee Stock Award terminates employment before any
applicable restrictions lapse, by reason of death, total and permanent
disability, retirement or resignation or discharge from employment other than
for cause, the Committee may, in its sole discretion, remove restrictions on all
or a portion of the stock subject to the Employee Stock Award.
Subject to adjustment as provided below, no employee may receive an Employee
Stock Award under either Incentive Plan representing more than 40,000 shares of
the applicable class of common stock during any fiscal year, and the maximum
number of shares of stock that may be issued to all employees as Employee Stock
Awards under either Incentive Plan is 80,000.
PERFORMANCE SHARES
Performance Shares will be subject to the attainment of performance goals
within the meaning of Section 162(m) of the Code and the regulations thereunder.
These performance goals could relate to stock price, market share, sales,
earnings per share, return on equity, costs and cash flow, as determined by the
Committee. Certificates representing Performance Shares will be registered in
the name of the award recipient but remain in the physical custody of our
company until the Committee has determined that the performance goals have been
attained and other stock restrictions have been satisfied. Until Performance
Shares are delivered to an award recipient, the recipient may not sell, assign,
bequeath, transfer, pledge or otherwise dispose of those shares. Recipients of
Performance Shares will be entitled to other rights of a stockholder with
respect to Performance Shares as the Committee determines, including the right
to vote and receive dividends and other distributions.
If a recipient of Performance Shares terminates employment by reason of
death, total and permanent disability, retirement, resignation or discharge from
employment other than for cause before all applicable performance goals have
been attained, the Committee may, in its sole discretion, remove restrictions on
all or a portion of the Performance Shares or determine that the performance
objectives with respect to all or a portion of the Performance Shares have been
attained. However, the Committee may not exercise its discretion to the extent
that it would cause the award of Performance Shares not to qualify as
performance-based compensation under Section 162(m) of the Code.
Subject to adjustment as provided below, no employee may receive Performance
Shares under either Incentive Plan representing more than
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100,000 shares of the applicable class of common stock during any fiscal year,
and the maximum number of shares that may be issued to all employees as
Performance Shares under either Incentive Plan is 400,000.
DIRECTOR STOCK AWARDS
As of the date of each election or reelection to our board of directors,
each non-employee director will automatically be granted a Director Stock Award
of 300 shares of PE Biosystems Stock under the PE Biosystems Plan and 150 shares
of Celera Genomics Stock under the Celera Genomics Plan, in each case subject to
adjustment as provided below. Non-employee directors elected other than at an
annual meeting will be granted a pro rata portion of such shares. Each Director
Stock Award will vest on the date immediately preceding the first annual meeting
of stockholders next following the date of grant, provided that the holder
continues to serve as a member of our board of directors as of that date.
Except as set forth below, the holder of a Director Stock Award will be
entitled to all rights of a stockholder with respect to the shares of PE
Biosystems Stock or Celera Genomics Stock issued under the Director Stock Award,
including the right to receive dividends and to vote the shares. However, stock
dividends paid on the shares will be restricted to the same extent as the
underlying shares issued under the Director Stock Award. Prior to vesting, the
shares of stock issued under a Director Stock Award may not be sold, assigned,
bequeathed, transferred, pledged, hypothecated or otherwise disposed of.
If a non-employee director to whom a Director Stock Award has been granted
ceases to serve as a director as a result of:
- death,
- retiring from our board of directors upon reaching normal retirement age,
- becoming totally and permanently disabled or
- resigning with the approval of our board of directors,
all shares subject to the Director Stock Award will be fully vested as of the
date of termination of service.
Non-employee directors will be permitted to defer the receipt of their
Director Stock Awards. Deferred awards will be credited to a bookkeeping account
and those awards will be deemed invested in stock units, each unit representing
one share of PE Biosystems Stock or Celera Genomics Stock. As dividends are
paid, a corresponding number of additional units will be credited to the
director's deferral account. A non-employee director who defers receipt of a
Director Stock Award will only have voting rights with respect to the Director
Stock Award at such time as he or she receives an actual distribution of the
stock.
CHANGE OF CONTROL
All outstanding Options granted under the Incentive Plans will become fully
and immediately exercisable, all restrictions on Employee Stock Awards and
awards of Performance Shares will immediately terminate, all performance
objectives applicable to awards of Performance Shares will be deemed attained,
and all Director Stock Awards will become fully vested if:
- a tender offer or exchange offer, other than an offer by PE, is made for
common stock representing more than 25% of the combined voting power of
the outstanding voting securities of PE entitled to vote generally in the
election of directors;
- any person acquires common stock representing more than 25% of such
combined voting power;
- a majority of the incumbent directors ceases to remain on our board of
directors; or
- the stockholders approve the sale of all or substantially all of the
stock or assets of PE.
The last three of the foregoing events are defined as a "change of control"
under the Incentive Plans.
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TERMINATION AND AMENDMENT; NO REPRICING
No award may be made under the Incentive Plans after March 31, 2004. Our
board of directors may at any time prior to that date terminate either of the
Incentive Plans or make any amendment or modification it deems advisable.
However, any such amendments will require stockholder approval if they would (1)
increase the aggregate number of shares which may be issued or (2) materially
modify the eligibility requirements for participation.
The Committee may amend the terms of any outstanding Option or Award at any
time in its discretion in any manner it deems appropriate, including
accelerating the date of exercise of any award, terminating restrictions or
converting an incentive stock option into a non-qualified stock option. However,
no amendment may adversely affect in any material manner any right of any
recipient without his or her consent. In addition, the Committee may not (1)
amend any previously-issued award of Performance Shares to the extent that the
amendment would cause the award not to qualify as performance-based compensation
under Section 162(m) of the Code or (2) amend any previously issued Option to
reduce the purchase price, whether by modification of the Option or by
cancellation of the Option in consideration of the immediate issuance of a
replacement Option with a reduced purchase price.
ADJUSTMENTS BY THE MANAGEMENT RESOURCES COMMITTEE
The Incentive Plans provide that the Committee may adjust, as it deems
appropriate, the maximum number of shares that may be subject to Options or
Awards, and the terms of any outstanding Options or Awards under the Incentive
Plans, to reflect changes in the outstanding stock that occur because of stock
dividends, stock splits, recapitalizations, reorganizations, liquidations or
other similar events.
CERTAIN FEDERAL INCOME TAX CONSEQUENCES
We believe that, based upon the laws as in effect on the date of this
document, the following are the principal federal income tax consequences to
participants and PE of awards granted under the Incentive Plans. State and local
laws are not discussed, and special rules may apply if a participant has been a
resident or citizen of a foreign country during his or her period of plan
participation. THIS SUMMARY IS NOT A COMPLETE ANALYSIS OF ALL POTENTIAL TAX
CONSEQUENCES RELEVANT TO PARTICIPANTS AND OUR COMPANY AND DOES NOT DESCRIBE TAX
CONSEQUENCES BASED ON PARTICULAR CIRCUMSTANCES. FOR THESE REASONS, PARTICIPANTS
SHOULD CONSULT THEIR OWN TAX ADVISORS AS TO ANY SPECIFIC QUESTIONS REGARDING THE
TAX CONSEQUENCES OF AWARDS GRANTED UNDER THE INCENTIVE PLANS.
INCENTIVE STOCK OPTIONS
If we issue shares to an employee upon the exercise of an incentive stock
option granted under the Incentive Plans during the employee's employment or
within three months after the employee's termination of employment, then:
- the employee will not recognize income at the time of the grant of the
incentive stock option or upon exercise of the incentive stock option;
- we will not be allowed a federal income tax deduction in connection with
the grant or exercise of the incentive stock option; and
- upon a sale of exchange of the shares after the later of (1) one year
from the date of transfer of the shares to the employee or (2) two years
from the date of grant of the incentive stock option, any amount received
by the employee in excess of the incentive stock option price will be
taxed to the employee as a capital gain, and any loss sustained by the
employee will be a capital loss. The capital gain, if any, from sales or
exchanges of shares is subject to tax at various rates depending upon the
length of time the shares were held, the date of disposition and the
income tax bracket of the employee.
If the shares are disposed of before the holding period requirements are
satisfied, then:
- the employee will recognize ordinary income in the year of disposition in
an amount (1) equal to the excess, on the
127
date of exercise of the incentive stock option, of the fair market value
of the shares received over the option price paid, but (2) limited to the
excess of the amount received on the sale over the option price if the
shares are disposed of at a loss;
- we will be entitled to a deduction for the year equal to the ordinary
income recognized by the employee; and
- the employee will have capital gain or loss equal to the difference
between (1) the amount received by the employee upon the sale or exchange
of the shares and (2) the option price paid by the employee increased by
any ordinary income recognized.
NON-QUALIFIED STOCK OPTIONS
An employee, consultant or director to whom a non-qualified stock option is
granted will not recognize income at the time the option is granted. When the
employee, consultant or director exercises the option, he or she will recognize
ordinary income equal to the difference, if any, between the option price paid
and the fair market value, as of the date of exercise, of the shares received.
Subject to the Code and regulations thereunder, we will generally be entitled to
a federal income tax deduction equal to the ordinary income recognized by the
employee, consultant or director. Any compensation included in an employee's
gross income will be subject to federal employment taxes. Upon the sale of
shares acquired through the exercise of a non-qualified stock option, the
employee, consultant or director will have capital gain or loss equal to the
difference between the amount received on the sale and the tax basis of the
shares sold.
EMPLOYEE STOCK AWARDS
No taxable income will be recognized by an employee upon the grant of an
Employee Stock Award that is subject to a substantial risk of forfeiture unless
the employee makes the election under Section 83(b) of the Code referred to in
the next paragraph. If the employee does not make an election, he or she will
recognize ordinary income at the time his or her interest in the shares is
either transferable or no longer subject to a substantial risk of forfeiture
(the "Section 83 Restrictions"). The amount of this ordinary income will be
equal to the excess of the fair market value of the shares received at the time
over the amount, if any, the employee paid for the shares. The employee's tax
basis in the shares received at the lapse of the Section 83 Restrictions will be
equal to the amount, if any, paid for the shares plus the amount of ordinary
income recognized. Dividends paid on shares while they are subject to the
Section 83 Restrictions will be taxable as ordinary compensation income and not
as dividends.
An employee receiving shares under an Employee Stock Award may elect under
Section 83(b) of the Code to be taxed at the time the employee receives the
shares in an amount equal to the fair market value of the shares received,
determined without regard to the Section 83 Restrictions, at the time of
transfer less the purchase price, if any, paid for the shares. If a Section
83(b) election is made, dividends paid on these shares will not be taxable as
compensation income but will be taxable as dividends, and no additional
compensation income will be recognized when the Section 83 Restrictions lapse or
are released. Employees should consult their tax advisor regarding the possible
use of a Section 83(b) election, which must be made within 30 days following the
transfer of the shares.
PERFORMANCE SHARES
Generally, no income will be recognized by an employee upon the grant of
Performance Shares and instead the employee will recognize ordinary income at
the time the Performance Shares vest or are no longer subject to a substantial
risk of forfeiture. The income will be equal to the excess of the fair market
value of the shares at the time they become vested or non-forfeitable over the
amount, if any, the employee paid for the shares. If the employee is entitled to
receive dividends on the shares prior to the time they vest or become
non-forfeitable, the dividends will be taxable as ordinary compensation income
and not as dividends. The employee's tax basis in the shares will be equal
128
to the amount, if any, paid for the shares plus the amount of ordinary income
recognized with respect to the shares.
An employee receiving Performance Shares may elect under Section 83(b) of
the Code to be taxed at the time the employee receives the shares. If a Section
83(b) election is made, dividends paid on the shares will not be taxable as
compensation income but will be taxable as dividends and no additional
compensation income will be recognized when the shares vest or become
non-forfeitable. Employees should consult their tax advisor regarding the
possible use of a Section 83(b) election, which must be made within 30 days
following the receipt of a Performance Share award.
DIRECTOR STOCK AWARDS
No taxable income will be recognized by a non-employee director upon the
grant of a Director Stock Award unless he or she makes the election under
Section 83(b) referred to above. If no election is made, the director will
recognize ordinary income at the time his or her interest in the shares vests or
is no longer subject to a substantial risk of forfeiture. The amount of ordinary
income will be equal to the excess of the fair market value of the shares
received at such time over the amount, if any, the director paid for the shares.
Dividends paid on shares while they are subject to a substantial risk of
forfeiture will be taxable as ordinary compensation income and not as dividends.
The director's tax basis in the shares received will be equal to the amount, if
any, paid for the shares plus the amount of ordinary income recognized.
If a Section 83(b) election is made, dividends paid on the shares will not
be taxable as compensation income but will be taxable as dividends and no
additional compensation income will be recognized when the shares vest.
Directors should consult their tax advisor regarding the possible use of a
Section 83(b) election, which must be made within 30 days following the transfer
of the shares.
DEFERRALS
In general, a non-employee director who elects to defer a Director Stock
Award will not be subject to current federal income tax on the award, or related
earnings, until it is distributed. Deferred compensation distributed under the
Incentive Plans will be taxed as ordinary income and not as capital gains.
LIMITS ON DEDUCTIONS
Under Section 162(m) of the Code, compensation paid to our chief executive
officer and our four other most highly paid executive officers in a particular
year is limited to $1 million per person, except that compensation that is
performance-based will be excluded for purposes of calculating the amount of
compensation subject to this $1 million limitation. Our ability to deduct
compensation paid to any other executive officer or employee is not affected by
this provision.
Except where the Committee deems it to be in the best interest of PE, the
Committee will attempt to structure awards under the Incentive Plans to qualify
as performance-based under Section 162(m) of the Code. This qualification
depends upon the shareholders approving the Incentive Plans and assumes that the
provisions of the plans relating to stock options and performance shares are
followed. With respect to any awards under the Incentive Plans that are not
performance-based, any deduction we may claim will be subject to the limitations
on deductibility in Section 162(m) of the Code.
129
BENEFITS TO NAMED EXECUTIVE OFFICERS AND OTHERS
In connection with the recapitalization, the Committee has granted options
to purchase a total of 3,613,931 shares of Celera Genomics Stock to certain
executive officers and directors of our company and employees of the Celera
Genomics Group, as follows:
[Download Table]
NAME AND POSITION NUMBER OF OPTIONS
---------------------------------- ------------------
Tony L. White..................... 258,470
Chairman, President and Chief
Executive Officer
Michael W. Hunkapiller............ 155,082
Senior Vice President and
President
of the PE Biosystems Group
William B. Sawch.................. 103,388
Senior Vice President, General
Counsel and Secretary
Dennis L. Winger.................. 103,388
Senior Vice President and Chief
Financial Officer
All current executive officers.... 2,186,657(1)
All directors who are not
executive officers.............. 165,424
Celera Genomics Group employees,
excluding executive officers.... 1,261,850
------------------------------
(1) Includes options for 1,421,585 granted to Dr. Venter in recognition of his
contributions to the organization of the Celera Genomics Group and his
continuing efforts for its future success.
These options have an exercise price of $17.12 per share which represents
the fair market value of a share of Celera Genomics Stock on the date of the
grant. The options are exercisable in four annual installments and have a
ten-year term.
VOTE REQUIRED
Approval of each Incentive Plan proposal requires the favorable vote of a
majority of the votes cast at the special meeting.
RECOMMENDATION OF THE BOARD OF DIRECTORS
Our board of directors has carefully considered each Incentive Plan proposal
and believes that the approval of these proposals by the shareholders is in the
best interests of our company and our shareholders. OUR BOARD OF DIRECTORS
UNANIMOUSLY RECOMMENDS THAT YOU APPROVE THESE PROPOSALS.
PRICE RANGE AND DIVIDENDS ON
EXISTING COMMON STOCK
The following table shows the high and low sales prices of our existing
common stock on the New York Stock Composite Tape and cash dividends paid during
the periods indicated:
[Enlarge/Download Table]
CASH
FISCAL YEAR HIGH LOW DIVIDENDS
---------------------------------------------------------------------- --------- --- -------
1997
First Quarter......................................................... $ 1/8 58 $ 1/4 44 $.17
Second Quarter........................................................ 7/8 61 1/2 52 .17
Third Quarter......................................................... 1/8 77 7/8 57 .17
Fourth Quarter........................................................ 1/8 81 3/8 60 .17
1998
First Quarter......................................................... 1/8 86 1/8 72 .17
Second Quarter........................................................ 74 1/4 59 .17
Third Quarter......................................................... 76 13/1556 .17
Fourth Quarter........................................................ 1/8 75 11/1586 .17
1999
First Quarter......................................................... 15/1706 1/2 54 .17
Second Quarter........................................................ 11/10016 65 .17
Third Quarter (through March 8)....................................... 1/4115 13/1896 --
The closing sale price of our existing common stock on the New York Stock
Exchange was $69 13/16 per share on September 22, 1998, the trading day prior to
our announcement of the recapitalization proposal, and $ per share on March
, 1999, the trading day prior to the date of this proxy statement. As of
March , 1999, there were shares of our existing common stock
outstanding and holders of record.
INFORMATION ABOUT
STOCKHOLDER PROPOSALS
If you wish to submit proposals to be included in the proxy statement for
our 1999 annual meeting, we must receive them on or before May 12, 1999. Please
address your proposals to: PE Corporation, 761 Main Avenue, Norwalk, Connecticut
06859, Attention: Secretary. Your proposal, if you choose to submit one, has to
include specified information about the proposed business and yourself.
The new by-laws also provide that any stockholder who intends to present a
nomination for a directorship or a proposal for action at any annual meeting of
stockholders must give advance notice of such proposal together with
130
certain specified information. These requirements are separate and apart from
and in addition to the SEC requirements noted above that a stockholder must meet
in order to have a proposal included in our proxy materials. In general, the
advance notice must be given to the secretary of PE not less than 45 days or
more than 75 days prior to the first anniversary of the date on which we first
mailed proxy materials for the preceding year's annual meeting. In the case of
our 1999 annual meeting, such advance notice must be received no earlier than
June 28, 1999 or later than July 28, 1999. If the recapitalization is
implemented, we will have discretionary authority to vote on any stockholder
proposals presented at the 1999 annual meeting which do not comply with these
notice requirements. Further information regarding the submission of stockholder
proposals may be obtained by writing to the secretary of PE.
EXPENSES OF SOLICITATION
We will pay the cost of soliciting proxies for the special meeting. In
addition to soliciting by mail, our directors, officers and other employees may
solicit proxies in person, or by telephone, facsimile transmission or other
means of electronic communication. We will also pay brokers, nominees,
fiduciaries and other custodians their reasonable fees and expenses for sending
proxy materials to beneficial owners and obtaining their instructions. We have
retained Morrow & Co., Inc. to perform various solicitation services and Morgan
Stanley Dean Witter, Bear Stearns, SG Cowen and Deutsche Bank to perform various
advisory and solicitation services. We have agreed to pay Morrow & Co., Inc. a
customary fee for their services. For information about compensation that we
will pay Morgan Stanley Dean Witter, Bear Stearns, SG Cowen and Deutsche Bank
for their services, you should read "Proposal 1--The Recapitalization
Proposal--Financial Advisors."
LEGAL OPINIONS
Simpson Thacher & Bartlett, New York, New York, has rendered opinions
concerning the validity of the common stock and concerning certain tax matters
described under "Proposal 1--The Recapitalization Proposal--United States
Federal Income Tax Considerations."
EXPERTS
The financial statements as of June 30, 1997 and 1998 and for each of the
three fiscal years in the period ended June 30, 1998 included in this proxy
statement have been so included in reliance on the reports of
PricewaterhouseCoopers LLP, independent accountants, given on their authority as
experts in auditing and accounting.
Representatives of PricewaterhouseCoopers LLP will attend the special
meeting and will have an opportunity to make a statement and to respond to
appropriate questions that you pose.
131
INDEX TO FINANCIAL STATEMENTS
[Enlarge/Download Table]
PAGE
---------
The Perkin-Elmer Corporation
Report of Independent Accountants........................................................................ F-2
Consolidated Statements of Operations for the Years Ended
June 30, 1996, 1997 and 1998, and for the Six
Months Ended December 31, 1997 and 1998 (unaudited).................................................... F-3
Consolidated Statements of Financial Position at June 30, 1997
and 1998, and at December 31, 1998 (unaudited)......................................................... F-4
Consolidated Statements of Cash Flows for the Years Ended
June 30, 1996, 1997 and 1998, and for the Six Months
Ended December 31, 1997 and 1998 (unaudited)........................................................... F-5
Consolidated Statements of Shareholders' Equity and
Comprehensive Income (Loss) at June 30, 1996, 1997 and 1998,
and December 31, 1998 (unaudited)...................................................................... F-6
Notes to Consolidated Financial Statements............................................................... F-7
PE Biosystems Group
Report of Independent Accountants........................................................................ F-33
Combined Statements of Operations for the Years Ended
June 30, 1996, 1997 and 1998, and for the Six
Months Ended December 31, 1997 and 1998 (unaudited).................................................... F-34
Combined Statements of Financial Position at June 30, 1997
and 1998, and at December 31, 1998 (unaudited)......................................................... F-35
Combined Statements of Cash Flows for the Years Ended
June 30, 1996, 1997 and 1998, and for the Six
Months Ended December 31, 1997 and 1998 (unaudited).................................................... F-36
Combined Statements of Group Equity and
Comprehensive Income (Loss) at June 30, 1996, 1997 and 1998,
and December 31, 1998 (unaudited)...................................................................... F-37
Notes to Combined Financial Statements................................................................... F-38
Celera Genomics Group
Report of Independent Accountants........................................................................ F-66
Combined Statements of Operations for the Years Ended June 30, 1996, 1997
and 1998, and for the Six Months Ended December 31, 1997 and 1998 (unaudited).......................... F-67
Combined Statements of Financial Position at June 30, 1997 and 1998,
and at December 31, 1998 (unaudited)................................................................... F-68
Combined Statements of Cash Flows for the Years Ended June 30, 1996, 1997
and 1998, and for the Six Months Ended December 31, 1997 and 1998 (unaudited).......................... F-69
Combined Statements of Group Equity at June 30, 1996, 1997 and 1998,
and December 31, 1998 (unaudited)...................................................................... F-70
Notes to Combined Financial Statements................................................................... F-71
F-1
REPORT OF INDEPENDENT ACCOUNTANTS
To the Shareholders and Board of Directors of
The Perkin-Elmer Corporation
In our opinion, the accompanying consolidated statements of financial position
and the related consolidated statements of operations, of shareholders' equity
and comprehensive income (loss), and of cash flows present fairly, in all
material respects, the financial position of The Perkin-Elmer Corporation and
its subsidiaries at June 30, 1998 and 1997, and the results of their operations
and their cash flows for each of the three fiscal years in the period ended June
30, 1998, in conformity with generally accepted accounting principles. These
financial statements are the responsibility of the Company's management; our
responsibility is to express an opinion on these financial statements based on
our audits. We conducted our audits of these statements in accordance with
generally accepted auditing standards which require that we plan and perform the
audit to obtain reasonable assurance about whether the financial statements are
free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements,
assessing the accounting principles used and significant estimates made by
management, and evaluating the overall financial statement presentation. We
believe that our audits provide a reasonable basis for the opinion expressed
above.
PricewaterhouseCoopers LLP
Stamford, Connecticut
July 31, 1998, except as to Note 15
which is as of March 8, 1999
F-2
THE PERKIN-ELMER CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS
[Enlarge/Download Table]
FOR THE SIX MONTHS
ENDED
FOR THE YEARS ENDED JUNE 30, DECEMBER 31,
---------------------------------- ----------------------
(DOLLAR AMOUNTS IN THOUSANDS
EXCEPT PER SHARE AMOUNTS) 1996 1997 1998 1997 1998
----------------------------------------------------- ---------- ---------- ---------- ---------- ----------
(UNAUDITED)
NET REVENUES......................................... $ 642,218 $ 768,368 $ 944,306 $ 411,246 $ 543,238
Cost of sales........................................ 318,166 362,210 435,837 190,082 244,897
---------- ---------- ---------- ---------- ----------
GROSS MARGIN......................................... 324,052 406,158 508,469 221,164 298,341
---------- ---------- ---------- ---------- ----------
Selling, general and administrative.................. 188,268 229,915 283,399 127,223 164,363
Research, development and engineering................ 62,435 81,222 111,665 47,390 75,170
Restructuring and other merger costs................. 17,454 -- 43,980 -- 1,979
Acquired research and development.................... 33,878 26,801 28,850 28,850 --
---------- ---------- ---------- ---------- ----------
OPERATING INCOME..................................... 22,017 68,220 40,575 17,701 56,829
Gain on investments.................................. 11,704 64,850 1,605 845 --
Interest expense..................................... 8,444 5,859 4,905 2,701 2,140
Interest income...................................... 5,376 8,826 5,938 3,900 738
Other income (expense), net.......................... (2,053) 1,881 3,147 1,291 (539)
---------- ---------- ---------- ---------- ----------
INCOME BEFORE INCOME TAXES........................... 28,600 137,918 46,360 21,036 54,888
Provision for income taxes........................... 27,290 35,426 25,069 10,923 10,581
Minority interest.................................... -- -- 5,597 -- 8,212
---------- ---------- ---------- ---------- ----------
INCOME FROM CONTINUING OPERATIONS.................... 1,310 102,492 15,694 10,113 36,095
INCOME (LOSS) FROM DISCONTINUED OPERATIONS (NET OF
INCOME TAXES)...................................... (37,833) 27,906 40,694 17,278 (4,037)
---------- ---------- ---------- ---------- ----------
NET INCOME (LOSS).................................... $ (36,523) $ 130,398 $ 56,388 $ 27,391 $ 32,058
---------- ---------- ---------- ---------- ----------
---------- ---------- ---------- ---------- ----------
INCOME PER SHARE
FROM CONTINUING OPERATIONS:
Basic................................................ $ 0.03 $ 2.16 $ 0.32 $ 0.21 $ 0.73
Diluted.............................................. $ 0.03 $ 2.07 $ 0.31 $ 0.20 $ 0.71
INCOME (LOSS) PER SHARE
FROM DISCONTINUED OPERATIONS:
Basic................................................ $ (0.83) $ 0.58 $ 0.84 $ 0.36 $ (0.08)
Diluted.............................................. $ (0.80) $ 0.56 $ 0.81 $ 0.35 $ (0.08)
NET INCOME (LOSS) PER SHARE:
Basic................................................ $ (0.80) $ 2.74 $ 1.16 $ 0.57 $ 0.65
Diluted.............................................. $ (0.77) $ 2.63 $ 1.12 $ 0.55 $ 0.63
SEE ACCOMPANYING NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.
F-3
THE PERKIN-ELMER CORPORATION
CONSOLIDATED STATEMENTS OF FINANCIAL POSITION
[Enlarge/Download Table]
AT JUNE 30, AT
-------------------------- DECEMBER 31,
(DOLLAR AMOUNTS IN THOUSANDS) 1997 1998 1998
----------------------------------------------------------------------- ------------ ------------ ------------
(UNAUDITED)
ASSETS
Current assets
Cash and cash equivalents............................................ $ 213,028 $ 82,865 $ 75,479
Short-term investments............................................... 4,194 1,226 --
Accounts receivable, less allowances for doubtful accounts of $3,840,
$5,206, and $5,030 at June 30, 1997 and 1998, and December 31, 1998
(unaudited)........................................................ 178,885 228,985 260,861
Inventories.......................................................... 111,069 137,015 160,179
Prepaid expenses and other current assets............................ 63,535 61,973 68,929
Current net assets of discontinued operations........................ 102,870 139,959 155,329
------------ ------------ ------------
Total current assets................................................... 673,581 652,023 720,777
Property, plant and equipment, net..................................... 128,363 163,674 187,120
Other long-term assets................................................. 156,800 241,819 244,949
Long-term net assets of discontinued operations........................ 48,049 77,760 88,205
------------ ------------ ------------
TOTAL ASSETS........................................................... $ 1,006,793 $ 1,135,276 $1,241,051
------------ ------------ ------------
------------ ------------ ------------
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities
Loans payable........................................................ $ 29,916 $ 12,099 $ 31,291
Accounts payable..................................................... 85,586 119,555 110,141
Accrued salaries and wages........................................... 26,622 30,036 27,715
Accrued taxes on income.............................................. 98,307 79,860 79,257
Other accrued expenses............................................... 78,408 122,482 142,358
------------ ------------ ------------
Total current liabilities.............................................. 318,839 364,032 390,762
Long-term debt......................................................... 59,152 33,726 35,548
Other long-term liabilities............................................ 124,532 129,513 137,739
------------ ------------ ------------
Total liabilities...................................................... 502,523 527,271 564,049
------------ ------------ ------------
Minority interest...................................................... -- 43,757 54,773
Commitments and contingencies (see Note 11)
Shareholders' equity
Capital stock
Preferred stock $1 par value: 1,000,000 shares authorized; none
issued
Common stock $1 par value: 180,000,000 shares authorized; shares
issued 50,122,390, 50,148,384, and 50,259,313 at June 30, 1997 and
1998 and December 31, 1998 (unaudited)............................. 50,122 50,148 50,259
Capital in excess of par value....................................... 374,423 379,974 381,305
Retained earnings.................................................... 167,482 190,966 192,499
Accumulated other comprehensive income............................... (2,671) (9,513) (1,834)
Treasury stock, at cost (shares: 1,795,563 and 831,213 at June 30,
1997 and 1998)..................................................... (85,086) (47,327) --
------------ ------------ ------------
Total shareholders' equity............................................. 504,270 564,248 622,229
------------ ------------ ------------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY............................. $ 1,006,793 $ 1,135,276 $1,241,051
------------ ------------ ------------
------------ ------------ ------------
SEE ACCOMPANYING NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.
F-4
THE PERKIN-ELMER CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
[Enlarge/Download Table]
FOR THE SIX MONTHS
FOR THE YEARS ENDED JUNE 30, ENDED
DECEMBER 31,
------------------------------- --------------------
(DOLLAR AMOUNTS IN THOUSANDS) 1996 1997 1998 1997 1998
---------------------------------------------------------------------- --------- --------- --------- --------- ---------
OPERATING ACTIVITIES FROM CONTINUING OPERATIONS (UNAUDITED)
Income from continuing operations..................................... $ 1,310 $ 102,492 $ 15,694 $ 10,113 $ 36,095
Adjustments to reconcile income from continuing operations to net cash
provided by operating activities:
Depreciation and amortization..................................... 23,725 25,646 35,928 13,917 22,723
Long-term compensation programs................................... 4,058 9,103 6,853 2,543 2,411
Deferred income taxes............................................. (15,342) (40,819) 10,234 (1,700) 1,600
Gains from the sale of assets..................................... (11,704) (66,636) (3,052) (900) --
Provision for restructured operations and other merger costs...... 17,454 -- 48,080 -- --
Acquired research and development................................. 33,878 26,801 28,850 28,850 --
Impairment of assets.............................................. 9,906 -- -- -- --
Changes in operating assets and liabilities:
Increase in accounts receivable..................................... (42,539) (43,548) (23,507) (13,992) (27,138)
Increase in inventories............................................. (20,447) (4,421) (21,362) (18,999) (17,854)
Increase in prepaid expenses and other assets....................... (406) (6,794) (30,862) (14,291) (13,537)
Increase in accounts payable and other liabilities.................. 45,112 71,590 1,219 14,293 11,640
--------- --------- --------- --------- ---------
NET CASH PROVIDED BY OPERATING ACTIVITIES............................. 45,005 73,414 68,075 19,834 15,940
--------- --------- --------- --------- ---------
INVESTING ACTIVITIES FROM CONTINUING OPERATIONS
Additions to property, plant and equipment (net of disposals of
$4,727, $5,738, $11,339, $1,342 (unaudited), and $581 (unaudited),
respectively)....................................................... (23,471) (52,319) (60,481) (38,423) (49,403)
Acquisitions and investments, net..................................... (119,189) (27,676) (97,998) (90,633) --
Proceeds from the sale of assets, net................................. 102,318 99,710 19,496 6,532 14,301
Proceeds from the collection of notes receivable...................... -- 4,978 9,673 9,673 --
Proceeds from short-term investments.................................. 5,773 -- -- -- --
--------- --------- --------- --------- ---------
NET CASH PROVIDED (USED) BY INVESTING ACTIVITIES...................... (34,569) 24,693 (129,310) (112,851) (35,102)
--------- --------- --------- --------- ---------
NET CASH FROM CONTINUING OPERATIONS BEFORE FINANCING ACTIVITIES....... 10,436 98,107 (61,235) (93,017) (19,162)
--------- --------- --------- --------- ---------
DISCONTINUED OPERATIONS
Net cash provided (used) by operating activities...................... 45,903 39,781 10,084 (6,119) (4,778)
Net cash used by investing activities................................. (15,911) (11,315) (40,639) (17,520) (21,595)
--------- --------- --------- --------- ---------
NET CASH FROM DISCONTINUED OPERATIONS BEFORE FINANCING ACTIVITIES..... 29,992 28,466 (30,555) (23,639) (26,373)
--------- --------- --------- --------- ---------
FINANCING ACTIVITIES
Net change in loans payable........................................... (17,040) (4,914) (6,797) 2,875 15,579
Proceeds from long-term debt.......................................... -- 31,033 -- -- 803
Principal payments on long-term debt.................................. -- (22,908) (25,449) -- (5,297)
Dividends............................................................. (29,095) (29,459) (39,072) (14,992) (8,396)
Purchases of common stock for treasury................................ (41,028) (25,126) -- -- --
Proceeds from issuance of equity put warrants......................... -- 1,846 -- -- --
Proceeds from stock issuance for stock plans.......................... 64,954 33,637 33,629 6,311 37,890
--------- --------- --------- --------- ---------
NET CASH PROVIDED (USED) BY FINANCING ACTIVITIES...................... (22,209) (15,891) (37,689) (5,806) 40,579
--------- --------- --------- --------- ---------
Elimination of PerSeptive results from
July 1, 1997 to September 30, 1997 (see Note 1)..................... -- -- 2,590 2,590 --
EFFECT OF EXCHANGE RATE CHANGES ON CASH............................... (2,699) 1,601 (3,274) 631 (2,430)
--------- --------- --------- --------- ---------
NET CHANGE IN CASH AND CASH EQUIVALENTS............................... 15,520 112,283 (130,163) (119,241) (7,386)
CASH AND CASH EQUIVALENTS BEGINNING OF PERIOD......................... 85,225 100,745 213,028 213,028 82,865
--------- --------- --------- --------- ---------
CASH AND CASH EQUIVALENTS END OF PERIOD............................... $ 100,745 $ 213,028 $ 82,865 $ 93,787 $ 75,479
--------- --------- --------- --------- ---------
--------- --------- --------- --------- ---------
SEE ACCOMPANYING NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.
F-5
THE PERKIN-ELMER CORPORATION
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
AND COMPREHENSIVE INCOME (LOSS)
[Enlarge/Download Table]
ACCUMULATED
COMMON CAPITAL IN OTHER TREASURY STOCK
STOCK $1.00 EXCESS OF RETAINED COMPREHENSIVE ------------------
(DOLLAR AMOUNTS AND SHARES IN THOUSANDS) PAR VALUE PAR VALUE EARNINGS INCOME (LOSS) AT COST SHARES TOTAL
--------------------------------------------- ----------- ---------- -------- ------------- --------- ------- -------
BALANCE AT JUNE 30, 1995..................... $48,760 $311,043 $142,741 $(24,415) $(108,322) (3,490) $369,807
Comprehensive loss
Net loss................................... -- -- (36,523 ) -- -- -- (36,523)
Other comprehensive income, net of tax
Foreign currency translation
adjustments............................ -- -- -- (10,957) -- --
Minimum pension liability adjustment..... -- -- -- 5,080 -- --
Unrealized gain on investments, net...... -- -- -- 23,175 -- --
-------------
Other comprehensive income................. -- -- -- 17,298 -- -- 17,298
-------
Comprehensive loss........................... -- -- -- -- -- -- (19,225)
-------
Cash dividends declared...................... -- -- (29,095 ) -- -- -- (29,095)
Share repurchases............................ -- -- -- -- (41,028) (800) (41,028)
Shares issued under stock plans.............. 45 1,336 (5,627 ) -- 51,202 1,559 46,956
Tax benefit related to employee stock
options.................................... -- 5,280 -- -- -- -- 5,280
Restricted stock plan........................ -- 4,079 -- -- 993 30 5,072
Common stock issuances for acquisitions...... 1,077 34,796 -- -- -- -- 35,873
Other........................................ 144 1,920 (1,977 ) -- -- -- 87
----------- ---------- -------- ------------- --------- ------- -------
BALANCE AT JUNE 30, 1996..................... 50,026 358,454 69,519 (7,117) (97,155) (2,701) 373,727
-------
Comprehensive income
Net income................................. -- -- 130,398 -- -- -- 130,398
Other comprehensive income, net of tax
Foreign currency translation
adjustments............................ -- -- -- (4,125) -- --
Minimum pension liability adjustment..... -- -- -- 28,660 -- --
Unrealized gain on investments, net...... -- -- -- 3,156 -- --
Sale of equity investment................ -- -- -- (23,245) -- --
-------------
Other comprehensive income................. -- -- -- 4,446 -- -- 4,446
-------
Comprehensive income......................... -- -- -- -- -- -- 134,844
-------
Cash dividends declared...................... -- -- (29,536 ) -- -- -- (29,536)
Share repurchases............................ -- -- -- -- (25,126) (428) (25,126)
Shares issued under stock plans.............. 61 2,065 (1,459 ) -- 31,615 1,146 32,282
Tax benefit related to employee stock
options.................................... -- 4,568 -- -- -- -- 4,568
Restricted stock plan........................ -- 6,098 -- -- 5,580 187 11,678
Sale of equity put warrants.................. -- 1,846 -- -- -- -- 1,846
Other........................................ 35 1,392 (1,440 ) -- -- -- (13)
----------- ---------- -------- ------------- --------- ------- -------
BALANCE AT JUNE 30, 1997..................... 50,122 374,423 167,482 (2,671) (85,086) (1,796) 504,270
-------
Comprehensive income
Net income................................. -- -- 56,388 -- -- -- 56,388
Other comprehensive loss, net of tax
Foreign currency translation
adjustments............................ -- -- -- (2,747) -- --
Minimum pension liability adjustment..... -- -- -- 354 -- --
Unrealized loss on investments, net...... -- -- -- (4,449) -- --
-------------
Other comprehensive loss................... -- -- -- (6,842) -- -- (6,842)
-------
Comprehensive income......................... -- -- -- -- -- -- 49,546
-------
Cash dividends declared...................... -- -- (31,604 ) -- -- -- (31,604)
Shares issued under stock plans.............. 26 1,358 (3,468 ) -- 37,759 965 35,675
Tax benefit related to employee stock
options.................................... -- 2,335 -- -- -- -- 2,335
Restricted stock plan........................ -- 1,858 (136 ) -- -- -- 1,722
Elimination of PerSeptive results from July
1, 1997 to September 30, 1997 (see Note
1)......................................... -- -- 2,590 -- -- -- 2,590
Other........................................ -- -- (286 ) -- -- -- (286)
----------- ---------- -------- ------------- --------- ------- -------
BALANCE AT JUNE 30, 1998..................... 50,148 379,974 190,966 (9,513) (47,327) (831) 564,248
-------
Comprehensive income
Net income................................. -- -- 32,058 -- -- -- 32,058
Other comprehensive income, net of tax
Foreign currency translation
adjustments............................ -- -- -- 5,026 -- --
Unrealized gain on investments, net...... -- -- -- 2,653 -- --
-------------
Other comprehensive income................. -- -- -- 7,679 -- -- 7,679
-------
Comprehensive income......................... -- -- -- -- -- -- 39,737
-------
Cash dividends declared...................... -- -- (16,870 ) -- -- -- (16,870)
Shares issued under stock plans.............. 111 4,237 (14,862 ) -- 45,354 789 34,840
Restricted stock plan........................ -- (2,906) 1,207 -- 1,973 42 274
----------- ---------- -------- ------------- --------- ------- -------
BALANCE AT DECEMBER 31, 1998 (UNAUDITED)..... $50,259 $381,305 $192,499 $(1,834) $ -- -- $622,229
----------- ---------- -------- ------------- --------- ------- -------
----------- ---------- -------- ------------- --------- ------- -------
SEE ACCOMPANYING NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.
F-6
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 ACCOUNTING POLICIES AND PRACTICES
PRINCIPLES OF CONSOLIDATION
The consolidated financial statements include the accounts of all
majority-owned subsidiaries of The Perkin-Elmer Corporation ("Perkin-Elmer" or
the "Company"). The preparation of financial statements in conformity with
generally accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts of assets and liabilities,
disclosure of contingent assets and liabilities at the date of the financial
statements, and the reported amounts of revenues and expenses during the
reporting periods. Actual results could differ from those estimates. Certain
amounts in the consolidated financial statements and notes have been
reclassified for comparative purposes.
On January 22, 1998, the Company acquired PerSeptive Biosystems, Inc.
("PerSeptive"). The acquisition has been accounted for as a pooling of interests
and, accordingly, the Company's financial results have been restated to include
the combined operations (see Note 2). The Company's fiscal year ended June 30
and PerSeptive's fiscal year ended September 30. The fiscal 1998 Combined
Statements of Operations combined the Company's operating results for the year
ended June 30, 1998 with PerSeptive's operating results for the nine months
ended June 30, 1998 and the three months ended September 30, 1997 (PerSeptive's
fiscal 1997 fourth quarter). The fiscal 1997 and 1996 Consolidated Statements of
Operations combined the Company's results of operations for the years ended June
30, 1997 and 1996 with PerSeptive's results of operations for the fiscal years
ended September 30, 1997 and 1996, respectively. In order to conform PerSeptive
to a June 30 fiscal year-end in fiscal 1998, PerSeptive's results of operations
for the three months ended September 30, 1997 have been included in the
Company's Consolidated Statements of Operations for the fiscal years ended June
30, 1998 and 1997.
DISCONTINUED OPERATIONS
The Company's consolidated financial statements have been restated to
reflect the net assets and operating results of the Analytical Instruments
business as discontinued operations pending disposition for all periods
presented (see Note 15). The net assets have been reclassified in both the
current and long-term asset sections of the Consolidated Statements of Financial
Position for all periods presented. The operating results are reflected in the
Consolidated Statements of Operations as income (loss) from discontinued
operations for all periods presented. The accompanying notes, except Note 15,
relate only to continuing operations.
RECENT ACCOUNTING STANDARDS
During the first quarter of fiscal 1999, the Company adopted Statement of
Financial Accounting Standards ("SFAS") No. 130, "Reporting Comprehensive
Income." The provisions of this statement require disclosure of total
comprehensive income within the condensed financial statements of interim
periods and additional disclosures of the components of comprehensive income on
an annual basis. Total comprehensive income includes net income, foreign
currency translation adjustments, unrealized gains and losses on
available-for-sale investments, and minimum pension liability adjustment. The
Company presents such information in its Consolidated Statements of
Shareholders' Equity and Comprehensive Income (Loss) and Note 14.
In June 1998, the Financial Accounting Standards Board ("FASB") issued SFAS
No. 133, "Accounting for Derivative Instruments and Hedging Activities." The
provisions of the statement require the recognition of all derivatives as either
assets or liabilities in the statement of financial position and the measurement
of those instruments at fair value. The accounting for changes in the fair value
of a derivative depends on the intended use of the derivative and the resulting
designation. The Company is required to implement the statement
F-7
in the first quarter of fiscal 2000. The Company is currently analyzing the
statement to determine the impact, if any, on the consolidated financial
statements.
EARNINGS PER SHARE
During the second quarter of fiscal 1998, the Company adopted SFAS No. 128,
"Earnings per Share." The statement establishes new standards for computing and
presenting earnings per share and requires presentation of basic and diluted
earnings per share on the face of the income statement. Basic earnings per share
is computed by dividing net income for the period by the weighted average number
of common shares outstanding. Diluted earnings per share is computed similarly
to the Company's previously disclosed amounts by dividing net income for the
period by the weighted average number of common shares outstanding including the
dilutive effect of common stock equivalents. Earnings per share amounts for all
prior periods have been restated to conform with the provisions of this
statement.
The table below presents a reconciliation of basic and diluted earnings per
share from continuing operations for the following periods:
[Download Table]
SIX MONTHS ENDED
(AMOUNTS IN THOUSANDS YEARS ENDED JUNE 30, DECEMBER 31,
EXCEPT PER SHARE ------------------------------- --------------------
AMOUNTS) 1996 1997 1998 1997 1998
--------------------- --------- --------- --------- --------- ---------
(UNAUDITED)
Weighted average
number of common
shares used in the
calculation of
basic earnings per
share from
continuing
operations......... 45,859 47,517 48,560 48,185 49,631
Common stock
equivalents........ 1,703 1,996 1,592 1,840 1,107
--------- --------- --------- --------- ---------
Shares used in the
calculation of
diluted earnings
per share from
continuing
operations......... 47,562 49,513 50,152 50,025 50,738
--------- --------- --------- --------- ---------
--------- --------- --------- --------- ---------
Net income used in
the calculation of
basic and diluted
earnings per share
from continuing
operations......... $ 1,310 $ 102,492 $ 15,694 $ 10,113 $ 36,095
Net income per share
from continuing
operations:
Basic................ $ .03 $ 2.16 $ .32 $ .21 $ .73
SIX MONTHS ENDED
(AMOUNTS IN THOUSANDS YEARS ENDED JUNE 30, DECEMBER 31,
EXCEPT PER SHARE ------------------------------- --------------------
AMOUNTS) 1996 1997 1998 1997 1998
--------------------- --------- --------- --------- --------- ---------
(UNAUDITED)
Diluted.............. $ .03 $ 2.07 $ .31 $ .20 $ .71
Options and warrants to purchase 2.1 million, .2 million, and 1.4 million
and .9 million shares of the Company's common stock were outstanding at June 30,
1996, 1997, and 1998, and December 31, 1997, respectively, but were not included
in the computation of diluted earnings per share because the effect was
antidilutive. Antidilutive options and warrants outstanding at December 31, 1998
were not material.
FOREIGN CURRENCY
Assets and liabilities of foreign operations, where the functional currency
is the local currency, are translated into U.S. dollars at the fiscal period-end
exchange rates. The related translation adjustments are recorded as a separate
component of shareholders' equity. Foreign currency revenues and expenses are
translated using monthly average exchange rates prevailing during the period.
Foreign currency transaction gains and losses, as well as translation
adjustments of foreign operations where the functional currency is the U.S.
dollar, are included in net income. Transaction gains and losses for the periods
ended June 30, 1996, 1997, and 1998 were gains of $4.8 million, $1.5 million,
and a loss of $2.5 million, respectively.
DERIVATIVE FINANCIAL INSTRUMENTS
The Company uses derivative financial instruments to offset exposure to
market risks arising from changes in foreign currency exchange rates and
interest rates. Derivative financial instruments currently utilized by the
Company include foreign currency forward contracts, synthetic forward contracts,
foreign currency options, and an interest rate swap (see Note 12).
CASH, SHORT-TERM INVESTMENTS, AND MARKETABLE SECURITIES
Cash equivalents consist of highly liquid debt instruments, time deposits,
and certificates
F-8
of deposit with original maturities of three months or less. Time deposits and
certificates of deposit with original maturities of three months to one year are
classified as short-term investments. Short-term investments, which include
marketable securities, are recorded at cost, which generally approximates market
value.
ACCOUNTS RECEIVABLE
The Company periodically sells accounts receivable arising from business
conducted in Japan. During fiscal 1996, 1997, and 1998, the Company received
cash proceeds of $61.9 million, $65.7 million, and $98.8 million, respectively,
from the sale of such receivables. The Company accounts for such sales in
accordance with SFAS 125, "Accounting for Transfers and Servicing of Financial
Assets and Extinguishment of Liabilities" and believes it has adequately
provided for any risk of loss that may occur under these arrangements.
INVESTMENTS
The equity method of accounting is used for investments in joint ventures
that are 50% owned or less. Minority equity investments are classified as
available-for-sale and carried at market value in accordance with SFAS No. 115,
"Accounting for Certain Investments in Debt and Equity Securities."
INVENTORIES
Inventories are stated at the lower of cost (on a first-in, first-out basis)
or market. Inventories at June 30, 1997 and 1998, and December 31, 1998,
included the following components:
[Download Table]
JUNE 30,
(DOLLAR AMOUNTS -------------------- DECEMBER 31,
IN MILLIONS) 1997 1998 1998
---------------------- --------- --------- -------------
(UNAUDITED)
Raw materials and
supplies............ $ 25.2 $ 45.2 $ 52.8
Work-in-process....... 6.1 7.3 9.8
Finished products..... 79.8 84.5 97.6
--------- --------- ------
Total inventories..... $ 111.1 $ 137.0 $ 160.2
--------- --------- ------
--------- --------- ------
PROPERTY, PLANT, AND EQUIPMENT AND DEPRECIATION.
Property, plant and equipment are recorded at cost and consisted of the
following at June 30, 1997 and 1998:
[Download Table]
JUNE 30,
--------------------
(DOLLAR AMOUNTS IN MILLIONS) 1997 1998
----------------------------------- --------- ---------
Land............................... $ 13.3 $ 12.0
Buildings and leasehold
improvements..................... 79.6 96.5
Machinery and equipment............ 125.7 174.9
--------- ---------
Property, plant and equipment, at
cost............................. 218.6 283.4
Accumulated depreciation and
amortization..................... 90.2 119.7
--------- ---------
Property, plant and equipment,
net.............................. $ 128.4 $ 163.7
--------- ---------
--------- ---------
Major renewals and improvements that significantly add to productive
capacity or extend the life of an asset are capitalized. Repairs, maintenance
and minor renewals, and improvements are expensed when incurred. Machinery and
equipment included capitalized internal-use software, primarily related to the
Company's worldwide strategic program to improve its information technology
infrastructure, of $9.5 million and $43.3 million at June 30, 1997 and 1998,
respectively.
Provisions for depreciation of owned property, plant and equipment are based
upon the expected useful lives of the assets and computed primarily by the
straight-line method. Leasehold improvements are amortized over their estimated
useful lives or the term of the applicable lease, whichever is less, using the
straight-line method. Internal-use software costs are amortized primarily over
the expected useful lives, not to exceed seven years.
CAPITALIZED SOFTWARE
Internal software development costs incurred from the time technological
feasibility of the software is established until the software is ready for its
intended use are capitalized and included in other long-term assets. Research
and development costs and other computer software maintenance costs related to
software development are expensed as incurred. The costs are amortized using the
straight-line method
F-9
over a maximum of three years or the expected life of the product, whichever is
less. At June 30, 1997, capitalized software amounts were not material. At June
30, 1998, capitalized software costs, net of accumulated amortization, were $4.4
million.
INTANGIBLE ASSETS
The excess of purchase price over the net asset value of companies acquired
is amortized on a straight-line method over periods not exceeding 40 years.
Patents and trademarks are amortized using the straight-line method over their
expected useful lives. At June 30, 1997 and 1998, and December 31, 1998
(unaudited), other long-term assets included goodwill, net of accumulated
amortization, of $17.5 million, $69.8 million, and $67.3 million, respectively.
Accumulated amortization of goodwill was $3.3 million, $6.1 million, and $8.6
million at June 30, 1997 and 1998, and December 31, 1998 (unaudited),
respectively.
ASSET IMPAIRMENT
The Company periodically reviews all long-lived assets for impairment in
accordance with SFAS No. 121, "Accounting for the Impairment of Long-Lived
Assets and for Long-Lived Assets to Be Disposed Of." Assets are written down to
fair value when the carrying costs exceed this amount. In fiscal 1996, the
Company recorded a cost of sales charge of $9.9 million for the impairment of
certain production assets associated with the realignment of the product
offerings of PerSeptive. In fiscal 1997, the Company recorded a $.7 million cost
of sales charge for the write-down of impaired assets. The impairment losses
were determined based upon estimated future cash flows and fair values.
REVENUES
Revenues are recorded at the time of shipment of products or performance of
services. Revenues from service contracts are recorded as deferred service
contract revenues and reflected in net revenues over the term of the contract,
generally one year.
RESEARCH, DEVELOPMENT AND ENGINEERING
Research, development and engineering costs are expensed when incurred.
INCOME TAXES
The Company accounts for certain income and expense items differently for
financial reporting and income tax purposes. Deferred tax assets and liabilities
are determined based on differences between the financial reporting and the tax
basis of assets and liabilities, and are measured by applying enacted tax rates
to taxable years in which the differences are expected to reverse.
SUPPLEMENTAL CASH FLOW INFORMATION
Cash paid for interest and income taxes and significant non-cash investing
and financing activities for the following periods were as follows:
[Download Table]
FOR THE
SIX MONTHS
FOR THE ENDED
YEARS ENDED JUNE 30, DECEMBER 31,
(AMOUNTS IN ------------------------------- --------------------
MILLIONS) 1996 1997 1998 1997 1998
---------------- --------- --------- --------- --------- ---------
(UNAUDITED)
Interest........ $ 8.9 $ 6.0 $ 5.7 $ 2.2 $ 1.4
Income taxes.... $ 15.0 $ 31.3 $ 60.5 $ 26.3 $ 12.2
Significant non-
cash investing
and financing
activities:
Unrealized
gains (loss)
on
investments.. $ 23.2 $ 3.1 $ (4.4) $ (3.0) $ 2.6
Dividends
declared not
paid........ $ 7.4 $ 7.5 $ -- $ 7.5 $ 8.5
Common shares
issued in
PerSeptive
pooling..... -- -- 4.6 -- --
Minority
interest
assumed..... $ -- $ -- $ 41.3 $ 41.3 $ --
UNAUDITED INTERIM FINANCIAL STATEMENTS
The accompanying unaudited consolidated interim financial statements have
been prepared in accordance with generally accepted accounting principles for
interim financial information and in accordance with the Securities and Exchange
Commission's rules and regulations for interim reporting. Accordingly, they do
not include all of the information and footnotes required by generally accepted
accounting principles for complete financial statements. In the opinion of
management, the unaudited consolidated interim financial statements include all
adjustments, consisting of only normal recurring adjustments,
F-10
necessary to present fairly such interim financial information.
NOTE 2 ACQUISITIONS AND DISPOSITIONS
PERSEPTIVE BIOSYSTEMS, INC.
The merger (the "Merger") of Seven Acquisition Corp., a wholly-owned
subsidiary of the Company, and PerSeptive was consummated on January 22, 1998.
PerSeptive develops, manufactures, and markets an integrated line of proprietary
consumable products and advanced instrumentation systems for the purification,
analysis, and synthesis of biomolecules. As a result of the Merger, PerSeptive,
which was the surviving corporation of the Merger, became a wholly-owned
subsidiary of the Company on that date. Each outstanding share of PerSeptive
common stock was converted into shares of the Company's common stock at an
exchange ratio equal to 0.1926. Accordingly, the Company issued 4.6 million
shares of its common stock for all outstanding shares of PerSeptive common
stock. Each outstanding option and warrant for shares of PerSeptive common stock
was converted into options and warrants for the number of shares of the
Company's common stock that would have been received if such options and
warrants had been exercised immediately prior to the effective time of the
Merger. All shares of Series A Redeemable Convertible Preferred Stock of
PerSeptive outstanding immediately prior to the effective time of the Merger
were converted in accordance with their terms into shares of PerSeptive common
stock which were then converted into shares of the Company's common stock. As a
result of the Merger, PerSeptive's 8 1/4% Convertible Subordinated Notes Due
2001 (the PerSeptive Notes) became convertible into shares of the Company's
common stock. On March 23, 1998, the Company redeemed the PerSeptive Notes for a
total of $26.1 million representing $24.7 million of principal and $1.4 million
of accrued interest and premium relating to the PerSeptive Notes. Additionally,
$2.5 million of the principal amount of the PerSeptive Notes was converted by
the holders thereof into 35,557 shares of the Company's common stock.
The Merger qualified as a tax-free reorganization and has been accounted for
as a pooling of interests. Accordingly, the Company's financial results have
been restated to include the combined operations.
Combined and separate results of the Company and PerSeptive during the
periods preceding the Merger were as follows:
[Download Table]
PERKIN- PER-
(DOLLAR AMOUNTS IN MILLIONS) ELMER SEPTIVE ADJ. COMBINED
-------------------------------- ----------- ----------- --------- -----------
Fiscal year ended June 30, 1996:
Net revenues.................... $ 556.1 $ 86.1 $ 642.2
Income (loss) from continuing
operations.................... $ 49.1 $ (50.4) $ (1.3)
Fiscal year ended June 30, 1997:
Net revenues.................... $ 671.9 $ 96.5 $ 768.4
Income from continuing
operations.................... $ 87.3 $ 15.2 $ 102.5
Six months ended
December 31, 1997 (unaudited):
Net revenues.................... $ 358.7 $ 52.6 $ 411.3
Income (loss) from continuing
operations.................... $ 14.9 $ (5.4) $ .6 $ 10.1
The adjustment for the six months ended December 31, 1997 reflects the
inclusion of PerSeptive's operating results within the Company's consolidated
tax provision. There were no material intercompany transactions between the
Company and PerSeptive during any period presented.
TECAN AG
The Company acquired a 14.5% interest and approximately 52% of the voting
rights in Tecan AG ("Tecan") in December 1997. Tecan is a world leader in the
development and manufacturing of automated sample processors, liquid handling
systems, and microplate photometry. Used in research, industrial, and clinical
markets, these products provide automated solutions for pharmaceutical drug
discovery, molecular biology, genomic testing, and clinical diagnostics. The
acquisition cost was $53.2 million in cash and was accounted for as a purchase
with a minority interest of $41.3 million. The excess purchase price over the
fair market value of the underlying assets was $46.2 million and is being
amortized over fifteen years.
MOLECULAR INFORMATICS, INC.
During the second quarter of fiscal 1998, the Company acquired Molecular
Informatics, Inc. ("Molecular Informatics"), a leader in the development of
infrastructure software for the pharmaceutical, biotechnology, and agrochemical
industries as well as for applied markets such as forensics and human
F-11
identification. The acquisition cost was $53.9 million and was accounted for as
a purchase. In connection with the acquisition, $28.9 million was expensed as
purchased in-process research and development and $24.7 million was allocated to
goodwill and other intangible assets. Goodwill of $9.0 million is being
amortized over ten years, and other intangible assets of $15.7 million are being
amortized over periods of four to seven years.
The $28.9 million expensed as in-process research and development
represented 53.6% of the purchase price and was attributed and supported by a
discounted probable cash flow analysis on a project-by-project basis.
Approximately 10% of the in-process research and development value was
attributed to BioLIMS, a software system that manages data, initiates analysis
programs, and captures the results in a centralized, relational database for
sequencing instruments; 6% was attributed to GA SFDB, a client-side add-on
product to several existing gene sequencing instruments; 38% was attributed to
BioMERGE, a client-server management and integration system that organizes
proprietary, public, and third-party results in a single relational database for
the drug discovery and genomic research markets; 9% was attributed to BioCLINIC,
a client-server management and integration system that organizes proprietary,
public, and third-party results generated from DNA and protein sequence analysis
in a single database for the clinical trials phase of drug development; and 37%
was attributed to SDK, an open architecture software platform from which all of
Molecular Informations' future software applications are expected to be derived.
As of the acquisition date, all of the major functionality for BioLIMS 2.0
had been completed and the product was subsequently released in September 1998.
As of the acquisition date, BioLIMS 3.0 was in the design and scoping phase and
is expected to be released in June 1999. As of the acquisition date, GA SFDB was
in early alpha phase and had been completed concurrent with the development of
BioLIMIS 2.0 and was released in September 1998. As of the acquisition date,
BioMerge 3.0 functional scope was defined and the requirements assessment had
been completed and was subsequently released in November 1998. As of the
acquisition date, the BioClinic product requirements had been specified and
discussions had begun with two potential customers to begin the specific
software modifications. Development efforts were terminated in April 1998 due to
unsuccessful marketing efforts. As of the acquisition date, the SDK requirements
assessment had been completed and the functional scope had been defined.
Currently, one successful prototype has been completed and additional
development efforts continue in this area.
At the date of the acquisition, management expected to complete the majority
of these projects and commence generating significant revenues in 1999. A total
of $11.8 million of the purchase price was attributed to core technology and
existing products, primarily related to the BioMERGE product. The risk-adjusted
discount rate applied to the projects cash flows was 20% for existing technology
and 23% for in-process technology. The risk premium of 3% for in-process
technologies was determined by management based upon the associated risks of
rolling out these in-process technologies versus the existing technologies for
the emerging bioinformatics software industry. Management's cash flow and other
assumptions utilized at the time of acquisition had not materially changed at
December 31, 1998. The significant risks associated with these products include
the limited operating history of Molecular Informatics, uncertainties
surrounding market acceptance of such in-process products, competitive threats
from other bioinformatics companies, and other risks. Management is primarily
responsible for estimating the fair value of such existing and in-process
technology.
BIOMETRIC IMAGING, INC.
During fiscal 1998, the Company acquired a minority equity interest in
Biometric Imaging, Inc. for $4.0 million. The Company and Biometric Imaging,
Inc. are collaborating on the development and manufacturing of a high-throughput
screening system for use by
F-12
pharmaceutical research companies to accelerate the drug discovery process. The
Company received exclusive worldwide marketing rights for products developed for
that market. Biometric Imaging products are designed to help ensure the
integrity of transfused products, optimize cell therapy procedures, and monitor
disease progression and the efficacy of therapy.
GENSCOPE, INC.
During the third quarter of fiscal 1997, the Company acquired GenScope,
Inc., for $26.8 million. GenScope, founded in 1995, represented a development
stage venture with no operating history and effectively no revenues (limited R&D
contract services only). The Company obtained the right to utilize AFLP-based
gene expression technology in the field of human health, but did not obtain any
core technology or other rights. GenScope's limited balance sheet, with assets
of approximately $.2 million, had yet to deliver commercial value. Accordingly,
the Company recorded a charge of $25.4 million attributable to the in-process
technology purchased. The Company based this amount upon the early development
stage of this life science business acquired, the technological hurdles to the
application of this technology to the field of human health and the underlying
cash flow projections. The acquisition represented the purchase of development
stage technology, not at the time considered commercially viable in the health
care applications that the Company intends to pursue. The Company's intent was
to first develop the technology into a set of molecular screening tools for use
in the enhancement of pharmaceutical product development. The Company allocated
$1.4 million of the purchase price to technology rights attributable to
GenScope's AFLP gene expression technology. AFLP is an enhancement of the
polymerase chain reaction ("PCR") process that allows selective analysis of any
portion of genetic material without the specific, prior sequence information
normally required for PCR. Of the $25.4 million expensed as in-process research
and development, $5.5 million represented a contingent liability due on the
issuance of a process patent for technology under development.
Through June 30, 1998, the Company incurred approximately $4.9 million in
additional research and development costs to further develop the AFLP technology
in the field of human health. The Company anticipates spending an additional
$13.9 million in fiscal 1999 and 2000 to substantially complete such project.
Such costs approximate those anticipated at the date of acquisition.
TROPIX, INC.
During the fourth quarter of fiscal 1996, the Company acquired Tropix, Inc.,
a world leader in the development, manufacture and sale of chemiluminescent
detection technology for life sciences. The acquisition cost, net of cash
acquired, was $36.0 million and was accounted for as a purchase. The purchase
price was allocated to the net assets acquired and to purchased in-process
research and development. Purchased in-process research and development included
the value of products in the development stage and not considered to have
reached technological feasibility. The Company expensed $22.3 million of the
Tropix acquisition cost as in-process research and development, representing
60.3% of the purchase price. This amount was attributed and supported by a
discounted probable cash flow analysis on a project-by-project basis. The
remaining purchase price was allocated as follows: $10.2 million to proprietary
patents and core technology, $1.4 million to trademarks and tradenames, $.2
million to assembled workforce and $1.9 million to working capital and property,
plant and equipment acquired.
Approximately 56% of the in-process research and development value was
attributed to the pharmaceutical screening products project, a project designed
to incorporate existing proprietary technologies of Tropix into assay methods
for pharmaceutical customers and to perform the screening required by those
customers on-site. Additionally, there was to be continued development of
suitable assays to improve and expand the technology covered by Tropix patents.
The intent was to be a one-stop
F-13
service where Tropix would develop and perform screening for pharmaceutical
customers. Assets in place for this project were the intellectual property of
Tropix and the scientific expertise required to customize both the reagents and
the methods necessary for the intended use of the customers. Approximately 44%
of the in-process research and development value was attributed to the
diagnostics products project, a project related to the continued development of
the reagent product line. Derivatives of the proprietary technology and
expansion of the patents surrounding it were planned to exploit the leadership
that Tropix held in its core chemiluminescent products. Also, work was being
performed on ancillary reagents to enhance both reactions and stability of
existing Tropix dioxetanes. Development of new kits and applications based on
the Gal-Star substrate, in particular, were in-process. All of these activities
were focused on expanding the existing product line in consumables in order to
maintain Tropix's leadership in chemiluminescence.
Through June 30, 1998, we incurred approximately $2.8 million in additional
research and development costs to further develop these projects. The diagnostic
products project was completed in fiscal 1997. The Company anticipates spending
an additional $.8 million in fiscal 1999 to complete the pharmaceutical
screening project. Such costs approximate those anticipated at the date of
acquisition.
A risk-adjusted discount rate of 23% was employed to value the in-process
projects. The significant risks associated with these products include the
limited operating history of Tropix, uncertainties surrounding market acceptance
of such in-process products and other competitive risks. Management is primarily
responsible for estimating the fair value of such existing and in-process
technologies.
OTHER ACQUISITIONS
During the fourth quarter of fiscal 1998, the Company made a minority equity
investment of $2.5 million in ACLARA BioSciences, Inc. The companies are
collaborating on the development of advanced genetic analysis systems.
The Company entered into a strategic partnership with Hyseq, Inc., acquiring
a minority equity interest for an initial cash investment of $5.0 million,
during the fourth quarter of fiscal 1997. Hyseq, Inc. applies proprietary DNA
array technology to develop gene-based therapeutic product candidates and
diagnostic products and tests. In the first quarter of fiscal 1998, the Company
increased its investment by $5.0 million.
The Company acquired Linkage Genetics, Inc., a provider of genetic services
in the agriculture industry, during the fourth quarter of fiscal 1997. The cash
acquisition cost of $1.4 million was accounted for as a purchase. The entire
acquisition cost was expensed as purchased in-process research and development.
In fiscal 1996, the Company acquired Zoogen, Inc., a leading provider of
genetic analysis services for $2.1 million, a minority equity interest in
Paracel, Inc., a provider of information filtering technologies for $4.5 million
and PerSeptive Technologies Corporation, a research and development company
formed to fund the development of novel tools for clinical diagnostics and
screening of biological compounds for drug discovery, for $19.3 million. In
connection with these life science acquisitions, $11.6 million of purchased
in-process research and development was expensed in fiscal 1996.
The net assets and results of operations for the above acquisitions
accounted for under the purchase method have been included in the consolidated
financial statements since the date of each acquisition. The pro forma effect of
these acquisitions, individually or in the aggregate, on the Company's
consolidated financial statements was not significant.
DISPOSITIONS
MILLENNIUM PHARMACEUTICALS, INC.
During fiscal 1998, the Company recorded a before-tax gain of $1.6 million
in connection with the release of previously existing contingencies on shares of
Millennium Pharmaceuticals, Inc. ("Millennium") common stock. During fiscal
1997, the Company recognized a before-tax gain of $27.5 million associated with
the sale of
F-14
approximately 50% of its investment in Millennium and the release of previously
existing contingencies. The gain included $25.9 million from the Company's
exchange of a 34% equity interest in ChemGenics Pharmaceuticals, Inc. for an
approximate 6% equity interest in Millennium.
ETEC SYSTEMS, INC.
In fiscal 1997, the Company completed the sale of its entire equity interest
in Etec Systems, Inc. Before-tax gains of $11.7 million and $37.4 million were
recognized for fiscal 1996 and 1997, respectively. Net cash proceeds from the
sales were $16.6 million and $45.8 million for fiscal 1996 and 1997,
respectively.
NOTE 3 DEBT AND LINES OF CREDIT
Loans payable and long-term debt at June 30, 1997 and 1998, and December 31,
1998 are summarized below:
[Download Table]
JUNE 30,
(DOLLAR AMOUNTS IN --------------------
MILLIONS) 1997 1998
---------------------- --------- --------- DECEMBER 31,
1998
---------------
(UNAUDITED)
Loans payable:
Short-term loans...... $ 23.1 $ 12.1 $ 31.3
Current portion of
convertible
subordinated
notes............... 6.8
--------- --------- -----
Total loans payable... $ 29.9 $ 12.1 $ 31.3
--------- --------- -----
--------- --------- -----
Long-term debt:
Yen loan.............. $ 33.6 $ 27.0 $ 33.1
Convertible
subordinated
notes............... 20.4
Other................. 5.2 6.7 2.4
--------- --------- -----
Total long-term
debt................ $ 59.2 $ 33.7 $ 35.5
--------- --------- -----
--------- --------- -----
The weighted average interest rates at June 30, 1997 and 1998, and December
31, 1998 (unaudited) for loans payable were 3.6%, 1.8%, and 1.4%, respectively.
On March 23, 1998, the Company redeemed PerSeptive's 8 1/4% convertible
subordinated notes (see Note 2).
During the third quarter of fiscal 1997, the Company replaced its Yen 2.8
billion loan, which matured in February 1997, with a Yen 3.8 billion variable
rate long-term loan which matures in March 2002. Through an interest rate swap
agreement (see Note 12), the effective interest rate for the new loan is 2.1%
compared with 3.3% for the previous loan.
On June 1, 1994, the Company entered into a $100 million three-year
revolving credit agreement. The agreement was amended in fiscal 1996 to extend
the maturity an additional three years to June 1, 2000. Commitment and facility
fees are based on leverage and interest coverage ratios. Interest rates on
amounts borrowed vary depending on whether borrowings are undertaken in the
domestic or Eurodollar markets. There were no borrowings under the facility at
June 30, 1997 or 1998.
At June 30, 1998, and December 31, 1998 (unaudited), the Company had unused
credit facilities for short-term borrowings from domestic and foreign banks in
various currencies totaling $343 million and $340 million, respectively. All
other credit facilities available consist of uncommitted overdraft credit lines
that are provided at the discretion of local banks. A parent guarantee is
required by the facility if the local unit borrows any funds.
Under various debt and credit agreements, the Company is required to
maintain certain minimum net worth and interest coverage ratios.
There are no maturities of long-term debt scheduled for fiscal 1999, 2000,
2001, or 2003. The Yen 3.8 billion loan matures in fiscal 2002.
NOTE 4 INCOME TAXES
Income before income taxes from continuing operations for fiscal 1996, 1997,
and 1998 is summarized below:
[Download Table]
(DOLLAR AMOUNTS
IN MILLIONS) 1996 1997 1998
------------------------- --------- --------- ---------
United States............ $ (30.5) $ 98.3 $ (38.0)
Foreign.................. 59.1 39.6 84.4
--------- --------- ---------
Total.................... $ 28.6 $ 137.9 $ 46.4
--------- --------- ---------
--------- --------- ---------
F-15
The components of the provision for income taxes from continuing operations
for fiscal 1996, 1997, and 1998 consisted of the following:
[Download Table]
(DOLLAR AMOUNTS IN MILLIONS) 1996 1997 1998
----------------------------- --------- --------- ---------
Currently payable:
Domestic..................... $ 12.5 $ 57.2 $ 3.8
Foreign...................... 15.6 18.7 17.8
--------- --------- ---------
Total currently payable...... 28.1 75.9 21.6
--------- --------- ---------
Deferred:
Domestic..................... 3.4 (45.8) 6.1
Foreign...................... (4.2) 5.3 (2.6)
--------- --------- ---------
Total deferred............... (.8) (40.5) 3.5
--------- --------- ---------
Total provision for income
taxes from continuing
operations ................ $ 27.3 $ 35.4 $ 25.1
--------- --------- ---------
--------- --------- ---------
Significant components of deferred tax assets and liabilities from
continuing operations at June 30, 1997 and 1998 are summarized below:
[Download Table]
(DOLLAR AMOUNTS IN MILLIONS) 1997 1998
------------------------------------- --------- ---------
Deferred tax assets:
Inventories.......................... $ .7 $ 4.0
Postretirement and postemployment
benefits........................... 35.7 35.0
Other reserves and accruals.......... 48.5 44.3
Tax credit and loss carryforwards.... 39.4 32.2
--------- ---------
Subtotal............................. 124.3 115.5
Valuation allowance.................. (69.7) (62.8)
--------- ---------
Total deferred tax assets............ 54.6 52.7
--------- ---------
Deferred tax liabilities:
Millennium equity transaction........ 4.3
Other reserves and accruals.......... (.2) 6.9
--------- ---------
Total deferred tax liabilities....... 4.1 6.9
--------- ---------
Total deferred tax assets, net....... $ 50.5 $ 45.8
--------- ---------
--------- ---------
A reconciliation of the federal statutory tax to the Company's continuing
tax provision for fiscal 1996, 1997, and 1998 is set forth in the following
table:
[Download Table]
(DOLLAR AMOUNTS IN MILLIONS) 1996 1997 1998
----------------------------- --------- --------- ---------
Federal statutory rate....... 35% 35% 35%
--------- --------- ---------
Tax at federal statutory
rate....................... $ 10.0 $ 48.3 $ 16.2
State income taxes (net of
federal benefit)........... (1.9) .1 .1
Effect on income from foreign
operations................. .1 41.1 1.2
Effect on income from foreign
sales corporation.......... (1.1) (1.6) (2.5)
Acquired research and
development................ 11.9 9.4 10.1
Restructuring and other
merger costs............... 5.2
Domestic temporary
differences for which
benefit is recognized...... (9.9) (56.6) (4.8)
Benefit of loss not
recognized/(utilization of
net operating losses)...... 16.9 (7.7)
Effect of goodwill
write-off.................. 1.5 .6 .4
Other........................ (.2) 1.8 (.8)
--------- --------- ---------
Total provision for income
taxes from continuing
operations................. $ 27.3 $ 35.4 $ 25.1
--------- --------- ---------
--------- --------- ---------
The category "domestic temporary differences for which benefit is
recognized" reported in the table above reflects the current year benefit
attributable to a reduction in the valuation allowance. A portion of the
reduction was due to the utilization of domestic tax credit carryforwards and
reversing temporary differences, while the remainder resulted from the
recognition of various other deferred tax assets that were previously subject to
a valuation allowance. The benefit due to the utilization of the tax credit
carryforwards and reversing temporary differences was recognized each year
because a valuation allowance had been established against these assets in the
year of origination. The valuation allowance on the various other deferred tax
assets was reduced because, although realization was not assured, management
believed that due to increasing
F-16
profitability, it was more likely than not that these deferred tax assets would
be realized.
At June 30, 1998, the Company's worldwide valuation allowance primarily
related to foreign tax loss carryforwards, as well as the domestic tax loss
carryforwards, temporary differences and tax credit carryforwards recorded as a
result of the stock acquisition of PerSeptive in January 1998.
At June 30, 1998, the Company had a U.S. alternative minimum tax credit
carryforward of $4.9 million with an indefinite carryforward period. The
Company's subsidiary, PerSeptive, has domestic loss carryforwards of
approximately $64 million that will expire between the years 2003 and 2012. The
amount of these net operating loss carryforwards that can be utilized annually
to offset future taxable income or tax liability has been limited under the
Internal Revenue Code as a result of the acquisition. The Company also has loss
carryforwards of approximately $38 million in various foreign countries with
varying expiration dates.
U.S. income taxes have not been provided on approximately $77 million of net
unremitted earnings from foreign subsidiaries since the Company intends to
permanently reinvest substantially all of such earnings in the operations of the
subsidiaries. These earnings include income from manufacturing operations in
Singapore, which is tax exempt through the year 2004. In those instances where
the Company expects to remit earnings, the effect on the results of operations,
after considering available tax credits and amounts previously accrued, was not
significant.
The Company and its subsidiaries are subject to tax examinations in various
U.S. and foreign jurisdictions. The Company believes that adequate tax payments
have been made and adequate accruals have been recorded for all years.
NOTE 5 RETIREMENT AND OTHER BENEFITS
PENSION PLANS
The Company maintains or sponsors pension plans that cover substantially all
worldwide employees. Pension benefits earned are generally based on years of
service and compensation during active employment. However, the level of
benefits and terms of vesting vary among the plans. Pension plan assets are
administered by trustees and are principally invested in equity and fixed income
securities. The funding of pension plans is determined in accordance with
statutory funding requirements.
The total worldwide pension expense of continuing operations for all
employee pension plans was $3.3 million, $4.7 million, and $4.3 million for
fiscal 1996, 1997, and 1998, respectively. The components of net pension expense
are set forth in the following table:
[Download Table]
(DOLLAR AMOUNTS IN MILLIONS) 1996 1997 1998
------------------------------- --------- --------- ---------
Domestic Plans:
Service cost................... $ 3.0 $ 3.4 $ 4.8
Interest cost.................. 27.7 31.9 36.2
Actual return on assets........ (26.5) (30.3) (35.4)
Net amortization and
deferral..................... (1.1) (.5) (1.5)
--------- --------- ---------
Net pension expense............ $ 3.1 $ 4.5 $ 4.1
--------- --------- ---------
--------- --------- ---------
Foreign Plans:
Service cost................... $ .2 $ .2 $ .1
Interest cost.................. .2 .1 .2
Actual return on assets........ (.3) (.1) (.2)
Net amortization and
deferral..................... .1 -- .1
--------- --------- ---------
Net pension expense............ $ .2 $ .2 $ .2
--------- --------- ---------
--------- --------- ---------
The following table sets forth the funded status of the plans of continuing
operations and amounts recognized in the Company's
F-17
Consolidated Statements of Financial Position at June 30, 1997 and 1998:
[Download Table]
DOMESTIC PLANS
------------------------------------------
ACCUMULATED
ASSETS EXCEED BENEFITS
ACCUMULATED BENEFITS EXCEED ASSETS
-------------------- --------------------
(DOLLAR AMOUNTS IN
MILLIONS) 1997 1998 1997 1998
------------------------- --------- --------- --------- ---------
Plan assets at fair
value.................. $ 474.2 $ 559.4 $ -- $ --
Projected benefit
obligation............. 475.0 544.5 10.7 12.2
--------- --------- --------- ---------
Plan assets greater
(less) than projected
benefit obligation..... (.8) 14.9 (10.7) (12.2)
Unrecognized items:
Net actuarial loss..... 43.3 33.4 1.7 2.8
Prior service cost..... (5.5) (4.7) 3.0 2.6
Net transition (asset)
obligation........... (7.2) (4.8) .5 .4
Minimum pension liability
adjustment............. (3.8) (4.1)
--------- --------- --------- ---------
Prepaid (accrued) pension
expense................ $ 29.8 $ 38.8 $ (9.3) $ (10.5)
--------- --------- --------- ---------
--------- --------- --------- ---------
Actuarial present value
of accumulated
benefits............... $ 470.2 $ 530.4 $ 9.3 $ 10.5
Accumulated benefit
obligation related to
vested benefits........ $ 461.7 $ 522.0 $ 8.0 $ 9.5
A minimum pension liability adjustment is required when the actuarial
present value of accumulated benefits exceeds plan assets and accrued pension
liabilities. The minimum liability adjustment, less allowable intangible assets,
net of tax benefit, is reported as a reduction of shareholders' equity and
totaled $.7 million and $.4 million at June 30, 1997 and 1998, respectively.
[Download Table]
FOREIGN PLANS
--------------------
ASSETS EXCEED
ACCUMULATED BENEFITS
--------------------
(DOLLAR AMOUNTS IN MILLIONS) 1997 1998
----------------------------------------- --------- ---------
Plan assets at fair value................ $ 3.1 $ 3.6
Projected benefit obligation............. 3.2 3.8
--------- ---------
Plan assets (less) than projected benefit
obligation............................. (.1) (.2)
Unrecognized items:
Net actuarial loss..................... .8 1.0
--------- ---------
Prepaid pension expense.................. $ .7 $ .8
--------- ---------
--------- ---------
Actuarial present value of accumulated
benefits............................... $ 2.2 $ 2.5
Accumulated benefit obligation related to
vested benefits........................ $ 2.0 $ 2.4
The following actuarial assumptions were used in accounting for the defined
benefit plans:
[Download Table]
1997 1998
--------- ---------
Domestic Plans
Assumptions:
Discount rate................. 8 1/2% 8%
Compensation increase......... 4% 4%
Long-term rate of return...... 8 1/2-9 1/4% 8 1/2-9 1/4%
Foreign Plans
Assumptions:
Discount rate................. 6% 5 1/2%
Compensation increase......... 4 1/4% 4 1/4%
Long-term rate of return...... 6 1/2% 6 1/2%
SAVINGS PLAN
The Company provides a 401(k) savings plan, for most domestic employees,
with automatic Company contributions of 2% of eligible compensation and a
dollar-for-dollar matching contribution of up to 4% of eligible compensation.
The Company's contributions to this plan for continuing operations were $3.3
million, $4.7 million, and $5.9 million for fiscal 1996, 1997, and 1998,
respectively.
RETIREE HEALTH CARE AND LIFE INSURANCE BENEFITS
The Company provides certain health care and life insurance benefits to
domestic employees hired prior to January 1, 1993, who retire and satisfy
certain service and age requirements. Generally, medical coverage pays a stated
percentage of most medical expenses, reduced for any deductible and for payments
made by Medicare or other group coverage. The cost of providing these benefits
is shared with retirees. The plan is unfunded.
The following table sets forth the accrued postretirement benefit liability
recognized in the Company's Consolidated Statements of Financial Position at
June 30, 1997 and 1998:
[Download Table]
(DOLLAR AMOUNTS IN MILLIONS) 1997 1998
--------------------------------------- --------- ---------
Actuarial present value of
postretirement benefit obligation
Retirees............................... $ 60.6 $ 60.7
Fully eligible active participants..... 1.0 1.4
Other active participants.............. 9.7 10.3
--------- ---------
Accumulated postretirement benefit
obligation (APBO).................... 71.3 72.4
Unrecognized net gain.................. 24.4 21.5
--------- ---------
Accrued postretirement benefit
liability............................ $ 95.7 $ 93.9
--------- ---------
--------- ---------
F-18
The net postretirement benefit cost for fiscal 1997 and 1998 included the
following components:
[Download Table]
(DOLLAR AMOUNTS IN MILLIONS) 1997 1998
---------------------------------------- --------- ---------
Service cost............................ $ .1 $ .1
Interest cost........................... 4.8 4.7
Amortization of unrecognized gain....... (1.1) (1.2)
--------- ---------
Net postretirement benefit cost......... $ 3.8 $ 3.6
--------- ---------
--------- ---------
The discount rate used in determining the APBO was 8.5% in fiscal 1997 and
8% in fiscal 1998. The assumed health care cost trend rate used for measuring
the APBO was divided into two categories:
[Download Table]
1997 1998
----- -----
Participants under age 65............... 10.3% 9.6%
Participants age 65 and over............ 7.7% 7.4%
Both rates were assumed to decline to 5.5% over eight and seven years in
fiscal 1997 and 1998, respectively.
If the health care cost trend rate were increased 1%, the APBO, as of June
30, 1998, would have increased 11%. The effect of this change on the aggregate
of service and interest cost for fiscal 1998 would be an increase of 10%.
POSTEMPLOYMENT BENEFITS
The Company provides certain postemployment benefits to eligible employees.
These benefits generally include severance, disability, and medical-related
costs paid after employment but before retirement.
NOTE 6 BUSINESS SEGMENTS AND GEOGRAPHIC
AREA INFORMATION
BUSINESS SEGMENTS
The Company is comprised of two separate business segments in continuing
operations: PE Biosystems and the recently formed Celera Genomics Corporation.
PE Biosystems includes PE Applied Biosystems, PerSeptive, Molecular Informatics,
Tropix, and Tecan. PE Biosystems manufactures and markets biochemical instrument
systems and associated consumable products for life science research and related
applications. These automated systems are used for synthesis, amplification,
purification, isolation, analysis, and sequencing of nucleic acids, proteins,
and other biological molecules. Through a joint venture, the Company
manufactures mass spectrometry instrument systems.
During the fourth quarter of fiscal 1998, Celera Genomics Corporation was
formed by the Company and Dr. J. Craig Venter of The Institute for Genomic
Research. The new company's strategy is focused on a plan to become the
definitive source of genomic information that will be used to develop a better
understanding of biological processes in humans. The plan is to substantially
complete the sequencing of the human genome by December 31, 2001. The company
intends to build the scientific expertise and informatics tools necessary to
extract biological knowledge from genomic data. Results for Celera Genomics
Corporation were not material for fiscal 1998.
GEOGRAPHIC AREAS
Revenues between geographic areas are primarily comprised of the sale of
products by the Company's manufacturing units. The revenues reflect the rules
and regulations of the respective governing tax authorities. Net revenues and
operating profits are reported in the region of destination. Operating income is
determined by deducting from net revenues the related costs and operating
expenses attributable to the region. Research, development and engineering
expenses are reflected in the area where the activity was performed.
Identifiable assets include all assets directly identified with those geographic
areas. Corporate assets include cash and short-term investments, deferred tax
assets, property, plant, and equipment, and other assets that are corporate in
nature.
Export net revenues for fiscal 1996, 1997, and 1998 were $14.1 million,
$27.6 million, and $28.5 million, respectively.
F-19
GEOGRAPHIC AREAS
[Enlarge/Download Table]
UNITED FAR OTHER
(DOLLAR AMOUNTS IN MILLIONS) STATES EUROPE EAST COUNTRIES CORPORATE CONSOLIDATED
---------------------------------------------------- --------- --------- --------- ----------- ----------- ------------
1996
Total revenues...................................... $ 309.6 $ 270.7 $ 212.8 $ 23.2 $ -- $ 816.3
Transfers between geographic areas.................. (18.5) (74.2) (75.5) (5.9) (174.1)
--------- --------- --------- ----------- ----------- ------------
Revenues to unaffiliated customers.................. $ 291.1 $ 196.5 $ 137.3 $ 17.3 $ $ 642.2
--------- --------- --------- ----------- ----------- ------------
Income (loss)....................................... $ 18.2 $ 47.3 $ 43.7 $ 1.8 $ (27.7) $ 83.3
Restructuring charge................................ (17.5) (17.5)
Acquired research and development................... (33.9) (33.9)
Impairment of assets................................ (9.9) (9.9)
--------- --------- --------- ----------- ----------- ------------
Operating income (loss)........................... $ (43.1) $ 47.3 $ 43.7 $ 1.8 $ (27.7) $ 22.0
--------- --------- --------- ----------- ----------- ------------
Identifiable assets................................. $ 268.3 $ 97.1 $ 56.5 $ 13.9 $ 225.8 $ 661.6
Net assets of discontinued operations............... 148.3
------------
Total assets........................................ $ 809.9
1997
Total revenues...................................... $ 384.1 $ 333.7 $ 255.0 $ 27.1 $ -- $ 999.9
Transfers between geographic areas.................. (34.1) (93.8) (95.3) (8.3) (231.5)
--------- --------- --------- ----------- ----------- ------------
Revenues to unaffiliated customers.................. $ 350.0 $ 239.9 $ 159.7 $ 18.8 $ $ 768.4
--------- --------- --------- ----------- ----------- ------------
Income (loss)....................................... $ 19.4 $ 61.4 $ 45.8 $ 3.7 $ (34.6) $ 95.7
Acquired research and development................... (26.8) (26.8)
Impairment of assets................................ (.7) (.7)
--------- --------- --------- ----------- ----------- ------------
Operating income (loss)........................... $ (8.1) $ 61.4 $ 45.8 $ 3.7 $ (34.6) $ 68.2
--------- --------- --------- ----------- ----------- ------------
Identifiable assets................................. $ 317.0 $ 112.3 $ 70.2 $ 6.2 $ 350.2 $ 855.9
Net assets of discontinued operations............... 150.9
------------
Total assets........................................ $ 1,006.8
1998
Total revenues...................................... $ 500.6 $ 377.2 $ 274.2 $ 36.7 $ -- $ 1,188.7
Transfers between geographic areas.................. (43.5) (85.3) (102.7) (12.9) (244.4)
--------- --------- --------- ----------- ----------- ------------
Revenues to unaffiliated customers.................. $ 457.1 $ 291.9 $ 171.5 $ 23.8 $ $ 944.3
--------- --------- --------- ----------- ----------- ------------
Income (loss)....................................... $ 26.7 $ 72.0 $ 55.7 $ 3.0 $ (39.8) $ 117.6
Restructuring and other merger costs................ (26.2) (21.7) (.2) (48.1)
Acquired research and development................... (28.9) (28.9)
--------- --------- --------- ----------- ----------- ------------
Operating income (loss)........................... $ (28.4) $ 50.3 $ 55.5 $ 3.0 $ (39.8) $ 40.6
--------- --------- --------- ----------- ----------- ------------
Identifiable assets................................. $ 449.1 $ 206.4 $ 62.9 $ 9.9 $ 189.3 $ 917.6
Net assets of discontinued operations............... 217.7
------------
Total assets........................................ $ 1,135.3
F-20
NOTE 7 SHAREHOLDERS' EQUITY
TREASURY STOCK
Common stock purchases have been made in support of the Company's various
stock plans and as part of a general share repurchase authorization. The general
share repurchase authorization was rescinded by the Board of Directors in fiscal
1998. During fiscal 1996 and 1997, the Company purchased .8 million and .4
million shares, respectively, to support various stock plans. There were no
share purchases in fiscal 1998.
STOCK PURCHASE WARRANTS
As a result of the Merger with PerSeptive, each outstanding warrant for
shares of PerSeptive common stock was converted into warrants for the number of
shares of the Company's common stock that would have been received by the holder
if such warrants had been exercised immediately prior to the effective time of
the Merger.
At June 30, 1998 the following warrants to purchase common stock were
outstanding:
[Download Table]
NUMBER OF EXERCISE EXPIRATION
SHARES PRICE DATE
----------- --------- ------------------
Class C........ 4,097 $ 37.95 March 1999
Class E........ 8,065 $ 171.34 December 1998
Class F........ 10,266 $ 39.56 October 2002
Class G........ 53,799 $ 65.73 September 2003
EQUITY PUT WARRANTS
During the first quarter of fiscal 1997, the Company sold in a private
placement 600,000 put warrants on shares of its common stock. Each warrant
obligated the Company to purchase the shares from the holder, at specified
prices, if the closing price of the common stock was below the exercise price on
the maturity date. The cash proceeds from the sale of the put warrants were $1.8
million and have been included in capital in excess of par value. During fiscal
1997, all 600,000 warrants expired unexercised. No equity put warrants were sold
in fiscal 1998.
SHAREHOLDERS' PROTECTION RIGHTS PLAN
The Company has a Shareholders' Protection Rights Plan designed to protect
shareholders against abusive takeover tactics by declaring a dividend of one
right on each outstanding share of common stock. Each right entitles
shareholders to buy one one-hundredth of a newly issued share of participating
preferred stock having economic and voting terms similar to those of one share
of common stock at an exercise price of $90, subject to adjustment.
The rights will be exercisable only if a person or a group: (a) acquires 20%
or more of the Company's shares or (b) commences a tender offer that will result
in such person or group owning 20% or more of the Company's shares. Before that
time, the rights trade with the common stock, but thereafter they become
separately tradeable.
Upon exercise, after a person or a group acquires 20% or more of the
Company's shares, each right (other than rights held by the acquiring person)
will entitle the shareholder to purchase a number of shares of preferred stock
of the Company having a market value of two times the exercise price. If the
Company is acquired in a merger or other business combination, each right will
entitle the shareholder to purchase at the then exercise price a number of
shares of common stock of the acquiring company having a market value of two
times such exercise price. If any person or group acquires between 20% and 50%
of the Company's shares, the Company's Board of Directors may, at its option,
exchange one share of the Company's common stock for each right. The rights are
redeemable at the Company's option at one cent per right prior to a person or
group becoming an acquiring person.
COMMON STOCK
In October 1997, the Company's shareholders approved an increase in the
number of authorized shares of the Company's common stock from 90 million to 180
million.
F-21
NOTE 8 STOCK PLANS
STOCK OPTION PLANS
Under the Company's stock option plans, officers and other key employees may
be, and directors are, granted options, each of which allows for the purchase of
common stock at a price of not less than 100% of fair market value at the date
of grant. Under the normal vesting requirements, 50% of the options are
exercisable after one year and 100% after two years. Options generally expire
ten years from the date of grant.
Transactions relating to the stock option plans of the Company are
summarized below:
[Download Table]
NUMBER WEIGHTED
OF AVERAGE
OPTIONS EXERCISE PRICE
--------- ---------------
FISCAL 1996
Outstanding at June 30,
1995...................... 4,597,214 $ 29.97
Granted..................... 820,495 $ 46.43
Exercised................... 1,393,807 $ 29.48
Cancelled................... 201,367 $ 34.17
---------
Outstanding at June 30,
1996...................... 3,822,535 $ 34.05
Exercisable at June 30,
1996...................... 2,544,100 $ 30.17
FISCAL 1997
Granted..................... 1,595,528 $ 59.78
Exercised................... 1,167,179 $ 29.73
Cancelled................... 95,281 $ 43.17
---------
Outstanding at June 30,
1997...................... 4,155,603 $ 45.03
Exercisable at June 30,
1997...................... 2,254,052 $ 35.24
FISCAL 1998
Granted..................... 1,997,041 $ 70.41
Exercised................... 780,994 $ 34.76
Cancelled................... 154,686 $ 71.42
---------
Outstanding at June 30,
1998...................... 5,216,964 $ 55.51
Exercisable at June 30,
1998...................... 2,936,389 $ 43.12
At June 30, 1998, 241,437 shares remained available for option grant.
The following table summarizes information regarding options outstanding and
exercisable at June 30, 1998:
[Download Table]
WEIGHTED AVERAGE
----------------------------
CONTRACTUAL
LIFE
(OPTION PRICES PER NUMBER REMAINING EXERCISE
SHARE) OF OPTIONS IN YEARS PRICE
----------------------- ----------- --------------- -----------
Options outstanding:
At $ 2.04-$29.95..... 448,472 4.2 $ 20.93
At $30.25-$59.75..... 2,038,936 7.0 $ 40.87
At $60.06-$85.69..... 2,713,648 9.3 $ 71.83
At $90.86-$163.55.... 15,908 5.4 $ 120.86
Options exercisable:
At $ 2.04-$29.95..... 448,472 4.2 $ 20.93
At $30.25-$59.75..... 1,992,736 6.9 $ 40.53
At $60.06-$83.69..... 479,273 8.7 $ 72.07
At $90.86-$163.55.... 15,908 5.4 $ 120.86
EMPLOYEE STOCK PURCHASE PLAN
The Employee Stock Purchase Plan offers domestic and certain foreign
employees the right to purchase, over a certain period, shares of common stock
on an annual offering date. The purchase price in the United States is equal to
the lower of 85% of the average market price of the common stock on the offering
date or 85% of the average market price of the common stock on the last day of
the purchase period. Provisions of the plan for employees in foreign countries
vary according to local practice and regulations.
Common stock issued under the Employee Stock Purchase Plan during fiscal
1996, 1997, and 1998 totaled 77,000 shares, 111,000 shares, and 174,000 shares,
respectively. At June 30, 1998, 499,000 shares remained available for issuance.
DIRECTOR STOCK PURCHASE AND DEFERRED COMPENSATION PLAN
The Company has a Director Stock Purchase and Deferred Compensation Plan
that requires non-employee directors of the Company to apply at least 50% of
their annual retainer to the purchase of common stock. The purchase price is the
fair market value on the first business day of the third month of each fiscal
quarter. At June 30, 1998, approximately 87,000 shares were available for
issuance.
F-22
RESTRICTED STOCK
As part of the Company's stock incentive plans, key employees may be, and
non-employee directors are, granted shares of restricted stock that will vest
when certain continuous employment/service restrictions and/or specified
performance goals are achieved. The fair value of shares granted is generally
expensed over the restricted periods, which may vary depending on the estimated
achievement of performance goals.
Restricted stock granted to key employees and non-employee directors during
fiscal 1996, 1997, and 1998 totaled 185,000 shares (155,000 of which were
subject to shareholder approval in fiscal 1997), 42,000 shares and 4,350 shares,
respectively. Compensation expense of continuing operations recognized for these
awards was $4.1 million, $9.1 million, and $1.8 million in fiscal 1996, 1997,
and 1998, respectively.
PERFORMANCE UNIT BONUS PLAN
The Company has a Performance Unit Bonus Plan whereby employees may be
awarded performance units in conjunction with an equal number of stock options.
A performance unit represents the right to receive a cash or stock payment from
the Company at a specified date in the future. The amount of the payment is
equal to the fair market value of a share of common stock on the date of the
grant. The performance units vest upon shares of the Company's common stock
attaining and maintaining specified stock price levels for a specified period,
and are payable on or after June 26, 2000. As of June 30, 1998, 324,500
performance units were outstanding. Compensation expense of continuing
operations recognized for these awards totaled $5.1 million in fiscal 1998.
ACCOUNTING FOR STOCK-BASED COMPENSATION
The Company applies Accounting Principles Board Opinion No. 25, "Accounting
for Stock Issued to Employees," in accounting for its stock-based compensation
plans. Accordingly, no compensation expense has been recognized for its stock
option and employee stock purchase plans, as all options have been issued at
fair market value.
Pro forma net income and earnings per share information, as required by SFAS
No. 123, "Accounting for Stock-Based Compensation," have been determined for
employee stock plans under the statement's fair value method. The fair value of
the options was estimated at grant date using a Black-Scholes option pricing
model with the following weighted average assumptions:
[Download Table]
FOR THE YEARS ENDED
JUNE 30, 1996 1997 1998
---------------------- --------- --------- ---------
Dividend yield........ .89% .85% .94%
Volatility............ 35.32% 29.07% 27.00%
Risk-free interest
rates............... 6.24% 6.42% 5.64%
Expected option life
in years............ 4.87 5.12 5.70
For purposes of pro forma disclosure, the estimated fair value of the
options is amortized to expense over the options' vesting period. The Company's
pro forma information for the years ended June 30, 1996, 1997, and 1998 is
presented below:
[Download Table]
(DOLLAR AMOUNTS IN
MILLIONS,
EXCEPT PER SHARE AMOUNTS) 1996 1997 1998
--------------------------- --------- --------- ---------
Income (loss) from
continuing operations
As reported.............. $ 1.3 $ 102.5 $ 15.7
Pro forma................ (1.1) 92.3 (15.0)
Basic earnings (loss) from
continuing operations per
share
As reported.............. $ .03 $ 2.16 $ .32
Pro forma................ (.02) 1.94 (.31)
Diluted earnings (loss)
from continuing
operations per share
As reported.............. $ .03 $ 2.07 $ .31
Pro forma................ (.02) 1.86 (.31)
Fiscal 1998 pro forma net income includes compensation expense of $9.8
million, or $.19 per diluted share after-tax, owing to the immediate vesting of
options as a result of the acquisitions of PerSeptive and Molecular Informatics.
The weighted average fair value of options granted was $16.58, $20.17, and
$24.83 per share for fiscal 1996, 1997, and 1998, respectively.
F-23
NOTE 9 ADDITIONAL INFORMATION
SELECTED ACCOUNTS
The following table provides the major components of selected accounts of
the Consolidated Statements of Financial Position:
[Download Table]
AT JUNE 30,
--------------------
(DOLLAR AMOUNTS IN MILLIONS) 1997 1998
----------------------------------- --------- ---------
Other long-term assets:
Goodwill........................... $ 17.5 $ 69.8
Other.............................. 139.3 172.0
--------- ---------
Total other long-term assets....... $ 156.8 $ 241.8
--------- ---------
Other accrued expenses:
Deferred service contract
revenues......................... $ 20.5 $ 28.7
Restructuring provisions........... -- 26.9
Other.............................. 57.9 66.9
--------- ---------
Total other accrued expenses....... $ 78.4 $ 122.5
--------- ---------
--------- ---------
Other long-term liabilities:
Accrued postretirement benefits.... $ 91.2 $ 87.4
Other.............................. 33.3 42.1
--------- ---------
Total other long-term liabilities.. $ 124.5 $ 129.5
--------- ---------
--------- ---------
RELATED PARTY TRANSACTIONS
One of the Company's directors is an employee of the Roche Group, a
pharmaceutical manufacturer and strategic partner of the Company in the
biotechnology field. The Company made payments to the Roche Group and its
affiliates, for the purchase of reagents and consumables, of $59.7 million,
$68.2 million, and $72.5 million in fiscal 1996, 1997, and 1998, respectively.
NOTE 10 RESTRUCTURING AND OTHER MERGER COSTS
The Company initiated a restructuring plan in fiscal 1998 for actions
associated with the acquisition of PerSeptive. Fiscal 1996 included a charge by
PerSeptive for restructuring actions and other related costs. The before-tax
charges associated with the implementation of these restructuring plans were
$17.5 million and $48.1 million for fiscal 1996 and 1998, respectively.
FISCAL 1996
Fiscal 1996 included a charge by PerSeptive for restructuring actions and
other related costs. These costs primarily related to actions to identify
research and development programs, discontinue certain product lines, and make
organizational changes. The components of these costs included $9.8 million
related to the write-off of certain long-term assets used in discontinued
product offerings and other asset impairments, $2.6 million of severance costs
principally resulting from approximately 65 U.S. and European employee
terminations, and $5.1 million of accrued legal costs primarily related to
patent defense costs. The majority of asset write-offs and severance costs were
completed in fiscal 1996. Legal costs paid were $1.6 million, $1.6 million, and
$.3 million in fiscal 1996, 1997, and 1998, respectively. No significant
adjustments were made to the liability accrued in fiscal 1996.
FISCAL 1998
During fiscal 1998, the Company recorded a $48.1 million before-tax charge
for restructuring and other merger costs to integrate PerSeptive into the
Company following the acquisition. The objectives of this plan are to lower
PerSeptive's cost structure by reducing excess manufacturing capacity, achieve
broader worldwide distribution of PerSeptive's products, and combine sales,
marketing, and administrative functions. The charge included: $33.9 million for
restructuring the combined operations; $8.6 million for transaction costs; and
$4.1 million of inventory-related write-offs, recorded in costs of sales,
associated with the rationalization of certain product lines. Additional
non-recurring acquisition costs of $1.5 million for training, relocation, and
communication were recognized as period expenses in the third and fourth
quarters of fiscal 1998, and classified as other merger-related costs. During
fiscal 1999, the Company recorded $2.0 million of additional merger-related
costs as part of this plan. The Company expects to incur approximately $3.0
million to $5.0 million of additional merger-related costs for training,
relocation, and communication over the remaining quarters of fiscal 1999. These
costs will be recognized as
F-24
period expenses when incurred and will be classified as other merger-related
costs.
The $33.9 million restructuring charge includes $13.8 million for
severance-related costs and workforce reductions of approximately 170 employees,
consisting of 114 employees in production labor and 56 employees in sales and
administrative support. The remaining $20.1 million represents facility
consolidation and asset-related write-offs and includes: $11.7 million for
contract and lease terminations and facility related expenses in connection with
the reduction of excess manufacturing capacity; $3.2 million for dealer
termination payments, sales office consolidations, and consolidation of sales
and administrative support functions; and $5.2 million for the write-off of
certain tangible and intangible assets and the termination of certain
contractual obligations. These restructuring actions are expected to be
substantially completed by the end of fiscal 1999. Transaction costs of $8.6
million include acquisition-related investment banking and professional fees. As
of December 31, 1998, approximately 120 employees were separated under the plan,
and the actions are proceeding as planned.
The following table details the major components of the fiscal 1998
restructuring plan:
[Enlarge/Download Table]
FACILITY CONSOLIDATION
AND
(DOLLAR AMOUNTS IN MILLIONS) PERSONNEL ASSET RELATED WRITE-OFFS TOTAL
--------------------------------------------------------------------- ------------- --------------------------- ---------
Provision:
Reduction of excess European manufacturing capacity.................. $ 5.1 $ 11.7 $ 16.8
Consolidation of sales and administrative support.................... 8.7 3.2 11.9
Other................................................................ 5.2 5.2
----- ----- ---------
Total provision...................................................... $ 13.8 $ 20.1 $ 33.9
----- ----- ---------
Fiscal 1998 activity:
Reduction of excess European manufacturing capacity.................. $ -- $ .4 $ .4
Consolidation of sales and administrative support.................... .3 1.2 1.5
Other................................................................ 5.1 5.1
----- ----- ---------
Total fiscal 1998 activity........................................... $ .3 $ 6.7 $ 7.0
----- ----- ---------
Fiscal 1999 activity:
Reduction of excess European manufacturing capacity.................. $ .1 $ 5.2 $ 5.3
Consolidation of sales and administrative support.................... 2.1 .5 2.6
Other................................................................
----- ----- ---------
Total fiscal 1999 activity (unaudited)............................... $ 2.2 $ 5.7 $ 7.9
----- ----- ---------
Balance at December 31, 1998:
Reduction of excess European manufacturing capacity.................. $ 5.0 $ 6.1 $ 11.1
Consolidation of sales and administrative support.................... 6.3 1.5 7.8
Other................................................................ .1 .1
----- ----- ---------
Balance at December 31, 1998 (unaudited)............................. $ 11.3 $ 7.7 $ 19.0
----- ----- ---------
----- ----- ---------
NOTE 11 COMMITMENTS AND CONTINGENCIES
Future minimum payments at June 30, 1998 under non-cancelable operating
leases for real estate and equipment were as follows:
[Download Table]
(DOLLAR AMOUNTS IN MILLIONS)
---------------------------------------------
1999......................................... $ 21.3
2000......................................... 17.1
2001......................................... 15.4
2002......................................... 13.4
2003......................................... 12.2
2004 and thereafter.......................... 60.6
---------
Total........................................ $ 140.0
---------
---------
Rental expense was $23.5 million in fiscal 1996, $22.3 million in fiscal
1997, and $29.0 million in fiscal 1998.
On July 10, 1998, the Company entered into a ten-year non-cancelable lease
for a facility for Celera Genomics Corporation in Rockville, Maryland, effective
August 1, 1998. Total lease payments over the ten-year period will be
approximately $22 million. In fiscal 1997, the Company entered into a
fifteen-year non-cancelable lease for a facility in Foster City, California,
effective July 1, 2000. Total lease payments over the fifteen-year period will
be approximately $42 million.
F-25
The Company has been named as a defendant in several legal actions,
including patent, commercial, and environmental, arising from the conduct of its
normal business activities. Although the amount of any liability that might
arise with respect to any of these matters cannot be accurately predicted, the
resulting liability, if any, will not in the opinion of management have a
material adverse effect on the financial statements of the Company.
NOTE 12 FINANCIAL INSTRUMENTS
DERIVATIVES
The Company utilizes foreign exchange forward, option, and synthetic forward
contracts and an interest rate swap agreement to manage foreign currency and
interest rate exposures. The principal objective of these contracts is to
minimize the risks and/or costs associated with global financial and operating
activities. The Company does not use derivative financial instruments for
trading or other speculative purposes, nor is the Company a party to leveraged
derivatives.
FOREIGN CURRENCY RISK MANAGEMENT
Foreign exchange forward, option, and synthetic forward contracts are used
primarily to hedge reported and anticipated cash flows resulting from the sale
of products in foreign locations. Option contracts outstanding at June 30, 1998
were purchased at a cost of $4.1 million. Under these contracts, the Company has
the right, but not the obligation, to purchase or sell foreign currencies at
fixed rates at various maturity dates. These contracts are utilized primarily
when the amount and/or timing of the foreign currency exposures are not certain.
Synthetic forward contracts outstanding at June 30, 1998 were purchased having
no up-front cost. Under these contracts, the Company may participate in some
favorable currency movements but is protected against adverse currency changes.
These contracts are used as an alternative to options to reduce the cost of the
Company's hedging program.
At June 30, 1997 and 1998, and December 31, 1998, the Company had forward,
option, and synthetic forward contracts outstanding for the sale and purchase of
foreign currencies at fixed rates as summarized in the table below:
[Enlarge/Download Table]
DECEMBER 31, 1998
(DOLLAR JUNE 30, 1997 JUNE 30, 1998 (UNAUDITED)
AMOUNTS IN ---------------------- ---------------------- ----------------------
MILLIONS) SALE PURCHASE SALE PURCHASE SALE PURCHASE
-------------- --------- ----------- --------- ----------- --------- -----------
Japanese Yen.. $ 74.6 $ -- $ 99.4 $ -- $ 82.0 $ --
French
Francs...... 14.1 16.9 .2 8.7
Australian
Dollars..... 7.4 7.5 6.8
German
Marks....... 11.4 17.2 22.4 1.4
Italian
Lira........ 5.6 1.2 21.4 .8 14.2
British
Pounds...... 1.7 27.0 12.6 25.6 21.1
Swiss Francs.. 3.2 8.2 4.0 5.8 10.5
Swedish
Krona....... 1.4 6.1 6.5 .2
Danish Krona.. 1.0 5.3 5.2 .2
Other......... 3.4 21.5 .2 19.6 3.3
--------- ----- --------- ----- --------- -----
Total......... $ 122.1 $ 2.9 $ 230.5 $ 17.8 $ 196.8 $ 36.7
--------- ----- --------- ----- --------- -----
--------- ----- --------- ----- --------- -----
Foreign exchange contracts are accounted for as hedges of firm commitments
and anticipated foreign currency transactions. With respect to firm commitments,
unrealized gains and losses are deferred and included in the basis of the
transaction underlying the commitment. Gains and losses on foreign currency
transactions are recognized in income and offset the foreign exchange losses and
gains, respectively, on the related transactions. The amount of the contracts
covering anticipated transactions is marked to market and recognized in income.
INTEREST RATE RISK MANAGEMENT
In fiscal 1997, the Company entered into an interest rate swap in
conjunction with a five-year Japanese Yen debt obligation (see Note 3). The
interest rate swap agreement involves the payment of a fixed rate of interest
and the receipt of a floating rate of interest without the exchange of the
underlying notional loan principal amount. Under this contract, the Company will
make fixed interest payments of 2.1% while receiving interest at a LIBOR
floating rate. No other cash payments will be made unless the contract is
terminated prior to maturity, in which case the amount to be paid or received in
settlement is established by agreement at the time of termination. The agreed
upon amount usually represents the net present value at the then existing
interest rates
F-26
of the remaining obligation to exchange payments under the terms of the
contract.
Based on the level of interest rates prevailing at June 30, 1998, the fair
value of the Company's floating rate debt approximated its carrying value. There
would be a payment of $.9 million to terminate the related interest rate swap
contract, which would equal the unrealized loss. Unrealized gains or losses on
debt or interest rate swap contracts are not recognized for financial reporting
purposes unless the debt is retired or the contracts are terminated prior to
maturity. A change in interest rates would have no impact on the Company's
reported interest expense and related cash payments because the floating rate
debt and fixed rate swap contract have the same maturity and are based on the
same interest rate index.
CONCENTRATIONS OF CREDIT RISK
The forward contracts, options, synthetic forwards, and swaps used by the
Company in managing its foreign currency and interest rate exposures contain an
element of risk that the counterparties may be unable to meet the terms of the
agreements. However, the Company minimizes such risk exposure by limiting the
counterparties to a diverse group of highly rated major domestic and
international financial institutions with which the Company has other financial
relationships. The Company is exposed to potential losses in the event of non-
performance by these counterparties; however, the Company does not expect to
record any losses as a result of counterparty default. The Company does not
require and is not required to place collateral for these financial instruments.
FAIR VALUE
The fair value of foreign currency forward, option (net of fees), and
synthetic forward contracts, as well as interest rate swaps, is estimated based
on quoted market prices of comparable contracts and reflects the amounts the
Company would receive (or pay) to terminate the contracts at the reporting date.
The following table presents notional amounts and fair values of the Company's
derivatives at June 30, 1997 and 1998:
[Download Table]
1997 1998
------------------------ ------------------------
(DOLLAR AMOUNTS IN NOTIONAL FAIR NOTIONAL FAIR
MILLIONS) AMOUNT VALUE AMOUNT VALUE
------------------------ ----------- ----- ----------- -----
Forward contracts....... $ 89.0 $ (3.7) $ 123.9 $ 2.1
Purchased options....... $ 36.1 $ .3 $ 76.7 $ 1.3
Synthetic forwards...... $ 41.5 $ 1.7
Interest rate swap...... $ 33.6 $ .2 $ 27.0 $ (.9)
The following methods are used in estimating the fair value of other
significant financial instruments held or owed by the Company. Cash and
short-term investments approximate their carrying amount due to the duration of
these instruments. Fair values of minority equity investments and notes
receivable are estimated based on quoted market prices, if available, or quoted
market prices of financial instruments with similar characteristics. The fair
value of debt is based on the current rates offered to the Company for debt of
similar remaining maturities. The following table presents the carrying amounts
and fair values of the Company's other financial instruments at June 30, 1997
and 1998:
[Download Table]
1997 1998
---------------------- ------------------------
(DOLLAR AMOUNTS IN CARRYING FAIR CARRYING FAIR
MILLIONS) AMOUNT VALUE AMOUNT VALUE
----------------------- ----------- --------- ----------- -----
Cash and short-term
investments.......... $ 217.2 $ 217.2 $ 84.1 $ 84.1
Minority equity
investments.......... $ 22.6 $ 22.6 $ 29.2 $ 29.2
Note receivable........ $ 7.2 $ 7.2
Short-term debt........ $ 29.9 $ 29.9 $ 12.1 $ 12.1
Long-term debt......... $ 59.2 $ 59.0 $ 33.7 $ 34.6
Net unrealized gains and losses on minority equity investments are reported
as a separate component of shareholders' equity. The Company reported an
unrealized holding gain of $3.1 million at June 30, 1997 and a $1.4 million
unrealized holding loss at June 30, 1998.
F-27
NOTE 13 QUARTERLY FINANCIAL INFORMATION (UNAUDITED)
The following is a summary of quarterly financial results:
[Enlarge/Download Table]
FIRST QUARTER SECOND QUARTER THIRD QUARTER FOURTH QUARTER
(DOLLAR AMOUNTS IN MILLIONS -------------------- -------------------- -------------------- --------------------
EXCEPT PER SHARE AMOUNTS) 1997 1998 1997 1998 1997 1998 1997 1998
----------------------------------------- --------- --------- --------- --------- --------- --------- --------- ---------
Net revenues............................. $ 161.8 $ 194.7 $ 191.3 $ 216.6 $ 203.7 $ 248.7 $ 211.6 $ 284.3
Gross margin............................. 82.6 100.5 99.1 120.7 110.9 131.2 113.5 156.1
Income (loss) from continuing
operations............................. 22.0 17.5 55.5 (7.4) 1.1 (19.3) 23.9 24.9
Income (loss) from discontinued
operations............................. 6.6 3.9 18.1 13.4 8.2 12.3 (5.0) 11.1
Net income (loss)........................ 28.6 21.4 73.6 6.0 9.3 (7.0) 18.9 36.0
Income (loss) per share from continuing
operations:
Basic.................................. 0.47 0.37 1.17 (0.15) 0.02 (0.40) 0.50 0.51
Diluted................................ 0.45 0.35 1.13 (0.15) 0.02 (0.40) 0.48 0.49
Income (loss) per share from discontinued
operations:
Basic.................................. 0.14 0.08 0.39 0.27 0.18 0.26 (0.11) 0.22
Diluted................................ 0.14 0.08 0.36 0.27 0.17 0.26 (0.10) 0.22
Net income (loss) per share:
Basic.................................. 0.61 0.45 1.56 0.12 0.20 (0.14) 0.39 0.73
Diluted................................ 0.59 0.43 1.49 0.12 0.19 (0.14) 0.38 0.71
EVENTS IMPACTING COMPARABILITY
FISCAL 1997
First and second quarter results included before-tax gains of $11.3 million
and $26.1 million, or $.21 and $.38 per diluted share after-tax, respectively,
from the sale of the Company's remaining equity interest in Etec Systems, Inc.
(see Note 2). Second, third, and fourth quarter results included before-tax
gains of $25.9 million, $.8 million, and $.8 million, or $.52, $.02, and $.02
per diluted share after-tax, respectively, relating to the sale and release of
contingencies on minority equity investments (see Note 2). Third quarter results
included a $25.4 million before-tax charge, or $.51 per diluted share after-tax,
for acquired research and development (see Note 2). Fourth quarter results
included a $1.4 million before-tax charge, or $.03 per diluted share after-tax,
for acquired research and development (see Note 2), and a $.7 million before-tax
charge, or $.01 per diluted share after-tax, for asset impairment (see Note 1).
In addition, the Company recognized deferred royalty income, other miscellaneous
income, and certain compensation-related expenses. The net effect of these items
increased fourth quarter net income by approximately $5.5 million, or $.11 per
diluted share.
FISCAL 1998
First and fourth quarter results included before-tax gains of $.8 million in
each quarter, or $.02 and $.01 per diluted share after-tax, respectively,
relating to the Company's release of contingencies on minority equity
investments respectively (see Note 2). Second quarter results included a $28.9
million before-tax charge, or $.57 per diluted share after-tax, for acquired
research and development (see Note 2). Third and fourth quarter results included
before-tax charges for restructuring and other merger costs of $47.0 million and
$1.1 million, respectively, or $.85 and $.02 per diluted share after-tax,
respectively (see Note 10). In the third quarter the Company also recognized
one-time royalty revenues and capitalized certain legal expenses relating to the
successful defense of certain patents. The net effect of these items increased
third quarter net income by approximately $4.2 million, or $.08 per diluted
share.
F-28
[Enlarge/Download Table]
STOCK PRICES AND DIVIDENDS 1997
----------------------------------------------------------------------------- -----------------
STOCK PRICES HIGH LOW
----------------------------------------------------------------------------- ------- ------
First Quarter................................................................ $ 58 1/8 $ 44 1/4
Second Quarter............................................................... $ 61 7/8 $ 52 1/2
Third Quarter................................................................ $ 77 1/8 $ 57 7/8
Fourth Quarter............................................................... $ 81 1/8 $ 60 3/8
STOCK PRICES AND DIVIDENDS 1998
----------------------------------------------------------------------------- --------------------
STOCK PRICES HIGH LOW
----------------------------------------------------------------------------- ------- --------
First Quarter................................................................ $ 86 1/8 $ 72 1/8
Second Quarter............................................................... $ 74 $ 59 1/4
Third Quarter................................................................ $ 76 $ 55 13/16
Fourth Quarter............................................................... $ 75 1/8 $ 58 11/16
[Enlarge/Download Table]
DIVIDENDS PER SHARE 1997 1998
---------------------------------------------------------------------------------------------------- --------- ---------
First Quarter....................................................................................... $ .17 $ .17
Second Quarter...................................................................................... .17 .17
Third Quarter....................................................................................... .17 .17
Fourth Quarter...................................................................................... .17 .17
--- ---
Total dividends per share........................................................................... $ .68 $ .68
--- ---
--- ---
NOTE 14 ACCUMULATED OTHER COMPREHENSIVE INCOME (LOSS)
Accumulated other comprehensive income (loss) for fiscal 1996, 1997, 1998,
and for the six months ended December 31, 1998 (unaudited) is as follows:
[Enlarge/Download Table]
FOREIGN MINIMUM
CURRENCY UNREALIZED PENSION
TRANSLATION GAIN (LOSS) ON LIABILITY
(DOLLAR AMOUNTS IN MILLIONS) ADJUSTMENTS INVESTMENTS ADJUSTMENT
----------------------------------------------------------------------- ----------- -------------- -----------
Balance at June 30, 1995............................................... $ 10.0 $ -- $ (34.4)
Current period activity................................................ (10.9) 23.2 5.0
----------- ------- -----------
Balance at June 30, 1996............................................... (.9) 23.2 (29.4)
Current period activity................................................ (4.2) (20.1) 28.7
----------- ------- -----------
Balance at June 30, 1997............................................... (5.1) 3.1 (.7)
Current period activity................................................ (2.7) (4.5) .3
----------- ------- -----------
Balance at June 30, 1998............................................... (7.8) (1.4) (.4)
Current period activity................................................ 5.1 2.7
----------- ------- -----------
Balance at December 31, 1998 (unaudited)............................... $ (2.7) $ 1.3 $ (.4)
----------- ------- -----------
----------- ------- -----------
F-29
NOTE 15 DISCONTINUED OPERATIONS
On January 21, 1999, we announced a plan to sell our Analytical Instruments
business. On March 8, 1999, we announced an agreement for the sale of this
business to EG&G, Inc. for $425 million. Under the terms of the agreement, we
will receive $275 million in cash and a $150 million one-year note. Accordingly,
the results have been reclassified from amounts previously reported and are
stated separately in the consolidated financial statements as discontinued
operations pending disposition. The Company expects to recognize a gain on
disposal. However, actual results could differ significantly depending on the
transaction costs incurred, the amount realized upon the sale of the business.
Summary results prior to discontinuance were as follows:
[Enlarge/Download Table]
FOR THE SIX MONTHS
FOR THE YEARS ENDED
JUNE 30, ENDED DECEMBER 31,
------------------------------- --------------------
(DOLLAR AMOUNTS IN MILLIONS) 1996 1997 1998 1997 1998
----------------------------------------------------------------- --------- --------- --------- --------- ---------
(UNAUDITED)
Net revenues..................................................... $ 606.7 $ 604.9 $ 586.8 $ 280.6 $ 261.1
Restructuring charges............................................ 71.6 13.0 -- -- --
Total costs and expenses......................................... 650.2 570.2 532.6 256.7 263.0
Provision (benefit) for income taxes............................. (5.7) 6.8 13.5 6.6 2.1
--------- --------- --------- --------- ---------
Income (loss) from discontinued operations....................... $ (37.8) $ 27.9 $ 40.7 $ 17.3 $ (4.0)
--------- --------- --------- --------- ---------
--------- --------- --------- --------- ---------
The components of net assets of discontinued operations included in the
Consolidated Statements of Financial Position are as follows:
[Enlarge/Download Table]
AT JUNE 30, AT DECEMBER 31,
--------------------
(DOLLAR AMOUNTS IN MILLIONS) 1997 1998 1998
-------------------------------------------------------------------------- --------- --------- ---------------
(UNAUDITED)
Current assets:
Accounts receivable, net................................................ $ 149.2 $ 145.9 $ 155.1
Inventories............................................................. 103.5 103.0 100.1
Prepaid expenses and other current assets............................... 25.9 35.2 39.6
Current liabilities:
Accounts payable........................................................ 45.8 45.7 46.4
Accrued expenses........................................................ 129.9 98.4 93.1
--------- --------- ------
CURRENT NET ASSETS........................................................ $ 102.9 $ 140.0 $ 155.3
--------- --------- ------
Long-term assets:
Property, plant and equipment, net...................................... $ 69.0 $ 95.1 $ 109.4
Other long-term assets.................................................. 35.2 37.7 39.9
Long-term liabilities:
Other long-term liabilities............................................. 56.2 55.1 61.1
--------- --------- ------
LONG-TERM NET ASSETS...................................................... $ 48.0 $ 77.7 $ 88.2
--------- --------- ------
NET ASSETS................................................................ $ 150.9 $ 217.7 $ 243.5
--------- --------- ------
--------- --------- ------
F-30
The cash flow provided (used) from discontinued operations was as follows:
[Enlarge/Download Table]
FOR THE SIX MONTHS
FOR THE YEARS ENDED ENDED
JUNE 30, DECEMBER 31,
------------------------------- --------------------
(DOLLAR AMOUNTS IN MILLIONS) 1996 1997 1998 1997 1998
------------------------------------------------------------------- --------- --------- --------- --------- ---------
(UNAUDITED)
OPERATING ACTIVITIES OF DISCONTINUED OPERATIONS
Income (loss) from discontinued operations......................... $ (37.8) $ 27.9 $ 40.7 $ 17.3 $ (4.0)
Adjustments to reconcile income (loss) from discontinued operations
to net cash provided (used) by operating activities from
discontinued operations:
Depreciation and amortization.................................. 28.0 18.2 17.2 9.3 9.5
Long-term compensation programs................................ 1.0 2.6 1.2 .5 .6
Deferred income taxes.......................................... 2.2 3.0 2.7 .4 (.3)
Provision for restructured operations and other charges........ 71.6 13.0 -- -- --
Impairment of assets........................................... -- 7.5 -- -- --
Net change in assets and liabilities............................... (19.1) (32.4) (51.7) (33.6) (10.6)
--------- --------- --------- --------- ---------
NET CASH PROVIDED (USED) BY OPERATING ACTIVITIES FROM DISCONTINUED
OPERATIONS....................................................... 45.9 39.8 10.1 (6.1) (4.8)
NET CASH USED BY INVESTING ACTIVITIES FROM DISCONTINUED
OPERATIONS....................................................... (15.9) (11.3) (40.6) (17.5) (21.6)
--------- --------- --------- --------- ---------
NET CASH FROM DISCONTINUED OPERATIONS BEFORE EFFECT OF EXCHANGE
RATE CHANGES ON CASH............................................. 30.0 28.5 (30.5) (23.6) (26.4)
EFFECT OF EXCHANGE RATE CHANGES ON CASH............................ 3.2 (.6) 4.4 2.8 (3.5)
--------- --------- --------- --------- ---------
CASH FLOW PROVIDED (USED) FROM DISCONTINUED OPERATIONS............. $ 33.2 $ 27.9 $ (26.1) $ (20.8) $ (29.9)
--------- --------- --------- --------- ---------
--------- --------- --------- --------- ---------
RESTRUCTURING
FISCAL 1996
The fiscal 1996 before-tax restructuring charge of $71.6 million was the
first phase of a plan focused on improving the profitability and cash flow
performance of the Analytical Instruments business. In connection with the plan,
the division was reorganized into three vertically integrated, fiscally
accountable operating units; a distribution center was established in Holland to
centralize the European infrastructure for shipping, administration, and related
functions; and a program was implemented to eliminate excess production capacity
in Germany. The charge included $37.8 million for worldwide workforce reductions
of approximately 390 positions in manufacturing, sales and support, and
administrative functions. The charge also included $33.8 million for facility
consolidation and asset-related write-offs associated with the discontinuation
of various product lines.
In fiscal 1996, the Company transferred the development and manufacturing of
certain analytical instrument product lines from its facility in Germany to
other sites, primarily in the United States. The facility in Germany remains the
principal site for the development of atomic absorption products.
In fiscal 1996, a distribution center in Holland was established to provide
an integrated sales, shipment, and administration support infrastructure for the
Company's European operations and to integrate certain operating and business
activities. The European distribution center includes certain administrative,
financial, and information systems functions previously transacted at individual
locations throughout Europe.
In the fourth quarter of fiscal 1997, the Company finalized actions
associated with the restructuring plan announced in fiscal 1996. The costs to
implement the program were $11.2 million below the $71.6 million charge recorded
in fiscal 1996. As a result, during the fourth quarter of fiscal 1997, the
Company recorded an $11.2 million reduction of charges required to implement the
fiscal 1996 plan.
F-31
The following table details the major components of the $71.6 million fiscal
1996 restructuring provision:
[Enlarge/Download Table]
FACILITY CONSOLIDATION
AND
(DOLLAR AMOUNTS IN MILLIONS) PERSONNEL ASSET RELATED WRITE-OFFS TOTAL
--------------------------------------------------------------------- ------------- --------------------------- ---------
Provision:
Reduction of excess European manufacturing capacity.................. $ 19.7 $ 23.0 $ 42.7
Reduction of European distribution and administrative capacity....... 11.5 6.0 17.5
Other worldwide workforce reductions and facility closings........... 6.6 4.8 11.4
----- ----- ---------
Total provision...................................................... $ 37.8 $ 33.8 $ 71.6
----- ----- ---------
Fiscal 1996 activity:
Reduction of excess European manufacturing capacity.................. $ 2.1 $ 6.7 $ 8.8
Reduction of European distribution and administrative capacity....... 1.6 .7 2.3
Other worldwide workforce reductions and facility closings........... 1.9 1.6 3.5
----- ----- ---------
Total fiscal 1996 activity........................................... $ 5.6 $ 9.0 $ 14.6
----- ----- ---------
Fiscal 1997 activity:
Reduction of excess European manufacturing capacity.................. $ 10.9 $ 6.6 $ 17.5
Adjustment to decrease liabilities originally accrued for excess
European manufacturing capacity.................................... 4.7 6.5 11.2
Reduction of European distribution and administrative capacity....... 6.2 4.4 10.6
Other worldwide workforce reductions and facility closings........... 1.9 2.0 3.9
----- ----- ---------
Total fiscal 1997 activity........................................... $ 23.7 $ 19.5 $ 43.2
----- ----- ---------
Fiscal 1998 activity:
Reduction of excess European manufacturing capacity.................. $ 2.0 $ 3.2 $ 5.2
Reduction of European distribution and administrative capacity....... 3.7 .9 4.6
Other worldwide workforce reductions and facility closings........... 2.8 1.2 4.0
----- ----- ---------
Total fiscal 1998 activity........................................... $ 8.5 $ 5.3 $ 13.8
----- ----- ---------
Balance at June 30, 1998............................................. $ -- $ -- $ --
----- ----- ---------
----- ----- ---------
As of June 30, 1998 all costs associated with the 1996 restructuring plans
have been incurred.
FISCAL 1997
During the fourth quarter of fiscal 1997, the Company announced a follow-on
phase to Analytical Instruments' profit improvement program begun by the Company
in fiscal 1996. The cost for this action was $24.2 million before-tax, and
included $19.4 million for costs focused on further improving the operating
efficiency of manufacturing facilities in the United States, Germany, and the
United Kingdom. These actions were designed to help transition Analytical
Instruments from a highly vertical manufacturing operation to one that relies
more on outsourcing functions not considered core competencies. The
restructuring charge also included $4.8 million to finalize the consolidation of
sales and administrative support, primarily in Europe, where 17 facilities were
closed.
The workforce reductions under this plan total approximately 285 employees
in production labor and 25 employees in sales and administrative support. The
charge included $11.9 million for severance-related costs. The $12.3 million
provided for facility consolidation and asset-related write-offs included $1.2
million for lease termination payments and $11.1 million for the write-off of
machinery, equipment, and tooling associated with those functions to be
outsourced.
F-32
The following table details the major components of the fiscal 1997
restructuring provision:
[Enlarge/Download Table]
FACILITY
CONSOLIDATION
AND ASSET
RELATED
(DOLLAR AMOUNTS IN MILLIONS) PERSONNEL WRITE-OFFS TOTAL
------------------------------------------------------------------------------- ----------- --------------- ---------
Provision:
Changes in manufacturing operations............................................ $ 9.6 $ 9.8 $ 19.4
Consolidation of sales and administrative support.............................. 2.3 2.5 4.8
----- ----- ---------
Total provision................................................................ $ 11.9 $ 12.3 $ 24.2
----- ----- ---------
Fiscal 1997 activity:
Changes in manufacturing operations............................................ $ .1 $ 4.6 $ 4.7
Consolidation of sales and administrative support..............................
----- ----- ---------
Total fiscal 1997 activity..................................................... $ .1 $ 4.6 $ 4.7
----- ----- ---------
Fiscal 1998 activity:
Changes in manufacturing operations............................................ $ 7.8 $ 4.9 $ 12.7
Consolidation of sales and administrative support.............................. 1.3 1.1 2.4
----- ----- ---------
Total fiscal 1998 activity..................................................... $ 9.1 $ 6.0 $ 15.1
----- ----- ---------
Fiscal 1999 activity:
Changes in manufacturing operations............................................ $ 1.6 $ .2 $ 1.8
Consolidation of sales and administrative support.............................. .7 .3 1.0
----- ----- ---------
Total fiscal 1999 activity (unaudited)......................................... $ 2.3 $ .5 $ 2.8
----- ----- ---------
Balance at December 31, 1998:
Changes in manufacturing operations............................................ $ .1 $ .1 $ .2
Consolidation of sales and administrative support.............................. .3 1.1 1.4
----- ----- ---------
Balance at December 31, 1998 (unaudited)....................................... $ .4 $ 1.2 $ 1.6
----- ----- ---------
----- ----- ---------
INCOME TAXES
Income (loss) before income taxes of discontinued operations for fiscal
1996, 1997, and 1998 is summarized below:
[Enlarge/Download Table]
(DOLLAR AMOUNTS IN MILLIONS) 1996 1997 1998
-------------------------------------------------------------------------------------- --------- --------- ---------
United States......................................................................... $ 2.0 $ 22.7 $ 34.1
Foreign............................................................................... (45.5) 12.0 20.1
--------- --------- ---------
Total................................................................................. $ (43.5) $ 34.7 $ 54.2
--------- --------- ---------
--------- --------- ---------
F-33
The components of the provision (benefit) for income taxes of discontinued
operations for fiscal 1996, 1997, and 1998 consisted of the following:
[Enlarge/Download Table]
(DOLLAR AMOUNTS IN MILLIONS) 1996 1997 1998
-------------------------------------------------------------------------------------- --------- --------- ---------
Currently payable:
Domestic............................................................................ $ (2.0) $ (1.0) $ (3.7)
Foreign............................................................................. 8.7 5.1 7.8
--------- --------- ---------
Total currently payable............................................................. 6.7 4.1 4.1
Deferred:
Domestic............................................................................ (7.8) 4.8 4.9
Foreign............................................................................. (4.6) (2.1) 4.5
--------- --------- ---------
Total deferred...................................................................... (12.4) 2.7 9.4
--------- --------- ---------
Provision (benefit) for income taxes from discontinued operations..................... $ (5.7) $ 6.8 $ 13.5
--------- --------- ---------
--------- --------- ---------
In the fiscal years 1996, 1997 and 1998, the effective tax rates for the
discontinued operations were 13%, 20% and 25%, respectively. The difference
between the effective tax rate and the statutory tax rate of 35% was mainly
attributable to benefits from the use of U.S. alternative minimum tax credit
carryforwards, the benefits from the use of a foreign sales corporation and
federal research tax credits, and restructuring charges.
F-34
REPORT OF INDEPENDENT ACCOUNTANTS
To the Shareholders and Board of Directors of
The Perkin-Elmer Corporation
In our opinion, the accompanying combined statements of financial position and
the related combined statements of operations, of group equity and comprehensive
income (loss), and of cash flows present fairly, in all material respects, the
financial position of the PE Biosystems Group of The Perkin-Elmer Corporation at
June 30, 1998 and 1997, and the results of its operations and its cash flows for
each of the three fiscal years in the period ended June 30, 1998, in conformity
with generally accepted accounting principles. These financial statements are
the responsibility of the management of The Perkin-Elmer Corporation; our
responsibility is to express an opinion on these financial statements based on
our audits. We conducted our audits of these statements in accordance with
generally accepted auditing standards which require that we plan and perform the
audit to obtain reasonable assurance about whether the financial statements are
free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements,
assessing the accounting principles used and significant estimates made by
management, and evaluating the overall financial statement presentation. We
believe that our audits provide a reasonable basis for the opinion expressed
above.
As described above and more fully in Note 1 to the PE Biosystems Group combined
financial statements, the PE Biosystems Group is a group of The Perkin-Elmer
Corporation; accordingly, the combined financial statements of the PE Biosystems
Group should be read in conjunction with the audited financial statements of The
Perkin-Elmer Corporation.
PricewaterhouseCoopers LLP
Stamford, Connecticut
July 31, 1998, except as to Note 15
which is as of March 8, 1999
F-35
PE BIOSYSTEMS GROUP
COMBINED STATEMENTS OF OPERATIONS
[Enlarge/Download Table]
FOR THE SIX MONTHS
ENDED
FOR THE YEARS ENDED JUNE 30, DECEMBER 31,
(DOLLAR AMOUNTS IN THOUSANDS ---------------------------------- ----------------------
EXCEPT PER SHARE AMOUNTS) 1996 1997 1998 1997 1998
----------------------------------------------------- ---------- ---------- ---------- ---------- ----------
(UNAUDITED)
NET REVENUES......................................... $ 642,059 $ 767,465 $ 940,095 $ 409,385 $ 547,431
Cost of sales........................................ 318,038 361,315 431,738 188,313 244,582
---------- ---------- ---------- ---------- ----------
GROSS MARGIN......................................... 324,021 406,150 508,357 221,072 302,849
---------- ---------- ---------- ---------- ----------
Selling, general and administrative.................. 187,644 227,687 276,674 125,451 153,613
Research, development and engineering................ 62,223 78,141 105,485 45,581 65,564
Restructuring and other merger costs................. 17,454 -- 43,980 -- 1,979
Acquired research and development.................... 31,812 -- 28,850 28,850 --
---------- ---------- ---------- ---------- ----------
OPERATING INCOME..................................... 24,888 100,322 53,368 21,190 81,693
Gain on investments.................................. 11,704 64,850 1,605 845
Interest expense..................................... 8,444 5,859 4,905 2,701 2,140
Interest income...................................... 5,376 8,826 5,938 3,900 738
Other income (expense), net.......................... (2,053) 1,881 3,147 1,291 (539)
---------- ---------- ---------- ---------- ----------
INCOME BEFORE INCOME TAXES........................... 31,471 170,020 59,153 24,525 79,752
Provision for income taxes........................... 27,572 37,281 29,547 12,144 22,447
Minority interest.................................... -- -- 5,597 -- 8,212
---------- ---------- ---------- ---------- ----------
INCOME FROM CONTINUING OPERATIONS.................... 3,899 132,739 24,009 12,381 49,093
INCOME (LOSS) FROM DISCONTINUED OPERATIONS (NET OF
INCOME TAXES)...................................... (37,833) 27,906 40,694 17,278 (4,037)
---------- ---------- ---------- ---------- ----------
NET INCOME (LOSS).................................... $ (33,934) $ 160,645 $ 64,703 $ 29,659 $ 45,056
---------- ---------- ---------- ---------- ----------
---------- ---------- ---------- ---------- ----------
UNAUDITED PRO FORMA INCOME PER SHARE FROM CONTINUING
OPERATIONS (SEE NOTE 1):
Basic................................................ $ .49 $ .99
Diluted.............................................. $ .48 $ .97
UNAUDITED PRO FORMA INCOME (LOSS) PER SHARE FROM
DISCONTINUED OPERATIONS
(SEE NOTE 1):
Basic................................................ $ .84 $ (.08)
Diluted.............................................. $ .81 $ (.08)
UNAUDITED PRO FORMA NET INCOME PER SHARE (SEE NOTE
1):
Basic................................................ $ 1.33 $ .91
Diluted.............................................. $ 1.29 $ .89
SEE ACCOMPANYING NOTES TO THE PE BIOSYSTEMS GROUP COMBINED FINANCIAL STATEMENTS.
F-36
PE BIOSYSTEMS GROUP
COMBINED STATEMENTS OF FINANCIAL POSITION
[Enlarge/Download Table]
AT JUNE 30,
--------------------------
(DOLLAR AMOUNTS IN THOUSANDS) 1997 1998
----------------------------------------------------------------------- ------------ ------------ AT
DECEMBER 31,
1998
-------------
(UNAUDITED)
ASSETS
Current assets
Cash and cash equivalents............................................ $ 213,028 $ 82,865 $ 75,479
Short-term investments............................................... 4,194 1,226 --
Accounts receivable, less allowances for doubtful accounts of $3,840,
$5,206, and $5,030 at June 30, 1997 and 1998, and December 31, 1998
(unaudited)........................................................ 178,483 228,229 259,923
Inventories.......................................................... 111,069 137,015 160,179
Prepaid expenses and other current assets............................ 63,465 61,835 68,720
Current net assets of discontinued operations........................ 102,870 139,959 155,329
------------ ------------ -------------
Total current assets................................................... 673,109 651,129 719,630
Property, plant and equipment, net..................................... 127,301 159,476 172,934
Other long-term assets................................................. 155,351 240,572 243,736
Long-term net assets of discontinued operations........................ 48,049 77,760 88,205
------------ ------------ -------------
TOTAL ASSETS........................................................... $ 1,003,810 $ 1,128,937 $ 1,224,505
------------ ------------ -------------
------------ ------------ -------------
LIABILITIES AND GROUP EQUITY
Current liabilities
Loans payable........................................................ $ 29,916 $ 12,099 $ 31,291
Note payable to the Celera Genomics Group (see Note 7)............... -- -- 311,281
Tax benefit payable to the Celera Genomics Group (See Note 1)........ -- -- 4,376
Accounts payable..................................................... 85,367 119,067 107,582
Accrued salaries and wages........................................... 26,419 29,800 26,726
Accrued taxes on income.............................................. 98,307 79,860 84,803
Other accrued expenses............................................... 77,937 121,152 138,161
------------ ------------ -------------
Total current liabilities.............................................. 317,946 361,978 704,220
Long-term debt......................................................... 59,152 33,726 35,548
Other long-term liabilities............................................ 118,978 123,969 132,013
------------ ------------ -------------
Total liabilities...................................................... 496,076 519,673 871,181
------------ ------------ -------------
Minority interest...................................................... -- 43,757 54,773
Commitments and contingencies (see Note 11)
Group equity........................................................... 507,734 565,507 297,951
------------ ------------ -------------
TOTAL LIABILITIES AND GROUP EQUITY..................................... $ 1,003,810 $ 1,128,937 $ 1,224,505
------------ ------------ -------------
------------ ------------ -------------
SEE ACCOMPANYING NOTES TO THE PE BIOSYSTEMS GROUP COMBINED FINANCIAL STATEMENTS.
F-37
PE BIOSYSTEMS GROUP
COMBINED STATEMENTS OF CASH FLOWS
[Enlarge/Download Table]
FOR THE SIX MONTHS
FOR THE YEARS ENDED JUNE 30, ENDED DECEMBER 31,
------------------------------- --------------------
(DOLLAR AMOUNTS IN THOUSANDS) 1996 1997 1998 1997 1998
------------------------------------------------------------------- --------- --------- --------- --------- ---------
(UNAUDITED)
OPERATING ACTIVITIES FROM CONTINUING OPERATIONS
Income from continuing operations.................................. $ 3,899 $ 132,739 $ 24,009 $ 12,381 $ 49,093
Adjustments to reconcile income from continuing operations to net
cash
provided by operating activities:
Depreciation and amortization.................................. 23,522 25,405 35,278 13,637 22,064
Long-term compensation programs................................ 4,058 9,103 6,853 2,543 2,411
Deferred income taxes.......................................... (15,342) (40,819) 10,234 (1,700) 1,600
Gains from the sale of assets.................................. (11,704) (66,636) (3,052) (900) --
Provision for restructured operations and other merger costs... 17,454 -- 48,080 -- --
Acquired research and development.............................. 31,812 -- 28,850 28,850 --
Impairment of assets........................................... 9,906 -- -- -- --
Changes in operating assets and liabilities:
Increase in accounts receivable.................................. (42,516) (43,169) (23,153) (13,602) (26,956)
Increase in inventories.......................................... (20,447) (4,421) (21,362) (18,999) (17,854)
Increase in prepaid expenses and other assets.................... (322) (6,712) (30,858) (14,298) (13,425)
Increase in accounts payable and other liabilities............... 44,746 71,009 68 14,209 15,689
--------- --------- --------- --------- ---------
NET CASH PROVIDED BY OPERATING ACTIVITIES.......................... 45,066 76,499 74,947 22,121 32,622
--------- --------- --------- --------- ---------
INVESTING ACTIVITIES FROM CONTINUING OPERATIONS
Additions to property, plant and equipment (net of disposals of
$4,727, $5,738, $11,339, $1,342 (unaudited) and $581 (unaudited),
respectively).................................................... (22,398) (51,908) (56,833) (37,392) (38,831)
Acquisitions and investments, net.................................. (117,123) (5,000) (97,998) (90,633) --
Proceeds from the sale of assets, net.............................. 102,318 99,710 19,496 6,532 14,301
Proceeds from the collection of notes receivable................... -- 4,978 9,673 9,673 --
Proceeds from short-term investments............................... 5,773 -- -- -- --
--------- --------- --------- --------- ---------
NET CASH PROVIDED (USED) BY INVESTING ACTIVITIES................... (31,430) 47,780 (125,662) (111,820) (24,530)
--------- --------- --------- --------- ---------
NET CASH FROM CONTINUING OPERATIONS BEFORE FINANCING ACTIVITIES.... 13,918 126,134 (46,237) (88,478) 8,092
--------- --------- --------- --------- ---------
DISCONTINUED OPERATIONS
Net cash provided (used) by operating activities................... 45,903 39,781 10,084 (6,119) (4,778)
Net cash used by investing activitives............................. (15,911) (11,315) (40,639) (17,520) (21,595)
--------- --------- --------- --------- ---------
NET CASH FROM DISCONTINUED OPERATIONS BEFORE FINANCING
ACTIVITIES....................................................... 29,992 28,466 (30,555) (23,639) (26,373)
--------- --------- --------- --------- ---------
FINANCING ACTIVITIES
Net change in loans payable........................................ (17,040) (4,914) (6,797) 2,875 15,579
Proceeds from long-term debt....................................... -- 31,033 -- -- 803
Principal payments on long-term debt............................... -- (22,908) (25,449) -- (5,297)
Dividends paid on Perkin-Elmer Common Stock........................ (29,095) (29,459) (39,072) (14,992) (8,396)
Purchases of Perkin-Elmer Common Stock for treasury................ (41,028) (25,126) -- -- --
Proceeds from issuance of equity put warrants
on Perkin-Elmer Common Stock..................................... -- 1,846 -- -- --
Proceeds from stock issued for Perkin-Elmer Common Stock plans..... 64,954 33,637 33,629 6,311 37,890
Net cash allocated to the Celera Genomics Group.................... (3,200) (26,172) (10,520) (3,318) (8,535)
Payments on note payable to the Celera Genomics Group.............. -- -- -- -- (18,719)
--------- --------- --------- --------- ---------
NET CASH PROVIDED (USED) BY FINANCING ACTIVITIES................... (25,409) (42,063) (48,209) (9,124) 13,325
--------- --------- --------- --------- ---------
Elimination of PerSeptive results from
July 1, 1997 to September 30, 1997 (see Note 1).................. -- -- 2,590 2,590 --
EFFECT OF EXCHANGE RATE CHANGES ON CASH............................ (2,699) 1,601 (3,274) 631 (2,430)
--------- --------- --------- --------- ---------
NET CHANGE IN CASH AND CASH EQUIVALENTS............................ 15,520 112,283 (130,163) (119,241) (7,386)
CASH AND CASH EQUIVALENTS BEGINNING OF PERIOD...................... 85,225 100,745 213,028 213,028 82,865
--------- --------- --------- --------- ---------
CASH AND CASH EQUIVALENTS END OF PERIOD............................ $ 100,745 $ 213,028 $ 82,865 $ 93,787 $ 75,479
--------- --------- --------- --------- ---------
--------- --------- --------- --------- ---------
SEE ACCOMPANYING NOTES TO THE PE BIOSYSTEMS GROUP COMBINED FINANCIAL STATEMENTS.
F-38
PE BIOSYSTEMS GROUP
COMBINED STATEMENTS OF GROUP EQUITY AND COMPREHENSIVE INCOME (LOSS)
[Enlarge/Download Table]
ACCUMULATED
OTHER
RETAINED COMPREHENSIVE GROUP
(DOLLAR AMOUNTS IN THOUSANDS) OTHER EARNINGS INCOME (LOSS) EQUITY
-------------------------------------------------------------------- --------- ----------- --------------- ---------
BALANCE AT JUNE 30, 1995............................................ $ 251,481 $ 142,741 $ (24,415) $ 369,807
---------
Comprehensive loss
Net loss.......................................................... -- (33,934) -- (33,934)
Other comprehensive income, net of tax
Foreign currency translation adjustments........................ -- -- (10,957)
Minimum pension liability adjustment............................ -- -- 5,080
Unrealized gain on investments, net............................. -- -- 23,175
---------------
Other comprehensive income........................................ -- -- 17,298 17,298
---------
Comprehensive loss.................................................. -- -- -- (16,636)
---------
Cash dividends declared on Perkin-Elmer Common Stock................ -- (29,095) -- (29,095)
Share repurchases of Perkin-Elmer Common Stock...................... (41,028) -- -- (41,028)
Shares issued under Perkin-Elmer Common Stock plans................. 52,583 (5,627) -- 46,956
Tax benefit related to Perking-Elmer employee stock options......... 5,280 -- -- 5,280
Perkin-Elmer restricted stock plan.................................. 5,072 -- -- 5,072
Perkin-Elmer Common Stock issued for acquisitions................... 35,873 -- -- 35,873
Net cash allocated to the Celera Genomics Group..................... (3,200) (3,200)
Other............................................................... 2,064 (1,977) -- 87
--------- ----------- --------------- ---------
BALANCE AT JUNE 30, 1996............................................ 308,125 72,108 (7,117) 373,116
---------
Comprehensive income
Net income........................................................ -- 160,645 -- 160,645
Other comprehensive income, net of tax
Foreign currency translation adjustments........................ -- -- (4,125)
Minimum pension liability adjustment............................ -- -- 28,660
Unrealized gain on investments, net............................. -- -- 3,156
Sale of equity investment....................................... -- -- (23,245)
---------------
Other comprehensive income........................................ -- -- 4,446 4,446
---------
Comprehensive income................................................ -- -- -- 165,091
---------
Cash dividends declared on Perkin-Elmer Common Stock................ -- (29,536) -- (29,536)
Share repurchases of Perkin-Elmer Common Stock...................... (25,126) -- -- (25,126)
Shares issued under Perkin-Elmer Common Stock plans................. 33,741 (1,459) -- 32,282
Tax benefit related to Perkin-Elmer employee stock options.......... 4,568 -- -- 4,568
Perkin-Elmer restricted stock plan.................................. 11,678 -- -- 11,678
Sale of equity put warrants on Perkin-Elmer Common Stock............ 1,846 -- -- 1,846
Net cash allocated to the Celera Genomics Group..................... (26,172) -- -- (26,172)
Other............................................................... 1,427 (1,440) -- (13)
--------- ----------- --------------- ---------
BALANCE AT JUNE 30, 1997............................................ 310,087 200,318 (2,671) 507,734
---------
Comprehensive income
Net income........................................................ -- 64,703 -- 64,703
Other comprehensive loss, net of tax
Foreign currency translation adjustments........................ -- -- (2,747)
Minimum pension liability adjustment............................ -- -- 354
Unrealized loss on investments, net............................. -- -- (4,449)
---------------
Other comprehensive loss.......................................... -- -- (6,842) (6,842)
---------
Comprehensive income................................................ -- -- -- 62,339
---------
Cash dividends declared on Perkin-Elmer Common Stock................ -- (31,604) -- (31,604)
Shares issued under Perkin-Elmer Common Stock plans................. 39,143 (3,468) -- 35,675
Tax benefit related to Perkin-Elmer employee stock options.......... 2,335 -- -- 2,335
Perkin-Elmer restricted stock plan.................................. 1,858 (136) -- 1,722
Elimination of PerSeptive results from July 1, 1997 to September 30,
1997.............................................................. -- 2,590 -- 2,590
Net cash allocated to the Celera Genomics Group..................... (10,520) -- -- (10,520)
Other............................................................... -- (286) -- (286)
--------- ----------- --------------- ---------
BALANCE AT JUNE 30, 1998............................................ 342,903 232,117 (9,513) 565,507
--------- ----------- --------------- ---------
Comprehensive income
Net income........................................................ -- 45,056 -- 45,056
Other comprehensive income, net of tax
Foreign currency translation adjustments........................ -- -- 5,026
Unrealized gain on investments, net............................. -- -- 2,653
---------------
Other comprehensive income........................................ -- -- 7,679 7,679
---------
Comprehensive income................................................ -- -- -- 52,735
---------
Cash dividends declared on Perkin-Elmer Common Stock................ -- (16,870) -- (16,870)
Shares issued under Perkin-Elmer Common Stock plans................. 45,354 (10,514) -- 34,840
Perkin-Elmer restricted stock plan.................................. (933) 1,207 -- 274
Net cash allocated to the Celera Genomics Group..................... (8,535) -- -- (8,535)
Note payable to the Celera Genomics Group........................... (330,000) -- -- (330,000)
--------- ----------- --------------- ---------
BALANCE AT DECEMBER 31, 1998 (UNAUDITED)............................ $ 48,789 $ 250,996 $ (1,834) $ 297,951
--------- ----------- --------------- ---------
--------- ----------- --------------- ---------
SEE ACCOMPANYING NOTES TO THE PE BIOSYSTEMS GROUP COMBINED FINANCIAL STATEMENTS.
F-39
NOTES TO COMBINED FINANCIAL STATEMENTS
NOTE 1 ACCOUNTING POLICIES AND PRACTICES
BASIS OF PRESENTATION
The Perkin-Elmer Corporation ("Perkin-Elmer" or the "Company") is comprised
of two separate business segments in continuing operations: PE Biosystems and
the Celera Genomics business. PE Biosystems manufactures and markets biochemical
instrument systems and associated consumable products for life science research
and related applications. The Celera Genomics business was formed by the Company
and Dr. J. Craig Venter of The Institute for Genomic Research for the purpose of
generating and commercializing genomic information to accelerate the
understanding of biological processes and assisting pharmaceutical,
biotechnology and life science research entities.
The Board of Directors (the "Board") of the Company has recommended
shareholder approval of the Recapitalization Proposal that would result in The
Perkin-Elmer Corporation merging with a subsidiary of PE Corporation, a new
Delaware Corporation, and the issuance to stockholders in the merger of two new
classes of common stock called PE Corporation-PE Biosystems Group Common Stock
("PE Biosystems Stock") and PE Corporation-Celera Genomics Group Common Stock
("Celera Genomics Stock"). PE Biosystems Stock is intended to reflect separately
the performance of the established PE Biosystems' life sciences and the
discontinued Analytical Instruments businesses ("PE Biosystems Group"), and
Celera Genomics Stock is intended to reflect separately the performance of the
Celera Genomics business ("Celera Genomics Group"). Each share of existing
Perkin-Elmer common stock will be converted into one share of PE Biosystems
Stock and 0.5 of a share of Celera Genomics Stock. As used herein,
"Perkin-Elmer" or the "Company" means, with respect to events after the
Recapitalization, the new Delaware company that will issue PE Biosystems Stock
and Celera Genomics Stock.
The combined financial statements of the PE Biosystems Group and the Celera
Genomics Group (individually referred to as a "Group") comprise all of the
accounts included in the corresponding consolidated financial statements of the
Company. The separate Group combined financial statements give effect to the
accounting policies that will be applicable upon implementation of the
Recapitalization Proposal. The separate PE Biosystems Group and Celera Genomics
Group combined financial statements have been prepared on a basis that
management believes to be reasonable and appropriate and reflect (1) the
financial position, results of operations, and cash flows of businesses that
comprise each of the Groups, with all significant intragroup transactions and
balances eliminated, (2) in the case of the Celera Genomics Group combined
financial statements, corporate assets and liabilities of the Company and
related transactions identified with the Celera Genomics Group, including
allocated portions of the Company's debt and selling, general and administrative
costs, and (3) in the case of the PE Biosystems Group's combined financial
statements, all other corporate assets and liabilities and related transactions
of the Company, including allocated portions of the Company's debt and selling,
general and administrative costs. Intergroup transactions between the PE
Biosystems Group and the Celera Genomics Group have not been eliminated in the
PE Biosystems Group's combined financial statements.
Holders of PE Biosystems Stock and Celera Genomics Stock will be
stockholders of a single company. The PE Biosystems Group and the Celera
Genomics Group are not separate legal entities. As a result, stockholders will
continue to be subject to all of the risks associated with an investment in the
Company and all of its businesses, assets, and liabilities. The issuance of PE
Biosystems Stock and Celera Genomics Stock and the allocations of assets and
liabilities between the PE Biosystems Group and the Celera Genomics Group will
not result in a distribution or spin-off of any assets or liabilities of the
Company or otherwise affect ownership of any assets or responsibility for the
liabilities of the Company or any of its subsidiaries. The assets the Company
attributes to one Group
F-40
could be subject to the liabilities of the other Group, whether such liabilities
arise from lawsuits, contracts or indebtedness attributable to the other Group.
If the Company is unable to satisfy one Group's liabilities out of assets
attributed to it, the Company may be required to satisfy these liabilities with
assets attributed to the other Group.
Financial effects arising from one Group that affect the Company's results
of operations or financial condition could, if significant, affect the results
of operations or financial condition of the other Group and the market price of
the class of common stock relating to the other Group. Any net losses of the PE
Biosystems Group or the Celera Genomics Group and dividends or distributions on,
or repurchases of, PE Biosystems Stock or Celera Genomics Stock or repurchases
of preferred stock of the Company will reduce the assets of the Company legally
available for payment of dividends on PE Biosystems Stock.
The management and allocation policies applicable to the preparation of the
financial statements of the PE Biosystems Group and the Celera Genomics Group
may be modified or rescinded, or additional policies may be adopted, at the sole
discretion of the Board at any time without approval of the stockholders. The PE
Biosystems Group's combined financial statements reflect the application of the
management and allocation policies adopted by the Board to various corporate
activities, as described below. The PE Biosystems Group's combined financial
statements should be read in conjunction with the Company's consolidated
financial statements.
FINANCING ACTIVITIES
As a matter of policy, the Company manages most financial activities of the
PE Biosystems Group and the Celera Genomics Group on a centralized basis. These
activities include the investment of surplus cash, the issuance and repayment of
short-term and long-term debt and the issuance and repayment of any preferred
stock. As the results of the Celera Genomics Group were not significant for any
of the periods presented, all historical cash and debt balances for the periods
presented have been allocated to the PE Biosystems Group.
The Board has adopted the following financing policy which will affect the
combined statements of the PE Biosystems Group and the Celera Genomics Group.
The Company will allocate the Company's debt between the PE Biosystems Group
and the Celera Genomics Group ("pooled debt") or, if the Company so determines,
in its entirety to a particular Group. The Company will allocate preferred
stock, if issued, in a similar manner.
Cash allocated to one Group that is used to repay pooled debt or redeem
pooled preferred stock will decrease such Group's allocated portion of the
pooled debt or preferred stock. Cash or other property allocated to one Group
that is transferred to the other Group will, if so determined by the Board,
decrease the transferring Group's allocated portion of the pooled debt or
preferred stock and, correspondingly, increase the recipient Group's allocated
portion of the pooled debt or preferred stock.
Pooled debt will bear interest for Group financial statement purposes at a
rate equal to the weighted average interest rate of the debt calculated on a
quarterly basis and applied to the average pooled debt balance during the
period. Preferred stock, if issued and if pooled in a manner similar to the
pooled debt, will bear dividends for Group financial statement purposes at a
rate based on the weighted average dividend rate of the preferred stock
similarly calculated and applied. Any expense related to increases in pooled
debt or preferred stock will be reflected in the weighted average interest or
dividend rate of such pooled debt or preferred stock as a whole.
If the Company allocates debt for a particular financing in its entirety to
one Group, that debt will bear interest for Group financial statement purposes
at the rate determined by the Board. If the Company allocates preferred stock in
its entirety to one Group, the Company will charge the dividend cost to that
Group in a similar manner. If the interest or dividend cost is higher than the
Company's actual cost, the other
F-41
Group will receive a credit for an amount equal to the difference as
compensation for the use of the Company's credit capacity. Any expense related
to debt or preferred stock of the Company that is allocated in its entirety to a
Group will be allocated in whole to that Group.
Cash or other property that the Company allocates to one Group that is
transferred to the other Group, could, if so determined by the Board, be
accounted for either as a short-term loan or as a long-term loan. Short-term
loans will bear interest at a rate equal to the weighted average interest rate
of the Company's pooled debt. If the Company does not have any pooled debt, the
Board will determine the rate of interest for such loan. The Board will
establish the terms on which long-term loans between the Groups will be made,
including interest rate, amortization schedule, maturity and redemption terms.
Although the Company may allocate its debt and preferred stock between
Groups, the debt and preferred stock will remain obligations of the Company and
all stockholders of the Company will be subject to the risks associated with
those obligations.
In addition, following the effective time of the recapitalization, cash
allocated to the PE Biosystems Group may be contributed to the Celera Genomics
Group in exchange for Celera Genomics Group Designated Shares.
ALLOCATION OF CORPORATE OVERHEAD AND ADMINISTRATIVE SHARED SERVICES
A portion of the Company's corporate overhead (such as executive management,
human resources, legal, accounting, auditing, tax, treasury, strategic planning
and environmental services) has been allocated to the PE Biosystems Group based
upon the use of services by that Group. A portion of the Company's costs of
administrative shared services (such as information technology services) has
been allocated in a similar manner. Where determination based on use alone is
not practical, other methods and criteria were used that management believes are
equitable and provide a reasonable estimate of the cost attributable to the PE
Biosystems Group. The totals for these allocations were $27.7 million, $34.4
million and $38.1 million in fiscal 1996, 1997, and 1998, respectively. It is
not practicable to provide a detailed estimate of the expenses which would be
recognized if the PE Biosystems Group were a separate legal entity.
ALLOCATION OF FEDERAL AND STATE INCOME TAXES
The federal income taxes of the Company and its subsidiaries which own
assets allocated between the Groups are determined on a consolidated basis.
Consolidated federal income tax provisions and related tax payments or refunds
will be allocated between the Groups based principally on the taxable income and
tax credits directly attributable to each Group. Such allocations will reflect
each Group's contribution (positive or negative) to the Company's consolidated
federal taxable income and the consolidated federal tax liability and tax credit
position. Tax benefits that cannot be used by the Group generating those
benefits but can be used on a consolidated basis will be credited to the Group
that generated such benefits. Intergroup transactions will be taxed as if each
group were a stand alone Company. Tax benefits generated by the Celera Genomics
Group commencing July 1, 1998, which then can be utilized on a consolidated
basis, will be credited to the Celera Genomics Group up to a maximum limit of
$75 million. For the six months ended December 31, 1998, $6.3 million of tax
benefits were credited to the Celera Genomics Group.
Had the Groups filed separate tax returns, the provision for income taxes
and net income for each Group would not have differed from the amounts reported
in the Groups' combined statements of operations for the years ended June 30,
1996, 1997, and 1998 or for the three-month periods ended September 30, 1997 and
1998. However, the amount of current and deferred taxes and taxes payable or
refundable allocated to each Group in these historical combined financial
statements may differ from those that would have been allocated to each Group
had they filed separate income tax returns.
Depending on the tax laws of the respective jurisdictions, state and local
income taxes are
F-42
calculated on either a consolidated or combined basis between the Groups based
on their respective contribution to such consolidated or combined state taxable
incomes. State and local income tax provisions and related tax payments or
refunds which are determined on a separate corporation basis will be allocated
between the Groups in a manner designed to reflect the respective contributions
of the Groups to the Company's separate or local taxable income.
The discussion of the PE Biosystems Group's income taxes (see Note 4) should
be read in conjunction with the Company's consolidated financial statements and
notes thereto.
TRANSFERS OF ASSETS BETWEEN GROUPS
Transfers of assets can be made between groups without stockholder approval.
Such transfers will be made at fair value, as determined by our board of
directors. The consideration for such transfers may be paid by one Group to the
other in cash or other consideration, as determined by our board of directors.
DIVIDENDS
For purposes of the historical combined financial statements of the PE
Biosystems Group and the Celera Genomics Group, all dividends declared and paid
by the Company have been allocated to the PE Biosystems Group. The Company
initially intends to pay a dividend on PE Biosystems Stock but does not
anticipate paying dividends on Celera Genomics Stock for the foreseeable future.
PRINCIPLES OF COMBINATION
The PE Biosystems Group's combined financial statements have been prepared
in accordance with generally accepted accounting principles and, taken together
with the Celera Genomics Group's combined financial statements, comprise all the
accounts included in the corresponding consolidated financial statements of the
Company. The combined financial statements of each Group reflect the financial
condition, results of operations, and cash flows of the businesses included
therein. The combined financial statements of the PE Biosystems Group include
the accounts or assets of the Company specifically allocated to the PE
Biosystems Group. The preparation of the combined financial statements in
conformity with generally accepted accounting principles requires management to
make estimates and assumptions that affect the reported amounts of assets and
liabilities, disclosure of contingent assets and liabilities at the date of the
financial statements, and the reported amounts of revenues and expenses during
the reporting periods. Actual results could differ from those estimates.
On January 22, 1998, the Company acquired PerSeptive Biosystems, Inc.
("PerSeptive"). The acquisition has been accounted for as a pooling of interests
and, accordingly, the PE Biosystems Group's financial results have been restated
to include the combined operations (see Note 2). The PE Biosystems Group's
fiscal year ended June 30 and PerSeptive's fiscal year ended September 30. The
fiscal 1996 and 1997 Combined Statements of Operations combined the PE
Biosystems Group's results of operations for the years ended June 30, 1996 and
1997 with PerSeptive's results of operations for the fiscal years ended
September 30, 1996 and 1997, respectively. The fiscal 1998 Combined Statements
of Operations combined the PE Biosystems Group's operating results for the year
ended June 30, 1998 with PerSeptive's operating results for the nine months
ended June 30, 1998 and the three months ended September 30, 1997 (PerSeptive's
fiscal 1997 fourth quarter). In order to conform PerSeptive to a June 30 fiscal
year-end in fiscal 1998, PerSeptive's results of operations for the three months
ended September 30, 1997 have been included in the PE Biosystems Group's
Combined Statements of Operations for the fiscal years ended June 30, 1997 and
1998.
DISCONTINUED OPERATIONS
The PE Biosystems Group's combined financial statements have been restated
to reflect the net assets and operating results of the Analytical Instruments
business as discontinued operations pending disposition for all periods
presented (see Note 15). The net assets have
F-43
been reclassified in both the current and long-term asset sections of the
Combined Statements of Financial Position for all periods presented. The
operating results are reflected in the Combined Statements of Operations as
income (loss) from discontinued operations for all periods presented. The
accompanying notes, except Note 15, relate only to continuing operations.
RECENT ACCOUNTING STANDARDS
During the first quarter of fiscal 1999, the PE Biosystems Group adopted
Statement of Financial Accounting Standards ("SFAS") No. 130, "Reporting
Comprehensive Income." The provisions of this statement require disclosure of
total comprehensive income within the condensed financial statements of interim
periods and additional disclosures of the components of comprehensive income on
an annual basis. Total comprehensive income includes net income, foreign
currency translation adjustments, unrealized gains and losses on
available-for-sale investments, and minimum pension liability adjustment. The PE
Biosystems Group presents such information in its Combined Statements of Group
Equity and Comprehensive Income (Loss) and Note 14.
In June 1998, the Financial Accounting Standards Board ("FASB") issued SFAS
No. 133, "Accounting for Derivative Instruments and Hedging Activities." The
provisions of the statement require the recognition of all derivatives as either
assets or liabilities in the statement of financial position and the measurement
of those instruments at fair value. The accounting for changes in the fair value
of a derivative depends on the intended use of the derivative and the resulting
designation. The PE Biosystems Group is required to implement the statement in
the first quarter of fiscal 2000. Management is currently analyzing the
statement to determine the impact, if any, on the combined financial statements.
EARNINGS PER SHARE
Historical per share information is omitted from the Combined Statements of
Operations because PE Biosystems Stock was not part of the capital structure of
the Company for the periods presented. Following implementation of the
Recapitalization Proposal, earnings per share for PE Biosystems Stock will
reflect the terms of the new Delaware company's certificate of incorporation and
will be computed in accordance with SFAS No.128, "Earnings per Share." Basic
earnings per share will be computed by dividing net income for the period by the
weighted average number of shares of PE Biosystems Stock outstanding. Diluted
earnings per share will be computed by dividing net income for the period by the
weighted average number of shares of PE Biosystems Stock outstanding including
the dilutive effect of PE Biosystems Stock equivalents. Pro-forma earnings per
share, reflecting PE Biosystems Stock issued under the Recapitalization
Proposal, are presented in the PE Biosystems Group's Combined Statements of
Operations.
FOREIGN CURRENCY
Assets and liabilities of foreign operations, where the functional currency
is the local currency, are translated into U.S. dollars at the fiscal period-end
exchange rates. The related translation adjustments are recorded as a separate
component of Group equity. Foreign currency revenues and expenses are translated
using monthly average exchange rates prevailing during the period. Foreign
currency transaction gains and losses, as well as translation adjustments of
foreign operations where the functional currency is the U.S. dollar, are
included in net income. Transaction gains and (losses) for the periods ended
June 30, 1996, 1997, and 1998 were gains of $4.8 million, $1.5 million, and a
loss of $2.5 million, respectively.
DERIVATIVE FINANCIAL INSTRUMENTS
The Company uses derivative financial instruments to offset exposure to
market risks arising from changes in foreign currency exchange rates and
interest rates. Derivative financial instruments currently utilized by the
Company include foreign currency forward contracts, synthetic forward contracts,
foreign currency options, and an interest rate swap (see Note 12). All
historical combined financial
F-44
statement amounts have been allocated to the PE Biosystems Group.
CASH, SHORT-TERM INVESTMENTS, AND MARKETABLE SECURITIES
Cash equivalents consist of highly liquid debt instruments, time deposits,
and certificates of deposit with original maturities of three months or less.
Time deposits and certificates of deposit with original maturities of three
months to one year are classified as short-term investments. Short-term
investments, which include marketable securities, are recorded at cost, which
generally approximates market value.
ACCOUNTS RECEIVABLE
The Company periodically sells accounts receivable arising from business
conducted in Japan. During fiscal 1996, 1997 and 1998, the PE Biosystems Group
was allocated all cash proceeds received of $61.9 million, $65.7 million and
$98.8 million, respectively, from the sale of such receivables. The PE
Biosystems Group accounts for such sales in accordance with SFAS 125, "Acounting
for Transfers and Servicing of Financial Assets and Extinguishment of
Liabilities" and believes it has adequately provided for any risk of loss that
may occur under these arrangements.
INVESTMENTS
The equity method of accounting is used for investments in joint ventures
that are 50% owned or less. Minority equity investments are classified as
available-for-sale and carried at market value in accordance with SFAS No. 115,
"Accounting for Certain Investments in Debt and Equity Securities."
INVENTORIES
Inventories are stated at the lower of cost (on a first-in, first-out basis)
or market. Inventories at June 30, 1997 and 1998, and December 31, 1998,
included the following components:
[Download Table]
JUNE 30,
(DOLLAR AMOUNTS IN --------------------
MILLIONS) 1997 1998
------------------------- --------- --------- DECEMBER 31,
1998
---------------
(UNAUDITED)
Raw materials and
supplies............... $ 25.2 $ 45.2 $ 52.8
Work-in-process.......... 6.1 7.3 9.8
Finished products........ 79.8 84.5 97.6
--------- --------- ------
Total inventories........ $ 111.1 $ 137.0 $ 160.2
--------- --------- ------
--------- --------- ------
PROPERTY, PLANT, AND EQUIPMENT AND DEPRECIATION
Property, plant and equipment are recorded at cost and consisted of the
following at June 30, 1997 and 1998:
[Download Table]
(DOLLAR AMOUNTS IN MILLIONS) 1997 1998
------------------------------------- --------- ---------
Land................................. $ 13.3 $ 12.0
Buildings and leasehold
improvements....................... 79.3 92.3
Machinery and equipment.............. 124.3 173.2
--------- ---------
Property, plant and equipment, at
cost............................... 216.9 277.5
Accumulated depreciation and
amortization....................... 89.6 118.0
--------- ---------
Property, plant and equipment, net... $ 127.3 $ 159.5
--------- ---------
--------- ---------
Major renewals and improvements that significantly add to productive
capacity or extend the life of an asset are capitalized. Repairs, maintenance
and minor renewals, and improvements are expensed when incurred. Machinery and
equipment included capitalized internal-use software, primarily related to the
Company's worldwide strategic program to improve its information technology
infrastructure, of $9.5 million and $43.3 million at June 30, 1997 and 1998,
respectively.
Provisions for depreciation of owned property, plant and equipment are based
upon the expected useful lives of the assets and computed primarily by the
straight-line method. Leasehold improvements are amortized over their estimated
useful lives or the term of the applicable lease, whichever is less, using the
straight-line method. Internal-use software costs are amortized primarily over
the expected useful lives, not to exceed seven years.
CAPITALIZED SOFTWARE
Internal software development costs incurred from the time technological
feasibility
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of the software is established until the software is ready for its intended use
are capitalized and included in other long-term assets. Research and development
costs and other computer software maintenance costs related to software
development are expensed as incurred. The costs are amortized using the
straight-line method over a maximum of three years or the expected life of the
product, whichever is less. At June 30, 1997, capitalized software costs were
not material. At June 30, 1998, capitalized software costs, net of accumulated
amortization, were $4.4 million.
INTANGIBLE ASSETS
The excess of purchase price over the net asset value of companies acquired
is amortized on a straight-line method over periods not exceeding 40 years.
Patents and trademarks are amortized using the straight-line method over their
expected useful lives. At June 30, 1997 and 1998, and December 31, 1998
(unaudited), other long-term assets included goodwill, net of accumulated
amortization, of $17.5 million, $69.8 million and $67.3 million, respectively.
Accumulated amortization of goodwill was $3.3 million, $6.1 million, and $8.6
million at June 30, 1997 and 1998, and December 31, 1998 (unaudited),
respectively.
ASSET IMPAIRMENT
The PE Biosystems Group periodically reviews all long-lived assets for
impairment in accordance with SFAS No. 121, "Accounting for the Impairment of
Long-Lived Assets and for Long-Lived Assets to Be Disposed Of." Assets are
written down to fair value when the carrying costs exceed this amount. In fiscal
1996, the PE Biosystems Group recorded a cost of sales charge of $9.9 million
for the impairment of certain production assets associated with the realignment
of the product offerings of PerSeptive. In fiscal 1997, the PE Biosystems Group
recorded a $.7 million cost of sales charge for the write-down of impaired
assets. The impairment losses were determined based upon estimated future cash
flows and fair values.
REVENUES
Revenues are recorded at the time of shipment of products or performance of
services. Revenues from service contracts are recorded as deferred service
contract revenues and reflected in net revenues over the term of the contract,
generally one year.
RESEARCH, DEVELOPMENT AND ENGINEERING
Research, development and engineering costs are expensed when incurred.
SUPPLEMENTAL CASH FLOW INFORMATION
All cash paid for interest and income taxes for the following periods and
significant non-cash investing and financing activities were allocated to the
Perkin-Elmer Group:
[Download Table]
FOR THE
SIX MONTHS ENDED
FOR THE
YEARS ENDED JUNE 30, DECEMBER 31,
(AMOUNTS IN ------------------------------- --------------------
MILLIONS) 1996 1997 1998 1997 1998
---------------- --------- --------- --------- --------- ---------
(UNAUDITED)
Interest........ $ 8.9 $ 6.0 $ 5.7 $ 2.2 $ 1.4
Income taxes.... $ 15.0 $ 31.3 $ 60.5 $ 26.3 $ 12.2
Significant non-
cash investing
and financing
activities:
Unrealized
gain (loss)
on
investments.. $ 23.2 $ 3.2 $ (4.4) $ (3.0) $ 2.6
Dividends
declared not
paid........ $ 7.4 $ 7.5 $ -- $ 7.5 $ 8.5
Common shares
issued in
PerSeptive
pooling..... -- -- 4.6 -- --
Minority
interest
assumed..... $ -- $ -- $ 41.3 $ 41.3 $ --
UNAUDITED INTERIM FINANCIAL STATEMENTS
The accompanying unaudited combined interim financial statements have been
prepared in accordance with generally accepted accounting principles for interim
financial information and in accordance with the Securities and Exchange
Commission's rules and regulations for interim reporting. Accordingly, they do
not include all of the information and footnotes required by generally accepted
accounting principles for complete financial statements. In the opinion of
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the PE Biosystems Group's management, the unaudited combined interim financial
statements include all adjustments, consisting of only normal recurring
adjustments, necessary to present fairly such interim financial information.
NOTE 2 ACQUISITIONS AND DISPOSITIONS
PERSEPTIVE BIOSYSTEMS, INC.
The merger (the "Merger") of Seven Acquisition Corp., a wholly-owned
subsidiary of the Company, and PerSeptive was consummated on January 22, 1998.
PerSeptive develops, manufactures, and markets an integrated line of proprietary
consumable products and advanced instrumentation systems for the purification,
analysis, and synthesis of biomolecules. As a result of the Merger, PerSeptive,
which was the surviving corporation of the Merger, became a wholly-owned
subsidiary of the Company on that date. Each outstanding share of PerSeptive
common stock was converted into shares of the Company's existing common stock at
an exchange ratio equal to 0.1926. Accordingly, the Company issued 4.6 million
shares of its existing common stock for all outstanding shares of PerSeptive
common stock. Each outstanding option and warrant for shares of PerSeptive
common stock was converted into options and warrants for the number of shares of
the Company's existing common stock that would have been received if such
options and warrants had been exercised immediately prior to the effective time
of the Merger. All shares of Series A Redeemable Convertible Preferred Stock of
PerSeptive outstanding immediately prior to the effective time of the Merger
were converted in accordance with their terms into shares of PerSeptive common
stock which were then converted into shares of the Company's existing common
stock. As a result of the Merger, PerSeptive's 8 1/4% Convertible Subordinated
Notes Due 2001 (the "PerSeptive Notes") became convertible into shares of the
Company's existing common stock. On March 23, 1998, the Company redeemed the
PerSeptive Notes for a total of $26.1 million representing $24.7 million of
principal and $1.4 million of accrued interest and premium relating to the
PerSeptive Notes. Additionally, $2.5 million of the principal amount of the
PerSeptive Notes was converted by the holders thereof into 35,557 shares of the
Company's existing common stock.
The Merger qualified as a tax-free reorganization and has been accounted for
as a pooling of interests. Accordingly, the PE Biosystems Group's financial
results have been restated to include the combined operations.
Combined and separate results of the PE Biosystems Group and PerSeptive
during the periods preceding the Merger were as follows:
[Download Table]
PE
BIOSYSTEMS PER-
(DOLLAR AMOUNTS IN MILLIONS) GROUP SEPTIVE ADJ. COMBINED
----------------------------- ------------- ----------- --- -----------
Fiscal year ended June 30,
1996:
Net revenues................. $ 556.0 $ 86.1 $ 642.1
Income (loss) from continuing
operations................. $ 54.3 $ (50.4) $ 3.9
Fiscal year ended June 30,
1997:
Net revenues................. $ 671.0 $ 96.5 $ 767.5
Income from continuing
operations................. $ 117.5 $ 15.2 $ 132.7
Six months ended
December 31, 1997
(unaudited):
Net revenues................. $ 356.8 $ 52.6 $ 409.4
Income (loss) from continuing
operations................. $ 17.2 $ (5.4) $ .6 $ 12.4
The adjustment for the six months ended December 31, 1997 reflects the
inclusion of PerSeptive's operating results within the Company's consolidated
tax provision. There were no material intercompany transactions between the PE
Biosystems Group and PerSeptive during any period presented.
TECAN AG
The Company acquired a 14.5% interest and approximately 52% of the voting
rights in Tecan AG ("Tecan") in December 1997. Tecan is a world leader in the
development and manufacturing of automated sample processors, liquid handling
systems, and microplate photometry. Used in research, industrial, and clinical
markets, these products provide automated solutions for pharmaceutical drug
discovery, molecular biology, genomic testing, and clinical diagnostics. The
acquisition cost was $53.2 million in cash and was accounted for as a purchase
with a minority interest of $41.3 million. The excess purchase price over the
fair market value of the underlying assets was $46.2 million and is being
amortized over fifteen years.
F-47
MOLECULAR INFORMATICS, INC.
During the second quarter of fiscal 1998, the Company acquired Molecular
Informatics, Inc. ("Molecular Informatics"), a leader in the development of
infrastructure software for the pharmaceutical, biotechnology, and agrochemical
industries as well as for applied markets such as forensics and human
identification. The acquisition cost was $53.9 million and was accounted for as
a purchase. In connection with the acquisition, $28.9 million of purchased
in-process research and development expense was allocated to the PE Biosystems
Group and $24.7 million was allocated to goodwill and other intangible assets.
Goodwill of $9.0 million is being amortized over ten years, and other intangible
assets of $15.7 million are being amortized over periods of four to seven years.
The $28.9 million expensed as in-process research and development
represented 53.6% of the purchase price and was attributed and supported by a
discounted probable cash flow analysis on a project-by-project basis.
Approximately 10% of the in-process research and development value was
attributed to BioLIMS, a software system that manages data, initiates analysis
programs, and captures the results in a centralized, relational database for
sequencing instruments; 6% was attributed to GA SFDB, a client-side add-on
product to several existing gene sequencing instruments; 38% was attributed to
BioMERGE, a client-server management and integration system that organizes
proprietary, public, and third-party results in a single relational database for
the drug discovery and genomic research markets; 9% was attributed to BioCLINIC,
a client-server management and integration system that organizes proprietary,
public, and third-party results generated from DNA and protein sequence analysis
in a single database for the clinical trials phase of drug development; and 37%
was attributed to SDK, an open architecture software platform from which all of
Molecular Informatics' future software applications are expected to be derived.
As of the acquisition date, all of the major functionality for BioLIMS 2.0
had been completed and the product was subsequently released in September 1998.
As of the acquisition date, BioLIMS 3.0 was in the design and scoping phase and
is expected to be released in June 1999. As of the acquisition date, GA SFDB was
in early alpha phase and had been completed concurrent with the development of
BioLIMS 2.0 and was released in September 1998. As of the acquisition date,
BioMerge 3.0 functional scope was defined and the requirements assessment had
been completed and was subsequently released in November 1998. As of the
acquisition date, the BioClinic product requirements had been specified and
discussions had begun with two potential customers to begin the specific
software modifications. Development efforts were terminated in April 1998 due to
unsuccessful marketing efforts. As of the acquisition date, the SDK requirements
assessment had been completed and the functional scope had been defined.
Currently, one successful prototype has been completed and additional
development efforts continue in this area.
At the date of the acquisition, management expected to complete the majority
of these projects and commence generating significant revenues in 1999. A total
of $11.8 million of the purchase price was attributed to core technology and
existing products, primarily related to the BioMERGE product. The risk-adjusted
discount rate applied to the project's cash flows was 20% for existing
technology and 23% for in-process technology. The risk premium of 3% for in-
process technologies was determined by management based upon the associated
risks of rolling out these in-process technologies versus the existing
technologies for the emerging bioinformatics software industry. Management's
cash flow and other assumptions utilized at the time of acquisition had not
materially changed at December 31, 1998. The significant risks associated with
these products include the limited operating history of Molecular Informatics,
uncertainties surrounding market acceptance of such in-process products,
competitive threats from other bioinformatics companies, and other risks.
Management is primarily responsible for estimating the fair value of such
existing and in-process technology.
F-48
BIOMETRIC IMAGING, INC.
During fiscal 1998, the Company acquired a minority equity interest in
Biometric Imaging, Inc. for $4.0 million. The Company and Biometric Imaging are
collaborating on the development and manufacturing of a high-throughput
screening system for use by pharmaceutical research companies to accelerate the
drug discovery process. The Company received exclusive worldwide marketing
rights for products developed for that market. Biometric Imaging products are
designed to help ensure the integrity of transfused products, optimize cell
therapy procedures, and monitor disease progression and the efficacy of therapy.
TROPIX, INC.
During the fourth quarter of fiscal 1996, the Company acquired Tropix, Inc.,
a world leader in the development, manufacture and sale of chemiluminescent
detection technology for life sciences. The acquisition cost, net of cash
acquired, was $36.0 million and was accounted for as a purchase. The purchase
price was allocated to the net assets acquired and to purchased in-process
research and development. Purchased in-process research and development included
the value of products in the development stage and not considered to have
reached technological feasibility. The Company expensed $22.3 million of the
Tropix acquisition cost as in-process research and development, representing
60.3% of the purchase price. This amount was attributed and supported by a
discounted probable cash flow analysis on a project-by-project basis. The
remaining purchase price was allocated as follows: $10.2 million to proprietary
patents and core technology, $1.4 million to trademarks and tradenames, $.2
million to assembled workforce, and $1.9 million to working capital and
property, plant and equipment acquired.
Approximately 56% of the in-process research and development value was
attributed to the pharmaceutical screening products project, a project designed
to incorporate existing proprietary technologies of Tropix into assay methods
for pharmaceutical customers and to perform the screening required by those
customers on-site. Additionally, there was to be continued development of
suitable assays to improve and expand the technology covered by Tropix patents.
The intent was to be a one-stop service where Tropix would develop and perform
screening for pharmaceutical customers. Assets in place for this project were
the intellectual property of Tropix and the scientific expertise required to
customize both the reagents and the methods necessary for the intended use of
the customers. Approximately 44% of the in-process research and development
value was attributed to the diagnostics products project, a project related to
the continued development of the reagent product line. Derivatives of the
proprietary technology and expansion of the patents surrounding it were planned
to exploit the leadership that Tropix held in its core chemiluminescent
products. Also, work was being performed on ancillary reagents to enhance both
reactions and stability of existing Tropix dioxetanes. Development of new kits
and applications based on the Gal-Star substrate, in particular, were
in-process. All of these activities were focused on expanding the existing
product line in consumables in order to maintain Tropix's leadership in
chemiluminescence.
Through June 30, 1998, we incurred approximately $2.8 million in additional
research and development costs to further develop these projects. The diagnostic
products project was completed in fiscal 1997. The Company anticipates spending
an additional $.8 million in fiscal 1999 to complete the pharmaceutical
screening project. Such costs approximate those anticipated at the date of
acquisition.
A risk-adjusted discount rate of 23% was employed to value the in-process
projects. The significant risks associated with these products include the
limited operating history of Tropix, uncertainties surrounding market acceptance
of such in-process products and other competitive risks. Management is primarily
responsible for estimating the fair value of such existing and in-process
technologies.
OTHER ACQUISITIONS
During the fourth quarter of fiscal 1998, the Company made a minority equity
investment of
F-49
$2.5 million in ACLARA BioSciences, Inc. The companies are collaborating on the
development of advanced genetic analysis systems.
The Company entered into a strategic partnership with Hyseq, Inc., acquiring
a minority equity interest for an initial cash investment of $5.0 million,
during the fourth quarter of fiscal 1997. Hyseq, Inc. applies proprietary DNA
array technology to develop gene-based therapeutic product candidates and
diagnostic products and tests. In the first quarter of fiscal 1998, the Company
increased its investment by $5.0 million
In fiscal 1996, the Company acquired a minority equity interest in Paracel,
Inc., a provider of information filtering technologies for $4.5 million and
PerSeptive Technologies Corporation, a research and development company formed
to fund the development of novel tools for clinical diagnostics and screening of
biological compounds for drug discovery, for $19.3 million. In connection with
these life science acquisitions, the PE Biosystems Group was allocated $9.5
million of purchased in-process research and development expensed in fiscal
1996.
The net assets and results of operations for the above acquisitions
accounted for under the purchase method have been included in the combined
financial statements of the PE Biosystems Group since the date of each
acquisition. The pro forma effect of these acquisitions, individually or in the
aggregate, on the PE Biosystems Group's combined financial statements was not
significant.
DISPOSITIONS
MILLENNIUM PHARMACEUTICALS, INC.
During fiscal 1998, the PE Biosystems Group recorded a before-tax gain of
$1.6 million in connection with the release of previously existing contingencies
on shares of Millennium Pharmaceuticals, Inc. ("Millennium") common stock.
During fiscal 1997, the Company sold approximately 50% of its investment in
Millennium and allocated the before-tax gain of $27.5 million associated with
the sale to the PE Biosystems Group. The gain included $25.9 million from the
Company's exchange of a 34% equity interest in ChemGenics Pharmaceuticals, Inc.
for an approximate 6% equity interest in Millennium.
ETEC SYSTEMS, INC.
In fiscal 1997, the Company completed the sale of its entire equity interest
in Etec Systems, Inc. Before-tax gains of $11.7 million and $37.4 million were
allocated to the PE Biosystems Group for fiscal 1996 and 1997, respectively. Net
cash proceeds from the sales were $16.6 million and $45.8 million for fiscal
1996 and 1997, respectively.
NOTE 3 DEBT AND LINES OF CREDIT
ALLOCATED DEBT ACTIVITY
All historical debt activity has been allocated to the PE Biosystems Group.
Loans payable and long-term debt at June 30, 1997 and 1998 and December 31, 1998
are summarized below:
[Download Table]
JUNE 30,
(DOLLAR AMOUNTS IN --------------------
MILLIONS) 1997 1998
---------------------- --------- --------- DECEMBER 31,
1998
---------------
(UNAUDITED)
Loans payable:
Short-term loans...... $ 23.1 $ 12.1 $ 31.3
Current portion of
convertible
subordinated
notes............... 6.8
--------- --------- -----
Total loans payable... $ 29.9 $ 12.1 $ 31.3
--------- --------- -----
--------- --------- -----
Long-term debt:
Yen loan.............. $ 33.6 $ 27.0 $ 33.1
Convertible
subordinated
notes............... 20.4
Other................. 5.2 6.7 2.4
--------- --------- -----
Total long-term
debt................ $ 59.2 $ 33.7 $ 35.5
--------- --------- -----
--------- --------- -----
The weighted average interest rates at June 30, 1997 and 1998, and December
31, 1998 (unaudited) for loans payable were 3.6% and 1.8%, and 1.4%
respectively.
On March 23, 1998, the Company redeemed PerSeptive's 8 1/4% convertible
subordinated notes (see Note 2).
F-50
During the third quarter of fiscal 1997, the Company replaced its Yen 2.8
billion loan, which matured in February 1997, with a Yen 3.8 billion variable
rate long-term loan which matures in March 2002. Through an interest rate swap
agreement (see Note 12), the effective interest rate for the new loan is 2.1%
compared with 3.3% for the previous loan.
On June 1, 1994, the Company entered into a $100 million three-year
revolving credit agreement. The agreement was amended in fiscal 1996 to extend
the maturity an additional three years to June 1, 2000. Commitment and facility
fees are based on leverage and interest coverage ratios. Interest rates on
amounts borrowed vary depending on whether borrowings are undertaken in the
domestic or Eurodollar markets. There were no borrowings under the facility at
June 30, 1997 or 1998. All other credit facilities available consist of
uncommitted overdraft credit lines that are provided at the discretion of local
banks. A parent guarantee is required by the facility if the local unit borrows
any funds.
At June 30, 1998, and December 31, 1998, the Company had unused credit
facilities for short-term borrowings from domestic and foreign banks in various
currencies totaling $343 million and $340 million, respectively.
Under various debt and credit agreements, the Company is required to
maintain certain minimum net worth and interest coverage ratios.
There are no maturities of long-term debt scheduled for fiscal 1999, 2000,
2001, or 2003. The Yen 3.8 billion loan matures in fiscal 2002.
NOTE PAYABLE TO THE CELERA GENOMICS GROUP
At September 30, 1998 the Company allocated to the Celera Genomics Group a
$330 million note payable of the PE Biosystems Group. The Company believes its
capital resources and the cash flows of the PE Biosystems Group will be
sufficient to fund the note payable to the Celera Genomics Group and to maintain
and support the growth requirements of the PE Biosystems Group's current
operations. The $330 million note represented an allocation of the Company's
capital to the Celera Genomics Group and did not result in the PE Biosystems
Group holding an equity interest in the Celera Genomics Group. This allocation
of capital represented management's decision to allocate a portion of the
Company's capital to the Celera Genomics Group and the remaining capital to the
PE Biosystems Group prior to the effective date of the recapitalization. The
Group financial statements do not include any intergroup equity interests. At
December 31, 1998 the outstanding balance of the note was $311.3 million.
NOTE 4 INCOME TAXES
Income before income taxes from continuing operations for fiscal 1996, 1997,
and 1998 is summarized below:
[Download Table]
(DOLLAR AMOUNTS IN
MILLIONS) 1996 1997 1998
------------------------- --------- --------- ---------
United States............ $ (27.6) $ 130.4 $ (25.2)
Foreign.................. 59.1 39.6 84.4
--------- --------- ---------
Total.................... $ 31.5 $ 170.0 $ 59.2
--------- --------- ---------
--------- --------- ---------
The provision for income taxes from continuing operations includes the PE
Biosystems Group's allocated portion of income taxes currently payable and those
deferred because of differences between the financial statement and tax bases of
assets and liabilities. The PE Biosystems Group's provision for income taxes
from continuing operations consists of the following:
[Download Table]
(DOLLAR AMOUNTS IN
MILLIONS) 1996 1997 1998
--------------------------- --------- --------- ---------
Currently payable:
Domestic................... $ 12.7 $ 59.1 $ 8.3
Foreign.................... 15.6 18.7 17.7
--------- --------- ---------
Total currently payable.... 28.3 77.8 26.0
--------- --------- ---------
Deferred:
Domestic................... 3.4 (45.8) 6.1
Foreign.................... (4.1) 5.3 (2.6)
--------- --------- ---------
Total deferred............. (.7) (40.5) 3.5
--------- --------- ---------
Total provision for income
taxes from continuing
operations............... $ 27.6 $ 37.3 $ 29.5
--------- --------- ---------
--------- --------- ---------
Significant components of deferred tax assets and liabilities from
continuing operations
F-51
at June 30, 1997 and 1998 are summarized below:
[Download Table]
(DOLLAR AMOUNTS IN MILLIONS) 1997 1998
----------------------------------- --------- ---------
Deferred tax assets:
Inventories........................ $ .7 $ 4.0
Postretirement and postemployment
benefits......................... 35.7 35.0
Other reserves and accruals........ 48.5 44.3
Tax credit and loss
carryforwards.................... 39.4 32.2
--------- ---------
Subtotal........................... 124.3 115.5
Valuation allowance................ (69.7) (62.8)
--------- ---------
Total deferred tax assets.......... 54.6 52.7
--------- ---------
Deferred tax liabilities:
Millennium equity transaction...... 4.3
Other reserves and accruals........ (.2) 6.9
--------- ---------
Total deferred tax liabilities..... 4.1 6.9
--------- ---------
Total deferred tax assets, net..... $ 50.5 $ 45.8
--------- ---------
--------- ---------
A reconciliation of the federal statutory tax to the PE Biosystems Group's
continuing tax provision for fiscal 1996, 1997, and 1998 is set forth in the
following table:
[Download Table]
(DOLLAR AMOUNTS IN
MILLIONS) 1996 1997 1998
--------------------------- --------- --------- ---------
Federal statutory rate..... 35% 35% 35%
--------- --------- ---------
Tax at federal statutory
rate..................... $ 11.0 $ 59.5 $ 20.7
State income taxes (net of
federal benefit)......... (1.9) .1 .1
Effect on income from
foreign operations....... .1 41.1 1.2
Effect on income from
foreign sales
corporation.............. (1.1) (1.6) (2.5)
Acquired research and
development.............. 11.2 10.1
Restructuring and other
merger costs............. 5.2
Domestic temporary
differences for which
benefit is recognized.... (9.9) (56.6) (4.8)
Benefit of loss not
recognized/(utilization
of net operating
losses).................. 16.9 (7.7)
Effect of goodwill
write-off................ 1.5 .6 .4
Other...................... (.2) 1.9 (.9)
--------- --------- ---------
Total provision for income
taxes from continuing
operations............... $ 27.6 $ 37.3 $ 29.5
--------- --------- ---------
--------- --------- ---------
The category "domestic temporary differences for which benefit is
recognized" reported in the table above reflects the current year benefit
attributable to a reduction in the valuation allowance. A portion of the
reduction was due to the utilization of domestic tax credit carryforwards and
reversing temporary differences, while the remainder resulted from the
recognition of various other deferred tax assets that were previously subject to
a valuation allowance. The benefit due to the utilization of the tax credit
carryforwards and reversing temporary differences was recognized each year
becuase a valuation allowance had been established against these assets in the
year of origination. The valuation allowance on the various other deferred tax
assets was reduced because although realization was not assured, management
believed that due to increasing profitability, it was more likely than not that
these deferred tax assets would be realized.
At June 30, 1998, the Company's worldwide valuation allowance primarily
related to foreign tax loss carryforwards, as well as the domestic tax loss
carryforwards, temporary differences and tax credit carryforwards recorded as a
result of the stock acquisition of PerSeptive in January 1998.
At June 30, 1998, the PE Biosystems Group had an allocated U.S. alternative
minimum tax credit carryforward of $4.9 million with an indefinite carryforward
period. The Company's subsidiary, PerSeptive, has domestic loss carryforwards of
approximately $64 million that will expire between the years 2003 and 2012 which
have also been allocated to the PE Biosystems Group. The amount of these net
operating loss carryforwards that can be utilized annually to offset future
taxable income or tax liability has been limited under the Internal Revenue Code
as a result of the acquisition. The PE Biosystems Group also has been allocated
loss carryforwards of approximately $38 million in various foreign countries
with varying expiration dates.
U.S. income taxes have not been provided on approximately $77 million of net
unremitted earnings from foreign subsidiaries since the
F-52
Company intends to permanently reinvest substantially all of such earnings in
the operations of the subsidiaries. These earnings include income from
manufacturing operations in Singapore, which is tax exempt through the year
2004. In those instances where the Company expects to remit earnings, the effect
on the PE Biosystems Group's results of operations, after considering available
tax credits and amounts previously accrued, was not significant.
The Company and its subsidiaries are subject to tax examinations in various
U.S. and foreign jurisdictions. The Company believes that adequate tax payments
have been made and adequate accruals have been recorded for all years.
NOTE 5 RETIREMENT AND OTHER BENEFITS
PENSION PLANS
The Company maintains or sponsors pension plans that cover substantially all
worldwide employees. Pension benefits earned are generally based on years of
service and compensation during active employment. However, the level of
benefits and terms of vesting vary among the plans. Pension plan assets are
administered by trustees and are principally invested in equity and fixed income
securities. The funding of pension plans is determined in accordance with
statutory funding requirements. As the pension activity attributable to the
Celera Genomics Group was not material for the three years ended June 30, 1998,
all pension amounts recognized in the Company's Statements of Financial Position
have been allocated to the PE Biosystems Group.
The total worldwide pension expense of continuing operations for all
employee pension plans was $3.3 million, $4.6 million, and $4.2 million for
fiscal 1996, 1997, and 1998, respectively. The components of net pension expense
are set forth in the following table:
[Download Table]
(DOLLAR AMOUNTS IN MILLIONS) 1996 1997 1998
------------------------------ --------- --------- ---------
Domestic Plans:
Service cost.................. $ 3.0 $ 3.3 $ 4.7
Interest cost................. 27.7 31.9 36.2
Actual return on assets....... (26.5) (30.3) (35.4)
Net amortization and
deferral.................... (1.1) (.5) (1.5)
--------- --------- ---------
Net pension expense........... $ 3.1 $ 4.4 $ 4.0
--------- --------- ---------
--------- --------- ---------
Foreign Plans:
Service cost.................. $ .2 $ .2 $ .1
Interest cost................. .2 .1 .2
Actual return on assets....... (.3) (.1) (.2)
Net amortization and
deferral.................... .1 -- .1
--------- --------- ---------
Net pension expense........... $ .2 $ .2 $ .2
--------- --------- ---------
--------- --------- ---------
The following table sets forth the funded status of the plans of continuing
operations and amounts recognized in the PE Biosystems Group Combined Statements
of Financial Position at June 30, 1997 and 1998:
[Download Table]
DOMESTIC PLANS
------------------------------------------
ASSETS EXCEED ACCUMULATED BENEFITS
ACCUMULATED BENEFITS EXCEED ASSETS
-------------------- --------------------
(DOLLAR AMOUNTS IN MILLIONS) 1997 1998 1997 1998
---------------------------------- --------- --------- --------- ---------
Plan assets at fair value......... $ 474.2 $ 559.4 $ -- $ --
Projected benefit obligation...... 475.0 544.5 10.7 12.2
--------- --------- --------- ---------
Plan assets greater (less) than
projected benefit obligation.... (.8) 14.9 (10.7) (12.2)
Unrecognized items:
Net actuarial loss.............. 43.3 33.4 1.7 2.8
Prior service cost.............. (5.5) (4.7) 3.0 2.6
Net transition (asset)
obligation.................... (7.2) (4.8) .5 .4
Minimum pension liability
adjustment...................... (3.8) (4.1)
--------- --------- --------- ---------
Prepaid (accrued) pension
expense......................... $ 29.8 $ 38.8 $ (9.3) $ (10.5)
--------- --------- --------- ---------
--------- --------- --------- ---------
Actuarial present value of
accumulated benefits............ $ 470.2 $ 530.4 $ 9.3 $ 10.5
Accumulated benefit obligation
related to vested benefits...... $ 461.7 $ 522.0 $ 8.0 $ 9.5
A minimum pension liability adjustment is required when the actuarial
present value of accumulated benefits exceeds plan assets and accrued pension
liabilities. The minimum liability adjustment, less allowable intangible assets,
net of tax benefit, is reported as a reduction of shareholders' equity and
totaled $.7 million and $.4 million at June 30, 1997 and 1998, respectively.
F-53
[Download Table]
FOREIGN PLANS
--------------------
ASSETS EXCEED
ACCUMULATED BENEFITS
--------------------
(DOLLAR AMOUNTS IN MILLIONS) 1997 1998
-------------------------------------------- --------- ---------
Plan assets at fair value................... $ 3.1 $ 3.6
Projected benefit obligation................ 3.2 3.8
--------- ---------
Plan assets (less) than projected benefit
obligation................................ (.1) (.2)
Unrecognized items:
Net actuarial (gain) loss................. .8 1.0
--------- ---------
Prepaid pension expense..................... $ .7 $ .8
--------- ---------
--------- ---------
Actuarial present value of accumulated
benefits.................................. $ 2.2 $ 2.5
Accumulated benefit obligation related to
vested benefits........................... $ 2.0 $ 2.4
The following actuarial assumptions were used in accounting for the defined
benefit plans:
[Download Table]
1997 1998
----------- -----------
Domestic Plans
Assumptions:
Discount rate.......... 8 1/2% 8%
Compensation increase.. 4% 4%
Long-term rate of 8 1/2 - 8 1/2 -
return............... 9 1/4% 9 1/4%
Foreign Plans
Assumptions:
Discount rate.......... 6% 5 1/2%
Compensation increase.. 4 1/4% 4 1/4%
Long-term rate of
return............... 6 1/2% 6 1/2%
SAVINGS PLAN
The Company provides a 401(k) savings plan, for most domestic employees,
with automatic Company contributions of 2% of eligible compensation and a
dollar-for-dollar matching contribution of up to 4% of eligible compensation.
Company contributions to this plan for continuing operations of $3.3 million,
$4.6 million, and $5.7 million for fiscal 1996, 1997, and 1998, respectively,
were allocated to the PE Biosystems Group. Amounts attributable to the Celera
Genomics Group activity were not material.
RETIREE HEALTH CARE AND LIFE INSURANCE BENEFITS
The Company provides certain health care and life insurance benefits to
domestic employees hired prior to January 1, 1993, who retire and satisfy
certain service and age requirements. Generally, medical coverage pays a stated
percentage of most medical expenses, reduced for any deductible and for payments
made by Medicare or other group coverage. The cost of providing these benefits
is shared with retirees. The plan is unfunded. As only a limited number of the
Celera Genomics Group employees were eligible for these benefits, the amounts of
which were not material, the postretirement liability has been allocated to the
PE Biosystems Group.
The following table sets forth the accrued postretirement benefit liability
recognized in the PE Biosystems Group Combined Statements of Financial Position
at June 30, 1997 and 1998:
[Download Table]
(DOLLAR AMOUNTS IN MILLIONS) 1997 1998
--------------------------------------- --------- ---------
Actuarial present value of
postretirement benefit obligation
Retirees............................... $ 60.6 $ 60.7
Fully eligible active participants..... 1.0 1.4
Other active participants.............. 9.7 10.3
--------- ---------
Accumulated postretirement benefit
obligation (APBO).................... 71.3 72.4
Unrecognized net gain.................. 24.4 21.5
--------- ---------
Accrued postretirement benefit
liability............................ $ 95.7 $ 93.9
--------- ---------
--------- ---------
The net postretirement benefit cost of continuing operations for fiscal 1997
and 1998 included the following components:
[Download Table]
(DOLLAR AMOUNTS IN MILLIONS) 1997 1998
---------------------------------------- --------- ---------
Service cost............................ $ .1 $ .1
Interest cost........................... 4.8 4.7
Amortization of unrecognized gain....... (1.1) (1.2)
--------- ---------
Net postretirement benefit cost......... $ 3.8 $ 3.6
--------- ---------
--------- ---------
The discount rate used in determining the APBO was 8.5% in fiscal 1997 and
8% in fiscal 1998. The assumed health care cost trend rate used for measuring
the APBO was divided into two categories:
[Download Table]
1997 1998
----- -----
Participants under age 65............... 10.3% 9.6%
Participants age 65 and over............ 7.7% 7.4%
Both rates were assumed to decline to 5.5% over eight and seven years in
fiscal 1997 and 1998, respectively.
If the health care cost trend rate were increased 1%, the APBO, as of June
30, 1998, would have increased 11%. The effect of this change on the aggregate
of service and interest cost for fiscal 1998 would be an increase of 10%.
F-54
POSTEMPLOYMENT BENEFITS
The Company provides certain postemployment benefits to eligible employees.
These benefits generally include severance, disability, and medical-related
costs paid after employment but before retirement.
NOTE 6 BUSINESS SEGMENTS AND GEOGRAPHIC AREA INFORMATION
BUSINESS SEGMENTS
The PE Biosystems Group operates in one industry segment. It manufactures
and markets biochemical instrument systems and associated consumable products
for life science research and related applications. These automated systems are
used for synthesis, amplification, purification, isolation analysis and
sequencing of nucleic acids, proteins, and other biological molecules.
GEOGRAPHIC AREAS
Revenues between geographic areas are primarily comprised of the sale of
products by the PE Biosystems Group's manufacturing units. The revenues reflect
the rules and regulations of the respective governing tax authorities. Net
revenues and operating profits are reported in the region of destination.
Operating income is determined by deducting from net revenues the related costs
and operating expenses attributable to the region. Research, development and
engineering expenses are reflected in the area where the activity was performed.
Other expenses include allocated corporate overhead and administrative shared
services. Identifiable assets include all assets directly identified with those
geographic areas. Other assets include cash and short-term investments, deferred
tax assets, property, plant, and equipment, and other assets that are corporate
in nature.
Export net revenues for fiscal 1996, 1997, and 1998 were $14.1 million,
$27.6 million, and $28.5 million, respectively.
F-55
GEOGRAPHIC AREAS
[Enlarge/Download Table]
UNITED FAR OTHER
(DOLLAR AMOUNTS IN MILLIONS) STATES EUROPE EAST COUNTRIES OTHER COMBINED
-------------------------------------------------- --------- --------- --------- ----------- --------- -----------
1996
Total revenues.................................... $ 309.5 $ 270.7 $ 212.8 $ 23.2 $ -- $ 816.2
Transfers between geographic areas................ (18.5) (74.2) (75.5) (5.9) (174.1)
--------- --------- --------- ----------- --------- -----------
Revenues to unaffiliated customers................ $ 291.0 $ 196.5 $ 137.3 $ 17.3 $ $ 642.1
--------- --------- --------- ----------- --------- -----------
Income (loss)..................................... $ 18.9 $ 47.3 $ 43.7 $ 1.8 $ (27.6) $ 84.1
Restructuring charge.............................. (17.5) (17.5)
Acquired research and development................. (31.8) (31.8)
Impairment of assets.............................. (9.9) (9.9)
--------- --------- --------- ----------- --------- -----------
Operating income (loss)......................... $ (40.3) $ 47.3 $ 43.7 $ 1.8 $ (27.6) $ 24.9
--------- --------- --------- ----------- --------- -----------
Identifiable assets............................... $ 267.3 $ 97.1 $ 56.5 $ 13.9 $ 225.8 $ 660.6
Net assets of discontinued operations............. 148.3
-----------
Total assets...................................... $ 808.9
1997
Total revenues.................................... $ 383.2 $ 333.7 $ 255.0 $ 27.1 $ -- $ 999.0
Transfers between geographic areas................ (34.1) (93.8) (95.3) (8.3) (231.5)
--------- --------- --------- ----------- --------- -----------
Revenues to unaffiliated customers................ $ 349.1 $ 239.9 $ 159.7 $ 18.8 $ $ 767.5
--------- --------- --------- ----------- --------- -----------
Income (loss)..................................... $ 24.5 $ 61.4 $ 45.8 $ 3.7 $ (34.4) $ 101.0
Impairment of assets.............................. (.7) (.7)
--------- --------- --------- ----------- --------- -----------
Operating income (loss)......................... $ 23.8 $ 61.4 $ 45.8 $ 3.7 $ (34.4) $ 100.3
--------- --------- --------- ----------- --------- -----------
Identifiable assets............................... $ 314.0 $ 112.3 $ 70.2 $ 6.2 $ 350.2 $ 852.9
Net assets of discontinued operations............. 150.9
-----------
Total assets...................................... $ 1,003.8
1998
Total revenues.................................... $ 496.4 $ 377.2 $ 274.2 $ 36.7 $ -- $ 1,184.5
Transfers between geographic areas................ (43.5) (85.3) (102.7) (12.9) (244.4)
--------- --------- --------- ----------- --------- -----------
Revenues to unaffiliated customers................ $ 452.9 $ 291.9 $ 171.5 $ 23.8 $ $ 940.1
--------- --------- --------- ----------- --------- -----------
Income (loss)..................................... $ 37.8 $ 72.0 $ 55.7 $ 3.0 $ (38.1) $ 130.4
Restructuring and other merger costs.............. (26.2) (21.7) (.2) (48.1)
Acquired research and development................. (28.9) (28.9)
--------- --------- --------- ----------- --------- -----------
Operating income (loss)......................... $ (17.3) $ 50.3 $ 55.5 $ 3.0 $ (38.1) $ 53.4
--------- --------- --------- ----------- --------- -----------
Identifiable assets............................... $ 442.7 $ 206.4 $ 62.9 $ 9.9 $ 189.3 $ 911.2
Net assets of discontinued operations............. 217.7
-----------
Total assets...................................... $ 1,128.9
F-56
NOTE 7 GROUP EQUITY
PE Biosystems Stock will represent a separate class of the new Delaware
company's common stock if the Company's Recapitalization Proposal is approved.
Additional shares of PE Biosystems Stock may be issued from time to time upon
exercise of stock options or at the discretion of the Company's Board.
SHAREHOLDERS' PROTECTION RIGHTS PLAN
The Company has a Shareholder's Protection Rights Plan (the "Original Rights
Agreement") designed to protect shareholders against abusive takeover tactics by
issuing participating preferred stock purchase rights (the "Original Rights")
for each share of existing common stock. Each Original Right entitles the holder
to buy one one-hundredth of a newly issued share of participating preferred
stock having economic and voting terms similar to those of one share of existing
common stock at an exercise price of $90, subject to adjustment.
The Original Rights are exercisable only if a person or a group acquires 20%
of more of the Company's existing common stock or commences a tender offer for
20% or more of the Company's existing common stock. Before that time, the rights
trade with the common stock, but thereafter they become separately tradeable.
Upon exercise, each Original Right entitles the holder to purchase a number
of shares of preferred stock of the Company having a market value of two times
the exercise price. If the Company is acquired in a merger or other business
combination, each Original Right will entitle the holder to purchase at the then
exercise price a number of shares of common stock of the acquiring company
having a market value of two times such exercise price. If any person or group
acquires between 20% and 50% of the Company's shares, the Company's Board may,
at its option, exchange one share of the Company's existing common stock for
each Original Right. The Original Rights are redeemable at the Company's option
at one cent per right prior to a person or group becoming an acquiring person.
If the Recapitalization Proposal is implemented, the Company will enter into
a new rights agreement (the "New Rights Agreement"), substantially similar to
the Original Rights Agreement containing provisions designed to, among other
things, (1) reflect the new equity structure of the Company and (2) reset the
prices at which rights issued under the New Rights Agreement may be exercised
for shares of participating preferred stock. As of the effective time of the
recapitalization, the Company will (1) designate a new series of Preferred Stock
as the Series A Participating Junior Preferred Stock, (2) designate another new
series of Preferred Stock as the Series B Participating Junior Preferred Stock,
(3) issue one right for each share of PE Biosystems Stock (a "PE Biosystems
Right"), which will allow holders to purchase shares of Series A Participating
Junior Preferred Stock under conditions specified in the New Rights Agreement
and (4) issue one right for each share of Celera Genomics Stock (a "Celera
Genomics Right"), which will allow holders to purchase shares of series B
Participating Junior Preferred Stock under conditions specified in the New
Rights Agreement.
The Rights will expire on the tenth anniversary of the adoption of the New
Rights Agreement, unless extended or terminated by the Company. The Rights would
be exercisable only if a person or group acquires (1) 15% or more of the shares
of PE Biosystems Stock then outstanding or (2) 15% or more of the shares of
Celera Genomics Stock then outstanding, or commences a tender offer that would
result in such person or groups beneficially owning such number of shares. In
such event, each right would entitle the holder to purchase from the Company (1)
in the case of a PE Biosystems Right, one one-thousandth (1/1000th) of a share
of Series A Participating Junior Preferred Stock at a purchase price of $425,
subject to adjustment, and (2) in the case of a Celera Genomics Right, one one-
thousandth (1/1000th) of a share of Series B Participating Junior Preferred
Stock at a purchase price of $125, subject to adjustment.
F-57
NOTE 8 STOCK INCENTIVE PLANS
1999 INCENTIVE STOCK PLANS
The Board has approved PE Corporation/ PE Biosystems Group 1999 Stock
Incentive Plan (the "PE Biosystems Group Plan") and PE Corporation/Celera
Genomics Group 1999 Stock Incentive Plan (the "Celera Genomics Group Plan"),
subject to shareholder approval. The PE Biosystems Group Plan authorizes grants
of stock options, stock awards and performance shares with respect to PE
Biosystems Stock. The Celera Genomics Group Plan authorizes grants of stock
options, stock awards, and performance shares with respect to Celera Genomics
Stock. The Company does not currently intend to grant awards under the PE
Biosystems Group Plan to members of the Celera Genomics Group. It is intended,
however, that certain directors, officers and key employees of the Company with
responsibilities involving both the PE Biosystems Group and the Celera Genomics
Group and certain key employees of each Group may be granted awards under both
incentive plans, in a manner which reflects their responsibilities. The Board
believes that permitting incentive awards to be made to participants with
respect to the class of common stock which reflects the performance of the
Group's business in which the participants work and, in certain cases the other
Group, is in the best interest of the Company and its stockholders.
Several existing stock incentive plans which offer benefits in the form of,
or based on the performance of, the existing common stock will be affected by
the Recapitalization Proposal. The affected plans and management's intentions
with respect to those plans upon the approval and implementation of the
Recapitalization Proposal are discussed below.
STOCK OPTION PLANS
Under the Company's stock option plans, officers and other key employees may
be, and directors are, granted options, each of which allows for the purchase of
existing common stock at a price of not less than 100% of fair market value at
the date of grant. Under the normal vesting requirements, 50% of the options are
exercisable after one year and 100% after two years. Options generally expire
ten years from the date of grant.
Transactions relating to the stock option plans of the Company are
summarized below:
[Download Table]
WEIGHTED
NUMBER OF AVERAGE
OPTIONS EXERCISE PRICE
--------- ---------------
FISCAL 1996
Outstanding at June 30,
1995...................... 4,597,214 $ 29.97
Granted..................... 820,495 $ 46.43
Exercised................... 1,393,807 $ 29.48
Cancelled................... 201,367 $ 34.17
---------
Outstanding at June 30,
1996...................... 3,822,535 $ 34.05
Exercisable at June 30,
1996...................... 2,544,100 $ 30.17
FISCAL 1997
Granted..................... 1,595,528 $ 59.78
Exercised................... 1,167,179 $ 29.73
Cancelled................... 95,281 $ 43.17
---------
Outstanding at June 30,
1997...................... 4,155,603 $ 45.03
Exercisable at June 30,
1997...................... 2,254,052 $ 35.24
FISCAL 1998
Granted..................... 1,997,041 $ 70.41
Exercised................... 780,994 $ 34.76
Cancelled................... 154,686 $ 71.42
---------
Outstanding at June 30,
1998...................... 5,216,964 $ 55.51
Exercisable at June 30,
1998...................... 2,936,389 $ 43.12
At June 30, 1998, 241,437 shares remained available for option grant.
The following table summarizes information regarding options outstanding and
exercisable at June 30, 1998:
[Download Table]
WEIGHTED AVERAGE
----------------------------
CONTRACTUAL
(OPTION PRICES PER NUMBER OF LIFE REMAINING EXERCISE
SHARE) OPTIONS IN YEARS PRICE
------------------------ ----------- --------------- -----------
Options outstanding:
At $ 2.04--$ 29.95.... 448,472 4.2 $ 20.93
At $30.25--$ 59.75.... 2,038,936 7.0 $ 40.87
At $60.06--$ 85.69.... 2,713,648 9.3 $ 71.83
At $90.86--$163.55.... 15,908 5.4 $ 120.86
Options exercisable:
At $ 2.04--$ 29.95.... 448,472 4.2 $ 20.93
At $30.25--$ 59.75.... 1,992,736 6.9 $ 40.53
At $60.06--$ 83.69.... 479,273 8.7 $ 72.07
At $90.86--$163.55.... 15,908 5.4 $ 120.86
If the Recapitalization Proposal is approved by the shareholders and
implemented by the Board, each outstanding stock option under the Company's
stock option plans will be converted
F-58
into separately exercisable options to acquire one share of PE Biosystems Stock
and 0.5 of a share of Celera Genomics Stock. The exercise price for the
resulting PE Biosystems Stock options and Celera Genomics Stock options will be
calculated by multiplying the exercise price under the original option from
which they were converted by a fraction, the numerator of which is the average
of the high and low price of PE Biosystems Stock or Celera Genomics Stock, as
the case may be, on the first date such stocks are traded, on the New York Stock
Exchange and the denominator of which is the sum of such PE Biosystems Stock and
Celera Genomics Stock prices. However, the aggregate intrinsic value of the
options will not be increased, and the ratio of the exercise price per option to
the market value per share will not be reduced. In addition, the vesting
provision and option periods of the original grants will remain the same when
converted. No further grants may be made under the amended plan.
EMPLOYEE STOCK PURCHASE PLAN
The Company's Employee Stock Purchase Plan offers domestic and certain
foreign employees the right to purchase, over a certain period, shares of
existing common stock on an annual offering date. The purchase price in the
United States is equal to the lower of 85% of the average market price of the
common stock on the offering date or 85% of the average market price of the
common stock on the last day of the purchase period. Provisions of the plan for
employees in foreign countries vary according to local practice and regulations.
Common stock issued under the Employee Stock Purchase Plan during fiscal
1996, 1997, and 1998 totaled 77,000 shares, 111,000 shares, and 174,000 shares,
respectively. At June 30, 1998, 499,000 shares remained available for issuance.
If the Recapitalization Proposal is approved by the shareholders and
implemented by the Board, the terms of the offering will be adjusted to allow
employees to purchase either PE Biosystems Stock or Celera Genomics Stock for
each share of existing common stock.
DIRECTOR STOCK PURCHASE AND DEFERRED COMPENSATION PLAN
The Company has a Director Stock Purchase and Deferred Compensation Plan
that requires non-employee directors of the Company to apply at least 50% of
their annual retainer to the purchase of existing common stock. The purchase
price is the fair market value on the first business day of the third month of
each fiscal quarter. At June 30, 1998, approximately 87,000 shares were
available for issuance.
If the Recapitalization Proposal is approved, each share of stock currently
held will be converted into one share of PE Biosystems Stock and 0.5 of a share
of Celera Genomics Stock. In addition, it is intended that non-employee
directors will be required to apply at least 50% their annual retainer to the
purchase of both PE Biosystems Stock and Celera Genomics Stock in a ratio
approximately equal to the number of shares of PE Biosystems Stock and Celera
Genomics Stock outstanding.
RESTRICTED STOCK
As part of the Company's stock incentive plans, key employees may be, and
non-employee directors are, granted shares of restricted stock that will vest
when certain continuous employment/service restrictions and/or specified
performance goals are achieved. The fair value of shares granted is generally
expensed over the restricted periods, which may vary depending on the estimated
achievement of performance goals.
Restricted stock granted to key employees and non-employee directors during
fiscal 1996, 1997, and 1998 totaled 185,000 shares (155,000 of which were
subject to shareholder approval in fiscal 1997), 42,000 shares, and 4,350
shares, respectively. Compensation expense of continuing operations recognized
by the PE Biosystems Group for these awards was $4.1 million, $9.1 million, and
$1.8 million in fiscal 1996, 1997, and 1998, respectively.
Upon approval and implementation of the Recapitalization Proposal, each
share of restricted stock currently held will be redesignated as one share of PE
Biosystems
F-59
Stock and 0.5 of a share of Celera Genomics Stock.
PERFORMANCE UNIT BONUS PLAN
The Company has a Performance Unit Bonus Plan whereby employees may be
awarded performance units in conjunction with an equal number of stock options.
A performance unit represents the right to receive a cash or stock payment from
the Company at a specified date in the future. The amount of the payment is
equal to the fair market value of a share of common stock on the date of the
grant. The performance units vest upon shares of the Company's existing common
stock attaining and maintaining specific stock price levels for a specified
period, and are payable on or after June 26, 2000. As of June 30, 1998, 324,500
performance units were outstanding. Compensation expense of continuing
operations recognized by the PE Biosystems Group for these awards totaled $5.1
million in fiscal 1998.
Upon approval and implementation of the Recapitalization Proposal, each
performance unit will be converted in conjunction with the conversion of the
Company's stock options.
OTHER
The Company adopted SFAS No. 123, "Accounting for Stock-Based Compensation,"
in 1996. The Company has elected to continue to account for its stock-based
compensation plans under Accounting Principles Board ("APB") Opinion No. 25 and
disclose the pro forma effects of the plans on net income and earnings per share
as provided by SFAS No. 123. Accordingly, no compensation expense has been
recognized for the stock option plans and employee stock purchase plans as all
options have been issued at fair market value. Since PE Biosystems Stock was not
part of the capital structure of the Company for the periods presented, there
were no stock options outstanding. Therefore, the pro forma effect of PE
Biosystems Stock options on the accompanying historical combined financial
statements is not presented.
NOTE 9 ADDITIONAL INFORMATION
SELECTED ACCOUNTS
The following table provides the major components of selected accounts of
the Combined Statements of Financial Position:
[Download Table]
AT JUNE 30,
--------------------
(DOLLAR AMOUNTS IN MILLIONS) 1997 1998
----------------------------------- --------- ---------
Other long-term assets:
Goodwill........................... $ 17.5 $ 69.8
Other.............................. 137.9 170.8
--------- ---------
Total other long-term assets....... $ 155.4 $ 240.6
--------- ---------
--------- ---------
Other accrued expenses:
Deferred service contract
revenues......................... $ 20.4 $ 28.4
Restructuring provisions........... -- 26.9
Other.............................. 57.5 65.9
--------- ---------
Total other accrued expenses....... $ 77.9 $ 121.2
--------- ---------
--------- ---------
Other long-term liabilities:
Accrued postretirement benefits.... $ 91.2 $ 87.4
Other.............................. 27.8 36.6
--------- ---------
Total other long-term liabilities.. $ 119.0 $ 124.0
--------- ---------
--------- ---------
F-60
NOTE 10 RESTRUCTURING AND OTHER MERGER COSTS
The PE Biosystems Group initiated a restructuring plan in fiscal 1998 for
actions associated with the acquisition of PerSeptive. Fiscal 1996 also included
a charge by PerSeptive for restructuring actions and other related costs. The
before-tax charges associated with the implementation of these restructuring
plans were $17.5 million and $48.1 million for fiscal 1996 and 1998,
respectively.
FISCAL 1996
Fiscal 1996 included a charge by PerSeptive for restructuring actions and
other related costs. These costs primarily related to actions to identify
research and development programs, discontinue certain product lines, and make
organizational changes. The components of these costs included $9.8 million
related to the write-off of certain long-term assets used in discontinued
product offerings and other asset impairments, $2.6 million of severance costs
principally resulting from approximately 65 U.S. and European employee
terminations, and $5.1 million of accrued legal costs primarily related to
patent defense costs. The majority of asset write-offs and severance costs were
completed in fiscal 1996. Legal costs paid were $1.6 million, $1.6 million, and
$.3 million in fiscal 1996, 1997, and 1998, respectively. No significant
adjustments were made to the liability accrued in fiscal 1996.
FISCAL 1998
During fiscal 1998, the PE Biosystems Group recorded a $48.1 million
before-tax charge for restructuring and other merger costs to integrate
PerSeptive into the PE Biosystems Group following the acquisition. The
objectives of this plan are to lower PerSeptive's cost structure by reducing
excess manufacturing capacity, achieve broader worldwide distribution of
PerSeptive's products, and combine sales, marketing, and administrative
functions. The charge included: $33.9 million for restructuring the combined
operations; $8.6 million for transaction costs; and $4.1 million of inventory-
related write-offs, recorded in cost of sales, associated with the
rationalization of certain product lines. Additional non-recurring acquisition
costs of $1.5 million for training, relocation, and communication were
recognized as period expenses in the third and fourth quarters of fiscal 1998,
and classified as other merger-related costs. During fiscal 1999, the PE
Biosystems Group recognized $2.0 million of additional merger-related period
expenses as part of this plan, and the PE Biosystems Group expects to incur an
additional $3.0 million to $5.0 million of merger-related costs for training,
relocation, and communication over the remaining quarters of fiscal 1999. These
costs will be recognized as period expenses when incurred and will be classified
as other merger-related costs.
The $33.9 million restructuring charge includes $13.8 million for
severance-related costs and workforce reductions of approximately 170 employees,
consisting of 114 employees in production labor and 56 employees in sales and
administrative support. The remaining $20.1 million represents facility
consolidation and asset-related write-offs and includes: $11.7 million for
contract and lease terminations and facility related expenses in connection with
the reduction of excess manufacturing capacity; $3.2 million for dealer
termination payments, sales office consolidations, and consolidation of sales
and administrative support functions; and $5.2 million for the write-off of
certain tangible and intangible assets and the termination of certain
contractual obligations. These restructuring actions are expected to be
substantially completed by the end of fiscal 1999. Transaction costs of $8.6
million include acquisition-related investment banking and professional fees. As
of December 31, 1998, approximately 120 employees were separated under the plan,
and the actions are proceeding as planned.
F-61
The following table details the major components of the fiscal 1998
restructuring plan:
[Download Table]
FACILITY
CONSOLIDATION
AND ASSET
RELATED
(DOLLAR AMOUNTS IN MILLIONS) PERSONNEL WRITE-OFFS TOTAL
----------------------------------- --------- --------- ------
Provision:
Reduction of excess European
manufacturing capacity........... $ 5.1 $11.7 $ 16.8
Consolidation of sales and
administrative support........... 8.7 3.2 11.9
Other.............................. 5.2 5.2
--------- --------- ------
Total provision.................... $13.8 $20.1 $ 33.9
--------- --------- ------
Fiscal 1998 activity:
Reduction of excess European
manufacturing capacity........... $-- $ .4 $ .4
Consolidation of sales and
administrative support........... .3 1.2 1.5
Other.............................. 5.1 5.1
--------- --------- ------
Total fiscal 1998 activity......... $ .3 $ 6.7 $ 7.0
--------- --------- ------
Fiscal 1999 activity:
Reduction of excess European
manufacturing capacity........... $ .1 $ 5.2 $ 5.3
Consolidation of sales and
administrative support........... 2.1 .5 2.6
Other..............................
--------- --------- ------
Total fiscal 1999 activity
(unaudited)...................... $ 2.2 $ 5.7 $ 7.9
--------- --------- ------
Balance at December 31, 1998:
Reduction of excess European
manufacturing capacity........... $ 5.0 $ 6.1 $ 11.1
Consolidation of sales and
administrative support........... 6.3 1.5 7.8
Other.............................. .1 .1
--------- --------- ------
Balance at December 31, 1998
(unaudited)...................... $11.3 $ 7.7 $ 19.0
--------- --------- ------
--------- --------- ------
NOTE 11 COMMITMENTS AND CONTINGENCIES
Future minimum payments at June 30, 1998 under non-cancelable operating
leases for real estate and equipment were as follows:
[Download Table]
(DOLLAR AMOUNTS IN MILLIONS)
---------------------------------------------
1999......................................... $ 21.0
2000......................................... 16.8
2001......................................... 15.2
2002......................................... 13.2
2003......................................... 12.2
2004 and thereafter.......................... 60.6
---------
Total........................................ $ 139.0
---------
---------
Rental expense was $23.5 million in fiscal 1996, $22.2 million in fiscal
1997, and $28.7 million in fiscal 1998.
In fiscal 1997, the PE Biosystems Group entered into a fifteen-year
non-cancelable lease for a facility in Foster City, California, effective July
1, 2000. Total lease payments over the fifteen-year period will be approximately
$42 million.
The Company has been named as a defendant in several legal actions,
including patent, commercial, and environmental, arising from the conduct of the
PE Biosystems Group's normal business activities. Although the amount of any
liability that might arise with respect to any of these matters cannot be
accurately predicted, the resulting liability, if any, will not in the opinion
of management have a material adverse effect on the financial statements of the
PE Biosystems Group or the Company.
The holders of PE Biosystems Stock will be stockholders of the Company and
will continue to be subject to all risks associated with an investment in the
Company, including any legal proceedings and claims affecting the Celera
Genomics Group.
NOTE 12 FINANCIAL INSTRUMENTS
The PE Biosystems Group utilizes foreign exchange forward, option, and
synthetic forward contracts and an interest rate swap agreement to manage
foreign currency and interest rate exposures. The principal objective of these
contracts is to minimize the risks and/or costs associated with global financial
and operating activities. The PE Biosystems Group does not use derivative
financial instruments for trading or other speculative purposes, nor is the PE
F-62
Biosystems Group a party to leveraged derivatives.
FOREIGN CURRENCY RISK MANAGEMENT
Foreign exchange forward, option, and synthetic forward contracts are used
primarily to hedge reported and anticipated cash flows resulting from the sale
of products in foreign locations. Option contracts outstanding at June 30, 1998
were purchased at a cost of $4.1 million. Under these contracts, the Company has
the right, but not the obligation, to purchase or sell foreign currencies at
fixed rates at various maturity dates. These contracts are utilized primarily
when the amount and/or timing of the foreign currency exposures are not certain.
Synthetic forward contracts outstanding at June 30, 1998 were purchased having
no up-front cost. Under these contracts, the Company may participate in some
favorable currency movements but is protected against adverse currency changes.
These contracts are used as an alternative to options to reduce the cost of the
Company hedging program.
At June 30, 1997 and 1998, and December 31, 1998 the Company had forward,
option, and synthetic forward contracts outstanding for the sale and purchase of
foreign currencies at fixed rates as summarized in the table below:
[Enlarge/Download Table]
DECEMBER 31, 1998
JUNE 30, 1997 JUNE 30, 1998 (UNAUDITED)
--------------------- --------------------- --------------------
(DOLLAR AMOUNTS IN MILLIONS) SALE PURCHASE SALE PURCHASE SALE PURCHASE
------------------------------ --------- --------- --------- --------- --------- --------
Japanese Yen.................. $ 74.6 $-- $ 99.4 $-- $ 82.0 $
French Francs................. 14.1 16.9 .2 8.7
Australian Dollars............ 7.4 7.5 6.8
German Marks.................. 11.4 17.2 22.4 1.4
Italian Lira.................. 5.6 1.2 21.4 .8 14.2
British Pounds................ 1.7 27.0 12.6 25.6 21.1
Swiss Francs.................. 3.2 8.2 4.0 5.8 10.5
Swedish Krona................. 1.4 6.1 6.5 .2
Danish Krona.................. 1.0 5.3 5.2 .2
Other......................... 3.4 21.5 .2 19.6 3.3
--------- --------- --------- --------- --------- --------
Total......................... $ 122.1 $ 2.9 $ 230.5 $ 17.8 $ 196.8 $36.7
--------- --------- --------- --------- --------- --------
--------- --------- --------- --------- --------- --------
Foreign exchange contracts are accounted for as hedges of firm commitments
and anticipated foreign currency transactions. With respect to firm commitments,
unrealized gains and losses are deferred and included in the basis of the
transaction underlying the commitment. Gains and losses on foreign currency
transactions are recognized in income and offset the foreign exchange losses and
gains, respectively, on the related transactions. The amount of the contracts
covering anticipated transactions is marked to market and recognized in income.
INTEREST RATE RISK MANAGEMENT
In fiscal 1997, the Company entered into an interest rate swap in
conjunction with a five-year Japanese Yen debt obligation (see Note 3). The
interest rate swap agreement involves the payment of a fixed rate of interest
and the receipt of a floating rate of interest without the exchange of the
underlying notional loan principal amount. Under this contract, the Company will
make fixed interest payments of 2.1% while receiving interest at a LIBOR
floating rate. No other cash payments will be made unless the contract is
terminated prior to maturity, in which case the amount to be paid or received in
settlement is established by agreement at the time of termination. The agreed
upon amount usually represents the net present value at the then existing
interest rates of the remaining obligation to exchange payments under the terms
of the contract.
Based on the level of interest rates prevailing at June 30, 1998, the fair
value of the Company floating rate debt approximated its carrying value. There
would be a payment of $.9 million to terminate the related interest rate swap
contract, which would equal the unrealized
F-63
loss. Unrealized gains or losses on debt or interest rate swap contracts are not
recognized for financial reporting purposes unless the debt is retired or the
contracts are terminated prior to maturity. A change in interest rates would
have no impact on the Company's reported interest expense and related cash
payments because the floating rate debt and fixed rate swap contract have the
same maturity and are based on the same interest rate index.
CONCENTRATIONS OF CREDIT RISK
The forward contracts, options, synthetic forwards, and swaps used by the
Company in managing its foreign currency and interest rate exposures contain an
element of risk that the counterparties may be unable to meet the terms of the
agreements. However, the Company minimizes such risk exposure by limiting the
counterparties to a diverse group of highly rated major domestic and
international financial institutions with which the Company has other financial
relationships. The Company is exposed to potential losses in the event of non-
performance by these counterparties; however, the Company does not expect to
record any losses as a result of counterparty default. The Company does not
require and is not required to place collateral for these financial instruments.
FAIR VALUE
The fair value of foreign currency forward, option (net of fees), and
synthetic forward contracts, as well as interest rate swaps, is estimated based
on quoted market prices of comparable contracts and reflects the amounts the
Company would receive (or pay) to terminate the contracts at the reporting date.
The following table presents notional amounts and fair values of the Company
derivatives at June 30, 1997 and 1998:
[Download Table]
1997 1998
------------------------ ------------------------
(DOLLAR AMOUNTS IN NOTIONAL NOTIONAL
MILLIONS) AMOUNT FAIR VALUE AMOUNT FAIR VALUE
------------------ ----------- ----- ----------- -----
Forward
contracts....... $ 89.0 $ (3.7) $ 123.9 $ 2.1
Purchased
options......... $ 36.1 $ .3 $ 76.7 $ 1.3
Synthetic
forwards........ $ 41.5 $ 1.7
Interest rate
swap............ $ 33.6 $ .2 $ 27.0 $ (.9)
The following methods are used in estimating the fair value of other
significant financial instruments held or owed by the Company. Cash and
short-term investments approximate their carrying amount due to the duration of
these instruments. Fair values of minority equity investments and notes
receivable are estimated based on quoted market prices, if available, or quoted
market prices of financial instruments with similar characteristics. The fair
value of debt is based on the current rates offered to the Company for debt of
similar remaining maturities. The following table presents the carrying amounts
and fair values of the Company's other financial instruments at June 30, 1997
and 1998:
[Download Table]
1997 1998
---------------------- ------------------------
(DOLLAR AMOUNTS IN CARRYING FAIR CARRYING
MILLIONS) AMOUNT VALUE AMOUNT FAIR VALUE
----------------------- ----------- --------- ----------- -----
Cash and short-term
investments.......... $ 217.2 $ 217.2 $ 84.1 $ 84.1
Minority equity
investments.......... $ 22.6 $ 22.6 $ 29.2 $ 29.2
Note receivable........ $ 7.2 $ 7.2
Short-term debt........ $ 29.9 $ 29.9 $ 12.1 $ 12.1
Long-term debt......... $ 59.2 $ 59.0 $ 33.7 $ 34.6
Net unrealized gains and losses on minority equity investments are reported
as a separate component of shareholders' equity. The PE Biosystems Group
reported an unrealized holding gain of $3.1 million at June 30, 1997 and a $1.4
million unrealized holding loss at June 30, 1998.
NOTE 13 RELATED PARTY TRANSACTIONS
RELATED PARTY TRANSACTIONS
One of the Company's directors is an employee of the Roche Group, a
pharmaceutical manufacturer and strategic partner of the Company in the
biotechnology field. The PE Biosystems Group made payments to the Roche Group
and its affiliates, for the purchase of reagents and consumables, of $59.7
million, $68.2 million, and $72.5 million in fiscal 1996, 1997, and 1998,
respectively.
SALES OF PRODUCTS AND SERVICES BETWEEN GROUPS
A Group will sell products or services to the other Group on terms that
would be available
F-64
from third parties in commercial transactions. If terms for such transactions
are not available, the purchasing Group will pay fair value as determined by the
Board for such products and pay for such services at fair value, as determined
by the Board, or at the cost (including overhead) of the selling Group. For the
six month period ended December 31, 1998, unaudited revenues included $8.4
million of instruments and consumables and $1.4 million of research services to
the Celera Genomics Group.
ACCESS TO TECHNOLOGY AND KNOW-HOW
Each Group will have free access to all Company technology and know-how
(excluding products and services of the other Group) that may be useful in that
Group's business, subject to obligations and limitations applicable to the
Company and to such exceptions that the Board may determine. The Groups will
consult with each other on a regular basis concerning technology issues that
affect both Groups. The costs of developing this technology remain in the Group
responsible for its development.
NOTE 14 ACCUMULATED OTHER COMPREHENSIVE INCOME (LOSS)
Accumulated other comprehensive income (loss) for fiscal 1996, 1997, 1998,
and for the six months ended December 31, 1998 (unaudited) is as follows:
[Enlarge/Download Table]
FOREIGN MINIMUM
CURRENCY UNREALIZED PENSION
TRANSLATION GAIN (LOSS) ON LIABILITY
(DOLLARS AMOUNTS IN MILLIONS) ADJUSTMENTS INVESTMENTS ADJUSTMENT
---------------------------------------------------------------------- ----------- -------------- -----------
Balance at June 30, 1995.............................................. $ 10.0 $ -- $ (34.4)
Current period activity............................................... (10.9) 23.2 5.0
----------- ------- -----------
Balance at June 30, 1996.............................................. (.9) 23.2 (29.4)
Current period activity............................................... (4.2) (20.1) 28.7
----------- ------- -----------
Balance at June 30, 1997.............................................. (5.1) 3.1 (.7)
Current period activity............................................... (2.7) (4.5) .3
----------- ------- -----------
Balance at June 30, 1998.............................................. (7.8) (1.4) (.4)
Current period activity............................................... 5.1 2.7
----------- ------- -----------
Balance at December 31, 1998 (unaudited).............................. $ (2.7) $ 1.3 $ (.4)
----------- ------- -----------
----------- ------- -----------
NOTE 15 DISCONTINUED OPERATIONS
On January 21, 1999, we announced a plan to sell our Analytical Instruments
business. On March 8, 1999, we announced an agreement for the sale of this
business to EG&G, Inc. for $425 million. Under the terms of the agreement, we
will receive $275 million in cash and a $150 million one-year note. Accordingly,
the results have been reclassified from amounts previously reported and are
stated separately in the combined financial statements as discontinued
operations pending disposition. The Company expects to recognize a gain on
disposal. However, the actual results could differ
F-65
significantly depending on the transaction costs incurred, the amount expected
to be realized upon the sale of the business. Summary results prior to
discontinuance were as follows:
[Enlarge/Download Table]
FOR THE SIX MONTHS
FOR THE YEARS ENDED ENDED
JUNE 30, DECEMBER 31,
------------------------------- --------------------
(DOLLAR AMOUNTS IN MILLIONS) 1996 1997 1998 1997 1998
----------------------------------------------------------------- --------- --------- --------- --------- ---------
(UNAUDITED)
Net revenues..................................................... $ 606.7 $ 604.9 $ 586.8 $ 280.6 $ 261.1
Restructuring charges............................................ 71.6 13.0 -- -- --
Total costs and expenses......................................... 650.2 570.2 532.6 256.7 263.0
Provision (benefit) for income taxes............................. (5.7) 6.8 13.5 6.6 2.1
--------- --------- --------- --------- ---------
Income (loss) from discontinued operations....................... $ (37.8) $ 27.9 $ 40.7 $ 17.3 $ (4.0)
--------- --------- --------- --------- ---------
--------- --------- --------- --------- ---------
The components of net assets of discontinued operations included in the
Consolidated Statements of Financial Position are as follows:
[Enlarge/Download Table]
AT JUNE 30, AT DECEMBER 31, 1998
-------------------- (UNAUDITED)
(DOLLAR AMOUNTS IN MILLIONS) 1997 1998
--------------------------------------------------------------------------- --------- ---------
Current assets:
Accounts receivable, net................................................. $ 149.2 $ 145.9 $ 155.1
Inventories.............................................................. 100.1 103.0 100.1
Prepaid expenses and other current assets................................ 25.9 35.2 39.6
Current liabilities:
Accounts payable......................................................... 45.8 45.7 46.4
Accrued expenses......................................................... 129.9 98.4 93.1
--------- --------- ------
CURRENT NET ASSETS......................................................... $ 102.9 $ 140.0 $ 155.3
--------- --------- ------
Long-term assets:
Property, plant and equipment, net....................................... $ 69.0 $ 95.1 $ 109.4
Other long-term assets................................................... 35.2 37.7 39.9
Long-term liabilities:
Other long-term liabilities.............................................. 56.2 55.1 61.1
--------- --------- ------
LONG-TERM NET ASSETS....................................................... $ 48.0 $ 77.7 $ 88.2
--------- --------- ------
NET ASSETS................................................................. $ 150.9 $ 217.7 $ 243.5
--------- --------- ------
--------- --------- ------
F-66
The cash flow provided (used) from discontinued operations were as follows:
[Enlarge/Download Table]
FOR THE SIX MONTHS
FOR THE YEARS ENDED ENDED
JUNE 30, DECEMBER 31,
------------------------------- --------------------
(DOLLAR AMOUNTS IN MILLIONS) 1996 1997 1998 1997 1998
----------------------------------------------------------------- --------- --------- --------- --------- ---------
(UNAUDITED)
OPERATING ACTIVITIES OF DISCONTINUED OPERATIONS
Income (loss) from discontinued operations....................... $ (37.8) $ 27.9 $ 40.7 $ 17.3 $ (4.0)
Adjustments to reconcile income (loss) from discontinued
operations to net cash provided (used) by operating activities
from discontinued operations:
Depreciation and amortization................................ 28.0 18.2 17.2 9.3 9.5
Long-term compensation programs.............................. 1.0 2.6 1.2 .5 .6
Deferred income taxes........................................ 2.2 3.0 2.7 .4 (.3)
Provision for restructured operations and other charges...... 71.6 13.0 -- -- --
Impairment of assets......................................... -- 7.5 -- -- --
Net change in assets and liabilities............................. (19.1) (32.4) (51.7) (33.6) (10.6)
--------- --------- --------- --------- ---------
NET CASH PROVIDED (USED) BY OPERATING ACTIVITIES FROM
DISCONTINUED OPERATIONS........................................ 45.9 39.8 10.1 (6.1) (4.8)
NET CASH USED BY INVESTING ACTIVITIES FROM DISCONTINUED
OPERATIONS..................................................... (15.9) (11.3) (40.6) (17.5) (21.6)
Net cash from discontinued operations before effect of exchange
rate changes on cash........................................... 30.0 28.5 (30.5) (23.6) (26.4)
--------- --------- --------- --------- ---------
EFFECT OF EXCHANGE RATE CHANGES ON CASH.......................... 3.2 (.6) 4.4 2.8 (3.5)
--------- --------- --------- --------- ---------
CASH FLOW PROVIDED (USED) FROM DISCONTINUED OPERATIONS........... $ 33.2 $ 27.9 $ (26.1) $ (20.8) $ (29.9)
--------- --------- --------- --------- ---------
--------- --------- --------- --------- ---------
RESTRUCTURING
FISCAL 1996
The fiscal 1996 before-tax restructuring charge of $71.6 million was the
first phase of a plan focused on improving the profitability and cash flow
performance of the Analytical Instruments business. In connection with the plan,
the business was reorganized into three vertically integrated, fiscally
accountable operating units; a distribution center was established in Holland to
centralize the European infrastructure for shipping, administration, and related
functions; and a program was implemented to eliminate excess production capacity
in Germany. The charge included $37.8 million for worldwide workforce reductions
of approximately 390 positions in manufacturing, sales and support, and
administrative functions. The charge also included $33.8 million for facility
consolidation and asset-related write-offs associated with the discontinuation
of various product lines.
In fiscal 1996, the PE Biosystems Group transferred the development and
manufacturing of certain analytical instrument product lines from its facility
in Germany to other sites, primarily in the United States. The facility in
Germany remains the principal site for the development of atomic absorption
products.
In fiscal 1996, a distribution center in Holland was established to provide
an integrated sales, shipment, and administration support infrastructure for the
Company's European operations and to integrate certain operating and business
activities. The European distribution center includes certain administrative,
financial, and information systems functions previously transacted at individual
locations throughout Europe.
In the fourth quarter of fiscal 1997, the PE Biosystems Group finalized
actions associated with the restructuring plan announced in fiscal 1996. The
costs to implement the program were $11.2 million below the $71.6 million charge
recorded in fiscal 1996. As a result, during the fourth quarter of fiscal 1997,
the Company recorded an $11.2 million reduction of charges required to implement
the fiscal 1996 plan.
F-67
The following table details the major components of the $71.6 million fiscal
1996 restructuring provision:
[Enlarge/Download Table]
FACILITY
CONSOLIDATION AND
ASSET RELATED
(DOLLAR AMOUNTS IN MILLIONS) PERSONNEL WRITE-OFFS
----------------------------------------------------------------------------------------- ------------- ---------------------
Provision:
Reduction of excess European manufacturing capacity...................................... $ 19.7 $ 23.0
Reduction of European distribution and administrative capacity........................... 11.5 6.0
Other worldwide workforce reductions and facility closings............................... 6.6 4.8
----- -----
Total provision.......................................................................... $ 37.8 $ 33.8
----- -----
Fiscal 1996 activity:
Reduction of excess European manufacturing capacity...................................... $ 2.1 $ 6.7
Reduction of European distribution and administrative capacity........................... 1.6 .7
Other worldwide workforce reductions and facility closings............................... 1.9 1.6
----- -----
Total fiscal 1996 activity............................................................... $ 5.6 $ 9.0
----- -----
Fiscal 1997 activity:
Reduction of excess European manufacturing capacity...................................... $ 10.9 $ 6.6
Adjustment to decrease liabilities originally accrued for excess European manufacturing
capacity............................................................................... 4.7 6.5
Reduction of European distribution and administrative capacity........................... 6.2 4.4
Other worldwide workforce reductions and facility closings............................... 1.9 2.0
----- -----
Total fiscal 1997 activity............................................................... $ 23.7 $ 19.5
----- -----
Fiscal 1998 activity:
Reduction of excess European manufacturing capacity...................................... $ 2.0 $ 3.2
Reduction of European distribution and administrative capacity........................... 3.7 .9
Other worldwide workforce reductions and facility closings............................... 2.8 1.2
----- -----
Total fiscal 1998 activity............................................................... $ 8.5 $ 5.3
----- -----
Balance at June 30, 1998................................................................. $ -- $ --
----- -----
----- -----
(DOLLAR AMOUNTS IN MILLIONS) TOTAL
----------------------------------------------------------------------------------------- ---------
Provision:
Reduction of excess European manufacturing capacity...................................... $ 42.7
Reduction of European distribution and administrative capacity........................... 17.5
Other worldwide workforce reductions and facility closings............................... 11.4
---------
Total provision.......................................................................... $ 71.6
---------
Fiscal 1996 activity:
Reduction of excess European manufacturing capacity...................................... $ 8.8
Reduction of European distribution and administrative capacity........................... 2.3
Other worldwide workforce reductions and facility closings............................... 3.5
---------
Total fiscal 1996 activity............................................................... $ 14.6
---------
Fiscal 1997 activity:
Reduction of excess European manufacturing capacity...................................... $ 17.5
Adjustment to decrease liabilities originally accrued for excess European manufacturing
capacity............................................................................... 11.2
Reduction of European distribution and administrative capacity........................... 10.6
Other worldwide workforce reductions and facility closings............................... 3.9
---------
Total fiscal 1997 activity............................................................... $ 43.2
---------
Fiscal 1998 activity:
Reduction of excess European manufacturing capacity...................................... $ 5.2
Reduction of European distribution and administrative capacity........................... 4.6
Other worldwide workforce reductions and facility closings............................... 4.0
---------
Total fiscal 1998 activity............................................................... $ 13.8
---------
Balance at June 30, 1998................................................................. $ --
---------
---------
As of June 30, 1998 all costs associated with the 1996 restructuring plans
have been incurred.
FISCAL 1997
During the fourth quarter of fiscal 1997, the PE Biosystems Group announced
a follow-on phase to Analytical Instruments' profit improvement program begun by
the Company in fiscal 1996. The cost for this action was $24.2 million
before-tax, and included $19.4 million for costs focused on further improving
the operating efficiency of manufacturing facilities in the United States,
Germany, and the United Kingdom. These actions were designed to help transition
Analytical Instruments from a highly vertical manufacturing operation to one
that relies more on outsourcing functions not considered core competencies. The
restructuring charge also included $4.8 million to finalize the consolidation of
sales and administrative support, primarily in Europe, where 17 facilities were
closed.
The workforce reductions under this plan total approximately 285 employees
in production labor and 25 employees in sales and administrative support. The
charge included $11.9 million for severance-related costs. The $12.3 million
provided for facility consolidation and asset-related write-offs included $1.2
million for lease termination payments and $11.1 million for the write-off of
machinery, equipment, and tooling associated with those functions to be
outsourced.
F-68
The following table details the major components of the fiscal 1997
restructuring provision:
[Enlarge/Download Table]
FACILITY
CONSOLIDATION AND
ASSET RELATED
(DOLLAR AMOUNTS IN MILLIONS) PERSONNEL WRITE-OFFS TOTAL
---------------------------------------------------------------------------- ------------- ------------------- ---------
Provision:
Changes in manufacturing operations......................................... $ 9.6 $ 9.8 $ 19.4
Consolidation of sales and administrative support........................... 2.3 2.5 4.8
----- ----- ---------
Total provision............................................................. $ 11.9 $ 12.3 $ 24.2
----- ----- ---------
Fiscal 1997 activity:
Changes in manufacturing operations......................................... $ .1 $ 4.6 $ 4.7
Consolidation of sales and administrative support...........................
----- ----- ---------
Total fiscal 1997 activity.................................................. $ .1 $ 4.6 $ 4.7
----- ----- ---------
Fiscal 1998 activity:
Changes in manufacturing operations......................................... $ 7.8 $ 4.9 $ 12.7
Consolidation of sales and administrative support........................... 1.3 1.1 2.4
----- ----- ---------
Total fiscal 1998 activity.................................................. $ 9.1 $ 6.0 $ 15.1
----- ----- ---------
Fiscal 1999 activity:
Changes in manufacturing operations......................................... $ 1.6 $ .2 $ 1.8
Consolidation of sales and administrative support........................... .7 .3 1.0
----- ----- ---------
Total fiscal 1999 activity (unaudited)...................................... $ 2.3 $ .5 $ 2.8
----- ----- ---------
Balance at December 31, 1998:
Changes in manufacturing operations......................................... $ .1 $ .1 $ .2
Consolidation of sales and administrative support........................... .3 1.1 1.4
----- ----- ---------
Balance at December 31, 1998 (unaudited).................................... $ .4 $ 1.2 $ 1.6
----- ----- ---------
----- ----- ---------
INCOME TAXES
Income (loss) before income taxes of discontinued operations for fiscal
1996, 1997, and 1998 is summarized below:
[Enlarge/Download Table]
(DOLLAR AMOUNTS IN MILLIONS) 1996 1997 1998
------------------------------------------------------------------------------------------- --------- --------- ---------
United States.............................................................................. $ 2.0 $ 22.7 $ 34.1
Foreign.................................................................................... (45.5) 12.0 20.1
--------- --------- ---------
Total...................................................................................... $ (43.5) $ 34.7 $ 54.2
--------- --------- ---------
--------- --------- ---------
The components of the provision (benefit) for income taxes for fiscal 1996,
1997, and 1998 consisted of the following:
[Enlarge/Download Table]
(DOLLAR AMOUNTS IN MILLIONS) 1996 1997 1998
------------------------------------------------------------------------------------------- --------- --------- ---------
Currently payable:
Domestic................................................................................. $ (2.0) $ (1.0) $ (3.7)
Foreign.................................................................................. 8.7 5.1 7.8
--------- --------- ---------
Total currently payable.................................................................. 6.7 4.1 4.1
Deferred:
Domestic................................................................................. (7.8) 4.8 4.9
Foreign.................................................................................. (4.6) (2.1) 4.5
--------- --------- ---------
Total deferred........................................................................... (12.4) 2.7 9.4
--------- --------- ---------
Provision (benefit) for income tax from discontinued operations............................ $ (5.7) $ 6.8 $ 13.5
--------- --------- ---------
--------- --------- ---------
In the fiscal years 1996, 1997 and 1998, the effective tax rates for the
discontinued operations were 13%, 20% and 25%, respectively. The difference
between the effective tax rate and the statutory tax rate of 35% was mainly
attributable to benefits from the use of U.S. alternative minimum tax credit
carryforwards, the benefits from the use of a foreign sales corporation and
federal research tax credits, and restructuring charges.
F-69
REPORT OF INDEPENDENT ACCOUNTANTS
To the Shareholders and Board of Directors of
The Perkin-Elmer Corporation
In our opinion, the accompanying combined statements of financial position and
the related combined statements of operations, of group equity, and of cash
flows present fairly, in all material respects, the financial position of the
Celera Genomics Group of The Perkin-Elmer Corporation at June 30, 1998 and 1997,
and the results of its operations and its cash flows for the years then ended in
conformity with generally accepted accounting principles. These financial
statements are the responsibility of the management of The Perkin-Elmer
Corporation; our responsibility is to express an opinion on these financial
statements based on our audits. We conducted our audits of these statements in
accordance with generally accepted auditing standards which require that we plan
and perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements, assessing the accounting principles used and significant estimates
made by management, and evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for the opinion expressed
above.
As described above and more fully in Note 1 to the Celera Genomics Group
combined financial statements, the Celera Genomics Group is a group of The
Perkin-Elmer Corporation; accordingly, the combined financial statements of the
Celera Genomics Group should be read in conjunction with the audited financial
statements of The Perkin-Elmer Corporation.
PricewaterhouseCoopers LLP
Stamford, Connecticut
July 31, 1998, except as to Note 7,
which is as of October 19, 1998
F-70
CELERA GENOMICS GROUP
COMBINED STATEMENTS OF OPERATIONS
[Enlarge/Download Table]
FOR THE SIX MONTHS
FOR THE YEARS ENDED JUNE 30, ENDED DECEMBER 31,
(DOLLAR AMOUNTS IN THOUSANDS --------------------------------- ---------------------
EXCEPT PER SHARE AMOUNTS) 1996 1997 1998 1997 1998
--------------------------------------------------------- --------- ---------- ---------- --------- ----------
(UNAUDITED)
NET REVENUES............................................. $ 159 $ 903 $ 4,211 $ 1,861 $ 5,631
Cost of sales............................................ 128 895 4,099 1,769 1,931
--------- ---------- ---------- --------- ----------
GROSS MARGIN............................................. 31 8 112 92 3,700
--------- ---------- ---------- --------- ----------
Selling, general and administrative...................... 624 2,228 6,725 1,772 10,750
Research and development................................. 212 3,081 6,180 1,809 11,006
Acquired research and development........................ 2,066 26,801 -- -- --
--------- ---------- ---------- --------- ----------
OPERATING LOSS........................................... (2,871) (32,102) (12,793) (3,489) (18,056)
--------- ---------- ---------- --------- ----------
LOSS BEFORE INCOME TAXES................................. (2,871) (32,102) (12,793) (3,489) (18,056)
Income tax benefit....................................... 282 1,855 4,478 1,221 6,320
--------- ---------- ---------- --------- ----------
NET LOSS................................................. $ (2,589) $ (30,247) $ (8,315) $ (2,268) $ (11,736)
--------- ---------- ---------- --------- ----------
--------- ---------- ---------- --------- ----------
UNAUDITED PRO FORMA NET LOSS PER SHARE (SEE NOTE 1):
Basic.................................................... $ (.34) $ (.47)
Diluted.................................................. $ (.34) $ (.47)
SEE ACCOMPANYING NOTES TO THE CELERA GENOMICS GROUP COMBINED FINANCIAL
STATEMENTS.
F-71
CELERA GENOMICS GROUP
COMBINED STATEMENTS OF FINANCIAL POSITION
[Enlarge/Download Table]
AT JUNE 30,
--------------------
(DOLLAR AMOUNTS IN THOUSANDS) 1997 1998
----------------------------------------------------------------------------- --------- --------- AT DECEMBER
31, 1998
-------------
(UNAUDITED)
ASSETS
Current assets
Accounts receivable........................................................ $ 402 $ 756 $ 938
Note receivable from the PE Biosystems Group (see Note 5).................. -- -- 311,281
Tax benefit receivable from the PE Biosystems Group (see Note 1)........... -- -- 4,376
Prepaid expenses and other current assets.................................. 70 138 209
--------- --------- -------------
Total current assets......................................................... 472 894 316,804
Property and equipment, net.................................................. 1,062 4,198 20,994
Other long-term assets....................................................... 1,449 1,247 1,213
--------- --------- -------------
TOTAL ASSETS................................................................. $ 2,983 $ 6,339 $ 339,011
--------- --------- -------------
--------- --------- -------------
LIABILITIES AND GROUP EQUITY
Current liabilities
Accounts payable........................................................... $ 219 $ 488 $ 2,559
Accrued salaries and wages................................................. 203 236 989
Other accrued expenses..................................................... 471 1,330 4,197
--------- --------- -------------
Total current liabilities.................................................... 893 2,054 7,745
Other long-term liabilities.................................................. 5,554 5,544 5,726
--------- --------- -------------
Total liabilities............................................................ 6,447 7,598 13,471
--------- --------- -------------
Commitments and contingencies (see Note 7)
Group equity (deficit)....................................................... (3,464) (1,259) 325,540
--------- --------- -------------
TOTAL LIABILITIES AND GROUP EQUITY........................................... $ 2,983 $ 6,339 $ 339,011
--------- --------- -------------
--------- --------- -------------
SEE ACCOMPANYING NOTES TO THE CELERA GENOMICS GROUP COMBINED FINANCIAL
STATEMENTS.
F-72
CELERA GENOMICS GROUP
COMBINED STATEMENTS OF CASH FLOWS
[Enlarge/Download Table]
FOR THE SIX MONTHS
FOR THE YEARS ENDED JUNE 30, ENDED DECEMBER 31,
--------------------------------- ---------------------
(DOLLAR AMOUNTS IN THOUSANDS) 1996 1997 1998 1997 1998
--------------------------------------------------------- --------- ---------- ---------- --------- ----------
(UNAUDITED)
OPERATING ACTIVITIES
Net loss................................................. $ (2,589) $ (30,247) $ (8,315) $ (2,268) $ (11,736)
Adjustments to reconcile net loss to net cash used by
operating activities:
Depreciation and amortization.......................... 203 241 650 280 659
Acquired research and development...................... 2,066 26,801 -- -- --
Changes in operating assets and liabilities:
(Increase) decrease in accounts receivable............. (23) (379) (354) (390) (182)
Increase in tax benefit receivable from
the PE Biosystems Group.............................. -- -- -- -- (4,376)
(Increase) decrease in prepaid expenses and other
assets............................................... (84) (82) (4) 7 (112)
Increase (decrease) in accounts payable and other
liabilities.......................................... 366 581 1,151 84 5,873
--------- ---------- ---------- --------- ----------
NET CASH USED BY OPERATING ACTIVITIES.................... (61) (3,085) (6,872) (2,287) (9,874)
--------- ---------- ---------- --------- ----------
INVESTING ACTIVITIES
Additions to property and equipment...................... (1,073) (411) (3,648) (1,031) (17,380)
Acquisitions and investments, net........................ (2,066) (22,676) -- -- --
--------- ---------- ---------- --------- ----------
NET CASH USED BY INVESTING ACTIVITIES.................... (3,139) (23,087) (3,648) (1,031) (17,380)
--------- ---------- ---------- --------- ----------
FINANCING ACTIVITIES
Net cash allocated from the PE Biosystems Group.......... 3,200 26,172 10,520 3,318 8,535
Proceeds from note receivable from the PE Biosystems
Group.................................................. -- -- -- -- 18,719
--------- ---------- ---------- --------- ----------
NET CASH PROVIDED BY FINANCING ACTIVITIES................ 3,200 26,172 10,520 3,318 27,254
--------- ---------- ---------- --------- ----------
NET CHANGE IN CASH AND CASH EQUIVALENTS.................. -- -- -- -- --
CASH AND CASH EQUIVALENTS BEGINNING OF PERIOD............ -- -- -- -- --
--------- ---------- ---------- --------- ----------
CASH AND CASH EQUIVALENTS END OF PERIOD.................. $ -- $ -- $ -- $ -- $ --
--------- ---------- ---------- --------- ----------
--------- ---------- ---------- --------- ----------
SEE ACCOMPANYING NOTES TO THE CELERA GENOMICS GROUP COMBINED FINANCIAL
STATEMENTS.
F-73
CELERA GENOMICS GROUP
COMBINED STATEMENTS OF GROUP EQUITY
[Enlarge/Download Table]
ACCUMULATED GROUP
(DOLLAR AMOUNTS IN THOUSANDS) OTHER DEFICIT EQUITY
---------------------------------------------------------------------------- ---------- ------------ ----------
BALANCE AT JUNE 30, 1995.................................................... $ -- $ -- $ --
Net cash allocated from the PE Biosystems Group............................. 3,200 -- 3,200
Net loss.................................................................... -- (2,589) (2,589)
---------- ------------ ----------
BALANCE AT JUNE 30, 1996.................................................... 3,200 (2,589) 611
Net cash allocated from the PE Biosystems Group............................. 26,172 -- 26,172
Net loss.................................................................... -- (30,247) (30,247)
---------- ------------ ----------
BALANCE AT JUNE 30, 1997.................................................... 29,372 (32,836) (3,464)
Net cash allocated from the PE Biosystems Group............................. 10,520 -- 10,520
Net loss.................................................................... -- (8,315) (8,315)
---------- ------------ ----------
BALANCE AT JUNE 30, 1998.................................................... 39,892 (41,151) (1,259)
Net cash allocated from the PE Biosystems Group............................. 8,535 -- 8,535
Net loss.................................................................... -- (11,736) (11,736)
Note receivable from the PE Biosystems Group................................ 330,000 -- 330,000
---------- ------------ ----------
BALANCE AT DECEMBER 31, 1998 (UNAUDITED).................................... $ 378,427 $ (52,887) $ 325,540
---------- ------------ ----------
---------- ------------ ----------
SEE ACCOMPANYING NOTES TO THE CELERA GENOMICS GROUP COMBINED FINANCIAL
STATEMENTS.
F-74
NOTES TO COMBINED FINANCIAL STATEMENTS
NOTE 1 ACCOUNTING POLICIES AND PRACTICES
BASIS OF PRESENTATION
The Perkin-Elmer Corporation ("Perkin-Elmer" or the "Company") is comprised
of two separate business segments in continuing operations: PE Biosystems and
the Celera Genomics business. PE Biosystems manufactures and markets biochemical
instrument systems and associated consumable products for life science research
and related applications. The Celera Genomics Group is engaged principally in
the generation, sale and support of genomic information databases and related
information management and analysis software; discovery, validation and
licensing of proprietary gene products, genetic markers and information
regarding genetic variability; and related consulting and contract research and
development services. The foundation of the Celera Genomics Group's strategy is
the sequencing of the entire human genome, which it expects to complete by
December 31, 2001. The Celera Genomics Group also includes the business and
operations of GenScope and AgGen. GenScope provides genomic-related contract
research and discovery services, utilizing AFLP gene expression profiling
technology. AgGen is a provider of genetic analysis services for plant and
animal breeding. The purchase of Linkage Genetics, Inc. and Zoogen, Inc. were
combined with the Company's applied agriculture unit to form AgGen.
The Board of Directors (the "Board") of the Company has recommended
shareholder approval of the Recapitalization Proposal that would result in The
Perkin-Elmer Corporation merging with a subsidiary of PE Corporation, a new
Delaware corporation, and the issuance to stockholders in the merger of two new
classes of common stock called PE Corporation-PE Biosystems Group Common Stock
("PE Biosystems Stock") and PE Corporation-Celera Genomics Group Common Stock
("Celera Genomics Stock"). PE Biosystems Stock is intended to reflect separately
the performance of the established PE Biosystems' life sciences and the
discontinued Analytical Instruments businesses ("PE Biosystems Group"), and
Celera Genomics Stock is intended to reflect separately the performance of the
Celera Genomics business ("Celera Genomics Group"). Each share of existing
common stock will be converted into one share of PE Biosystems Stock and 0.5 of
a share of Celera Genomics Stock. As used herein, "Perkin-Elmer" or the
"Company" means, with respect to events after the Recapitalization, the new
Delaware company that will issue the PE Biosystems Stock and the Celera Genomics
Stock.
The combined financial statements of the Celera Genomics Group and the PE
Biosystems Group (individually referred to as a "Group") comprise all of the
accounts included in the corresponding consolidated financial statements of the
Company. The separate Group combined financial statements give effect to the
accounting policies that will be applicable upon implementation of the
Recapitalization Proposal. The separate Celera Genomics Group and PE Biosystems
Group combined financial statements have been prepared on a basis that
management believes to be reasonable and appropriate and reflect (1) the
financial position, results of operations, and cash flows of businesses that
comprise each of the Groups, with all significant intragroup transactions and
balances eliminated, (2) in the case of the Celera Genomics Group combined
financial statements, corporate assets and liabilities of the Company and
related transactions identified with the Celera Genomics Group, including
allocated portions of the Company's debt and selling, general and administrative
costs, and (3) in the case of the PE Biosystems Group's combined financial
statements, all other corporate assets and liabilities and related transactions
of the Company, including allocated portions of the Company's debt and selling,
general and administrative costs. Intergroup transactions between the Celera
Genomics Group and the PE Biosystems Group have not been eliminated in the
Celera Genomics Group's combined financial statements.
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Holders of Celera Genomics Stock and PE Biosystems Stock will be
stockholders of a single company. The Celera Genomics Group and the PE
Biosystems Group are not separate legal entities. As a result, stockholders will
continue to be subject to all of the risks associated with an investment in the
Company and all of its businesses, assets, and liabilities. The issuance of
Celera Genomics Stock and PE Biosystems Stock and the allocations of assets and
liabilities between the Celera Genomics Group and the PE Biosystems Group will
not result in a distribution or spin-off of any assets or liabilities of the
Company or otherwise affect ownership of any assets or responsibility for the
liabilities of the Company or any of its subsidiaries. The assets the Company
attributes to one Group could be subject to the liabilities of the other Group,
whether such liabilities arise from lawsuits, contracts or indebtedness
attributable to the other Group. If the Company is unable to satisfy one Group's
liabilities out of assets attributed to it, the Company may be required to
satisfy these liabilities with assets attributed to the other Group.
Financial effects arising from one Group that affect the Company's results
of operations or financial condition could, if significant, affect the results
of operations or financial condition of the other Group and the market price of
the class of common stock relating to the other Group. Any net losses of the
Celera Genomics Group or the PE Biosystems Group and dividends or distributions
on, or repurchases of, Celera Genomics Stock or PE Biosystems Stock or
repurchases of preferred stock of the Company will reduce the assets of the
Company legally available for payment of dividends on Celera Genomics Stock.
The management and allocation policies applicable to the preparation of the
combined financial statements of the Celera Genomics Group and the PE Biosystems
Group may be modified or rescinded, or additional policies may be adopted, at
the sole discretion of the Board at any time without approval of the
stockholders. The Celera Genomics Group's combined financial statements reflect
the application of the management and allocation policies adopted by the Board
to various corporate activities, as described below. The Celera Genomics Group's
combined financial statements should be read in conjunction with the Company's
consolidated financial statements.
FINANCING ACTIVITIES
As a matter of policy, the Company manages most financing activities of the
Celera Genomics Group and the PE Biosystems Group on a centralized basis. These
activities include the investment of surplus cash, the issuance and repayment of
short-term and long-term debt and the issuance and repayment of any preferred
stock. As the results of the Celera Genomics Group were not significant for any
of the periods presented, all historical cash and debt balances for the periods
presented have been allocated to the PE Biosystems Group.
The Board has adopted the following financing policy which will affect the
combined statements of the Celera Genomics Group and the PE Biosystems Group.
The Company will allocate the Company's debt between the Celera Genomics
Group and the PE Biosystems Group ("pooled debt") or, if the Company so
determines, in its entirety to a particular Group. The Company will allocate
preferred stock, if issued, in a similar manner.
Cash allocated to one Group that is used to repay pooled debt or redeem
pooled preferred stock will decrease such Group's allocated portion of the
pooled debt or preferred stock. Cash or other property allocated to one Group
that is transferred to the other Group will, if so determined by the Board,
decrease the transferring Group's allocated portion of the pooled debt or
preferred stock and, correspondingly, increase the recipient Group's allocated
portion of the pooled debt or preferred stock.
Pooled debt will bear interest for Group financial statement purposes at a
rate equal to the weighted average interest rate of the debt calculated on a
quarterly basis and applied to the average pooled debt balance during the
period. Preferred stock, if issued and if pooled in a manner similar to the
pooled debt, will bear dividends for Group financial statement
F-76
purposes at a rate based on the weighted average dividend rate of the preferred
stock similarly calculated and applied. Any expense related to increases in
pooled debt or preferred stock will be reflected in the weighted average
interest or dividend rate of such pooled debt or preferred stock as a whole.
If the Company allocates debt for a particular financing in its entirety to
one Group, that debt will bear interest for Group financial statement purposes
at the rate determined by the Board. If the Company allocates preferred stock in
its entirety to one Group, the Company will charge the dividend cost to that
Group in a similar manner. If the interest or dividend cost is higher than the
Company's actual cost, the other Group will receive a credit for an amount equal
to the difference as compensation for the use of the Company's credit capacity.
Any expense related to debt or preferred stock of the Company that is allocated
in its entirety to a Group will be allocated in whole to that Group.
Cash or other property that the Company allocates to one Group that is
transferred to the other Group, could, if so determined by the Board, be
accounted for either as a short-term loan or as a long-term loan. Short-term
loans will bear interest at a rate equal to the weighted average interest rate
of the Company's pooled debt. If the Company does not have any pooled debt, the
Board will determine the rate of interest for such loan. The Board will
establish the terms on which long-term loans between the Groups will be made,
including interest rate, amortization schedule, maturity and redemption terms.
Although the Company may allocate its debt and preferred stock between
Groups, the debt and preferred stock will remain obligations of the Company and
all stockholders of the Company will be subject to the risks associated with
those obligations.
In addition, following the effective time of the recapitalization, cash
allocated to the PE Biosystems Group may be contributed to the Celera Genomics
Group in exchange for Celera Group Designated Shares.
ALLOCATION OF CORPORATE OVERHEAD AND ADMINISTRATIVE SHARED SERVICES
A portion of the Company's corporate overhead (such as executive management,
human resources, legal, accounting, auditing, tax, treasury, strategic planning
and environmental services) has been allocated to the Celera Genomics Group
based upon the use of services by that Group. A portion of the Company's costs
of administrative shared services (such as information technology services) has
been allocated in a similar manner. Where determination based on use alone is
not practical, other methods and criteria were used that management believes are
equitable and provide a reasonable estimate of the cost attributable to the
Celera Genomics Group. The total of these allocations was $.1 million for fiscal
1996, $.2 million for fiscal 1997, $1.7 million for fiscal 1998, $.2 million for
the six months ended December 31, 1997 and $2.5 million for the six months ended
December 31, 1998. It is not practicable to provide a detailed estimate of the
expenses which would be recognized if the Celera Genomics Group were a separate
legal entity.
ALLOCATION OF FEDERAL AND STATE INCOME TAXES
The federal income taxes of the Company and its subsidiaries which own
assets allocated between the Groups are determined on a consolidated basis.
Consolidated federal income tax provisions and related tax payments or refunds
will be allocated between the Groups based principally on the taxable income and
tax credits directly attributable to each Group. Such allocations will reflect
each Group's contribution (positive or negative) to the Company's consolidated
federal taxable income and the consolidated federal tax liability and tax credit
position. Tax benefits that cannot be used by the Group generating those
benefits but can be used on a consolidated basis will be credited to the Group
that generated such benefits. Intergroup transactions will be taxed as if each
Group were a stand alone company. Tax benefits generated by the Celera Genomics
Group commencing July 1, 1998, which then can be utilized on a consolidated
basis, will be credited to the Celera Genomics Group up to a maximum limit of
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$75 million. The Celera Genomics Group generated $6.3 million of tax benefits
for the six months ended December 31, 1998.
Had the Groups filed separate tax returns, the provision (benefit) for
income taxes and net income (loss) for each Group would not have differed from
the amounts reported in the Groups' combined statements of operations for the
years ended June 30, 1996, 1997, and 1998, or for the three-month periods ended
December 31, 1997, and 1998. However, the amount of current and deferred taxes
and taxes payable or refundable allocated to each Group in these historical
combined financial statements may differ from those that would have been
allocated to each Group had they filed separate income tax returns.
Depending on the tax laws of the respective jurisdictions, state and local
income taxes are calculated on either a consolidated or combined basis between
the Groups based on their respective contribution to such consolidated or
combined state taxable incomes. State and local income tax provisions and
related tax payments or refunds which are determined on a separate corporation
basis will be allocated between the Groups in a manner designed to reflect the
respective contributions of the Groups to the Company's separate or local
taxable income.
The discussion of the Celera Genomics Group's income taxes (Note 3) should
be read in conjunction with the Company's consolidated financial statements and
the notes thereto.
TRANSFERS OF ASSETS BETWEEN GROUPS
Transfers of assets can be made between groups without stockholder approval.
Such transfers will be made at fair value, as determined by our board of
directors. The consideration for such transfers may be paid by one Group to the
other in cash or other consideration, as determined by our board of directors.
DIVIDENDS
For purposes of the historical combined financial statements of the Celera
Genomics Group and the PE Biosystems Group, all dividends declared and paid by
the Company have been allocated to the PE Biosystems Group. The Company
initially intends to pay a dividend on PE Biosystems Stock but does not
anticipate paying dividends on Celera Genomics Stock for the foreseeable future.
PRINCIPLES OF COMBINATION
The Celera Genomics Group's combined financial statements have been prepared
in accordance with generally accepted accounting principles and, taken together
with the PE Biosystems Group's combined financial statements, comprise all the
accounts included in the corresponding consolidated financial statements of the
Company. The combined financial statements of each Group reflect the financial
condition, results of operations, and cash flows of the businesses included
therein. The combined financial statements of the Celera Genomics Group include
the accounts or assets of the Company specifically allocated to the Celera
Genomics Group. The preparation of the combined financial statements in
conformity with generally accepted accounting principles requires management to
make estimates and assumptions that affect the reported amounts of assets and
liabilities, disclosure of contingent assets and liabilities at the date of the
financial statements, and the reported amounts of revenues and expenses during
the reporting periods. Actual results could differ from those estimates.
RECENT ACCOUNTING STANDARDS
During the first quarter of fiscal 1999, the Celera Genomics Group adopted
Statement of Financial Accounting Standards ("SFAS") No. 130, "Reporting
Comprehensive Income." The provisions of this statement require disclosure of
total comprehensive income within the combined financial statements of interim
periods and additional disclosures of the components of comprehensive income on
an annual basis. The Celera Genomics Group has no items of other comprehensive
income (loss) in any period presented.
In June 1998, the Financial Accounting Standards Board ("FASB") issued SFAS
No. 133, "Accounting for Derivative Instruments and Hedging Activities." The
provisions of the
F-78
statement require the recognition of all derivatives as either assets or
liabilities in the statement of financial position and the measurement of those
instruments at fair value. The accounting for changes in the fair value of a
derivative depends on the intended use of the derivative and the resulting
designation. The Celera Genomics Group is required to implement the statement in
the first quarter of fiscal 2000. Management believes the statement will not
have a material impact on the combined financial statements.
EARNINGS PER SHARE
Historical per share information is omitted from the Combined Statements of
Operations because Celera Genomics Stock was not part of the capital structure
of the Company for the periods presented. Following implementation of the
Recapitalization Proposal, earnings per share for Celera Genomics Stock will
reflect the terms of the new Delaware company's certificate of incorporation and
will be computed in accordance with SFAS No.128, "Earnings per Share." Basic
earnings per share will be computed by dividing net income for the period by the
weighted average number of shares of Celera Genomics Stock outstanding. Diluted
earnings per share will be computed by dividing net income for the period by the
weighted average number of shares of Celera Genomics Stock outstanding including
the dilutive effect of Celera Genomics Stock equivalents. Pro-forma earnings per
share, reflecting Celera Genomics Stock issued under the Recapitalization
Proposal, are presented in the Celera Genomics Group Combined Statements of
Operations.
PROPERTY AND EQUIPMENT AND DEPRECIATION
Property and equipment are recorded at cost and consisted of the following
at June 30, 1997 and 1998:
[Download Table]
JUNE 30,
--------------------
(DOLLAR AMOUNTS IN MILLIONS) 1997 1998
---------------------------------------- --------- ---------
Machinery and equipment................. $ 1.4 $ 1.7
Leasehold improvements.................. .3 4.2
--- ---
Property and equipment, at cost......... 1.7 5.9
Accumulated depreciation and
amortization.......................... .6 1.7
--- ---
Property and equipment, net............. $ 1.1 $ 4.2
--- ---
--- ---
Major renewals and improvements that significantly add to productive
capacity or extend the life of an asset are capitalized. Repairs, maintenance
and minor renewals, and improvements are expensed when incurred.
Provisions for depreciation of owned property and equipment are based upon
the expected useful lives of the assets and computed primarily by the
straight-line method. Leasehold improvements are amortized over their estimated
useful lives or the term of the applicable lease, whichever is less, using the
straight-line method.
INTANGIBLE ASSETS
Purchased technology rights are amortized using the straight-line method
over their expected useful lives. At June 30, 1997, and 1998, and December 31,
1998 (unaudited), other long-term assets included purchased technology rights,
net of accumulated amortization, of $1.3 million, $1.2 million, and $1.2
million, respectively. Accumulated amortization of purchased technology rights
was $.1 million, $.2 million, and $.3 million at June 30, 1997, and 1998, and
December 31, 1998 (unaudited), respectively.
REVENUES
Revenues are currently generated from the Celera Genomics Group's GenScope
and AgGen businesses. Contract research service revenues are earned and
recognized generally on a percentage of completion or as contract research costs
are incurred according to the provisions of the underlying agreement. Amounts
received in advance of performance are recorded as deferred revenue. Revenues
from collaborative
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agreements and grant fundings are recognized in accordance with the provisions
of the relevant contracts.
RESEARCH AND DEVELOPMENT
Costs incurred for internal, contract and grant-sponsored research and
development are expensed when incurred. Grant-sponsored research and development
expense was $.3 million for the six months ended December 31, 1998.
UNAUDITED INTERIM FINANCIAL STATEMENTS
The accompanying unaudited combined interim financial statements have been
prepared in accordance with generally accepted accounting principles for interim
financial information and in accordance with the Securities and Exchange
Commission's rules and regulations for interim reporting. Accordingly, they do
not include all of the information and footnotes required by generally accepted
accounting principles for complete financial statements. In the opinion of the
Celera Genomics Group's management, the unaudited combined interim financial
statements include all adjustments, consisting of only normal recurring
adjustments, necessary to present fairly such interim financial information.
NOTE 2 ACQUISITIONS
GENSCOPE, INC.
During the third quarter of fiscal 1997, the Company acquired GenScope,
Inc., for $26.8 million. GenScope, founded in 1995, represented a development
stage venture with no operating history and effectively no revenues (limited R&D
contract services only). The Company obtained the right to utilize AFLP-based
gene expression technology in the field of human health, but did not obtain any
core technology or other rights. GenScope's limited balance sheet, with assets
of approximately $.2 million, had yet to deliver commercial value. Accordingly,
the Company recorded a charge of $25.4 million attributable to the in-process
technology purchased. The Company based this amount upon the early development
stage of this life science business acquired, the technological hurdles to apply
this technology to the field of human health and the underlying cash flow
projections. The acquisition represented the purchase of development stage
technology, not at the time considered commercially viable in the health care
applications that the Company intends to pursue. The Company's intent was to
first develop the technology into a set of molecular screening tools for use in
the enhancement of pharmaceutical product development. The Company allocated
$1.4 million of the purchase price to technology rights attributable to
GenScope's AFLP gene expression technology. AFLP is an enhancement of the
polymerase chain reaction ("PCR") process that allows selective analysis of any
portion of genetic material without the specific, prior sequence information
normally required for PCR. Of the $25.4 million expensed as in-process research
and development, $5.5 million represented a contingent liability due on the
issuance of a process patent for technology under development. Through June 30,
1998, the Company incurred approximately $4.9 million in additional research and
development costs to further develop the AFLP technology in the field of human
health. The Company anticipates spending an additional $13.9 million in fiscal
1999 and 2000 to substantially complete such project. Such costs approximate
those anticipated at the date of acquisition.
The Company acquired Linkage, a company solely engaged in genetic R&D
activities in the agriculture industry, during the fourth quarter of fiscal
1997. As a result, the acquisition cost of $1.4 million was expensed as
purchased in-process research and development.
During the fourth quarter of fiscal 1996, the Company acquired Zoogen, a
company solely engaged in genetic R&D activities in the animal healthcare market
for $2.1 million. The Company expensed the acquisition cost as purchased
in-process R&D.
NOTE 3 INCOME TAXES
The income tax benefit includes the Celera Genomics Group's allocated
portion of the Company's consolidated provision for income taxes.
Loss before income taxes, consisting of losses generated in the United
States, for fiscal 1996, 1997, 1998, and the six months ended
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December 31, 1998, was $2.9 million, $32.1 million, $12.8 million, and $18.1
million, respectively. The domestic income tax benefit for fiscal 1996, 1997,
1998, and the six months ended December 31, 1998, was $.3 million, $1.9 million,
$4.5 million, and $6.3 million, respectively.
A reconciliation of the federal statutory tax to the tax benefit for fiscal
1996, 1997, and 1998 is set forth in the following table:
[Download Table]
(DOLLAR AMOUNTS IN
MILLIONS) 1996 1997 1998
-------------------------------- --------- --------- ---------
Federal statutory rate.......... 35% 35% 35%
--------- --------- ---------
Tax at federal statutory rate... $1.0 $11.2 $4.5
Acquired research and
development................... (.7) (9.3) --
--------- --------- ---------
Income tax benefit.............. $ .3 $ 1.9 $4.5
--------- --------- ---------
--------- --------- ---------
NOTE 4 RETIREMENT AND OTHER BENEFITS
PENSION PLANS
The Company maintains or sponsors pension plans that cover selective
employees of the Celera Genomics Group. Pension benefits earned are generally
based on years of service and compensation during active employment. However,
the level of benefits and terms of vesting vary among the plans. Pension plan
assets are administered by trustees and are principally invested in equity and
fixed income securities. The funding of pension plans is determined in
accordance with statutory funding requirements. Pension expense, consisting
primarily of service cost, allocated to the Celera Genomics Group was less than
$.05 million in fiscal 1996, $.1 million in fiscal 1997, and $.1 million in
fiscal 1998.
SAVINGS PLAN
The Company provides a 401(k) savings plan, for most domestic employees,
with automatic Company contributions of 2% of eligible compensation and a
dollar-for-dollar matching contribution of up to 4% of eligible compensation.
The Company contributions allocated to the Celera Genomics Group were less than
$.05 million in fiscal 1996, $.1 million in fiscal 1997, and $.2 million in
fiscal 1998.
RETIREE HEALTH CARE AND LIFE INSURANCE BENEFITS
The Company provides certain health care and life insurance benefits to
domestic employees hired prior to January 1, 1993, who retire and satisfy
certain service and age requirements. Generally, medical coverage pays a stated
percentage of most medical expenses, reduced for any deductible and for payments
made by Medicare or other group coverage. The cost of providing these benefits
is shared with retirees. The plan is unfunded. The postretirement benefit
expense allocated to the Celera Genomics Group was not material for fiscal 1996,
1997, and 1998. Amounts allocated to the Celera Genomics Group were less than
$.05 million for all periods presented.
POSTEMPLOYMENT BENEFITS
The Company provides certain postemployment benefits to selected employees.
These benefits generally include severance, disability, and medical-related
costs paid after employment but before retirement.
NOTE 5 GROUP EQUITY AND NOTE RECEIVABLE
Celera Genomics Stock will represent a separate class of the new Delaware
company's common stock if the Recapitalization Proposal is approved. Additional
shares of Celera Genomics Stock may be issued from time to time upon exercise of
stock options or at the discretion of the Company's Board.
NOTE RECEIVABLE FROM THE PE BIOSYSTEMS GROUP
The development of the Celera Genomics Group's products and services will
require substantial funding. No organization has ever attempted to combine in
one business organization all of the Celera Genomics Group's businesses. The
initial capitalization of the Celera Genomics Group includes a $330 million
short-term note receivable from the PE Biosystems Group established at September
30, 1998. The $330 million note represented an allocation of the Company's
capital to the Celera Genomics Group and did not result in the PE Biosystems
Group holding an equity interest in the Celera Genomics Group. This allocation
of capital represented management's decision to allocate a portion of the
Company's capital to
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the Celera Genomics Group and the remaining capital to the PE Biosystems Group
prior to the effective date of the Recapitilization. The Group financial
statements do not include any intergroup equity interest. The note is expected
to be repaid with the proceeds from the sale of the Analytical Instruments
business of the PE Biosystems Group. Accordingly, no interest will be ascribed
to the note. At December 31, 1998 the outstanding balance of the note was $311.3
million.
The Company also intends to allocate tax benefits to the Celera Genomics
Group for losses incurred, resulting in up to $75 million of additional cash
resources for the Celera Genomics Group. For the six months ended December 31,
1998, the Celera Genomics Group generated $6.3 million of tax benefits. At
December 31, 1998, the tax benefit receivable was $4.4 million.
SHAREHOLDER'S PROTECTION RIGHTS PLAN
The Company has a Shareholder's Protection Rights Plan (the "Original Rights
Agreement") designed to protect shareholders against abusive takeover tactics by
issuing Participating Preferred Stock Purchase Rights (the "Original Rights")
for each share of existing common stock. Each Original Right entitles the holder
to buy one one-hundredth of a newly issued share of participating preferred
stock having economic and voting terms similar to those of one share of existing
common stock at an exercise price of $90, subject to adjustment.
The Original Rights are exercisable only if a person or a group acquires 20%
of more of the Company's existing common stock or commences a tender offer for
20% or more of the existing common stock. Before that time, the rights trade
with the existing common stock, but thereafter they become separately tradeable.
Upon exercise, each Original Right entitles the holder to purchase a number
of shares of preferred stock of the Company having a market value of two times
the exercise price. If the Company is acquired in a merger or other business
combination, each Original Right will entitle the holder to purchase at the then
exercise price a number of shares of common stock of the acquiring company
having a market value of two times such exercise price. If any person or group
acquires between 20% and 50% of the Company's shares, the Company's Board may,
at its option, exchange one share of the Company's existing common stock for
each Original Right. The Original Rights are redeemable at the Company's option
at one cent per right prior to a person or group becoming an acquiring person.
If the Recapitalization Proposal is implemented, the Company will enter into
new rights agreement (the "New Rights Agreement"), substantially similar to the
Original Rights Agreement containing provisions designed to, among other things,
(1) reflect the new equity structure of the Company, and (2) reset the prices at
which rights issued under the New Rights Agreement may be exercised for shares
of participating preferred stock. As of the effective time of the
recapitalization, the Company will (1) designate a new series of Preferred Stock
as the Series A Participating Junior Preferred Stock, (2) designate another new
series of Preferred Stock as the Series B Participating Junior Preferred Stock,
(3) issue one right for each share of PE Biosystems Stock (a "PE Biosystems
Right"), which will allow holders to purchase shares of Series A Participating
Junior Preferred Stock under conditions specified in the New Rights Agreement
and (4) issue one right for each share of Celera Genomics Stock (a "Celera
Genomic Right"), which will allow holders to purchase shares of Series B
Participating Junior Preferred Stock under conditions specified in the New
Rights Agreement.
The Rights will expire on the tenth anniversary of the adoption of the New
Rights Agreement, unless extended or terminated by the Company. The Rights would
be exercisable only if a person or group acquires (1) 15% or more of the shares
of PE Biosystems Stock then outstanding or (2) 15% or more of the Celera
Genomics Stock then outstanding, or commences a tender offer that would result
in such person or group beneficially owning such number of shares. In such
event, each right would entitle the holder to purchase from the Company (1) in
the case of a PE Biosystems Right, one one-thousandth (1/1000th) of a share of
Series A
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Participating Junior Preferred Stock at a purchase price of $425, subject to
adjustment, and (2) in the case of a Celera Genomics Right, one one-thousandth
(1/1000th) of a share of Series B Participating Junior Preferred Stock at a
purchase price of $125, subject to adjustment.
NOTE 6 STOCK INCENTIVE PLANS
1999 INCENTIVE STOCK PLANS
The Board has approved the PE Corporation/PE Biosystems Group 1999 Stock
Incentive Plan (the "PE Biosystems Group Plan") and the PE Corporation/Celera
Genomics Group 1999 Stock Incentive Plan (the "Celera Genomics Group Plan"),
subject to shareholder approval. The PE Biosystems Group Plan authorizes grants
of stock options, stock awards and performance shares with respect to PE
Biosystems Stock. The Celera Genomics Group Plan authorizes grants of stock
options, stock awards and performance shares with respect to Celera Genomics
Stock. The Company does not currently intend to grant awards under the PE
Biosystems Group Plan to members of the Celera Genomics Group. It is intended,
however, that certain directors, officers and key employees of the Company with
responsibilities involving both the PE Biosystems Group and the Celera Genomics
Group and certain key employees of each Group may be granted awards under both
incentive plans in a manner which reflects their responsibilities. The Board
believes that permitting incentive awards to be made to participants with
respect to the class of common stock which reflects the performance of the
Group's business in which the participants work and, in certain cases the other
Group, is in the best interest of the Company and its stockholders.
Several existing stock incentive plans which offer benefits in the form of,
or based on the performance of, the existing common stock will be affected by
the Recapitalization Proposal. The affected plans and management's intentions
with respect to those plans upon the approval and implementation of the
Recapitalization Proposal are discussed below.
STOCK OPTION PLANS
Under the Company's stock option plans, officers and other key employees may
be, and directors are, granted options, each of which allows for the purchase of
existing common stock at a price of not less than 100% of fair market value at
the date of grant. Under the normal vesting requirements, 50% of the options are
exercisable after one year and 100% after two years. Options generally expire
ten years from the date of grant.
Transactions relating to the stock option plans of the Company are
summarized below:
[Download Table]
WEIGHTED
NUMBER OF AVERAGE
OPTIONS EXERCISE PRICE
----------- ---------------
FISCAL 1996
Outstanding at June 30,
1995....................... 4,597,214 $ 29.97
Granted..................... 820,495 $ 46.43
Exercised................... 1,393,807 $ 29.48
Cancelled................... 201,367 $ 34.17
-----------
Outstanding at June 30,
1996....................... 3,822,535 $ 34.05
Exercisable at June 30,
1996....................... 2,544,100 $ 30.17
FISCAL 1997
Granted..................... 1,595,528 $ 59.78
Exercised................... 1,167,179 $ 29.73
Cancelled................... 95,281 $ 43.17
-----------
Outstanding at June 30,
1997....................... 4,155,603 $ 45.03
Exercisable at June 30,
1997....................... 2,254,052 $ 35.24
FISCAL 1998
Granted..................... 1,997,041 $ 70.41
Exercised................... 780,994 $ 34.76
Cancelled................... 154,686 $ 71.42
-----------
Outstanding at June 30,
1998....................... 5,216,964 $ 55.51
Exercisable at June 30,
1998....................... 2,936,389 $ 43.12
At June 30, 1998, 241,437 shares remained available for option grant.
The following table summarizes information regarding options outstanding and
exercisable at June 30, 1998:
[Download Table]
WEIGHTED AVERAGE
----------------------------
CONTRACTUAL
(OPTION PRICES PER NUMBER OF LIFE REMAINING EXERCISE
SHARE) OPTIONS IN YEARS PRICE
------------------------ ----------- --------------- -----------
Options outstanding:
At $2.04-$29.95......... 448,472 4.2 $ 20.93
At $30.25-$59.75........ 2,038,936 7.0 $ 40.87
At $60.06-$85.69........ 2,713,648 9.3 $ 71.83
At $90.86-$163.55....... 15,908 5.4 $ 120.86
Options exercisable:
At $2.04-$29.95......... 448,472 4.2 $ 20.93
At $30.25-$59.75........ 1,992,736 6.9 $ 40.53
At $60.06-$83.69........ 479,273 8.7 $ 72.07
At $90.86-$163.55....... 15,908 5.4 $ 120.86
If the Recapitalization Proposal is approved by the shareholders and
implemented by the
F-83
Board, each outstanding stock option under the Company's stock option plans will
be converted into separately exercisable options to acquire one share of PE
Biosystems Stock and 0.5 of a share of Celera Genomics Stock. The exercise price
for the resulting PE Biosystems Stock options and Celera Genomics Stock options
will be calculated by multiplying the exercise price under the original option
from which they were converted by a fraction, the numerator of which is the
average of the high and low price of PE Biosystems Stock or Celera Genomics
Stock, as the case may be, on the first date such stocks are traded on the New
York Stock Exchange and the denominator of which is the sum of such PE
Biosystems Stock and Celera Genomics Stock prices. However, the aggregate
intrinsic value of the options will not be increased, and the ratio of the
exercise price per option to the market value per share will not be reduced. In
addition, the vesting provision and option periods of the original grants will
remain the same when converted. No further grants may be made under the amended
plan.
EMPLOYEE STOCK PURCHASE PLAN
The Company's Employee Stock Purchase Plan offers domestic and certain
foreign employees the right to purchase, over a certain period, shares of
existing common stock on an annual offering date. The purchase price in the
United States is equal to the lower of 85% of the average market price of the
common stock on the offering date or 85% of the average market price of the
common stock on the last day of the purchase period. Provisions of the plan for
employees in foreign countries vary according to local practice and regulations.
Common stock issued under the Employee Stock Purchase Plan during fiscal
1996, 1997, and 1998 totaled 77,000 shares, 111,000 shares, and 174,000 shares,
respectively. At June 30, 1998, 499,000 shares remained available for issuance.
If the Recapitalization Proposal is approved by the shareholders and
implemented by the Board, the terms of the offering will be adjusted to allow
employees to purchase either PE Biosystems Stock or Celera Genomics Stock for
each share of existing common stock.
DIRECTOR STOCK PURCHASE AND DEFERRED COMPENSATION PLAN
The Company has a Director Stock Purchase and Deferred Compensation Plan
that requires non-employee directors of the Company to apply at least 50% of
their annual retainer to the purchase of existing common stock. The purchase
price is the fair market value on the first business day of the third month of
each fiscal quarter. At June 30, 1998, approximately 87,000 shares were
available for issuance.
If the Recapitalization Proposal is approved, each share of stock currently
held will be converted into one share of PE Biosystems Stock and 0.5 of a share
of Celera Genomics Stock. In addition, it is intended that non-employee
directors will be required to apply at least 50% their annual retainer to the
purchase of both PE Biosystems Stock and Celera Genomics Stock in a ratio
approximately equal to the number of shares of PE Biosystems Stock and Celera
Genomics Stock outstanding.
RESTRICTED STOCK
As part of the Company's stock incentive plans, key employees may be, and
non-employee directors are, granted shares of restricted stock that will vest
when certain continuous employment/service restrictions and/or specified
performance goals are achieved. The fair value of shares granted is generally
expensed over the restricted periods, which may vary depending on the estimated
achievement of performance goals.
Restricted stock granted to key employees and non-employee directors during
fiscal 1996, 1997, and 1998 totaled 185,000 shares (155,000 of which were
subject to shareholder approval in fiscal 1997), 42,000 shares, and 4,350
shares, respectively. No compensation expense was allocated to the Celera
Genomics Group for these awards.
Upon approval and implementation of the Recapitalization Proposal, each
share of restricted stock currently held will be redesignated as one share of PE
Biosystems Stock and 0.5 of a share of Celera Genomics Stock.
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PERFORMANCE UNIT BONUS PLAN
The Company has a Performance Unit Bonus Plan whereby employees may be
awarded performance units in conjunction with an equal number of stock options.
A performance unit represents the right to receive a cash or stock payment from
the Company at a specific date in the future. The amount of the payment is equal
to the fair market value of a share of common stock on the date of the grant.
The performance units vest upon shares of the Company's existing common stock
attaining and maintaining specific stock price levels for a specified period,
and are payable on or after June 26, 2000. As of June 30, 1998, 324,500
performance units were outstanding. All amounts recognized in the Company's
Consolidated Statements of Financial Position have been allocated to the
Perkin-Elmer Group. No amounts were allocated to the Celera Genomics Group for
fiscal 1996, 1997, and 1998.
Upon approval and implementation of the Recapitalization Proposal, each
performance unit will be converted in conjunction with the conversion of the
Company's stock options.
OTHER
The Company adopted SFAS No. 123, "Accounting for Stock-Based Compensation,"
in 1996. The Company has elected to continue to account for its stock-based
compensation plans under Accounting Principles Board ("APB") Opinion No. 25,
"Accounting for Stock Issued to Employees," and disclose the pro forma effects
of the plans on net income and earnings per share as provided by SFAS No. 123.
Accordingly, no compensation expense has been recognized for the stock option
plans and employee stock purchase plans, as all options have been issued at fair
market value. Since Celera Genomics Stock was not part of the capital structure
of the Company for the periods presented, there were no stock options
outstanding. Therefore, the pro forma effect of Celera Genomics Stock options on
the accompanying historical combined financial statements is not presented.
NOTE 7 COMMITMENTS AND CONTINGENCIES
Future minimum payments at June 30, 1998 under non-cancelable operating
leases for real estate and equipment were as follows:
[Download Table]
(DOLLAR AMOUNTS IN MILLIONS)
----------------------------------------------
1999.......................................... $ .3
2000.......................................... .3
2001.......................................... .2
2002.......................................... .2
---
Total......................................... $ 1.0
---
---
Rental expense was $.1 million in fiscal 1997 and $.3 million in fiscal
1998. Rental expense for fiscal 1996 was not material.
On July 10, 1998, the Company entered into a ten-year non-cancelable lease
for the Celera Genomics Group's facility in Rockville, Maryland. Total lease
payments over the ten-year period will be approximately $22 million.
On October 19, 1998, Amersham Pharmacia Biotech, Inc. ("Amersham") filed a
patent infringement action against a subsidiary of the Company which is a part
of the Celera Genomics Group in the United States District Court for the
District of Delaware. The complaint alleges that the subsidiary is directly,
contributorily or by inducement infringing U.S. Patent No. 5,688,648 ("the `648
patent"), entitled "Probes Labeled with Energy Transfer Coupled Dyes." The
complaint seeks declaratory judgment that the use of the Perkin-Elmer BigDye-TM-
Primer and BigDye-TM- Terminator kits would infringe the `648 patent, as well as
injunctive and monetary relief. The Celera Genomics Group answered the
complaint, alleging that the `648 patent is invalid and that the Celera Genomics
Group has not infringed the `648 patent.
The Company has been named as a defendant in several legal actions,
including patent, commercial, and environmental, arising from the conduct of
normal business activities. Although the amount of any liability that might
arise with respect to any of these matters cannot be accurately predicted, the
resulting liability, if any, will not in the opinion of management have a
material adverse effect on the financial statements of the Celera Genomics Group
or the Company.
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The holders of Celera Genomics Stock will be stockholders of the Company and
will continue to be subject to all of the risks associated with an investment in
the Company, including any legal proceeding and claims affecting the PE
Biosystems Stock.
NOTE 8 RELATED PARTY TRANSACTIONS
SALES OF PRODUCTS AND SERVICES BETWEEN GROUPS
A Group will sell products or services to the other Group on terms that
would be available from third parties in commercial transactions. If terms for
such transaction are not available, the purchasing Group will pay fair value as
determined by the Board for such products and pay for such services at fair
value, as determined by the Board, or at the cost (including overhead) of the
selling Group. For the six month period ended December 31, 1998, purchases of
instruments and consumables from the PE Biosystems Group were $8.4 million and
R&D expense included $1.4 million of services provided by the PE Biosystems
Group.
ACCESS TO TECHNOLOGY AND KNOW-HOW
Each Group will have free access to all Company technology and know-how
(excluding products and services of the other Group) that may be useful in that
Group's business, subject to obligations and limitations applicable to the
Company and to such exceptions that the Board may determine. The Groups will
consult with each other on a regular basis concerning technology issues that
affect both Groups. The costs of developing this technology remain in the Group
responsible for its development.
NOTE 9 ADDITIONAL INFORMATION
SELECTED ACCOUNTS
The following table provides the major components of other accrued expenses
in the Combined Statements of Financial Position:
[Download Table]
AT JUNE 30,
--------------------
1997 1998
--------- ---------
Other accrued expenses:
Deferred contract research
revenues........................ $ -- $ .5
Other............................. .5 .8
--------- ---------
Total other accrued expenses...... $ .5 $ 1.3
--------- ---------
--------- ---------
F-86
ANNEX I
AGREEMENT AND PLAN OF MERGER
AGREEMENT AND PLAN OF MERGER, dated as of , 1999 (this "Agreement"),
among PE Corporation, a Delaware corporation ("PE Delaware"), PE Merger Corp., a
New York corporation and a wholly-owned subsidiary of PE Delaware ("Merger
Subsidiary"), and The Perkin-Elmer Corporation, a New York Corporation
("Perkin-Elmer").
WHEREAS, Perkin-Elmer's authorized capital stock consists of 180,000,000
shares of Common Stock, par value $1.00 ("Existing Common Stock"), and 1,000,000
shares of Preferred Stock, par value $1.00 per share, of which shares of
Existing Common Stock are outstanding on the date hereof (subject to change
after the date hereof and prior to the Effective Time (as defined herein) as a
result of exercises of stock options and warrants);
WHEREAS, Merger Subsidiary's authorized capital stock consists of 1,000
shares of common stock, par value $.01, of which 100 shares are outstanding on
the date hereof and held by PE Delaware;
WHEREAS, PE Delaware's authorized capital stock consists of (a) 500,000,000
shares of PE Corporation-PE Biosystems Group Common Stock, par value $.01 per
share ("PE Biosystems Stock"), (b) 225,000,000 shares of PE Corporation-Celera
Genomics Group Common Stock, par value $.01 per share ("Celera Genomics Stock"),
and (c) 10,000,000 shares of Preferred Stock, par value $.01 per share;
WHEREAS, immediately prior to the Effective Time, PE Delaware and
BankBoston, N.A. will enter into a Rights Agreement in the form filed as an
exhibit to the Registration Statement on Form S-4 of PE Delaware (the "Rights
Agreement");
WHEREAS, the Boards of Directors of PE Delaware, Merger Subsidiary and
Perkin-Elmer have each adopted this Agreement and approved the merger of Merger
Subsidiary with and into Perkin-Elmer and Perkin-Elmer becoming a wholly-owned
subsidiary of PE Delaware (the "Merger") in accordance with the New York
Business Corporation Law ("NYBCL"), subject to the terms and conditions set
forth herein; and
WHEREAS, this Agreement will be submitted for adoption by the shareholders
of Perkin-Elmer at a special meeting of shareholders (the "Special Meeting")
called for such purpose (and has been approved by PE Delaware, the sole
shareholder of Merger Subsidiary).
NOW, THEREFORE, the parties agree as follows:
ARTICLE I
THE MERGER
1.1. THE MERGER. Subject to the terms and conditions of this Agreement, at
the Effective Time, Merger Subsidiary shall be merged with and into Perkin-Elmer
in accordance with the NYBCL. From and after the Effective Time, the separate
corporate existence of Merger Subsidiary shall cease and Perkin-Elmer shall
continue as the surviving corporation of the Merger under the name "PE
Corporation" (the "Surviving Corporation"). From and after the Effective Time,
the Surviving Corporation shall possess all of the rights, privileges,
immunities, powers and purposes, and be subject to all of the liabilities,
obligations and penalties, of Perkin-Elmer and Merger Subsidiary, all as
provided under applicable law.
I-1
1.2. EFFECTIVE TIME. The Merger shall become effective (the "Effective
Time") upon the due filing of a certificate of merger (the "Certificate of
Merger") with the New York Secretary of State in accordance with the NYBCL, or
at such later time as is specified in the Certificate of Merger.
1.3. CERTIFICATE OF INCORPORATION AND BY-LAWS. The certificate of
incorporation of Merger Subsidiary shall be the certificate of incorporation of
the Surviving Corporation after the Effective Time, until amended in accordance
with applicable law. The by-laws of Merger Subsidiary shall be the by-laws of
the Surviving Corporation after the Effective Time, until amended in accordance
with applicable law.
1.4. DIRECTORS AND OFFICERS. The directors and officers of Merger
Subsidiary at the Effective Time shall be the directors and officers of the
Surviving Corporation after the Effective Time, until expiration of their
current terms, or their prior resignation, removal or death, subject to the
certificate of incorporation and the by-laws of the Surviving Corporation.
ARTICLE II
CONVERSION AND EXCHANGE OF STOCK
2.1. CONVERSION. As of the Effective Time, by virtue of the Merger and
without any action on the part of any party hereto or any shareholder of
Perkin-Elmer:
(a) Each issued and outstanding share of Existing Common Stock shall be
converted into and become (i) one validly issued, fully paid and
non-assessable share of PE Biosystems Stock (together with one PE Biosystems
Right (as defined in the Rights Agreement)) and (ii) subject to Section 2.2,
.5 of a share of validly issued, fully paid and non-assessable shares of
Celera Genomics Stock (together with .5 of a Celera Genomics Right (as
defined in the Rights Agreement)).
(b) Each issued and outstanding share of capital stock of Merger
Subsidiary shall be converted in the Merger into one share of common stock
of the Surviving Corporation and the aggregate of all such shares shall
thereafter constitute all of the issued and outstanding capital stock of the
Surviving Corporation.
2.2. FRACTIONAL INTERESTS. No certificates or script representing
fractional shares of Celera Genomics Stock shall be issued in connection with
the Merger, and such fractional interests will not entitle the owner thereof to
any rights of a stockholder of PE Delaware. The Exchange Agent (as defined
below) shall determine the number of fractional shares of Celera Genomics Stock
allocable to each holder of record of Existing Common Stock (after taking into
account all shares of Existing Common Stock held immediately prior to the
Effective Time by such holder), shall aggregate such fractional shares (together
with the related Celera Genomics Rights) of all such holders, shall sell the
whole interests obtained thereby in an orderly manner after the Effective Time
in the open market and shall cause to be distributed to each such holder a check
in lieu of any fractional interests that such holder would otherwise be entitled
to receive (minus any pro rata share of any brokerage commissions payable in
connection with such sale).
2.3. EXCHANGE PROCEDURES. (a) As of the Effective Time, each certificate
that represents issued and outstanding shares of Existing Common Stock
("Existing Certificates") shall be deemed for all purposes to evidence ownership
of, and to represent, the same number of shares of PE Biosystems Stock. The
registered owner on the books and records of PE Delaware or its transfer agents
of any such Existing Certificate shall, until such certificate is surrendered
for transfer pursuant to this Section 2.3, have and be entitled to exercise any
and all voting and other rights with respect to, and receive any and all
dividends and other distributions upon, the shares of PE Biosystems Stock
evidenced by such Existing Certificate.
I-2
(b) As soon as practicable after the Effective Time, such bank or trust
company as PE Delaware may designate (the "Exchange Agent") shall mail to each
holder of record of Existing Certificates certificates representing the number
of whole shares of Celera Genomics Stock ("Celera Genomics Certificates") to
which such holder is entitled pursuant to Section 2.1 hereof (and a check in
lieu of fractional shares of Celera Genomics Stock pursuant to Section 2.2), and
information pursuant to which such holder may exchange Existing Certificates for
certificates representing shares of PE Biosystems Stock ("PE Biosystems
Certificates"), which shall specify that delivery shall be effected, and risk of
loss and title to the Existing Certificates shall pass, only upon delivery of
the Existing Certificates to the Exchange Agent.
(c) Upon surrender, in accordance with the information delivered pursuant to
Section 2.3(b), of duly executed Existing Certificates for cancellation to the
Exchange Agent or to such other agent or agents as may be appointed by PE
Delaware, the holder of such Existing Certificates shall be entitled to receive
in exchange therefor PE Biosystems Certificates representing a number of shares
of PE Biosystems Stock equal to the number of shares of Existing Common Stock
represented by such Existing Certificates. If any PE Biosystems Certificate is
to be issued in a name other than that in which the Existing Certificate
surrendered in exchange therefor is registered, it shall be a condition of the
issuance thereof that the Existing Certificate so surrendered shall be properly
endorsed and the signatures thereon properly guaranteed and otherwise in proper
form for transfer and that the person requesting such exchange shall pay to the
Exchange Agent any transfer or other taxes required by reason of the issuance of
PE Biosystems Certificate in any name other than that of the registered holder
of the Existing Certificate surrendered, or otherwise required, or shall
establish to the satisfaction of the Exchange Agent that such tax has been paid
or is not payable.
(d) After the Effective Time, no transfer of shares of Existing Common Stock
shall thereafter be made. If, after the Effective Time, Existing Certificates
are presented for transfer, they shall be canceled and exchanged for PE
Biosystems Certificates representing the number of shares of PE Biosystems Stock
represented by such Existing Certificates.
ARTICLE III
CONDITIONS
Consummation of the Merger is subject to the satisfaction at or before the
Effective Time of the following conditions:
3.1 SHAREHOLDER AUTHORIZATION. This Agreement shall have been adopted at
the Special Meeting by the affirmative vote of the holders of two-thirds of the
shares of Existing Common Stock outstanding on the record date fixed for
determining the shareholders of Perkin-Elmer entitled to vote thereon.
3.2 RIGHTS AGREEMENT. The Rights Agreement shall have been executed by the
parties thereto.
ARTICLE IV
MISCELLANEOUS
4.1 TERMINATION. At any time prior to the consummation of the Merger, this
Agreement may be terminated and the Merger abandoned by the Board of Directors
of Perkin-Elmer.
4.2 AMENDMENT. This Agreement may be amended at any time prior to the
Effective Time with the mutual consent of the Boards of Directors of
Perkin-Elmer and PE Delaware; provided, however, that this Agreement may not be
amended after it has been adopted by the shareholders of Perkin-Elmer in any
manner which, in the judgment of the Board of Directors of Perkin-Elmer, would
have a
I-3
material adverse effect on the rights of such shareholders or in any manner not
permitted under applicable law.
4.3 GOVERNING LAW. This Agreement shall be governed by and construed in
accordance with the laws of the State of New York.
IN WITNESS WHEREOF, each of the parties hereto has caused this Agreement to
be signed by its respective officers thereunto duly authorized all as of the
date first above written.
PE CORPORATION
(a Delaware corporation)
By _______________________________________
Name:
Title:
PE MERGER CORP.
(a New York corporation)
By _______________________________________
Name:
Title:
THE PERKIN-ELMER CORPORATION
(a New York corporation)
By _______________________________________
Name:
Title:
I-4
ANNEX II
RESTATED CERTIFICATE OF INCORPORATION
OF
PE CORPORATION
(Originally Incorporated November 16, 1998 Under the Name of The Perkin-Elmer
Corporation)
ARTICLE I.
NAME
The name of the corporation is PE Corporation (the "Corporation").
ARTICLE II.
ADDRESS OF REGISTERED OFFICE;
NAME OF REGISTERED AGENT
The address of the registered office of the Corporation in the State of
Delaware is Corporation Trust Center, 1209 Orange Street, in the City of
Wilmington, County of New Castle, 19801. The name of its registered agent at
that address is The Corporation Trust Company.
ARTICLE III.
PURPOSE
The purpose of the Corporation is to engage in any lawful act or activity
for which corporations may be organized under the Delaware General Corporation
Law (the "DGCL").
ARTICLE IV.
CAPITAL STOCK
SECTION 1. AUTHORIZATION. The aggregate number of shares of stock which
the Corporation shall have authority to issue is seven hundred thirty-five
million (735,000,000) shares, of which five hundred million (500,000,000) shares
shall be shares of a class of common stock designated as "PE Corporation--PE
Biosystems Group Common Stock," having a par value of $0.01 per share (the "PE
Biosystems Stock"), two hundred twenty-five million (225,000,000) shares shall
be shares of a class of common stock designated as "PE Corporation--Celera
Genomics Group Common Stock," having a par value of $0.01 per share (the "Celera
Genomics Stock"), and ten million (10,000,000) shares shall be shares of a class
of preferred stock having a par value of $.01 per share (the "Preferred Stock")
and issuable in one or more series as hereinafter provided. The PE Biosystems
Stock and the Celera Genomics Stock shall hereinafter collectively be called
"Common Stock" and either shall sometimes be called a class of Common Stock. For
purposes of this Article IV, references to the "Board of Directors" shall refer
to the Board of Directors of the Corporation, as established in accordance with
Article V of the certificate of incorporation of the Corporation, and references
to "the Certificate of Incorporation" shall refer to this Restated Certificate
of Incorporation as the same may be amended from time to time. Certain
capitalized terms used in this Article IV, shall have the meanings set forth in
Section 2.6
II-1
of this Article. For purposes of this Article IV, the PE Biosystems Stock, when
issued, shall be considered issued in respect of the PE Biosystems Group and the
Celera Genomics Stock, when issued, shall be considered issued in respect of the
Celera Genomics Group. The number of authorized shares of any class or classes
of capital stock of the Corporation may be increased or decreased (but not below
the number of shares thereof then outstanding) by the affirmative vote of the
holders of a majority of the voting power of the stock of the Corporation
entitled to vote generally in the election of directors.
SECTION 2. COMMON STOCK. The voting powers, preferences and relative,
participating, optional or other special rights of the Common Stock, and the
qualifications and restrictions thereon, shall be as follows in this Section 2.
SECTION 2.1 DIVIDENDS. Subject to any preferences and relative,
participating, optional or other special rights of any outstanding class or
series of preferred stock of the Corporation and any qualifications or
restrictions on either class of Common Stock created thereby, dividends may be
declared and paid upon either class of Common Stock, upon the terms with respect
to each such class, and subject to the limitations provided for below in this
Section 2.1, as the Board of Directors may determine.
(a) DIVIDENDS ON PE BIOSYSTEMS STOCK. Dividends on PE Biosystems Stock may
be declared and paid only out of the lesser of (i) the funds of the Corporation
legally available therefor and (ii) the PE Biosystems Group Available Dividend
Amount.
(b) DIVIDENDS ON CELERA GENOMICS STOCK. Dividends on Celera Genomics Stock
may be declared and paid only out of the lesser of (i) the funds of the
Corporation legally available therefor and (ii) the Celera Genomics Group
Available Dividend Amount.
(c) DISCRIMINATION IN DIVIDENDS BETWEEN CLASSES OF COMMON STOCK. The Board
of Directors, subject to the provisions of Sections 2.1(a) and 2.1(b), may at
any time declare and pay dividends exclusively on PE Biosystems Stock,
exclusively on Celera Genomics Stock, or on both such classes, in equal or
unequal amounts, notwithstanding the relative amounts of the Available Dividend
Amount with respect to either Group, the amount of dividends previously declared
on either class, the respective voting or liquidation rights of either class or
any other factor.
(d) SHARES DISTRIBUTIONS. Except as permitted by Sections 2.4(a) and 2.4(b),
the Board of Directors may declare and pay dividends or distributions of shares
of PE Biosystems Stock or Celera Genomics Stock (or Convertible Securities
convertible into or exchangeable or exercisable for shares of PE Biosystems
Stock or Celera Genomics Stock) on shares of a class of Common Stock or shares
of a class or series of preferred stock of the Corporation only as follows:
(i) dividends or distributions of shares of PE Biosystems Stock (or
Convertible Securities convertible into or exchangeable or exercisable for
shares of PE Biosystems Stock) on shares of PE Biosystems Stock or shares of
preferred stock attributed to the PE Biosystems Group;
(ii) dividends or distributions of shares of Celera Genomics Stock (or
Convertible Securities convertible into or exchangeable or exercisable for
shares of Celera Genomics Stock) on shares of Celera Genomics Stock or
shares of preferred stock attributed to the Celera Genomics Group; and
(iii) dividends or distributions of shares of Celera Genomics Stock (or
Convertible Securities convertible into or exchangeable or exercisable for
shares of Celera Genomics Stock) on shares of PE Biosystems Stock or shares
of preferred stock attributed to the PE Biosystems Group, but only if the
sum of (1) the number of shares of Celera Genomics Stock to be so issued (or
the number of such shares which would be issuable upon conversion, exchange
or exercise of any Convertible Securities to be so issued) and (2) the
number of shares of Celera Genomics Stock which are issuable upon
conversion, exchange or exercise of any Convertible Securities then
outstanding that are attributed to the PE Biosystems Group is less than or
equal to the Number of Celera Genomics Designated Shares.
II-2
SECTION 2.2 VOTING RIGHTS. (a) GENERAL. Except as otherwise provided by
law, by the terms of any outstanding class or series of preferred stock of the
Corporation or by any provision of the Certificate of Incorporation restricting
the power to vote on a specified matter to other stockholders, the entire voting
power of the stockholders of the Corporation shall be vested in the holders of
the Common Stock, who shall be entitled to vote on any matter on which the
holders of stock of the Corporation shall, by law or by the provisions of the
Certificate of Incorporation or Bylaws of the Corporation, be entitled to vote,
and both classes of Common Stock shall vote thereon together as a single class.
(b) NUMBER OF VOTES FOR EACH CLASS OF COMMON STOCK. On each matter to be
voted on by the holders of both classes of Common Stock voting together as a
single class, the number of votes per share of each class shall be as follows:
(i) each outstanding share of PE Biosystems Stock shall have one vote;
and
(ii) each outstanding share of Celera Genomics Stock shall have a number
of votes (including a fraction of one vote) equal to the quotient (rounded
to the nearest three decimal places) of the average Market Value of one
share of Celera Genomics Stock during the 20-Trading Day Period ending on
the tenth Trading Day prior to the record date for determining the
stockholders entitled to vote, divided by the average Market Value of a
share of PE Biosystems Stock during such 20-Trading Day period.
Notwithstanding the foregoing, if shares of only one class of Common Stock are
outstanding on the record date for determining the holders of Common Stock
entitled to vote on any matter, then each share of that class shall be entitled
to one vote and, if either class of Common Stock is entitled to vote as a
separate class with respect to any matter, each share of that class shall, for
purpose of such vote, be entitled to one vote on such matter.
In addition to any provision of law or any provision of the Certificate of
Incorporation entitling the holders of outstanding shares of PE Biosystems Stock
or Celera Genomics Stock to vote as a separate class, the Board of Directors may
condition the approval of any matter submitted to stockholders on receipt of a
separate vote of the holders of outstanding shares of PE Biosystems Stock or
Celera Genomics Stock.
SECTION 2.3 LIQUIDATION RIGHTS. In the event of any voluntary or
involuntary dissolution, liquidation or winding up of the Corporation, after
payment or provision for payment of the debts and other liabilities of the
Corporation and the full preferential amounts (including any accumulated and
unpaid dividends) to which the holders of any outstanding shares of preferred
stock of the Corporation are entitled (regardless of the Group to which such
shares of preferred stock were attributed), the holders of the PE Biosystems
Stock and Celera Genomics Stock shall be entitled to receive the assets, if any,
of the Corporation remaining for distribution to holders of Common Stock on a
per share basis in proportion to the respective liquidation units per share of
such class. Each share of PE Biosystems Stock shall have one liquidation unit
and each share of Celera Genomics Stock shall have a number of liquidation units
(including a fraction of one liquidation unit) equal to the quotient (rounded to
the nearest five decimal places) of the average Market Value of one share of
Celera Genomics Stock during the 20-Trading Day period ending on the 40th
Trading Day after the effective date of this certificate of incorporation,
divided by the average Market Value of one share of PE Biosystems Stock during
such 20-Trading Day period. Neither the merger nor consolidation of the
Corporation into or with any other corporation, nor a sale, transfer or lease of
all or any part of the assets of the Corporation, shall, alone, be deemed a
liquidation or winding up of the Corporation or cause the dissolution of the
Corporation, for purposes of this Section 2.3.
If the Corporation shall in any manner subdivide (by stock split,
reclassification or otherwise) or combine (by reverse stock split,
reclassification or otherwise) the outstanding shares of PE Biosystems Stock or
Celera Genomics Stock, or declare a dividend in shares of either class to
holders of such class, the per share liquidation units of either class of Common
Stock specified in the preceding paragraph of this Section 2.3, as adjusted from
time to time, shall be appropriately adjusted as determined by the
II-3
Board of Directors, so as to avoid dilution in the aggregate, relative
liquidation rights of the shares of any class of Common Stock.
SECTION 2.4 CONVERSION OR REDEMPTION OF THE COMMON STOCK. PE Biosystems
Stock is subject to conversion or redemption and Celera Genomics Stock is
subject to conversion or redemption, in each case, upon the terms provided below
in this Section 2.4; provided, however, that neither class of Common Stock may
be converted or redeemed if the other class of Common Stock has been converted
or redeemed in its entirety or notice thereof shall have been given as required
by this Section 2.4.
(a) MANDATORY AND OPTIONAL CONVERSION AND REDEMPTION OF PE BIOSYSTEMS STOCK
OTHER THAN FOR PE BIOSYSTEMS SUBSIDIARY STOCK. (i) In the event of the
Disposition, in one transaction or a series of related transactions, by the
Corporation and/or its subsidiaries of all or substantially all of the
properties and assets attributed to the PE Biosystems Group to one or more
persons or entities (other than the Disposition (w) by the Corporation of all or
substantially all of its properties and assets in one transaction or a series of
related transactions in connection with the dissolution, liquidation or winding
up of the Corporation and the distribution of assets to stockholders as referred
to in Section 2.3, (x) of the properties and assets attributed to the PE
Biosystems Group as contemplated by Section 2.4(c) or otherwise to all holders
of shares of PE Biosystems Stock divided among such holders on a pro rata basis
in accordance with the number of shares of PE Biosystems Stock outstanding, (y)
to any person or entity controlled (as determined by the Board of Directors) by
the Corporation or (z) in connection with a Related Business Transaction in
respect of the PE Biosystems Group), the Corporation shall, on or prior to the
95th Trading Day after the date of consummation of such Disposition (the
"Disposition Date"), pay a dividend on PE Biosystems Stock or redeem some or all
of PE Biosystems Stock or convert PE Biosystems Stock into Celera Genomics Stock
(or another class or series of common stock of the Corporation), all as provided
by the following Sections 2.4(a)(i)(1) and 2.4(a)(i)(2) and, to the extent
applicable, by Section 2.4(f), as the Board of Directors shall have selected
among such alternatives:
(1) provided that there are funds of the Corporation legally available
therefor:
(A) pay to the holders of the shares of PE Biosystems Stock a
dividend pro rata in accordance with the number of shares of PE
Biosystems Stock held by each such holder, as the Board of Directors
shall have declared subject to compliance with Section 2, in cash and/ or
in securities (other than a dividend of shares of a class of Common
Stock) or other property having a Fair Value as of the Disposition Date
in the aggregate equal to the Fair Value as of the Disposition Date of
the Net Proceeds of such Disposition; or
(B) (I) subject to the last sentence of this Section 2.4(a)(i), if
such Disposition involves all (not merely substantially all) of the
properties and assets attributed to the PE Biosystems Group, redeem or
exchange as of the Redemption Date determined as provided by Section
2.4(f)(iii), all outstanding shares of PE Biosystems Stock in exchange
for, on a pro rata basis, cash and/or for securities (other than shares
of a class of Common Stock) or other property having a Fair Value as of
the Disposition Date in the aggregate equal to the Fair Value as of the
Disposition Date of the Net Proceeds of such Disposition; or
(II) subject to the last sentence of this Section 2.4(a)(i), if such
Disposition involves substantially all (but not all) of the properties
and assets attributed to the PE Biosystems Group, redeem or exchange as
of the Redemption Date determined as provided by Section 2.4(f)(iv) such
number of whole shares of PE Biosystems Stock (which may be all, but not
more than all, of such shares outstanding) as have in the aggregate an
average Market Value during the period of ten consecutive Trading Days
beginning on the 26th Trading Day immediately succeeding the Disposition
Date closest to the Fair Value as of the Disposition Date of the Net
Proceeds of such Disposition in consideration for, on a pro rata basis,
cash and/or securities (other than shares of a class of Common Stock) or
other property having a
II-4
Fair Value as of the Disposition Date in the aggregate equal to such Fair
Value of the Net Proceeds; or
(2) declare that each outstanding share of PE Biosystems Stock shall be
converted as of the Conversion Date determined as provided by Section
2.4(f)(v) into a number of fully paid and nonassessable shares of Celera
Genomics Stock (or, if Celera Genomics Stock is not Publicly Traded at such
time and shares of another class or series of common stock of the
Corporation (other than PE Biosystems Stock) are then Publicly Traded, of
such other class or series of the common stock of the Corporation as has the
largest Market Capitalization as of the close of business on the Trading Day
immediately preceding the date of the notice of such conversion required by
Section 2.4(f)(v)) equal to 110% of the ratio, expressed as a decimal
fraction rounded to the nearest five decimal places, of the average Market
Value of one share of PE Biosystems Stock over the period of ten consecutive
Trading Days beginning on the 26th Trading Day immediately succeeding the
Disposition Date to the average Market Value of one share of Celera Genomics
Stock (or such other class or series of common stock) over the same ten
Trading Day period.
Notwithstanding the foregoing provisions of this Section 2.4(a)(i), the
Corporation shall redeem shares of a class of Common Stock as provided by
Section 2.4(a)(i)(1)(B)(I) or (II) only if the amount to be paid in redemption
of such stock is less than or equal to the PE Biosystems Group Available
Dividend Amount as of the Redemption Date.
(ii) For purposes of this Section 2.4(a): (1) as of any date, "substantially
all of the properties and assets" attributed to the PE Biosystems Group shall
mean a portion of such properties and assets (A) that represents at least 80% of
the Fair Value of the properties and assets attributed to the PE Biosystems
Group as of such date or (B) from which were derived at least 80% of the
aggregate revenues for the immediately preceding twelve fiscal quarterly periods
of the Corporation (calculated on a pro forma basis to include revenues derived
from any of such properties and assets acquired during such period) derived from
the properties and assets attributed to the PE Biosystems Group as of such date;
(2) in the case of a Disposition of the properties and assets attributed to the
PE Biosystems Group in a series of related transactions, such Disposition shall
not be deemed to have been consummated until the consummation of the last of
such transactions; and (3) the Board of Directors may pay any dividend or
redemption price referred to in Section 2.4(a)(i) in cash, securities (other
than shares of a class of Common Stock) or other property, regardless of the
form or nature of the proceeds of the Disposition.
(iii) The Board of Directors may at any time declare that each outstanding
share of PE Biosystems Stock shall be converted, as of the Conversion Date
provided by Section 2.4(f)(v), into a number of fully paid and nonassessable
shares of Celera Genomics Stock (or, if Celera Genomics Stock is not Publicly
Traded at such time and shares of any other class or series of common stock of
the Corporation (other than PE Biosystems Stock) are then Publicly Traded, of
such other class or series of common stock of the Corporation as has the largest
Market Capitalization as of the close of business on the fifth Trading Day
immediately preceding the date of the notice of conversion required by Section
2.4(f)(v)) equal to 110% of the Market Value Ratio of PE Biosystems Stock to
Celera Genomics Stock as of the fifth Trading Day prior to the date of the
notice of such conversion required by Section 2.4(f)(v); provided that, if a Tax
Event has occurred, such number of fully paid and nonassessable shares shall
equal 100% of such ratio.
(b) MANDATORY AND OPTIONAL CONVERSION AND REDEMPTION OF CELERA GENOMICS
STOCK OTHER THAN FOR CELERA GENOMICS SUBSIDIARY STOCK. (i) In the event of the
Disposition, in one transaction or a series of related transactions, by the
Corporation and/or its subsidiaries of all or substantially all of the
properties and assets attributed to the Celera Genomics Group to one or more
persons or entities (other than the Disposition (w) by the Corporation of all or
substantially all of its properties and assets in one transaction or a series of
related transactions in connection with the dissolution, liquidation or
II-5
winding up of the Corporation and the distribution of assets to stockholders as
referred to in Section 2.3, (x) of the properties and assets attributed to the
Celera Genomics Group as contemplated by Section 2.4(d) or otherwise to all
holders of shares of Celera Genomics Stock divided among such holders on a pro
rata basis in accordance with the number of shares of Celera Genomics Stock
outstanding, (y) to any person or entity controlled (as determined by the Board
of Directors) by the Corporation or (z) in connection with a Related Business
Transaction in respect of the Celera Genomics Group), the Corporation shall, on
or prior to the 95th Trading Day after the date of consummation of such
Disposition (the "Disposition Date"), pay a dividend on Celera Genomics Stock or
redeem some or all of Celera Genomics Stock or convert Celera Genomics Stock
into PE Biosystems Stock (or another class or series of common stock of the
Corporation), all as provided by the following Sections 2.4(b)(i)(1) and
2.4(b)(i)(2) and, to the extent applicable, by Section 2.4(f), as the Board of
Directors shall have selected among such alternatives:
(1) provided that there are funds of the Corporation legally available
therefor:
(A) pay to the holders of the shares of Celera Genomics Stock a dividend
pro rata in accordance with the number of shares of Celera Genomics Stock
held by each such holder, as the Board of Directors shall have declared
subject to compliance with Section 2.1, in cash and/or in securities (other
than a dividend of shares of a class of Common Stock) or other property
having a Fair Value as of the Disposition Date in the aggregate equal to the
Fair Value as of the Disposition Date of the Net Proceeds of such
Disposition; or
(B) (I) subject to the last sentence of this Section 2.4(b)(i), if such
Disposition involves all (not merely substantially all) of the properties
and assets attributed to the Celera Genomics Group, redeem or exchange as of
the Redemption Date determined as provided by Section 2.4(f)(iii), all
outstanding shares of Celera Genomics Stock in exchange for, on a pro rata
basis, cash and/or for securities (other than shares of a class of Common
Stock) or other property having a Fair Value as of the Disposition Date in
the aggregate equal to the Fair Value as of the Disposition Date of the Net
Proceeds of such Disposition; or
(II) subject to the last sentence of this Section 2.4(b)(i), if such
Disposition involves substantially all (but not all) of the properties and
assets attributed to the Celera Genomics Group, redeem or exchange as of the
Redemption Date determined as provided by Section 2.4(f)(iv) such number of
whole shares of Celera Genomics Stock (which may be all, but not more than
all, of such shares outstanding) as have in the aggregate an average Market
Value during the period of ten consecutive Trading Days beginning on the
26th Trading Day immediately succeeding the Disposition Date closest to the
Fair Value as of the Disposition Date of the Net Proceeds of such
Disposition in consideration for, on a pro rata basis, cash and/or
securities (other than shares of a class of Common Stock) or other property
having a Fair Value as of the Disposition Date in the aggregate equal to
such product; or
(2) declare that each outstanding share of Celera Genomics Stock shall
be converted as of the Conversion Date determined as provided by Section
2.4(f)(v) into a number of fully paid and nonassessable shares of PE
Biosystems Stock (or, if PE Biosystems Stock is not Publicly Traded at such
time and shares of another class or series of common stock of the
Corporation (other than Celera Genomics Stock) are then Publicly Traded, of
such other class or series of the common stock of the Corporation as has the
largest Market Capitalization as of the close of business on the Trading Day
immediately preceding the date of the notice of such conversion required by
Section 2.4(f)(v)) equal to 110% of the ratio, expressed as a decimal
fraction rounded to the nearest five decimal places, of the average Market
Value of one share of Celera Genomics Stock over the period of ten
consecutive Trading Days beginning on the 26th Trading Day immediately
succeeding the Disposition Date to the average Market Value of one share of
PE Biosystems Stock (or such other class or series of common stock) over the
same ten Trading Day period.
II-6
Notwithstanding the foregoing provisions of this Section 2.4(b)(i), the
Corporation shall redeem shares of a class of Common Stock as provided by
Section 2.4(b)(i)(1)(B)(I) or (II) only if the amount to be paid in redemption
of such stock is less than or equal to the Celera Genomics Group Available
Dividend Amount as of the Redemption Date.
(ii) For purposes of this Section 2.4(b): (1) as of any date, "substantially
all of the properties and assets" attributed to the Celera Genomics Group shall
mean a portion of such properties and assets (A) that represents at least 80% of
the Fair Value of the properties and assets attributed to the Celera Genomics
Group as of such date or (B) from which were derived at least 80% of the
aggregate revenues for the immediately preceding twelve fiscal quarterly periods
of the Corporation (calculated on a pro forma basis to include revenues derived
from any of such properties and assets acquired during such period) derived from
the properties and assets attributed to the Celera Genomics Group as of such
date; (2) in the case of a Disposition of the properties and assets attributed
to the Celera Genomics Group in a series of related transactions, such
Disposition shall not be deemed to have been consummated until the consummation
of the last of such transactions; and (3) the Board of Directors may pay any
dividend or redemption price referred to in Section 2.4(b)(i) in cash,
securities (other than shares of a class of Common Stock) or other property,
regardless of the form or nature of the proceeds of the Disposition.
(iii) The Board of Directors may at any time declare that each outstanding
share of Celera Genomics Stock shall be converted, as of the Conversion Date
provided by Section 2.4(f)(v), into a number of fully paid and nonassessable
shares of PE Biosystems Stock (or, if PE Biosystems Stock is not Publicly Traded
at such time and shares of any other class or series of common stock of the
Corporation (other than Celera Genomics Stock) are then Publicly Traded, of such
other class or series of common stock of the Corporation as has the largest
Market Capitalization as of the close of business on the fifth Trading Day
immediately preceding the date of the notice of conversion required by Section
2.4(f)(v)) equal to 110% of the Market Value Ratio of Celera Genomics Stock to
PE Biosystems Stock as of the fifth Trading Day prior to the date of the notice
of such conversion required by Section 2.4(f)(v); provided that, if a Tax Event
has occurred, such number of fully paid and nonassessable shares shall equal
100% of such ratio.
(c) REDEMPTION OF PE BIOSYSTEMS STOCK FOR PE BIOSYSTEMS SUBSIDIARY STOCK. At
any time at which all of the assets and liabilities attributed to the PE
Biosystems Group (and no other assets or liabilities of the Corporation or any
subsidiary thereof) are held directly or indirectly by one or more wholly-owned
subsidiaries of the Corporation (each, a "PE Biosystems Subsidiary"), the Board
of Directors may, provided that there are funds of the Corporation legally
available therefor, redeem all of the outstanding shares of PE Biosystems Stock,
on a Redemption Date of which notice is delivered in accordance with Section
2.4(f)(vi), in exchange for all of the shares of common stock of each PE
Biosystems Subsidiary as will be outstanding immediately following such exchange
of shares, such shares of common stock of each PE Biosystems Subsidiary to be
delivered to the holders of shares of PE Biosystems Stock on the Redemption Date
either directly or indirectly through the delivery of shares of another PE
Biosystems Subsidiary that owns directly or indirectly all such shares, and to
be divided among the holders of PE Biosystems Stock pro rata in accordance with
the number of shares of PE Biosystems Stock held by each such holder on such
Redemption Date, each of which shares of common stock of such PE Biosystems
Subsidiary shall be, upon such delivery, fully paid and nonassessable.
II-7
(d) REDEMPTION OF CELERA GENOMICS STOCK FOR CELERA GENOMICS SUBSIDIARY
STOCK. At any time at which all of the assets and liabilities attributed to the
Celera Genomics Group (and no other assets or liabilities of the Corporation or
any subsidiary thereof) are held directly or indirectly by one or more
wholly-owned subsidiaries of the Corporation (each, a "Celera Genomics
Subsidiary"), the Board of Directors may, provided that there are funds of the
Corporation legally available therefor, redeem all of the outstanding shares of
Celera Genomics Stock, on a Redemption Date of which notice is delivered in
accordance with Section 2.4(f)(vi), in exchange for all of the shares of common
stock of each Celera Genomics Subsidiary as will be outstanding immediately
following such exchange of shares, such shares of common stock of each Celera
Genomics Subsidiary to be delivered to the holders of shares of Celera Genomics
Stock on the Redemption Date either directly or indirectly through the delivery
of shares of another Celera Genomics Subsidiary that owns directly or indirectly
all such shares, and to be divided among the holders of Celera Genomics Stock
pro rata in accordance with the number of shares of Celera Genomics Stock held
by each such holder on such Redemption Date, each of which shares of common
stock of such Celera Genomics Subsidiary shall be, upon such delivery, fully
paid and nonassessable.
(e) TREATMENT OF CONVERTIBLE SECURITIES. After any Conversion Date or
Redemption Date on which all outstanding shares of either PE Biosystems Stock or
Celera Genomics Stock are converted or redeemed, any share of such class of
Common Stock that is to be issued on conversion, exchange or exercise of any
Convertible Securities shall, immediately upon such conversion, exchange or
exercise and without any notice from or to, or any other action on the part of,
the Corporation or its Board of Directors or the holder of such Convertible
Security:
(i) in the event the shares of such class of Common Stock outstanding on
such Conversion Date were converted into shares of the other class of Common
Stock (or another class or series of common stock of the Corporation)
pursuant to Section 2.4(a)(i)(2), 2.4(a)(iii), 2.4(b)(i)(2) or 2.4(a)(iii),
be converted into the amount of cash and/or the number of shares of the kind
of capital stock and/or other securities or property of the Corporation that
number of shares of such class of Common Stock that were to be issued upon
such conversion, exchange or exercise would have received had such shares
been outstanding on such Conversion Date; or
(ii) in the event the shares of such class of Common Stock outstanding
on such Redemption Date were redeemed pursuant to Section
2.4(a)(i)(1)(B)(I), 2.4(b)(i)(1)(B)(I), 2.4(c) or 2.4(d), be redeemed, to
the extent of funds of the Corporation legally available therefor, for $.01
per share in cash for each share of such class of Common Stock that
otherwise would be issued upon such conversion, exchange or exercise.
The provisions of the preceding sentence of this Section 2.4(e) shall not apply
to the extent that other adjustments in respect of such conversion, exchange or
redemption of a class of Common Stock are otherwise made pursuant to the
provisions of such Convertible Securities.
(f) NOTICE AND OTHER PROVISIONS. (i) Not later than the 20th Trading Day
following the consummation of a Disposition referred to in Section 2.4(a)(i) (in
the case of PE Biosystems Stock) or Section 2.4(b)(i) (in the case of Celera
Genomics Stock), the Corporation shall announce publicly by press release (1)
the estimated Net Proceeds of such Disposition, (2) the number of shares
outstanding of the class of Common Stock relating to the Group subject to such
Disposition and (3) the number of shares of such class of Common Stock into or
for which Convertible Securities are then convertible, exchangeable or
exercisable and the conversion, exchange or exercise price thereof. Not earlier
than the 36th Trading Day and not later than the 40th Trading Day following the
consummation of such Disposition, the Corporation shall announce publicly by
press release which of the actions specified in Section 2.4(a)(i) or 2.4(b)(i),
as the case may be, it has irrevocably determined to take in respect of such
Disposition.
II-8
(ii) If the Corporation determines to pay a dividend pursuant to Section
2.4(a)(i)(1)(A) (in the case of PE Biosystems Stock) or Section 2.4(b)(i)(1)(A)
(in the case of Celera Genomics Stock), the Corporation shall, not later than
the 40th Trading Day following the consummation of the Disposition referred to
in such Section, cause notice to be given to the holders of shares of the class
of Common Stock relating to the Group subject to such Disposition and to each
holder of Convertible Securities that are convertible into or exchangeable or
exercisable for shares of such class of Common Stock (unless alternate provision
for such notice to the holders of such Convertible Securities is made pursuant
to the terms of such Convertible Securities), setting forth (1) the record date
for determining holders entitled to receive such dividend, which shall be not
earlier than the tenth Trading Day and not later than the 20th Trading Day
following the date of such notice, (2) the anticipated payment date of such
dividend (which shall not be more than 95 Trading Days following the
consummation of such Disposition), (3) the type of property to be paid as such
dividend in respect of the outstanding shares of such class of Common Stock, (4)
the Net Proceeds of such Disposition, (5) the number of outstanding shares of
such class of Common Stock and the number of shares of such class of Common
Stock into or for which outstanding Convertible Securities are then convertible,
exchangeable or exercisable and the conversion, exchange or exercise price
thereof and (6) in the case of notice to be given to holders of Convertible
Securities, a statement to the effect that a holder of such Convertible
Securities shall be entitled to receive such dividend only if such holder
properly converts, exchanges or exercises such Convertible Securities on or
prior to the record date referred to in clause (1) of this sentence. Such notice
shall be sent by first-class mail, postage prepaid, to each such holder at such
holder's address as the same appears on the transfer books of the Corporation on
the record date fixed for such notice.
(iii) If the Corporation determines to undertake a redemption pursuant to
Section 2.4(a)(i)(1)(B)(I) (in the case of PE Biosystems Stock) or Section
2.4(b)(i)(1)(B)(I) (in the case of Celera Genomics Stock), the Corporation
shall, not earlier than the 45th Trading Day and not later than the 35th Trading
Day prior to the Redemption Date, cause notice to be given to the holders of
shares of the class of Common Stock relating to the Group subject to the
Disposition referred to in such Section and to each holder of Convertible
Securities convertible into or exchangeable or exercisable for shares of such
class of Common Stock (unless alternate provision for such notice to the holders
of such Convertible Securities is made pursuant to the terms of such Convertible
Securities), setting forth (1) a statement that all shares of such class of
Common Stock outstanding on the Redemption Date shall be redeemed, (2) the
Redemption Date (which shall not be more than 95 Trading Days following the
consummation of such Disposition), (3) the type of property in which the
redemption price for the shares of such class of Common Stock to be redeemed is
to be paid, (4) the Net Proceeds of such Disposition, (5) the place or places
where certificates for shares of such class of Common Stock, properly endorsed
or assigned for transfer (unless the Corporation waives such requirement), are
to be surrendered for delivery of cash and/or securities or other property, (6)
the number of outstanding shares of such class of Common Stock and the number of
shares of such class of Common Stock into or for which outstanding Convertible
Securities are then convertible, exchangeable or exercisable and the conversion,
exchange or exercise price thereof, (7) in the case of notice to be given to
holders of Convertible Securities, a statement to the effect that a holder of
such Convertible Securities shall be entitled to participate in such redemption
only if such holder properly converts, exchanges or exercises such Convertible
Securities on or prior to the Redemption Date referred to in clause (2) of this
sentence and a statement as to what, if anything, such holder will be entitled
to receive pursuant to the terms of such Convertible Securities or, if
applicable, this Section 2.4 if such holder thereafter converts, exchanges or
exercises such Convertible Securities and (8) a statement to the effect that,
except as otherwise provided by Section 2.4(f)(ix), dividends on shares of such
class of Common Stock shall cease to be paid as of such Redemption Date. Such
notice shall be sent by first-class mail, postage prepaid, to each such holder
at such holder's address as the same appears on the transfer books of the
Corporation on the record date fixed for such notice.
II-9
(iv) If the Corporation determines to undertake a redemption pursuant to
Section 2.4(a)(i)(1)(B)(II) (in the case of PE Biosystems Stock) or Section
2.4(b)(i)(1)(B)(II) (in the case of Celera Genomics Stock), the Corporation
shall, not later than the 40th Trading Day following the consummation of the
Disposition referred to in such Section, cause notice to be given to the holders
of shares of the class of Common Stock relating to the Group subject to such
Disposition and to each holder of Convertible Securities that are convertible
into or exchangeable or exercisable for shares of such class of Common Stock
(unless alternate provision for such notice to the holders of such Convertible
Securities is made pursuant to the terms of such Convertible Securities) setting
forth (1) a date not earlier than the tenth Trading Day and not later than the
20th Trading Day following the date of such notice on which shares of such class
of Common Stock shall be selected for redemption, (2) the anticipated Redemption
Date (which shall not be more than 95 Trading Days following the consummation of
such Disposition), (3) the type of property in which the redemption price for
the shares to be redeemed is to be paid, (4) the Net Proceeds of such
Disposition, (5) the number of shares of such class of Common Stock outstanding
and the number of shares of such class of Common Stock into or for which
outstanding Convertible Securities are then convertible, exchangeable or
exercisable and the conversion, exchange or exercise price thereof, (6) in the
case of notice to be given to holders of Convertible Securities, a statement to
the effect that a holder of such Convertible Securities shall be eligible to
participate in such selection for redemption only if such holder properly
converts, exchanges or exercises such Convertible Securities on or prior to the
record date referred to in clause (1) of this sentence, and a statement as to
what, if anything, such holder will be entitled to receive pursuant to the terms
of such Convertible Securities or, if applicable, this Section 2.4 if such
holder thereafter converts, exchanges or exercises such Convertible Securities
and (7) a statement that the Corporation will not be required to register a
transfer of any shares of such class of Common Stock for a period of 15 Trading
Days next preceding the date referred to in clause (1) of this sentence.
Promptly following the date referred to in clause (1) of the preceding sentence,
the Corporation shall cause a notice to be given to each holder of record of
shares of such class of Common Stock to be redeemed setting forth (1) the number
of shares of such class of Common Stock held by such holder to be redeemed, (2)
a statement that such shares of such class of Common Stock shall be redeemed,
(3) the Redemption Date, (4) the kind and per share amount of cash and/or
securities or other property to be received by such holder with respect to each
share of such class of Common Stock to be redeemed, including details as to the
calculation thereof, (5) the place or places where certificates for shares of
such class of Common Stock, properly endorsed or assigned for transfer (unless
the Corporation shall waive such requirement), are to be surrendered for
delivery of such cash and/or securities or other property, (6) if applicable, a
statement to the effect that the shares being redeemed may no longer be
transferred on the transfer books of the Corporation after the Redemption Date
and (7) a statement to the effect that, subject to Section 2.4(f)(ix), dividends
on such shares of such class of Common Stock shall cease to be paid as of the
Redemption Date. Such notices shall be sent by first-class mail, postage
prepaid, to each such holder at such holder's address as the same appears on the
transfer books of the Corporation on the record date fixed for such notice.
(v) If the Corporation determines to convert PE Biosystems Stock into Celera
Genomics Stock or Celera Genomics Stock into PE Biosystems Stock (or, in either
case, another class or series of common stock of the Corporation) pursuant to
Section 2.4(a)(i)(2) or 2.4(a)(iii) (in the case of the conversion of PE
Biosystems Stock) or Section 2.4(b)(i)(2) or 2.4(b)(iii) (in the case of the
conversion of Celera Genomics Stock), the Corporation shall, not earlier than
the 45th Trading Day and not later than the 35th Trading Day prior to the
Conversion Date cause notice to be given to the holders of shares of the class
of Common Stock to be so converted and to each holder of Convertible Securities
that are convertible into or exchangeable or exercisable for shares of such
class of Common Stock (unless alternate provision for such notice to the holders
of such Convertible Securities is made pursuant to the terms of such Convertible
Securities) setting forth (1) a statement that all outstanding shares of such
class of Common Stock shall be converted, (2) the Conversion Date (which, in the
case of a conversion
II-10
after a Disposition, shall not be more than 95 Trading Days following the
consummation of such Disposition), (3) the per share number of shares of Common
Stock (or another class or series of common stock of the Corporation) to be
received with respect to each share of such class of Common Stock, including
details as to the calculation thereof, (4) the place or places where
certificates for shares of such class of Common Stock, properly endorsed or
assigned for transfer (unless the Corporation shall waive such requirement), are
to be surrendered for delivery of certificates for shares of such class of
Common Stock, (5) the number of outstanding shares of such class of Common Stock
and the number of shares of such class of Common Stock into or for which
outstanding Convertible Securities are then convertible, exchangeable or
exercisable and the conversion, exchange or exercise price thereof, (6) a
statement to the effect that, subject to Section 2.4(f)(ix), dividends on shares
of such class of Common Stock shall cease to be paid as of such Conversion Date
and (7) in the case of notice to holders of such Convertible Securities, a
statement to the effect that a holder of such Convertible Securities shall be
entitled to receive shares of such class of Common Stock upon such conversion if
such holder properly converts, exchanges or exercises such Convertible
Securities on or prior to such Conversion Date and a statement as to what, if
anything, such holder will be entitled to receive pursuant to the terms of such
Convertible Securities or, if applicable, this Section 2.4 if such holder
thereafter converts, exchanges or exercises such Convertible Securities. Such
notice shall be sent by first-class mail, postage prepaid, to each such holder
at such holder's address as the same appears on the transfer books of the
Corporation on the record date fixed for such notice.
(vi) If the Corporation determines to redeem shares of PE Biosystems Stock
pursuant to Section 2.4(c) or Celera Genomics Stock pursuant to Section 2.4(d),
the Corporation shall cause notice to be given to each holder of shares of such
class of Common Stock to be redeemed and to the holders of Convertible
Securities that are convertible into or exchangeable or exercisable for shares
of such class of Common Stock (unless alternate provision for such notice to the
holders of such Convertible Securities is made pursuant to the terms of such
Convertible Securities), setting forth (1) a statement that all shares of such
class of Common Stock outstanding on the Redemption Date shall be redeemed in
exchange for shares of common stock of each PE Biosystems Subsidiary or Celera
Genomics Subsidiary, as applicable, (2) the Redemption Date, (3) the place or
places where certificates for shares of the class of Common Stock to be
redeemed, properly endorsed or assigned for transfer (unless the Corporation
shall waive such requirement), are to be surrendered for delivery of
certificates for shares of common stock of each PE Biosystems Subsidiary or
Celera Genomics Subsidiary, as applicable, (4) a statement to the effect that,
subject to Section 2.4(f)(ix), dividends on shares of such class of Common Stock
being redeemed shall cease to be paid as of such Redemption Date, (5) the number
of shares of such class of Common Stock outstanding and the number of shares of
such class of Common Stock into or for which outstanding Convertible Securities
are then convertible, exchangeable or exercisable and the conversion, exchange
or exercise price thereof and (6) in the case of notice to holders of
Convertible Securities, a statement to the effect that a holder of Convertible
Securities shall be entitled to receive shares of common stock of each PE
Biosystems Subsidiary or Celera Genomics Subsidiary, as applicable, upon
redemption only if such holder properly converts, exchanges or exercises such
Convertible Securities on or prior to the Redemption Date and a statement as to
what, if anything, such holder will be entitled to receive pursuant to the terms
of such Convertible Securities or, if applicable, this Section 2.4(f), if such
holder thereafter converts, exchanges or exercises such Convertible Securities.
Such notice shall be sent by first-class mail, postage prepaid, not less than 35
Trading Days nor more than 45 Trading Days prior to the Redemption Date to each
such holder at such holder's address as the same appears on the transfer books
of the Corporation on the record date fixed for such notice.
(vii) If less than all of the outstanding shares of either class of Common
Stock are to be redeemed pursuant to Section 2.4(a)(i)(1) (in the case of PE
Biosystems Stock) or Section 2.4(b)(i)(1) (in the case of Celera Genomics
Stock), the shares to be redeemed by the Corporation shall be selected from
among the holders of shares of such class of Common Stock outstanding at the
close of business on the
II-11
record date for such redemption on a pro rata basis among all such holders or by
lot or by such other method as may be determined by the Board of Directors to be
equitable.
(viii) The Corporation shall not be required to issue or deliver fractional
shares of any capital stock or of any other securities to any holder of either
class of Common Stock upon any conversion, redemption, dividend or other
distribution pursuant to this Section 2.4. If more than one share of either
class of Common Stock shall be held at the same time by the same holder, the
Corporation may aggregate the number of shares of any capital stock that shall
be issuable or any other securities or property that shall be distributable to
such holder upon any conversion, redemption, dividend or other distribution
(including any fractional shares). If fractional shares of any capital stock or
of any other securities would be required to be issued or distributed to the
holders of either class of Common Stock, the Corporation shall, if such
fractional shares are not issued or distributed to the holder, pay cash in
respect of such fractional shares in an amount equal to the Fair Value thereof
(without interest).
(ix) No adjustments in respect of dividends shall be made upon the
conversion or redemption of any shares of either class of Common Stock;
provided, however, that if the Conversion Date or Redemption Date, as the case
may be, with respect to any shares of either class of Common Stock shall be
subsequent to the record date for the payment of a dividend or other
distribution thereon or with respect thereto, the holders of such class of
Common Stock at the close of business on such record date shall be entitled to
receive the dividend or other distribution payable on or with respect to such
shares on the date set for payment of such dividend or other distribution, in
each case without interest, notwithstanding the subsequent conversion or
redemption of such shares.
(x) Before any holder of shares of either class of Common Stock shall be
entitled to receive any cash payment and/or certificates or instruments
representing shares of any capital stock and/or other securities or property to
be distributed to such holder with respect to such class of Common Stock
pursuant to this Section 2.4, such holder shall surrender at such place as the
Corporation shall specify certificates for such shares of Common Stock, properly
endorsed or assigned for transfer (unless the Corporation shall waive such
requirement). The Corporation shall as soon as practicable after receipt of
certificates representing such shares of Common Stock deliver to the person for
whose account such shares of Common Stock were so surrendered, or to such
person's nominee or nominees, the cash and/ or the certificates or instruments
representing the number of whole shares of the kind of capital stock and/or
other securities or property to which such person shall be entitled as
aforesaid, together with any payment in respect of fractional shares
contemplated by Section 2.4(f)(viii), in each case without interest. If less
than all of the shares of either class of Common Stock represented by any one
certificate are to be redeemed, the Corporation shall issue and deliver a new
certificate for the shares of such class of Common Stock not redeemed.
(xi) From and after any applicable Conversion Date or Redemption Date, as
the case may be, all rights of a holder of shares of either class of Common
Stock that were converted or redeemed shall cease except for the right, upon
surrender of the certificates representing such shares of Common Stock as
required by Section 2.4(f)(x), to receive the cash and/or the certificates or
instruments representing shares of the kind and amount of capital stock and/or
other securities or property for which such shares were converted or redeemed,
together with any payment in respect of fractional shares contemplated by
Section 2.4(f)(viii) (which shall be held by the Corporation for the holder of
such shares of Common Stock that were redeemed until the receipt of certificates
representing such shares of Common Stock as provided in Section 2.4(f)(x)) and
rights to dividends as provided in Section 2.4(f)(ix), in each case without
interest. No holder of a certificate that immediately prior to the applicable
Conversion Date or Redemption Date represented shares of a class of Common Stock
shall be entitled to receive any dividend or other distribution or interest
payment with respect to shares of any kind of capital stock or other security or
instrument for which such class of Common Stock was converted or redeemed until
the surrender as required by this Section 2.4 of such certificate in exchange
for a certificate or certificates or instrument or instruments representing such
capital stock or
II-12
other security. Subject to applicable escheat and similar laws, upon such
surrender, there shall be paid to the holder the amount of any dividends or
other distributions (without interest) which theretofore became payable on any
class or series of capital stock of the Corporation as of a record date after
the Conversion Date or Redemption Date, but that were not paid by reason of the
foregoing, with respect to the number of whole shares of the kind of capital
stock represented by the certificate or certificates issued upon such surrender.
From and after a Conversion Date or Redemption Date, the Corporation shall,
however, be entitled to treat the certificates for a class of Common Stock that
have not yet been surrendered for conversion or redemption as evidencing the
ownership of the number of whole shares of the kind or kinds of capital stock of
the Corporation for which the shares of such class of Common Stock represented
by such certificates shall have been converted or redeemed, notwithstanding the
failure to surrender such certificates.
(xii) The Corporation shall pay any and all documentary, stamp or similar
issue or transfer taxes that may be payable in respect of the issuance or
delivery of any shares of capital stock and/or other securities upon conversion
or redemption of shares of either class of Common Stock pursuant to this Section
2.4. The Corporation shall not, however, be required to pay any tax that may be
payable in respect of any transfer involved in the issuance or delivery of any
shares of capital stock and/or other securities in a name other than that in
which the shares of such class of Common Stock so converted or redeemed were
registered, and no such issuance or delivery shall be made unless and until the
person requesting such issuance or delivery has paid to the Corporation the
amount of any such tax or has established to the satisfaction of the Corporation
that such tax has been paid.
(xiii) Neither the failure to mail any notice required by this Section 2.4
to any particular holder of a class of Common Stock or of Convertible Securities
nor any defect therein shall affect the sufficiency thereof with respect to any
other holder of outstanding shares of a class of Common Stock or of Convertible
Securities or the validity of any such conversion or redemption.
(xiv) The Board of Directors may establish such rules and requirements to
facilitate the effectuation of the transactions contemplated by this Section 2.4
as the Board of Directors shall determine to be appropriate.
SECTION 2.5 APPLICATION OF THE PROVISIONS OF ARTICLE IV. (a) CERTAIN
DETERMINATIONS BY THE BOARD OF DIRECTORS. The Board of Directors shall make such
determinations with respect to the businesses, assets, properties and
liabilities to be attributed to the Groups, the application of the provisions of
the Certificate of Incorporation to transactions to be engaged in by the
Corporation and the voting powers, preferences and relative, participating,
optional and other special rights of the holders of either class of Common
Stock, and the qualifications and restrictions thereon, provided by the
Certificate of Incorporation as may be or become necessary or appropriate to the
exercise of such powers, preferences and relative, participating, optional and
other special rights, including, without limiting the foregoing, the
determinations referred to in this Section 2.5. A record of any such
determination shall be filed with the records of the actions of the Board of
Directors.
(i) Upon any acquisition by the Corporation or its subsidiaries of any
assets or business, or any assumption of liabilities, outside of the
ordinary course of business of the PE Biosystems Group or the Celera
Genomics Group, as the case may be, the Board of Directors shall determine
whether such assets, business and liabilities (or an interest therein) shall
be for the benefit of the PE Biosystems Group or the Celera Genomics Group
or that an interest therein shall be partly for the benefit of the PE
Biosystems Group and partly for the benefit of the Celera Genomics Group
and, accordingly, shall be attributed to the PE Biosystems Group or the
Celera Genomics Group, or partly to each, in accordance with Section 2.6(q)
or 2.6(b), as the case may be.
(ii) Upon any issuance of any shares of Celera Genomics Stock at a time
when the Number of Celera Genomics Designated Shares is greater than zero,
the Board of Directors shall determine, based on the use of the proceeds of
such issuance and any other relevant factors, whether all or any part of the
shares of Celera Genomics Stock so issued shall reduce the Number of Celera
Genomics Designated Shares and the Number of Celera Genomics Designated
Shares shall be adjusted accordingly.
II-13
(iii) Upon any issuance by the Corporation or any subsidiary thereof of
any Convertible Securities that are convertible into or exchangeable or
exercisable for shares of Celera Genomics Stock, if at the time such
Convertible Securities are issued the Number of Celera Genomics Designated
Shares is greater than zero, the Board of Directors shall determine, based
on the use of the proceeds of such issuance and any other relevant factors,
whether, upon conversion, exchange or exercise thereof, the issuance of
shares of Celera Genomics Stock pursuant thereto shall, in whole or in part,
reduce the Number of Celera Genomics Designated Shares and the Number of
Celera Genomics Designated Shares shall be adjusted accordingly.
(iv) Upon any issuance of any shares of any class or series of preferred
stock of the Corporation, the Board of Directors shall attribute, based on
the use of proceeds of such issuance of shares of preferred stock in the
business of the PE Biosystems Group or the Celera Genomics Group and any
other relevant factors, the shares so issued entirely to the PE Biosystems
Group or entirely to the Celera Genomics Group or partly to the PE
Biosystems Group and partly to the Celera Genomics Group in such proportion
as the Board of Directors shall determine.
(v) Upon any redemption or repurchase by the Corporation or any
subsidiary thereof of shares of preferred stock of any class or series or of
other securities or debt obligations of the Corporation, the Board of
Directors shall determine, based on the property used to redeem or purchase
such shares, other securities or debt obligations, which, if any, of such
shares, other securities or debt obligations redeemed or repurchased shall
be attributed to the PE Biosystems Group and which, if any, of such shares,
other securities or debt obligations shall be attributed to the Celera
Genomics Group and, accordingly, how many of the shares of such class or
series of preferred stock or of such other securities, or how much of such
debt obligations, that remain outstanding, if any, are thereafter attributed
to the PE Biosystems Group or the Celera Genomics Group.
(b) CERTAIN DETERMINATIONS NOT REQUIRED. Notwithstanding the foregoing
provisions of this Section 2.5, the provisions of Section 2.6(b) or 2.6(q) or
any other provision of the Certificate of Incorporation, at any time when there
are not outstanding both (i) one or more shares of PE Biosystems Stock or
Convertible Securities convertible into or exchangeable or exercisable for PE
Biosystems Stock and (ii) one or more shares of Celera Genomics Stock or
Convertible Securities convertible into or exchangeable or exercisable for
Celera Genomics Stock, the Corporation need not (A) attribute any of the assets
or liabilities of the Corporation or any of its subsidiaries to the PE
Biosystems Group or the Celera Genomics Group or (B) make any determination
required in connection therewith, nor shall the Board of Directors be required
to make any of the determinations otherwise required by this Article, and in
such circumstances the holders of the shares of PE Biosystems Stock and Celera
Genomics Stock outstanding, as the case may be, shall (unless otherwise
specifically provided by the Certificate of Incorporation) be entitled to all
the voting powers, preferences and relative, participating, optional and other
special rights of both classes of Common Stock without differentiation between
the PE Biosystems Stock and the Celera Genomics Stock.
(c) BOARD DETERMINATIONS BINDING. Subject to applicable law, any
determinations made in good faith by the Board of Directors of the Corporation
under any provision of this Section 2.5 or otherwise in furtherance of the
application of this Section 2 shall be final and binding on all stockholders.
SECTION 2.6 CERTAIN DEFINITIONS. As used in the Certificate of
Incorporation, the following terms shall have the following meanings (with terms
defined in the singular having comparable meaning when used in the plural and
vice versa), unless the context otherwise requires. As used in this Section 2.6,
a "contribution" or "transfer" of assets or properties from one Group to another
shall refer to the reattribution of such assets or properties from the
contributing or transferring Group to the other Group and correlative phrases
shall have correlative meanings.
II-14
(a) AVAILABLE DIVIDEND AMOUNT shall mean, as the context requires, a
reference to the PE Biosystems Group Available Dividend Amount or the Celera
Genomics Group Available Dividend Amount.
(b) CELERA GENOMICS GROUP shall mean, as of any date:
(i) the interest of the Corporation on such date in Celera Genomics
Corporation, PE AgGen, Inc. and GenScope, Inc. (the "Celera Genomics Group
Companies"), any successor companies, and all of the businesses, assets and
liabilities of the Celera Genomics Group Companies and any subsidiaries
thereof;
(ii) all assets and liabilities of the Corporation and its subsidiaries
attributed by the Board of Directors to the Celera Genomics Group, whether
or not such assets or liabilities are or were also assets and liabilities of
the Celera Genomics Group Companies;
(iii) all businesses, assets, properties and liabilities transferred to
the Celera Genomics Group from the PE Biosystems Group (other than in a
transaction pursuant to Section 2.6(b)(iv)) pursuant to transactions in the
ordinary course of business of the Celera Genomics Group and the PE
Biosystems Group or otherwise as the Board of Directors may have directed as
permitted by the Certificate of Incorporation;
(iv) all properties and assets transferred to the Celera Genomics Group
from the PE Biosystems Group in connection with an increase in the Number of
Celera Genomics Designated Shares; and
(v) the interest of the Corporation or any of its subsidiaries in any
business or asset acquired and any liabilities assumed by the Corporation or
any of its subsidiaries outside of the ordinary course of business and
attributed to the Celera Genomics Group, as determined by the Board of
Directors as contemplated by Section 2.5(a)(i);
provided that from and after any transfer of any assets or properties from the
Celera Genomics Group to the PE Biosystems Group, the Celera Genomics Group
shall no longer include such assets or properties so transferred.
(c) CELERA GENOMICS GROUP AVAILABLE DIVIDEND AMOUNT shall mean, on any date,
either:
(x)(i) an amount equal to the fair market value of the total assets
attributed to the Celera Genomics Group less the total liabilities
attributed to the Celera Genomics Group (provided that preferred stock shall
not be treated as a liability), in each case, as of such date and determined
on a basis consistent with that applied in determining PE Corporation
Earnings (Loss) Attributable to the Celera Genomics Group, minus (ii) the
aggregate par value of, or any greater amount determined in accordance with
applicable law to be capital in respect of, all outstanding shares of Celera
Genomics Stock and each class or series of preferred stock attributed in
accordance with the Certificate of Incorporation to the Celera Genomics
Group, or
(y) in case the total amount calculated pursuant to clause (i) above is
not a positive number, an amount equal to PE Corporation Earnings (Loss)
Attributable to the Celera Genomics Group (if positive) for the fiscal year
in which the dividend is declared and/or the preceding fiscal year.
Notwithstanding the foregoing provisions of this Section 2.6(c), and consistent
with Section 2.5(c), at any time when there are not outstanding both (i) one or
more shares of PE Biosystems Stock or Convertible Securities convertible into or
exchangeable or exercisable for PE Biosystems Stock and (ii) one or more shares
of Celera Genomics Stock or Convertible Securities convertible into or
exchangeable or exercisable for Celera Genomics Stock, the "Available Dividend
Amount," on any calculation date during such time period, with respect to the PE
Biosystems Stock or the Celera Genomics Stock, as the case may be (depending on
which of such classes of Common Stock or Convertible Securities convertible into
or exchangeable or exercisable for such class of Common Stock is outstanding),
shall mean the amount available for the payment of dividends on such Common
Stock in accordance with law.
II-15
(d) CONVERSION DATE shall mean the date fixed by the Board of Directors as
the effective date for the conversion of shares of PE Biosystems Stock into
shares of Celera Genomics Stock (or another class or series of common stock of
the Corporation) or of shares of Celera Genomics Stock into shares of PE
Biosystems Stock (or another class or series of common stock of the
Corporation), as the case may be, as shall be set forth in the notice to holders
of shares of the class of Common Stock subject to such conversion and to holders
of any Convertible Securities that are convertible into or exchangeable or
exercisable for shares of the class of Common Stock subject to such conversion
required pursuant to Section 2.4(f)(v).
(e) CONVERTIBLE SECURITIES shall mean, as of any date, any securities of the
Corporation or of any subsidiary thereof (other than shares of a class of Common
Stock), including warrants and options, outstanding at such time that by their
terms are convertible into or exchangeable or exercisable for or evidence the
right to acquire any shares of either class of Common Stock, whether
convertible, exchangeable or exercisable at such time or a later time or only
upon the occurrence of certain events; provided that securities shall only be
Convertible Securities in respect of the number of shares of Common Stock into
or for which such securities are then convertible, exchangeable or exercisable.
(f) DISPOSITION shall mean a sale, transfer, assignment or other disposition
(whether by merger, consolidation, sale or contribution of assets or stock or
otherwise) of properties or assets (including stock, other securities and
goodwill).
(g) FAIR VALUE shall mean, (i) in the case of equity securities or debt
securities of a class or series that has previously been Publicly Traded for a
period of at least 15 months, the Market Value thereof (if such Market Value, as
so defined, can be determined); (ii) in the case of an equity security or debt
security that has not been Publicly Traded for at least 15 months or the Market
Value of which cannot be determined, the fair value per share of stock or per
other unit of such security, on a fully distributed basis, as determined by an
independent investment banking firm experienced in the valuation of securities
selected in good faith by the Board of Directors, or, if no such investment
banking firm is, as determined in the good faith judgment of the Board of
Directors, available to make such determination, in good faith by the Board of
Directors; (iii) in the case of cash denominated in U.S. dollars, the face
amount thereof and in the case of cash denominated in other than U.S. dollars,
the face amount thereof converted into U.S. dollars at the rate published in The
Wall Street Journal on the date for the determination of Fair Value or, if not
so published, at such rate as shall be determined in good faith by the Board of
Directors based upon such information as the Board of Directors shall in good
faith determine to be appropriate; and (iv) in the case of property other than
securities or cash, the "Fair Value" thereof shall be determined in good faith
by the Board of Directors based upon such appraisals or valuation reports of
such independent experts as the Board of Directors shall in good faith determine
to be appropriate. Any such determination of Fair Value shall be described in a
statement filed with the records of the actions of the Board of Directors.
(h) GROUP shall mean, as of any date, the PE Biosystems Group or the Celera
Genomics Group, as the case may be.
(i) MARKET CAPITALIZATION of any class or series of capital stock on any
date shall mean the product of (i) the Market Value of one share of such class
or series of capital stock on such date and (ii) the number of shares of such
class or series of capital stock outstanding on such date.
(j) MARKET VALUE of a share of any class or series of capital stock of the
Corporation on any day shall mean the average of the high and low reported sales
prices regular way of a share of such class or series on such Trading Day or, in
case no such reported sale takes place on such Trading Day, the average of the
reported closing bid and asked prices regular way of a share of such class or
series on such Trading Day, in either case as reported on the New York Stock
Exchange Composite Tape or, if the shares of such class or series are not listed
or admitted to trading on such Exchange on such Trading Day, on the principal
national securities exchange in the United States on which the shares of such
class or series are listed or admitted to trading or, if not listed or admitted
to trading on any
II-16
national securities exchange on such Trading Day, on the Nasdaq National Market
or, if the shares of such class or series are not listed or admitted to trading
on any national securities exchange or quoted on the Nasdaq National Market on
such Trading Day, the average of the closing bid and asked prices of a share of
such class or series in the over-the-counter market on such Trading Day as
furnished by any New York Stock Exchange member firm selected from time to time
by the Corporation or, if such closing bid and asked prices are not made
available by any such New York Stock Exchange member firm on such Trading Day,
the Fair Value of a share of such class or series as set forth in clause (ii) of
the definition of Fair Value; provided that, for purposes of determining the
"Market Value" of a share of any class or series of capital stock for any
period, (i) the "Market Value" of a share of capital stock on any day prior to
any "ex-dividend" date or any similar date occurring during such period for any
dividend or distribution (other than any dividend or distribution contemplated
by clause (ii)(B) of this sentence) paid or to be paid with respect to such
capital stock shall be reduced by the Fair Value of the per share amount of such
dividend or distribution and (ii) the "Market Value" of any share of capital
stock on any day prior to (A) the effective date of any subdivision (by stock
split or otherwise) or combination (by reverse stock split or otherwise) of
outstanding shares of such class or series of capital stock occurring during
such period or (B) any "ex-dividend" date or any similar date occurring during
such period for any dividend or distribution with respect to such capital stock
to be made in shares of such class or series of capital stock or Convertible
Securities that are convertible, exchangeable or exercisable for such class or
series of capital stock shall be appropriately adjusted, as determined by the
Board of Directors, to reflect such subdivision, combination, dividend or
distribution.
(k) MARKET VALUE RATIO OF CELERA GENOMICS STOCK TO PE BIOSYSTEMS STOCK as of
any date shall mean the fraction (which may be greater or less than 1/1),
expressed as a decimal (rounded to the nearest five decimal places), of a share
of PE Biosystems Stock (or another class or series of common stock of the
Corporation, if so provided by Section 2.4(b)(iii) because PE Biosystems Stock
is not then Publicly Traded) to be issued in respect of a share of Celera
Genomics Stock upon a conversion of Celera Genomics Stock into PE Biosystems
Stock (or another class or series of common stock of the Corporation) in
accordance with Section 2.4(b)(iii) the numerator of which shall be the average
Market Value of one share of Celera Genomics Stock during the 20-Trading Day
period ending on such date and the denominator of which shall be the average
Market Value of one share of PE Biosystems Stock (or such other common stock)
during the 20-Trading Day period ending on such date.
(l) MARKET VALUE RATIO OF PE BIOSYSTEMS STOCK TO CELERA GENOMICS STOCK as of
any date shall mean the fraction (which may be greater or less than 1/1),
expressed as a decimal (rounded to the nearest five decimal places), of a share
of Celera Genomics Stock (or another class or series of common stock of the
Corporation, if so provided by Section 2.4(a)(iii) because Celera Genomics Stock
is not then Publicly Traded) to be issued in respect of a share of PE Biosystems
Stock upon a conversion of PE Biosystems Stock into Celera Genomics Stock (or
another class or series of common stock of the Corporation) in accordance with
Section 2.4(a)(iii), the numerator of which shall be the average Market Value of
one share of PE Biosystems Stock during the 20-Trading Day period ending on such
date and the denominator of which shall be the average Market Value of one share
of Celera Genomics Stock (or such other common stock) during the 20-Trading Day
period ending on such date.
(m) NET PROCEEDS shall mean, as of any date with respect to any Disposition
of any of the properties and assets attributed to the PE Biosystems Group or the
Celera Genomics Group, as the case may be, an amount, if any, equal to what
remains of the gross proceeds of such Disposition after payment of, or
reasonable provision is made as determined by the Board of Directors for, (i)
any taxes payable by the Corporation (or which would have been payable but for
the utilization of tax benefits attributable to the other Group) in respect of
such Disposition or in respect of any resulting dividend or redemption pursuant
to Section 2.4(a)(i)(1)(A), 2.4(a)(i)(1)(B), 2.4(b)(i)(1)(A) or 2.4(b)(i)(1)(B),
(ii) any transaction costs, including, without limitation, any legal, investment
banking and accounting fees and expenses and (iii) any liabilities (contingent
or otherwise) of or attributed to such Group, including, without limitation, any
liabilities for deferred taxes or any indemnity or guarantee obligations
II-17
of the Corporation incurred in connection with the Disposition or otherwise, and
any liabilities for future purchase price adjustments and any preferential
amounts plus any accumulated and unpaid dividends in respect of the preferred
stock attributed to such Group. For purposes of this definition, any properties
and assets attributed to the Group, the properties and assets of which are
subject to such Disposition, remaining after such Disposition shall constitute
"reasonable provision" for such amount of taxes, costs and liabilities
(contingent or otherwise) as the Board of Directors determines can be expected
to be supported by such properties and assets.
(n) NUMBER OF CELERA GENOMICS DESIGNATED SHARES shall be, as of the date of
effectiveness of the Certificate of Incorporation, zero; provided, however, that
the "Number of Celera Genomics Designated Shares" shall from time to time
thereafter be:
(i) adjusted, if before such adjustment such number is greater than
zero, as determined by the Board of Directors to be appropriate to reflect
equitably any subdivision (by stock split or otherwise) or combination (by
reverse stock split or otherwise) of the Celera Genomics Stock or any
dividend or other distribution of shares of Celera Genomics Stock to holders
of shares of Celera Genomics Stock or any reclassification of Celera
Genomics Stock;
(ii) decreased (but to not less than zero), if before such adjustment
such number is greater than zero, by action of the Board of Directors by (1)
the number of shares of Celera Genomics Stock issued or sold by the
Corporation that, immediately prior to such issuance or sale, were included
in the Number of Celera Genomics Designated Shares, (2) the number of shares
of Celera Genomics Stock issued upon conversion, exchange or exercise of
Convertible Securities that, immediately prior to the issuance or sale of
such Convertible Securities, were included in the Number of Celera Genomics
Designated Shares, (3) the number of shares of Celera Genomics Stock issued
by the Corporation as a dividend or other distribution (including in
connection with any reclassification or exchange of shares) to holders of PE
Biosystems Stock, (4) the number of shares of Celera Genomics Stock issued
upon the conversion, exchange or exercise of any Convertible Securities
issued by the Corporation as a dividend or other distribution (including in
connection with any reclassification or exchange of shares) to holders of PE
Biosystems Stock, and (5) the number (rounded, if necessary, to the nearest
whole number) equal to the quotient of (A) the aggregate Fair Value as of
the date of contribution of properties or assets (including cash)
transferred from the Celera Genomics Group to the PE Biosystems Group in
consideration for a reduction in the Number of Celera Genomics Designated
Shares divided by (B) the average Market Value of one share of Celera
Genomics Stock during the 20-Trading Day period ending on the date
immediately prior to the date of such transfer; and
(iii) increased by the number (rounded, if necessary, to the nearest
whole number) equal to the quotient of (A) the Fair Value of properties or
assets (including cash) theretofore attributed as provided by Section 2.6(o)
to the PE Biosystems Group that are contributed to the Celera Genomics Group
in consideration of an increase in the Number of Celera Genomics Designated
Shares divided by (B) the average Market Value of one share of Celera
Genomics Stock during the 20-Trading Day period ending on the date
immediately prior to the date of such contribution.
(o) PE BIOSYSTEMS GROUP shall mean, as of any date:
(i) the interest of the Corporation or any of its subsidiaries on such
date in all of the businesses, assets, properties and liabilities of the
Corporation or any of its subsidiaries (and any successor companies), other
than any businesses, assets, properties and liabilities attributed in
accordance with this Article to the Celera Genomics Group;
(ii) all businesses, assets, properties and liabilities transferred to
the PE Biosystems Group from the Celera Genomics Group (other than in a
transaction pursuant to Section 2.6(o)(iii)) pursuant to transactions in the
ordinary course of business of the PE Biosystems Group and the Celera
Genomics Group or otherwise as the Board of Directors may have directed as
permitted by the Certificate of Incorporation;
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(iii) all properties and assets transferred to the PE Biosystems Group
from the Celera Genomics Group in connection with a reduction of the Number
of Celera Genomics Designated Shares; and
(iv) the interest of the Corporation or any of its subsidiaries in any
business or asset acquired and any liabilities assumed by the Corporation or
any of its subsidiaries outside of the ordinary course of business and
attributed to the PE Biosystems Group, as determined by the Board of
Directors as contemplated by Section 2.5(a)(i);
provided that from and after any transfer of any assets or properties from the
PE Biosystems Group to the Celera Genomics Group, the PE Biosystems Group shall
no longer include such assets or properties so transferred.
(p) PE BIOSYSTEMS GROUP AVAILABLE DIVIDEND AMOUNT shall mean, on any date,
either:
(x)(i) the amount equal to the fair market value of the total assets
attributed to the PE Biosystems Group less the total liabilities attributed
to the PE Biosystems Group (provided that preferred stock shall not be
treated as a liability), in each case, as of such date and determined on a
basis consistent with that applied in determining PE Corporation Earnings
(Loss) Attributable to the PE Biosystems Group, minus (ii) the aggregate par
value of, or any greater amount determined in accordance with applicable law
to be capital in respect of, all outstanding shares of PE Biosystem Stock
and each class or series of preferred stock attributed in accordance with
the Certificate of Incorporation to the PE Biosystems Group, or
(y) in case the total amount calculated pursuant to clause (i) above is
not a positive number, an amount equal to PE Corporation Earnings (Loss)
Attributable to the PE Biosystems Group (if positive) for the fiscal year in
which the dividend is declared and/or the preceding fiscal year.
Notwithstanding the foregoing provisions of this Section 2.6(p), and consistent
with Section 2.5(c), at any time when there are not outstanding both (i) one or
more shares of PE Biosystems Stock or Convertible Securities convertible into or
exchangeable or exercisable for PE Biosystems Stock and (ii) one or more shares
of Celera Genomics Stock or Convertible Securities convertible into or
exchangeable or exercisable for Celera Genomics Stock, the "Available Dividend
Amount," on any calculation date during such time period, with respect to the PE
Biosystems Stock or the Celera Genomics Stock, as the case may be (depending on
which of such classes of Common Stock or Convertible Securities convertible into
or exchangeable or exercisable for such class of Common Stock is outstanding),
shall mean the amount available for the payment of dividends on such Common
Stock in accordance with law.
(q) PE CORPORATION EARNINGS (LOSS) ATTRIBUTABLE TO THE CELERA GENOMICS GROUP
shall mean, for any period through any date, (i) the net income or loss of the
Celera Genomics Group for such period determined in accordance with generally
accepted accounting principles in effect at such time, reflecting income and
expense of the Corporation attributed to the Celera Genomics Group on a basis
substantially consistent with attributions of income and expense made in the
calculation of PE Corporation Earnings (Loss) Attributable to the PE Biosystems
Group, including, without limitation, corporate administrative costs, net
interest and other financial costs and income taxes, reduced by (ii) the
aggregate amount of consolidated allowable tax benefits for federal income tax
purposes generated by the Celera Genomics Group for such period which can not be
utilized by the Celera Genomics Group but can be utilized by the Corporation on
a consolidated basis for such period to the extent such amount was included in
the calculation of net income or loss under clause (i) for such period
("Excludable Celera Tax Benefits") (provided that the amount referred to in
clause (i) shall be reduced only to the extent the cumulative amount of
Excludable Celera Tax Benefits from July 1, 1998 exceeds $75 million).
(r) PE CORPORATION EARNINGS (LOSS) ATTRIBUTABLE TO THE PE BIOSYSTEMS GROUP
shall mean, for any period through any date, (i) the net income or loss of the
PE Biosystems Group for such period determined in accordance with generally
accepted accounting principles in effect at such time, reflecting
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income and expense of the Corporation attributed to the PE Biosystems Group on a
basis substantially consistent with attributions of income and expense made in
the calculation of PE Corporation Earnings (Loss) Attributable to the Celera
Genomics Group, including, without limitation, corporate administrative costs,
net interest and other financial costs and income taxes, increased by (ii) the
amount reducing PE Corporation Earnings (Loss) Attributable to the Celera
Genomics Group for such period pursuant to clause (ii) of Section 2.6(q).
(s) PUBLICLY TRADED with respect to any security shall mean that such
security is (i) registered under Section 12 of the Securities Exchange Act of
1934, as amended (or any successor provision of law), and (ii) listed for
trading on the New York Stock Exchange or the American Stock Exchange (or any
national securities exchange registered under Section 7 of the Securities
Exchange Act of 1934, as amended (or any successor provision of law), that is
the successor to either such exchange) or listed on The Nasdaq Stock Market (or
any successor market system).
(t) REDEMPTION DATE shall mean the date fixed by the Board of Directors as
the effective date for a redemption of shares of either class of Common Stock,
as set forth in a notice to holders thereof required pursuant to Section
2.4(f)(iii), (iv), (v) or (vi).
(u) RELATED BUSINESS TRANSACTION means any Disposition of all or
substantially all the properties and assets attributed to the PE Biosystems
Group or the Celera Genomics Group, as the case may be, in a transaction or
series of related transactions that result in the Corporation receiving in
consideration of such properties and assets primarily equity securities
(including, without limitation, capital stock, debt securities convertible into
or exchangeable for equity securities or interests in a general or limited
partnership or limited liability company, without regard to the voting power or
other management or governance rights associated therewith) of any entity which
(i) acquires such properties or assets or succeeds (by merger, formation of a
joint venture or otherwise) to the business conducted with such properties or
assets or controls such acquiror or successor and (ii) is engaged primarily or
proposes to engage primarily in one or more businesses similar or complementary
to the businesses conducted by such Group prior to such Disposition, as
determined by the Board of Directors.
(v) TAX EVENT shall mean the receipt by the Corporation of an opinion of tax
counsel to the Corporation experienced in such matters, who shall not be an
officer or employee of the Corporation or any of its affiliates, that, as a
result of any amendment to, or change in, the laws (or any regulations
thereunder) of the United States or any political subdivision or taxing
authority thereof or therein (including any announced proposed change by an
applicable legislative committee or the chair thereof in such laws or by an
administrative agency in such regulations), or as a result of any official or
administrative pronouncement or action or judicial decision interpreting or
applying such laws or regulations, it is more likely than not that for United
States federal income tax purposes (i) the Corporation or its stockholders is
or, at any time in the future, will be subject to tax upon the issuance of
shares of either PE Biosystems Stock or Celera Genomics Stock or (ii) either PE
Biosystems Stock or Celera Genomics Stock is not or, at any time in the future,
will not be treated solely as stock of the Corporation. For purposes of
rendering such opinion, tax counsel shall assume that any legislative or
administrative proposals will be adopted or enacted as proposed.
(w) TRADING DAY shall mean each weekday other than any day on which the
relevant class of common stock of the Corporation is not traded on any national
securities exchange or listed on The Nasdaq Stock Market or in the
over-the-counter market.
SECTION 3. PREFERRED STOCK. The Preferred Stock may be issued from time to
time in one or more series, each with such distinctive designation as may be
stated in the Certificate of Incorporation or in any amendment hereto, or in a
resolution or resolutions providing for the issue of such stock from time to
time adopted by the Board of Directors or a duly authorized committee thereof.
The resolution or resolutions providing for the issue of shares of a particular
series shall fix, subject to applicable laws and the provisions of the
Certificate of Incorporation, for each such series the number of shares
constituting such series and the designation and the voting powers, preferences
and relative,
II-20
participating, optional or other special rights and the qualifications,
limitations or restrictions thereof, including, without limiting the generality
of the foregoing, such provisions as may be desired concerning voting,
redemption, dividends, dissolution or the distribution of assets, conversion or
exchange, and such other subjects or matters as may be fixed by the Board of
Directors or a duly authorized committee thereof under the DGCL.
ARTICLE V.
BOARD OF DIRECTORS
SECTION 1. NUMBER OF DIRECTORS. The number of directors shall be fixed by
resolution of the Board of Directors, but shall not be less than three nor more
than thirteen. Election of directors need not be by written ballot, unless so
provided in the By-laws of the Corporation.
SECTION 2. POWERS OF THE BOARD OF DIRECTORS. The business and affairs of
the Corporation shall be managed by or under the direction of the Board of
Directors selected as provided by law and the Certificate of Incorporation and
the By-laws of the Corporation. In furtherance, and not in limitation, of the
powers conferred by the laws of the State of Delaware, the Board of Directors is
expressly authorized to:
(a) adopt, amend, alter, change or repeal By-laws of the Corporation;
(b) subject to the By-laws as from time to time in effect, determine the
rules and procedures for the conduct of the business of the Board of
Directors and the management and direction by the Board of Directors of the
business and affairs of the Corporation, including the power to designate
and empower committees of the Board of Directors, to elect, or authorize the
appointment of, and empower officers and other agents of the Corporation,
and to determine the time and place of, the notice requirements for, and the
manner of conducting, Board meetings, as well as other notice requirements
for, and the manner of taking, Board action; and
(c) exercise all such powers and do all such acts as may be exercised or
done by the Corporation, subject to the provisions of the DGCL and the
Certificate of Incorporation and By-laws of the Corporation.
ARTICLE VI.
STOCKHOLDER ACTIONS
SECTION 1. SPECIAL MEETINGS. Special meetings of stockholders may be called
at any time by the Board of Directors or by the Chairman of the Board of
Directors, the President or the Secretary of the Corporation.
SECTION 2. WRITTEN CONSENTS. Any action required or permitted to be taken
by the stockholders of the Corporation may be effected by written consent in
lieu of a meeting of such holders, provided that such consent must be signed by
all the holders of all outstanding shares of the Corporation's capital stock
entitled to vote thereon.
ARTICLE VII.
LIMITATION ON LIABILITY OF DIRECTORS
No person shall be personally liable to the Corporation or its stockholders
for monetary damages for breach of fiduciary duty as a director, including
without limitation for serving on a committee of the Board of Directors;
provided, however, that the foregoing shall not eliminate or limit the liability
of a director (i) for any breach of the director's duty of loyalty to the
Corporation or its stockholders, (ii) for acts or omissions not in good faith or
which involve intentional misconduct or a knowing violation of law, (iii)
arising under Section 174 of the DGCL, or (iv) for any transaction from which
the director derived an improper personal benefit. Any amendment, repeal or
modification of this Article VII shall not adversely affect any right or
protection of a director of the Corporation existing hereunder with respect to
any act or omission occurring prior to such amendment, repeal or modification.
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ARTICLE VIII.
AMENDMENT OF CERTIFICATE OF INCORPORATION
The Corporation hereby reserves the right from time to time to amend, alter,
change or repeal any provision contained in the Certificate of Incorporation of
the Corporation in any manner permitted by the DGCL and all rights and powers
conferred upon stockholders, directors and officers herein are granted subject
to this reservation. In addition to any vote otherwise required by law, and
except as may otherwise be provided in the Certificate of Incorporation, any
such amendment, alteration, change or repeal shall require approval of both (i)
the Board of Directors by the affirmative vote of a majority of the members then
in office and (ii) the holders of a majority of the voting power of all of the
shares of capital stock of the Corporation entitled to vote generally in the
election of directors, voting together as a single class.
IN WITNESS WHEREOF, this Restated Certificate of Incorporation which
restates, integrates and amends the provisions of the certificate of
incorporation of the Corporation, and which has been duly adopted in accordance
with the provisions of Sections 241 and 245 of the Delaware General Corporation
Law, has been executed by , its
, this day of , and by
so executing, the undersigned certifies that the Corporation has not received
any payment for any of its stock.
PE CORPORATION
By:___________________________________
Name:
Title:
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ANNEX III
PE CORPORATION/PE BIOSYSTEMS GROUP
1999 STOCK INCENTIVE PLAN
1. PURPOSE OF THE PLAN.
The purpose of PE Corporation/PE Biosystems Group 1999 Stock Incentive Plan
(the "Plan") is to increase stockholder value and to advance the interests of PE
Corporation and its subsidiaries (collectively, the "Corporation") by providing
financial incentives designed to attract, retain, and motivate employees,
officers, consultants, and directors of the Corporation. The Plan continues the
established policy of the Corporation of encouraging ownership of its Stock by
key personnel and of providing incentives for such individuals to put forth
maximum efforts for the success of the Corporation.
2. DEFINITIONS.
As used herein, the following terms have the meanings hereinafter set forth
unless the context clearly indicates to the contrary:
2.1 "ACT" means the Securities Exchange Act of 1934, as amended from time to
time.
2.2 "AGREEMENT" means the written agreement between the Corporation and an
Optionee or Award Recipient, as the case may be, evidencing the grant of an
Option or Award and setting forth the terms and conditions thereof.
2.3 "AWARD" means a Stock Award or Performance Share Award.
2.4 "AWARD RECIPIENT" means an individual to whom an Award has been granted
under the Plan.
2.5 "BOARD OF DIRECTORS" means the Board of Directors of the Corporation.
2.6 "CODE" means the Internal Revenue Code of 1986, as amended from time to
time.
2.7 "COMMITTEE" means the Management Resources Committee of the Board of
Directors, or any successor thereto or committee designated thereby whose
members qualify as (a) outside directors as defined in Section 162(m) of the
Code and the Treasury Regulations issued pursuant thereto and (b) non-employee
directors within the meaning of Rule 16b-3 under the Act.
2.8 "CONTINUOUS SERVICE" means an uninterrupted chain of continuous regular
employment by the Corporation or an uninterrupted chain of continuous
performance of significant services for the Corporation by a consultant. A leave
of absence granted in accordance with the Corporation's usual procedures which
does not operate to interrupt continuous employment or continuous performance of
significant services for other benefits granted by the Corporation shall not be
considered a termination of employment nor an interruption of Continuous Service
hereunder, and an employee or consultant who is granted such a leave of absence
shall be considered to be continuously employed or continuously performing
significant services during the period of such leave; PROVIDED, HOWEVER, that if
regulations under the Code or an amendment to the Code shall establish a more
restrictive definition of a leave of absence, such definition shall be
substituted herein.
2.9 "DEFERRAL ACCOUNT" means the bookkeeping account established for the
deferral of a Director Stock Award by a Non-Employee Director pursuant to
Section 10.7 hereof.
2.10 "DIRECTOR STOCK AWARD" means an award of shares of Stock granted
pursuant to Section 10 hereof.
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2.11 "EMPLOYEE AWARD" means an Employee Stock Award or Performance Share
Award.
2.12 "EMPLOYEE STOCK AWARD" means an award of shares of Stock granted
pursuant to Section 8 hereof.
2.13 "FAIR MARKET VALUE" means the simple average of the high and low sales
prices of a share of Stock as reported in the report of composite transactions
(or other source designated by the Committee) on the date on which fair market
value is to be determined (or if there shall be no trading on such date, then on
the first previous date on which sales were made on a national securities
exchange).
2.14 "INCENTIVE STOCK OPTIONS" means those Options granted hereunder to
employees as incentive stock options as defined in, and which by their terms
comply with the requirements for such Options set out in, Section 422 of the
Code and the Treasury Regulations issued pursuant thereto.
2.15 "NON-EMPLOYEE DIRECTOR" means a member of the Board of Directors who is
not an employee or officer of the Corporation.
2.16 "NON-QUALIFIED STOCK OPTIONS" means those Options granted hereunder
which are not intended to qualify as Incentive Stock Options.
2.17 "NORMAL RETIREMENT AGE" means the normal retirement age of a member of
the Board as determined by the Board from time to time.
2.18 "OPTION" means an option granted pursuant to Section 6 hereof.
2.19 "OPTIONEE" means an individual to whom an Option has been granted under
the Plan.
2.20 "PERFORMANCE SHARE AWARD" means an award of Performance Shares granted
pursuant to Section 9 hereof.
2.21 "PERFORMANCE SHARES" means shares of Stock covered by a Performance
Share Award.
2.22 "STOCK" means the PE Corporation--PE Biosystems Group Common Stock, par
value $.01 per share, of the Corporation.
2.23 "STOCK AWARD" means an Employee Stock Award or Director Stock Award.
2.24 "STOCK UNIT" means the bookkeeping entry representing the equivalent of
one share of Stock.
2.25 "STOCK RESTRICTIONS" mean the restrictions, including performance
goals, placed on a Stock Award or Performance Share Award under the Plan.
2.26 "TEN PERCENT STOCKHOLDER" means an individual who owns, within the
meaning of Section 422(b)(6) of the Code and the Treasury Regulations issued
pursuant thereto, stock possessing more than ten (10%) percent of the total
combined voting power of all classes of stock of the Corporation.
3. SHARES RESERVED FOR THE PLAN.
The aggregate number of shares of Stock available for Options and Awards
under the Plan is 2,400,000, subject to adjustment in accordance with Section
15. Shares of Stock issued under the Plan shall be authorized but unissued
shares. In lieu of such unissued shares, the Corporation may, in its discretion,
transfer on the exercise of Options or the delivery of shares of Stock issued
pursuant to Awards treasury shares, reacquired shares, or shares acquired in the
market for purposes of the Plan.
If any Options or Awards granted under the Plan shall for any reason
terminate, be canceled, or expire without having been exercised or vested in
full, shares of Stock not issued or vested in full under such Options or Awards
shall be available again for issuance under the Plan.
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4. ADMINISTRATION OF THE PLAN.
The Committee shall have plenary authority in its discretion, but subject to
the express provisions of the Plan, to administer the Plan, including, without
limitation, the authority to determine the individuals to whom, and the time or
times at which, Options and Awards shall be granted, the number of shares of
Stock to be covered by each Option and Award, and the terms and conditions of
each Option and Award. The Committee shall also have plenary authority in its
discretion to interpret the Plan; to prescribe, amend, and rescind rules and
regulations relating to it; to determine the terms (which need not be identical)
of Agreements executed and delivered under the Plan, including, without
limitation, such terms and provisions as shall be requisite in the judgment of
the Committee to conform to any change in any law or regulation applicable
thereto; and to make any and all other determinations and take any and all
actions deemed necessary or advisable for the administration of the Plan. The
Committee's determination on the foregoing matters shall be conclusive and
binding on all persons having an interest in the Plan.
5. ELIGIBILITY; FACTORS TO BE CONSIDERED IN GRANTING OPTIONS AND AWARDS.
Subject to the terms of the Plan, an Option may be granted to any person
who, at the time the Option is granted, is a regular full-time employee (which
term shall include officers and directors) of the Corporation, a Non-Employee
Director, or a consultant performing significant services for the Corporation.
Employee Awards may be granted to any person who, at the time the Employee Award
is granted, is a regular full-time employee (which term shall include officers
and directors) of the Corporation. Non-Employee Directors, shall not be eligible
to receive Employee Awards. In determining the employees, Non-Employee Directors
and consultants to whom Options or Awards shall be granted, the number of shares
of Stock to be covered by each Option or Award, and the terms and conditions of
each Option and Award, the Committee shall take into account the duties and
responsibilities of the respective employees, Non-Employee Directors, and
consultants, their present and potential contributions to the success of the
Corporation, and such other factors as they shall deem relevant in connection
with accomplishing the purposes of the Plan. An employee, Non-Employee Director,
or consultant who has been granted an Option or Award may be granted and hold
additional Options or Awards if the Committee shall so determine.
6. OPTIONS.
6.1 GRANT OF OPTIONS. Subject to the terms of the Plan, the Committee may
grant Options to such employees, Non-Employee Directors, and consultants at such
time or times and in such amounts as it shall determine. Each Option granted
hereunder shall be designated as an Incentive Stock Option or Non-Qualified
Stock Option and shall be evidenced by an Agreement containing such terms and
conditions consistent with the Plan as the Committee shall determine; PROVIDED,
HOWEVER, that Incentive Stock Options shall be granted only to employees of the
Corporation.
6.2 PURCHASE PRICE. The purchase price of each share of Stock covered by an
Option shall be 100% (or 110% in the case of an Incentive Stock Option granted
to a Ten Percent Stockholder) of the Fair Market Value of a share of Stock on
the date the Option is granted.
6.3 TERM. The term of each Option shall be for such period as the Committee
shall determine, but not more than ten (10) years (or five (5) years in the case
of an Incentive Stock Option granted to a Ten Percent Stockholder) from the date
of grant thereof, and shall be subject to earlier termination as hereinafter
provided. If the original term of any Option is less than ten (10) years (or
five (5) years in the case of an Incentive Stock Option granted to a Ten Percent
Stockholder) from the date of grant, the Option prior to its expiration may be
amended, with the approval of the Committee and the employee, Non-Employee
Director, or consultant, as the case may be, to extend the term so that the
III-3
term as amended is not more than ten (10) years (or five (5) years in the case
of an Incentive Stock Option granted to a Ten Percent Stockholder) from the
original date of grant of such Option.
6.4 VESTING. An Option shall be exercisable at such time or times and in
such manner and number of shares as the Committee shall determine. Except as
provided in the Plan, no Option may be exercised at any time unless the holder
thereof is then a regular employee of the Corporation, a member of the Board of
Directors, or a consultant performing significant services for the Corporation.
Options granted under the Plan shall not be affected by any change of duties or
position so long as the holder continues to be an employee of the Corporation,
continues to be a member of the Board of Directors, or a consultant performing
significant services for the Corporation.
6.5 TERMINATION OF EMPLOYMENT OR SERVICES. In the event that the employment
of an employee to whom an Option has been granted under the Plan shall be
terminated or the services of a Non-Employee Director or consultant to whom an
Option has been granted under the Plan shall be terminated (other than by reason
of retirement, disability, or death) such Option may, subject to the provisions
of the Plan, be exercised, to the extent that the employee, Non-Employee
Director, or consultant was entitled to do so at the date of termination of his
or her employment or services, at any time within thirty (30) days after such
termination, but in no event after the expiration of the term of the Option.
6.6 RETIREMENT OR DISABILITY. If an employee to whom an Option has been
granted under the Plan shall retire from the Corporation pursuant to any
qualified pension plan provided by the Corporation, or if a Non-Employee
Director (a) retires from the Board of Directors upon reaching Normal Retirement
Age or (b) resigns or declines to stand for reelection with the approval of the
Board of Directors, or if an employee, Non-Employee Director, or consultant to
whom an Option has been granted becomes totally and permanently disabled, such
Option may be exercised, notwithstanding the provisions of Section 6.4, in full
without regard to the period of Continuous Service after the Option was granted
at any time (a) in the case of an employee holding an Incentive Stock Option,
within three (3) months after such retirement or disability, but in no event
after the expiration of the term of the Option or (b) in the case of a
Non-Qualified Stock Option, within one (1) year (three (3) years in the case of
a Non-Employee Director) after such retirement, disability, resignation, or
declining, but in no event after the expiration of the term of the Option.
6.7 DEATH. If an employee, Non-Employee Director, or consultant to whom an
Option has been granted under the Plan shall die while employed by the
Corporation, serving as a member of the Board of Directors, or engaged to
perform services for the Corporation, such Option may be exercised to the extent
that the employee, Non-Employee Director, or consultant was entitled to do so at
the date of his or her death, by his or her executor or administrator or other
person at the time entitled by law to the employee's, Non-Employee Director's,
or consultant's rights under the Option, at any time within such period, not
exceeding one (1) year after his or her death, as shall be prescribed in the
Agreement, but in no event after the expiration of the term of the Option.
7. TERMS AND CONDITIONS APPLICABLE TO OPTIONS.
7.1 TRANSFERABILITY. During the lifetime of an Optionee, an Option shall not
be transferable, except pursuant to a domestic relations order; PROVIDED,
HOWEVER, that the Committee may, in its sole discretion, permit an Optionee to
transfer a Non-Qualified Stock Option to (a) a member of the Optionee's
immediate family, (b) a trust, the beneficiaries of which consist exclusively of
members of the Optionee's immediate family, or (c) a partnership, the partners
of which consist exclusively of members of the Optionee's immediate family.
After the death of an Optionee, an Option may be transferred pursuant to the
laws of descent and distribution.
7.2 METHOD OF EXERCISE. An Option may be exercised by giving written notice
to the Corporation specifying the number of shares of Stock to be purchased;
PROVIDED THAT, except as otherwise provided
III-4
by the Committee, an Option may not be exercised as to fewer than 100 shares, or
the remaining exercisable shares covered by the Option if fewer than 100, at any
one time. No Option may be exercised with respect to a fractional share. The
purchase price of the shares as to which an Option shall be exercised shall be
paid in full at the time of exercise at the election of the holder of an Option
(a) in cash or currency of the United States of America, (b) by tendering to the
Corporation shares of Stock owned by such holder for at least six (6) months
having a Fair Market Value equal to the cash exercise price applicable to the
purchase price of the shares as to which the Option is being exercised, (c) a
combination of cash and/or previously owned shares of Stock valued at Fair
Market Value, or (d) by payment of such other consideration as the Committee
shall from time to time determine. For purposes of the immediately preceding
sentence, Fair Market Value shall be determined as of the business day
immediately preceding the day on which the Option is exercised. Notwithstanding
the foregoing, the Committee shall have the right to modify, amend, or cancel
the provisions of clauses (b) and (c) above at any time upon prior notice to the
holders of Options.
7.3 STOCKHOLDER RIGHTS. An Optionee shall have none of the rights of a
stockholder with respect to the shares subject to an Option until such shares
have been registered upon the exercise of the Option on the transfer books of
the Corporation in the name of such Optionee and then only to the extent that
any restrictions imposed thereon by the Committee shall have lapsed.
7.4 NO LOANS. Neither the Corporation, any company with which it is
affiliated, nor any of their respective subsidiaries may directly or indirectly
lend money to any person for the purpose of assisting such person in acquiring
or carrying shares of Stock issued upon the exercise of an Option.
7.5 CONDITIONS PRECEDENT TO EXERCISE. Notwithstanding any other provision of
the Plan, but subject to the provisions of Section 11, the exercise of an Option
following termination of employment or service shall be subject to the
satisfaction of the conditions precedent that the Optionee has not (a) rendered
services or engaged directly or indirectly in any business which in the opinion
of the Committee competes with or is in conflict with the interests of the
Corporation; PROVIDED, HOWEVER, that the ownership by an Optionee of 5% or less
of any class of securities of a publicly traded company shall not be deemed to
violate this clause or (b) violated any written agreement with the Corporation,
including, without limitation, any confidentiality agreement. An Optionee's
violation of clause (a) or (b) of the preceding sentence shall result in the
immediate forfeiture of any Options held by such Optionee.
7.6 LIMITATIONS ON THE GRANT OF OPTIONS. No one individual may be granted an
Option or Options under the Plan during any fiscal year of the Corporation for
an aggregate number of shares of Stock which exceeds 10% of the total number of
shares reserved for issuance under the Plan. The aggregate Fair Market Value of
the Stock (determined as of the date the Option is granted) with respect to
which Incentive Stock Options granted under the Plan and all other stock option
plans of the Corporation (or any parent or subsidiary of the Corporation) are
exercisable for the first time by any specific individual during any calendar
year shall not exceed $100,000. No Incentive Stock Option may be granted
hereunder to an individual who immediately after such Option is granted is a Ten
Percent Stockholder unless (a) the Option price is at least 110% of the fair
market value of such stock on the date of grant and (b) the Option may not be
exercised more than five (5) years after the date of grant.
8. EMPLOYEE STOCK AWARDS.
8.1 GRANT OF EMPLOYEE STOCK AWARDS. Subject to the terms of the Plan, the
Committee may grant Employee Stock Awards to such employees at such time or
times and in such amounts as it shall determine. Shares of Stock issued pursuant
to Employee Stock Awards may, but need not, be subject to such restrictions as
may be established by the Committee at the time of the grant and reflected in an
Agreement.
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8.2 RESTRICTIONS ON EMPLOYEE STOCK AWARDS. Except as provided in the Plan,
any shares of Stock subject to an Employee Stock Award with respect to which
Stock Restrictions have not been satisfied shall be forfeited and all rights of
the employee to such Employee Stock Award shall terminate without any payment of
consideration by the Corporation. Except as set forth in Section 8.5, a
recipient of an Employee Stock Award subject to Stock Restrictions shall forfeit
such award in the event of the termination of his or her employment during the
period the shares are subject to Stock Restrictions.
8.3 STOCKHOLDER RIGHTS. The recipient of an Employee Stock Award shall be
entitled to such rights of a stockholder with respect to the shares of Stock
issued pursuant to such Employee Stock Award as the Committee shall determine,
including the right to vote such shares of Stock, except that cash and stock
dividends with respect to such shares may, at the discretion of the Committee,
be either paid currently or withheld by the Corporation for the Award
Recipient's account, and interest may be accrued on the amount of cash dividends
withheld at a rate and subject to such terms as determined by the Committee.
The Committee, in its discretion, may cause a legend or legends to be placed
on any certificate representing shares issued pursuant to Employee Stock Awards,
which legend or legends shall make appropriate reference to the Stock
Restrictions imposed thereon. The Committee may also in its discretion require
that certificates representing shares issued pursuant to Employee Stock Awards
remain in the physical custody of the Corporation or an escrow holder until any
or all of the Stock Restrictions imposed under the Plan have lapsed.
8.4 NON-TRANSFERABILITY. Prior to the time Stock Restrictions lapse, none of
the shares of Stock issued pursuant to an Employee Stock Award may be sold,
assigned, bequeathed, transferred, pledged, hypothecated, or otherwise disposed
of in any way by the Award Recipient.
8.5 LAPSE OF RESTRICTIONS. In the event of the termination of employment of
an Award Recipient, prior to the lapse of Stock Restrictions, by reason of
death, total and permanent disability, retirement, or resignation or discharge
from employment other than discharge for cause, the Committee may, in its
discretion, remove any Stock Restrictions on all or a portion of the Stock
subject to an Employee Stock Award.
8.6 LIMITATIONS ON EMPLOYEE STOCK AWARDS. No employee may receive an
Employee Stock Award representing more than 40,000 shares of Stock during any
fiscal year of the Corporation, and the maximum number of shares of Stock which
may be issued to all employees pursuant to Employee Stock Awards under the Plan
shall be 80,000, subject in each case to adjustment in accordance with Section
15.
9. PERFORMANCE SHARE AWARDS.
9.1 GRANT OF PERFORMANCE SHARE AWARDS. Subject to the terms of the Plan, the
Committee may grant Performance Share Awards to such employees at such time or
times and in such amounts as it shall determine. Stock issued pursuant to a
Performance Share Award shall be subject to the attainment of performance goals
relating to one or more criteria within the meaning of Section 162(m) of the
Code and the Treasury Regulations issued pursuant thereto, including, without
limitation, stock price, market share, sales, earnings per share, return on
equity, costs, and cash flow, as determined by the Committee from time to time.
Any such objectives and the period in which such objectives are to be met shall
be determined by the Committee at the time of the grant and reflected in an
Agreement. Each Performance Share Award shall also be subject to such other
restrictions as the Committee may determine.
9.2 DELIVERY OF PERFORMANCE SHARES. Certificates representing Performance
Shares shall be registered in the Award Recipient's name but shall remain in the
physical custody of the Corporation until the
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Committee has determined that the performance goals and other Stock Restrictions
with respect to such Performance Shares have been met.
9.3 STOCKHOLDER RIGHTS. The recipient of a Performance Share Award shall be
entitled to such rights of a stockholder with respect to the Performance Shares
as the Committee shall determine, including the right to vote such shares of
Stock, except that cash and stock dividends with respect to the Performance
Shares may, at the discretion of the Committee, be either paid currently or
withheld by the Corporation for the Award Recipient's account, and interest may
be accrued on the amount of cash dividends withheld at a rate and subject to
such terms as determined by the Committee.
9.4 NON-TRANSFERABILITY. Prior to the time shares of Stock issued pursuant
to a Performance Share Award are delivered to an Award Recipient, none of such
shares may be sold, assigned, bequeathed, transferred, pledged, hypothecated, or
otherwise disposed of in any way by the Award Recipient.
9.5 LAPSE OF RESTRICTIONS. In the event of the termination of employment of
an Award Recipient, prior to the lapse of Stock Restrictions, by reason of
death, total and permanent disability, retirement, or resignation or discharge
from employment other than discharge for cause, the Committee may, in its
discretion, remove any Stock Restrictions on all or a portion of a Performance
Share Award, or determine the performance objectives with respect to all or a
portion of a Performance Share Award to have been attained; PROVIDED, HOWEVER,
that the Committee shall not be entitled to exercise such discretion to the
extent that the ability to exercise such discretion would cause the Performance
Share Award not to qualify as performance based compensation under Section
162(m) of the Code.
9.6 LIMITATIONS ON PERFORMANCE SHARE AWARDS. No employee may receive
Performance Share Awards representing more than 100,000 shares of Stock during
any fiscal year of the Corporation, and the maximum number of shares of Stock
which may be issued to all employees pursuant to Performance Share Awards under
the Plan shall be 400,000, subject in each case to adjustment in accordance with
Section 15.
10. DIRECTOR STOCK AWARDS.
10.1 GRANT OF DIRECTOR STOCK AWARDS. As of the date of each election or
reelection to the Board of Directors, each Non-Employee Director shall
automatically be granted a Director Stock Award with respect to 300 shares of
Stock, subject to adjustment in accordance with Section 15. Notwithstanding the
foregoing, each Non-Employee Director first elected to the Board of Directors on
a date other than the date of an annual meeting of stockholders shall be granted
that number of whole shares of Stock equal to the number of shares then subject
to a Director Stock Award multiplied by a fraction, the numerator of which shall
be the number of months remaining until the anticipated date of the next annual
meeting of stockholders, and the denominator of which shall be 12. All Director
Stock Awards shall be evidenced by an agreement containing such terms and
conditions consistent with the Plan as the Committee shall determine.
10.2 VESTING. Each Director Stock Award shall vest in full on the date
immediately preceding the first annual meeting of stockholders next following
the date of grant; PROVIDED, HOWEVER, that, except as provided in the Plan, the
recipient thereof continues to serve as a member of the Board of Directors as of
such date.
10.3 FORFEITURE OF DIRECTOR STOCK AWARDS. Except as provided in the Plan, a
recipient of a Director Stock Award shall forfeit any unvested shares of Stock
subject to the Director Stock Award, and all rights of the Non-Employee Director
to such unvested shares shall terminate without payment of consideration by the
Corporation, upon the termination of his or her service as a member of the Board
of Directors.
10.4 STOCKHOLDER RIGHTS. Except as provided in Sections 10.5 and 10.7, a
recipient of a Director Stock Award shall be entitled to all rights of a
stockholder with respect to the shares of Stock issued
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pursuant to the Director Stock Award, including the right to receive dividends
and to vote such shares of Stock; PROVIDED, HOWEVER, that stock dividends paid
with respect to such shares shall be restricted to the same extent as the
underlying shares of Stock issued pursuant to the Director Stock Award.
The Committee shall cause a legend or legends to be placed on any
certificate representing shares issued pursuant to a Director Stock Award, which
legend or legends shall make appropriate reference to the terms of the Director
Stock Award and the Plan. The Committee shall also require that certificates
representing shares issued pursuant to Director Stock Awards remain in the
physical custody of the Corporation or an escrow holder until such shares have
vested in accordance with the terms of the Plan.
10.5 NON-TRANSFERABILITY. Prior to vesting, none of the shares of Stock
issued pursuant to a Director Stock Award may be sold, assigned, bequeathed,
transferred, pledged, hypothecated, or otherwise disposed of in any way by the
recipient thereof.
10.6 TERMINATION OF SERVICE. If a Non-Employee Director to whom a Director
Stock Award has been granted shall cease to serve as a director as a result of
(a) his or her death, (b) retiring from the Board of Directors upon reaching
Normal Retirement Age, (c) becoming totally and permanently disabled, or (d)
resigning with the approval of the Board of Directors, all shares subject to
such Director Stock Award shall be vested in full, notwithstanding the
provisions of Section 10.2, as of the date of termination of service.
10.7 DEFERRAL ELECTION. A Non-Employee Director may elect to defer receipt
of any Director Stock Award by filing the appropriate deferral form with the
Corporate Secretary on or before December 15th of the calendar year prior to the
calendar year in which such deferral is to be effective. Notwithstanding the
foregoing, any person elected as a Non-Employee Director for the first time
shall be permitted to make his or her first deferral election no later than
twenty (20) days after such election. In no event, however, shall any deferral
be permitted to the extent prohibited by applicable law. Deferrals shall be
subject to the following terms and conditions:
(a) A Non-Employee Director may elect to defer receipt of a Director
Stock Award until (i) a specified date in the future, (ii) cessation of his
or her service as a member of the Board of Directors, or (iii) the end of
the calendar year in which cessation of his or her service as a member of
the Board of Directors occurs.
(b) There shall be established a Deferral Account on the books of the
Corporation for each Non-Employee Director electing to defer a Director
Stock Award pursuant to this Section 10.7. Deferrals shall be credited to
the Non-Employee Director's Deferral Account in Stock Units in the following
manner: on the award date to which the deferral election applies, the amount
deferred shall be converted into a number of Stock Units equal to the number
of shares of Stock awarded that are subject to the deferral election. A
Non-Employee Director shall not have any voting rights with respect to any
Stock Units held in his or her Deferral Account.
(c) Whenever cash dividends are paid with respect to shares of Stock,
each Non-Employee Director's Deferral Account shall be credited on the
payment date of such dividend with additional Stock Units (including
fractional units to the nearest one/one hundredth (1/100)) equal in value to
the amount of the cash dividend paid on a single share of Stock multiplied
by the number of Stock Units (including fractional units) credited to his or
her Deferral Account as of the date of record for dividend purposes. For
purposes of crediting dividends, the value of a Stock Unit shall be the Fair
Market Value of a share of Stock as of the payment date of the dividend.
(d) The number of Stock Units credited to each Non-Employee Director's
Deferral Account shall be appropriately adjusted in the same manner and to
the same extent Director Stock Awards are adjusted and modified pursuant to
Section 15. In the event of a transaction subject to Section 11, the Board
of Directors shall have the authority to amend the Plan to provide for the
III-8
conversion of Stock Units credited to Deferral Accounts into units equal to
shares of stock of the resulting or acquiring company (or a related
company), as appropriate, if such stock is publicly traded or, if not, into
cash of equal value on the effective date of such transaction. If pursuant
to the preceding sentence cash is credited to a Non-Employee Director's
Deferral Account, interest shall be credited thereon from the date such cash
is received to the date of distribution quarterly, at the end of each
calendar quarter, at a rate per annum (computed on the basis of a 360-day
year and a 91-day quarter) equal to the prime rate announced publicly by
Citibank, N.A. at the end of such calendar quarter. If units representing
publicly traded stock of the resulting or acquired company (or a related
company) are credited to a Non-Employee Director's Deferral Account,
dividends shall be credited thereto in the same manner as dividends are
credited on Stock Units credited to such Deferral Accounts.
(e) Subject to Section 10.7(g), distributions of a Non-Employee
Director's Deferral Account under the Plan shall be made as follows:
(i) If a Non-Employee Director has elected to defer a Director Stock
Award to a specified date in the future, payment shall be as of such date
and shall be made or shall commence, as the case may be, within thirty
(30) days after the date specified;
(ii) If a Non-Employee Director has elected to defer a Director Stock
Award until cessation of his or her service as a member of the Board of
Directors, payment shall be as of the date of such cessation of service
and shall be made or shall commence, as the case may be, within thirty
(30) days after the cessation of the Non-Employee Director's service as a
director; and
(iii) If a Non-Employee Director has elected to defer a Director
Stock Award until the end of the calendar year in which the cessation of
his or her service as a member of the Board of Directors occurs, payment
shall be made as of December 31st of such year and shall be made or
commence, as the case may be, on December 31st of such year.
(f) Notwithstanding any elections pursuant to Sections 10.7(a) and/or
(g) hereof, in the event of the death of the Non-Employee Director prior to
the distribution of his or her Deferral Account, the balance credited to
such Deferral Account as of the date of his or her death shall be paid, as
soon as reasonably possible thereafter, in a single distribution to the
Non-Employee Director's beneficiary or beneficiaries designated on such
Non-Employee Director's deferral election form. If no such election or
designation has been made, such amounts shall be payable to the Non-Employee
Director's estate.
(g) A Non-Employee Director may elect to have his or her Deferral
Account under the Plan paid in a single distribution or equal annual
installments, not to exceed ten (10) annual installments. To the extent a
Deferral Account is deemed invested in Stock Units, such Stock Units shall
be converted to Stock on the distribution date as provided in Section
10.7(h). To the extent deemed invested in units of any other stock, such
units shall similarly be converted and distributed in the form of stock. To
the extent invested in a medium other than Stock Units or other units, each
such distribution hereunder shall be in the medium credited to the Deferral
Account.
(h) To the extent a Deferral Account is deemed invested in Stock Units,
a single distribution shall consist of the number of whole shares of Stock
equal to the number of Stock Units credited to the Non-Employee Director's
Deferral Account on the date as of which the distribution occurs. Cash shall
be paid to a Non-Employee Director in lieu of a fractional share, determined
by reference to the Fair Market Value of a share of Stock on the date as of
which the distribution
III-9
occurs. In the event a Non-Employee Director has elected to receive annual
installment payments, each such payment shall be determined as follows:
(i) To the extent his or her Deferral Account is deemed to be
invested in Stock Units, each such payment shall consist of the number of
whole shares of Stock equal to the number of Stock Units (including
fractional units) credited to the Deferral Account on the date as of
which the distribution occurs, divided by the number of annual
installments remaining as of such distribution date. Cash shall be paid
to Non-Employee Directors in lieu of fractional shares, determined by
reference to the Fair Market Value of a share of Stock on the date as of
which the distribution occurs.
(ii) To the extent his or her Deferral Account has been credited in
cash, each such payment shall be calculated by dividing the value on the
date the distribution occurs of that portion of the Non-Employee
Director's Deferral Account which is in cash by the number of annual
installments remaining as of such distribution date.
11. ACCELERATION UPON A CHANGE OF CONTROL.
Notwithstanding any other provision of the Plan or any Option or Award
granted hereunder, (a) any Option granted hereunder and then outstanding shall
become immediately exercisable in full, (b) all Stock Restrictions shall
immediately terminate, and (c) all performance objectives applicable to any
Performance Share Award shall be deemed attained (i) in the event that a tender
offer or exchange offer (other than an offer by the Corporation) for common
stock of the Company representing more than 25% of the combined voting power of
the then outstanding voting securities of the Company entitled to vote generally
in the election of directors ("Voting Securities") is made by any "person"
within the meaning of Section 14(d) of the Act and not withdrawn within ten (10)
days after the commencement thereof; PROVIDED, HOWEVER, that the Committee may
by action taken prior to the end of such ten (10) day period extend such ten
(10) day period; and, PROVIDED FURTHER, that the Committee may by further action
taken prior to the end of such extended period declare (a) all Options granted
hereunder and then outstanding to be immediately exercisable in full, (b) all
Stock Restrictions to be immediately terminated, and (c) all performance
objectives applicable to any Performance Share Award to be deemed attained; or
(ii) in the event of a Change in Control (as hereinafter defined).
For purposes of this Section 11, a "Change in Control" means an event that
would be required to be reported (assuming such event has not been "previously
reported") in response to Item 1(a) of the Current Report on Form 8-K, as in
effect on the effective date of the Plan, pursuant to Section 13 or 15(d) of the
Act; PROVIDED, HOWEVER, that, without limitation, such a Change in Control shall
be deemed to have occurred at such time as (a) any "person" within the meaning
of Section 14(d) of the Act becomes the "beneficial owner" as defined in Rule
13d-3 thereunder, directly or indirectly, of more than 25% of the combined
voting power of the then outstanding Voting Securities, (b) during any two-year
period, individuals who constitute the Board of Directors (the "Incumbent
Board") as of the beginning of the period cease for any reason to constitute at
least a majority thereof, provided that any person becoming a director during
such period whose election or nomination for election by the Corporation's
stockholders was approved by a vote of at least three-quarters of the Incumbent
Board (either by a specific vote or by approval of the proxy statement of the
Corporation in which such person is named as a nominee for director without
objection to such nomination, other than in response to an actual or threatened
Change in Control or proxy contest) shall be, for purposes of this clause (b),
considered as though such person were a member of the Incumbent Board, or (c)
the approval by the Corporation's stockholders of the sale of all or
substantially all of the stock or assets of the Corporation. The Committee may
adopt such procedures as to notice and exercise as may be necessary to
effectuate the acceleration of the exercisability of Options, termination of
Stock Restrictions, and attainment of performance objectives as described above.
III-10
12. SHARE WITHHOLDING.
With respect to any Option or Award, the Committee may, in its discretion
and subject to such rules as the Committee may adopt, permit or require any
Optionee or Award Recipient to satisfy, in whole or in part, any withholding tax
obligation which may arise in connection with an Option or Award by electing to
have the Corporation withhold Stock having a Fair Market Value (as of the date
the amount of withholding tax is determined) equal to the amount of withholding
tax.
13. NO RIGHT TO CONTINUED EMPLOYMENT OR SERVICE.
Nothing contained in the Plan or in any Option or Award granted or Agreement
entered into pursuant to the Plan shall confer upon any employee the right to
continue in the employ of the Corporation, any consultant the right to continue
to perform services for the Corporation, or any Non-Employee Director the right
to continue as a member of the Board of Directors or interfere with the right of
the Corporation to terminate such employee's employment, such consultant's
service, or Non-Employee Director's service at any time.
14. TIME OF GRANTING OPTIONS AND EMPLOYEE AWARDS.
Nothing contained in the Plan or in any resolution adopted by the Board of
Directors or the holders of Stock shall constitute the grant of any Option or
Award hereunder. An Option or Award under the Plan shall be deemed to have been
granted on the date on which the name of the recipient and the terms of the
Option or Award are set forth in an Agreement and delivered to the recipient,
unless otherwise provided in the Agreement.
15. ADJUSTMENTS UPON CHANGES IN CAPITALIZATION.
Notwithstanding any other provision of the Plan, in the event of changes in
the outstanding Stock by reason of stock dividends, stock splits,
recapitalizations, combinations or exchanges of shares, corporate separations or
divisions (including, but not limited to, split-ups, split-offs, or spin-offs),
reorganizations (including, but not limited to, mergers or consolidations),
liquidations, or other similar events, the aggregate number and class of shares
available under the Plan, the number of shares subject to Director Stock Awards,
the maximum number of shares that may be subject to Options and Awards, and the
terms of any outstanding Options or Awards (including, without limitation, the
number of shares subject to an outstanding Option or Award and the price at
which shares of Stock may be issued pursuant to an outstanding Option) and of
any Stock Units shall be adjusted in such manner as the Committee in its
discretion deems appropriate.
16. TERMINATION AND AMENDMENT OF THE PLAN.
Unless the Plan shall have been terminated as hereinafter provided, no
Option or Award shall be granted hereunder after March 31, 2004. The Board of
Directors may at any time prior to that date terminate the Plan or make such
modification or amendment to the Plan as it shall deem advisable; PROVIDED,
HOWEVER, that, except as provided in Section 15, no amendment may be made
without the approval by the holders of Stock (to the extent such approval would
be required for an exemption under Section 16(b) of the Act which the Company
wishes to have) if such amendment would (a) increase the aggregate number of
shares of Stock which may be issued under the Plan, or (b) materially modify the
requirements as to eligibility for participation in the Plan. No termination,
modification, or amendment of the Plan may, without the consent of an Optionee
or Award Recipient, adversely affect in any material manner the rights of such
Optionee or Award Recipient under any Option or Award.
III-11
17. AMENDMENT OF OPTIONS AND AWARDS AT THE DISCRETION OF THE COMMITTEE.
The terms of any outstanding Option or Award may be amended from time to
time by the Committee in its discretion in any manner that it deems appropriate,
including, without limitation, acceleration of the date of exercise of any
Option or Award, termination of Stock Restrictions as to any Award, or the
conversion of an Incentive Stock Option into a Non-Qualified Stock Option;
PROVIDED, HOWEVER, that no such amendment shall adversely affect in any material
manner any right of any Optionee or Award Recipient under the Plan without his
or her consent; and, PROVIDED FURTHER, that the Committee shall not (a) amend
any previously-issued Performance Share Award to the extent that such amendment
would cause such Performance Share Award not to qualify as performance based
compensation under Section 162(m) of the Code or (b) amend any previously-issued
Option to reduce the purchase price thereof whether by modification of the
Option or by cancellation of the Option in consideration of the immediate
issuance of a replacement Option bearing a reduced purchase price.
18. GOVERNMENT REGULATIONS.
The Plan and the grant and exercise of Options and Awards hereunder, and the
obligation of the Corporation to issue, sell, and deliver shares, as applicable,
under such Options and Awards, shall be subject to all applicable laws, rules,
and regulations.
Notwithstanding any other provision of the Plan, transactions under the Plan
are intended to comply with the applicable exemptions under Rule 16b-3 under the
Act as to persons subject to the reporting requirements of Section 16(a) of the
Act with respect to shares of Stock, and Options and Awards under the Plan shall
be fashioned and administered in a manner consistent with the conditions
applicable under Rule 16b-3.
19. OPTIONS AND AWARDS IN FOREIGN COUNTRIES.
The Committee shall have the authority and discretion to adopt such
modifications, procedures, and subplans as it shall deem necessary or desirable
to comply with the provisions of the laws of foreign countries in which the
Corporation may operate in order to assure the viability of the benefits of the
Options and Awards made to individuals employed in such countries and to meet
the objectives of the Plan.
20. GOVERNING LAW.
The Plan shall be construed, regulated, and administered under the internal
laws of the State of Delaware.
21. STOCKHOLDER APPROVAL.
The Plan shall become effective upon the date of adoption by the Board of
Directors, subject to approval by the stockholders of the Corporation in
accordance with applicable law. Unless so approved within one (1) year after the
date of the adoption of the Plan by the Board of Directors, the Plan shall not
be effective for any purpose. Prior to approval by the Corporation's
stockholders, the Committee may grant Options and Awards under the terms of the
Plan, but if stockholder approval is not obtained in the specified period, such
Options and Awards shall be of no effect.
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ANNEX IV
PE CORPORATION/CELERA GENOMICS GROUP
1999 STOCK INCENTIVE PLAN
1. PURPOSE OF THE PLAN.
The purpose of PE Corporation/Celera Genomics Group 1999 Stock Incentive
Plan (the "Plan") is to increase stockholder value and to advance the interests
of PE Corporation and its subsidiaries (collectively, the "Corporation") by
providing financial incentives designed to attract, retain, and motivate
employees, officers, consultants, and directors of the Corporation. The Plan
continues the established policy of the Corporation of encouraging ownership of
its Stock by key personnel and of providing incentives for such individuals to
put forth maximum efforts for the success of the Corporation.
2. DEFINITIONS.
As used herein, the following terms have the meanings hereinafter set forth
unless the context clearly indicates to the contrary:
2.1 "ACT" means the Securities Exchange Act of 1934, as amended from time to
time.
2.2 "AGREEMENT" means the written agreement between the Corporation and an
Optionee or Award Recipient, as the case may be, evidencing the grant of an
Option or Award and setting forth the terms and conditions thereof.
2.3 "AWARD" means a Stock Award or Performance Share Award.
2.4 "AWARD RECIPIENT" means an individual to whom an Award has been granted
under the Plan.
2.5 "BOARD OF DIRECTORS" means the Board of Directors of the Corporation.
2.6 "CODE" means the Internal Revenue Code of 1986, as amended from time to
time.
2.7 "COMMITTEE" means the Management Resources Committee of the Board of
Directors, or any successor thereto or committee designated thereby whose
members qualify as (a) outside directors as defined in Section 162(m) of the
Code and the Treasury Regulations issued pursuant thereto and (b) non-employee
directors within the meaning of Rule 16b-3 under the Act.
2.8 "CONTINUOUS SERVICE" means an uninterrupted chain of continuous regular
employment by the Corporation or an uninterrupted chain of continuous
performance of significant services for the Corporation by a consultant. A leave
of absence granted in accordance with the Corporation's usual procedures which
does not operate to interrupt continuous employment or continuous performance of
significant services for other benefits granted by the Corporation shall not be
considered a termination of employment nor an interruption of Continuous Service
hereunder, and an employee or consultant who is granted such a leave of absence
shall be considered to be continuously employed or continuously performing
significant services during the period of such leave; PROVIDED, HOWEVER, that if
regulations under the Code or an amendment to the Code shall establish a more
restrictive definition of a leave of absence, such definition shall be
substituted herein.
2.9 "DEFERRAL ACCOUNT" means the bookkeeping account established for the
deferral of a Director Stock Award by a Non-Employee Director pursuant to
Section 10.7 hereof.
2.10 "DIRECTOR STOCK AWARD" means an award of shares of Stock granted
pursuant to Section 10 hereof.
2.11 "EMPLOYEE AWARD" means an Employee Stock Award or Performance Share
Award.
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2.12 "EMPLOYEE STOCK AWARD" means an award of shares of Stock granted
pursuant to Section 8 hereof.
2.13 "FAIR MARKET VALUE" means the simple average of the high and low sales
prices of a share of Stock as reported in the report of composite transactions
(or other source designated by the Committee) on the date on which fair market
value is to be determined (or if there shall be no trading on such date, then on
the first previous date on which sales were made on a national securities
exchange).
2.14 "INCENTIVE STOCK OPTIONS" means those Options granted hereunder to
employees as incentive stock options as defined in, and which by their terms
comply with the requirements for such Options set out in, Section 422 of the
Code and the Treasury Regulations issued pursuant thereto.
2.15 "NON-EMPLOYEE DIRECTOR" means a member of the Board of Directors who is
not an employee or officer of the Corporation.
2.16 "NON-QUALIFIED STOCK OPTIONS" means those Options granted hereunder
which are not intended to qualify as Incentive Stock Options.
2.17 "NORMAL RETIREMENT AGE" means the normal retirement age of a member of
the Board as determined by the Board from time to time.
2.18 "OPTION" means an option granted pursuant to Section 6 hereof.
2.19 "OPTIONEE" means an individual to whom an Option has been granted under
the Plan.
2.20 "PERFORMANCE SHARE AWARD" means an award of Performance Shares granted
pursuant to Section 9 hereof.
2.21 "PERFORMANCE SHARES" means shares of Stock covered by a Performance
Share Award.
2.22 "STOCK" means the PE Corporation--Celera Genomics Group Common Stock,
par value $.01 per share, of the Corporation.
2.23 "STOCK AWARD" means an Employee Stock Award or Director Stock Award.
2.24 "STOCK UNIT" means the bookkeeping entry representing the equivalent of
one share of Stock.
2.25 "STOCK RESTRICTIONS" mean the restrictions, including performance
goals, placed on a Stock Award or Performance Share Award under the Plan.
2.26 "TEN PERCENT STOCKHOLDER" means an individual who owns, within the
meaning of Section 422(b)(6) of the Code and the Treasury Regulations issued
pursuant thereto, stock possessing more than ten (10%) percent of the total
combined voting power of all classes of stock of the Corporation.
3. SHARES RESERVED FOR THE PLAN.
The aggregate number of shares of Stock available for Options and Awards
under the Plan is 5,000,000, subject to adjustment in accordance with Section
15. Shares of Stock issued under the Plan shall be authorized but unissued
shares. In lieu of such unissued shares, the Corporation may, in its discretion,
transfer on the exercise of Options or the delivery of shares of Stock issued
pursuant to Awards treasury shares, reacquired shares, or shares acquired in the
market for purposes of the Plan.
If any Options or Awards granted under the Plan shall for any reason
terminate, be canceled, or expire without having been exercised or vested in
full, shares of Stock not issued or vested in full under such Options or Awards
shall be available again for issuance under the Plan.
IV-2
4. ADMINISTRATION OF THE PLAN.
The Committee shall have plenary authority in its discretion, but subject to
the express provisions of the Plan, to administer the Plan, including, without
limitation, the authority to determine the individuals to whom, and the time or
times at which, Options and Awards shall be granted, the number of shares of
Stock to be covered by each Option and Award, and the terms and conditions of
each Option and Award. The Committee shall also have plenary authority in its
discretion to interpret the Plan; to prescribe, amend, and rescind rules and
regulations relating to it; to determine the terms (which need not be identical)
of Agreements executed and delivered under the Plan, including, without
limitation, such terms and provisions as shall be requisite in the judgment of
the Committee to conform to any change in any law or regulation applicable
thereto; and to make any and all other determinations and take any and all
actions deemed necessary or advisable for the administration of the Plan. The
Committee's determination on the foregoing matters shall be conclusive and
binding on all persons having an interest in the Plan.
5. ELIGIBILITY; FACTORS TO BE CONSIDERED IN GRANTING OPTIONS AND AWARDS.
Subject to the terms of the Plan, an Option may be granted to any person
who, at the time the Option is granted, is a regular full-time employee (which
term shall include officers and directors) of the Corporation, a Non-Employee
Director, or a consultant performing significant services for the Corporation.
Employee Awards may be granted to any person who, at the time the Employee Award
is granted, is a regular full-time employee (which term shall include officers
and directors) of the Corporation. Non-Employee Directors shall not be eligible
to receive Employee Awards. In determining the employees, Non-Employee Directors
and consultants to whom Options or Awards shall be granted, the number of shares
of Stock to be covered by each Option or Award, and the terms and conditions of
each Option and Award, the Committee shall take into account the duties and
responsibilities of the respective employees, Non-Employee Directors, and
consultants, their present and potential contributions to the success of the
Corporation, and such other factors as they shall deem relevant in connection
with accomplishing the purposes of the Plan. An employee, Non-Employee Director,
or consultant who has been granted an Option or Award may be granted and hold
additional Options or Awards if the Committee shall so determine.
6. OPTIONS.
6.1 GRANT OF OPTIONS. Subject to the terms of the Plan, the Committee may
grant Options to such employees, Non-Employee Directors, and consultants at such
time or times and in such amounts as it shall determine. Each Option granted
hereunder shall be designated as an Incentive Stock Option or Non-Qualified
Stock Option and shall be evidenced by an Agreement containing such terms and
conditions consistent with the Plan as the Committee shall determine; PROVIDED,
HOWEVER, that Incentive Stock Options shall be granted only to employees of the
Corporation.
6.2 PURCHASE PRICE. The purchase price of each share of Stock covered by
an Option shall be 100% (or 110% in the case of an Incentive Stock Option
granted to a Ten Percent Stockholder) of the Fair Market Value of a share of
Stock on the date the Option is granted.
6.3 TERM. The term of each Option shall be for such period as the
Committee shall determine, but not more than ten (10) years (or five (5) years
in the case of an Incentive Stock Option granted to a Ten Percent Stockholder)
from the date of grant thereof, and shall be subject to earlier termination as
hereinafter provided. If the original term of any Option is less than ten (10)
years (or five (5) years in the case of an Incentive Stock Option granted to a
Ten Percent Stockholder) from the date of grant, the Option prior to its
expiration may be amended, with the approval of the Committee and the employee,
Non-Employee Director, or consultant, as the case may be, to extend the term so
that the
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term as amended is not more than ten (10) years (or five (5) years in the case
of an Incentive Stock Option granted to a Ten Percent Stockholder) from the
original date of grant of such Option.
6.4 VESTING. An Option shall be exercisable at such time or times and in
such manner and number of shares as the Committee shall determine. Except as
provided in the Plan, no Option may be exercised at any time unless the holder
thereof is then a regular employee of the Corporation, a member of the Board of
Directors, or a consultant performing significant services for the Corporation.
Options granted under the Plan shall not be affected by any change of duties or
position so long as the holder continues to be an employee of the Corporation,
continues to be a member of the Board of Directors, or a consultant performing
significant services for the Corporation.
6.5 TERMINATION OF EMPLOYMENT OR SERVICES. In the event that the
employment of an employee to whom an Option has been granted under the Plan
shall be terminated or the services of a Non-Employee Director or consultant to
whom an Option has been granted under the Plan shall be terminated (other than
by reason of retirement, disability, or death) such Option may, subject to the
provisions of the Plan, be exercised, to the extent that the employee,
Non-Employee Director, or consultant was entitled to do so at the date of
termination of his or her employment or services, at any time within thirty (30)
days after such termination, but in no event after the expiration of the term of
the Option.
6.6 RETIREMENT OR DISABILITY. If an employee to whom an Option has been
granted under the Plan shall retire from the Corporation pursuant to any
qualified pension plan provided by the Corporation, or if a Non-Employee
Director (a) retires from the Board of Directors upon reaching Normal Retirement
Age or (b) resigns or declines to stand for reelection with the approval of the
Board of Directors, or if an employee, Non-Employee Director, or consultant to
whom an Option has been granted becomes totally and permanently disabled, such
Option may be exercised, notwithstanding the provisions of Section 6.4, in full
without regard to the period of Continuous Service after the Option was granted
at any time (a) in the case of an employee holding an Incentive Stock Option,
within three (3) months after such retirement or disability, but in no event
after the expiration of the term of the Option or (b) in the case of a
Non-Qualified Stock Option, within one (1) year (three (3) years in the case of
a Non-Employee Director) after such retirement, disability, resignation, or
declining, but in no event after the expiration of the term of the Option.
6.7 DEATH. If an employee, Non-Employee Director, or consultant to whom an
Option has been granted under the Plan shall die while employed by the
Corporation, serving as a member of the Board of Directors, or engaged to
perform services for the Corporation, such Option may be exercised to the extent
that the employee, Non-Employee Director, or consultant was entitled to do so at
the date of his or her death, by his or her executor or administrator or other
person at the time entitled by law to the employee's, Non-Employee Director's,
or consultant's rights under the Option, at any time within such period, not
exceeding one (1) year after his or her death, as shall be prescribed in the
Agreement, but in no event after the expiration of the term of the Option.
7. TERMS AND CONDITIONS APPLICABLE TO OPTIONS.
7.1 TRANSFERABILITY. During the lifetime of an Optionee, an Option shall
not be transferable, except pursuant to a domestic relations order; PROVIDED,
HOWEVER, that the Committee may, in its sole discretion, permit an Optionee to
transfer a Non-Qualified Stock Option to (a) a member of the Optionee's
immediate family, (b) a trust, the beneficiaries of which consist exclusively of
members of the Optionee's immediate family, or (c) a partnership, the partners
of which consist exclusively of members of the Optionee's immediate family.
After the death of an Optionee, an Option may be transferred pursuant to the
laws of descent and distribution.
7.2 METHOD OF EXERCISE. An Option may be exercised by giving written
notice to the Corporation specifying the number of shares of Stock to be
purchased; PROVIDED THAT, except as otherwise provided
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by the Committee, an Option may not be exercised as to fewer than 100 shares, or
the remaining exercisable shares covered by the Option if fewer than 100, at any
one time. No Option may be exercised with respect to a fractional share. The
purchase price of the shares as to which an Option shall be exercised shall be
paid in full at the time of exercise at the election of the holder of an Option
(a) in cash or currency of the United States of America, (b) by tendering to the
Corporation shares of Stock owned by such holder for at least six (6) months
having a Fair Market Value equal to the cash exercise price applicable to the
purchase price of the shares as to which the Option is being exercised, (c) a
combination of cash and/or previously owned shares of Stock valued at Fair
Market Value, or (d) by payment of such other consideration as the Committee
shall from time to time determine. For purposes of the immediately preceding
sentence, Fair Market Value shall be determined as of the business day
immediately preceding the day on which the Option is exercised. Notwithstanding
the foregoing, the Committee shall have the right to modify, amend, or cancel
the provisions of clauses (b) and (c) above at any time upon prior notice to the
holders of Options.
7.3 STOCKHOLDER RIGHTS. An Optionee shall have none of the rights of a
stockholder with respect to the shares subject to an Option until such shares
have been registered upon the exercise of the Option on the transfer books of
the Corporation in the name of such Optionee and then only to the extent that
any restrictions imposed thereon by the Committee shall have lapsed.
7.4 NO LOANS. Neither the Corporation, any company with which it is
affiliated, nor any of their respective subsidiaries may directly or indirectly
lend money to any person for the purpose of assisting such person in acquiring
or carrying shares of Stock issued upon the exercise of an Option.
7.5 CONDITIONS PRECEDENT TO EXERCISE. Notwithstanding any other provision
of the Plan, but subject to the provisions of Section 11, the exercise of an
Option following termination of employment or service shall be subject to the
satisfaction of the conditions precedent that the Optionee has not (a) rendered
services or engaged directly or indirectly in any business which in the opinion
of the Committee competes with or is in conflict with the interests of the
Corporation; PROVIDED, HOWEVER, that the ownership by an Optionee of 5% or less
of any class of securities of a publicly traded company shall not be deemed to
violate this clause or (b) violated any written agreement with the Corporation,
including, without limitation, any confidentiality agreement. An Optionee's
violation of clause (a) or (b) of the preceding sentence shall result in the
immediate forfeiture of any Options held by such Optionee.
7.6 LIMITATIONS ON THE GRANT OF OPTIONS. No one individual may be granted
an Option or Options under the Plan during any fiscal year of the Corporation
for an aggregate number of shares of Stock which exceeds 10% of the total number
of shares reserved for issuance under the Plan; provided, however, that during
the fiscal year of the Corporation ending June 30, 1999 the Committee may grant
Options to the President of the Celera Genomics Group representating of up to
30% of the total number of shares reserved for issuance under the Plan. The
aggregate Fair Market Value of the Stock (determined as of the date the Option
is granted) with respect to which Incentive Stock Options granted under the Plan
and all other stock option plans of the Corporation (or any parent or subsidiary
of the Corporation) are exercisable for the first time by any specific
individual during any calendar year shall not exceed $100,000. No Incentive
Stock Option may be granted hereunder to an individual who immediately after
such Option is granted is a Ten Percent Stockholder unless (a) the Option price
is at least 110% of the fair market value of such stock on the date of grant and
(b) the Option may not be exercised more than five (5) years after the date of
grant.
8. EMPLOYEE STOCK AWARDS.
8.1 GRANT OF EMPLOYEE STOCK AWARDS. Subject to the terms of the Plan, the
Committee may grant Employee Stock Awards to such employees at such time or
times and in such amounts as it shall determine. Shares of Stock issued pursuant
to Employee Stock Awards may, but need not, be subject to
IV-5
such restrictions as may be established by the Committee at the time of the
grant and reflected in an Agreement.
8.2 RESTRICTIONS ON EMPLOYEE STOCK AWARDS. Except as provided in the Plan,
any shares of Stock subject to an Employee Stock Award with respect to which
Stock Restrictions have not been satisfied shall be forfeited and all rights of
the employee to such Employee Stock Award shall terminate without any payment of
consideration by the Corporation. Except as set forth in Section 8.5, a
recipient of an Employee Stock Award subject to Stock Restrictions shall forfeit
such award in the event of the termination of his or her employment during the
period the shares are subject to Stock Restrictions.
8.3 STOCKHOLDER RIGHTS. The recipient of an Employee Stock Award shall be
entitled to such rights of a stockholder with respect to the shares of Stock
issued pursuant to such Employee Stock Award as the Committee shall determine,
including the right to vote such shares of Stock, except that cash and stock
dividends with respect to such shares may, at the discretion of the Committee,
be either paid currently or withheld by the Corporation for the Award
Recipient's account, and interest may be accrued on the amount of cash dividends
withheld at a rate and subject to such terms as determined by the Committee.
The Committee, in its discretion, may cause a legend or legends to be placed
on any certificate representing shares issued pursuant to Employee Stock Awards,
which legend or legends shall make appropriate reference to the Stock
Restrictions imposed thereon. The Committee may also in its discretion require
that certificates representing shares issued pursuant to Employee Stock Awards
remain in the physical custody of the Corporation or an escrow holder until any
or all of the Stock Restrictions imposed under the Plan have lapsed.
8.4 NON-TRANSFERABILITY. Prior to the time Stock Restrictions lapse, none
of the shares of Stock issued pursuant to an Employee Stock Award may be sold,
assigned, bequeathed, transferred, pledged, hypothecated, or otherwise disposed
of in any way by the Award Recipient.
8.5 LAPSE OF RESTRICTIONS. In the event of the termination of employment
of an Award Recipient, prior to the lapse of Stock Restrictions, by reason of
death, total and permanent disability, retirement, or resignation or discharge
from employment other than discharge for cause, the Committee may, in its
discretion, remove any Stock Restrictions on all or a portion of the Stock
subject to an Employee Stock Award.
8.6 LIMITATIONS ON EMPLOYEE STOCK AWARDS. No employee may receive an
Employee Stock Award representing more than 40,000 shares of Stock during any
fiscal year of the Corporation, and the maximum number of shares of Stock which
may be issued to all employees pursuant to Employee Stock Awards under the Plan
shall be 80,000, subject in each case to adjustment in accordance with Section
15.
9. PERFORMANCE SHARE AWARDS.
9.1 GRANT OF PERFORMANCE SHARE AWARDS. Subject to the terms of the Plan,
the Committee may grant Performance Share Awards to such employees at such time
or times and in such amounts as it shall determine. Stock issued pursuant to a
Performance Share Award shall be subject to the attainment of performance goals
relating to one or more criteria within the meaning of Section 162(m) of the
Code and the Treasury Regulations issued pursuant thereto, including, without
limitation, stock price, market share, sales, earnings per share, return on
equity, costs, and cash flow, as determined by the Committee from time to time.
Any such objectives and the period in which such objectives are to be met shall
be determined by the Committee at the time of the grant and reflected in an
Agreement. Each Performance Share Award shall also be subject to such other
restrictions as the Committee may determine.
IV-6
9.2 DELIVERY OF PERFORMANCE SHARES. Certificates representing Performance
Shares shall be registered in the Award Recipient's name but shall remain in the
physical custody of the Corporation until the Committee has determined that the
performance goals and other Stock Restrictions with respect to such Performance
Shares have been met.
9.3 STOCKHOLDER RIGHTS. The recipient of a Performance Share Award shall
be entitled to such rights of a stockholder with respect to the Performance
Shares as the Committee shall determine, including the right to vote such shares
of Stock, except that cash and stock dividends with respect to the Performance
Shares may, at the discretion of the Committee, be either paid currently or
withheld by the Corporation for the Award Recipient's account, and interest may
be accrued on the amount of cash dividends withheld at a rate and subject to
such terms as determined by the Committee.
9.4 NON-TRANSFERABILITY. Prior to the time shares of Stock issued pursuant
to a Performance Share Award are delivered to an Award Recipient, none of such
shares may be sold, assigned, bequeathed, transferred, pledged, hypothecated, or
otherwise disposed of in any way by the Award Recipient.
9.5 LAPSE OF RESTRICTIONS. In the event of the termination of employment
of an Award Recipient, prior to the lapse of Stock Restrictions, by reason of
death, total and permanent disability, retirement, or resignation or discharge
from employment other than discharge for cause, the Committee may, in its
discretion, remove any Stock Restrictions on all or a portion of a Performance
Share Award, or determine the performance objectives with respect to all or a
portion of a Performance Share Award to have been attained; PROVIDED, HOWEVER,
that the Committee shall not be entitled to exercise such discretion to the
extent that the ability to exercise such discretion would cause the Performance
Share Award not to qualify as performance based compensation under Section
162(m) of the Code.
9.6 LIMITATIONS ON PERFORMANCE SHARE AWARDS. No employee may receive
Performance Share Awards representing more than 100,000 shares of Stock during
any fiscal year of the Corporation, and the maximum number of shares of Stock
which may be issued to all employees pursuant to Performance Share Awards under
the Plan shall be 400,000, subject in each case to adjustment in accordance with
Section 15.
10. DIRECTOR STOCK AWARDS.
10.1 GRANT OF DIRECTOR STOCK AWARDS. As of the date of each election or
reelection to the Board of Directors, each Non-Employee Director shall
automatically be granted a Director Stock Award with respect to 150 shares of
Stock, subject to adjustment in accordance with Section 15. Notwithstanding the
foregoing, each Non-Employee Director first elected to the Board of Directors on
a date other than the date of an annual meeting of stockholders shall be granted
that number of whole shares of Stock equal to the number of shares then subject
to a Director Stock Award multiplied by a fraction, the numerator of which shall
be the number of months remaining until the anticipated date of the next annual
meeting of stockholders, and the denominator of which shall be 12. All Director
Stock Awards shall be evidenced by an agreement containing such terms and
conditions consistent with the Plan as the Committee shall determine.
10.2 VESTING. Each Director Stock Award shall vest in full on the date
immediately preceding the first annual meeting of stockholders next following
the date of grant; PROVIDED, HOWEVER, that, except as provided in the Plan, the
recipient thereof continues to serve as a member of the Board of Directors as of
such date.
10.3 FORFEITURE OF DIRECTOR STOCK AWARDS. Except as provided in the Plan,
a recipient of a Director Stock Award shall forfeit any unvested shares of Stock
subject to the Director Stock Award, and all rights of the Non-Employee Director
to such unvested shares shall terminate without payment of consideration by the
Corporation, upon the termination of his or her service as a member of the Board
of Directors.
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10.4 STOCKHOLDER RIGHTS. Except as provided in Sections 10.5 and 10.7, a
recipient of a Director Stock Award shall be entitled to all rights of a
stockholder with respect to the shares of Stock issued pursuant to the Director
Stock Award, including the right to receive dividends and to vote such shares of
Stock; PROVIDED, HOWEVER, that stock dividends paid with respect to such shares
shall be restricted to the same extent as the underlying shares of Stock issued
pursuant to the Director Stock Award.
The Committee shall cause a legend or legends to be placed on any
certificate representing shares issued pursuant to a Director Stock Award, which
legend or legends shall make appropriate reference to the terms of the Director
Stock Award and the Plan. The Committee shall also require that certificates
representing shares issued pursuant to Director Stock Awards remain in the
physical custody of the Corporation or an escrow holder until such shares have
vested in accordance with the terms of the Plan.
10.5 NON-TRANSFERABILITY. Prior to vesting, none of the shares of Stock
issued pursuant to a Director Stock Award may be sold, assigned, bequeathed,
transferred, pledged, hypothecated, or otherwise disposed of in any way by the
recipient thereof.
10.6 TERMINATION OF SERVICE. If a Non-Employee Director to whom a Director
Stock Award has been granted shall cease to serve as a director as a result of
(a) his or her death, (b) retiring from the Board of Directors upon reaching
Normal Retirement Age, (c) becoming totally and permanently disabled, or (d)
resigning with the approval of the Board of Directors, all shares subject to
such Director Stock Award shall be vested in full, notwithstanding the
provisions of Section 10.2, as of the date of termination of service.
10.7 DEFERRAL ELECTION. A Non-Employee Director may elect to defer receipt
of any Director Stock Award by filing the appropriate deferral form with the
Corporate Secretary on or before December 15th of the calendar year prior to the
calendar year in which such deferral is to be effective. Notwithstanding the
foregoing, any person elected as a Non-Employee Director for the first time
shall be permitted to make his or her first deferral election no later than
twenty (20) days after such election. In no event, however, shall any deferral
be permitted to the extent prohibited by applicable law. Deferrals shall be
subject to the following terms and conditions:
(a) A Non-Employee Director may elect to defer receipt of a Director
Stock Award until (i) a specified date in the future, (ii) cessation of his
or her service as a member of the Board of Directors, or (iii) the end of
the calendar year in which cessation of his or her service as a member of
the Board of Directors occurs.
(b) There shall be established a Deferral Account on the books of the
Corporation for each Non-Employee Director electing to defer a Director
Stock Award pursuant to this Section 10.7. Deferrals shall be credited to
the Non-Employee Director's Deferral Account in Stock Units in the following
manner: on the award date to which the deferral election applies, the amount
deferred shall be converted into a number of Stock Units equal to the number
of shares of Stock awarded that are subject to the deferral election. A
Non-Employee Director shall not have any voting rights with respect to any
Stock Units held in his or her Deferral Account.
(c) Whenever cash dividends are paid with respect to shares of Stock,
each Non-Employee Director's Deferral Account shall be credited on the
payment date of such dividend with additional Stock Units (including
fractional units to the nearest one/one hundredth (1/100)) equal in value to
the amount of the cash dividend paid on a single share of Stock multiplied
by the number of Stock Units (including fractional units) credited to his or
her Deferral Account as of the date of record for dividend purposes. For
purposes of crediting dividends, the value of a Stock Unit shall be the Fair
Market Value of a share of Stock as of the payment date of the dividend.
(d) The number of Stock Units credited to each Non-Employee Director's
Deferral Account shall be appropriately adjusted in the same manner and to
the same extent Director Stock Awards
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are adjusted and modified pursuant to Section 15. In the event of a
transaction subject to Section 11, the Board of Directors shall have the
authority to amend the Plan to provide for the conversion of Stock Units
credited to Deferral Accounts into units equal to shares of stock of the
resulting or acquiring company (or a related company), as appropriate, if
such stock is publicly traded or, if not, into cash of equal value on the
effective date of such transaction. If pursuant to the preceding sentence
cash is credited to a Non-Employee Director's Deferral Account, interest
shall be credited thereon from the date such cash is received to the date of
distribution quarterly, at the end of each calendar quarter, at a rate per
annum (computed on the basis of a 360-day year and a 91-day quarter) equal
to the prime rate announced publicly by Citibank, N.A. at the end of such
calendar quarter. If units representing publicly traded stock of the
resulting or acquired company (or a related company) are credited to a
Non-Employee Director's Deferral Account, dividends shall be credited
thereto in the same manner as dividends are credited on Stock Units credited
to such Deferral Accounts.
(e) Subject to Section 10.7(g), distributions of a Non-Employee
Director's Deferral Account under the Plan shall be made as follows:
(i) If a Non-Employee Director has elected to defer a Director Stock
Award to a specified date in the future, payment shall be as of such date
and shall be made or shall commence, as the case may be, within thirty
(30) days after the date specified;
(ii) If a Non-Employee Director has elected to defer a Director
Stock Award until cessation of his or her service as a member of the
Board of Directors, payment shall be as of the date of such cessation of
service and shall be made or shall commence, as the case may be, within
thirty (30) days after the cessation of the Non-Employee Director's
service as a director; and
(iii) If a Non-Employee Director has elected to defer a Director
Stock Award until the end of the calendar year in which the cessation of
his or her service as a member of the Board of Directors occurs, payment
shall be made as of December 31st of such year and shall be made or
commence, as the case may be, on December 31st of such year.
(f) Notwithstanding any elections pursuant to Sections 10.7(a) and/or
(g) hereof, in the event of the death of the Non-Employee Director prior to
the distribution of his or her Deferral Account, the balance credited to
such Deferral Account as of the date of his or her death shall be paid, as
soon as reasonably possible thereafter, in a single distribution to the
Non-Employee Director's beneficiary or beneficiaries designated on such
Non-Employee Director's deferral election form. If no such election or
designation has been made, such amounts shall be payable to the Non-Employee
Director's estate.
(g) A Non-Employee Director may elect to have his or her Deferral
Account under the Plan paid in a single distribution or equal annual
installments, not to exceed ten (10) annual installments. To the extent a
Deferral Account is deemed invested in Stock Units, such Stock Units shall
be converted to Stock on the distribution date as provided in Section
10.7(h). To the extent deemed invested in units of any other stock, such
units shall similarly be converted and distributed in the form of stock. To
the extent invested in a medium other than Stock Units or other units, each
such distribution hereunder shall be in the medium credited to the Deferral
Account.
(h) To the extent a Deferral Account is deemed invested in Stock Units,
a single distribution shall consist of the number of whole shares of Stock
equal to the number of Stock Units credited to the Non-Employee Director's
Deferral Account on the date as of which the distribution occurs. Cash shall
be paid to a Non-Employee Director in lieu of a fractional share, determined
by reference to the Fair Market Value of a share of Stock on the date as of
which the distribution
IV-9
occurs. In the event a Non-Employee Director has elected to receive annual
installment payments, each such payment shall be determined as follows:
(i) To the extent his or her Deferral Account is deemed to be
invested in Stock Units, each such payment shall consist of the number of
whole shares of Stock equal to the number of Stock Units (including
fractional units) credited to the Deferral Account on the date as of
which the distribution occurs, divided by the number of annual
installments remaining as of such distribution date. Cash shall be paid
to Non-Employee Directors in lieu of fractional shares, determined by
reference to the Fair Market Value of a share of Stock on the date as of
which the distribution occurs.
(ii) To the extent his or her Deferral Account has been credited in
cash, each such payment shall be calculated by dividing the value on the
date the distribution occurs of that portion of the Non-Employee
Director's Deferral Account which is in cash by the number of annual
installments remaining as of such distribution date.
11. ACCELERATION UPON A CHANGE OF CONTROL.
Notwithstanding any other provision of the Plan or any Option or Award
granted hereunder, (a) any Option granted hereunder and then outstanding shall
become immediately exercisable in full, (b) all Stock Restrictions shall
immediately terminate, and (c) all performance objectives applicable to any
Performance Share Award shall be deemed attained (i) in the event that a tender
offer or exchange offer (other than an offer by the Corporation) for common
stock of the Company representing more than 25% of the combined voting power of
the then outstanding voting securities of the Company entitled to vote generally
in the election of directors ("Voting Securities") is made by any "person"
within the meaning of Section 14(d) of the Act and not withdrawn within ten (10)
days after the commencement thereof; PROVIDED, HOWEVER, that the Committee may
by action taken prior to the end of such ten (10) day period extend such ten
(10) day period; and, PROVIDED FURTHER, that the Committee may by further action
taken prior to the end of such extended period declare (a) all Options granted
hereunder and then outstanding to be immediately exercisable in full, (b) all
Stock Restrictions to be immediately terminated, and (c) all performance
objectives applicable to any Performance Share Award to be deemed attained; or
(ii) in the event of a Change in Control (as hereinafter defined).
For purposes of this Section 11, a "Change in Control" means an event that
would be required to be reported (assuming such event has not been "previously
reported") in response to Item 1(a) of the Current Report on Form 8-K, as in
effect on the effective date of the Plan, pursuant to Section 13 or 15(d) of the
Act; PROVIDED, HOWEVER, that, without limitation, such a Change in Control shall
be deemed to have occurred at such time as (a) any "person" within the meaning
of Section 14(d) of the Act becomes the "beneficial owner" as defined in Rule
13d-3 thereunder, directly or indirectly, of more than 25% of the combined
voting power of the then outstanding Voting Securities, (b) during any two-year
period, individuals who constitute the Board of Directors (the "Incumbent
Board") as of the beginning of the period cease for any reason to constitute at
least a majority thereof, provided that any person becoming a director during
such period whose election or nomination for election by the Corporation's
stockholders was approved by a vote of at least three-quarters of the Incumbent
Board (either by a specific vote or by approval of the proxy statement of the
Corporation in which such person is named as a nominee for director without
objection to such nomination, other than in response to an actual or threatened
Change in Control or proxy contest) shall be, for purposes of this clause (b),
considered as though such person were a member of the Incumbent Board, or (c)
the approval by the Corporation's stockholders of the sale of all or
substantially all of the stock or assets of the Corporation. The Committee may
adopt such procedures as to notice and exercise as may be necessary to
effectuate the acceleration of the exercisability of Options, termination of
Stock Restrictions, and attainment of performance objectives as described above.
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12. SHARE WITHHOLDING.
With respect to any Option or Award, the Committee may, in its discretion
and subject to such rules as the Committee may adopt, permit or require any
Optionee or Award Recipient to satisfy, in whole or in part, any withholding tax
obligation which may arise in connection with an Option or Award by electing to
have the Corporation withhold Stock having a Fair Market Value (as of the date
the amount of withholding tax is determined) equal to the amount of withholding
tax.
13. NO RIGHT TO CONTINUED EMPLOYMENT OR SERVICE.
Nothing contained in the Plan or in any Option or Award granted or Agreement
entered into pursuant to the Plan shall confer upon any employee the right to
continue in the employ of the Corporation, any consultant the right to continue
to perform services for the Corporation, or any Non-Employee Director the right
to continue as a member of the Board of Directors or interfere with the right of
the Corporation to terminate such employee's employment, such consultant's
service, or Non-Employee Director's service at any time.
14. TIME OF GRANTING OPTIONS AND EMPLOYEE AWARDS.
Nothing contained in the Plan or in any resolution adopted by the Board of
Directors or the holders of Stock shall constitute the grant of any Option or
Award hereunder. An Option or Award under the Plan shall be deemed to have been
granted on the date on which the name of the recipient and the terms of the
Option or Award are set forth in an Agreement and delivered to the recipient,
unless otherwise provided in the Agreement.
15. ADJUSTMENTS UPON CHANGES IN CAPITALIZATION.
Notwithstanding any other provision of the Plan, in the event of changes in
the outstanding Stock by reason of stock dividends, stock splits,
recapitalizations, combinations or exchanges of shares, corporate separations or
divisions (including, but not limited to, split-ups, split-offs, or spin-offs),
reorganizations (including, but not limited to, mergers or consolidations),
liquidations, or other similar events, the aggregate number and class of shares
available under the Plan, the number of shares subject to Director Stock Awards,
the maximum number of shares that may be subject to Options and Awards, and the
terms of any outstanding Options or Awards (including, without limitation, the
number of shares subject to an outstanding Option or Award and the price at
which shares of Stock may be issued pursuant to an outstanding Option) and of
any Stock Units shall be adjusted in such manner as the Committee in its
discretion deems appropriate.
16. TERMINATION AND AMENDMENT OF THE PLAN.
Unless the Plan shall have been terminated as hereinafter provided, no
Option or Award shall be granted hereunder after March 31, 2004. The Board of
Directors may at any time prior to that date terminate the Plan or make such
modification or amendment to the Plan as it shall deem advisable; PROVIDED,
HOWEVER, that, except as provided in Section 15, no amendment may be made
without the approval by the holders of Stock (to the extent such approval would
be required for an exemption under Section 16(b) of the Act which the Company
wishes to have) if such amendment would (a) increase the aggregate number of
shares of Stock which may be issued under the Plan, or (b) materially modify the
requirements as to eligibility for participation in the Plan. No termination,
modification, or amendment of the Plan may, without the consent of an Optionee
or Award Recipient, adversely affect in any material manner the rights of such
Optionee or Award Recipient under any Option or Award.
IV-11
17. AMENDMENT OF OPTIONS AND AWARDS AT THE DISCRETION OF THE COMMITTEE.
The terms of any outstanding Option or Award may be amended from time to
time by the Committee in its discretion in any manner that it deems appropriate,
including, without limitation, acceleration of the date of exercise of any
Option or Award, termination of Stock Restrictions as to any Award, or the
conversion of an Incentive Stock Option into a Non-Qualified Stock Option;
PROVIDED, HOWEVER, that no such amendment shall adversely affect in any material
manner any right of any Optionee or Award Recipient under the Plan without his
or her consent; and, PROVIDED FURTHER, that the Committee shall not (a) amend
any previously-issued Performance Share Award to the extent that such amendment
would cause such Performance Share Award not to qualify as performance based
compensation under Section 162(m) of the Code or (b) amend any previously-issued
Option to reduce the purchase price thereof whether by modification of the
Option or by cancellation of the Option in consideration of the immediate
issuance of a replacement Option bearing a reduced purchase price.
18. GOVERNMENT REGULATIONS.
The Plan and the grant and exercise of Options and Awards hereunder, and the
obligation of the Corporation to issue, sell, and deliver shares, as applicable,
under such Options and Awards, shall be subject to all applicable laws, rules,
and regulations.
Notwithstanding any other provision of the Plan, transactions under the Plan
are intended to comply with the applicable exemptions under Rule 16b-3 under the
Act as to persons subject to the reporting requirements of Section 16(a) of the
Act with respect to shares of Stock, and Options and Awards under the Plan shall
be fashioned and administered in a manner consistent with the conditions
applicable under Rule 16b-3.
19. OPTIONS AND AWARDS IN FOREIGN COUNTRIES.
The Committee shall have the authority and discretion to adopt such
modifications, procedures, and subplans as it shall deem necessary or desirable
to comply with the provisions of the laws of foreign countries in which the
Corporation may operate in order to assure the viability of the benefits of the
Options and Awards made to individuals employed in such countries and to meet
the objectives of the Plan.
20. GOVERNING LAW.
The Plan shall be construed, regulated, and administered under the internal
laws of the State of Delaware.
21. STOCKHOLDER APPROVAL.
The Plan shall become effective upon the date of adoption by the Board of
Directors, subject to approval by the stockholders of the Corporation in
accordance with applicable law. Unless so approved within one (1) year after the
date of the adoption of the Plan by the Board of Directors, the Plan shall not
be effective for any purpose. Prior to approval by the Corporation's
stockholders, the Committee may grant Options and Awards under the terms of the
Plan, but if stockholder approval is not obtained in the specified period, such
Options and Awards shall be of no effect.
IV-12
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 20. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
Section 145 of the Delaware General Corporation Law (the "DGCL") permits the
company's board of directors to indemnify any person against expenses (including
attorneys' fees), judgments, fines and amounts paid in settlement actually and
reasonably incurred by him or her in connection with any threatened, pending or
completed action (except settlements or judgments in derivative suits), suit or
proceeding in which such person is made a party by reason of his or her being or
having been a director, officer, employee or agent of the company, in terms
sufficiently broad to permit such indemnification under certain circumstances
for liabilities (including reimbursement for expenses incurred) arising under
the Securities Act of 1933, as amended (the "Securities Act"). The statute
provides that indemnification pursuant to its provisions is not exclusive of
other rights of indemnification to which a person may be entitled under any
by-law, agreement, vote of stockholders or disinterested directors, or
otherwise.
The company's certificate of incorporation and by-laws provide for
indemnification of its directors and officers to the fullest extent permitted by
law.
As permitted by sections 102 and 145 of the DGCL, the company's certificate
of incorporation eliminates a director's personal liability for monetary damages
to the company and its stockholders arising from a breach or alleged breach of a
director's fiduciary duty except for liability under section 174 of the DGCL,
for liability for any breach of the director's duty of loyalty to the company or
its stockholders, for acts or omissions not in good faith or which involve
intentional misconduct or a knowing violation of law or for any transaction
which the director derived an improper personal benefit.
The directors and officers of the company are covered by insurance policies
indemnifying against certain liabilities, including certain liabilities arising
under the Securities Act which might be incurred by them in such capabilities
and against which they cannot be indemnified by the company.
ITEM 21. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES.
(A) EXHIBITS
[Enlarge/Download Table]
2.1 Agreement and Plan of Merger, dated as of , 1999, among The Perkin-Elmer
Corporation, a New York corporation, PE Corporation, a Delaware corporation, and
PE Merger Corp., a New York corporation (included as Annex I to the Proxy
Statement and Prospectus).
3.1 Certificate of Incorporation (included as Annex II to the Proxy Statement and
Prospectus).
3.2 By-laws (previously filed).
3.3 Certificate of Designations for the Series A Participating Junior Preferred Stock
and Series B Participating Junior Preferred Stock (included as Exhibits A and B of
the Rights Agreement).
4.1 Rights Agreement between PE Corporation and BankBoston N.A.
5.1 Opinion of Simpson Thacher & Bartlett as to the legality of the securities
(previously filed).
8.1 Opinion of Simpson Thacher & Bartlett as to tax matters (previously filed).
II-1
[Enlarge/Download Table]
10.1 PE Corporation/PE Biosystems Group 1999 Stock Incentive Plan (included as Annex
III to the Proxy Statement and Prospectus).
10.2 PE Corporation/Celera Genomics Group 1999 Stock Incentive Plan (included as Annex
IV to the Proxy Statement and Prospectus).
10.3 Office Building Lease dated July 10, 1998 between Meridian Rockville Plaza, LLC
and The Perkin-Elmer Corporation (previously filed).
10.4 First Amendment to Lease dated October 1998 between Meridian Rockville Plaza, LLC
and The Perkin-Elmer Corporation (previously filed).
10.5 Early Access Program Agreement dated December 31, 1998 between Celera Genomics
Corporation and Amgen Inc. (to be filed by amendment).
23.1 Consent of PricewaterhouseCoopers LLP.
23.2 Consent of Simpson Thacher & Bartlett (contained in Exhibits 5 and 8.1).
24.1 Powers of Attorney (previously filed).
27.1 Financial Data Schedule (previously filed).
99.1 Form of Proxy.
99.2 Letter to Shareholders with Questions and Answers.
ITEM 22. UNDERTAKINGS.
(a) The undersigned registrant hereby undertakes:
(1) To file, during any period in which offers or sales are being made,
a post-effective amendment to this registration statement;
(i) To include any prospectus required by Section 10(a)(3) of the
Securities Act of 1933;
(ii) To reflect in the prospectus any facts or events arising after
the effective date of the registration statement (or the most recent
post-effective amendment thereof) which, individually or in the
aggregate, represent a fundamental change in the information set forth in
the registration statement. Notwithstanding the foregoing, any increase
or decrease in the volume of securities offered (if the total dollar
value of securities offered would not exceed that which was registered)
and any deviation from the low or high and of the estimated maximum
offering range may be reflected in the form of prospectus filed with the
Commission pursuant to Rule 424(b) if, in the aggregate, the changes in
volume and price represent no more than a 20 percent change in the
maximum aggregate offering price set forth in the "Calculation of
Registration Fee" Table in the effective registration statement;
(iii) To include any material information with respect to the plan of
distribution not previously disclosed in the registration statement or
any material change to such information in the registration statement;
PROVIDED, HOWEVER, that paragraphs (a)(1)(i) and (a)(1)(ii) do not apply if the
registration statement is on Form S-3, Form S-8 or Form F-3, and the information
required to be included in a post-effective amendment by those paragraphs is
contained in periodic reports filed with or furnished to the Commission by the
registrant pursuant to Section 13 or 15(d) of the Securities Exchange Act of
1934 that are incorporated in the registration statement.
(2) That, for the purpose of determining any liability under the
Securities Act of 1933, each such post-effective amendment shall be deemed
to be a new registration statement relating to the
II-2
securities offered therein, and the offering of such securities at that time
shall be deemed to be the initial BONA FIDE offering thereof.
(3) To remove from registration by means of a post-effective amendment
any of the securities being registered which remain unsold at the
termination of the offering.
(b) The undersigned registrant hereby undertakes that, for purposes of
determining any liability under the Securities Act of 1933, each filing of the
registrant's annual report pursuant to Section 13(a) or Section 15(d) of the
Securities Exchange Act of 1934 (and, where applicable, each filing of an
employee benefit plan's annual report pursuant to Section 15(d) of the
Securities Exchange Act of 1934) that is incorporated by reference in the
registration statement shall be deemed to be a new registration statement
relating to the securities offered therein, and the offering of such securities
at that time shall be deemed to be the initial BONA FIDE offering thereof.
(c) (1) The undersigned registrant hereby undertakes as follows: that
prior to any public reoffering of the securities registered hereunder
through use of a prospectus which is a part of this registration statement,
by any person or party who is deemed to be an underwriter within the meaning
of Rule 145(c), the issuer undertakes that such reoffering prospectus will
contain the information called for by the applicable registration form with
respect to reofferings by persons who may be deemed underwriters, in
addition to the information called for by the other items of the applicable
form.
(2) The registrant undertakes that every prospectus: (i) that is filed
pursuant to paragraph (1) immediately preceding, or (ii) that purports to
meet the requirements of Section 10(a)(3) of the Act and is used in
connection with an offering of securities subject to Rule 415, will be filed
as a part of an amendment to the registration statement and will not be used
until such amendment is effective, and that, for purposes of determining any
liability under the Securities Act of 1933, each such post-effective
amendment shall be deemed to be a new registration statement relating to the
securities offered therein, and the offering of such securities at that time
shall be deemed to be the initial BONA FIDE offering thereof.
(d) Insofar as indemnification for liabilities arising under the Securities
Act of 1933 may be permitted to directors, officers and controlling persons of
the registrant pursuant to the foregoing provisions, or otherwise, the
registrant has been advised that in the opinion of the Securities and Exchange
Commission such indemnification is against public policy as expressed in the Act
and is, therefore, unenforceable. In the event that a claim for indemnification
against such liabilities (other than the payment by the registrant of expenses
incurred or paid by a director, officer or controlling person of the registrant
in the successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities being
registered, the registrant will, unless in the opinion of its counsel the matter
has been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against public
policy as expressed in the Act and will be governed by the final adjudication of
such issue.
(e) The undersigned registrant hereby undertakes to respond to requests for
information that is incorporated by reference into the prospectus pursuant to
Item 4, 10(b), 11 or 13 of this form, within one business day of receipt of such
request, and to send the incorporated documents by first class mail or other
equally prompt means. This includes information contained in documents filed
subsequent to the effective date of the registration statement through the date
corresponding to the request.
(e) The undersigned registrant hereby undertakes to supply by means of a
post-effective amendment all information concerning a transaction, and the
company being acquired involved therein, that was not the subject of and
included in the registration statement when it became effective.
II-3
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the registrant
has duly caused this Amendment No. 2 to the Registration Statement to be signed
on its behalf by the undersigned, thereunto duly authorized, in the City of
Norwalk, State of Connecticut, on March 10, 1999.
PE CORPORATION (formerly known as
The Perkin-Elmer Corporation)
By /s/ WILLIAM B. SAWCH as Attorney-In-Fact
-----------------------------------------
Name: Tony L. White
Title: Chairman of the Board, President
and Chief Executive Officer
Pursuant to the requirements of the Securities Act of 1933, this Amendment
No. 2 to the Registration Statement has been signed by the following persons in
the capacities and on the dates indicated.
SIGNATURE TITLE DATE
------------------------------ --------------------------- -------------------
/s/ WILLIAM B. SAWCH as
Attorney-In-Fact
------------------------------ Chairman of the Board of March 10, 1999
Tony L. White Directors, President and
Chief Executive Officer
(principal executive
officer)
/s/ DENNIS L. WINGER
------------------------------ Senior Vice President and March 10, 1999
Dennis L. Winger Chief Financial Officer
(principal financial
officer)
/s/ UGO D. DEBLASI
------------------------------ Corporate Controller March 10, 1999
Ugo D. DeBlasi (principal accounting
officer)
/s/ WILLIAM B. SAWCH as
Attorney-In-Fact Director
------------------------------ March 10, 1999
Joseph F. Abely, Jr.
/s/ WILLIAM B. SAWCH as
Attorney-In-Fact Director
------------------------------ March 10, 1999
Richard H. Ayers
/s/ WILLIAM B. SAWCH as
Attorney-In-Fact Director
------------------------------ March 10, 1999
Jean-Luc Belingard
/s/ WILLIAM B. SAWCH as
Attorney-In-Fact Director
------------------------------ March 10, 1999
Robert H. Hayes
/s/ WILLIAM B. SAWCH as
Attorney-In-Fact Director
------------------------------ March 10, 1999
Georges C. St. Laurent, Jr.
II-4
SIGNATURE TITLE DATE
------------------------------ --------------------------- -------------------
/s/ WILLIAM B. SAWCH as
Attorney-In-Fact Director
------------------------------ March 10, 1999
Carolyn W. Slayman
/s/ WILLIAM B. SAWCH as
Attorney-In-Fact Director
------------------------------ March 10, 1999
Orin R. Smith
II-5
Dates Referenced Herein and Documents Incorporated by Reference
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