<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON NOVEMBER 24, 1998
REGISTRATION NO. 333-
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------
FORM S-4
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
------------------------
THE PERKIN-ELMER CORPORATION
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
<TABLE>
<S> <C> <C>
DELAWARE 3826 PENDING
(STATE OR OTHER JURISDICTION (PRIMARY STANDARD INDUSTRIAL (I.R.S. EMPLOYER
OF CLASSIFICATION CODE NUMBER) IDENTIFICATION
INCORPORATION OR ORGANIZATION) NO.)
</TABLE>
------------------------
THE PERKIN-ELMER CORPORATION
761 MAIN AVENUE
NORWALK, CT 06859-0001
(203) 762-1000
------------------------------
(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)
------------------------------
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
------------------------------
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC:
AS SOON AS PRACTICABLE AFTER THE REGISTRATION STATEMENT BECOMES EFFECTIVE.
------------------------------
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: / /
------------------------------
If this form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following box
and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering: / /
------------------------------
If this form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering: / /
------------------------------
CALCULATION OF REGISTRATION FEE
<TABLE>
<CAPTION>
AMOUNT TO PROPOSED MAXIMUM PROPOSED MAXIMUM AMOUNT OF
TITLE OF EACH CLASS OF BE OFFERING PRICE AGGREGATE REGISTRATION
SECURITIES TO BE REGISTERED REGISTERED(1)(2) PER SHARE(2)(3) OFFERING PRICE(3) FEE(2)(3)
<S> <C> <C> <C> <C>
The Perkin-Elmer Corporation-Perkin-Elmer Group
Common Stock, par value $.01 per share........ N/A N/A N/A N/A
Rights to Purchase Series A Participating Junior
Preferred Stock, par value $.01 per share..... N/A N/A N/A N/A
The Perkin-Elmer Corporation-Celera Genomics
Group Common Stock, par value $.01 per
share......................................... N/A N/A N/A N/A
Rights to Purchase Series B Participating Junior
Preferred Stock, par value $.01 per share..... N/A N/A N/A N/A
</TABLE>
(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 The Perkin-Elmer Corporation, a Delaware corporation
("Perkin-Elmer 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 The Perkin-Elmer
Corporation-Perkin-Elmer Group Common Stock, par value $.01 per share
("Perkin-Elmer Group Stock"), and .5 of a share (the "Ratio") of The
Perkin-Elmer Corporation-Celera Genomics Group Common Stock, par value $.01
per share ("Celera Genomics Stock"). The number of shares of Perkin-Elmer
Group 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 Perkin-Elmer Group Stock or Celera Genomics
Stock. The value, if any, of the Rights is reflected in the market price of
the related Perkin-Elmer Stock or Celera Genomics Stock. Accordingly, no
separate fee is paid.
(3) The shares of Perkin-Elmer Group Stock and Celera Genomics Stock will be
distributed to shareholders without consideration. Accordingly, pursuant to
Section 6(b) of the Securities Act of 1933, there is no registration fee.
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF
THE SECURITIES ACT OF 1933, 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.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
SUBJECT TO COMPLETION, DATED NOVEMBER 24, 1998
THE PERKIN-ELMER CORPORATION
----------------
PROXY STATEMENT AND PROSPECTUS
------------------
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.
<PAGE>
<TABLE>
<S> <C>
PERKIN-ELMER GROUP CELERA GENOMICS GROUP
COMMON STOCK COMMON STOCK
</TABLE>
---------------------
SPECIAL MEETING OF SHAREHOLDERS TO BE
HELD AT 10 A.M., EASTERN TIME, ON , 1999
---------------------
You are invited to attend a Special Meeting of Shareholders of The
Perkin-Elmer Corporation, to be held at 10 a.m., Eastern Time, on , 1999,
in our auditorium, at 50 Danbury Road, Wilton, Connecticut 06897.
At the Special Meeting, you will be asked to consider and adopt a
recapitalization proposal recommended by your Board of Directors. We propose to
create two new classes of common stock called "Perkin-Elmer Group Stock" and
"Celera Genomics Stock." Perkin-Elmer Group Stock is intended to reflect
separately the performance of our established PE Biosystems' life sciences and
Analytical Instruments businesses, and Celera Genomics Stock is intended to
reflect separately the performance of our new Celera Genomics business. If
shareholders approve the recapitalization, each share of your existing common
stock will be converted into one share of Perkin-Elmer Group Stock and .5 of a
share of Celera Genomics Stock. We will also change our state of incorporation
from New York to Delaware as part of this recapitalization. We expect this
recapitalization to be tax-free to you and us.
Our 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 PE Biosystems and Analytical Instruments and the managers of Celera Genomics
with the responsibility of maximizing the returns from their businesses. We
expect holders of Perkin-Elmer Group Stock to benefit from the earnings growth
and cash flows provided by our PE Biosystems' life sciences and Analytical
Instruments businesses. We expect holders of Celera Genomics Stock 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 creation of
two classes of common stock should enhance both the autonomy and synergies of
these two businesses by allowing each to focus on its own identity, business
strategy, financial model and culture, but at the same time also allowing each
to capitalize on relationships with the other.
If this proposal is implemented, you will receive separate operating results
and other business and financial information for both our established PE
Biosystems' life sciences and Analytical Instruments businesses and our new
Celera Genomics business. You will have a better understanding of these
businesses and will be able to invest in either or both stocks depending upon
your investment objectives.
The Board of Directors currently intends to pay a quarterly dividend of $.17
on the Perkin-Elmer Group Stock and no dividend on the Celera Genomics Stock. We
will list the Perkin-Elmer Group Stock on the New York Stock Exchange and the
Pacific Stock Exchange under the symbol "PKN." We will list the Celera Genomics
Stock on The Nasdaq Stock Market under the symbol "CLRA".
The recapitalization proposal will also allow us to preserve the strategic,
financial and operational benefits we currently enjoy as a single company. We
will not distribute or spin-off any of our assets or liabilities under the
recapitalization. Holders of Perkin-Elmer Group Stock and Celera Genomics Stock
will continue to be stockholders of a single company and subject to the risks
associated with an investment in Perkin-Elmer and all of its businesses, assets
and liabilities. We can not assure you whether or to what extent the market
values of the new stocks will reflect the separate performances of their related
businesses or that their combined market values will equal or exceed the market
value of our existing common stock.
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.
Your 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 18.
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.
IF YOU HAVE ANY QUESTIONS RELATING TO THE MATTERS DISCUSSED IN THIS DOCUMENT,
PLEASE CALL OUR INVESTOR RELATIONS DEPARTMENT AT (203) 761-5400.
This Proxy Statement and Prospectus is dated , 1999 and is first being
mailed to shareholders on , 1999.
<PAGE>
WHERE YOU CAN FIND MORE INFORMATION
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 rooms in Washington, D.C.,
New York, New York and Chicago, Illinois. Please call the SEC at 1-800-SEC-0330
for further information on the public reference rooms.
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;
- Quarterly Report on Form 10-Q for the quarter ended September 30, 1998;
and
- Current Reports on Form 8-K, filed July 10 and September 24, 1998.
You may request a copy of these filings at no cost, by writing or
telephoning us at the following address:
The Perkin-Elmer Corporation
761 Main Avenue
Norwalk, Connecticut 06859
Attention: Secretary
Telephone: 1-203-762-1000
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.
RETURN OF PROXY
YOUR VOTE IS IMPORTANT. WHETHER OR NOT YOU PLAN TO ATTEND THE SPECIAL
MEETING, PLEASE COMPLETE, SIGN, DATE AND RETURN THE ACCOMPANYING PROXY PROMPTLY
IN THE ENCLOSED PRE-ADDRESSED ENVELOPE. POSTAGE NEED NOT BE AFFIXED TO THE
ENCLOSED ENVELOPE IF MAILED IN THE UNITED STATES. IF YOU ATTEND THE MEETING AND
VOTE IN PERSON, YOUR PROXY WILL NOT BE USED.
IF YOU PLAN TO ATTEND THE MEETING
The Special Meeting will be held at our corporate headquarters at 50 Danbury
Road (old U.S. Route 7), Wilton, Connecticut, approximately 1.7 miles north of
Exit 40B (northbound or southbound) on the Merritt Parkway (Connecticut Route
15). Signs will direct you to the auditorium where the meeting will be held.
<PAGE>
[LOGO]
NOTICE OF SPECIAL MEETING
OF SHAREHOLDERS
TO BE HELD ON , 1999
, 1999
Notice is hereby given that a Special Meeting of Shareholders of The
Perkin-Elmer Corporation will be held in our auditorium at 50 Danbury Road,
Wilton, Connecticut. The Special Meeting will commence at 10:00 a.m., Eastern
Standard Time, and will be held for the following purposes and to transact such
other business as may properly come before the meeting or any adjournment or
adjournments thereof:
1. To consider and act upon a proposal to adopt an agreement and plan of
merger under which:
- The Perkin-Elmer Corporation will merge with a subsidiary of The Perkin-
Elmer 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 Perkin-Elmer Group 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 Perkin-Elmer
Corporation/Perkin-Elmer Group 1999 Stock Incentive Plan; and
3. To consider and act upon a proposal to adopt The Perkin-Elmer
Corporation/Celera Genomics Group 1999 Stock Incentive Plan.
Information relating to the three proposals is contained in the attached
Proxy Statement and Prospectus.
The Board of Directors has fixed the close of business on , 1998
as the record date for the determination of 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 at
the request of a shareholder. The transfer books of the company will not be
closed.
By order of the Board
of Directors,
William B. Sawch
SECRETARY
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
-----
<S> <C>
Index of Defined Terms........................... ii
Questions and Answers About the Recapitalization
Proposal and Related Transactions.............. 1
Proxy Statement Summary.......................... 4
The Perkin-Elmer Corporation Selected Financial
Information.................................... 14
Perkin-Elmer Group Selected Financial
Information.................................... 15
Celera Genomics Group Selected Financial
Information.................................... 16
Price Range and Dividends on Existing Common
Stock.......................................... 17
Special Note Regarding Forward-Looking
Statements..................................... 18
Risk Factors..................................... 18
Information About the Special Meeting and
Voting......................................... 33
Date, Time and Place of Meeting.............. 33
Record Date.................................. 33
Proposals to be Considered at the Meeting.... 33
Vote Required................................ 34
Quorum....................................... 34
Proxy Votes.................................. 34
Proposal 1--The Recapitalization Proposal........ 34
Description of the Recapitalization.......... 34
Background of and Reasons for the
Recapitalization Proposal.................. 35
Recommendation of the Board of Directors..... 38
Management and Allocation Policies........... 38
Dividend Policy.............................. 44
Increase in Authorized Common Stock.......... 44
Stock Exchange Listings...................... 45
Exchange Procedures.......................... 45
<CAPTION>
PAGE
-----
<S> <C>
Stock Transfer Agent and Registrar........... 45
Description of Perkin-Elmer Group Stock and
Celera Genomics Stock...................... 45
Celera Genomics Designated Shares............ 55
Rights Agreement............................. 56
Comparison of Shareholder Rights............. 58
Certain Anti-Takeover Provisions of Delaware
Law and the New Certificate of
Incorporation, the New By-laws and the New
Rights Agreement........................... 64
United States Federal Income Tax
Considerations............................. 65
No Dissenter's Rights........................ 66
Proposals 2 and 3--The Perkin-Elmer
Corporation/Perkin-Elmer Group 1999 Stock
Incentive Plan and The Perkin-Elmer
Corporation/Celera Genomics Group 1999 Stock
Incentive Plan................................. 66
Information About Stockholder Proposals.......... 74
Expenses of Solicitation......................... 74
Legal Opinions................................... 74
Experts.......................................... 74
</TABLE>
<TABLE>
<S> <C>
Annex I: Agreement and Plan of Merger
Annex II: New Certificate of Incorporation
Annex III: Illustrations of Certain
Provisions of the New
Certificate of Incorporation
Annex IV: The Perkin-Elmer Corporation
Annex V: Perkin-Elmer Group
Annex VI: Celera Genomics Group
Annex VII: Perkin-Elmer Group 1999 Stock
Incentive Plan
Annex VIII: Celera Genomics Group 1999 Stock
Incentive Plan
</TABLE>
i
<PAGE>
INDEX OF DEFINED TERMS
<TABLE>
<CAPTION>
PAGE
------
<S> <C> <S> <C>
Acquiring Person................................ 56
Available Dividend Amount....................... 46
Celera Genomics Designated Shares............... 55
Celera Genomics Group........................... 1
Celera Genomics Group Plan...................... 66
Celera Genomics Group Subsidiaries.............. 50
Celera Genomics Right........................... 56
Celera Genomics Stock........................... 46
Change of Control............................... 70
Code............................................ 65
Committee....................................... 67
Common Stock.................................... 1
Company......................................... 4
Convertible Securities.......................... II-16
DGCL............................................ 35
Director Stock Awards........................... 67
Disposition..................................... 47
Distribution Date............................... 57
Earnings (Loss) Attributable.................... 46
Effective Time.................................. 35
Employee Awards................................. 67
Employee Stock Awards........................... 67
Existing By-laws................................ 35
Existing Certificate of Incorporation........... 34
Expiration Date................................. 57
Fair Value...................................... II-16
Incentive Plan.................................. 66
Interested Shareholder.......................... 61
Interested Stockholder.......................... 62
Liquidation Units............................... 54
Market Value.................................... II-16
Market Value Ratio of the Perkin-Elmer Group
Stock to the Celera Genomics Stock............ II-17
<CAPTION>
PAGE
---------
<S> <C> <S> <C>
Market Value Ratio of the Celera Genomics Stock
to the Perkin-Elmer Group Stock............... II-17
Merger.......................................... 34
Merger Agreement................................ 34
Net Proceeds.................................... 48
New By-laws..................................... 35
New Certificate of Incorporation................ 35
New Rights Agreement............................ 56
NYBCL........................................... 34
Options......................................... 67
Original Rights................................. 56
Original Rights Agreement....................... 56
Performance Shares.............................. 67
Perkin-Elmer.................................... 4
Perkin-Elmer Group.............................. 1
Perkin-Elmer Group Plan......................... 66
Perkin-Elmer Group Stock........................ 46
Perkin-Elmer Group Subsidiaries................. 50
Perkin-Elmer Right.............................. 56
Preferred Stock................................. 46
Proxy Statement................................. 1
R&D............................................. 36
R&D Spin-off.................................... 36
Recapitalization................................ 34
Redemption Price................................ 58
Related Business Transaction.................... 49
Rights.......................................... 56
Section 83 Restrictions......................... 72
Series A Purchase Price......................... 57
Series B Purchase Price......................... 57
Stock Acquisition Date.......................... 56
TIGR............................................ 31
Trading Day..................................... II-20
</TABLE>
ii
<PAGE>
QUESTIONS AND ANSWERS
ABOUT THE RECAPITALIZATION PROPOSAL
AND RELATED TRANSACTIONS
IF YOU HAVE ANY QUESTIONS RELATING TO THE MATTERS DISCUSSED IN THIS
DOCUMENT, PLEASE CALL OUR INVESTOR RELATIONS DEPARTMENT AT (203) 761-5400.
<TABLE>
<S> <C>
Q. WHY AM I RECEIVING THIS PROXY
STATEMENT?
A. We are distributing this Proxy
Statement and Prospectus (this
"Proxy Statement") to you in
connection with a recapitalization
proposal that would create two new
classes of common stock and change
our state of incorporation from New
York to Delaware. We are also
distributing this Proxy Statement in
connection with related proposals to
adopt two new 1999 stock incentive
plans. We have scheduled a Special
Meeting so that you may consider and
vote on these proposals.
Q. WHAT ARE THE NEW COMMON STOCKS?
A. The new common stocks consist of the
Perkin-Elmer Group Stock and the
Celera Genomics Stock. We refer to
the Perkin-Elmer Group Stock and the
Celera Genomics Stock together as
the "Common Stock."
</TABLE>
<TABLE>
<S> <C> <C>
- The Perkin-Elmer Group Stock is
intended to reflect the separate
performance of our established
PE Biosystems' life sciences and
Analytical Instruments
businesses. We refer to these
businesses as the "Perkin-Elmer
Group."
- The Celera Genomics Stock is
intended to reflect the separate
performance of our new Celera
Genomics business. We refer to
this business as the "Celera
Genomics Group."
</TABLE>
<TABLE>
<S> <C>
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.
However, the Perkin-Elmer Group and
the Celera Genomics Group are not
separate legal entities. Holders of
Perkin-Elmer Group Stock and Celera
Genomics Stock will be stockholders
of a single company. As a result,
they will continue to be subject to
all of the risks of an investment in
the Company and all of its
businesses, assets and liabilities.
The assets we attribute to one Group
could be subject to the liabilities
of the other Group.
Q. HOW WILL I BENEFIT FROM THE
RECAPITALIZATION PROPOSAL?
A. Our recapitalization proposal is
designed to separate the performance
of our new Celera Genomics business
from the rest of our company and to
charge the managers of each business
Group with the responsibility of
maximizing the returns from their
businesses. We expect holders of
Perkin-Elmer Group Stock to benefit
from the earnings growth and cash
flows provided by our established PE
Biosystems' life sciences and
Analytical Instruments businesses.
We expect holders of Celera Genomics
Stock 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 creation of two classes of
common stock should enhance both the
autonomy and synergies of the Groups
by allowing each Group to focus on
its own identity, business strategy,
financial model and culture, but at
the same time also allow it to
capitalize on relationships with the
other Group.
You will be able to separately value
the Perkin-Elmer Group Stock and the
</TABLE>
1
<PAGE>
<TABLE>
<S> <C>
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 the Company as a whole. In
addition, you will receive separate
operating results and other business
and financial information for both
the Perkin-Elmer 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 Perkin-Elmer Group Stock
and .5 of a share of Celera Genomics
Stock.
Q. WHEN AND WHERE WILL THE SPECIAL
MEETING BE HELD?
A. The meeting will be held on ,
, 1999, at 10:00 a.m.,
Eastern Standard Time, in our
auditorium, at 50 Danbury Road,
Wilton, Connecticut.
Q. WHAT DOES THE BOARD OF DIRECTORS
RECOMMEND?
A. Your Board of Directors unanimously
recommends that you vote "FOR" each
proposal.
Q. WHY ARE WE BECOMING A DELAWARE
CORPORATION?
A. No New York corporation has adopted
"targeted" or "tracking" stock. A
number of other large corporations
with similar capital structures,
such as Tele-communications, Inc.
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. WHAT DO I NEED TO DO NOW?
A. Just mail your signed proxy card in
the enclosed return envelope as soon
as possible, so that your shares may
be represented at the Special
Meeting.
Q. WHAT VOTE IS REQUIRED TO APPROVE
THESE PROPOSALS?
A. The approval of the recapitalization
proposal requires the affirmative
vote of the holders of two-thirds of
the outstanding shares of our
existing common stock. The approval
of each of the other proposals
requires the affirmative vote of the
holders of a majority of the votes
cast at the Special Meeting.
Q. WILL THE RECAPITALIZATION PROPOSAL
RESULT IN A CHANGE OF CONTROL OF THE
COMPANY?
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
Perkin-Elmer Group Stock and Celera
Genomics Stock will continue to be
stockholders of a single company and
subject to all risks associated with
an investment in the Company and all
of its businesses, assets and
liabilities.
Q. WHEN WILL ALL THIS TAKE PLACE?
A. If shareholders approve the
recapitalization proposal, we plan
to implement the recapitalization by
filing a certificate of merger in
New York shortly after the Special
Meeting. However, the Board of
Directors could choose to effect the
recapitalization at a later time, or
not to effect the recapitalization,
depending on the circumstances at
the time.
</TABLE>
2
<PAGE>
<TABLE>
<S> <C>
Q. MUST I SEND IN MY STOCK
CERTIFICATES?
A. No. The stock certificate for your
existing common stock will represent
ownership of the same number of
shares of Perkin-Elmer Group Stock.
We will send holders of record
certificates for Celera Genomics
Stock and information as to how they
may, at their option, send in
existing certificates for new
certificates representing
Perkin-Elmer Group Stock.
Q. WHAT DO I NEED TO DO TO RECEIVE MY
CERTIFICATES FOR THE CELERA GENOMICS
STOCK?
A. You do not need to do anything to
receive your certificates for the
Celera Genomics Stock. We will mail
certificates representing whole
shares of the Celera Genomics Stock
(and cash in lieu of any fractional
shares) to holders of record after
the recapitalization.
Q. WHAT ARE THE TAX CONSEQUENCES TO ME?
A. The recapitalization is intended to
be tax-free to you for federal
income tax purposes except for cash
received for fractional shares of
Celera Genomics Stock and for the
redemption of the rights issued
under our existing shareholder
rights plan. Cash you receive for
fractional shares generally will
result in recognition of gain or
loss equal to the difference between
the amount of cash you receive and
your basis in the fractional shares.
You should consult your tax advisor
for tax advice concerning your
individual tax consequences.
Q. WHERE WILL THE PERKIN-ELMER GROUP
STOCK AND THE CELERA GENOMICS STOCK
BE TRADED?
A. The Perkin-Elmer Group Stock will be
traded on the New York Stock
Exchange and the Pacific Stock
Exchange under the symbol "PKN." The
Celera Genomics Stock will be traded
on The Nasdaq Stock Market--National
Market System under the symbol
"CLRA".
Q. WHAT VOTING RIGHTS WILL I HAVE?
A. Each share of Perkin-Elmer Group
Stock will be entitled to one vote.
Each share of Celera Genomics Stock
will have a variable number of votes
based on the relative average market
values of one share of Celera
Genomics Stock to one share of
Perkin-Elmer Group Stock at the time
of the vote. We made the relative
voting rights of each stock vary
based on their market values so that
a stockholder's voting rights will
more closely reflect the market
value of its investment in the
Company. The Perkin-Elmer Group
Stock and the Celera Genomics Stock
will generally vote together as a
single class.
Q. WHAT HAPPENS TO MY FUTURE DIVIDENDS?
A. We currently intend to pay a
quarterly dividend of $.17 per share
on the Perkin-Elmer Group 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.
Q. WHAT IF I HAVE ADDITIONAL QUESTIONS?
A. If you have any questions prior to
the Special Meeting, please call our
Investor Relations Department at
(203) 761-5400.
</TABLE>
3
<PAGE>
PROXY STATEMENT SUMMARY
THIS SUMMARY HIGHLIGHTS SELECTED INFORMATION FROM THIS DOCUMENT AND MAY NOT
CONTAIN ALL OF THE INFORMATION THAT IS IMPORTANT TO YOU. 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. SEE "WHERE YOU CAN FIND MORE INFORMATION"
(INSIDE COVER PAGE). WE HAVE INCLUDED PAGE REFERENCES PARENTHETICALLY TO DIRECT
YOU TO A MORE COMPLETE DESCRIPTION OF THE TOPICS PRESENTED IN THIS SUMMARY. TO
HELP YOU FIND THE DEFINITIONS OF CERTAIN TECHNICAL TERMS USED IN THIS DOCUMENT,
WE HAVE ALSO INCLUDED AN INDEX OF TERMS IMMEDIATELY AFTER THE TABLE OF CONTENTS
IN THE FRONT OF THIS DOCUMENT. WHEN WE REFER TO "PERKIN-ELMER" OR THE "COMPANY"
OR USE "WE," "OUR" OR "US" IN THIS PROSPECTUS, WE MEAN THE PERKIN-ELMER
CORPORATION (INCLUDING THE NEW DELAWARE COMPANY THAT WILL ISSUE PERKIN-ELMER
GROUP STOCK AND CELERA GENOMICS STOCK) AND ITS SUBSIDIARIES ON A CONSOLIDATED
BASIS, UNLESS THE CONTEXT REQUIRES OTHERWISE.
THE COMPANY
The Company is comprised of the Perkin-Elmer Group and the Celera Genomics
Group. Our principal executive offices are located at 50 Danbury Road, Wilton,
Connecticut 06897, and our telephone number is (203) 762-1000.
PERKIN-ELMER GROUP (PAGE V-2)
The Perkin-Elmer 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 Perkin-Elmer Group develops,
manufactures, markets, sells and services analytical instruments used in a
variety of markets.
For the fiscal year ended June 30, 1998, the Perkin-Elmer Group had net
revenues of $1.5 billion and net income of $60.4 million. Its total assets at
September 30, 1998 were $1.4 billion. See "--Perkin-Elmer Group Selected
Financial Information" and Annex V--"Perkin-Elmer Group."
CELERA GENOMICS GROUP (PAGE VI-2)
The Celera Genomics Group is principally comprised of our new Celera
Genomics business. Celera Genomics Group is engaged in:
- generation, sale and support of genomic information ("content") databases
supported by software and analysis systems;
- 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 $.3 million and net losses of $4.0 million. Its total assets at
September 30, 1998 were $10.5 million. See "--Celera Genomics Group Selected
Financial Information" and Annex VI--"Celera Genomics Group."
THE SPECIAL MEETING
DATE, TIME AND PLACE OF MEETING (PAGE 33)
The Special Meeting will be held on , 1999, at 10:00 a.m.,
Eastern Standard Time, in our auditorium at 50 Danbury Road, Wilton,
Connecticut.
RECORD DATE (PAGE 33)
The record date for the Special Meeting is , 1998.
4
<PAGE>
PROPOSALS TO BE CONSIDERED AT THE MEETING
(PAGE 33)
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 Perkin-Elmer Group 1999 Stock
Incentive Plan to provide for the granting of stock awards and options in
Perkin-Elmer Group 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 (PAGE 34)
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.
- Proposal 2: The favorable vote of the holders of a majority of the votes
cast at the Special Meeting.
- Proposal 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 less than
percent of the outstanding shares of our existing common stock.
RECOMMENDATION OF THE BOARD OF DIRECTORS
(PAGES 38 AND 74)
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 THE COMPANY AND THE SHAREHOLDERS. YOUR BOARD OF DIRECTORS
UNANIMOUSLY RECOMMENDS THAT YOU APPROVE EACH OF THESE PROPOSALS.
THE RECAPITALIZATION PROPOSAL (PAGE 34)
You are being asked to consider and approve the Recapitalization Proposal
under which:
- our existing Company will change its state of incorporation to Delaware
by merging with a subsidiary of The Perkin-Elmer Corporation, a Delaware
company newly formed by us for this purpose (which we sometimes refer to
as "Perkin-Elmer Delaware"); and
- each outstanding share of our existing common stock will be automatically
converted in this merger into one share of the new Delaware company's
Perkin-Elmer Group Stock and .5 of a share of the new Delaware company's
Celera Genomics Stock.
REASONS FOR THE RECAPITALIZATION PROPOSAL (PAGE 35)
Your Board of Directors considered several alternatives for enhancing
shareholder value, advancing our financial and strategic objectives and creating
flexibility for our future growth. We believe that the Recapitalization Proposal
is the best alternative and will have many advantages, including:
- increasing shareholder value by more specifically tracking the earnings,
cash flows and investment results of each Group;
- permitting the Perkin-Elmer Group Stock to continue to be valued in the
market based on growth in earnings and cash flows, since the Celera
Genomics business is expected to incur significant losses during its
start-up period;
- permitting the Celera Genomics Stock to be valued in the market based on
the success of Celera Genomics research and development efforts and
progress in meeting its business plan;
- enhancing the autonomy of the Groups by allowing each Group and its
5
<PAGE>
management to focus on that Group's own identity, business strategy,
financial model and culture and to structure incentives for employees
that are closely aligned with the interests of the holders of the Common
Stock related to that Group and tied directly to its share price
performance;
- retaining the synergies and cost savings of doing business as a single
company and preserving the benefits of tax consolidation, credit
availability and a shared strategic vision;
- permitting the Board of Directors to review technology sharing
arrangements between the Perkin-Elmer Group and the Celera Genomics
Group, which should allow for the shortest path to commercialization of
new technologies; and
- enhancing financial and strategic flexibility to raise capital and to
engage in mergers, acquisitions, strategic investments, capital
restructurings and other transactions affecting either the Perkin-Elmer
Group or the Celera Genomics Group as a result of the availability of two
different equity securities.
No New York corporation has adopted "targeted" or "tracking" stock. A number
of other large corporations with similar capital structures, such as
Tele-communications, Inc. 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 having separate classes of common stock.
FEDERAL INCOME TAX CONSIDERATIONS (PAGE 65)
We have been advised by our counsel that no gain or loss will be recognized
by us or you for federal income tax purposes as a result of the implementation
of the Recapitalization Proposal, except for any cash received by you instead of
fractional shares of Celera Genomics Stock or in redemption of the rights issued
under our existing shareholder rights plan. However, there are no court
decisions or other authorities bearing directly on transactions similar to the
Recapitalization Proposal. Further, the Internal Revenue Service included the
issuance of stock with characteristics similar to the Perkin-Elmer Group Stock
and the Celera Genomics Stock among the transactions upon which it would not
issue advance rulings. Therefore, the tax treatment of the recapitalization is
subject to some uncertainty.
6
<PAGE>
COMPARISON OF EXISTING COMMON STOCK WITH PERKIN-ELMER GROUP STOCK AND CELERA
GENOMICS STOCK (PAGE 45)
The following is a comparison of our existing common stock and the
Perkin-Elmer Group Stock and Celera Genomics Stock.
<TABLE>
<CAPTION>
EXISTING THE RECAPITALIZATION PROPOSAL
COMMON --------------------------------------------------------
STOCK PERKIN-ELMER GROUP STOCK CELERA GENOMICS STOCK
------------------------ --------------------------- ---------------------------
<S> <C> <C> <C>
STOCKHOLDERS OF ONE Holders of our existing Holders of Perkin-Elmer Holders of Celera Genomics
COMPANY: common stock are Group Stock and Celera Stock and Perkin-Elmer
shareholders of a single Genomics Stock will be Group Stock will be
company. As a result, stockholders of a single stockholders of a single
they are subject to all company. The Perkin- Elmer company. The Celera
of the risks associated Group and the Celera Genomics Group and the
with an investment in Genomics Group are not Perkin-Elmer Group are not
the Company and all of separate legal entities. As separate legal entities. As
its businesses, assets a result, stockholders will a result, stockholders will
and liabilities. continue to be subject to continue to be subject to
all of the risks associated all of the risks associated
with an investment in the with an investment in the
Company and all of its Company and all of its
businesses, assets and businesses, assets and
liabilities. Financial liabilities. Financial
effects from the Celera effects from the
Genomics Group that affect Perkin-Elmer Group that
our consolidated results of affect our consolidated
operations or financial results of operations or
condition could, if financial condition could,
significant, affect the if significant, affect the
results of operations or results of operations or
financial condition of the financial condition of the
Perkin-Elmer Group or the Celera Genomics Group or
market price of the Perkin- the market price of the
Elmer Group Stock. Celera Genomics Stock.
GOVERNING LAW: New York Delaware Delaware
CAPITALIZATION: 180,000,000 shares of 500,000,000 shares of 225,000,000 shares of
existing common stock Perkin-Elmer Group Stock Celera Genomics Stock will
are authorized; will be authorized. Each be authorized. Each share
49,803,911 were share of our existing of our existing common
outstanding as of common stock will be stock will be converted
November 10, 1998. converted into one share of into .5 of a share of
Perkin-Elmer Group Stock Celera Genomics Stock and
and .5 of a share of Celera one share of Perkin-Elmer
Genomics Stock. Group Stock.
STOCK MARKET LISTING: NYSE and PSE under the NYSE and PSE under the Nasdaq Stock Market under
symbol "PKN." symbol "PKN." the symbol "CLRA."
DIVIDENDS: Our quarterly dividend We currently intend to pay We currently do not intend
rate is currently $.17 dividends on the Perkin- to pay dividends on the
per share of existing Elmer Group Stock at an Celera Genomics Stock.
common stock. initial quarterly rate of
$.17 per share.
We pay dividends on our We will pay dividends on We will pay dividends on
existing common the Perkin-Elmer Group the Celera Genomics Stock
</TABLE>
7
<PAGE>
<TABLE>
<CAPTION>
EXISTING THE RECAPITALIZATION PROPOSAL
COMMON --------------------------------------------------------
STOCK PERKIN-ELMER GROUP STOCK CELERA GENOMICS STOCK
------------------------ --------------------------- ---------------------------
stock at the discretion Stock at the discretion of at the discretion of our
of our Board of our Board of Directors Board of Directors based
Directors based based primarily upon the primarily upon the
primarily upon the financial condition, financial condition,
financial condition, results of operations and results of operations and
results of operations business requirements of business requirements of
and business the Perkin-Elmer Group and the Celera Genomics Group
requirements of the the Company as a whole. and the Company as a whole.
Company. Dividends can Dividends can not exceed Dividends can not exceed
not exceed our assets the lesser of (1) our funds the lesser of (1) our funds
from which we can from which we can legally from which we can legally
legally pay dividends pay dividends under pay dividends under
under New York law. Delaware law and (2) the Delaware law and (2) the
Perkin-Elmer Group Celera Genomics Group
Available Dividend Amount. Available Dividend Amount.
<S> <C> <C> <C>
We may pay dividends We may pay dividends
exclusively on the Perkin- exclusively on the Celera
Elmer Group Stock, Genomics Stock, exclusively
exclusively on the Celera on the Perkin- Elmer Group
Genomics Stock, or on both, Stock, or on both, in equal
in equal or unequal or unequal amounts. The
amounts. The Board of Board of Directors will not
Directors will not be be required to consider the
required to consider the relative Available Dividend
relative Available Dividend Amounts, the amount of
Amounts, the amount of dividends previously
dividends previously declared on either the
declared on either the Celera Genomics Stock or
Perkin-Elmer Group Stock or the Perkin-Elmer Group
the Celera Genomics Stock, Stock, their relative
their relative voting or voting or liquidation
liquidation rights or any rights or any other factor.
other factor.
VOTING RIGHTS: One vote per share. The Perkin-Elmer Group Each share of Celera
Stock will have one vote Genomics Stock will have a
per share. variable vote equal to the
ratio of the average market
values of one share of
Celera Genomics Stock to
one share of Perkin-Elmer
Group Stock calculated over
a 20-day period prior to
each record date for a
stockholders' meeting or
consent. Accordingly, a
share of Celera Genomics
Stock may have more than,
less than or exactly one
vote per share.
The holders of Perkin-Elmer The holders of Celera
Group Stock and Celera Genomics Stock and
Genomics Stock will Perkin-Elmer Group Stock
generally vote together will generally vote
together
</TABLE>
8
<PAGE>
<TABLE>
<CAPTION>
EXISTING THE RECAPITALIZATION PROPOSAL
COMMON --------------------------------------------------------
STOCK PERKIN-ELMER GROUP STOCK CELERA GENOMICS STOCK
------------------------ --------------------------- ---------------------------
as a single class. In as a single class. In
limited circumstances, limited circumstances,
holders of one or both holders of one or both
classes of Common Stock may classes of Common Stock may
be entitled under Delaware be entitled under Delaware
law or under stock exchange law or under stock exchange
regulations to vote as a regulations to vote as a
separate class. separate class.
<S> <C> <C> <C>
Because each share of Because each share of
Celera Genomics Stock will Celera Genomics Stock will
have a variable number of have a variable number of
votes based on a ratio of votes based on a ratio of
the average market values the average market values
of one share of Celera of one share of Celera
Genomics Stock to one share Genomics Stock to one share
of Perkin-Elmer Group of Perkin- Elmer Group
Stock, the relative voting Stock, the relative voting
power per share of power per share of Celera
Perkin-Elmer Stock and Genomics Stock and
Celera Genomics Stock will Perkin-Elmer Group Stock
fluctuate. We expect that will fluctuate. We expect
initially Perkin-Elmer that initially Perkin-Elmer
Group Stock will have a Group Stock will have a
substantial majority of the substantial majority of the
voting power of the voting power of the
Company. Company.
RIGHTS ON SALE OF ASSETS OF None. If we sell all or If we sell all or
A GROUP: substantially all of the substantially all of the
properties and assets properties and assets
attributed to the Perkin- attributed to the Celera
Elmer Group (I.E., 80% or Genomics Group (I.E., 80%
more on a current market or more on a current market
value basis or representing value basis or representing
80% or more of aggregate 80% or more of aggregate
Perkin-Elmer Group Celera Genomics Group
revenues), we must either revenues), we must either
(1) distribute through a (1) distribute through a
dividend or redemption to dividend or redemption to
holders of Perkin-Elmer holders of Celera Genomics
Group Stock an amount equal Stock an amount equal to
to the net proceeds of the the net proceeds of the
sale, or (2) convert each sale, or (2) convert each
share of Perkin-Elmer Group share of Celera Genomics
Stock into a number of Stock into a number of
shares of Celera Genomics shares of Perkin-Elmer
Stock equal to 110% of the Group Stock equal to 110%
ratio of the average market of the ratio of the average
values of one share of market values of one share
Perkin-Elmer Group Stock to of Celera Genomics Stock to
one share of Celera one share of Perkin-Elmer
Genomics Stock. We will Group Stock. We will
calculate the conversion calculate the conversion
ratio over a ten-day period
after the
</TABLE>
9
<PAGE>
<TABLE>
<CAPTION>
EXISTING THE RECAPITALIZATION PROPOSAL
COMMON --------------------------------------------------------
STOCK PERKIN-ELMER GROUP STOCK CELERA GENOMICS STOCK
------------------------ --------------------------- ---------------------------
closing of the sale. We ratio over a ten-day period
will not be required to after the closing of the
distribute the net proceeds sale. We will not be
or convert the Perkin-Elmer required to distribute the
Group Stock if we receive net proceeds or convert the
in the sale primarily Celera Genomics Stock if we
equity securities of the receive in the sale
acquiror or its parent and primarily equity securities
it is primarily engaged in of the acquiror or its
one or more businesses parent and it is primarily
similar or complementary to engaged in one or more
the business of the Perkin- businesses similar or
Elmer Group. complementary to the
business of the Celera
Genomics Group.
<S> <C> <C> <C>
The proceeds from any sale The proceeds from any sale
of assets attributed to the of assets attributed to the
Perkin-Elmer Group that are Celera Genomics Group that
not all or substantially are not all or
all of its assets will be substantially all of its
assets attributed to the assets will be assets
Perkin-Elmer Group and used attributed to the Celera
for its benefit. Genomics Group and used for
its benefit.
CONVERSION AT OPTION OF None. We may, at any time, We may, at any time,
COMPANY: convert each share of convert each share of
Perkin-Elmer Group Stock Celera Genomics Stock into
into a number of shares of a number of shares of
Celera Genomics Stock equal Perkin-Elmer Group Stock
to 110% of the ratio of the equal to 110% of the ratio
average market values of of the average market
one share of Perkin-Elmer values of one share of
Group Stock to one share of Celera Genomics Stock to
Celera Genomics Stock. The one share of Perkin-Elmer
ratio will be calculated Group Stock. The ratio will
over a 20-day period prior be calculated over a 20-day
to announcement of our period prior to
decision to convert. announcement of our
decision to convert.
Many factors could affect Many factors could affect
the market value of either the market value of either
or both classes of Common or both classes of Common
Stock, including the Stock, including the
results of operations of results of operations of
the Company and each of the the Company and each of the
Groups' trading volume and Groups' trading volume and
general economic and market general economic and market
conditions. Market value conditions. Market value
could also be affected by could also be affected by
market reaction to market reaction to
decisions by the Board of decisions by the Board of
Directors or the Company's Directors or the Company's
management that investors management that investors
perceive to affect perceive to affect
</TABLE>
10
<PAGE>
<TABLE>
<CAPTION>
EXISTING THE RECAPITALIZATION PROPOSAL
COMMON --------------------------------------------------------
STOCK PERKIN-ELMER GROUP STOCK CELERA GENOMICS STOCK
------------------------ --------------------------- ---------------------------
differently one class of differently one class of
Common Stock compared to Common Stock compared to
the other. These decisions the other. These decisions
could involve changes to could involve changes to
our management and our management and
allocation policies, allocation policies,
transfers of assets between transfers of assets between
Groups, allocations of Groups, allocations of
corporate opportunities and corporate opportunities and
financing resources between financing resources between
Groups and changes in Groups and changes in
dividend policies. dividend policies.
<S> <C> <C> <C>
REDEMPTION IN EXCHANGE FOR None. We may redeem the We may redeem the Celera
STOCK OF SUBSIDIARY: Perkin-Elmer Group Stock Genomics Stock for all of
for all of the shares of the shares of the common
the common stock of one or stock of one or more of our
more of our wholly owned wholly owned subsidiaries
subsidiaries that hold all that hold all of the assets
of the assets and and liabilities attributed
liabilities attributed to to the Celera Genomics
the Perkin-Elmer Group. Group.
LIQUIDATION: If the Company is If the Company is If the Company is
liquidated, holders of liquidated, holders of liquidated, holders of
our existing common Perkin-Elmer Group Stock Celera Genomics Stock will
stock will be entitled will be entitled to a be entitled to a portion of
to receive any net portion of any assets any assets remaining for
assets of the Company remaining for distribution distribution to holders of
remaining for to holders of common stock common stock on a per share
distribution to holders on a per share basis in basis in proportion to the
of common stock. proportion to the Liquidation Units per share
Liquidation Units per share of Celera Genomics Stock.
of Perkin-Elmer Group Each share of Celera
Stock. Each share of Genomics Stock will have a
Perkin-Elmer Group Stock number of Liquidation Units
will have one Liquidation equal to the ratio of the
Unit. The Liquidation Units average market values of
of the Perkin-Elmer Group one share of Celera
Stock are subject to Genomics Stock to one share
adjustment to prevent of Perkin-Elmer Group
dilution if shares of Stock. The ratio will be
either Perkin-Elmer Group calculated approximately
Stock or Celera Genomics two months after the
Stock are subdivided, recapitalization. The
combined or distributed as Liquidation Units of the
a dividend. Celera Genomics Stock are
subject to adjustment to
prevent dilution if shares
of either Celera Genomics
Group Stock or Perkin-Elmer
Group Stock are subdivided,
combined or distributed as
a dividend.
</TABLE>
11
<PAGE>
RISK FACTORS (PAGE 18)
When evaluating the Recapitalization Proposal, you should be aware that
there are risks, including:
- the risks associated with an investment in a single company and all of
our businesses, assets and liabilities;
- limited separate stockholder rights granted to holders of each class of
Common Stock;
- risks associated with the relative voting power of the two classes of
Common Stock which will fluctuate based on their relative average market
values;
- the lack of legal precedent with respect to the fiduciary duties of the
board of directors of a company having two classes of common stock, the
rights of which are defined by reference to separate businesses of the
company;
- the potential for stockholders of each class of Common Stock to have
diverging or conflicting interests;
- the ability of the Board of Directors to change management and allocation
policies without stockholder approval;
- the ability to transfer funds between the Groups;
- the ability of the 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 Perkin-Elmer
Group Stock or Celera Genomics Stock following the recapitalization;
- antitakeover considerations could prevent stockholders from profiting
from an increase in the market value of their shares; and
- the lack of legal precedent with respect to the tax treatment of the
recapitalization and the Common Stock.
MANAGEMENT AND ALLOCATION POLICIES (PAGE 38)
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 Perkin-Elmer 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 Perkin-Elmer Group
and the Celera 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 Perkin-Elmer Group Stock
or Celera Genomics Stock;
- the free access to our technology and know-how (other than products and
12
<PAGE>
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 that would be available
from third parties in commercial transactions, subject to certain
exceptions;
- the allocation of corporate opportunities in the best interests of the
Company; 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.
The Board of Directors may modify or rescind these policies, or may adopt
additional policies, in its sole discretion without stockholder approval.
However, the Board of Directors has no present intention to do so.
NO DISSENTERS' RIGHTS (PAGE 66)
You will not have dissenters' or appraisal rights under New York law if the
Recapitalization Proposal is implemented.
NO REGULATORY APPROVALS (PAGE 35)
No state or federal regulatory approvals are required for the
recapitalization.
13
<PAGE>
THE PERKIN-ELMER CORPORATION SELECTED FINANCIAL INFORMATION
This summary of financial information of the Company for the fiscal years
1994 to 1998 and for the three months ended September 30, 1997 and 1998 should
be read along with the audited and unaudited financial statements contained in
Annex IV of 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 three month periods are unaudited and we believe
that they fairly present our financial position and results of operations and
cash flows for those periods.
<TABLE>
<CAPTION>
FOR THE THREE MONTHS
ENDED
FOR THE YEARS ENDED JUNE 30, SEPTEMBER 30,
(DOLLAR AMOUNTS IN THOUSANDS -------------------------------------------------------------------- --------------------------
EXCEPT PER SHARE AMOUNTS) 1994 1995 1996 1997 1998 1997 1998
- ----------------------------- ------------ ------------ ------------ ------------ ------------ ------------ ------------
(UNAUDITED)
<S> <C> <C> <C> <C> <C> <C> <C>
FINANCIAL OPERATIONS
Net revenues................. $ 1,070,522 $ 1,152,935 $ 1,248,967 $ 1,373,282 $ 1,531,165 $ 322,707 $ 375,785
Income from operations before
special items.............. 54,647 63,548 77,995 116,602 127,133 21,421 17,703
Per diluted share of common
stock.................... 1.15 1.40 1.67 2.33 2.53 .43 .35
Special items, net of
taxes...................... (14,681) (17,241) (114,518) 13,796 (70,745) -- (694)
Income (loss) from continuing
operations................. 39,966 46,307 (36,523) 130,398 56,388 21,421 17,009
Per share of common stock
Basic.................... .87 1.04 (.80) 2.74 1.16 .45 .34
Diluted.................. .84 1.02 (.80) 2.63 1.12 .43 .34
Discontinued operations...... (22,851) -- -- -- -- -- --
Net income (loss)............ 17,115 46,307 (36,523) 130,398 56,388 21,421 17,009
Per share of common stock
Basic.................... .37 1.04 (.80) 2.74 1.16 .45 .34
Diluted.................. .36 1.02 (.80) 2.63 1.12 .43 .34
Dividends per share.......... .68 .68 .68 .68 .68 .17 .17
OTHER INFORMATION
Cash and short-term
investments................ $ 50,605 $ 103,826 $ 121,145 $ 217,222 $ 84,091 $ 175,683 $ 71,848
Working capital.............. 171,068 256,607 229,639 354,741 287,991 345,066 291,944
Capital expenditures......... 46,588 50,191 44,309 69,822 116,708 34,095 43,793
Total assets................. 1,021,746 1,027,051 1,062,979 1,238,749 1,334,474 1,228,666 1,363,134
Long-term debt............... 61,500 64,524 33,694 59,152 33,726 57,010 29,650
Total debt................... 145,052 123,224 89,801 89,068 45,825 89,064 88,444
Shareholders' equity......... 364,123 369,807 373,727 504,270 564,248 519,644 579,988
Book value per share......... 8.04 8.17 7.90 10.43 11.44 10.74 11.71
</TABLE>
Results for fiscal 1995, 1996, 1997, 1998 and the three months ended September
30, 1998 included net before-tax restructuring and other merger costs of $38.5
million, $89.1 million, $13.0 million, $48.1 million and $.9 million,
respectively. Before-tax gains related to investments were $20.8 million, $11.7
million, $64.9 million and $1.6 million for fiscal 1995, 1996, 1997 and 1998,
respectively. Other special items affecting comparability included acquired
research and development charges of $14.7 million, $33.9 million, $26.8 million
and $28.9 million for fiscal 1994, 1996, 1997 and 1998, respectively, before-tax
charges for the impairment of assets of $9.9 million and $7.5 million for fiscal
1996 and 1997, respectively; and a $22.9 million charge for discontinued
operations in fiscal 1994.
14
<PAGE>
PERKIN-ELMER GROUP SELECTED FINANCIAL INFORMATION
This summary of financial information of the Perkin-Elmer Group for the
fiscal years 1994 to 1998 and for the three months ended September 30, 1997 and
1998 should be read along with the audited and unaudited combined financial
statements contained in Annex V of 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 three month periods are unaudited and we
believe that they fairly present the financial position and results of
operations and cash flows of the Perkin-Elmer Group for those periods.
<TABLE>
<CAPTION>
FOR THE THREE MONTHS
ENDED
FOR THE YEARS ENDED JUNE 30, SEPTEMBER 30,
(DOLLAR AMOUNTS IN THOUSANDS -------------------------------------------------------------------- ------------------------
EXCEPT PER SHARE AMOUNTS) 1994 1995 1996 1997 1998 1997 1998
- -------------------------------- ------------ ------------ ------------ ------------ ------------ ---------- ------------
(UNAUDITED)
<S> <C> <C> <C> <C> <C> <C> <C>
FINANCIAL OPERATIONS
Net revenues.................... $ 1,070,522 $ 1,152,935 $ 1,248,967 $ 1,373,282 $ 1,530,864 $ 322,707 $ 376,185
Income from operations before
special items................. 54,647 63,548 77,995 116,971 131,170 21,589 21,930
Special items, net of taxes
(1)........................... (14,681) (17,241) (114,518) 39,197 (70,745) -- (694)
Income (loss) from continuing
operations.................... 39,966 46,307 (36,523) 156,168 60,425 21,589 21,236
Discontinued operations......... (22,851) -- -- -- -- -- --
Net income (loss)............... 17,115 46,307 (36,523) 156,168 60,425 21,589 21,236
Unaudited pro forma net income
per share (2)
Basic......................... $ 1.25 $ .44
Diluted....................... $ 1.21 $ .43
OTHER INFORMATION
Cash and short-term
investments................... $ 50,605 $ 103,826 $ 121,145 $ 217,222 $ 84,091 $ 175,683 $ 71,848
Working capital................. 171,068 256,607 229,639 354,691 286,364 344,662 289,317
Capital expenditures............ 46,588 50,191 44,309 69,759 113,653 33,713 41,823
Total assets.................... 1,021,746 1,027,051 1,062,979 1,237,348 1,330,203 1,226,778 1,357,431
Long-term debt.................. 61,500 64,524 33,694 59,152 33,726 57,010 29,650
Total debt...................... 145,052 123,224 89,801 89,068 45,825 89,064 88,444
Group equity.................... 364,123 369,807 373,727 508,319 564,134 522,993 577,428
</TABLE>
(1) Results for fiscal 1995, 1996, 1997 and 1998 and the three months ended
September 30, 1998 included net before-tax restructuring and other merger
costs of $38.5 million, $89.1 million, $13.0 million, $48.1 million and $.9
million, respectively. Before-tax gains related to investments were $20.8
million, $11.7 million, $64.9 million and $1.6 million for fiscal 1995,
1996, 1997 and 1998, respectively. Other special items affecting
comparability included acquired research and development charges of $14.7
million, $33.9 million, $1.4 million and $28.9 million for fiscal 1994,
1996, 1997 and 1998, respectively, before-tax charges for the impairment of
assets of $9.9 million and $7.5 million for fiscal 1996 and 1997,
respectively; and a $22.9 million charge for discontinued operations in
fiscal 1994.
(2) Historical per share information is omitted from the Combined Statements of
Operations because Perkin-Elmer Group Stock was not part of the capital
structure for the periods presented. Pro forma earnings per share,
reflecting Perkin-Elmer Group Stock issued under the Recapitalization
Proposal, is presented in the Perkin-Elmer Group's Combined Statements of
Operations.
15
<PAGE>
CELERA GENOMICS GROUP SELECTED FINANCIAL INFORMATION
<TABLE>
<S> <C>
This summary of financial information of The combined financial statements for those
the Celera Genomics Group for the 1997 and fiscal year periods are audited. The combined
1998 fiscal years and for the three months financial statements for those three month
ended September 30, 1997 and 1998 was taken periods are unaudited and we believe that
from and should be read along with the they fairly present the financial position
audited and unaudited combined financial and results of operations and cash flows of
statements contained in Annex VI of this the Celera Genomics Group for those periods.
Proxy Statement.
</TABLE>
<TABLE>
<CAPTION>
FOR THE THREE MONTHS
FOR THE YEARS ENDED ENDED
JUNE 30, SEPTEMBER 30,
-------------------- --------------------
(DOLLAR AMOUNTS IN THOUSANDS EXCEPT PER SHARE AMOUNTS) 1997 1998 1997 1998
- --------------------------------------------------------- --------- --------- --------- ---------
(UNAUDITED)
<S> <C> <C> <C> <C>
FINANCIAL OPERATIONS
Net revenues............................................. $ -- $ 301 $ -- $ --
Loss from operations before special items................ (369) (4,037) (168) (4,227)
Special items (1)........................................ (25,401) -- -- --
Net loss................................................. (25,770) (4,037) (168) (4,227)
Unaudited pro forma net loss per share (2)
Basic.................................................. $ (.17) $ (.17)
Diluted................................................ $ (.17) $ (.17)
OTHER INFORMATION
Cash and short-term investments.......................... $ -- $ -- $ -- $ --
Working capital.......................................... 50 1,627 2,151 2,627
Capital expenditures..................................... 63 3,055 382 1,970
Total assets............................................. 1,600 6,694 2,177 10,453
Long-term debt........................................... -- -- -- --
Total debt............................................... -- -- -- --
Group equity (deficit)................................... (4,049) 114 (3,349) 2,560
</TABLE>
(1) Results for fiscal 1997 included an acquired research and development charge
of $25.4 million.
(2) 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. Pro forma loss per share, reflecting
Celera Genomics Stock issued under the Recapitalization Proposal, is
presented in the Celera Genomics Group Combined Statements of Operations.
16
<PAGE>
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:
<TABLE>
<CAPTION>
CASH
FISCAL YEAR HIGH LOW DIVIDENDS
- ---------------------------------------------------------------------- --------- --- ---------
<S> <C> <C> <C>
1997
First Quarter......................................................... $58 1/8 $ 44 1/4 $.17
Second Quarter........................................................ 61 7/8 52 1/2 .17
Third Quarter......................................................... 77 1/8 57 7/8 .17
Fourth Quarter........................................................ 81 1/8 60 3/8 .17
1998
First Quarter......................................................... 86 1/8 72 1/8 .17
Second Quarter........................................................ 74 59 1/4 .17
Third Quarter......................................................... 76 55 13/16 .17
Fourth Quarter........................................................ 75 1/8 58 11/16 .17
1999
First Quarter......................................................... 70 15/16 54 1/2 .17
Second Quarter (through November 10, 1998)............................ 89 65
</TABLE>
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
, 1999 (the trading day prior to the date of this Proxy
Statement). As of November 10, 1998, there were 49,803,911 shares of our
existing common stock outstanding and holders of record.
17
<PAGE>
SPECIAL NOTE REGARDING
FORWARD-LOOKING STATEMENTS
Many of the statements under the captions "Proxy Statement Summary--The
Recapitalization Proposal," "Risk Factors," Annex V--"Perkin-Elmer Group--
Management's Discussion and Analysis," Annex VI--"Celera Genomics
Group--Business" and Annex VI--"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 below 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. The risks
and uncertainties that may affect the operation, performance, development, and
results of our business include, but are not limited to:
FOR THE PERKIN-ELMER GROUP
- Dependence on new products and rapid technological change;
- Substantial competition;
- Sales dependent on customers' capital spending policies;
- Patents, proprietary technology and trade secrets;
- Government sponsored research dependent on funding;
- Dependence on key employees;
- Currency exchange risks; other risks of international sales and
operations;
- Potential difficulties in implementing business strategy;
- Year 2000;
- Other risks, including the impact of earthquakes; and
- Future performance.
FOR THE CELERA GENOMICS GROUP
- Early stage of operations;
- No precedent for Celera Genomics' business plan;
- Need to manage rapid growth;
- Uncertainty of sequencing strategy;
- Uncertainty of successful operation of new sequencers;
- Uncertainty of sequencing operations;
- Uncertainty of value of polymorphism data;
- Initial reliance on pharmaceutical industry;
- Anticipated future losses; uncertainty of operating results;
- Highly dependent on key employees;
- Uncertain protection of intellectual property and proprietary rights;
- Adverse effect of public disclosure of genomic sequence data;
- Highly competitive business; and
- Year 2000.
RISK FACTORS
FACTORS RELATING TO COMMON STOCK
STOCKHOLDERS OF ONE COMPANY; FINANCIAL EFFECTS ON ONE GROUP COULD AFFECT THE
OTHER
Holders of Perkin-Elmer Group Stock and Celera Genomics Stock will be
stockholders of a single company. The Perkin-Elmer 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 the Company and all of its
businesses, assets and liabilities. The issuance of the Perkin-Elmer Group Stock
and the Celera Genomics Stock and the allocation of assets and liabilities and
stockholders' equity between the Perkin-Elmer 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
18
<PAGE>
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 or junior preferred stock
of the Company 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.
If our shareholders approve the Recapitalization Proposal, we will provide
to holders of Perkin-Elmer Group Stock and Celera Genomics Stock audited
financial statements, Management's Discussion and Analysis, business
descriptions and other information for each Group. We will also continue to
provide to you our consolidated financial information. The financial statements
of each Group will reflect the financial position, results of operations and
cash flows of the businesses included in that Group. Each Group's financial
statements will also include allocated portions of the Company's corporate
assets and liabilities, including contingent liabilities. See "Proposal 1--The
Recapitalization Proposal--Management and Allocation Policies" and the financial
information of the Company in Annex IV, the Perkin-Elmer Group in Annex V and
the Celera Genomics Group in Annex VI.
LIMITED SEPARATE STOCKHOLDER RIGHTS
Holders of Perkin-Elmer Group Stock and Celera Genomics Stock will have only
the rights customarily held by common stockholders of the Company. 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 assets of their corresponding Group described under
"Proposal 1--The Recapitalization Proposal--Description of Perkin-Elmer
Group Stock and Celera Genomics Stock--Conversion and Redemption--
Mandatory Dividend, Redemption or Conversion of Common Stock;" 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 the Board of Directors.
We will not hold separate meetings for holders of Perkin-Elmer Group Stock
and Celera Genomics Stock.
LIMITS ON VOTING POWER
GROUP COMMON STOCK WITH MAJORITY OF VOTING POWER CAN CONTROL OUTCOME. Under
Delaware law, the holders of Perkin-Elmer Group Stock and Celera Genomics Stock
will vote together as a single class, except in limited circumstances. The most
important of these exceptions are amendments to the New Certificate of
Incorporation that would alter or change the powers, preferences or special
rights of a class of Common Stock so as to affect them adversely.
If a separate vote on a matter by the holders of either the Perkin-Elmer
Group Stock or the Celera Genomics Stock is not required under Delaware law or
by stock exchange rules, and if the Board of Directors does not require a
separate vote, either class of Common Stock that is entitled to more than the
number of votes required to approve such matter could control the outcome of
such vote--even if the matter involves a divergence or conflict of the interests
of the holders of the Perkin-Elmer Group Stock and the Celera Genomics Stock. In
addition, if the holders of Common Stock having a majority of the voting power
of all shares of Common Stock outstanding approve a merger, the terms
19
<PAGE>
of which did not require separate class voting under stock exchange rules, then
the merger could be consummated--even if the holders of a majority of either
class of Common Stock (but less than a majority of all the outstanding voting
power) were to vote against the merger. See "--Potential Conflicting
Interests--Allocation of Proceeds of Mergers or Consolidations."
GROUP COMMON STOCK WITH LESS THAN MAJORITY VOTING CAN BLOCK ACTION IF CLASS
VOTE IS REQUIRED. If Delaware law, stock exchange rules or the Board of
Directors requires a separate vote on a matter by the holders of either the
Perkin-Elmer Group 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. See "Proposal 1--The Recapitalization Proposal--
Description of Perkin-Elmer Group Stock and Celera Genomics Stock--Voting
Rights" and "-- Potential Conflicting Interests--Allocation of Proceeds of
Mergers, Consolidations."
VOTING POWER OF GROUP COMMON STOCK WILL FLUCTUATE. Each share of
Perkin-Elmer Group Stock will have one vote. Each share of Celera Genomics Stock
will have a variable vote equal to the ratio of the average Market Values of one
share of Celera Genomics Stock to one share of Perkin-Elmer Group Stock,
calculated over a period prior to each record date for the stockholders' meeting
or consent. We chose this formula so that the proportionate per share voting
rights of each class of Common Stock would be equal to their respective Market
Values at the time of any vote. As a result, the relative voting power per share
of Perkin-Elmer Group Stock and Celera Genomics Stock will fluctuate based on
the Market Values of the two classes of Common Stock.
The provision providing for a variable vote per share of Celera Genomics
Stock is disadvantageous to the holders of Perkin-Elmer Group Stock or Celera
Genomics Stock to the extent that the Market Value of such class of Common Stock
decreases compared to the other, and is advantageous to the holders of
Perkin-Elmer Group Stock or Celera Genomics Stock to the extent the Market Value
of such class of Common Stock increases compared to the other.
Many factors could affect the Market Value of either or both classes of
Common Stock, including the results of operations of the Company and each of the
Groups, trading volume and general economic and market conditions. Market Value
could also be affected by decisions by the Board of Directors or the Company's
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. Changes in the aggregate votes or relative
voting power of the Perkin-Elmer Group Stock or the Celera Genomics Stock could
result from the issuance or repurchase of shares of Common Stock of either
class. See "Proposal 1--The Recapitalization Proposal--Management and Allocation
Policies," "--Dividend Policy" and "--Description of Perkin-Elmer Group Stock
and Celera Genomics Stock--Voting Rights."
PERKIN-ELMER GROUP STOCK INITIALLY WILL HAVE MAJORITY OF VOTING POWER. We
expect that initially the Perkin-Elmer Group Stock will have a substantial
majority of the voting power of the Company because the aggregate market value
of the outstanding shares of Perkin-Elmer Group Stock is expected initially to
be substantially greater than the aggregate market value of the outstanding
shares of Celera Genomics Stock.
FIDUCIARY DUTIES OF THE BOARD OF DIRECTORS AND OFFICERS: NO DEFINITIVE
PRECEDENT UNDER DELAWARE LAW
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 Perkin-Elmer Group 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
20
<PAGE>
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 Perkin-Elmer Group 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.
Nevertheless, a court hearing a case involving such a challenge may decide to
apply principles of Delaware law other than those discussed above, or, because
such a case would be a case of first impression, may establish new principles of
Delaware law to decide such a case.
Circumstances may arise involving a divergence or conflict of the interests
of the holders of Perkin-Elmer Group Stock and holders of Celera Genomics Stock
in which the Board of Directors or officers (assuming they are disinterested)
are held to have properly discharged their duty to act in accordance with their
good faith business judgment in the interests of the Company and of all of its
stockholders as a whole but in which holders of Perkin-Elmer Group Stock or
Celera Genomics Stock are disadvantaged. In such case, such holders might not
have any remedy under Delaware law with respect to the disadvantageous
treatment.
Directors and senior officers of the Company (other than J. Craig Venter,
the President of Celera Genomics Group) will initially own a number of shares of
Perkin-Elmer Group Stock and Celera Genomics Stock in the ratio of the number of
shares of Perkin-Elmer Group Stock to the number of shares of Celera Genomics
Stock resulting from the Recapitalization. However, changes in the ratio could
create disproportionate ownership interests of members of the Board of Directors
and these senior officers in Perkin-Elmer Group Stock or Celera Genomics Stock.
Such changes or changes in the respective market values of the Perkin-Elmer
Group Stock and the Celera Genomics Stock could create potential conflicts of
interest when directors or senior officers are faced with decisions that could
have different implications for the two classes. See "--Potential Conflicting
Interests"; and "Proposal 1--The Recapitalization Proposal--Management and
Allocation Policies--Common Stock Ownership of Directors and Senior Officers."
Officers of the Company, including officers who work primarily in the
business of one of the Groups, may own disproportionate interests in the
Perkin-Elmer Group Stock and the Celera Genomics Stock. As a result of the
transactions described under "Proposal 1--The Recapitalization Proposal--Related
Celera Transactions," we anticipate that Dr. Venter, the President of Celera
Genomics Group, will initially own a disproportionately greater number of shares
of Celera Genomics Stock than Perkin-Elmer Group Stock.
POTENTIAL CONFLICTING INTERESTS
The existence of separate classes of Common Stock could give rise to
occasions when the interests of the holders of Perkin-Elmer Group Stock or
Celera Genomics Stock diverge or conflict. Examples include determinations by
the Board of Directors or the officers of the Company to:
- pay or omit the payment of dividends on Perkin-Elmer Group 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
the Company;
- 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 Perkin-Elmer Group, to the extent the
Perkin-Elmer Group has the right to Celera Genomics Designated Shares;
- allocate corporate opportunities between the Groups;
- permit or prevent indirect competition between the Groups; or
21
<PAGE>
- 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, the Board of Directors (or any Board of Directors
committee to which the matter has been referred) and the Company's 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." See "--Fiduciary Duties of the Board of Directors and
Officers; No Definitive Precedent Under Delaware Law."
Each of the potential conflicts of interest listed above is discussed below.
NO ASSURANCE OF PAYMENT OF DIVIDENDS. The Board of Directors has adopted a
dividend policy to initially pay a quarterly dividend of $.17 on the
Perkin-Elmer Group Stock and no dividend on the Celera Genomics Stock.
Determinations as to future dividends on the Perkin-Elmer Group Stock and the
Celera Genomics Stock will be based primarily on the financial condition,
results of operations and business requirements of the relevant Group and the
Company as a whole.
Dividends on the Perkin-Elmer Group Stock and Celera Genomics Stock will be
payable out of the lesser of:
- our funds from which we may pay dividends under Delaware law (sometimes
referred to as "legally available funds"); and
- the Available Dividend Amount with respect to the relevant Group.
Subject to these limitations, the Board of Directors has the authority to
declare and pay dividends on the Perkin-Elmer Group Stock and the Celera
Genomics Stock in any amount and could, in its sole discretion, declare and pay
dividends exclusively on the Perkin-Elmer Group Stock, exclusively on the Celera
Genomics Stock, or on both, in equal or unequal amounts. The Board of Directors
will not be required to consider the relative Available Dividend Amounts, the
amount of dividends previously declared on each class, the respective voting or
liquidation rights of each class or any other factor. In addition, net losses of
either Group, dividends and distributions on either class of Common Stock or any
preferred stock or junior preferred stock, and any repurchases of Perkin-Elmer
Group Stock, Celera Genomics Stock or certain preferred stock or junior
preferred stock of the Company, will reduce the funds of the Company legally
available for future dividends on both classes of Common Stock. See "Proposal
1--The Recapitalization Proposal-- Dividend Policy" and "--Description of
Perkin-Elmer Group Stock and Celera Genomics Stock--Dividends."
ALLOCATION OF PROCEEDS OF MERGERS OR CONSOLIDATIONS. 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 the Company is to be allocated among holders of each class of Common
Stock. The 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 the Board of Directors chosen a
different method of allocation. See "--Limited Separate Stockholder Rights" and
"--Limits on Voting Power."
OPTIONAL CONVERSION OF CLASSES OF COMMON STOCK. The Board of Directors
could, in its sole discretion and without stockholder approval, determine to
convert shares of Celera Genomics Stock into shares of Perkin-Elmer Group Stock,
or vice versa, 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 the Company of
the holders of the class of Common Stock being issued in the conversion.
Any such conversion would 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
22
<PAGE>
shares of the class of Common Stock converted a greater or lesser premium than
any premium that 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 Perkin-Elmer Common
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 Perkin-Elmer Group 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, the Board of Directors will act in accordance with its good faith
business judgment that the conversion is in the best interests of the Company
and all of its stockholders as a whole. See "Proposal 1-- The Recapitalization
Proposal--Description of Perkin-Elmer Group Stock and Celera Genomics
Stock--Conversion" and "--Fiduciary Duties of the Board of Directors and
Officers; No Definitive Precedent Under Delaware Law."
DISPOSITIONS OF GROUP ASSETS. The Board of Directors could, in its sole
discretion and without stockholder approval, approve sales and other
dispositions of any amount of assets of either Group that represent less than
substantially all of the assets of the Company. Delaware law requires
stockholder approval only for a sale or other disposition of all or
substantially all of the assets of the entire Company. The proceeds from any
such disposition will be assets attributed to the Group to which the assets
belonged and will be used for its benefit.
The New Certificate of Incorporation contains provisions that require us, if
a Disposition of all or substantially all of the properties and assets of either
Group occurs (other than in a Related Business Transaction) to
- distribute to holders of the class of Common Stock relating to the Group
subject to such Disposition an amount equal to the Net Proceeds of such
Disposition: or
- convert the outstanding shares of such Common Stock into a number of
shares of the class of Common Stock relating to the other Group equal to
110% of the ratio, calculated over a period of time, of the average
Market Value of one share of Common Stock relating to the Group subject
to such Disposition to the average Market Value of one share of Common
Stock relating to the other Group.
See "Proposal 1--The Recapitalization Proposal--Description of Perkin-Elmer
Group Stock and Celera Genomics Stock--Conversion and Redemption." The terms of
the Common Stock do not require the Board of Directors to select the option that
would result in the distribution with the highest value to the holders of Common
Stock relating to the Group subject to such Disposition or with the smallest
effect on the Common Stock relating to the other Group. The Board of Directors
would select an option based on its good faith business judgment that such
option is in the best interests of the Company and all of its stockholders as a
whole. See "--Fiduciary Duties of the Board of Directors and Officers; No
Definitive Precedent under Delaware Law."
ALLOCATION OF PROCEEDS UPON ISSUANCE OF CELERA GENOMICS STOCK. If and to
the extent the Perkin-Elmer Group has the right to Celera Genomics Designated
Shares at the time of any sale of Celera Genomics Stock, the Board of Directors
could allocate all of the proceeds of that sale to either the Perkin-Elmer 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.
ALLOCATION OF CORPORATE OPPORTUNITIES. The Board of Directors may be
required to allocate corporate opportunities between the Groups. In some cases,
the Board of Directors could determine that a corporate opportunity, such as a
business that the Company is acquiring, should be shared by the Groups. Any such
decisions by the Board of Directors could favor one Group at the expense of the
other. The Board of Directors will make these decisions in its good faith
business judgment that
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such allocation is in the best interests of the Company and all of its
stockholders as a whole. See "Proposal 1--The Recapitalization
Proposal--Management and Allocation Policies--Review of Corporate
Opportunities."
COMPETITION BETWEEN GROUPS. The Board of Directors has adopted a policy
that neither the Perkin-Elmer 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 the Chief
Executive Officer or, in appropriate circumstances, the 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 licensing its products to a third party for use
in the third party's products which compete with the Perkin-Elmer Group's
products;
- the Perkin-Elmer Group's inclusion of a third party's products, rather
than the Celera Genomics Group's products, in the Perkin-Elmer Group's
products; or
- a Group licensing technology to a third party that is a competitor of the
other Group.
See "The Recapitalization Proposal-- Management and Allocation Proposals--
Transfers of Assets Between Groups--Joint Transactions" and "--Competition
Between Groups." The Chief Executive Officer or the 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 the Company
and all of its stockholders as a whole. In addition, the Groups may compete in a
business, such as agricultural genomics, so long as such business is not a
principal business of the other Group.
OTHER OPERATIONAL AND FINANCIAL DECISIONS. The Board of Directors or the
senior officers of the Company will review other operational and financial
matters affecting the Perkin-Elmer 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 the Board of Directors or the senior officers in these matters could
favor one Group at the expense of the other. All such decisions of the Board of
Directors or senior officers will be made in their good faith business judgment
and in accordance with procedures and policies adopted by the Board of Directors
from time to time. For further discussion of potential divergences or conflicts
of interests, see "--Fiduciary Duties of the Board of Directors and Officers; No
Definitive Precedent Under Delaware Law," "--Transfers of Funds Between Groups;
Equity Contributions," "--Allocation of Financing Costs," and "Proposal 1--The
Recapitalization Proposal--Management and Allocation Policies."
MANAGEMENT AND ALLOCATION POLICIES SUBJECT TO CHANGE WITHOUT STOCKHOLDER
APPROVAL
The 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, the Board of Directors has no present intention to do so. A
Board of Directors decision to modify or rescind these policies, or adopt
additional policies could have different effects on holders of Perkin-Elmer
Group 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. The 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 the Company and all of
its stockholders as a whole. See "--Potential Conflicting Interests."
TRANSFER OF FUNDS BETWEEN GROUPS; EQUITY CONTRIBUTIONS
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 number of Celera Genomics Designated
Shares; or
- as a sale of assets between Groups.
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See "Proposal 1--The Recapitalization Proposal--Management and Allocation
Policies--Financing Activities."
The 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 the number of Celera Genomics Designated Shares or a sale of
assets. The 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. These determinations will affect the
amount of interest expense we reflect in the separate Group financial
statements. See "--Allocation of Financing Costs."
We will determine the number of Celera Genomics Designated Shares resulting
from an equity contribution by the Perkin-Elmer 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. See "Proposal 1--The Recapitalization Proposal--Management and
Allocation Policies--Financing Activities--Celera Genomics Designated Shares"
and "--Celera Genomics Designated Shares." We could decide to make such a
transfer at a time when the Celera Genomics Stock may be considered to be
overvalued or undervalued.
ALLOCATION OF FINANCING COSTS
We will allocate a portion of our 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. We sometimes refer to this debt as being
"pooled." At September 30, 1998, the total debt of the Perkin-Elmer Group was
$88.4 million and the Celera Genomics Group had no debt. 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,
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 of debt by such Group if such Group
were a stand-alone corporation.
We may also allocate debt and preferred stock in its entirety to a
particular Group in circumstances that the 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.
USE OF TAX BENEFITS GENERATED BY THE CELERA GENOMICS GROUP
The Company's management and allocation policies provide that tax benefits
generated but not used by the Celera Genomics Group may be used by the
Perkin-Elmer Group. The aggregate
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amount reimbursed to the Celera Group from such use may not exceed $ 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 properties and assets of either Group occurs, we
must, subject to certain exceptions:
- distribute through a dividend or redemption 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.
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 "--No Assurances as to Market Price" and
"Proposal 1--The Recapitalization Proposal-- Description of Perkin-Elmer Group
Stock and Celera Genomics Stock--Conversion and Redemption--Mandatory Dividend
on or Redemption or Conversion of Common Stock."
EFFECTS OF OUR CAPITAL STRUCTURE AND VARIABLE VOTE PER SHARE ON POTENTIAL
ACQUISITIONS OF A GROUP OR A CLASS OF COMMON STOCK
If the Perkin-Elmer Group and the Celera Genomics Group were organized as
stand-alone corporations, any person interested in acquiring either of such
corporations without negotiation with management could seek to acquire control
of the outstanding stock of such corporation by means of a tender offer or proxy
contest. In contrast, a person interested in acquiring only one Group without
negotiation with the Company's management would still be required to seek
control of the voting power represented by all of the outstanding capital stock
of the Company, including the class of Common Stock related to the other Group.
A potential acquiror could acquire control of the Company 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 Perkin-Elmer Group Stock will have a substantial
majority of the voting power of the Company. As a result, initially, it might be
possible for an acquiror to obtain control of the Company by purchasing only
shares of Perkin-Elmer Group Stock. See "--Limits on Voting Power" and "Proposal
1--The Recapitalization Proposal--Description of Perkin-Elmer Group Stock and
Celera Genomics Stock--Voting Rights."
DECISIONS THAT AFFECT MARKET VALUES COULD AFFECT STOCKHOLDER RIGHTS
The relative voting power per share of the Perkin-Elmer Group Stock and the
Celera Genomics Stock and the number of shares of
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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
Perkin-Elmer Group 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 the Board of Directors or the Company's 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. See
"Proposal 1-- The Recapitalization Proposal--Management and Allocation
Policies--Financing Activities" and "--Dividend Policy" and "--Description of
Perkin-Elmer Group Stock and Celera Genomics Stock."
NO ASSURANCES AS TO MARKET PRICE OR LIQUIDITY
NO PRIOR MARKET. Because there has been no prior market for the Celera
Genomics Stock or the Perkin-Elmer Group Stock, we can not assure you of their
market prices or liquidity following the implementation of the Recapitalization
Proposal. If an active market does develop, we can not assure you that it will
be maintained. Until an orderly market does develop for the Perkin-Elmer Group
Stock and the Celera Genomics Stock, their respective trading prices may
fluctuate significantly.
MARKET VALUE OF PERKIN-ELMER GROUP STOCK AND CELERA GENOMICS STOCK RECEIVED
IN MERGER 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 Perkin-Elmer Group
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. See "Price Range of and
Dividends on Existing Common Stock."
MANY FACTORS MAY AFFECT MARKET PRICES. The market prices of the Perkin-Elmer
Group Stock and the Celera Genomics Stock will be determined in the trading
markets. Many factors could affect the market price of the Perkin-Elmer Group
Stock or the Celera Genomics Stock. These factors include:
- our consolidated results, as well as the respective performances of the
Perkin-Elmer Group and the Celera Genomics Group;
- investors' and analysts' expectations for the Company as a whole and for
each of the Perkin-Elmer Group and the Celera Genomics Group;
- trading volume, share issuances and repurchases;
- the amount and level of research analyst coverage;
- Board of Directors' and management decisions described under "--Decisions
that Affect Market Values Could Affect Stockholders Rights;"
- certain terms of the Perkin-Elmer Group Stock or the Celera Genomics
Stock, including the respective redemption and conversion rights
applicable upon the Disposition of substantially all the assets of a
Group and our ability to convert shares of one class of Common Stock into
shares of the other class of Common Stock; and
- general economic and market conditions.
The market price of the Celera Genomics Stock may also be affected by the number
of market makers supporting the Celera Genomics Stock.
INVESTORS MAY NOT VALUE COMMON STOCK BASED ON GROUP FINANCIAL INFORMATION
AND POLICIES. We can not assure you that investors will value the Perkin-Elmer
Group Stock and the Celera Genomics Stock based on the reported financial
results and prospects of the separate Groups or the dividend policies
established by the 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
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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 Celera Genomics Stock received by
them in the Recapitalization. Further, we can not assure you that the Perkin-
Elmer Group Stock will continue to be included in any such index. Not being
included in a particular index in the case of the Perkin-Elmer Group Stock or
any index in the case of the Celera Genomics Stock could adversely affect the
market price of that class of Common Stock.
ANTITAKEOVER CONSIDERATIONS
We have adopted a stockholder rights plan pursuant to which each share of
Perkin-Elmer Group and Celera Genomics Stock is accompanied by a right to
purchase shares of a series of junior preferred stock or, in certain
circumstances, Common Stock. These rights will cause a substantial dilution to a
person or group that attempts to acquire us on terms not approved by the Board
of Directors and may 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." The Company could, in the
sole discretion of the Board and without stockholder approval, exercise its
right to convert the shares of one class of Common Stock for 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 the Company.
The 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 the Company by delaying or preventing such change in control.
Although the Board 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 the
Company and could also be privately placed with purchasers favorable to the
Board in opposing such action. In addition, certain provisions of the Delaware
General Corporation 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 or us 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 or cash received in redemption of the rights
issued under our existing shareholder rights plan. However, there are no court
decisions or other authorities bearing directly on the effect of the features of
the Perkin-Elmer Group 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 Perkin-Elmer Group
Stock and the Celera Genomics Stock. It is possible, therefore, that the
Internal Revenue Service could assert that the receipt of the Perkin-Elmer Group
Stock or the Celera Genomics Stock as well as the subsequent exchange of such
Common Stock could be taxable to you and to us. See "Proposal 1--The
Recapitalization Proposal--United States Federal Income Tax Considerations." You
should consult your own tax advisor as to the tax consequences of the
Recapitalization Proposal to you under federal, state, local or foreign law.
FACTORS RELATING TO THE PERKIN-ELMER GROUP
DEPENDENCE ON NEW PRODUCTS AND RAPID TECHNOLOGICAL CHANGE
The Perkin-Elmer Group's products are based on complex technology which is
subject to rapid change as new technologies are developed
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and introduced in the marketplace. The Perkin-Elmer 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. In addition, unanticipated difficulties or
delays in replacing existing products with new products could adversely affect
the Perkin-Elmer Group's future operating results.
SUBSTANTIAL COMPETITION
The Perkin-Elmer Group expects substantial competition in the future in its
existing and planned products and especially in its efforts to develop and
introduce products in new markets. New product announcements, pricing changes,
strategic alliances and other actions by competitors could reduce the
Perkin-Elmer Group's market share or render its products obsolete or
non-competitive.
SALES DEPENDENT ON CUSTOMERS' CAPITAL SPENDING POLICIES
The Perkin-Elmer Group's customers include pharmaceutical, environmental,
research and chemical companies. Any decrease in capital spending or change in
spending policies of these companies could significantly reduce the demand for
its products.
PATENTS, PROPRIETARY TECHNOLOGY AND TRADE SECRETS
The Perkin-Elmer Group's ability to compete may be affected by its ability
to protect proprietary technology and intellectual property rights, and to
obtain necessary licenses on commercially reasonable terms. Changes in the
interpretation of copyright or patent law could expand or reduce the extent to
which the Perkin-Elmer Group and its competitors are able to protect
intellectual property or require changes in the designs of products, which could
have an adverse effect on the Perkin-Elmer Group.
GOVERNMENT SPONSORED RESEARCH DEPENDENT ON FUNDING
A substantial portion of the Perkin-Elmer Group's sales are to universities
or research laboratories whose funding is dependent on both the level and timing
of funding from government sources. The timing and amount of revenues from these
sources may vary significantly due to budgetary pressures, particularly in the
United States and Japan, that may result in reduced allocations to government
agencies that fund research and development activities.
DEPENDENCE ON KEY EMPLOYEES
The Perkin-Elmer Group is highly dependent on the principal members of its
management and scientific staff. The Perkin-Elmer Group believes that its future
success will depend in large part on its ability to attract and retain highly
skilled personnel.
CURRENCY EXCHANGE RISKS; OTHER RISKS OF INTERNATIONAL SALES AND OPERATIONS
The Perkin-Elmer 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 Perkin-Elmer 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.
POTENTIAL DIFFICULTIES IN IMPLEMENTING BUSINESS STRATEGY
The Perkin-Elmer Group's strategy to integrate and develop acquired
businesses or strategic investments involves a number of elements that
management may not be able to implement as expected. For example, it may
encounter operational difficulties in the integration of manufacturing or other
facilities, and it may not achieve advances resulting from the integration of
technologies as successfully or as rapidly as anticipated, if at all.
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YEAR 2000
In fiscal 1997, the Company initiated a world-wide program to assess the
expected impact of the Year 2000 date recognition problem on its existing
computer systems, including embedded and process-control systems, product
offerings and significant suppliers. If the Company is not successful in
implementing its 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 Perkin-Elmer Group's results
of operations and financial condition. In addition, the Company has not fully
determined the likely impact of third parties' compliance efforts on the
Perkin-Elmer Group's interface systems and business.
OTHER RISKS
Other risks and uncertainties that may affect the operations, performance,
development, and results of the business include the impact of earthquakes on
the Perkin-Elmer Group, because a significant portion of its life science
operations are located near major California earthquake faults.
FUTURE PERFORMANCE
Although the Perkin-Elmer Group believes that it has the product offerings
and resources needed for continuing success, it cannot reliably predict future
revenue and margin trends and may have to adjust its operations. Factors
external to the Company can result in volatility of the market price of the
Perkin-Elmer Group Stock. Because of the foregoing factors, you should not
consider recent trends to be reliable indicators of future stock prices or
financial results.
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.
NEED TO MANAGE RAPID GROWTH
The Celera Genomics Group expects to grow significantly, from approximately
90 employees at September 30, 1998 (including 40 employees at GenScope) to over
240 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 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
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sequenced using whole genome shotgun sequencing. Although scientists at The
Institute for Genomic Research ("TIGR") 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 Perkin-Elmer 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 meet 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 Perkin-Elmer Group for several critical materials
required for sequencing. For certain of these materials, the Perkin-Elmer Group
is the sole supplier, and for other materials the Celera Genomics Group believes
that the Perkin-Elmer 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.
UNCERTAINTY OF VALUE OF POLYMORPHISM
DATA
Polymorphism data reveals information about genetic variability between
individuals. Its use in the testing of new drugs and the diagnosis of disease 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 Perkin-Elmer 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.
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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.
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.
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
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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.
YEAR 2000
In fiscal 1997, the Company initiated a world-wide program to assess the
expected impact of the Year 2000 date recognition problem on its existing
computer systems, including embedded and process-control systems, product
offerings and significant suppliers. If the Company is not successful in
implementing its 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, the Company has not
fully determined the likely impact of third parties' compliance efforts on the
Celera Genomics Group's interface systems and business.
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 the Board of Directors for use at the Special
Meeting. The Special Meeting will be held on , 1999, at 10:00 a.m.,
Eastern Standard Time, in our auditorium at 50 Danbury Road, Wilton,
Connecticut. This Proxy Statement is first being mailed to our shareholders on
or about , 1999.
RECORD DATE
We have established , 1998 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.
PROPOSALS TO BE CONSIDERED AT THE MEETING
You will be 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 Perkin-Elmer Corporation/Perkin-Elmer
Group 1999 Stock Incentive Plan to provide for the granting of stock
awards and options in Perkin-Elmer Group Stock.
- Proposal 3: A proposal to adopt The Perkin-Elmer Corporation/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.
We do not expect that any other matter will be brought before the Special
Meeting. If, however, other matters are properly presented, your "proxies" (the
individuals named on your proxy card) will vote in accordance with their
judgment with respect to those matters.
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VOTE REQUIRED
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.
Proposals 2 and 3 will each 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 Proposals.
Each outstanding share of existing common stock is entitled to one vote on
each Proposal. As of , 1999, the most recent practicable date prior to the
date of this Proxy Statement, we had issued and outstanding shares of
existing common stock. The shares of existing common stock held in the Company's
treasury will not be entitled to vote or counted in determining the number of
outstanding shares. Our directors and executive officers beneficially own less
than percent 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.
PROXY VOTES
If you properly fill in your proxy card and send it to us in time to vote,
your proxies will vote your shares as you have directed. If you sign the proxy
card but do not make specific choices, your proxies 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, your proxies 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 the 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 (the
"Recapitalization") under which:
- our existing Company will change its state of incorporation to Delaware
by merging with a subsidiary of Perkin-Elmer Delaware (the "Merger"); and
- each outstanding share of our existing common stock will be automatically
converted in the Merger into one share of Perkin-Elmer Group Stock of
Perkin-Elmer Delaware and .5 of a share of Celera Genomics Stock of
Perkin-Elmer Delaware.
Your vote approving the Recapitalization will also constitute adoption of the
agreement and plan of merger governing the Merger (the "Merger Agreement").
Accordingly, you should carefully read the Merger Agreement, which is attached
to this Proxy Statement as Annex I.
If the Merger is implemented, our existing Company will become a wholly
owned subsidiary of Perkin-Elmer Delaware, which was newly formed by us for the
purpose of implementing the Recapitalization and will initially own no assets
other than our existing Company. In addition, your rights as shareholders of the
Company will cease to be governed by the New York Business Corporation Law (the
"NYBCL") and our existing certificate of incorporation (the "Existing
Certificate of Incorporation") and
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existing by-laws (the "Existing By-laws"). Instead, your rights as stockholders
will be governed by the Delaware General Corporation Law (the "DGCL") and a new
certificate of incorporation of Perkin-Elmer Delaware (the "New Certificate of
Incorporation") which is attached as Annex II and new by-laws of Perkin-Elmer
Delaware (the "New By-laws") which have been filed with the SEC. The New
Certificate of Incorporation also contains the terms of the Perkin-Elmer Group
Stock and the Celera Genomics Stock. Accordingly, you should also carefully read
the New Certificate of Incorporation and the New By-laws.
If the Merger is implemented, each outstanding stock option under the
Company's existing stock option plans will be converted into separately
exercisable options to acquire one share of Perkin-Elmer Group Stock and .5 of a
share of Celera Genomics Stock. The exercise price for the resulting
Perkin-Elmer Group 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 Merger, and the denominator of
which is the sum of such prices for the Perkin-Elmer Group Stock and the Celera
Genomics Stock.
The conversion of our existing common stock into Perkin-Elmer Group Stock
and Celera Genomics Stock is intended to be tax-free, except for cash received
instead of fractional shares of Celera Genomics Stock and in redemption of the
rights issued under our existing shareholder rights plan. See "--United States
Federal Income Tax Considerations."
IF THE RECAPITALIZATION PROPOSAL IS NOT APPROVED, THE MERGER WILL NOT BE
CONSUMMATED AND OUR EXISTING COMMON STOCK WILL NOT BE CONVERTED INTO
PERKIN-ELMER GROUP STOCK AND CELERA GENOMICS STOCK.
If the Recapitalization Proposal is approved, we plan to implement the
Merger by filing a certificate of merger with the Secretary of State of New
York. We refer to the time that the Merger becomes effective as the "Effective
Time." 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 Merger.
The Board of Directors may terminate the Merger Agreement and not implement
the Recapitalization Proposal for any reason at any time prior to the Effective
Time, either before or after shareholder approval. In addition, the Merger
Agreement may be amended prior to the Effective Time. However, the Merger
Agreement may not be amended after the Merger has been approved if, in the
judgment of the Board of Directors, the amendment would have a material adverse
effect on the rights of our shareholders.
RELATED CELERA TRANSACTIONS
In consideration of Dr. Venter's contributions to the formation of Celera
Genomics, the Company will issue to him equity interests equivalent to up to
% of the fully diluted common equity of the Celera Genomics Group at the
Effective Time. The Company has also agreed to issue to TIGR equity interests
equivalent to up to % of the fully diluted common equity of the Celera
Genomics Group at the Effective Time. In addition, employees of the Celera
Genomics Group have been granted and will be granted options and restricted
shares from time to time under The Perkin-Elmer Corporation/Celera Genomics
Group 1999 Stock Incentive Plan equivalent to up to % of the fully diluted
common equity of the Celera Genomics Group at the Effective Time.
BACKGROUND OF AND REASONS FOR THE RECAPITALIZATION PROPOSAL
The Board of Directors approved the Recapitalization Proposal following its
review of various alternatives for enhancing the overall return to our
shareholders, advancing the Company's financial and strategic objectives and
creating flexibility for the future growth of the Company.
The Recapitalization Proposal is designed to separate the performance of our
Celera Genomics business from the rest of the Company and to charge the managers
of each Group with the responsibility of maximizing the returns from their
businesses. Holders of Perkin-Elmer Group Stock are expected to benefit from
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the earnings growth and cash flow provided by our PE Biosystems' life sciences
and Analytical Instruments businesses. 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
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; and
- In May 1998, we signed letters of intent with Dr. Venter and TIGR to form
our Celera Genomics subsidiary with a strategy to complete the sequencing
of the human genome by December 31, 2001, enabling the Company to
potentially become the definitive source for biomedical and genomics
information.
At a meeting held on August 20, 1998, the Board of Directors considered a
variety of proposals to increase the overall value of our existing common stock
to our shareholders. The Board of Directors evaluated alternatives available to
the Company in view of its strategic objective of financing the near-term
business plan of the newly formed Celera Genomics unit. The Board of Directors
expects Celera Genomics to incur significant losses during its start-up period
due to the considerable research and development ("R&D") expenditures required
by the human genome sequencing project. The Board of Directors had extensive
discussions with senior financial and legal officers of the Company. 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 the Company and the spin-off of this
subsidiary to holders of existing common stock ("R&D Spin-off").
The Board of Directors used several criteria to contrast the benefits and
drawbacks of these transaction alternatives to our shareholders including: (1)
tax efficiency; (2) capital markets acceptance; (3) likelihood of success; (4)
flexibility to provide equity incentives for Celera Genomics' employees; (5)
ability of Celera Genomics to raise equity capital in the future; (6)
maintenance of control by the Board of Directors over both Groups; and (7) long-
term maximization of our initial investment in Celera Genomics.
The 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 (such as audit,
legal, public relations and tax, services which could easily be supplied by the
Company). These transactions
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would also limit the Board of Directors' ability to guide the PE Biosystems and
Celera Genomics' relationship and access by PE Biosystems and Celera Genomics to
the technology of the other.
The 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 the Board of
Directors' ability to guide the PE Biosystems and Celera Genomics' relationship
and access by PE Biosystems and Celera Genomics to the technology of the other.
On November 19, 1998, the Board of Directors confirmed its prior conclusions
concerning alternatives available to the Company 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 Perkin-Elmer 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 Perkin-Elmer Group 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
R&D efforts and progress in meeting its business plan. As a result, we
expect that holders of Perkin-Elmer Group 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
the Board of Directors to review technology sharing arrangements between
the Perkin-Elmer 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 Perkin-Elmer 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 Perkin-Elmer Group and the Celera Genomics
Group and to engage in mergers, acquisitions, strategic investments,
capital restructurings and other transactions affecting either the
Perkin-Elmer 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, the 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,
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except for cash received instead of fractional shares of Celera Genomics
Stock and in redemption of the rights issued under our existing
shareholder rights plan. See "--United States Federal Income Tax
Considerations."
The 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 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; see "Risk
Factors--Potential Conflicting Interests" and "--Management and
Allocation Policies;"
- Investors in Perkin-Elmer Group 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 the Company; see "Risk
Factors-- Stockholders of One Company; Financial Effects on One Group
Could Affect the Other" and "--Management and Allocation Policies;"
- The Market Value of Perkin-Elmer Group Stock and Celera Genomics Stock
could be affected by market reaction to decisions by the Board of
Directors or the Company's 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 Perkin-Elmer Group Stock or Celera Genomics Stock.
The 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 the
Company and our shareholders.
RECOMMENDATION OF THE BOARD OF DIRECTORS
The 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 the Company and our shareholders. THE
BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS THAT YOU APPROVE THE RECAPITALIZATION
PROPOSAL.
MANAGEMENT AND ALLOCATION POLICIES
Because the Perkin-Elmer 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 Perkin-Elmer 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.
The 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
Perkin-Elmer 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 Perkin-Elmer Group and the Celera Genomics Group
are made on terms that approximate the terms that could be obtained from
unaffiliated third parties.
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POLICIES SUBJECT TO CHANGE WITHOUT STOCKHOLDER APPROVAL. We have summarized
our management and allocation policies as we expect them to be effective at the
Effective Time of the Recapitalization. We are not requesting shareholder
approval of these policies.
The Board of Directors may modify or rescind these policies, or may adopt
additional policies, in its sole discretion without stockholder approval.
However, the Board of Directors has no present plans to do so. A Board of
Directors' decision to modify or rescind such policies, or adopt additional
policies could have different effects upon holders of Perkin-Elmer Group 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. The 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 the Company and all of its
stockholders as a whole. See "--Potential Conflicting Interests."
FIDUCIARY AND MANAGEMENT RESPONSIBILITIES
Because the Perkin-Elmer Group and the Celera Genomics Group will continue
to be a part of a single company, the Board of Directors and officers will have
the same fiduciary duties to holders of the Perkin-Elmer Group 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 of her fiduciary duties to the
Company and its stockholders if that person is disinterested and acts in
accordance with his or her good faith business judgment in the interests of the
Company and all of its stockholders as a whole. The 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 the Company and all of its
stockholders as a whole.
Because the Recapitalization Proposal will result in no change in our
corporate structure, Tony L. White, the Company's 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 Perkin-Elmer Group and the Celera Genomics Group following the
Recapitalization as he has now. The Company's senior officers named below will
continue to be responsible for the same designated functions as they were prior
to the Recapitalization. The costs attributable to their functions will be
allocated as discussed below under "--Financial Statements; Allocation
Matters--Corporate Overhead and Administrative Shared Services."
<TABLE>
<CAPTION>
OFFICER RESPONSIBILITIES
- ------------------------ ----------------------------
<S> <C>
Tony L. White Chairman, President and
Chief Executive Officer
Noubar B. Afeyan, Ph.D. Senior Vice President and
Chief Business Officer
Manuel A. Baez Senior Vice President and
Senior Vice President of
the Perkin-Elmer Group.
Michael W. Hunkapiller, Senior Vice President and
Ph.D. President of the
Perkin-Elmer 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
</TABLE>
The Chief Executive Officer, with the approval of the Board of Directors,
has designated separate management teams for each of the Perkin-Elmer 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
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responsibility. These individuals are named in Annex V--"Perkin-Elmer
Group--Business" and Annex VI--"Celera Genomics Group-- Business."
COMMON STOCK OWNERSHIP OF DIRECTORS AND SENIOR OFFICERS
The Board of Directors has adopted a policy that its members and senior
officers (the officers with the responsibilities listed above on this page
(other than Dr. Venter)) should continue to hold shares of Perkin-Elmer Group
Stock and Celera Genomics Stock in approximately the ratio of the number of
shares of Perkin-Elmer Group Stock and Celera Genomics Stock outstanding. For
example, if 100 million shares of Perkin-Elmer Group Stock are outstanding and
50 million shares of Celera Genomics Stock are outstanding, each director and
senior officer under this policy would own shares of Perkin-Elmer Group Stock
and Celera Genomics Stock in the ratio of 100/50, or two shares of Perkin-Elmer
Group Stock for each share of Celera Genomics Stock.
The purpose of this policy is to help ensure that directors and senior
officers remain impartial when making decisions concerning the Perkin-Elmer
Group and the Celera Genomics Group. Because of the anticipated differences in
trading values between the Perkin-Elmer Group Stock and the Celera Genomics
Stock, the actual value of the shares of Perkin-Elmer Group Stock and Celera
Genomics Stock held by directors and senior officers will vary significantly.
See "Risk Factors--Fiduciary Duties of the Board of Directors and Officers; No
Definitive Precedent under Delaware Law."
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 the Board of Directors:
- - As a reallocation of pooled debt (as defined below) 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; or
- - As a sale of assets between the two Groups.
The 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. The 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 the Board of Directors. See "--Transfers of Assets
Between Groups."
Although we may allocate the Company's 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. See "Risk Factors-- Factors Relating to Common Stock--
Stockholders of One Company; Financial Effects on One Group Could Affect the
Other."
COMPANY DEBT AND PREFERRED STOCK. We will allocate our debt between the
Groups ("pooled debt") or, if we so determine, in its entirety to a particular
Group. We 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 of
Directors, decrease the transferring Group's allocated portion of the
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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 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 of
the Company 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 the 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, the Board
of Directors will determine the rate of interest for such loan. The 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.
CELERA GENOMICS DESIGNATED SHARES. Cash or other property that we allocate
to the Perkin-Elmer 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 Perkin-Elmer Group will, if so determined by the 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 Perkin-Elmer Group
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 Perkin-Elmer
Group. We will reflect financial effects of dividends or other distributions on,
and purchases of, shares of Perkin-Elmer Group Stock or Celera Genomics Stock
entirely in the respective financial statements of the Perkin-Elmer Group and
the Celera Genomics Group.
COMPETITION BETWEEN GROUPS
Neither the Perkin-Elmer 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 the Company's Chief Executive Officer or, in
appropriate circumstances, the Board of Directors.
The Chief Executive Officer or, in appropriate circumstances, the Board of
Directors will make decisions whether to permit indirect competition between the
Groups. Indirect competition could occur if and when:
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- 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.
See "Risk Factors--Potential Conflicting Interests--Indirect Competition Between
Groups."
The Groups may compete in a business, such as agricultural genomics, so long
as such business 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. The Board of Directors has determined that all such transfers will be
made at fair value, as determined by the 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 the Board of Directors.
The 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 the Board of Directors and (2) pay for
such services at fair value, as determined by the 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 the 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 the
Company and to such exceptions that the 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
The Board of Directors will review any matter which involves the allocation
of a corporate opportunity of the Company to either the Perkin-Elmer Group or
the Celera Genomics Group or in part to the Perkin-Elmer Group and in part to
the Celera Genomics Group. In accordance with Delaware law, the 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 the Company and all of its
stockholders as a whole. Among the factors that the Board of Directors may
consider in making this allocation is whether a particular corporate opportunity
is principally related to the business of the Perkin-Elmer 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 Perkin-Elmer 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 Perkin-Elmer Group
and the Celera Genomics Group
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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 Perkin-Elmer Group Stock and Celera
Genomics Stock 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.
See Annex V--"Perkin-Elmer Group--Combined Financial Statements," Annex
VI--"Celera Genomics Group-- Combined Financial Statements" and "Risk
Factors--Stockholders of One Company; Financial Effects on One Group Could
Affect the Other."
In addition to allocating debt and interest as described above under
"--Financing Activities" and assets as described above under "Transfers of
Assets Between Groups," the Board of Directors has adopted the following
allocation policies, each of which is reflected in the combined financial
statements of the respective Groups:
- CORPORATE OVERHEAD AND ADMINISTRATIVE SHARED SERVICES. We will allocate a
portion of our corporate overhead (such as executive management, human
resources, legal, accounting and auditing, tax, treasury, strategic
planning and environmental services) to the Perkin-Elmer Group and the
Celera Genomics Group based upon the use of services by that Group. We
will allocate a portion of our costs of administrative shared services
(such as information technology services) in a similar manner. 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 the Company and its
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
(positive or negative) to the Company'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
taxed as if each Group was a stand alone company. Tax benefits generated
by the Celera Genomics Group, which can then be utilized on a
consolidated basis, will be credited to the Celera Genomics Group up to a
maximum amount of $ 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 three-month periods ended September 30, 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
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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.
------------------------
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 Perkin-Elmer Group Stock.
We do not anticipate paying dividends on the Celera Genomics Stock for the
foreseeable future. Under the Recapitalization Proposal and Delaware law, the
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
Perkin-Elmer Group Stock.
In making its dividend decisions regarding the Perkin-Elmer Group Stock and
the Celera Genomics Stock, the Board of Directors will rely on the respective
financial statements of the Perkin-Elmer Group and the Celera Genomics Group.
See Annex V for the historical financial statements of the Perkin-Elmer Group
and Annex VI for the historical financial statements of the Celera Genomics
Group. The method of calculating net income (loss) per share for the
Perkin-Elmer Group Stock and the Celera Genomics Stock will reflect The
Perkin-Elmer Corporation Earnings (Loss) Attributable to the Perkin-Elmer Group
and The Perkin-Elmer Corporation Earnings (Loss) Attributable to the Celera
Genomics Group, as defined in the New Certificate of Incorporation in Annex II.
The 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 the Company as a whole. Future
dividends on the Perkin-Elmer Group Stock and Celera Genomics Stock will be
payable when, as and if declared by the Board of Directors out of the lesser of
(1) all funds of the Company legally available therefor and (2) the Available
Dividend Amount with respect to the relevant Group. See "--Description of
Perkin-Elmer Group Stock and Celera Genomics Stock--Dividends."
INCREASE IN AUTHORIZED COMMON STOCK
The Existing Certificate of Incorporation currently authorizes the issuance
of 180,000,000 shares of existing common stock. In comparison, the New
Certificate of Incorporation will authorize the issuance of 500,000,000 shares
of Perkin-Elmer Group Stock and 225,000,000 shares of Celera Genomics Stock. In
the aggregate, we will increase the number of shares of common stock authorized
by 545,000,000 pursuant to the Recapitalization.
The increase in authorized shares is necessary in order to implement the
various aspects of the Recapitalization Proposal. The authorization of at least
49,803,911 shares of Perkin-Elmer Group Stock and at least 24,901,956 shares of
Celera Genomics Stock is needed for the Recapitalization to occur. Further, as
described under "--Description of Perkin-Elmer Group Stock and Celera Genomics
Stock--Conversion and Redemption," the Board of Directors has the right to
convert one class of Common Stock into the other at a 10% premium. The number of
shares of Common Stock 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.
The Board of Directors may also pay a stock dividend in one class of Common
Stock on that class of Common Stock. If the Perkin-Elmer Group is entitled to
Celera Genomics Designated Shares, the Board of Directors may also declare a
share dividend in shares of Celera Genomics Stock on the Perkin-Elmer Group
Stock. If the Board of Directors determines that a conversion or a stock
dividend is in the best interests of the Company, but at that time sufficient
authorized shares of Common Stock are not available, the Company's stockholders
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would be required to approve an amendment to the New Certificate of
Incorporation.
The 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 the Company 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, we have
no present understanding or agreement for the issuance of any additional shares
of Perkin-Elmer Group Stock or Celera Genomics Stock. Although the 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 the Company
more difficult and, therefore, less likely, even though a takeover might be
financially beneficial to the Company and its 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
the Company or to make a takeover proposal.
We may issue the authorized but unissued shares of Perkin-Elmer Group 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 shares of Perkin-Elmer Group Stock
or Celera Genomics Stock unless the Board of Directors believes that approval is
advisable or is required by stock exchange regulations or Delaware law. See
"--Description of Perkin-Elmer Group Stock and Celera Genomics Stock--Voting
Rights."
STOCK EXCHANGE LISTINGS
We will list the Perkin-Elmer Group Stock on the New York Stock Exchange and
the Pacific Stock Exchange under the symbol "PKN." We will list the Celera
Genomics Stock on The Nasdaq Stock Market--National Market System under the
symbol "CLRA." Because there has been no prior market for the Perkin-Elmer Group
Stock or the Celera Genomics Stock, we cannot assure you of their market prices
or liquidity following the implementation of the Recapitalization Proposal. See
"Risk Factors-- No Assurances as to Market Price."
EXCHANGE PROCEDURES
Upon consummation of the Merger, your stock certificates for our existing
common stock will represent shares of Perkin-Elmer Group Stock. Shortly after
the Merger, 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 certificates
representing your Perkin-Elmer Group Stock.
STOCK TRANSFER AGENT AND REGISTRAR
Our existing transfer agent, BankBoston, N.A. will act as the registrar and
transfer agent for both the Perkin-Elmer Group Stock and the Celera Genomics
Stock.
DESCRIPTION OF PERKIN-ELMER GROUP STOCK AND CELERA GENOMICS STOCK
We have summarized below the terms of the Perkin-Elmer Group 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. The Board of Directors may issue shares of Preferred Stock in series,
without shareholder approval. As of November 10, 1998, 49,803,911 shares of
existing common stock and no shares of Preferred Stock were issued and
outstanding.
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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 The Perkin-Elmer Corporation--Perkin-Elmer Group Common Stock (the
"Perkin-Elmer Group Stock"), 225,000,000 shares of a class of common stock,
designated as The Perkin-Elmer Corporation-- Celera Genomics Group Common Stock
(the "Celera Genomics Stock"), and 10,000,000 shares of preferred stock (the
"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. We refer to the Perkin-Elmer Group Stock and the Celera
Genomics Stock in this Proxy Statement as the "Common Stock."
As a result of the Recapitalization, assuming the number of shares of
existing common stock outstanding at the Effective Time is the same as the
number outstanding on November 10, 1998, 49,803,911 shares of Perkin-Elmer Group
Stock and 24,901,956 shares of the Celera Genomics Stock will be issued and
outstanding, and shares of Series A Participating Junior Preferred Stock
and shares of Series B Participating Junior Preferred Stock will be
authorized for issuance. See "--Rights Agreement."
DIVIDENDS
Dividends on the Perkin-Elmer Group 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 legally available assets
of the Company under New York law and subject to the prior payment of dividends
on any outstanding shares of preferred stock. See "-- Comparison of Shareholders
Rights-- Dividends."
Dividends on the Perkin-Elmer Group Stock will be also limited to an amount
not greater than the Perkin-Elmer Group Available Dividend Amount. Similarly,
dividends on the Celera Genomics Stock will be limited to an amount not greater
than the Celera Genomics Group Available Dividend Amount. 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.
The "Available Dividend Amount" for the Perkin-Elmer Group or the Celera
Genomics Group, as the case may be, on any date, means either:
(A)(1) an amount equal to the fair market value of the total assets
attributed to that Group less the total liabilities attributed to that
Group (except that preferred stock is not treated as a liability), in
each case, as of such date and determined on a basis consistent with
that applied in determining the Earnings (Loss) Attributable to that
Group, minus
(2) 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 the class of Common Stock relating to that Group
and each class or series of preferred stock attributed to that Group, or
(B) if the amount calculated under clause (A) above is not a positive
number, an amount equal to the Earnings (Loss) Attributable to that Group
(if that amount is a positive number) for the fiscal year in which the
dividend is declared and/or the preceding fiscal year.
"Earnings (Loss) Attributable" means, for any period through any date for
the Perkin-Elmer Group or the Celera Genomics Group, as the case may be,
(A) the net income or loss of that Group for such period determined in
accordance with generally accepted accounting principles in effect at such
time, reflecting our income and expense attributed to that Group on a basis
substantially consistent with attributions of income and expense made in the
calculation of the Earnings (Loss) Attributable to the other Group,
including, without limitation,
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corporate administrative costs, net interest and other financial costs and
income taxes, minus (for the Celera Genomics Group) or plus (for the
Perkin-Elmer Group)
(B) 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 Company on a consolidated basis for such period to the
extent such amount was included in the calculation of net income or loss
under clause (A) for such period ("Excludable Celera Tax Benefits")
(provided that the amount referred to in clause (A) will be taken into
account only to the extent the cumulative amount of Excludable Celera Tax
Benefits from July 1, 1998 exceeds $ million).
Delaware law limits the amount of distributions on capital stock to our
legally available funds, which are determined on the basis of the 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 Perkin-Elmer Group Stock, Celera Genomics Stock or any
preferred stock and any repurchases of Perkin-Elmer Group Stock, Celera Genomics
Stock or certain preferred stock. Dividend payments on the Perkin-Elmer Group
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, the Board of Directors will
be able, in its sole discretion, to declare and pay dividends exclusively on the
Perkin-Elmer Group Stock, exclusively on the Celera Genomics Stock or on both,
in equal or unequal amounts. In making its dividend decisions, the 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 Perkin-Elmer Group Stock and the Celera Genomics Stock as described below.
For the definitions of "Convertible Securities," "Fair Value," "Market
Value," "Market Value Ratio of the Perkin-Elmer Group Stock to the Celera
Genomics Stock," "Market Value Ratio of the Celera Genomics Stock to the
Perkin-Elmer Group Stock" and "Trading Day" used below, see the New Certificate
of Incorporation in Annex II.
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 (other than Common Stock) 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 as
of the consummation date of the Disposition equal to the Fair Value of
the Net Proceeds of the Disposition as of the consummation date; or
- (A) if the Disposition involves all (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 (other than
Common Stock) or other property having a Fair Value as of the
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consummation date equal to the Fair Value of the Net Proceeds of the
Disposition as of the consummation date; 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 Fair Value of the Net Proceeds of the Disposition as of
the consummation date; and the redemption price will be cash and/or
securities (other than Common Stock) or other property having a Fair
Value equal to such Fair Value of the 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; such ratio will be rounded to the nearest
five decimal places; if the Common Stock relating to the other Group is
not publicly traded and shares of another class or series of our common
stock are publicly traded, each share of Common Stock relating to the
Group subject to the Disposition will be converted on the same basis into
such other common stock as has the largest market capitalization as of
the close of business on the fifth Trading Day immediately preceding the
date we mail the conversion notice to holders.
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 Group.
We are required to pay such dividend or complete such redemption or conversion
on or prior to the 95th Trading Day following the consummation date of 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 for the
immediately preceding twelve fiscal quarterly periods of the Company
derived from the properties and assets of that Group.
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 the 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 (contingent or otherwise) of or attributed to the Group
subject to the Disposition, including, without limitation, any
liabilities for deferred taxes, any indemnity or guarantee obligations of
the Company 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.
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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 (other than Common
Stock) or other property that the 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.
We have provided illustrations of the calculations related to the mandatory
dividend, redemption or conversion of Common Stock if a Disposition of all or
substantially all the properties and assets of the Perkin-Elmer Group or the
Celera Genomics Group occurs in Annex III--"Illustrations of Certain Provisions
of the New Certificate of Incorporation."
EXCEPTIONS TO THE DIVIDEND, REDEMPTION OR CONVERSION REQUIREMENT IF A
DISPOSITION OCCURS. We are not required to take any of the above actions 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;
- made to any person or entity controlled by us, as determined by the Board
of Directors; or
- in connection with a Related Business Transaction.
A "Related Business Transaction" means 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 (including 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:
- 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
- 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 the Board of Directors.
The purpose of the Related Business Transaction 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.
CONVERSION OF COMMON STOCK AT OPTION OF THE COMPANY AT ANY TIME. The Board
of Directors may at any time convert each share of Perkin-Elmer Group Stock into
a number of shares of Celera Genomics Stock equal to 110% of the Market Value
Ratio of the Perkin-Elmer Group Stock to the Celera Genomics Stock. We will
calculate the Market Value Ratio of the Perkin-Elmer Group Stock to the Celera
Genomics Stock as of the fifth Trading Day prior to the date we mail the
conversion notice to holders. If Celera Genomics Stock is not publicly traded
and shares of another class or series of our common stock are publicly traded,
each share of Perkin-Elmer Group Stock will be converted on the same basis into
such other class or series of common stock as has the
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largest market capitalization as of the close of business on the fifth Trading
Day immediately preceding the date on which we mail the conversion notice to
holders.
The Board of Directors may at any time convert each share of Celera Genomics
Stock into a number of shares of Perkin-Elmer Group Stock equal to 110% of the
Market Value Ratio of the Celera Genomics Stock to the Perkin-Elmer Group Stock.
We will calculate the Market Value Ratio of the Celera Genomics Stock to the
Perkin-Elmer Group Stock as of the fifth Trading Day prior to the date we mail
the conversion notice to holders. If Perkin-Elmer Group Stock is not publicly
traded and shares of another class or series of common stock of the Company are
publicly traded, each share of Celera Genomics Stock will be converted on the
same basis into shares of such other class or series of common stock of the
Company as has the largest market capitalization as of the close of business on
the fifth Trading Day immediately preceding the date on which we mail the
conversion notice to holders.
These provisions allow us the flexibility to recapitalize the Common Stock
into one class of common stock that would, after such recapitalization,
represent an equity interest in all of the Company's businesses. The optional
conversion or redemption could be exercised at any future time if the 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--Fiduciary Duties of the Board of Directors;
No Definitive Precedent under Delaware Law" and "--Potential Conflicting
Interests."
Many factors could affect the Market Value of the Perkin-Elmer Group Stock
or the Celera Genomics Stock, including the results of operations of the Company
and each of the Groups, trading volume and general economic and market
conditions. Market Value could also be affected by decisions by the Board of
Directors or the Company's 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.
We have provided an illustration of the conversion of shares of one class of
Common Stock converted into shares of another class of Common Stock in Annex
III--"Illustrations of Certain Provisions of the New Certificate of
Incorporation."
REDEMPTION IN EXCHANGE FOR STOCK OF SUBSIDIARY. The Board of Directors may
redeem all of the outstanding shares of Perkin-Elmer Group Stock for shares of
the common stock of one or more of our wholly-owned subsidiaries which own,
directly or indirectly, all of the assets and liabilities attributed to the
Perkin-Elmer Group (and no other assets or liabilities of the Company or any of
its subsidiaries) (the "Perkin-Elmer Group Subsidiaries"), on a pro rata basis.
If at the time of any such redemption, the Perkin-Elmer 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 Perkin-Elmer Group
Stock or (2) one or more of the Perkin-Elmer Group Subsidiaries.
The Board of Directors may redeem all of the outstanding shares of Celera
Genomics Stock for a number of shares of common stock of one or more of our
wholly-owned subsidiaries which own, directly or indirectly, all of the assets
and liabilities attributed to the Celera Genomics Group (and no other assets or
liabilities of the Company or any of its subsidiaries) (the "Celera Genomics
Group Subsidiaries"), on a pro rata basis.
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We may redeem shares of Perkin-Elmer Group Stock for stock of the
Perkin-Elmer Group Subsidiaries or Celera Genomics Stock for stock of the Celera
Genomics Group Subsidiaries 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 the 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
Perkin-Elmer Group Stock and the Celera Genomics Stock is no longer in the best
interests of all of our stockholders as a whole.
GENERAL DIVIDEND, CONVERSION AND REDEMPTION PROVISIONS. NOTICES IF
DISPOSITION OF GROUP ASSETS OCCURS. Not later than the 20th Trading Day after
the consummation of a Disposition referred to above under "-- Mandatory
Dividend, Redemption or Conversion of Common Stock," 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 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 another class of our 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 a Disposition the following
additional notices, plus the other information required by the New Certificate
of Incorporation, at the times indicated below.
- if we decide to pay a dividend, notice of the dividend record and payment
dates and the type of property to be paid, not later than the 40th
Trading Day following the consummation date of the Disposition;
- if we decide to redeem shares of Common Stock and are required to redeem
all of such shares, the redemption date and the type of property to be
paid, not later than the 35th Trading Day and not earlier than the 45th
Trading Day prior to the redemption date;
- if we decide to redeem shares of Common Stock and the Disposition
involves a sale of substantially all (but not all) of the assets of the
Group, the redemption record date, anticipated redemption date and the
type of property to be paid, not earlier than the 40th Trading Day
following the consummation date; we are required to give a second notice
of the redemption date and the shares to be redeemed promptly after the
redemption record date; and
- if we decide to convert one class of Common Stock into another class or
series of common stock, the conversion date and the per share number of
shares of Common Stock to be received for each share converted, not
earlier than the 35th Trading Day and not later than the 45th Trading Day
prior to the conversion date.
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NOTICES FOR OPTIONAL CONVERSION AT ANY TIME AND REDEMPTION IN EXCHANGE FOR
STOCK OF SUBSIDIARY. If we decide to convert common stock into another class of
Common Stock under our option to do so at any time, or if we decide to redeem
shares of one class of Common Stock for shares of the Perkin-Elmer Group
Subsidiaries or Celera Genomics Group Subsidiaries, we are required to give
notice of the conversion or redemption date and the per share number of shares
to be received upon such conversion or redemption, not earlier than the 35th
Trading Day and not later than the 45th Trading Day prior to the conversion or
redemption date.
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 the Board of Directors to be
equitable.
FRACTIONAL INTERESTS. We will not be required to issue or deliver
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 or
distributed to a holder, we will pay a cash adjustment for such fraction equal
to the Fair Value of such fraction.
LIMITED ADJUSTMENTS FOR DIVIDENDS. We will not make any adjustments for
dividends upon the conversion or redemption of any shares of Common Stock,
unless we convert or redeem after the record date for determining holders of
such Common Stock entitled to any dividend or distribution thereon.
SURRENDER AND DELIVERY OF CERTIFICATES. Before any holder of Common Stock
will be entitled to receive certificates representing shares of any capital
stock, cash and/or other securities or property to be distributed with respect
to any conversion or redemption of shares of such Common Stock, the holder must
surrender certificates for shares of such Common Stock, properly endorsed or
assigned for transfer (unless we waive such requirement). After we receive the
certificates, we will deliver to the person for whose account such shares were
so surrendered, or to such person's nominee or nominees, certificates
representing the number of whole shares of the kind of capital stock, cash
and/or other securities or property to which such person is entitled, together
with any fractional payment referred to above. In each case we will not pay
interest.
After any conversion or redemption of shares of either class of Common
Stock, all rights of a holder of shares of such Common Stock will cease, except
for the right, upon surrender of the certificates for such shares, to receive
the cash and/or the certificates 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 fractional payment or rights to
dividends.
No holder of a certificate that immediately prior to the conversion or
redemption of Common Stock represented shares of such Common Stock will be
entitled to receive any dividend or other distribution or interest payment with
respect to shares of any kind of capital stock into or in exchange for which
shares of such Common Stock were converted or redeemed until surrender of such
holder's certificate. Upon such surrender, we will pay to the holder the amount
of any dividends or other distributions which have become payable with respect
to a record date occurring after the conversion.
After a conversion, we will treat the certificates for Common Stock that
have not yet been surrendered for conversion as evidencing the ownership of the
number of whole shares of the kind of capital stock for which the shares of such
Common Stock represented by such certificates should have been converted, even
though such certificates have not been surrendered.
TAXES. 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 of
either
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class of Common Stock. We will not, however, be required to pay any tax that may
be payable in respect of any transfer involved in the issue or delivery of any
shares of capital stock and/or other securities in a name other than that in
which the shares of such Common Stock so converted or redeemed were registered.
No such issue or delivery will be made unless the person requesting such issue
has paid to us the amount of any such tax, or has established to our
satisfaction that such tax has been paid.
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 the
stockholders of the Company will be vested in the holders of Common Stock, who
will be entitled to vote on any matter on which the holders of stock of the
Company are, by law or by the provisions of the New Certificate of Incorporation
or New By-laws of the Corporation, entitled to vote, except as otherwise
provided by law, by the terms of any outstanding class or series of preferred
stock of the Company or by any provision of the New Certificate of Incorporation
restricting 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 Perkin-Elmer Group Stock will have one vote; and
- each share of Celera Genomics Stock will 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 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 Perkin-Elmer Group Stock over the 20-Trading Day period ending
on such 10th Trading Day.
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.
We have provided an illustration of the per share voting rights of the
Celera Genomics Stock in Annex III--"Illustrations of Certain Provisions of the
New Certificate of Incorporation."
We expect that upon completion of the Recapitalization, the Perkin-Elmer
Group Stock will have a substantial majority of the voting power of the Company
because we expect that the aggregate market value of the outstanding shares of
Perkin-Elmer Group 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 Perkin-Elmer Group
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 Perkin-Elmer Group
Stock and the Celera Genomics Stock.
The relative per share voting rights of the Perkin-Elmer Group Stock and the
Celera Genomics Stock will fluctuate as described above depending on changes in
the relative Market Values of shares of such classes of Common Stock. The
provision providing for a variable vote per share of Celera Genomics Stock is
disadvantageous to the holders of Perkin-Elmer Group Stock or Celera Genomics
Stock to the extent that the Market Value of such class of Common Stock
decreases relative to the other, and is advantageous to the holders of Perkin-
Elmer Group Stock or Celera Genomics Stock
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to the extent the Market Value of such class of Common Stock increases relative
to the other.
Fluctuations in the relative voting rights of the Perkin-Elmer Group Stock
and the Celera Genomics Stock could influence an investor interested in
acquiring and maintaining a fixed percentage of the voting power of the Company
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 Perkin-Elmer Group Stock and Celera Genomics Stock will not
have any rights to vote separately as a class on any matter coming before
stockholders of the Company, 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
Perkin-Elmer Group 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 Perkin-Elmer Group 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. As a result, because most matters brought
to a stockholder vote would only require the approval of a majority of the
voting power of the Perkin-Elmer Group Stock and Celera Genomics Stock, voting
together as a single class, if the holders of either class of Common Stock would
have more than the number of votes required to approve any such matter, the
holders of that class would be in a position to control the outcome of the vote
on such matter. See "Risk Factors--Limited Separate Stockholder Voting Rights"
and "--Limits on Voting Power."
LIQUIDATION
Currently, in the event of a liquidation, dissolution or termination of the
Company, after payment, or provision for payment, of the debts and other
liabilities of the Company and the payment of full preferential amounts
(including any accumulated and unpaid dividends) to which the holders of any
Preferred Stock are entitled, holders of existing common stock are entitled to
share equally in the remaining net assets of the Company.
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 (including any accumulated
and unpaid dividends) to which holders of any series of preferred stock are
entitled (regardless of the Group to which such shares of preferred stock were
attributed), the holders of Perkin-Elmer Group 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 ("Liquidation Units").
Each share of Perkin-Elmer Group Stock will have one Liquidation Unit. Each
share of Celera Genomics Stock will have a number of Liquidation Units
(including a fraction of one unit) equal to the number of Liquidation Units
equal to the quotient (rounded to the nearest five decimal places) 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 Perkin-Elmer
Group Stock over the 20-Trading Day period ending on such 40th Trading Day.
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
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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 our complete liquidation is a remote
contingency and believe that, in general, these liquidation provisions are
immaterial to trading in the Perkin-Elmer Group Stock and the Celera Genomics
Stock.
No holder of Perkin-Elmer Group Stock will have any special right to receive
specific assets of the Perkin-Elmer 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 a dissolution, liquidation or winding up of the Company.
If the Company subdivides (by stock split, reclassification or otherwise) or
combines (by reverse stock split, reclassification or otherwise) the outstanding
shares of either class of Common Stock or declares 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 the 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 the Company into or with any other
corporation, nor any sale, transfer or lease of all or any part of the assets of
the Company, will, alone, be deemed a liquidation or winding up of the Company,
or cause the dissolution of the Company, for purposes of these liquidation
provisions.
DETERMINATIONS BY THE BOARD OF DIRECTORS
Any determinations made in good faith by the Board of Directors under any
provision described under "Description of Perkin-Elmer Group 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 stockholders of the Company, subject to the rights of stockholders under
applicable Delaware law and under the federal securities laws.
PREEMPTIVE RIGHTS
Neither the holders of the Perkin-Elmer Group 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 the Company.
CELERA GENOMICS DESIGNATED SHARES
"Celera Genomics Designated Shares" are authorized shares of Celera Genomics
Stock that are not issued and outstanding, but which the Board of Directors,
pursuant to the Company's 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 shares of Celera Genomics Stock that are issuable
with respect to the Celera Genomics Designated Shares are not outstanding shares
of Celera Genomics Stock, are not eligible to receive dividends and can not be
voted by the Company.
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
Perkin-Elmer 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 Perkin-Elmer Group to reduce
the number of Celera Genomics Designated Shares by (2) the average Market
Value of Celera Genomics Stock over the 20-Trading
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Day period immediately prior to the date of transfer;
- decreased by the number of shares of Celera Genomics Stock issued by the
Company, the proceeds of which have been allocated to the Perkin-Elmer
Group, or issued as a dividend or distribution or by reclassification,
exchange or otherwise to holders of Perkin-Elmer Group Stock; and
- adjusted as appropriate to reflect subdivisions (by stock split or
otherwise) and combinations (by reverse stock split or otherwise) 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 "Original
Rights") to all holders of our existing common stock under a Rights Agreement
dated as of April 30, 1989 between the Company and The First National Bank of
Boston, as Rights Agent (the "Original Rights Agreement"). Each Original Right
entitles the holder to purchase shares of participating preferred stock under
conditions described in the Original Rights Agreement. The Original Rights
expire on April 30, 1999.
If the Recapitalization Proposal is approved by shareholders and implemented
by the Board of Directors, we will redeem the Original Rights at a redemption
price of $.01 per Original Right. In addition, the Board of Directors will adopt
a new rights agreement, substantially similar to the Original Rights Agreement
(the "New Rights Agreement"), containing 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.
As of the Effective Time, the Board of Directors will designate:
- a new series of Preferred Stock as the Series A Participating Junior
Preferred Stock; and
- another new series of Preferred Stock as the Series B Participating
Junior Preferred Stock.
In addition, the Board of Directors has determined to:
- issue one right for each share of Perkin-Elmer Group Stock (a
"Perkin-Elmer Right"), which will allow holders to purchase shares of
Series A Participating Junior Preferred Stock under the conditions
specified in the New Rights Agreement; and
- 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 the conditions specified in
the New Rights Agreement.
We refer to the Perkin-Elmer Rights and the Celera Genomics Rights as the
"Rights" in this document.
The New Rights Agreement will provide that each Perkin-Elmer Right and each
Celera Genomics Right will be evidenced only by the certificates representing
shares of Perkin-Elmer Group Stock and Celera Genomics Stock then outstanding
prior to the earlier of:
- the tenth day (the "Stock Acquisition Date") after a public announcement
that a person or group of affiliated or associated persons (other than
the Company, any of our subsidiaries or any of our employee benefit plans
or those of our subsidiaries) (an "Acquiring Person") has acquired,
obtained the right to acquire, or otherwise obtained beneficial ownership
of 15% or more of the total voting rights of the then outstanding shares
of Common Stock; or
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- the tenth business day (or such later day the Board of Directors
determines) following the commencement of a tender or exchange offer that
would result in such person or group beneficially owning 15% or more of
the total voting rights of the then outstanding shares of Common Stock.
We refer to the earlier of these dates as the "Distribution Date." No separate
rights certificates will be distributed. Until the Distribution Date, the
Perkin-Elmer Rights will be transferred only with the Perkin-Elmer Group Stock,
and the Celera Genomics Rights will be transferred only with the Celera Genomics
Stock. The total voting rights of the Common Stock will be determined based on
the combined voting rights of holders of outstanding shares of Celera Genomics
Stock and Perkin-Elmer Group Stock in effect at the time of any determination of
beneficial ownership of any person. See "-- Description of Perkin-Elmer Group
Stock and Celera Genomics Stock--Voting Rights."
At close of business on the Distribution Date, the Rights will become
exercisable as described below. The Rights will expire on the tenth anniversary
of the adoption of the New Rights Agreement (the "Expiration Date"), unless we
extend or terminate them as described below. The Original Rights would have
expired on April 30, 1999.
Following the Distribution Date, registered holders of Rights will be
entitled to purchase from the Company:
- in the case of a Perkin-Elmer Right, one one-thousandth (1/1000th) of a
share of Series A Participating Junior Preferred Stock at a purchase
price to be determined by the Board of Directors based upon the Company's
judgment of the long-term value of a share of Perkin-Elmer Group Stock,
subject to adjustment (the "Series A Purchase Price"); and
- 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 to be determined by the Board of Directors based upon the Company's
judgment of the long-term value of a share of Celera Genomics Stock,
subject to adjustment (the "Series B Purchase Price").
An Original Right entitled the holder to purchase one one-thousandth (1/1000th)
of a share of participating preferred stock at a purchase price of $90 under the
conditions described in the Original Rights Agreement. In adopting the New
Rights Agreement, the Board of Directors determined that the purchase price
related to an Original Right would not represent the long term value of a share
of Perkin-Elmer Group Stock or Celera Genomics Stock.
If any person or group becomes an Acquiring Person, action will be taken so
that each holder of a Right, other than Rights beneficially owned by any
Acquiring Person (which will become void), will thereafter:
- in the case of a Perkin-Elmer Right, entitle its holder to purchase, at
the Series A Purchase Price, a number of shares of Perkin-Elmer Group
Stock with a market value equal to twice the Series A Purchase Price; and
- in the case of a Celera Genomics Right, 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.
If, following the Stock Acquisition Date:
- the Company is acquired in a merger or other business combination
transaction and the Company is not the surviving corporation;
- any person consolidates or merges with the Company 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 the Company's assets or earnings power is sold or
transferred,
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each Perkin-Elmer 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.
At any time until the earlier of (1) the Stock Acquisition Date or (2) the
Expiration Date, the Board of Directors may redeem all of the Rights at a price
of $.01 per Right (the "Redemption Price"). 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 the Redemption Price.
A holder of a Right will not have any rights as a stockholder of the
Company, 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 Distribution Date, we may, without the approval of any holders of Rights,
supplement or amend the New Rights Agreement (1) to cure any ambiguity, (2) to
correct or supplement any provision that may be defective or inconsistent, or
(3) 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 total voting rights of the then
outstanding shares of Common Stock and does not have any intention of changing
or influencing the control of the Company 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 or by the
variable nature of the voting rights of the Celera Genomics Stock, each of which
could raise the proportion of shares held by a person to over 15% or more of the
total voting rights of the then outstanding shares of Common Stock. However, any
person who becomes the beneficial owner of 15% or more of the total voting
rights of the then outstanding shares of Common Stock, as a result of stock
repurchases by the Company or because of the variable nature of the voting
rights of the Celera Genomics Stock, will trigger the Rights if such person
subsequently acquires any additional shares of Common Stock.
We have summarized above the Perkin-Elmer Rights and the Celera Genomics
Rights. The summary is not complete. We have filed a copy of the form of the New
Rights Agreement (which includes as exhibits the forms of Rights Certificate for
the Perkin-Elmer Rights and for the Celera Genomics Rights) 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
At the Effective time, your rights as shareholders of the Company will cease
to be governed by the NYBCL and the Existing Certificate of Incorporation and
the Existing By-laws. Instead, your rights as stockholders will be governed by
the DGCL and the New Certificate of Incorporation and the New By-laws.
The following discussion summarizes the material differences between your
rights as a shareholder of the Company as a New York corporation and your rights
as a stockholder of the Company as a Delaware corporation. Because this is only
a summary, you should carefully read the Existing Certificate of Incorporation
and the Existing By-laws, the New Certificate of Incorporation and the New
By-laws as well as the relevant provisions of the NYBCL and the DGCL. Except as
described
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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 Perkin-Elmer Group Stock and Celera Genomics
Stock, you should read "--Description of Perkin-Elmer Group Stock and Celera
Genomics Stock."
AMENDMENTS TO CERTIFICATE OF INCORPORATION
Under the NYBCL and the DGCL, the 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 the NYBCL, 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 the DGCL, amendments which make changes regarding the capital
stock by increasing or decreasing the par value or the number of authorized
shares of a class, 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.
As permitted under the DGCL, the New Certificate of Incorporation will
provide that an amendment that increases or decreases the number of authorized
shares of Perkin-Elmer Group Stock or Celera Genomics Stock will only require
the approval of the holders of shares having a majority of the votes 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.
AMENDMENTS TO BY-LAWS
Under the NYBCL 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 the Board of Directors can
amend or repeal our by-laws. Under the DGCL, 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 the Board of Directors can amend or repeal our
by-laws.
VOTE REQUIRED FOR MERGER AND CERTAIN OTHER TRANSACTIONS
Under the NYBCL, the 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 the DGCL, the Board of Directors must approve an agreement of merger
or a sale, lease or exchange of all or substantially all of the Company's
assets. The holders of a majority of the outstanding shares entitled to vote
must then adopt that Board of Directors action. The DGCL does not have a share
exchange provision.
SHAREHOLDER APPROVAL OF STOCK PLANS
Under the NYBCL, 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.
The DGCL 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 the 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.
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The New Certificate of Incorporation provides that the number of directors will
be fixed by resolution of the Board of Directors.
REMOVAL OF DIRECTORS
The NYBCL provides that any director may be removed for cause by a vote of
the shareholders entitled to vote. The NYBCL 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 the Board of Directors. In addition, under the NYBCL 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 the DGCL 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 the NYBCL and the Existing By-laws, a majority of the directors then
in office, even if less than a quorum, may fill vacancies in the 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 the DGCL 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 the NYBCL and the Existing Certificate of Incorporation, as well as
the DGCL and the New Certificate of Incorporation, stockholders will not have
cumulative voting in electing directors.
LIMITATION ON DIRECTOR'S LIABILITY
As permitted by both the NYBCL and the DGCL, both the Existing Certificate
of Incorporation and the New Certificate of Incorporation eliminate or limit the
personal liability of a director to the Company or its 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 the Company or its stockholders, for acts or omissions not in good
faith (Delaware) or in bad faith (New York) 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 the
DGCL relating to unlawful payment of dividends or unlawful stock purchase or
redemption.
INDEMNIFICATION OF DIRECTORS AND OFFICERS
The Existing By-laws provide that the Company 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 the Company or its
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 provide that the Company will indemnify any director or
officer to the fullest extent authorized by the DGCL 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 provide that the Company will also
pay
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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.
SPECIAL MEETINGS OF STOCKHOLDERS
Under the NYBCL and the Existing By-laws, as well as the DGCL, the New
Certificate of Incorporation and the New By-laws, only the Board of Directors,
the Chairman, the President, or the Secretary may call a special meeting of the
stockholders.
ACTION BY WRITTEN CONSENT OF STOCKHOLDERS
Under the NYBCL, 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 the DGCL, 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 the Company and received by the Secretary 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
not less than 45 or more than 75 days prior to the first anniversary of the date
on which the Company first mailed its 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 NYBCL, an "Interested Shareholder" (a holder of 20%
or more of the outstanding voting stock) may engage in a business combination
transaction (such as a merger, consolidation or sale of substantially all the
assets of the corporation) with the Company only if:
- the 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.
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Under Section 203 of the DGCL, an "Interested Stockholder" (a holder of 15%
or more of the outstanding voting stock) may engage in a business combination
transaction with the Company only if:
- the 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
(excluding certain shares) in the transaction in which it became an
Interested Stockholder; or
- the 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 the
Company and a Controlling Person (defined as a holder of one percent or more of
the voting power of the Company) 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 the Company and significant stockholders.
However, as described under "--Business Combinations Following a Change in
Control," Section 203 of the DGCL limits the ability of a 15% or more holder of
the outstanding voting stock to engage in a business combination transaction
with the Company.
Under the Existing Certificate of Incorporation and the Existing By-laws,
the Company is prevented from purchasing shares of common stock from a
Controlling Person at a price above the average price paid by the Controlling
Person 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 the ability
of the Company to repurchase shares of Common Stock from stockholders.
DISSENTERS' RIGHTS
Under the NYBCL, 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
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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 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 the
Company's assets.
The meaning of "fair value" in payment for shares upon exercise of
dissenters' rights is different under the NYBCL and the DGCL. The DGCL provides
that "fair value" does not include any element of value arising from the
completion or expectation of the transaction. The NYBCL 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 the NYBCL, a dividend may be paid on common stock, out of surplus
(defined as the excess of net assets over stated capital) only, unless, after
payment of the dividend, the Company is insolvent or would be rendered
insolvent.
Under the DGCL, a dividend may be paid on common stock out of either surplus
(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 the
capital of the Company 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
Perkin-Elmer Group Stock and the Celera Genomics Stock will also be restricted
by provisions in the New Certificate of Incorporation. See "--Description of
Perkin-Elmer Group Stock and Celera Genomics Stock."
RESTRICTIONS ON STOCK REPURCHASES
Under the NYBCL, the Company may not purchase or redeem its own shares if it
is insolvent or would be rendered insolvent.
Under the DGCL, the Company may not purchase or redeem its own shares when
its capital is impaired or when such purchase or redemption would cause any
impairment of its capital, except that (1) it may purchase or redeem out of
capital any of its 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, it may purchase or redeem any of its shares out of capital. The
Company also may not purchase any shares which are redeemable at its option for
more than the price at which they are then redeemable.
TRANSACTIONS WITH DIRECTORS
Under the NYBCL, 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, the NYBCL prohibits the corporation from making loans to a director
unless the loans are authorized by vote of its shareholders (not including the
shares held by the borrowing director).
The DGCL contains provisions regarding transactions with directors that are
substantially similar to those of the NYBCL. However, the DGCL provides that the
Company may make loans or provide guarantees for its officers (including those
who are also directors) if the Board of Directors reasonably expects that such
action will benefit the Company.
STOCKHOLDER INSPECTION OF CORPORATE RECORDS
Under the NYBCL, a shareholder who has been a shareholder of record for at
least six
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months, or who holds at least 5% of any class of outstanding shares, is entitled
to inspect the Company's stock ledger, minutes of shareholders' meetings,
records of all actions taken by shareholders without a meeting, and certain
financial statements.
Under the DGCL, any stockholder may inspect for any proper purpose the
Company's stock ledger, its list of stockholders and its other books and
records, and may make copies or extracts from them.
PREEMPTIVE RIGHTS
As permitted by the NYBCL, the Existing Certificate of Incorporation
provides that shareholders do not have preemptive rights.
Under the DGCL, 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, New By-laws, and New Rights Agreement that could be viewed as
having the effect of discouraging an attempt to obtain control of the Company.
These provisions are similar in many respects to those currently applicable to
the Company. Since this is only a summary, you should carefully read the full
text of those provisions, as well as the discussion of the rights of
stockholders of Perkin-Elmer Delaware under Delaware law and the current rights
of shareholders of Perkin-Elmer under New York law under "--Comparison of
Shareholder Rights."
DELAWARE LAW
SECTION 203 OF DGCL. Under certain circumstances, Section 203 of the DGCL,
which is summarized under "--Comparison of Shareholder Rights," limits the
ability of an "Interested Stockholder" to effect various business combinations
with the Company for a three-year period following the time that such
stockholder became an Interested Stockholder.
SPECIAL MEETINGS. Under the DGCL, 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 the Board of Directors) and Common
Stock of either class. We will not solicit approval of our stockholders unless
the Board of Directors believes that approval is advisable or is required by
stock exchange regulations or Delaware law. This could enable the 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 the Company
by means of a merger, tender offer, proxy contest or otherwise, and thereby
protect the continuity of the Company's management. Such additional shares also
could be used to dilute the stock ownership of persons seeking to obtain control
of the Company.
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 the Company 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
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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 the Company or
of an acquiring company at a 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 all outstanding shares 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 (the
"Code"), 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 Perkin-Elmer Group 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 Recapitalization.
This discussion addresses only those of you who hold your existing common
stock and would hold your Perkin-Elmer Group Stock and Celera Genomics Stock as
a capital asset. We have included this discussion for general information only;
it 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 OF THE RECAPITALIZATION TO THE SHAREHOLDERS
In the opinion of Simpson Thacher & Bartlett, counsel to the Company, the
Recapitalization 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 Perkin-Elmer Group 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;
- You will recognize ordinary income up to the amount of cash received in
redemption of the Original Rights;
- Your basis in the existing common stock held immediately before the
Merger will be allocated between the Perkin-Elmer Group Stock and the
Celera Genomics Stock received (including any fractional shares deemed
received) in proportion to the fair market value of such Perkin-Elmer
Group Stock and Celera Genomics Stock on the date of the distribution;
- Your holding period of the Perkin-Elmer Group Stock and the Celera
Genomics Stock will include the holding period of the existing common
stock;
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- Any gain or loss recognized upon a subsequent sale or exchange of either
the Perkin-Elmer Group Stock or the Celera Genomics Stock will be capital
gain or loss; and
- The New Rights Agreement will not result in income, gain or loss to the
shareholders.
TAX IMPLICATIONS OF A CONVERSION OF
PERKIN-ELMER GROUP STOCK OR
CELERA GENOMICS STOCK
If we exercise any of our options to convert one class of Common Stock into
the other class of Common Stock, that conversion will be tax-free to you. You
will have a carryover adjusted tax basis in your newly received Common Stock 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 Perkin-Elmer Group Stock and Celera Genomics Stock. It is possible,
therefore, that the Internal Revenue Service could assert that the receipt of
the Perkin-Elmer Group Stock or the Celera Genomics Stock as well as the
subsequent exchange of the Perkin-Elmer Group 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.
NO DISSENTERS' RIGHTS
Under the NYBCL, shareholders who dissent from the Recapitalization Proposal
will not have appraisal rights.
PROPOSALS 2 AND 3-- ADOPTION OF THE PERKIN-ELMER CORPORATION/PERKIN-ELMER GROUP
1999 STOCK INCENTIVE PLAN AND THE PERKIN-ELMER CORPORATION/CELERA GENOMICS GROUP
1999 STOCK INCENTIVE PLAN
BACKGROUND AND REASONS FOR THE PROPOSALS
Proposal 2 pertains to The Perkin-Elmer Corporation/Perkin-Elmer Group 1999
Stock Incentive Plan (the "Perkin-Elmer Group Plan") and Proposal 3 pertains to
The Perkin-Elmer Corporation/Celera Genomics Group 1999 Stock Incentive Plan
(the "Celera Genomics Group Plan"). Those plans are identical except as
otherwise noted.
On November 19, 1998, the Board of Directors adopted the Perkin-Elmer Group
Plan and the Celera Genomics Group Plan (collectively, the "Incentive Plans" and
individually an "Incentive Plan"), subject to shareholder approval of the
Incentive Plans and the Recapitalization Proposal.
The Perkin-Elmer Group Plan authorizes grants of awards with respect to
Perkin-Elmer Group Stock only and the Celera Genomics Group Plan authorizes
grants of awards with respect to Celera Genomics Stock only. We intend that
certain directors, officers and key employees of the Company who will continue
to have responsibilities involving both the Perkin-Elmer 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 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 the Company and our stockholders.
If approved by the shareholders, the Incentive Plans will become effective
on the Effective Date. We believe that the Incentive
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Plans will promote the interests of the Company and its 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 the long-term growth and financial success of the Company.
If the Recapitalization is implemented and Proposals 2 and 3 are approved,
no additional grants of awards will be made from the Company's previously
approved stock incentive plans, including the Company's 1998 Stock Incentive
Plan. As of November 10, 1998, options for 10,500 shares had been granted under
that Plan.
This summary highlights selected information from the Incentive Plans and
may not contain all of the information that is important to you. To understand
the Incentive Plans more fully and for a more complete description of the legal
terms of the Incentive Plans, you should read carefully the Incentive Plans
attached to this document as Annexes VII and VIII.
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 Perkin-Elmer Group Stock for issuance under the Perkin-Elmer Group
Incentive Plan and shares of Celera Genomics Stock for issuance under the
Celera Genomics Group Incentive 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 Perkin-Elmer Group Stock or Celera Genomics Stock which may be
subject to restrictions ("Employee Stock Awards");
- shares of Perkin-Elmer Group Stock or Celera Genomics Stock, subject to
performance goals ("Performance Shares"); or
- director stock awards, which will be shares of Perkin-Elmer Group Stock
or Celera Genomics Stock, subject to restrictions ("Director Stock
Awards").
ELIGIBILITY
Under the terms of the Incentive Plans:
- all regular salaried employees (including executive officers) of the
Company and its subsidiaries may receive Options, Employee Stock Awards
and Performance Shares (collectively, "Employee Awards");
- all consultants performing significant services for the Company may
receive non-qualified stock options; and
- all non-employee directors of the Company may receive non-qualified stock
options and Director Stock Awards.
As of , 1998, approximately 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 the 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.
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STOCK OPTIONS
The purchase price of a share of Perkin-Elmer Group 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 the Company
under any qualified pension plan provided by the 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 the Board of Directors on reaching normal
retirement age, (2) resigns or declines to stand for reelection with the
approval of the 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 the
Company or while serving as a member of the 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 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 the Company or (2)
violated any written agreement with the Company. An optionee's violation of
either of these conditions will result in the forfeiture of all Options held.
No one individual may be granted an Option or Options under either Incentive
Plan during any fiscal year of the Company 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.
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
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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 the Perkin-Elmer Group Incentive Plan representing more than
40,000 shares of Perkin-Elmer Group Stock during any fiscal year of the Company,
and the maximum number of shares of stock that may be issued to all employees as
Employee Stock Awards under the Perkin-Elmer Group Incentive Plan is 80,000.
Subject to adjustment as provided below, no employee may receive an Employee
Stock Award under the Celera Genomics Group Incentive Plan representing more
than shares of Celera Genomics Stock during any fiscal year of the
Company, and the maximum number of shares of stock that may be issued to all
employees as Employee Stock Awards under the Celera Group Incentive Plan is
.
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 the
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 the Perkin-Elmer Group Incentive Plan representing more than
100,000 shares of Perkin-Elmer Group Stock during any fiscal year of the
Company, and the maximum number of shares that may be issued to all employees as
Performance Shares under the Perkin-Elmer Group Incentive Plan is 400,000.
Subject to adjustment as provided below, no employee may receive Performance
Shares under the Celera Genomics Group Incentive Plan representing more than
shares of Celera Genomics Stock during any fiscal year of the Company, and
the maximum number of shares that may be issued to all employees as Performance
Shares under the Celera Genomics Group Incentive Plan is .
DIRECTOR STOCK AWARDS
As of the date of each election or reelection to the Board of Directors,
each non-employee director will automatically be granted a Director Stock Award
of 300 shares of Perkin-Elmer Group Stock under the Perkin-Elmer Group Incentive
Plan and shares of Celera Genomics Stock under the Celera Genomics
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Group Incentive 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
the 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
Perkin-Elmer Group 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 (1) death, (2) retiring from the
Board of Directors upon reaching normal retirement age, (3) becoming totally and
permanently disabled or (4) resigning with the approval of the 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 Perkin-Elmer Group 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 the Company) is
made for Common Stock representing more than 25% of the combined voting
power of the outstanding voting securities of the Company 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 the Board of
Directors; or
- the stockholders approve the sale of all or substantially all of the
stock or assets of the Company.
The last three of the foregoing events are defined as a "Change of Control"
under the Incentive Plans.
TERMINATION AND AMENDMENT; NO REPRICING
No award may be made under the Incentive Plans after March 31, 2004. The
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
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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
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 the Company 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 county during his or her period of
plan participation. THIS SUMMARY IS NOT A COMPLETE ANALYSIS OF ALL POTENTIAL TAX
CONSEQUENCES RELEVANT TO PARTICIPANTS AND THE 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 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
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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 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
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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 the Chief Executive
Officer and the four other most highly paid executive officers of the Company 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 of the
Company (including its subsidiaries) is not affected by this provision.
Except where the Committee deems it to be in the best interest of the
Company, 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.
BENEFITS TO NAMED EXECUTIVE OFFICERS AND OTHERS
No awards have been granted or approved for grant under the Incentive Plans.
Any future awards will be made at the discretion of the Committee. Therefore, it
can not be determined at this time what benefits or amounts, if any, will be
received by or allocated to any person or group of persons under the Incentive
Plans if the Incentive Plans are approved, or what benefits or amounts, if any,
would have been received by or allocated to any person or group of persons for
the fiscal year ended June 30, 1998 if the Incentive Plans had been in effect
during such fiscal year.
VOTE REQUIRED
Approval of Proposals 2 and 3 each requires the favorable vote of a majority
of the votes cast at the Special Meeting.
RECOMMENDATION OF THE BOARD OF DIRECTORS
The Board of Directors has carefully considered Proposals 2 and 3 and
believes that the approval of these Proposals by the shareholders is in the best
interests of the Company and our shareholders. THE BOARD OF DIRECTORS
UNANIMOUSLY RECOMMENDS THAT YOU APPROVE PROPOSALS 2 AND 3.
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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: The Perkin-Elmer 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 the stockholder making the proposal.
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 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 not less than 45 days or more than
75 days prior to the first anniversary of the date on which the Company first
mailed its 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, 1998 or later than July 29, 1998. If the Recapitalization is
implemented, we will have discretionary authority to vote on any stockholder
proposal 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.
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. to perform various solicitation services. We have agreed
to pay Morrow & Co. a customary fee for their services.
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 consolidated financial statements of the Company as of June 30, 1997 and
1998 and for each of the three fiscal years in the period ended June 30, 1998
and the combined financial statements of the Perkin-Elmer Group as of June 30,
1997 and 1998 and for each of the three fiscal years in the period ended June
30, 1998 and the combined financial statements of the Celera Genomics Group as
of June 30, 1997 and 1998 and for the two fiscal years then ended included in
this Proxy Statement have been so included in reliance on the reports of
PricewaterhouseCoopers LLP, independent accountants, given on the authority of
said firm 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.
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ANNEX I
AGREEMENT AND PLAN OF MERGER
AGREEMENT AND PLAN OF MERGER, dated as of , 1999 (this
"Agreement"), among The Perkin-Elmer Corporation, a Delaware corporation
("Perkin-Elmer Delaware"), PE Merger Corp., a New York corporation and a
wholly-owned subsidiary of Perkin-Elmer 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);
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 Perkin-Elmer Delaware;
WHEREAS, immediately prior to the Effective Time, the certificate of
incorporation of Perkin-Elmer Delaware will be amended and restated (as so
amended and restated, the "New Certificate of Incorporation") to, among other
things, authorize (a) 500,000,000 shares of The Perkin-Elmer
Corporation-Perkin-Elmer Group Common Stock, par value $.01 per share
("Perkin-Elmer Group Stock"), (b) 225,000,000 shares of The Perkin-Elmer
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, the Boards of Directors of Perkin-Elmer 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 Perkin-Elmer 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 Perkin-Elmer 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 "The Perkin-
Elmer 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.
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.
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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 Perkin-Elmer Group Stock and (ii) subject to Section
2.2, of a share of validly issued, fully paid and non-assessable
shares of Celera Genomics Stock.
(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 Perkin-Elmer 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 of all such holders, shall sell the whole shares 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 share interest
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 Perkin-Elmer Group Stock. The
registered owner on the books and records of Perkin-Elmer 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 Perkin-Elmer Group
Stock evidenced by such Existing Certificate.
(b) As soon as practicable after the Effective Time, such bank or trust
company as Perkin-Elmer 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 Perkin-Elmer Group Stock ("Perkin-Elmer
Group Certificates"), which shall specify that delivery shall be
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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
Perkin-Elmer Delaware, the holder of such Existing Certificates shall be
entitled to receive in exchange therefor Perkin-Elmer Certificates representing
a number of shares of Perkin-Elmer Group Stock equal to the number of shares of
Existing Common Stock represented by such Existing Certificates. If any
Perkin-Elmer Group 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 Perkin-Elmer Group 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
Perkin-Elmer Group Certificates representing the number of shares of
Perkin-Elmer Group 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 NEW CERTIFICATE OF INCORPORATION. The New Certificate of Incorporation
shall have been filed with the Secretary of State of Delaware.
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 Perkin-Elmer 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 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.
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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.
THE PERKIN-ELMER 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:
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ANNEX II
RESTATED CERTIFICATE OF INCORPORATION
OF
THE PERKIN-ELMER CORPORATION
(Originally Incorporated November 16, 1998 Under the Same Name)
ARTICLE I.
NAME
The name of the corporation is The Perkin-Elmer 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 "The Perkin-Elmer
Corporation--Perkin-Elmer Group Common Stock," having a par value of $0.01 per
share (the "Perkin-Elmer Group Stock"), two hundred twenty-five million
(225,000,000) shares shall be shares of a class of common stock designated as
"The Perkin-Elmer 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 Perkin-Elmer Group 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
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have the meanings set forth in Section 2.6 of this Article. For purposes of this
Article IV, the Perkin-Elmer Group Stock, when issued, shall be considered
issued in respect of the Perkin-Elmer 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 PERKIN-ELMER GROUP STOCK. Dividends on Perkin-Elmer Group
Stock may be declared and paid only out of the lesser of (i) the funds of the
Corporation legally available therefor and (ii) the Perkin-Elmer 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 Perkin-Elmer Group 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 Perkin-Elmer Group Stock or Celera Genomics Stock (or Convertible Securities
convertible into or exchangeable or exercisable for shares of Perkin-Elmer Group
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 Perkin-Elmer Group Stock (or
Convertible Securities convertible into or exchangeable or exercisable for
shares of Perkin-Elmer Group Stock) on shares of Perkin-Elmer Group Stock or
shares of preferred stock attributed to the Perkin-Elmer 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 Perkin-Elmer Group Stock or
shares of preferred stock attributed to the Perkin-Elmer 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
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outstanding that are attributed to the Perkin-Elmer Group is less than or
equal to the Number of Celera Genomics Designated Shares.
For purposes of this Section 2.1(d), any outstanding Convertible Securities
that are convertible into or exchangeable or exercisable for any other
Convertible Securities which are themselves convertible into or exchangeable or
exercisable for Perkin-Elmer Group Stock or Celera Genomics Stock (or other
Convertible Securities that are so convertible, exchangeable or exercisable)
shall be deemed to have been converted, exchanged or exercised in full for such
Convertible Securities.
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 Perkin-Elmer Group 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 Perkin-Elmer Group 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 Perkin-Elmer Group
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 Perkin-Elmer
Group 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 Perkin-Elmer
Group 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 Perkin-Elmer Group 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 Perkin-Elmer Group Stock
during such 20-Trading Day period. Neither the merger nor consolidation of
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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 Perkin-Elmer Group
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
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. Perkin-Elmer
Group 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 PERKIN-ELMER GROUP
STOCK OTHER THAN FOR PERKIN-ELMER GROUP 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 Perkin-Elmer 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
Perkin-Elmer Group as contemplated by Section 2.4(c) or otherwise to all holders
of shares of Perkin-Elmer Group Stock divided among such holders on a pro rata
basis in accordance with the number of shares of Perkin-Elmer Group 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 Perkin-Elmer 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 Perkin-Elmer Group Stock or redeem
some or all of Perkin-Elmer Group Stock or convert Perkin-Elmer Group 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 Perkin-Elmer Group Stock a
dividend pro rata in accordance with the number of shares of Perkin-Elmer
Group 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 Perkin-Elmer Group, redeem or
exchange as of the Redemption Date determined as provided by Section
2.4(f)(iii), all outstanding shares of Perkin-Elmer Group 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 Perkin-Elmer
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Group, redeem or exchange as of the Redemption Date determined as
provided by Section 2.4(f)(iv) such number of whole shares of
Perkin-Elmer Group 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 Fair Value of the Net Proceeds; or
(2) declare that each outstanding share of Perkin-Elmer Group 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 Perkin-Elmer Group 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 Perkin-Elmer Group 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 Perkin-Elmer 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 Perkin-Elmer 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 Perkin-Elmer 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 Perkin-Elmer Group as of such date; (2)
in the case of a Disposition of the properties and assets attributed to the
Perkin-Elmer 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 Perkin-Elmer Group 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 Perkin-Elmer Group 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 Perkin-Elmer Group
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).
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(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 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 Perkin-Elmer
Group 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
Perkin-Elmer Group Stock (or, if Perkin-Elmer Group 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
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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 Perkin-Elmer Group 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(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 Perkin-Elmer Group Stock (or, if Perkin-Elmer Group 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 Perkin-Elmer Group Stock as of the fifth Trading Day prior to the date
of the notice of such conversion required by Section 2.4(f)(v).
(c) REDEMPTION OF PERKIN-ELMER GROUP STOCK FOR PERKIN-ELMER GROUP SUBSIDIARY
STOCK. At any time at which all of the assets and liabilities attributed to the
Perkin-Elmer 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 "Perkin-Elmer Group Subsidiary"), the
Board of Directors may, provided that there are funds of the Corporation legally
available therefor, redeem all of the outstanding shares of Perkin-Elmer Group
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
Perkin-Elmer Group Subsidiary as will be outstanding immediately following such
exchange of shares, such shares of common stock of each Perkin-Elmer Group
Subsidiary to be delivered to the holders of shares of Perkin-Elmer Group Stock
on the Redemption Date either directly or indirectly through the delivery of
shares of another Perkin-Elmer Group Subsidiary that owns directly or indirectly
all such shares, and to be divided among the holders of Perkin-Elmer Group Stock
pro rata in accordance with the number of shares of Perkin-Elmer Group Stock
held by each such holder on such Redemption Date, each of which shares of common
stock of such Perkin-Elmer Group Subsidiary shall be, upon such delivery, fully
paid and nonassessable.
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(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 Perkin-Elmer Group
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),
2.4(b)(i)(1)(B), 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 Perkin-Elmer Group 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.
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(ii) If the Corporation determines to pay a dividend pursuant to Section
2.4(a)(i)(1)(A) (in the case of Perkin-Elmer Group 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 Perkin-Elmer Group Stock) or Section
2.4(b)(i)(1)(B)(I) (in the case of Celera Genomics Stock), the Corporation
shall, not earlier than the 35th Trading Day and not later than the 45th 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.
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<PAGE>
(iv) If the Corporation determines to undertake a redemption pursuant to
Section 2.4(a)(i)(1)(B)(II) (in the case of Perkin-Elmer Group 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 Perkin-Elmer Group Stock into
Celera Genomics Stock or Celera Genomics Stock into Perkin-Elmer Group 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 Perkin-Elmer Group 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 35th Trading Day and not later than the 45th 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
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<PAGE>
of a conversion 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
only 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 Perkin-Elmer Group
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 Perkin-Elmer Group 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 Perkin-Elmer Group 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
Perkin-Elmer Group 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
Perkin-Elmer Group 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
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<PAGE>
on the 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
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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 Perkin-Elmer 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 Perkin-Elmer Group or the Celera Genomics Group or that
an interest therein shall be partly for the benefit of the Perkin-Elmer
Group and partly for the benefit of the Celera Genomics Group and,
accordingly, shall be attributed to the Perkin-Elmer 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.
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(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 Perkin-Elmer Group or the Celera Genomics Group and any
other relevant factors, the shares so issued entirely to the Perkin-Elmer
Group or entirely to the Celera Genomics Group or partly to the Perkin-Elmer
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 Perkin-Elmer 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 Perkin-Elmer 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 Perkin-Elmer Group Stock or
Convertible Securities convertible into or exchangeable or exercisable for
Perkin-Elmer Group 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 Perkin-Elmer
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 Perkin-Elmer Group 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 Perkin-Elmer Group 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.
(a) AVAILABLE DIVIDEND AMOUNT shall mean, as the context requires, a
reference to the Perkin-Elmer Group Available Dividend Amount or the Celera
Genomics Group Available Dividend Amount.
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(b) CELERA GENOMICS GROUP shall mean, as of any date:
(i) the interest of the Corporation on such date in Celera Genomics
Corporation 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 Perkin-Elmer 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 Perkin-
Elmer 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 Perkin-Elmer 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 Perkin-Elmer 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 The Perkin-Elmer
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 The Perkin-Elmer 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 Perkin-Elmer Group Stock or Convertible Securities convertible
into or exchangeable or exercisable for Perkin-Elmer Group 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 Perkin-Elmer Group 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.
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(d) CONVERSION DATE shall mean the date fixed by the Board of Directors as
the effective date for the conversion of shares of Perkin-Elmer Group 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
Perkin-Elmer Group 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 Perkin-Elmer 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
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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 PERKIN-ELMER GROUP 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 Perkin-Elmer Group Stock (or another class or series of common stock of the
Corporation, if so provided by Section 2.4(b)(iii) because Perkin-Elmer Group
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 Perkin-Elmer
Group 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 Perkin-Elmer Group Stock (or such other common
stock) during the 20-Trading Day period ending on such date.
(l) MARKET VALUE RATIO OF PERKIN-ELMER GROUP 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 Perkin-Elmer
Group Stock upon a conversion of Perkin-Elmer Group 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 Perkin-Elmer Group 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 Perkin-Elmer 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
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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 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
Perkin-Elmer Group 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 Perkin-Elmer Group 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
Perkin-Elmer 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(q)
to the Perkin-Elmer 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) THE PERKIN-ELMER 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 The Perkin-Elmer Corporation Earnings (Loss) Attributable to
the Perkin-Elmer 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
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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 $ million).
(p) THE PERKIN-ELMER CORPORATION EARNINGS (LOSS) ATTRIBUTABLE TO THE
PERKIN-ELMER GROUP shall mean, for any period through any date, (i) the net
income or loss of the Perkin-Elmer 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 Perkin-Elmer
Group on a basis substantially consistent with attributions of income and
expense made in the calculation of The Perkin-Elmer 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 The Perkin-Elmer Corporation
Earnings (Loss) Attributable to the Celera Genomics Group for such period
pursuant to clause (ii) of Section 2.6(o).
(q) PERKIN-ELMER 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 Perkin-Elmer Group from the Celera Genomics Group (other than in a
transaction pursuant to Section 2.6(q)(iii)) pursuant to transactions in the
ordinary course of business of the Perkin-Elmer Group and the Celera
Genomics Group or otherwise as the Board of Directors may have directed as
permitted by the Certificate of Incorporation;
(iii) all properties and assets transferred to the Perkin-Elmer 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 Perkin-Elmer 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
Perkin-Elmer Group to the Celera Genomics Group, the Perkin-Elmer Group shall no
longer include such assets or properties so transferred.
(r) PERKIN-ELMER 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 Perkin-Elmer Group less the total liabilities attributed
to the Perkin-Elmer 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 The Perkin-Elmer
Corporation Earnings (Loss) Attributable to the Perkin-Elmer 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 Perkin-Elmer Group Stock and each class or series of preferred
stock attributed in accordance with the Certificate of Incorporation to the
Perkin-Elmer Group, or
(y) in case the total amount calculated pursuant to clause (i) above is
not a positive number, an amount equal to The Perkin-Elmer Corporation
Earnings (Loss) Attributable to the Perkin-Elmer Group (if positive) for the
fiscal year in which the dividend is declared and/or the preceding fiscal
year.
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Notwithstanding the foregoing provisions of this Section 2.6(r), and consistent
with Section 2.5(c), at any time when there are not outstanding both (i) one or
more shares of Perkin-Elmer Group Stock or Convertible Securities convertible
into or exchangeable or exercisable for Perkin-Elmer Group 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 Perkin-Elmer Group 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.
(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 Perkin-Elmer 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) 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, 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.
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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.
THE PERKIN-ELMER CORPORATION
By:___________________________________
Name:
Title:
II-22
<PAGE>
ANNEX III
ILLUSTRATIONS OF CERTAIN PROVISIONS OF
THE NEW CERTIFICATE OF INCORPORATION
PER SHARE VOTING RIGHTS OF CELERA GENOMICS STOCK
THE FOLLOWING ILLUSTRATION DEMONSTRATES THE CALCULATION OF THE NUMBER OF
VOTES EACH SHARE OF CELERA GENOMICS STOCK WOULD BE ENTITLED ON ALL MATTERS
HOLDERS OF PERKIN-ELMER GROUP STOCK AND CELERA GENOMICS STOCK VOTE UPON AS A
CLASS. AT ALL TIMES THE PERKIN-ELMER GROUP STOCK WOULD BE ENTITLED TO ONE VOTE
PER SHARE. CAPITALIZED TERMS NOT DEFINED IN THIS ANNEX HAVE THE MEANINGS SET
FORTH IN THE NEW CERTIFICATE OF INCORPORATION IN ANNEX II.
Each outstanding share of Celera Genomics Stock will 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 the 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 the Perkin-Elmer Group Stock over the
same 20-Trading Day period.
To illustrate the provision, if the average Market Value of the Celera
Genomics Stock was $15 and the average Market Value of the Perkin-Elmer Group
Stock for the 20-Trading Day period was $80, each share of Perkin-Elmer Group
Stock would have one vote and each share of Celera Genomics Stock would have
0.188 votes based on the following calculation:
<TABLE>
<S> <C> <C>
$15
- --- = 0.188 votes
$80
</TABLE>
Based on such number of votes, on any proposal where holders of Perkin-Elmer
Group Stock and Celera Genomics Stock vote together as a single class and
assuming 100 million shares of Perkin-Elmer Group Stock and 50 million shares of
Celera Genomics Stock were outstanding, the shares of Perkin-Elmer Group 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.
CONVERSION OF COMMON STOCK AT THE OPTION OF THE COMPANY
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 OF COMMON STOCK AT THE OPTION OF THE COMPANY.
At any time, the Board may convert each share of the Common Stock relating
to one Group into a number of shares of the Common Stock relating to the other
Group equal to 110% of the ratio (rounded to the nearest five decimal places) of
the average Market Value of the class of Common Stock to be converted to the
average Market Value of the other class of Common Stock. We will calculate the
ratio over the 20-Trading Day Period ending on the fifth Trading Day prior to
the date we mail notice of conversion to holders.
To illustrate the provision, if (1) 50 million shares each of Celera
Genomics Stock and 100 million shares of Perkin-Elmer Group Stock were
outstanding immediately prior to a conversion, (2) the average Market Value of
one share of the Celera Genomics Stock over the 20-Trading Day period was $15,
and (3) the average Market Value of one share of Perkin-Elmer Group Stock, over
the same
III-1
<PAGE>
20-Trading Day period was $80, then each share of Celera Genomics Stock could be
converted into .20625 shares of Perkin-Elmer Group Stock based on the following
calculation:
<TABLE>
<S> <C> <C> <C> <C>
$15
1.1 X --- = .20625 shares
$80
</TABLE>
Immediately after such conversion, the total number of shares of
Perkin-Elmer Group Stock issued and outstanding would be 60,312,500 shares.
MANDATORY DIVIDEND, REDEMPTION OR CONVERSION UPON A DISPOSITION
THE FOLLOWING ILLUSTRATION DEMONSTRATES THE PROVISIONS REQUIRING A MANDATORY
DIVIDEND, REDEMPTION OR CONVERSION IF A DISPOSITION OF ALL OR SUBSTANTIALLY ALL
OF THE PROPERTIES AND ASSETS OF A GROUP OCCURS.
If a Disposition of all or substantially all of the property and assets of a
Group occurs (excluding certain specified transactions), we must consummate one
of the following three transactions on or prior to the 95th Trading Day
following the consummation of the Disposition:
(1) pay a dividend to the holders of shares of the class of Common Stock
relating to the Group subject to the Disposition having a Fair Value as
of the date of such Disposition equal in the aggregate to the Fair Value
of the Net Proceeds of the Disposition as of that date; or
(2) (A) if the Disposition involves all (not merely substantially all) of
the properties and assets of such Group, redeem all outstanding shares of
that class of Common Stock for consideration having a Fair Value as of
the date of the Disposition in the aggregate equal to the Fair Value of
the Net Proceeds of the Disposition as of that date; or
(B) if the Disposition involves substantially all (but not all) of the
properties and assets of the Group, redeem such number of whole shares of
that class of Common Stock as have in the aggregate an average Market
Value, during the 10-Trading Day period beginning on the 26th Trading Day
immediately following the date of the Disposition (the "Valuation
Period") closest to the Fair Value of the Net Proceeds of the Disposition
as of that date for consideration in the aggregate equal to the Fair
Value of the Net Proceeds as of that date; or
(3) convert each outstanding share of the class of Common Stock relating to
that Group into a number of shares of the Common Stock relating to the
other Group equal to 110% of the ratio (rounded to the nearest five
decimal places) of the average Market Value of one share of Common Stock
relating to that Group to the average Market Value of one share of Common
Stock relating to the other Group during the Valuation Period.
To illustrate the foregoing, if (1) 100 million shares of Perkin-Elmer Group
Stock and 50 million shares of Celera Genomics Stock were outstanding, (2) the
Net Proceeds of the Disposition of substantially all (but not all) of the assets
of the Celera Genomics Group have a Fair Value as of the date of consummation of
such Disposition equal to $500 million, (3) the average Market Value of the
Celera Genomics Stock during the Valuation Period is $15 per share and (4) the
average Market Value of the Perkin-Elmer Group Stock during the Valuation Period
is $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:
<TABLE>
<S> <C> <C> <C> <C>
Fair Value of Net Proceeds $500 million
- --------------------------- = -------------- = $10 per share
Number of Outstanding Shares 50 million
of Celera Genomics Stock shares
</TABLE>
III-2
<PAGE>
(2) (B) redeem for $15 per share a number of shares of Celera Genomics Stock
equal to:
<TABLE>
<S> <C> <C> <C> <C>
Fair Value of Net Proceeds $500 million
- ------------------------------------- = ----------- = 33,333,333
Average Per Share Market Value of $15 per shares
Celera share
Genomics Stock During Valuation Period
</TABLE>
After the redemption, 16,666,666 shares of Celera Genomics Stock would
remain outstanding.
(3) (C) convert each outstanding share of Celera Genomics Stock into a number of
shares of Perkin-Elmer Group Stock equal to:
<TABLE>
<S> <C> <C> <C> <C> <C> <C>
Average Market Value of Celera
Genomics Stock During $15 per
Valuation Period share
1.1 X ------------------------------------- = 1.1 X -----------
Average Market Value of Perkin-Elmer $80 per
Group Stock During Valuation Period share
= .20625 shares
</TABLE>
As a result of the conversion, the 50 million shares of Celera Genomics Stock
would be converted into 10,312,500 shares of Perkin-Elmer Group Stock and
60,312,500 shares of Perkin-Elmer Group Stock would be outstanding.
LIQUIDATION RIGHTS OF CELERA GENOMICS STOCK
THE FOLLOWING ILLUSTRATION DEMONSTRATES THE CALCULATION OF THE NUMBER OF
LIQUIDATION UNITS TO WHICH EACH SHARE OF CELERA GENOMICS STOCK WOULD BE ENTITLED
UPON OUR LIQUIDATION OR DISSOLUTION. AT ALL TIMES THE PERKIN-ELMER GROUP STOCK
WOULD BE ENTITLED TO ONE LIQUIDATION UNIT PER SHARE, SUBJECT TO CERTAIN
ADJUSTMENTS.
Each outstanding share of Celera Genomics Stock will 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 the Celera Genomics Stock over the 20-Trading Day period ending on the
40th Trading Day immediately succeeding the effective date of the
Recapitalization, DIVIDED BY the average Market Value of the Perkin-Elmer Group
Stock over the same 20-Trading Day period.
To illustrate the provision, if the average Market Value of the Celera
Genomics Stock were $15 and the average Market Value of the Perkin-Elmer Group
Stock for the 20-Trading Day period were $80, then each share of Perkin-Elmer
Group Stock would have one Liquidation Unit and each share of Celera Genomics
Stock would have 0.18750 of a Liquidation Unit, subject to certain adjustments,
based on the following calculation:
<TABLE>
<S> <C> <C>
$15
- --- = 0.18750 Liquidation Units
$80
</TABLE>
After the number of Liquidation Units to which each share of Celera Genomics
Stock is entitled has been calculated in accordance with this formula, we may
change that number only if we subdivide or combine the shares of one of the
classes of Common Stock. We will be required to obtain the approval of the
stockholders of both classes of Common Stock for all other changes in the number
of Liquidation Units of the Celera Genomics Stock.
III-3
<PAGE>
ANNEX IV
THE PERKIN-ELMER CORPORATION
<TABLE>
<CAPTION>
PAGE
---------
<S> <C>
Management's Discussion and Analysis.................................................................... IV-2
Report of Independent Accountants....................................................................... IV-19
Consolidated Financial Statements....................................................................... IV-20
</TABLE>
IV-1
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS
MANAGEMENT'S DISCUSSION OF OPERATIONS
The following discussion should be read in conjunction with the consolidated
financial statements and related notes. Historical results and percentage
relationships are not necessarily indicative of operating results for any future
periods.
EVENTS IMPACTING COMPARABILITY
ACQUISITIONS AND INVESTMENTS
On January 22, 1998, The Perkin-Elmer Corporation (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 to the
consolidated financial statements).
The Company acquired Molecular Informatics, Inc. ("Molecular Informatics")
and a 14.5% interest, and approximately 52% of the voting rights, in Tecan AG
("Tecan") during the second quarter of fiscal 1998, and GenScope, Inc.
("GenScope") 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 the Company's significant acquisitions
and investments is provided in Note 2 to the consolidated financial statements.
RESTRUCTURING AND OTHER MERGER COSTS
The Company incurred merger-related period costs of $.9 million in the first
quarter of fiscal 1999 in connection with the integration of PerSeptive into the
Company. During fiscal 1998, the Company 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 the Company. 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
combining sales, marketing, and administrative functions.
In fiscal 1997 and 1996, the Company implemented restructuring actions
primarily targeted to improve the profitability and cash flow performance of the
Analytical Instruments Division ("Analytical Instruments"). The fiscal 1997 plan
focused on the transition from a highly vertical manufacturing operation to one
that relies more on outsourcing functions not considered core competencies. The
fiscal 1996 plan was a broad program designed to reduce administrative and
manufacturing overhead and improve operating efficiency, primarily in Europe and
the United States. The before-tax charges associated with the implementation of
these actions were $24.2 million, or $.31 per diluted share after-tax, in fiscal
1997, and $71.6 million, or $1.35 per diluted share after-tax, in fiscal 1996.
Fiscal 1997 also reflected an $11.2 million before-tax, or $.13 per diluted
share after-tax, reduction of charges associated with the fiscal 1996 plan.
Also 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 complete discussion of the Company's restructuring
programs is provided in Note 10 to the consolidated financial statements.
ACQUIRED RESEARCH AND DEVELOPMENT
During fiscal 1998, 1997, and 1996, the Company recorded charges for
purchased in-process research and development in connection with certain
acquisitions for the PE Biosystems Division ("PE Biosystems"). 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).
IV-2
<PAGE>
IMPAIRMENT OF ASSETS
Cost of sales for fiscal 1997 included $7.5 million, or $.13 per diluted
share after-tax, for the write-down of goodwill and other assets. The fiscal
1997 charge, as 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," included $5.6 million to write-down
goodwill associated with the fiscal 1995 acquisition of Photovac Inc. and $1.9
million of other assets associated primarily with Analytical Instruments. In
fiscal 1996, the Company 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 quarter 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 OPERATIONS FOR THE THREE MONTHS ENDED SEPTEMBER 30, 1998 COMPARED
WITH SEPTEMBER 30, 1997
The Company reported net income of $17.0 million, or $.34 per diluted share,
for the first quarter of fiscal 1999 compared with net income of $21.4 million,
or $.43 per diluted share, for the first quarter of fiscal 1998. Excluding the
$.9 million of merger-related costs incurred in the first quarter of fiscal
1999, net income for the quarter decreased 17.4% compared with the prior year.
The effects of foreign currency translation reduced fiscal 1999 first quarter
net income by approximately $3.0 million, or $.06 per diluted share. Excluding
the merger-related costs and the effects of currency translation, net income for
the first quarter of fiscal 1999 decreased approximately 3% compared with the
first quarter of fiscal 1998.
Net revenues were $375.8 million for the first quarter of fiscal 1999
compared with $322.7 million for the first quarter of fiscal 1998, an increase
of 16%. Excluding the results of Tecan, which were not included in the first
quarter of the prior year, revenues increased 8%. The effects of foreign
currency translation decreased net revenues by approximately $9 million, or 3%,
in the quarter compared with the prior year, as the U.S. dollar remained strong
against most Far Eastern currencies. Geographically, excluding Tecan, the
Company reported revenue growth of 17% and 11% in the United States and Europe,
respectively, compared with the prior year. This growth was partially offset by
a decline of 14% in the Far East and 13% in Latin America and other markets.
Excluding the effects of currency translation and Tecan, revenues in the Far
East would have increased approximately 2%, and Latin America and other markets
would have decreased approximately 4% compared with the first quarter of the
prior year. Economic instability in these regions, specifically in the
Analytical Instruments business, was the primary contributor to the decline in
Latin America and modest growth in the Far East.
NET REVENUES BY BUSINESS SEGMENT
<TABLE>
<CAPTION>
FOR THE THREE MONTHS
ENDED
SEPTEMBER 30,
--------------------
(DOLLAR AMOUNTS IN MILLIONS) 1997 1998
- ----------------------------------- --------- ---------
<S> <C> <C>
PE Biosystems...................... $ 191.0 $ 249.3
Analytical Instruments............. 131.7 126.5
--------- ---------
$ 322.7 $ 375.8
--------- ---------
--------- ---------
</TABLE>
On a business segment basis, net revenues of PE Biosystems increased 31% to
$249.3 million in the first quarter of fiscal 1999. Excluding Tecan and the
negative effects of currency translation, revenues increased 19% compared with
the prior year, primarily
IV-3
<PAGE>
reflecting the continued growth in the genetic analysis and polymerase chain
reaction ("PCR") product offerings. In particular, revenues for reagents that
support our genetic analysis systems increased 81%. Increased contract and
licensing revenues of $5.4 million also contributed to the year-to-year growth.
Geographically, excluding Tecan, revenues and orders were particularly
strong in the United States and Europe, as revenues increased 24% and 18% over
the prior year, partly as a result of higher product demand from pharmaceutical
research companies. Revenues in Latin America and other markets increased 25%,
while revenues in the Far East declined 9% compared with the prior year.
Excluding Tecan and the negative effects of currency translation, revenues in
the Far East would have increased approximately 7% compared with the prior year.
The Company introduced several significant new products and systems during
the first quarter. Among these introductions were the ultra high-throughput ABI
PRISM-Registered Trademark- 3700 DNA Analyzer. Shipments of the system to early-
access customers and Celera Genomics are expected to begin during the second
quarter of fiscal 1999. Other significant new instrument systems and services
introduced during the quarter included: several applied genetic analysis kits,
including one for HIV profiling; high-throughput drug discovery screening
services through Tropix; and FMAT, a new bioassay system to detect cells in
vitro for drug discovery, which was developed in collaboration with Biometric
Imaging, Inc. These products began generating revenues late in the quarter and
the Company expects these products to contribute to revenues over the remainder
of fiscal 1999.
Net revenues for Analytical Instruments were $126.5 million compared with
$131.7 million reported in the prior year's first quarter. The effects of
foreign currency translation reduced revenues by approximately $4 million, or
3%. Revenues increased 4% in Europe, offset by declines of 2% in North America,
21% in the Far East and 27% in Latin America and other markets. Excluding the
effects of currency, revenues in the Far East, and Latin America and other
markets declined approximately 6% and 18%, respectively. Growth in
chromatography products was more than offset by decreased revenues in inorganic
and organic products. Also, softness in the emerging markets of Latin America,
and continued difficulties in the Pacific Rim contributed to the sales volume
weakness.
During the quarter, the Company announced it had engaged Warburg Dillon Read
LLC to explore strategic alternatives for the Analytical Instruments Division.
Options to be explored include selling the business, spinning it off as a
separate company, or retaining it as part of the Company. The Company believes
this announcement may have had a negative effect on revenue growth in the
quarter.
Gross margin as a percentage of net revenues was 51.0% in the first quarter
of fiscal 1999 compared with 48.8% in the first quarter of fiscal 1998. This was
primarily the result of a change in product mix for PE Biosystems. Higher unit
sales of reagents to support genetic analysis systems and increased royalty and
contract licensing revenues were the primary contributors. Continued growth in
instrument sales of higher margin genetic analysis product offerings was also a
factor. These changes helped offset a decline in Analytical Instruments' gross
margin, which was primarily a result of product mix and volume shortfalls in
Latin America and Pacific Rim markets.
Selling, general and administrative ("SG&A") expenses were $117.4 million in
the first quarter of fiscal 1999 compared with $100.9 million in the first
quarter of fiscal 1998. The 16.3% increase in expenses, or 8.1% excluding Tecan,
was due to higher planned expenses for PE Biosystems and expenses associated
with establishing facilities and staff for Celera Genomics. As a percentage of
net revenues, SG&A expense was 31% in both fiscal periods.
Research, development and engineering ("R&D") expenses of $47.0 million
increased 49% over the prior year from $31.5 million. Excluding Tecan, R&D
expenses increased 39% compared with the prior year reflecting a 47% increase at
PE Biosystems and an 18% increase at Analytical Instruments. Excluding Tecan, PE
IV-4
<PAGE>
Biosystems' R&D expense accounted for 72% of the Company's R&D expense. R&D
investments were increased to a higher level in the quarter, in part to support
new life science product launches in fiscal 1999 and to accelerate new product
development. Comparative increases in these expenses should moderate over future
quarters. As a percentage of net revenues, the Company's R&D expenses increased
to 12.5% compared with 9.8% for the prior year.
The Company incurred merger-related costs of $.9 million in the first
quarter of fiscal 1999 for training, relocation, and communication in connection
with the integration of PerSeptive into the Company (see Note 10 to the
consolidated financial statements). Additional merger-related period costs of
$5.5 million to $7.5 million are expected to be incurred through the remaining
quarters of fiscal 1999.
Operating income increased to $26.3 million for the first quarter of fiscal
1999 compared with $25.0 million for the prior year. Excluding Tecan, the
merger-related costs of $.9 million, and the effects of currency translation,
operating income increased 7% compared with the prior year. The effects of
currency translation decreased operating income by approximately $4 million
compared with the prior year.
Operating profits for PE Biosystems, excluding Tecan, increased 26%.
Excluding the effects of currency translation, operating income increased 36%,
benefiting from higher gross margin and lower SG&A expenses as a percentage of
net revenues, as progress continues on the integration of businesses acquired
during fiscal year 1998. The PE Biosystems' increase was partially offset by
$3.6 million in operating expenses associated with Celera Genomics. Analytical
Instruments reported a small loss for the first quarter of fiscal 1999 compared
with modest profit for the prior year. The Company believes the decision to
explore strategic alternatives for Analytical Instruments may have had a
negative effect on revenue growth, and the decline in gross margin contributed
to the decrease in profitability during the quarter.
Interest expense was $.8 million for the first quarter of fiscal 1999
compared with $1.3 million for the prior year. This decrease was primarily due
to the refinancing of PerSeptive's 8 1/4% Convertible Subordinated Notes Due
2001 (the "PerSeptive Notes") together with slightly lower outstanding debt
balances and lower average interest rates. Interest income was $.5 million for
the first quarter of fiscal 1999 compared with $2.4 million for the prior year,
primarily because of lower cash balances, as well as from lower interest rates.
Other income, net for the first quarter of fiscal 1999 was $1.7 million,
primarily related to a legal settlement, compared with other income, net of $.4
million for the prior year.
The Company's effective tax rate was 27.4% for the first quarter of fiscal
1999 compared with 21.4% for the prior year. Excluding Tecan in fiscal 1999, the
effective income tax rate was 26%. The income tax rate for the first quarter of
fiscal 1998 was favorably affected by finalization of certain outstanding tax
matters resulting in a one-time rate decrease.
Minority interest expense of $3.1 million was recognized in the first
quarter of fiscal 1999 relating to the Company's 14.5% financial interest in
Tecan.
RESULTS OF OPERATIONS--1998 COMPARED WITH 1997
The Company reported net income of $56.4 million, or $1.12 per diluted
share, for fiscal 1998, compared with net income of $130.4 million, or $2.63 per
diluted share, for fiscal 1997. On a comparable basis, excluding the special
items previously described, net income increased 9.0% to $127.1 million for
fiscal 1998 compared with $116.6 million for fiscal 1997, and earnings per
diluted share increased 8.6% to $2.53 for fiscal 1998 from $2.33 for fiscal
1997. Excluding the effects of currency translation and special items, earnings
per diluted share would have increased approximately 25% compared with the prior
year.
Net revenues were $1,531.2 million for fiscal 1998, compared with $1,373.3
million for fiscal 1997, an increase of 11.5%. Excluding Tecan, revenues
increased 7.8% compared with the prior year. The effects of currency translation
decreased net revenues by approximately
IV-5
<PAGE>
$68 million, or 5%, compared with the prior year, as the U.S. dollar
strengthened against most European and Far Eastern currencies. Geographically,
the Company reported revenue growth in all regions compared with the prior year.
The United States reported the strongest growth with revenues increasing 22.3%,
or 18.6% excluding Tecan, benefiting from growth in both the PE Biosystems and
Analytical Instruments business segments. Revenues increased 5.4% in Europe, 1%
in the Far East, and 14.9% in other markets, specifically Latin America, where
revenues increased 36% compared with the prior year. Excluding Tecan, revenues
remained essentially unchanged in Europe and the Far East compared with the
prior year. Before the effects of currency translation and excluding Tecan,
revenues would have increased approximately 8% in Europe, 9% in the Far East,
and 19% in other markets. Growth in the Far East market was adversely affected
by the economic turmoil in the Pacific Rim and the weakening of the Japanese
Yen.
NET REVENUES BY BUSINESS SEGMENT
<TABLE>
<CAPTION>
(DOLLAR AMOUNTS IN MILLIONS) 1997 1998
- ------------------------------- --------- ---------
<S> <C> <C>
PE Biosystems.................. $ 749.2 $ 921.8
Analytical Instruments......... 624.1 609.4
--------- ---------
$ 1,373.3 $ 1,531.2
--------- ---------
--------- ---------
</TABLE>
On a business segment basis, net revenues of PE Biosystems which includes PE
Applied Biosystems, PerSeptive, Molecular Informatics, Tropix, GenScope, and
Tecan, increased 23.0% to $921.8 million for fiscal 1998 compared with $749.2
million for the prior year. Excluding Tecan, revenues increased 16.3% over the
prior year. The negative effects of a strong U.S. dollar reduced the division's
revenues by approximately $33 million, or 4%. 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 25.3%, 10.2%, and 4.5%, 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 Company 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.
Net revenues for Analytical Instruments were $609.4 million for fiscal 1998
compared with $624.1 million for the prior year, a decrease of 2.4%. The effects
of currency translation decreased net revenues by approximately $35 million, or
6%. Excluding currency effects, revenues would have increased approximately 3%.
Increased revenues of chromatography products, primarily data handling and
Laboratory Information Management Systems ("LIMS"), were more than offset by
lower demand for organic and inorganic products. Geographically, revenues in the
United States and other markets increased 6.5% and 10.1%, respectively. Revenues
in Latin America, included in other markets, increased 25% compared with the
prior year. Revenues in Europe and the Far East decreased 7.5% and 9.6%,
respectively; however, excluding the effects of currency translation, revenues
in Europe and the Far East remained essentially unchanged compared with fiscal
1997.
Gross margin as a percentage of net revenues was 50.9% for fiscal 1998
compared with 49.5% 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 $7.5 million for the impairment of assets
associated primarily with Analytical Instruments. Excluding the special items,
fiscal 1998 gross margin increased to 51.2% of revenues compared with 50.1% for
fiscal 1997. Benefits realized by PE Biosystems from the sale of higher-margin
genetic analysis products, increased royalty revenues in the United States, and
cost savings resulting from Analytical Instruments' restructuring actions
IV-6
<PAGE>
more than offset the negative effects of currency translation.
SG&A expenses were $459.6 million for fiscal 1998 compared with $416.3
million for the prior year. The 10.4% increase in expenses, or 6.7% excluding
Tecan, was due to higher planned worldwide selling and marketing expenses for PE
Biosystems, commensurate with the substantially higher revenue and order growth.
Before the effects of currency translation and Tecan, SG&A expenses increased
10.6% compared with the prior year. SG&A expenses for Analytical Instruments
decreased 3.3% compared with the prior year, primarily because of lower expenses
in Europe resulting in part from the restructuring plans. As a percentage of net
revenues, SG&A expenses for the Company remained essentially unchanged from the
prior year at 30%.
R&D expenses of $152.2 million increased 25.9% over the prior year, or 21.2%
excluding Tecan. R&D spending in PE Biosystems increased 37.0%, or 29.8%
excluding Tecan, over the prior year as the Company continued its product
development efforts and preparation for new product launches in this segment.
The division's spending accounted for 71% of the Company's R&D expenses. R&D
expenses for Analytical Instruments remained essentially unchanged compared with
the prior year. As a percentage of net revenues, the Company's R&D expenses
increased to 9.9% compared with 8.8% for the prior year.
During fiscal 1998, the Company recorded $48.1 million of charges for
restructuring and other merger costs to integrate PerSeptive into the Company
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. The Company 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 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.
The restructuring plan actions announced in the fourth quarter of fiscal
1997 have been proceeding as planned. These actions focused on the transition of
Analytical Instruments from a highly vertical manufacturing operation to one
that relies more on outsourcing functions not considered core competencies. The
plan also included actions to finalize consolidation of sales and administrative
support, primarily in Europe (see Note 10 to the consolidated financial
statements). For the year ended June 30, 1998, the Company achieved
approximately $9 million in before-tax savings attributable to this plan,
IV-7
<PAGE>
and expects to achieve approximately $19 million in succeeding fiscal years.
Fiscal 1998 included $28.9 million of purchased in-process research and
development associated with the acquisition of Molecular Informatics. In fiscal
1997, the Company recorded a charge of $26.8 million primarily for in-process
research and development related to the acquisition of GenScope.
Operating income decreased to $94.5 million for fiscal 1998 compared with
$103.0 million for the prior year. Excluding special items, operating income
increased 14.1% to $171.4 million for fiscal 1998 compared with $150.3 million
for fiscal 1997. Excluding Tecan and special items, operating income increased
by 9% compared with the prior year. On a comparable basis excluding special
items, Tecan, and the effects of currency translation, operating income would
have increased 26% compared with the prior year. The effects of currency
translation decreased operating income by approximately $25 million compared
with the prior year. A combination of revenue growth in PE Biosystems and
reduced expense levels, resulting in part from restructuring plans in Analytical
Instruments, contributed to the improvement.
OPERATING INCOME BY BUSINESS SEGMENT
<TABLE>
<CAPTION>
PE ANALYTICAL
(DOLLAR AMOUNTS IN MILLIONS) BIOSYSTEMS INSTRUMENTS
- ------------------------------ ------------- ---------------
<S> <C> <C>
1997
Segment income................ $ 125.4 $ 56.1
Restructuring................. (13.0)
Acquired R&D.................. (26.8)
Impairment of assets.......... (.7) (6.8)
------ -----
Operating income............ $ 97.9 $ 36.3
------ -----
------ -----
1998
Segment income................ $ 150.8 $ 57.4
Restructuring and other merger
costs....................... (48.1)
Acquired R&D.................. (28.9)
------ -----
Operating income............ $ 73.8 $ 57.4
------ -----
------ -----
</TABLE>
Operating income for PE Biosystems decreased to $73.8 million for fiscal
1998 compared with $97.9 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 $25.4 million, or 20.3%,
primarily as a result of increased volume and improved margins. Excluding Tecan,
operating income increased 14.5% compared with the prior year. Before the
effects of currency translation and excluding Tecan, fiscal 1998 operating
income increased 28.1% compared with the prior year. Geographically, fiscal 1998
segment income increased 39% in the United States, 20% in the Far East, and 17%
in Europe compared with fiscal 1997. A 23.5% increase in operating income from
higher-margin sequencing and mapping systems was the primary contributor.
Excluding the effects of currency translation, segment income would have
increased approximately 34%. As a percentage of net revenues, segment income,
before special items, remained essentially unchanged compared with the prior
year.
Operating income for Analytical Instruments increased to $57.4 million for
fiscal 1998 compared with $36.3 million for fiscal 1997. Operating income for
the division, excluding the fiscal 1997 charges for restructuring costs and
impairment of assets, increased by 2.3% compared with the prior year. Lower
expense levels resulting from cost control and the actions of the restructuring
programs were essentially offset by lower sales volume. Excluding currency
effects, segment income would have increased approximately 17%. As a percentage
of net revenues, segment income before special items increased to 9.4% for
fiscal 1998 from 9.0% for fiscal 1997.
In fiscal 1998 and 1997, the Company 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 $5.9 million for fiscal 1998
compared with
IV-8
<PAGE>
$8.8 million for the prior year, primarily because of lower cash balances
resulting from the use of cash to fund the Company's continued investments and
acquisitions in the life science segment, as well as from lower interest rates.
Other income, net for fiscal 1998 of $3.5 million, primarily related to the
sale of certain operating and non-operating assets, compared with other income,
net of $1.8 million for the prior year.
The Company's effective tax rate was 38.4% for fiscal 1998 and 24.5% 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 21% for fiscal 1997. The rate for fiscal 1997 was favorably impacted by
PerSeptive's utilization of loss carryforwards. 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 the Company's 14.5% financial interest in Tecan (see Note 2 to the
consolidated financial statements).
RESULTS OF OPERATIONS--1997 COMPARED WITH 1996
The Company reported net income of $130.4 million, or $2.63 per diluted
share, for fiscal 1997 compared with a net loss of $36.5 million, or $.80 per
diluted share, for fiscal 1996. On a comparable basis, excluding the special
items previously described, net income and earnings per diluted share increased
49.5% and 39.5%, respectively.
Net revenues for fiscal 1997 were $1,373.3 million, an increase of 10% over
the $1,249.0 million reported for fiscal 1996. The effects of currency rate
movements decreased net revenues by approximately $45 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 increased 13.4% over the prior year, benefiting
from growth in both PE Biosystems and Analytical Instruments. Net revenues in
Europe and the Far East increased 8.6% and 8.2%, respectively, as higher
revenues from PE Biosystems were partially offset by decreases in Analytical
Instruments' revenues. In Europe, a 26.3% increase in revenues from PE
Biosystems was partially offset by a 2.3% decline in Analytical Instruments'
revenues. In the Far East, a 16.3% increase in PE Biosystems revenues was
partially offset by a 2.3% decrease in Analytical Instruments' revenues.
Excluding currency effects, total revenues in Europe and the Far East would have
increased approximately 13% and 18%, respectively.
NET REVENUES BY BUSINESS SEGMENT
<TABLE>
<CAPTION>
(DOLLAR AMOUNTS IN MILLIONS) 1996 1997
- ------------------------------- --------- ---------
<S> <C> <C>
PE Biosystems.................. $ 618.4 $ 749.2
Analytical Instruments......... 630.6 624.1
--------- ---------
$ 1,249.0 $ 1,373.3
--------- ---------
--------- ---------
</TABLE>
Including currency effects, which reduced reported revenues by approximately
$25 million, or 4%, net revenues of PE Biosystems increased 21.2% over fiscal
1996. Net revenues in the United States, Europe, and the Far East increased
20.7%, 26.3%, and 16.3%, respectively. Increased demand for genetic analysis,
LC/MS, and the PCR product lines was the primary contributor.
Analytical Instruments experienced a 1% decline in net revenues compared
with the prior year. Currency rate movements reduced revenues by approximately
$20 million, or 3%. While revenues in the United States increased 2.5%, this was
offset by a decrease of 2.3% in both Europe and the Far East. Excluding the
effects of currency translation, revenues in Europe and the Far East would have
increased approximately 2% and 4%, respectively.
Gross margin as a percentage of net revenues was 49.5% for fiscal 1997
compared with 47.7% for fiscal 1996. Excluding the $7.5 million and $9.9 million
charges for impaired assets, recorded in cost of sales, for fiscal 1997 and
1996, respectively, gross margin was 50.1% compared with 48.5%. Both divisions
experienced improved gross margin for fiscal
IV-9
<PAGE>
1997. PE Biosystems' improvement was the result of the overall unit volume
increase and product mix. The benefits realized from the fiscal 1996
restructuring plan, combined with a more favorable product mix, contributed to
an improved gross margin for Analytical Instruments.
SG&A expenses were $416.3 million for fiscal 1997 compared with $380.4
million for fiscal 1996, an increase of 9.4%. Lower expense levels resulting
from cost controls and the actions of the restructuring programs in Analytical
Instruments were more than offset by increased expenses of 20.5% in PE
Biosystems and costs for the Company's restricted stock and performance-based
compensation programs, including a long-term divisional plan that was effective
for fiscal 1997. The total expense for the restricted stock, performance-based
programs, and long-term division plan was $26.3 million and $11.8 million for
fiscal 1997 and 1996, respectively. As a percentage of net revenues, SG&A
expenses for the Company remained essentially unchanged at approximately 30% for
both fiscal 1997 and fiscal 1996.
R&D expenses were $120.9 million for fiscal 1997 compared with $113.7
million for fiscal 1996. R&D spending in PE Biosystems increased 29.2% over the
prior year as the Company continued its product development efforts for the
bioresearch markets. In fiscal 1997, Analytical Instruments recorded a 20.9%
decrease in R&D expenditures, which reflected the objectives of restructuring
actions and product line reviews.
Operating income for fiscal 1997 was $103.0 million compared with an
operating loss of $21.5 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 for PE Biosystems. Fiscal 1997 and 1996
also included charges for restructuring of $13.0 million and $89.1 million,
respectively. On a comparable basis, excluding special items in both years,
operating income increased 34.9% compared with the prior year.
During the fourth quarter of fiscal 1997, the Company announced a follow-on
phase to Analytical Instruments' profit improvement program. The restructuring
cost for this action was $24.2 million 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 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 seventeen facilities were closed.
The workforce reductions under this action totaled 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 the functions to
be outsourced.
The fiscal 1996 restructuring charge included $71.6 million for the first
phase of Analytical Instruments' profit improvement plan. In connection with the
program, the division was reorganized into three vertically integrated, fiscally
accountable operating units, a distribution center in Holland was established 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 costs and asset-related write-offs associated with the
discontinuation of various product lines. In the fourth quarter of fiscal 1997,
the Company finalized the actions associated with this program. The costs to
implement the program were $11.2 million less than the $71.6 million charge
recorded in fiscal 1996. As a result, during the fourth quarter of fiscal 1997,
the
IV-10
<PAGE>
Company recorded an $11.2 million reduction of charges required to implement the
fiscal 1996 program.
Fiscal 1996 also included a restructuring charge of $17.5 million for
restructuring actions and other related costs associated with PerSeptive.
OPERATING INCOME (LOSS) BY BUSINESS SEGMENT
<TABLE>
<CAPTION>
PE ANALYTICAL
(DOLLAR AMOUNTS IN MILLIONS) BIOSYSTEMS INSTRUMENTS
- ---------------------------- ------------- -------------
<S> <C> <C>
1996
Segment income.............. $ 107.2 $ 28.7
Restructuring............... (17.5) (71.6)
Acquired R&D................ (33.9)
Impairment of assets........ (9.9)
------ ------
Operating income.......... $ 45.9 $ (42.9)
------ ------
------ ------
1997
Segment income.............. $ 125.4 $ 56.1
Restructuring............... (13.0)
Acquired R&D................ (26.8)
Impairment of assets........ (.7) (6.8)
------ ------
Operating income (loss)... $ 97.9 $ 36.3
------ ------
------ ------
</TABLE>
Operating income for PE Biosystems, excluding special items, increased $18.2
million, or 17.0%, as a result of increased volume and improved margin. All
geographic markets contributed to the improved segment income. An increase in
operating income from high-margin sequencing systems was the primary
contributor. The strongest growth was in Europe, where fiscal 1997 segment
income increased 33% compared with fiscal 1996. Excluding currency translation
effects, segment income would have increased approximately 27%. As a percentage
of net revenues, segment income decreased to 16.7% for fiscal 1997 from 17.3%
for fiscal 1996.
Operating income for Analytical Instruments, excluding the charges for
restructuring and impairment of assets, increased to $56.1 million for fiscal
1997 from $28.7 million for fiscal 1996. As a percentage of net revenues,
segment income increased to 9.0% for fiscal 1997 from 4.6% for fiscal 1996. The
cost savings realized from the restructuring actions and cost controls were the
primary reasons for the improvement. Compared with the prior year, operating
income in Europe decreased 2.9% resulting primarily from the effects of a
stronger U.S. dollar and was more than offset by improvements in other
geographic areas, primarily the United States.
In fiscal 1997 and 1996, the Company 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 $1.8 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 24.5%. Fiscal 1996
incurred a provision of $21.6 million on a before-tax loss of $15.0 million.
Both years were impacted by special items. 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, the Company reduced its 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
The Company operates internationally, with manufacturing and distribution
facilities in various countries throughout the world. For the
IV-11
<PAGE>
first quarter of fiscal 1999 and for fiscal 1998, the Company derived
approximately 53% and 57%, 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.
The Company'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 Company does not use derivative
financial instruments for trading or other speculative purposes, nor is the
Company a party to leveraged derivatives. At September 30, 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.
The Company performed a sensitivity analysis as of September 30, 1998 and
June 30, 1998 assuming a hypothetical 10% adverse movement in foreign currency
exchange rates applied to its outstanding hedge contracts and associated
exposures. The analysis indicated that such a market movement would not have had
a material effect on the Company's consolidated financial position, results of
operations, or cash flows. Actual gains and losses in the future could, however,
differ materially from this analysis, based on changes in the timing and amount
of foreign currency exchange rate movements and the Company's actual exposures
and hedges.
Interest rate swaps are used to hedge underlying debt obligations. In fiscal
1997, the Company executed an interest rate swap in conjunction with its
entering into a five-year Japanese Yen debt obligation. Under the terms of the
swap agreement, the Company pays a fixed rate of interest at 2.1% and receives a
floating LIBOR interest rate. At September 30, 1998 and June 30, 1998, the
notional amount of indebtedness covered by the interest rate swap was Yen 3.8
billion ($28.0 million at September 30, 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.
Based on the Company's overall interest rate exposure at September 30, 1998
and June 30, 1998, including derivative and other interest rate sensitive
instruments, a near-term change in interest rates would not materially affect
the consolidated financial position, results of operations, or cash flows of the
Company. Further discussion of the Company's foreign currency and interest rate
management activities is provided in Note 12 to the consolidated financial
statements.
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 were $71.8 million at September 30, 1998, $82.9
million at June 30, 1998, and $213.0 million at June 30, 1997, with total debt
of $88.4 million at September 30, 1998, $45.8 million at June 30, 1998, and
$89.1 million at June 30, 1997. Working capital was $291.9 million at September
30, 1998, $288.0 million at June 30, 1998, and $354.7 million at June 30, 1997.
Debt to total capitalization increased to 13% at September 30, 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
At September 30, 1998 accounts receivable of $376.4 million remained
essentially unchanged from the June 30, 1998 balance of $374.9 million. The
inventory balance increased by $17.1 million from June 30, 1998, resulting from
growth in PE Biosystems, partially offset by a decline in Analytical
Instruments.
IV-12
<PAGE>
Accounts receivable and inventory balances increased from June 30, 1997 to
June 30, 1998 by $41.0 million and $25.4 million, respectively. Excluding Tecan,
accounts receivable and inventory balances increased by $19.5 million and $15.6
million, respectively, from June 30, 1997 to June 30, 1998, reflecting the
growth in PE Biosystems.
Other long-term assets decreased by $4.7 million at September 30, 1998 to
$274.8 million from $279.5 million at June 30, 1998. Other long-term assets
increased to $279.5 million at June 30, 1998 from $192.1 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 for PE Biosystems, and a $10.2 million increase in prepaid pension
asset, partially offset by the sale of certain non-operating assets.
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 Company's common stock.
Accounts payable decreased $40.2 million to $125.1 million at September 30,
1998 from $165.3 million at June 30, 1998 reflecting payments for higher
purchases made during the fourth quarter of fiscal 1998. Accounts payable
increased $33.9 million to $165.3 million at June 30, 1998 from $131.4 million
at June 30, 1997. The increase resulted from higher purchases to support
production and operating requirements.
At September 30, 1998 and June 30, 1998, $49.2 million and $43.8 million,
respectively, of minority interest was recognized in connection with Tecan.
STATEMENTS OF CASH FLOWS
Net cash used by operating activities was $21.0 million for the first three
months of fiscal 1999 compared with $18.6 million for the same period in fiscal
1998. For the first three months of fiscal 1999, lower net income-related cash
flow and higher payments to suppliers were partially offset by lower accounts
receivable and prepaid expenses, primarily from the collection of non-trade
receivables.
Operating activities generated $78.2 million of cash in fiscal 1998 compared
with $113.2 million in fiscal 1997 and $90.9 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. The increase related primarily to PE
Biosystems, reflecting the division's continued growth.
Net cash used by investing activities was $28.8 million for the first three
months of fiscal 1999 compared with $26.3 million for the first three months of
fiscal 1998. In the first quarter of fiscal 1999, the Company generated $14.3
million in net cash proceeds from the sale of certain non-operating assets,
compared with $13.9 million in the prior year from the sale of certain
non-operating assets and the collection of a note receivable. For the first
three months of fiscal 1999 cash proceeds were more than offset by capital
expenditures of $43.8 million, which included $9.5 million related to
improvement of the Company's information technology infrastructure, and $17.5
million for the acquisition of a corporate airplane. For the first three months
of fiscal 1998 cash proceeds were more than offset by capital expenditures of
$34.1 million, primarily related to improvement of the Company's information
technology infrastructure, and $7.2 million related to various investments and
collaborations. In fiscal 1998 net cash used by investing activities was
IV-13
<PAGE>
$169.9 million compared with net cash provided by investing activities of $13.4
million in fiscal 1997. During fiscal 1998, the Company 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 $116.7
million of capital expenditures and $98.0 million for acquisitions and
investments, primarily Tecan and Molecular Informatics (see Note 2 to the
consolidated financial statements). For fiscal 1997, the Company generated $99.7
million in net cash proceeds from the sale of its 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 GenScope (see Note 2 to the
consolidated financial statements), and $69.8 million for capital expenditures.
In fiscal 1996, $119.2 million of cash was used for acquisitions and $44.3
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.
Capital expenditures for the three months ended September 30, 1998 were
$43.8 million: $14.0 million for PE Biosystems, $1.7 million for Analytical
Instruments, and $28.1 million for corporate. This compared with $34.1 million
in the prior year. As previously mentioned, the first quarter's capital
expenditures included $17.5 million for the acquisition of a corporate airplane
and $9.5 million for information technology improvements. Fiscal 1998 capital
expenditures were $116.7 million: $72.6 million for PE Biosystems, $42.9 million
for Analytical Instruments, and $1.2 million for corporate. The Company's
expenditures included $65.9 million as part of the strategic program to improve
its information technology infrastructure. Capital expenditures for fiscal 1997
totaled $69.8 million: $42.1 million for PE Biosystems, $14.1 million for
Analytical Instruments, and $13.6 million for corporate. Fiscal 1997
expenditures included $11.1 million for information technology infrastructure
improvements and $12.1 million for the acquisition of a corporate airplane.
Net cash provided by financing activities was $36.5 million in the first
quarter of fiscal 1999 compared with a net cash use of $.2 million in the prior
period. In the first quarter of fiscal 1999, the Company received $6.4 million
in proceeds from employee stock option plan exercises compared with $2.9 million
in the prior period. Loans payable increased $43.8 million in the first quarter
of fiscal 1999 compared with an increase of $4.3 million for the prior year. 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, the Company generated $1.8 million
from the sale of equity put warrants (see Note 7 to the consolidated financial
statements) 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 the
Company's various stock plans. No shares were repurchased during fiscal 1998.
As previously mentioned, the Company recorded before-tax restructuring
charges and other merger costs of $48.1 million, $24.2 million, and $89.1
million in fiscal 1998, 1997, and 1996, respectively. Fiscal 1997 also included
an $11.2 million before-tax reduction of charges associated with the fiscal 1996
restructuring plan. During fiscal 1998, the Company made cash payments of $39.5
million for obligations related to restructuring plans and other merger costs.
Liabilities remaining at June 30, 1998 were $26.9 million and $4.4 million for
the fiscal 1998 and 1997 plans, respectively (see Note 10 to the consolidated
financial statements). The funding for the remaining restructuring liabilities
will be from
IV-14
<PAGE>
current cash balances, including realized benefits from the restructuring
activities.
The Company 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, the Company had unused credit facilities totaling $343 million.
IMPACT OF INFLATION AND CHANGING PRICES
Inflation and changing prices are continually monitored. The Company
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
Company attempts to recover such costs by increasing, over time, the selling
price of its products and services. The Company 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, the Company initiated a worldwide program to assess the
expected impact of the Year 2000 date recognition problem on its existing
internal computer systems, including embedded and process-control systems,
product offerings, and significant suppliers. The purpose of this program is to
ensure the event does not have a material adverse effect on the Company's
business operations.
Regarding the Company'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 in the United States by December 31,
1998, and 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 the Company's 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 the Company expects its
current product offerings to be Year 2000 compliant by December 31, 1999. A
substantial portion of the Company's current product offerings are Year 2000
compliant.
The program also addresses the Year 2000 compliance efforts of the Company's
significant suppliers, vendors, and third-party interface systems. As part of
this analysis, the Company is seeking written assurances from these suppliers,
vendors, and third parties that they will be Year 2000 compliant. While the
Company has begun such efforts, there can be no assurance that the systems of
other companies with which the Company deals, or on which the Company'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 the Company. The Company has
not fully determined the extent to which the Company's interface systems may be
impacted by third parties' systems, which may not be Year 2000 compliant.
The Company'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 the Company's information systems, production and
facilities equipment. The redirection of spending to implement Year 2000
compliance plans may in some instances delay productivity improvements.
IV-15
<PAGE>
The Company has also engaged a consulting firm to provide periodic
assessments of the Company's Year 2000 project plans and progress. Because of
the importance of addressing the Year 2000 problem, the Company 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 the Company's Year 2000 compliance plan in a timely manner.
If the Company 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 the
Company's consolidated results of operations and financial condition.
At this stage of the process, the Company 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 the Company's operations and have a material
adverse effect on the Company's financial condition. The impact of such
disruption cannot be estimated at this time. In the event the Company believes
that any of its significant suppliers or vendors are unlikely to be able to
resolve their own Year 2000 issues, the Company's contingency plan would include
seeking additional sources of supply.
EURO CONVERSION
A single currency called the euro will be introduced in Europe on January 1,
1999. Eleven of the fifteen member countries of the European Union have 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 will be 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 Company is currently evaluating the impact of the euro conversion on its
computer and financial systems, business processes, market risk, and price
competition. The Company 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 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. The Company
is required to implement the statement 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.
The FASB issued the following Statement of Financial Accounting Standards,
which will become effective for the Company'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 consolidated financial statements of the Company.
IV-16
<PAGE>
OUTLOOK
PE Biosystems is expected to continue to grow and maintain profitability for
fiscal 1999 on the strength of robust demand and several new products. Excluding
Tecan, orders for PE Biosystems products increased by 35% over the first quarter
a year ago, and the backlog in orders for the first quarter was $119 million
compared with $98 million at the end of fiscal 1998. Orders were particularly
strong for genetic analysis systems, sequence detection systems, and products
for applied markets, such as forensics, that are driven by molecular
biology-based reagents. PE Biosystems also began taking orders for its ABI
PRISM-Registered Trademark- 3700 DNA Analyzer, which was introduced late in the
quarter. Excluding orders from Celera Genomics, the division accepted orders for
more than 70 units of the 3700 in the first two weeks following its
introduction. Shipments of the 3700 DNA Analyzer to early-access customers and
Celera Genomics are expected to begin during the second quarter. Other
significant new PE Biosystems instrument systems and services introduced during
the quarter include: several applied genetic analysis kits, including one for
HIV profiling; high-throughput drug discovery screening services through Tropix;
and FMAT, a new bioassay system to detect cells in vitro for drug discovery,
which was developed in collaboration with Biometric Imaging, Inc. These products
began generating revenues late in the quarter and are expected to contribute to
revenues over the balance of the year.
The Company is on schedule in establishing operations at Celera Genomics.
About 50 employees were employed as of September 30, 1998 and construction is
under way on laboratories and related facilities. A strategic alliance has been
formed with Compaq Computer Corporation for integrated hardware, software,
networking, and support services. During the quarter, the Company announced
that, subject to shareholder and final Board approval, it plans to distribute a
new class of common stock intended to track the separate performance of Celera
Genomics. The Company believes a number of objectives relate to this targeted
stock structure including: allowing each business autonomy while capitalizing on
the synergies of its sister business; accommodating investor interests by
creating an equity that closely monitors the performance of a focused business;
providing an efficient acquisition currency; and maintaining the financial
benefits of a single organization, such as tax efficiency and credit
availability. The Company also intends to begin segment reporting of Celera
Genomics in the second quarter of this fiscal year.
For Analytical Instruments, revenue growth is expected to be in the low
single digits for fiscal 1999. The Company has engaged Warburg Dillon Read LLC
to explore strategic alternatives for the analytical instruments business.
Options to be explored include selling the business, spinning it off as a
separate company, or retaining it as part of the Company. The Company expects to
announce the conclusion of this process by early 1999.
Adverse currency effects remain a concern for the Company because
approximately 53% of its revenues were derived from regions outside the United
States as of September 30, 1998. Recently, the U.S. dollar has weakened, which
should moderate the effects of currency translation for fiscal 1999. If currency
rates are maintained at current levels, the negative effects of currency
translation may be eliminated by the third quarter of this fiscal year.
FORWARD LOOKING STATEMENTS
Certain statements contained in this Management's Discussion and Analysis,
including the Outlook section, are forward looking and are subject to a variety
of risks and uncertainties. These statements 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 upon the Company's 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, the Company notes
IV-17
<PAGE>
that a variety of factors, discussed in detail under "Risk Factors," could cause
the Company's actual results and experience to differ materially from the
anticipated results or other expectations expressed in such forward looking
statements. The risks and uncertainties that may affect the operations,
performance, development, and results of the Company's business include, but are
not limited to:
FOR THE PERKIN-ELMER GROUP
- - Dependence on new products and rapid technological change;
- - Substantial competition;
- - Sales dependent on customers' capital spending policies;
- - Patents, proprietary technology and trade secrets;
- - Government sponsored research dependent on funding;
- - Dependence on key employees;
- - Currency exchange risks; other risks of international sales and operations;
- - Potential difficulties in implementing business strategy;
- - Year 2000;
- - Other risks, including the impact of earthquakes; and
- - Future performance
FOR THE CELERA GENOMICS GROUP
- - Early stage of operations;
- - No precedent for Celera Genomics' business plan;
- - Need to manage rapid growth;
- - Uncertainty of sequencing strategy;
- - Uncertainty of successful operation of new sequencers;
- - Uncertainty of sequencing operations;
- - Uncertainty of value of polymorphism data;
- - Initial reliance on pharmaceutical industry;
- - Anticipated future losses; uncertainty of operating results;
- - Highly dependent on key employees;
- - Uncertain protection of intellectual property and proprietary rights;
- - Adverse effect of public disclosure of genomic sequence data;
- - Highly competitive business; and
- - Year 2000.
IV-18
<PAGE>
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
IV-19
<PAGE>
THE PERKIN-ELMER CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
FOR THE THREE MONTHS
ENDED
FOR THE YEARS ENDED JUNE 30, SEPTEMBER 30,
---------------------------------------- ----------------------
<S> <C> <C> <C> <C> <C>
(DOLLAR AMOUNTS IN THOUSANDS
EXCEPT PER SHARE AMOUNTS) 1996 1997 1998 1997 1998
- ----------------------------------------------- ------------ ------------ ------------ ---------- ----------
<CAPTION>
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
NET REVENUES................................... $ 1,248,967 $ 1,373,282 $ 1,531,165 $ 322,707 $ 375,785
Cost of sales.................................. 653,427 693,343 752,045 165,311 184,143
------------ ------------ ------------ ---------- ----------
GROSS MARGIN................................... 595,540 679,939 779,120 157,396 191,642
------------ ------------ ------------ ---------- ----------
Selling, general and administrative............ 380,390 416,305 459,635 100,923 117,390
Research, development and engineering.......... 113,680 120,875 152,202 31,516 47,002
Restructuring and other merger costs........... 89,054 13,000 43,980 -- 938
Acquired research and development.............. 33,878 26,801 28,850 -- --
------------ ------------ ------------ ---------- ----------
OPERATING INCOME (LOSS)........................ (21,462) 102,958 94,453 24,957 26,312
Gain on investments............................ 11,704 64,850 1,605 845 --
Interest expense............................... 8,444 5,859 4,905 1,275 802
Interest income................................ 5,376 8,826 5,938 2,358 490
Other income (expense), net.................... (2,140) 1,846 3,511 373 1,707
------------ ------------ ------------ ---------- ----------
INCOME (LOSS) BEFORE INCOME TAXES.............. (14,966) 172,621 100,602 27,258 27,707
Provision for income taxes..................... 21,557 42,223 38,617 5,837 7,590
Minority interest.............................. -- -- 5,597 -- 3,108
------------ ------------ ------------ ---------- ----------
NET INCOME (LOSS).............................. $ (36,523) $ 130,398 $ 56,388 $ 21,421 $ 17,009
------------ ------------ ------------ ---------- ----------
------------ ------------ ------------ ---------- ----------
NET INCOME (LOSS) PER SHARE:
Basic.......................................... $ (0.80) $ 2.74 $ 1.16 $ 0.45 $ 0.34
Diluted........................................ $ (0.80) $ 2.63 $ 1.12 $ 0.43 $ 0.34
</TABLE>
SEE ACCOMPANYING NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.
IV-20
<PAGE>
THE PERKIN-ELMER CORPORATION
CONSOLIDATED STATEMENTS OF FINANCIAL POSITION
<TABLE>
<CAPTION>
AT JUNE 30, AT
-------------------------- SEPTEMBER 30,
(DOLLAR AMOUNTS IN THOUSANDS) 1997 1998 1998
- ----------------------------------------------------------------------- ------------ ------------ -------------
<S> <C> <C> <C>
(UNAUDITED)
ASSETS
Current assets
Cash and cash equivalents............................................ $ 213,028 $ 82,865 $ 71,848
Short-term investments............................................... 4,194 1,226 --
Accounts receivable, less allowances for doubtful accounts of $7,407,
$9,277, and $9,932 at June 30, 1997 and 1998, and September 30,
1998 (unaudited)................................................... 333,915 374,898 376,382
Inventories.......................................................... 214,618 240,031 257,171
Prepaid expenses and other current assets............................ 83,576 97,116 97,881
------------ ------------ -------------
Total current assets................................................... 849,331 796,136 803,282
Property, plant and equipment, net..................................... 197,367 258,800 285,084
Other long-term assets................................................. 192,051 279,538 274,768
------------ ------------ -------------
TOTAL ASSETS........................................................... $ 1,238,749 $ 1,334,474 $ 1,363,134
------------ ------------ -------------
------------ ------------ -------------
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities
Loans payable........................................................ $ 29,916 $ 12,099 $ 58,794
Accounts payable..................................................... 131,413 165,289 125,081
Accrued salaries and wages........................................... 48,183 48,999 46,602
Accrued taxes on income.............................................. 98,307 79,860 80,598
Other accrued expenses............................................... 186,771 201,898 200,263
------------ ------------ -------------
Total current liabilities.............................................. 494,590 508,145 511,338
Long-term debt......................................................... 59,152 33,726 29,650
Other long-term liabilities............................................ 180,737 184,598 192,981
------------ ------------ -------------
Total liabilities...................................................... 734,479 726,469 733,969
------------ ------------ -------------
Minority interest...................................................... -- 43,757 49,177
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 50,148,384 at June 30, 1997 and
1998 and September 30, 1998 (unaudited)............................ 50,122 50,148 50,148
Capital in excess of par value....................................... 374,423 379,974 376,880
Retained earnings.................................................... 167,482 190,966 197,656
Accumulated other comprehensive income............................... (2,671) (9,513) (7,328)
Treasury stock, at cost (shares: 1,795,563; 831,213; and 630,248 at
June 30, 1997 and 1998, and September 30, 1998 (unaudited))........ (85,086) (47,327) (37,368)
------------ ------------ -------------
Total shareholders' equity............................................. 504,270 564,248 579,988
------------ ------------ -------------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY............................. $ 1,238,749 $ 1,334,474 $ 1,363,134
------------ ------------ -------------
------------ ------------ -------------
</TABLE>
SEE ACCOMPANYING NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.
IV-21
<PAGE>
THE PERKIN-ELMER CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
FOR THE THREE MONTHS
FOR THE YEARS ENDED JUNE 30, ENDED
SEPTEMBER 30,
------------------------------- --------------------
(DOLLAR AMOUNTS IN THOUSANDS) 1996 1997 1998 1997 1998
- ---------------------------------------------------------------------- --------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C>
<CAPTION>
OPERATING ACTIVITIES (UNAUDITED)
<S> <C> <C> <C> <C> <C>
Net income (loss)..................................................... $ (36,523) $ 130,398 $ 56,388 $ 21,421 $ 17,009
Adjustments to reconcile net income (loss) to net cash
provided (used) by operating activities:
Depreciation and amortization..................................... 51,770 43,879 53,126 9,702 13,340
Long-term compensation programs................................... 5,072 11,678 8,062 1,382 939
Deferred income taxes............................................. (13,110) (37,799) 12,892 (961) (1,896)
Gains from the sale of assets..................................... (11,704) (66,636) (3,052) -- --
Provision for restructured operations and other merger costs...... 89,054 13,000 48,080 -- --
Acquired research and development................................. 33,878 26,801 28,850 -- --
Impairment of assets.............................................. 9,906 7,500 -- -- --
Changes in operating assets and liabilities:
(Increase) decrease in accounts receivable.......................... (33,141) (68,313) (26,637) 774 7,022
(Increase) decrease in inventories.................................. (11,225) 5,198 (24,975) (13,508) (12,043)
Increase in prepaid expenses and other assets....................... (8,959) (3,662) (48,298) (15,033) (2,390)
Increase (decrease) in accounts payable and other liabilities....... 15,890 51,151 (26,277) (22,375) (42,951)
--------- --------- --------- --------- ---------
NET CASH PROVIDED (USED) BY OPERATING ACTIVITIES...................... 90,908 113,195 78,159 (18,598) (20,970)
--------- --------- --------- --------- ---------
INVESTING ACTIVITIES
Additions to property, plant and equipment (net of disposals of
$4,927, $6,188, $15,588, $1,152 (unaudited), and $695 (unaudited),
respectively)....................................................... (39,382) (63,634) (101,120) (32,943) (43,098)
Acquisitions and investments, net..................................... (119,189) (27,676) (97,998) (7,238) --
Proceeds from the sale of assets, net................................. 102,318 99,710 19,496 4,195 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...................... (50,480) 13,378 (169,949) (26,313) (28,797)
--------- --------- --------- --------- ---------
FINANCING ACTIVITIES
Net change in loans payable........................................... (17,040) (4,914) (6,797) 4,327 43,837
Proceeds from long-term debt.......................................... -- 31,033 -- -- --
Principal payments on long-term debt.................................. -- (22,908) (25,449) -- (5,297)
Dividends............................................................. (29,095) (29,459) (39,072) (7,454) (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 2,889 6,375
--------- --------- --------- --------- ---------
NET CASH PROVIDED (USED) BY FINANCING ACTIVITIES...................... (22,209) (15,891) (37,689) (238) 36,519
--------- --------- --------- --------- ---------
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) 1,020 2,231
--------- --------- --------- --------- ---------
NET CHANGE IN CASH AND CASH EQUIVALENTS............................... 15,520 112,283 (130,163) (41,539) (11,017)
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 $ 171,489 $ 71,848
--------- --------- --------- --------- ---------
--------- --------- --------- --------- ---------
</TABLE>
SEE ACCOMPANYING NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.
IV-22
<PAGE>
THE PERKIN-ELMER CORPORATION
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
AND COMPREHENSIVE INCOME (LOSS)
<TABLE>
<CAPTION>
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
- ------------------------------------------------------- ----------- ----------- ----------- ------------- --------- ---------
<S> <C> <C> <C> <C> <C> <C>
BALANCE AT JUNE 30, 1995............................... $ 48,760 $ 311,043 $ 142,741 $ (24,415) $(108,322) (3,490)
Comprehensive loss
Net loss............................................. -- -- (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 -- --
Comprehensive loss..................................... -- -- -- -- -- --
Cash dividends declared................................ -- -- (29,095) -- -- --
Share repurchases...................................... -- -- -- -- (41,028) (800)
Shares issued under stock plans........................ 45 1,336 (5,627) -- 51,202 1,559
Tax benefit related to employee stock options.......... -- 5,280 -- -- -- --
Restricted stock plan.................................. -- 4,079 -- -- 993 30
Common stock issuances for acquisitions................ 1,077 34,796 -- -- -- --
Other.................................................. 144 1,920 (1,977) -- -- --
----------- ----------- ----------- -------------- --------- ---------
BALANCE AT JUNE 30, 1996............................... 50,026 358,454 69,519 (7,117) (97,155) (2,701)
Comprehensive income
Net income........................................... -- -- 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 -- --
Comprehensive income................................... -- -- -- -- -- --
Cash dividends declared................................ -- -- (29,536) -- -- --
Share repurchases...................................... -- -- -- -- (25,126) (428)
Shares issued under stock plans........................ 61 2,065 (1,459) -- 31,615 1,146
Tax benefit related to employee stock options.......... -- 4,568 -- -- -- --
Restricted stock plan.................................. -- 6,098 -- -- 5,580 187
Sale of equity put warrants............................ -- 1,846 -- -- -- --
Other.................................................. 35 1,392 (1,440) -- -- --
----------- ----------- ----------- -------------- -------- ---------
BALANCE AT JUNE 30, 1997............................... 50,122 374,423 167,482 (2,671) (85,086) (1,796)
Comprehensive income
Net income........................................... -- -- 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) -- --
Comprehensive income................................... -- -- -- -- -- --
Cash dividends declared................................ -- -- (31,604) -- -- --
Shares issued under stock plans........................ 26 1,358 (3,468) -- 37,759 965
Tax benefit related to employee stock options.......... -- 2,335 -- -- -- --
Restricted stock plan.................................. -- 1,858 (136) -- -- --
Elimination of PerSeptive results from July 1, 1997 to
September 30, 1997 (see Note 1)...................... -- -- 2,590 -- -- --
Other.................................................. -- -- (286) -- -- --
----------- ----------- ----------- -------------- --------- ---------
BALANCE AT JUNE 30, 1998............................... 50,148 379,974 190,966 (9,513) (47,327) (831)
Comprehensive income
Net income........................................... -- -- 17,009 -- -- --
Other comprehensive income, net of tax
Foreign currency translation adjustments........... -- -- -- 6,197 -- --
Unrealized loss on investments, net................ -- -- -- (4,012) -- --
--------------
Other comprehensive income........................... -- -- -- 2,185 -- --
Comprehensive income................................... -- -- -- -- -- --
Cash dividends declared................................ -- -- (8,396) -- -- --
Shares issued under stock plans........................ -- -- (3,130) -- 7,986 159
Restricted stock plan.................................. -- (3,094) 1,207 -- 1,973 42
----------- ----------- ----------- -------------- --------- ---------
BALANCE AT SEPTEMBER 30, 1998 (UNAUDITED).............. $ 50,148 $ 376,880 $ 197,656 $ (7,328) $ (37,368) (630)
----------- ----------- ----------- -------------- --------- ---------
----------- ----------- ----------- -------------- --------- ---------
<CAPTION>
(DOLLAR AMOUNTS AND SHARES IN THOUSANDS) TOTAL
- ------------------------------------------------------- ----------
<S> <C>
BALANCE AT JUNE 30, 1995............................... $ 369,807
Comprehensive loss
Net loss............................................. (36,523)
Other comprehensive income, net of tax
Foreign currency translation adjustments...........
Minimum pension liability adjustment...............
Unrealized gain on investments, net................
Other comprehensive income........................... 17,298
----------
Comprehensive loss..................................... (19,225)
----------
Cash dividends declared................................ (29,095)
Share repurchases...................................... (41,028)
Shares issued under stock plans........................ 46,956
Tax benefit related to employee stock options.......... 5,280
Restricted stock plan.................................. 5,072
Common stock issuances for acquisitions................ 35,873
Other.................................................. 87
----------
BALANCE AT JUNE 30, 1996............................... 373,727
----------
Comprehensive income
Net income........................................... 130,398
Other comprehensive income, net of tax
Foreign currency translation adjustments...........
Minimum pension liability adjustment...............
Unrealized gain on investments, net................
Sale of equity investment..........................
Other comprehensive income........................... 4,446
----------
Comprehensive income................................... 134,844
----------
Cash dividends declared................................ (29,536)
Share repurchases...................................... (25,126)
Shares issued under stock plans........................ 32,282
Tax benefit related to employee stock options.......... 4,568
Restricted stock plan.................................. 11,678
Sale of equity put warrants............................ 1,846
Other.................................................. (13)
----------
BALANCE AT JUNE 30, 1997............................... 504,270
----------
Comprehensive income
Net income........................................... 56,388
Other comprehensive loss, net of tax
Foreign currency translation adjustments...........
Minimum pension liability adjustment...............
Unrealized loss on investments, net................
Other comprehensive loss............................. (6,842)
----------
Comprehensive income................................... 49,546
----------
Cash dividends declared................................ (31,604)
Shares issued under stock plans........................ 35,675
Tax benefit related to employee stock options.......... 2,335
Restricted stock plan.................................. 1,722
Elimination of PerSeptive results from July 1, 1997 to
September 30, 1997 (see Note 1)...................... 2,590
Other.................................................. (286)
----------
BALANCE AT JUNE 30, 1998............................... 564,248
----------
Comprehensive income
Net income........................................... 17,009
Other comprehensive income, net of tax
Foreign currency translation adjustments...........
Unrealized loss on investments, net................
Other comprehensive income........................... 2,185
----------
Comprehensive income................................... 19,194
----------
Cash dividends declared................................ (8,396)
Shares issued under stock plans........................ 4,856
Restricted stock plan.................................. 86
----------
BALANCE AT SEPTEMBER 30, 1998 (UNAUDITED).............. $ 579,988
----------
----------
</TABLE>
SEE ACCOMPANYING NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.
IV-23
<PAGE>
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.
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 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
IV-24
<PAGE>
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
(loss) per share for the following periods:
<TABLE>
<CAPTION>
THREE MONTHS ENDED
(AMOUNTS IN THOUSANDS YEARS ENDED JUNE 30, SEPTEMBER 30,
EXCEPT PER SHARE ------------------------------- --------------------
AMOUNTS) 1996 1997 1998 1997 1998
- --------------------- --------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C>
(UNAUDITED)
Weighted average
number of common
shares used in the
calculation of
basic earnings
(loss) per share... 45,859 47,517 48,560 48,081 49,377
Common stock
equivalents........ 1,996 1,592 2,084 1,052
--------- --------- --------- --------- ---------
Shares used in the
calculation of
diluted earnings
(loss) per share... 45,859 49,513 50,152 50,165 50,429
--------- --------- --------- --------- ---------
--------- --------- --------- --------- ---------
Net income (loss)
used in the
calculation of
basic and diluted
earnings (loss) per
share.............. $ (36,523) $ 130,398 $ 56,388 $ 21,421 $ 17,009
Net income (loss) per
share:
Basic................ $ (.80) $ 2.74 $ 1.16 $ .45 $ .34
Diluted.............. $ (.80) $ 2.63 $ 1.12 $ .43 $ .34
</TABLE>
Options and warrants to purchase 2.1 million, .2 million, and 1.4 million,
.1 million and 1.4 million shares of the Company's common stock were outstanding
at June 30, 1996, 1997, and 1998, and September 30, 1997 and 1998, respectively,
but were not included in the computation of diluted earnings per share because
the effect was antidilutive.
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.
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 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 $83.0 million, $82.9 million, and $111.9 million, respectively,
from the sale of such receivables. The Company 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."
IV-25
<PAGE>
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 September 30, 1998,
included the following components:
<TABLE>
<CAPTION>
JUNE 30,
(DOLLAR AMOUNTS -------------------- SEPTEMBER 30,
IN MILLIONS) 1997 1998 1998
- ---------------------- --------- --------- -------------
<S> <C> <C> <C>
(UNAUDITED)
Raw materials and
supplies............ $ 40.3 $ 62.6 $ 59.4
Work-in-process....... 18.0 16.9 14.3
Finished products..... 156.3 160.5 183.5
--------- --------- ------
Total inventories..... $ 214.6 $ 240.0 $ 257.2
--------- --------- ------
--------- --------- ------
</TABLE>
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:
<TABLE>
<CAPTION>
JUNE 30,
--------------------
<S> <C> <C>
(DOLLAR AMOUNTS IN MILLIONS) 1997 1998
- ----------------------------------- --------- ---------
Land............................... $ 23.1 $ 21.8
Buildings and leasehold
improvements..................... 156.2 171.9
Machinery and equipment............ 266.9 316.7
--------- ---------
Property, plant and equipment, at
cost............................. 446.2 510.4
Accumulated depreciation and
amortization..................... 248.8 251.6
--------- ---------
Property, plant and equipment,
net.............................. $ 197.4 $ 258.8
--------- ---------
--------- ---------
</TABLE>
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 $11.1 million and $77.0 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 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 $9.0 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 September 30, 1998
(unaudited), other long-term assets included goodwill, net of accumulated
amortization, of $32.7 million, $84.5 million, and $83.1 million, respectively.
Accumulated amortization of goodwill was $14.0 million, $17.4 million, and $18.8
million at June 30, 1997 and 1998, and September 30, 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
the net realizable 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
IV-26
<PAGE>
Company recorded a $7.5 million cost of sales charge to write-down $5.6 million
of goodwill associated with the fiscal 1995 acquisition of Photovac Inc. and
$1.9 million of other assets primarily associated with Analytical Instruments.
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 for the following periods was as
follows:
<TABLE>
<CAPTION>
THREE MONTHS
ENDED
YEARS ENDED JUNE 30, SEPTEMBER 30,
(DOLLAR AMOUNTS ------------------------------- ----------------------
IN MILLIONS) 1996 1997 1998 1997 1998
- ----------------- --------- --------- --------- --------- -----
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Interest......... $ 8.9 $ 6.0 $ 5.7 $ 1.6 $ .6
Income taxes..... $ 15.0 $ 31.3 $ 60.5 $ 10.8 $ 5.7
</TABLE>
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.
IV-27
<PAGE>
Combined and separate results of the Company and PerSeptive during the periods
preceding the Merger were as follows:
<TABLE>
<CAPTION>
PERKIN- PER-
(DOLLAR AMOUNTS IN MILLIONS) ELMER SEPTIVE ADJ. COMBINED
- ------------------------------- --------- ----------- --------- -----------
<S> <C> <C> <C> <C>
Fiscal year ended June 30,
1996:
Net revenues................... $ 1,162.9 $ 86.1 $ 1,249.0
Net income (loss).............. $ 13.9 $ (50.4) $ (36.5)
Fiscal year ended June 30,
1997:
Net revenues................... $ 1,276.8 $ 96.5 $ 1,373.3
Net income..................... $ 115.2 $ 15.2 $ 130.4
Six months ended December 31,
1997 (unaudited):
Net revenues................... $ 639.3 $ 52.6 $ 691.9
Net income (loss).............. $ 32.2 $ (5.4) $ .6 $ 27.4
</TABLE>
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
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.
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 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.
("GenScope"), a company solely engaged in the development of gene expression
technology, for $26.8 million. 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. As a result,
$25.4 million of the acquisition cost was allocated to purchased in-process
research and development and was expensed in the third quarter of fiscal 1997.
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
IV-28
<PAGE>
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; Tropix, Inc., a world leader in the development,
manufacture, and sale of chemiluminescent detection technology and a minority
equity interest in Paracel, Inc., a provider of information filtering
technologies for a total cost, net of cash acquired, of $42.5 million. In
connection with these and other life science acquisitions, $33.9 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 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 $37.4 million and $11.7 million were
recognized for fiscal 1997 and 1996, 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 September
30, 1998 are summarized below:
<TABLE>
<CAPTION>
JUNE 30,
(DOLLAR AMOUNTS IN --------------------
MILLIONS) 1997 1998
- ---------------------- --------- --------- SEPTEMBER 30,
1998
---------------
(UNAUDITED)
<S> <C> <C> <C>
Loans payable:
Short-term loans...... $ 23.1 $ 12.1 $ 58.8
Current portion of
convertible
subordinated
notes............... 6.8
--------- --------- -----
Total loans payable... $ 29.9 $ 12.1 $ 58.8
--------- --------- -----
--------- --------- -----
Long-term debt:
Yen loan.............. $ 33.6 $ 27.0 $ 28.0
Convertible
subordinated
notes............... 20.4
Other................. 5.2 6.7 1.7
--------- --------- -----
Total long-term
debt................ $ 59.2 $ 33.7 $ 29.7
--------- --------- -----
--------- --------- -----
</TABLE>
The weighted average interest rates at June 30, 1997 and 1998, and September
30, 1998 (unaudited) for loans payable were 3.6%, 1.8%, and 4.3%, respectively.
IV-29
<PAGE>
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 September 30, 1998 (unaudited), the Company had unused
credit facilities for short-term borrowings from domestic and foreign banks in
various currencies totaling $343 million and $313 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 4 INCOME
TAXES
Income (loss) before income taxes for fiscal 1996, 1997, and 1998 is
summarized below:
<TABLE>
<CAPTION>
(DOLLAR AMOUNTS
IN MILLIONS) 1996 1997 1998
- ------------------------- --------- --------- ---------
<S> <C> <C> <C>
United States............ $ (28.5) $ 121.0 $ (3.9)
Foreign.................. 13.5 51.6 104.5
--------- --------- ---------
Total.................... $ (15.0) $ 172.6 $ 100.6
--------- --------- ---------
--------- --------- ---------
</TABLE>
The components of the provision for income taxes for fiscal 1996, 1997, and
1998 consisted of the following:
<TABLE>
<CAPTION>
(DOLLAR AMOUNTS IN MILLIONS) 1996 1997 1998
- ----------------------------- --------- --------- ---------
<S> <C> <C> <C>
Currently payable:
Domestic..................... $ 10.4 $ 56.2 $ .1
Foreign...................... 24.3 23.8 25.6
--------- --------- ---------
Total currently payable...... 34.7 80.0 25.7
--------- --------- ---------
Deferred:
Domestic..................... (4.4) (41.0) 11.0
Foreign...................... (8.7) 3.2 1.9
--------- --------- ---------
Total deferred............... (13.1) (37.8) 12.9
--------- --------- ---------
Total provision for income
taxes...................... $ 21.6 $ 42.2 $ 38.6
--------- --------- ---------
--------- --------- ---------
</TABLE>
Significant components of deferred tax assets and liabilities at June 30,
1997 and 1998 are summarized below:
<TABLE>
<CAPTION>
(DOLLAR AMOUNTS IN MILLIONS) 1997 1998
- ------------------------------------- --------- ---------
<S> <C> <C>
Deferred tax assets:
Intangibles.......................... $ 6.4 $ 5.8
Inventories.......................... 8.4 7.9
Postretirement and postemployment
benefits........................... 35.7 35.0
Other reserves and accruals.......... 54.3 40.0
Tax credit and loss carryforwards.... 50.9 50.1
--------- ---------
Subtotal............................. 155.7 138.8
Valuation allowance.................. (78.6) (71.7)
--------- ---------
Total deferred tax assets............ 77.1 67.1
--------- ---------
Deferred tax liabilities:
Inventories.......................... .5 .5
Millennium equity transaction........ 4.3
Other reserves and accruals.......... 6.1 7.9
--------- ---------
Total deferred tax liabilities....... 10.9 8.4
--------- ---------
Total deferred tax assets, net....... $ 66.2 $ 58.7
--------- ---------
--------- ---------
</TABLE>
IV-30
<PAGE>
A reconciliation of the federal statutory tax to the Company's tax provision
for fiscal 1996, 1997, and 1998 is set forth in the following table:
<TABLE>
<CAPTION>
(DOLLAR AMOUNTS IN MILLIONS) 1996 1997 1998
- ----------------------------- --------- --------- ---------
<S> <C> <C> <C>
Federal statutory rate....... 35% 35% 35%
--------- --------- ---------
Tax at federal statutory
rate....................... $ (5.2) $ 60.4 $ 35.2
State income taxes (net of
federal benefit)........... (1.5) .2 .3
Effect on income from foreign
operations................. 14.7 42.6 6.7
Effect on income from foreign
sales corporation.......... (3.2) (4.8) (7.5)
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...... (12.7) (60.6) (11.1)
Benefit of loss not
recognized/(utilization of
net operating losses)...... 16.9 (7.6)
Other........................ .7 2.6 (.3)
--------- --------- ---------
Total provision for income
taxes...................... $ 21.6 $ 42.2 $ 38.6
--------- --------- ---------
--------- --------- ---------
</TABLE>
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 $144 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 for all employee pension plans was $15.2
million, $15.1 million, and $14.0 million for fiscal 1996, 1997, and 1998,
respectively. The components of net pension expense are set forth in the
following table:
<TABLE>
<CAPTION>
(DOLLAR AMOUNTS IN MILLIONS) 1996 1997 1998
- ------------------------------- --------- --------- ---------
<S> <C> <C> <C>
Domestic Plans:
Service cost................... $ 7.6 $ 8.0 $ 9.0
Interest cost.................. 33.0 37.0 41.3
Actual return on assets........ (32.1) (35.6) (40.5)
Net amortization and
deferral..................... (1.4) (1.0) (1.8)
--------- --------- ---------
Net pension expense............ $ 7.1 $ 8.4 $ 8.0
--------- --------- ---------
--------- --------- ---------
Foreign Plans:
Service cost................... $ 3.2 $ 2.7 $ 2.7
Interest cost.................. 6.7 6.3 5.9
Actual return on assets........ (4.0) (3.5) (5.7)
Net amortization and
deferral..................... 2.2 1.2 3.1
--------- --------- ---------
Net pension expense............ $ 8.1 $ 6.7 $ 6.0
--------- --------- ---------
--------- --------- ---------
</TABLE>
IV-31
<PAGE>
The following table sets forth the funded status of the plans and amounts
recognized in the Company's Consolidated Statements of Financial Position at
June 30, 1997 and 1998:
<TABLE>
<CAPTION>
DOMESTIC PLANS
------------------------------------------
<S> <C> <C> <C> <C>
ACCUMULATED
ASSETS EXCEED BENEFITS
ACCUMULATED BENEFITS EXCEED ASSETS
-------------------- --------------------
<CAPTION>
(DOLLAR AMOUNTS IN
MILLIONS) 1997 1998 1997 1998
- ------------------------- --------- --------- --------- ---------
<S> <C> <C> <C> <C>
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
</TABLE>
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.
<TABLE>
<CAPTION>
FOREIGN PLANS
------------------------------------------
<S> <C> <C> <C> <C>
ASSETS EXCEED ACCUMULATED
ACCUMULATED BENEFITS BENEFITS
EXCEED ASSETS
-------------------- --------------------
<CAPTION>
(DOLLAR AMOUNTS IN
MILLIONS) 1997 1998 1997 1998
- ------------------------- --------- --------- --------- ---------
<S> <C> <C> <C> <C>
Plan assets at fair
value.................. $ 32.0 $ 36.2 $ -- $ --
Projected benefit
obligation............. 30.3 36.9 64.9 62.0
--------- --------- --------- ---------
Plan assets greater
(less) than projected
benefit obligation..... 1.7 (.7) (64.9) (62.0)
Unrecognized items:
Net actuarial (gain)
loss................. 3.2 6.6 (2.5) (5.1)
Prior service cost..... 1.5 1.3
Net transition (asset)
obligation........... (1.9) (1.5) 4.0 3.4
--------- --------- --------- ---------
Prepaid (accrued) pension
expense................ $ 4.5 $ 5.7 $ (63.4) $ (63.7)
--------- --------- --------- ---------
--------- --------- --------- ---------
Actuarial present value
of accumulated
benefits............... $ 28.0 $ 33.7 $ 56.1 $ 55.3
Accumulated benefit
obligation related to
vested benefits........ $ 27.8 $ 33.6 $ 52.5 $ 52.4
</TABLE>
The following actuarial assumptions were used in accounting for the defined
benefit plans:
<TABLE>
<CAPTION>
1997 1998
--------- ---------
<S> <C> <C>
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................. 6-8% 5 1/2-6 3/4%
Compensation increase......... 3 1/2-4 1/2% 3 1/2-4 1/2%
Long-term rate of return...... 6 1/2-9 1/2% 6 1/2-9 1/2%
</TABLE>
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 were $7.4 million, $9.6 million, and
$10.7 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:
<TABLE>
<CAPTION>
(DOLLAR AMOUNTS IN MILLIONS) 1997 1998
- --------------------------------------- --------- ---------
<S> <C> <C>
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
--------- ---------
--------- ---------
</TABLE>
IV-32
<PAGE>
The net postretirement benefit cost for fiscal 1997 and 1998 included the
following components:
<TABLE>
<CAPTION>
(DOLLAR AMOUNTS IN MILLIONS) 1997 1998
- ---------------------------------------- --------- ---------
<S> <C> <C>
Service cost............................ $ .6 $ .6
Interest cost........................... 5.8 5.7
Amortization of unrecognized gain....... (1.3) (1.4)
--------- ---------
Net postretirement benefit cost......... $ 5.1 $ 4.9
--------- ---------
--------- ---------
</TABLE>
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:
<TABLE>
<CAPTION>
1997 1998
----- -----
<S> <C> <C>
Participants under age 65............... 10.3% 9.6%
Participants age 65 and over............ 7.7% 7.4%
</TABLE>
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 three separate business segments: PE Biosystems,
Analytical Instruments, and the recently formed Celera Genomics Corporation. PE
Biosystems includes PE Applied Biosystems, PerSeptive, Molecular Informatics,
Tropix, GenScope, 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.
Analytical Instruments manufactures and markets equipment and systems used
for determining the composition and molecular structure of chemical substances,
both organic and inorganic, and systems for data handling and data management.
Through a joint venture, the Company manufactures mass spectrometry instrument
systems that are sold in the PE Biosystems and Analytical Instruments segments.
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 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 $50.0 million,
$51.3 million, and $50.7 million, respectively.
IV-33
<PAGE>
BUSINESS SEGMENTS
<TABLE>
<CAPTION>
PE ANALYTICAL
(DOLLAR AMOUNTS IN MILLIONS) BIOSYSTEMS INSTRUMENTS CORPORATE CONSOLIDATED
- -------------------------------------------------------------- ----------- ----------- ----------- ------------
<S> <C> <C> <C> <C>
1996
Net revenues.................................................. $ 618.4 $ 630.6 $ -- $ 1,249.0
----------- ----------- ----------- ------------
Segment income (loss)......................................... $ 107.2 $ 28.7 $ (24.5) $ 111.4
Restructuring charge.......................................... (17.5) (71.6) (89.1)
Acquired research and development............................. (33.9) (33.9)
Impairment of assets.......................................... (9.9) (9.9)
----------- ----------- ----------- ------------
Operating income (loss)..................................... $ 45.9 $ (42.9) $ (24.5) $ (21.5)
----------- ----------- ----------- ------------
Identifiable assets........................................... $ 435.6 $ 401.6 $ 225.8 $ 1,063.0
Capital expenditures.......................................... $ 30.1 $ 13.6 $ .6 $ 44.3
Depreciation and amortization................................. $ 22.7 $ 28.7 $ .4 $ 51.8
1997
Net revenues.................................................. $ 749.2 $ 624.1 $ -- $ 1,373.3
----------- ----------- ----------- ------------
Segment income (loss)......................................... $ 125.4 $ 56.1 $ (31.2) $ 150.3
Restructuring charge.......................................... (13.0) (13.0)
Acquired research and development............................. (26.8) (26.8)
Impairment of assets.......................................... (.7) (6.8) (7.5)
----------- ----------- ----------- ------------
Operating income (loss)..................................... $ 97.9 $ 36.3 $ (31.2) $ 103.0
----------- ----------- ----------- ------------
Identifiable assets........................................... $ 504.0 $ 384.5 $ 350.2 $ 1,238.7
Capital expenditures.......................................... $ 42.1 $ 14.1 $ 13.6 $ 69.8
Depreciation and amortization................................. $ 23.6 $ 18.6 $ 1.7 $ 43.9
1998
Net revenues.................................................. $ 921.8 $ 609.4 $ -- $ 1,531.2
----------- ----------- ----------- ------------
Segment income (loss)......................................... $ 150.8 $ 57.4 $ (36.7) $ 171.5
Restructuring and other merger costs.......................... (48.1) (48.1)
Acquired research and development............................. (28.9) (28.9)
----------- ----------- ----------- ------------
Operating income (loss)..................................... $ 73.8 $ 57.4 $ (36.7) $ 94.5
----------- ----------- ----------- ------------
Identifiable assets........................................... $ 719.2 $ 426.0 $ 189.3 $ 1,334.5
Capital expenditures.......................................... $ 72.6 $ 42.9 $ 1.2 $ 116.7
Depreciation and amortization................................. $ 33.5 $ 17.7 $ 1.9 $ 53.1
</TABLE>
IV-34
<PAGE>
GEOGRAPHIC AREAS
<TABLE>
<CAPTION>
UNITED FAR OTHER
(DOLLAR AMOUNTS IN MILLIONS) STATES EUROPE EAST COUNTRIES CORPORATE CONSOLIDATED
- ---------------------------------------------------- --------- --------- --------- ----------- ----------- ------------
<S> <C> <C> <C> <C> <C> <C>
1996
Total revenues...................................... $ 529.7 $ 606.7 $ 365.2 $ 79.3 $ -- $ 1,580.9
Transfers between geographic areas.................. (60.6) (128.8) (124.6) (17.9) (331.9)
--------- --------- --------- ----------- ----------- ------------
Revenues to unaffiliated customers.................. $ 469.1 $ 477.9 $ 240.6 $ 61.4 $ $ 1,249.0
--------- --------- --------- ----------- ----------- ------------
Income (loss)....................................... $ (18.1) $ 73.7 $ 70.9 $ 9.4 $ (24.5) $ 111.4
Restructuring charge................................ (29.9) (59.2) (89.1)
Acquired research and development................... (33.9) (33.9)
Impairment of assets................................ (9.9) (9.9)
--------- --------- --------- ----------- ----------- ------------
Operating income (loss)........................... $ (91.8) $ 14.5 $ 70.9 $ 9.4 $ (24.5) $ (21.5)
--------- --------- --------- ----------- ----------- ------------
Identifiable assets................................. $ 433.5 $ 269.7 $ 103.4 $ 30.6 $ 225.8 $ 1,063.0
1997
Total revenues...................................... $ 599.3 $ 663.6 $ 407.7 $ 83.5 $ -- $ 1,754.1
Transfers between geographic areas.................. (67.2) (144.6) (147.3) (21.7) (380.8)
--------- --------- --------- ----------- ----------- ------------
Revenues to unaffiliated customers.................. $ 532.1 $ 519.0 $ 260.4 $ 61.8 $ $ 1,373.3
--------- --------- --------- ----------- ----------- ------------
Income (loss)....................................... $ 3.2 $ 101.3 $ 68.6 $ 8.4 $ (31.2) $ 150.3
Restructuring charge................................ (5.2) (5.9) (.9) (1.0) (13.0)
Acquired research and development................... (26.8) (26.8)
Impairment of assets................................ (1.9) (5.6) (7.5)
--------- --------- --------- ----------- ----------- ------------
Operating income (loss)........................... $ (30.7) $ 95.4 $ 67.7 $ 1.8 $ (31.2) $ 103.0
--------- --------- --------- ----------- ----------- ------------
Identifiable assets................................. $ 462.5 $ 280.2 $ 117.1 $ 28.7 $ 350.2 $ 1,238.7
1998
Total revenues...................................... $ 732.7 $ 679.7 $ 419.2 $ 103.6 $ -- $ 1,935.2
Transfers between geographic areas.................. (81.7) (132.6) (157.1) (32.6) (404.0)
--------- --------- --------- ----------- ----------- ------------
Revenues to unaffiliated customers.................. $ 651.0 $ 547.1 $ 262.1 $ 71.0 $ $ 1,531.2
--------- --------- --------- ----------- ----------- ------------
Income (loss)....................................... $ 27.1 $ 108.9 $ 65.6 $ 6.6 $ (36.7) $ 171.5
Restructuring and other merger costs................ (26.2) (21.7) (.2) (48.1)
Acquired research and development................... (28.9) (28.9)
--------- --------- --------- ----------- ----------- ------------
Operating income (loss)........................... $ (28.0) $ 87.2 $ 65.4 $ 6.6 $ (36.7) $ 94.5
--------- --------- --------- ----------- ----------- ------------
Identifiable assets................................. $ 630.5 $ 377.6 $ 100.4 $ 36.7 $ 189.3 $ 1,334.5
</TABLE>
IV-35
<PAGE>
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:
<TABLE>
<CAPTION>
NUMBER OF EXERCISE EXPIRATION
SHARES PRICE DATE
----------- --------- ------------------
<S> <C> <C> <C>
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
</TABLE>
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.
IV-36
<PAGE>
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:
<TABLE>
<CAPTION>
NUMBER WEIGHTED
OF AVERAGE
OPTIONS EXERCISE PRICE
--------- ---------------
<S> <C> <C>
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
</TABLE>
At June 30, 1998, 241,437 shares remained available for option grant.
IV-37
<PAGE>
The following table summarizes information regarding options outstanding and
exercisable at June 30, 1998:
<TABLE>
<CAPTION>
WEIGHTED AVERAGE
----------------------------
<S> <C> <C> <C>
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
</TABLE>
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.
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 recognized for these awards was $5.1 million,
$11.7 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.
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 recognized for these awards totaled
$6.3 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," has been determined for
employee stock plans under the statement's fair value method. The fair value
IV-38
<PAGE>
of the options was estimated at grant date using a Black-Scholes option pricing
model with the following weighted average assumptions:
<TABLE>
<CAPTION>
FOR THE YEARS ENDED
JUNE 30, 1996 1997 1998
- ---------------------- --------- --------- ---------
<S> <C> <C> <C>
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
</TABLE>
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:
<TABLE>
<CAPTION>
(DOLLAR AMOUNTS IN
MILLIONS,
EXCEPT PER SHARE AMOUNTS) 1996 1997 1998
- -------------------------- --------- --------- ---------
<S> <C> <C> <C>
Net income (loss)
As reported............. $ (36.5) $ 130.4 $ 56.4
Pro forma............... $ (38.9) $ 120.2 $ 25.4
Basic earnings (loss) per
share
As reported............. $ (.80) $ 2.74 $ 1.16
Pro forma............... $ (.85) $ 2.53 $ .52
Diluted earnings (loss)
per share
As reported............. $ (.80) $ 2.63 $ 1.12
Pro forma............... $ (.85) $ 2.43 $ .51
</TABLE>
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.
IV-39
<PAGE>
NOTE 9 ADDITIONAL INFORMATION
SELECTED ACCOUNTS
The following table provides the major components of selected accounts of
the Consolidated Statements of Financial Position:
<TABLE>
<CAPTION>
AT JUNE 30,
--------------------
(DOLLAR AMOUNTS IN MILLIONS) 1997 1998
- ----------------------------------- --------- ---------
<S> <C> <C>
Other long-term assets:
Goodwill........................... $ 32.7 $ 84.5
Other.............................. 159.4 195.0
--------- ---------
Total other long-term assets....... $ 192.1 $ 279.5
--------- ---------
Other accrued expenses:
Deferred service contract
revenues......................... $ 45.1 $ 54.8
Accrued pension liabilities........ 17.9 17.5
Restructuring provisions........... 33.3 31.3
Other.............................. 90.5 98.3
--------- ---------
Total other accrued expenses....... $ 186.8 $ 201.9
--------- ---------
--------- ---------
Other long-term liabilities:
Accrued pension liabilities........ $ 62.3 $ 62.7
Accrued postretirement benefits.... 91.2 87.4
Other.............................. 27.2 34.5
--------- ---------
Total other long-term liabilities.. $ 180.7 $ 184.6
--------- ---------
--------- ---------
</TABLE>
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. In fiscal 1997 and 1996,
restructuring actions were undertaken primarily to improve the profitability and
cash flow performance of Analytical Instruments. 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 $89.1 million, $24.2 million, and $48.1 million for fiscal 1996,
1997, and 1998, respectively. In addition, fiscal 1997 reflected an $11.2
million before-tax reduction of charges required to implement the fiscal 1996
Analytical Instruments' plan.
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 Analytical Instruments. In connection with the plan, the division
was reorganized into three vertically integrated, fiscally accountable operating
units; a distribution center in Holland was established 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.
IV-40
<PAGE>
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.
The following table details the major components of the $71.6 million fiscal
1996 restructuring provision:
<TABLE>
<CAPTION>
FACILITY CONSOLIDATION
AND
(DOLLAR AMOUNTS IN MILLIONS) PERSONNEL ASSET RELATED WRITE-OFFS
- ------------------------------------------------------------------------------------ ----------- ---------------------------
<S> <C> <C>
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............................................................ $ -- $ --
----- -----
----- -----
<CAPTION>
(DOLLAR AMOUNTS IN MILLIONS) TOTAL
- ------------------------------------------------------------------------------------ ---------
<S> <C>
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............................................................ $ --
---------
---------
</TABLE>
A before-tax charge of $17.5 million was also recognized by PerSeptive for
restructuring actions and other related costs in fiscal 1996.
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 seventeen
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.
IV-41
<PAGE>
The following table details the major components of the fiscal 1997
restructuring provision:
<TABLE>
<CAPTION>
FACILITY
CONSOLIDATION
AND ASSET
RELATED
(DOLLAR AMOUNTS IN MILLIONS) PERSONNEL WRITE-OFFS TOTAL
- ------------------------------------------------------------------------------- ----------- --------------- ---------
<S> <C> <C> <C>
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............................................ $ 1.4 $ -- $ 1.4
Consolidation of sales and administrative support.............................. .1 .1 .2
----- ----- ---------
Total fiscal 1999 activity (unaudited)......................................... $ 1.5 $ .1 $ 1.6
----- ----- ---------
Balance at September 30, 1998:
Changes in manufacturing operations............................................ $ .3 $ .3 $ .6
Consolidation of sales and administrative support.............................. .9 1.3 2.2
----- ----- ---------
Balance at September 30, 1998 (unaudited)...................................... $ 1.2 $ 1.6 $ 2.8
----- ----- ---------
----- ----- ---------
</TABLE>
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 $.9 million of additional merger-related costs
as part of this plan. The Company expects to incur approximately $5.5 million to
$7.5 million of additional 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
IV-42
<PAGE>
$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 September 30, 1998, approximately 32 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:
<TABLE>
<CAPTION>
FACILITY CONSOLIDATION
AND
(DOLLAR AMOUNTS IN MILLIONS) PERSONNEL ASSET RELATED WRITE-OFFS TOTAL
- --------------------------------------------------------------------- ------------- --------------------------- ---------
<S> <C> <C> <C>
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.................. $ -- $ 3.6 $ 3.6
Consolidation of sales and administrative support.................... 2.1 .5 2.6
Other................................................................ .1 .1
----- ----- ---------
Total fiscal 1999 activity (unaudited)............................... $ 2.1 $ 4.2 $ 6.3
----- ----- ---------
Balance at September 30, 1998:
Reduction of excess European manufacturing capacity.................. $ 5.1 $ 7.7 $ 12.8
Consolidation of sales and administrative support.................... 6.3 1.5 7.8
Other................................................................
----- ----- ---------
Balance at September 30, 1998 (unaudited)............................ $ 11.4 $ 9.2 $ 20.6
----- ----- ---------
----- ----- ---------
</TABLE>
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:
<TABLE>
<CAPTION>
(DOLLAR AMOUNTS IN MILLIONS)
- ---------------------------------------------
<S> <C>
1999......................................... $ 25.0
2000......................................... 18.9
2001......................................... 16.1
2002......................................... 13.9
2003......................................... 12.6
2004 and thereafter.......................... 61.2
---------
Total........................................ $ 147.7
---------
---------
</TABLE>
Rental expense was $33.9 million in fiscal 1996, $32.0 million in fiscal
1997, and $33.7 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.
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
IV-43
<PAGE>
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 September 30, 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:
<TABLE>
<CAPTION>
SEPTEMBER 30, 1998
(DOLLAR JUNE 30, 1997 JUNE 30, 1998 (UNAUDITED)
AMOUNTS IN ---------------------- ---------------------- ----------------------
MILLIONS) SALE PURCHASE SALE PURCHASE SALE PURCHASE
- -------------- --------- ----------- --------- ----------- --------- -----------
<S> <C> <C> <C> <C> <C> <C>
Japanese Yen.. $ 83.5 $ -- $ 109.2 $ -- $ 115.5 $ 7.1
French
Francs...... 18.1 28.3 .2 23.3
Australian
Dollars..... 13.7 10.8 8.9
German
Marks....... 13.4 2.3 28.3 1.9 23.2 1.5
Italian
Lira........ 5.6 1.2 38.0 1.4 34.6
British
Pounds...... 8.3 29.2 19.6 27.4 14.9
Swiss Francs.. 5.4 10.5 4.0 9.1 3.5
Swedish
Krona....... 2.4 11.9 9.5
Danish Krona.. 1.7 10.3 7.4
Other......... 5.8 44.7 5.1 38.0 3.8
--------- ----- --------- ----- --------- -----
Total......... $ 149.6 $ 11.8 $ 321.2 $ 32.2 $ 296.9 $ 30.8
--------- ----- --------- ----- --------- -----
--------- ----- --------- ----- --------- -----
</TABLE>
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
IV-44
<PAGE>
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:
<TABLE>
<CAPTION>
1997 1998
------------------------ ------------------------
<S> <C> <C> <C> <C>
(DOLLAR AMOUNTS IN NOTIONAL FAIR NOTIONAL FAIR
MILLIONS) AMOUNT VALUE AMOUNT VALUE
- ------------------------ ----------- ----- ----------- -----
Forward contracts....... $ 114.0 $ (3.7) $ 179.2 $ 2.8
Purchased options....... $ 47.4 $ .7 $ 112.7 $ 1.6
Synthetic forwards...... $ 61.5 $ 1.9
Interest rate swap...... $ 33.6 $ .2 $ 27.0 $ (.9)
</TABLE>
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:
<TABLE>
<CAPTION>
1997 1998
---------------------- ------------------------
<S> <C> <C> <C> <C>
(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
</TABLE>
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.
IV-45
<PAGE>
NOTE 13 QUARTERLY FINANCIAL INFORMATION (UNAUDITED)
The following is a summary of quarterly financial results:
<TABLE>
<CAPTION>
FIRST QUARTER SECOND QUARTER THIRD QUARTER FOURTH QUARTER
(DOLLAR AMOUNTS IN MILLIONS -------------------- -------------------- -------------------- --------------------
EXCEPT PER SHARE AMOUNTS) 1997 1998 1997 1998 1997 1998 1997 1998
- ----------------------------------------- --------- --------- --------- --------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Net revenues............................. $ 296.8 $ 322.7 $ 354.0 $ 369.2 $ 348.8 $ 390.8 $ 373.7 $ 448.5
Gross margin............................. 144.8 157.4 174.3 190.2 178.5 199.2 182.3 232.3
Net income (loss)........................ 28.6 21.4 73.6 6.0 9.3 (7.0) 18.9 36.0
Net income (loss) per basic share........ .61 .45 1.56 .12 .20 (.14) .39 .73
Net income (loss) per diluted share...... .59 .43 1.49 .12 .19 (.14) .38 .71
</TABLE>
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 net restructuring charge of $13.0 million, or $.18 per diluted share
after-tax (see Note 10); a $1.4 million before-tax charge, or $.03 per diluted
share after-tax, for acquired research and development (see Note 2); and a $7.5
million before-tax charge, or $.13 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 $5.0 million, or $.10 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.
IV-46
<PAGE>
<TABLE>
<CAPTION>
STOCK PRICES AND DIVIDENDS 1997
- ----------------------------------------------------------------------------- -----------------
<S> <C> <C> <C> <C>
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
<CAPTION>
STOCK PRICES AND DIVIDENDS 1998
- ----------------------------------------------------------------------------- --------------------
<S> <C> <C> <C> <C>
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
</TABLE>
<TABLE>
<CAPTION>
DIVIDENDS PER SHARE 1997 1998
- ---------------------------------------------------------------------------------------------------- --------- ---------
<S> <C> <C>
First Quarter....................................................................................... $ .17 .17
Second Quarter...................................................................................... .17 .17
Third Quarter....................................................................................... .17 .17
Fourth Quarter...................................................................................... .17 .17
--- ---
Total dividends per share........................................................................... $ .68 $ .68
--- ---
--- ---
</TABLE>
NOTE 14 ACCUMULATED OTHER COMPREHENSIVE INCOME (LOSS)
Accumulated other comprehensive income (loss) for fiscal 1996, 1997, 1998,
and for the three months ended September 30, 1998 (unaudited) is as follows:
<TABLE>
<CAPTION>
FOREIGN MINIMUM
CURRENCY UNREALIZED PENSION
TRANSLATION GAIN (LOSS) ON LIABILITY
(DOLLAR AMOUNTS IN MILLIONS) ADJUSTMENTS INVESTMENTS ADJUSTMENT
- ----------------------------------------------------------------------- ----------- -------------- -----------
<S> <C> <C> <C>
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................................................ 6.2 (4.0)
----------- ------- -----------
Balance at September 30, 1998 (unaudited).............................. $ (1.6) $ (5.4) $ (.4)
----------- ------- -----------
----------- ------- -----------
</TABLE>
IV-47
<PAGE>
ANNEX V
PERKIN-ELMER GROUP
<TABLE>
<CAPTION>
PAGE
---------
<S> <C>
Business................................................................................................. V-2
Management's Discussion and Analysis..................................................................... V-14
Report of Independent Accountants........................................................................ V-31
Combined Financial Statements............................................................................ V-32
</TABLE>
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BUSINESS
The Perkin-Elmer Group (the "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: (1) research, development, manufacture, sale and support of
instrument systems, reagents and software; and (2) related consulting and
contract research and development services. In its Analytical Instruments
business, the Group develops, manufactures, markets, sells and services
analytical instruments used in a variety of markets. The 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 Group's products.
On September 8, 1998, the Group announced that it had retained an investment
banking firm to explore strategic alternatives for Analytical Instruments. The
firm will recommend whether to sell the business, spin it off as a separate
company, retain it as part of the Group or take some other action. The Group
expects to make a decision regarding the business by early 1999.
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 $921.5 million and
operating income (before special items) of $157.0 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 general and administrative services (such as executive management,
human resources, legal, accounting and auditing, tax, treasury, strategic
planning and environmental services) from The Perkin-Elmer Corporation
("Perkin-Elmer"). 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 deoxyribonucleic acid ("DNA") and ribonucleic acid ("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
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segments of these DNA molecules that carry the 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 (simple bacteria) nucleotides and 3.5
billion (human) base pairs of nucleotides or more.
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 (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
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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 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, human identification (mainly forensic) and agricultural markets.
The Microbial ID Group is principally responsible for development and
marketing of products for food and environmental testing markets. This
group has developed the MicoSeq 18S Ribosomal RNA Sequencing Kit to
sequence microbial ribosomal RNA to determine the source of a microbial
contamination. This kit is compatible with all of AB's sequencing
instruments. Additional kits using the TaqMan-Registered Trademark-
technology and Sequence Detection Systems instrument platforms are also
under development by this group.
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.
The Agriculture Applied Market Group, also known as PE AgGen, develops
products and services which use existing
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AB instrument systems to meet the specific needs of the agriculture
market. PE AgGen has specialized in and continues to provide genetic
testing services for plant and animal breeding programs. The Group also
plans to participate in agricultural genomics programs and provide
related information services.
- 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 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 (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. PB'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. PB'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 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.
PB 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
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liquid chromatograph, mixtures are often separated before analysis. This
is often accomplished with PB's purification products (see below) 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 (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 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
Perkin-Elmer 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 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 Group also believes that there is the potential for significant
synergy between the various types of mass spectrometry technologies
available within PB. 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. PB'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 ("FDA") must approve significant changes in
manufacturing processes, an integrated line of purification products may
simplify and expedite the process of obtaining FDA approvals.
PB's patented Perfusion Chromatography technology, which uses
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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. PB'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 protein and analyzing its components. PB'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. PB's Solaris-TM- 530 is
an automated chemical synthesis system that assembles organic compounds
for screening or analysis. PB's Pioneer-TM- Peptide Synthesis system is
designed to assemble amino acids for the synthesis of peptides, peptide
analogs, and small proteins. PB 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,
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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 and service of analytical instrument systems. For the fiscal
year ended June 30, 1998, Analytical Instruments had net revenues of $609.4
million and operating income of $57.4 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.
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JOINT VENTURE
The Group is engaged in the manufacture and sale of mass spectrometry
instrument systems through PE Sciex, a joint venture between Perkin-Elmer and
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:
- technological innovation in bioanalytical practice;
- government funding for basic and disease-related research (for example,
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 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 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 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 Group's business. The 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 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 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 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 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 Group has certain
rights from the Roche Group under patents relating to PCR, one of which expires
in 2004. The Group also has rights under a patent issued to the California
Institute of Technology relating to DNA sequencing which expires in 2009. In the
Group's opinion, no other single patent or license, or group of patents or
licenses,
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or any franchise, is material to its business as a whole or to either PE
Biosystems or Analytical Instruments.
From time to time, the Group has asserted that various competitors and
others are infringing its patents; and similarly, from time to time, others have
asserted that the 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 Group.
The Group has also established a successful licensing program, providing
industry access to its intellectual property.
BACKLOG
The Group's total recorded backlog on June 30, 1998 was $208.6 million,
consisting of $116.1 million for PE Biosystems and $92.5 million for Analytical
Instruments. On June 30, 1997, the Group's total recorded backlog was $176.4
million, consisting of $86.2 million for PE Biosystems and $90.2 million for
Analytical Instruments. It is the 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 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 Group operates are highly competitive and
are characterized by the application of advanced technology. A number of the
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 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
Group's relative market position in its industry segments, the 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 Group is actively engaged in basic and applied research, development and
engineering programs designed to develop new products and to improve existing
products. The Group spent $113.7 million in fiscal 1996, $120.3 million in
fiscal 1997, and $156.7 million in fiscal 1998 on company-sponsored research,
development and engineering activities.
The 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.
In fiscal 1998, PE Biosystems spending on research and development accounted
for 69% of the Group's total expense. 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.
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MANAGEMENT
The senior management of the Group will consist of the following
individuals:
<TABLE>
<CAPTION>
OFFICER RESPONSIBILITIES
- ------------------------------- -------------------------
<S> <C>
Michael W. Hunkapiller, Ph.D. President
Manuel A. Baez Group Senior Vice
President and
President, Analytical
Instruments
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
Sandra R. McNamara Group Vice President,
Finance
</TABLE>
MICHAEL W. HUNKAPILLER, PH.D. has served as Senior Vice President of
Perkin-Elmer 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.
MANUEL A. BAEZ has served as Senior Vice President of Perkin-Elmer and
President of Analytical Instruments since June 1996. Prior to joining
Perkin-Elmer, he was employed by Baxter International Inc., a manufacturer of
health care products and instruments, for 22 years, most recently as Executive
Vice President.
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 Perkin-Elmer 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 Perkin-Elmer since
October 1996 and General Manager of AB since July 1998. She previously 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 Perkin-Elmer since
1993 and General Manager of PB since June 1998. He joined Perkin-Elmer in 1973
and served in various operational and management positions, including Vice
President of Manufacturing for Perkin-Elmer and General Manager of the Inorganic
Analysis Division of Analytical Instruments.
SANDRA R. MCNAMARA has served as Division Vice President, Finance since June
1998 and served as Vice President of Finance of AB from January 1997 to June
1998. Prior to joining AB, she was Vice President and Chief Financial Officer
for Khepri Pharmaceuticals, a private biotechnology company, from 1995 to 1997
and Vice President and Chief Financial Officer of Celtrix Pharmaceuticals, a
public biotechnology company, from 1990 to 1995.
EMPLOYEES
As of September 30, 1998, the Group employed 7,199 persons worldwide. None
of the Group's United States employees is subject to collective bargaining
agreements.
PROPERTIES
The Group owns or leases various facilities for manufacturing, research and
development and administrative purposes. All of these facilities are maintained
in good working order
V-11
<PAGE>
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 Group.
<TABLE>
<CAPTION>
PE BIOSYSTEMS
<S> <C>
OWNED OR
LEASED
(EXPIRATION
LOCATION (APPROXIMATE DATE(S) OF
FLOOR AREA IN SQ. FT.) LEASES)
- -------------------------- ----------------
Davis, CA (13,365) Leased (1999)
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)
Salt Lake City, UT (8,000) Leased (1999)
Warrington, England
(22,000) Owned
Singapore (30,000) Leased (1999)
</TABLE>
<TABLE>
<CAPTION>
ANALYTICAL INSTRUMENTS
<S> <C>
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 (60,000) Owned
Ueberlingen, Germany (121,000) Leased (2001)
</TABLE>
- ------------------------
* 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 Group also leases space in several industrial centers for use as
regional sales and service offices, technical demonstration centers and
warehouses. The Group also owns undeveloped land in Vacaville, California, and
Ueberlingen, Germany.
In addition to the properties used by the Group in its operations, the Group
owns a facility in Wilton, Connecticut (approximately 42,000 square feet) leased
to a third party on a long-term basis.
ENVIRONMENTAL MATTERS
The Group is 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 those jurisdictions where the
Group operates or maintains facilities. The Group is currently a party to
environmental legal actions as discussed below under "Legal Proceedings." The
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
The Group has been named as a defendant in various legal actions 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 of the Group, have a material adverse effect on the consolidated
financial statements of the Group.
The Group was one of approximately 125 third-party defendants named in a
third-party complaint dated February 19, 1993 in UNITED STATES OF AMERICA V.
DAVIS ET AL., which is pending in the United States District Court for the
District of Rhode Island. The third-party plaintiffs, who were named as
defendants and potentially responsible parties in the Government's initial
complaint, sought equitable contribution and indemnification in the event they
were found liable for remediation costs relating to the removal of hazardous
substances from a site located in Smithfield, Rhode Island. (These costs
initially were estimated by the Government to be $27.8 million, but most recent
estimates of such costs appear to be in the $40 million range.) All but one of
the third-party plaintiffs settled with the Government for a total of
approximately $6 million. A trial on the question of the remaining third-party
plaintiff's liability to the Government resulted in an April 22, 1995 Memorandum
and Order in which the Court found such plaintiff, United Technologies
Corporation, liable as a "generator" of
V-12
<PAGE>
hazardous wastes deposited at the site. The Court has since permitted United
Technologies Corporation to proceed with its claims against third parties.
Approximately one-half of the third-party claims have been settled. The claim
against the Group was tried in late spring 1998. The Court has not yet issued a
decision.
RISK FACTORS
A summary of the risks and uncertainties that may affect the operations and
performance of the Group's business is included in the forepart of the Proxy
Statement and Prospectus for the Special Meeting.
V-13
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS
MANAGEMENT'S DISCUSSION OF OPERATIONS
The following discussion should be read in conjunction with the combined
financial statements and related notes of the Perkin-Elmer Group and the
consolidated financial statements and related notes of the Company. Historical
results and percentage relationships are not necessarily indicative of operating
results for any future periods.
EVENTS IMPACTING COMPARABILITY
ACQUISITIONS AND INVESTMENTS
On January 22, 1998, The Perkin-Elmer Corporation (the "Company") acquired
PerSeptive Biosystems, Inc. ("PerSeptive"). The acquisition has been accounted
for as a pooling of interests and, accordingly, the Perkin-Elmer Group's
financial results have been restated to include the combined operations.
The Company acquired Molecular Informatics, Inc. ("Molecular Informatics")
and a 14.5% interest, and approximately 52% of the voting rights, in Tecan AG
("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 Perkin-Elmer Group combined financial statements.
RESTRUCTURING AND OTHER MERGER COSTS
The Perkin-Elmer Group incurred merger-related period costs of $.9 million
in the first quarter of fiscal 1999 in connection with the integration of
PerSeptive into the Perkin-Elmer Group. During fiscal 1998, $48.1 million of
before-tax charges were recorded for restructuring and other merger costs to
integrate PerSeptive into the Perkin-Elmer 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 combining sales, marketing, and administrative functions.
In fiscal 1997 and 1996, the Perkin-Elmer Group implemented restructuring
actions primarily targeted to improve the profitability and cash flow
performance of the Analytical Instruments Division ("Analytical Instruments").
The fiscal 1997 plan focused on the transition from a highly vertical
manufacturing operation to one that relies more on outsourcing functions not
considered core competencies. The fiscal 1996 plan was a broad program designed
to reduce administrative and manufacturing overhead and improve operating
efficiency, primarily in Europe and the United States. The before-tax charges
associated with the implementation of these actions were $24.2 million in fiscal
1997 and $71.6 million in fiscal 1996. Fiscal 1997 also reflected an $11.2
million before-tax reduction of charges associated with the fiscal 1996 plan.
Also in fiscal 1996, a before-tax charge of $17.5 million, was recorded by
PerSeptive for restructuring actions and other related costs. A complete
discussion of the Perkin-Elmer Group's restructuring programs is provided in
Note 10 to the Perkin-Elmer Group combined financial statements.
ACQUIRED RESEARCH AND DEVELOPMENT
During fiscal 1998, 1997, and 1996, the Perkin-Elmer Group recorded charges
for purchased in-process research and development in connection with certain
acquisitions for the PE Biosystems Division ("PE Biosystems"). The charges
recorded in fiscal 1998, 1997, and 1996 were $28.9 million, $1.4 million, and
$33.9 million, respectively (see Note 2 to the Perkin-Elmer Group combined
financial statements).
IMPAIRMENT OF ASSETS
Cost of sales for fiscal 1997 included $7.5 million for the write-down of
goodwill and
V-14
<PAGE>
other assets. The fiscal 1997 charge, as 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," included $5.6
million to write-down goodwill associated with the fiscal 1995 acquisition of
Photovac Inc. and $1.9 million of other assets associated primarily with
Analytical Instruments. In fiscal 1996, the Perkin-Elmer 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 Perkin-Elmer 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
Perkin-Elmer Group combined financial statements).
RESULTS OF OPERATIONS FOR THE THREE MONTHS
ENDED SEPTEMBER 30, 1998 COMPARED WITH
SEPTEMBER 30, 1997
The Perkin-Elmer Group reported net income of $21.2 million for the first
quarter of fiscal 1999 compared with net income of $21.6 million for the first
quarter of fiscal 1998. Excluding the $.9 million of merger-related costs
incurred in the first quarter of fiscal 1999, net income for the quarter
increased 2% compared with the prior year. The effects of foreign currency
translation reduced fiscal 1999 first quarter net income by approximately $3.0
million. Excluding the merger-related costs and the effects of currency
translation, net income for the first quarter of fiscal 1999 increased
approximately 16% compared with the first quarter of fiscal 1998.
Net revenues were $376.2 million for the first quarter of fiscal 1999
compared with $322.7 million for the first quarter of fiscal 1998, an increase
of 17%. Excluding the results of Tecan, which were not included in the first
quarter of the prior year, revenues increased 8%. The effects of foreign
currency translation decreased net revenues by approximately $9 million, or 3%,
in the quarter compared with the prior year, as the U.S. dollar remained strong
against most Far Eastern currencies. Geographically, excluding Tecan, the
Perkin-Elmer Group reported revenue growth of 17% and 11% in the United States
and Europe, respectively, compared with the prior year. This growth was
partially offset by a decline of 14% in the Far East and 13% in Latin America
and other markets. Excluding the effects of currency translation and Tecan,
revenues in the Far East would have increased approximately 2%, and Latin
America and other markets would have decreased approximately 4% compared with
the first quarter of the prior year. Economic instability in these regions,
specifically in the Analytical Instruments business, was the primary contributor
to the decline in Latin America and modest growth in the Far East.
NET REVENUES BY BUSINESS SEGMENT
<TABLE>
<CAPTION>
FOR THE THREE MONTHS
ENDED SEPTEMBER 30,
--------------------
(DOLLAR AMOUNTS IN MILLIONS) 1997 1998
- ----------------------------------- --------- ---------
<S> <C> <C>
PE Biosystems...................... $ 191.0 $ 249.7
Analytical Instruments............. 131.7 126.5
--------- ---------
$ 322.7 $ 376.2
--------- ---------
--------- ---------
</TABLE>
On a business segment basis, net revenues of PE Biosystems increased 31% to
$249.7 million in the first quarter of fiscal 1999. Excluding Tecan and the
negative effects of currency translation, revenues increased 19% compared with
the prior, primarily reflecting the continued growth in the genetic analysis and
polymerase chain reaction ("PCR") product offerings. In particular, revenues for
reagents that support our genetic analysis systems increased 81%. Increased
contract and licensing revenues of $5.4 million also contributed to the
year-to-year growth.
V-15
<PAGE>
Geographically, excluding Tecan, revenues and orders were particularly
strong in the United States and Europe, as revenues increased 24% and 18% over
the prior year, partly as a result of higher product demand from pharmaceutical
research companies. Revenues in Latin America and other markets increased 25%,
while revenues in the Far East declined 9% compared with the prior year.
Excluding Tecan and the negative effects of currency translation, revenues in
the Far East would have increased approximately 7% compared with the prior year.
PE Biosystems introduced several significant new products and systems during
the first quarter. Among these introductions were the ultra high-throughput ABI
PRISM-Registered Trademark- 3700 DNA Analyzer. The Perkin-Elmer Group expects
shipments of the system to early-access customers and Celera Genomics to begin
during the second quarter of fiscal 1999. Other significant new instrument
systems and services introduced during the quarter included: several applied
genetic analysis kits, including one for HIV profiling; high-throughput drug
discovery screening services through Tropix; and FMAT, a new bioassay system to
detect cells in vitro for drug discovery, which was developed in collaboration
with Biometric Imaging, Inc. These products began generating revenues late in
the quarter and the Perkin-Elmer Group expects these products to contribute to
revenues over the remainder of fiscal 1999.
Net revenues for Analytical Instruments were $126.5 million compared with
$131.7 million reported in the prior year's first quarter. The effects of
foreign currency translation reduced revenues by approximately $4 million, or
3%. Revenues increased 4% in Europe, offset by declines of 2% in North America,
21% in the Far East and 27% in Latin America and other markets. Excluding the
effects of currency, revenues in the Far East, and Latin America and other
markets declined approximately 6%, and 18%, respectively. Growth in
chromatography products was more than offset by decreased revenues in inorganic
and organic products. Also, softness in the emerging markets of Latin America,
and continued difficulties in the Pacific Rim contributed to the sales volume
weakness.
During the quarter, the Company announced it had engaged Warburg Dillon Read
LLC to explore strategic alternatives for the Analytical Instruments. Options to
be explored include selling the business, spinning it off as a separate company,
or retaining it as part of the Perkin-Elmer Group. The Company believes this
announcement may have had a negative effect on revenue growth in the quarter.
Gross margin as a percentage of net revenues was 51.0% in the first quarter
of fiscal 1999 compared with 48.8% in the first quarter of fiscal 1998. This was
primarily the result of a change in product mix for PE Biosystems. Higher unit
sales of reagents to support genetic analysis systems and increased contract and
licensing revenues were the primary contributors. Continued growth in instrument
sales of higher margin genetic analysis product offerings was also a factor.
These changes helped offset a decline in Analytical Instruments' gross margin,
which was primarily a result of product mix and volume shortfalls in Latin
America and Pacific Rim markets.
Selling, general and administrative ("SG&A") expenses were $113.9 million in
the first quarter of fiscal 1999 compared with $100.9 million in the first
quarter of fiscal 1998. The 12.9% increase in expenses, or 4.6% excluding Tecan,
was due to higher planned expenses for PE Biosystems. As a percentage of net
revenues, SG&A expense decreased to 30.3% compared with 31.3% in the prior year.
Research, development and engineering ("R&D") expenses of $44.4 million
increased 41.9% over the prior year from $31.3 million. Excluding Tecan, R&D
expenses increased 31.8% compared with the prior year reflecting a 38.1%
increase at PE Biosystems and an 18% increase at Analytical Instruments.
Excluding Tecan, PE Biosystems' R&D expense accounted for 71% of the
Perkin-Elmer Group's R&D expense. R&D investments were increased to a higher
level in the quarter, in part to support new life science product launches in
fiscal 1999 and to accelerate new product development. Comparative increases in
these expenses should moderate over future quarters. As a percentage of net
revenues, the Perkin-Elmer Group's R&D
V-16
<PAGE>
expenses increased to 11.8% compared with 9.7% for the prior year.
The Perkin-Elmer Group incurred merger-related costs of $.9 million in the
first quarter of fiscal 1999 for training, relocation, and communication in
connection with the integration of PerSeptive into the Perkin-Elmer Group (see
Note 10 to the Perkin-Elmer Group combined financial statements). Additional
merger-related period costs of $5.5 million to $7.5 million are expected to be
incurred through the remaining quarters of fiscal 1999.
Operating income increased to $32.9 million for the first quarter of fiscal
1999 compared with $25.2 million for the prior year. Excluding Tecan, the
merger-related costs of $.9 million, and the effects of currency translation,
operating income increased 32.2% compared with the prior year. The effects of
currency translation decreased operating income by approximately $4 million
compared with the prior year.
Operating profits for PE Biosystems, excluding Tecan, increased 33%.
Excluding the effects of currency translation, operating income increased 42%,
benefiting from higher gross margin and lower SG&A expenses as a percentage of
net revenues, as progress continues on the integration of businesses acquired
during fiscal year 1998. Analytical Instruments reported a small loss for the
first quarter of fiscal 1999 compared with modest profit for the prior year. The
Perkin-Elmer Group believes the decision to explore strategic alternatives for
its Analytical Instruments business may have had a negative effect on revenue
growth and the decline in gross margin contributed to the decrease in
profitability during the quarter.
Interest expense was $.8 million for the first quarter of fiscal 1999
compared with $1.3 million for the prior year. This decrease was primarily due
to the refinancing of PerSeptive's 8 1/4% Convertible Subordinated Notes Due
2001 (the "PerSeptive Notes") together with slightly lower outstanding debt
balances and lower average interest rates. Interest income was $.5 million for
the first quarter of fiscal 1999 compared with $2.4 million for the prior year,
primarily because of lower cash balances, as well as from lower interest rates.
Other income, net for the first quarter of fiscal 1999 was $1.7 million,
primarily related to a legal settlement, compared with other income, net of $.4
million for the prior year.
The effective income tax rate was 28.9% for the first quarter of fiscal 1999
compared with 21.5% for the prior year. Excluding Tecan in fiscal 1999, the
effective income tax rate was 28.1%. The income tax rate for the first quarter
of fiscal 1998 was favorably affected by finalization of certain outstanding tax
matters resulting in a one-time rate decrease.
Minority interest expense of $3.1 million was recognized in the first
quarter of fiscal 1999 relating to the Company's 14.5% financial interest in
Tecan.
RESULTS OF OPERATIONS--1998 COMPARED WITH 1997
The Perkin-Elmer Group reported net income of $60.4 million for fiscal 1998,
compared with net income of $156.2 million for fiscal 1997. On a comparable
basis, excluding the special items previously described, net income increased
12.1% to $131.2 million for fiscal 1998 compared with $117.0 million for fiscal
1997.
Net revenues were $1,530.9 million for fiscal 1998, compared with $1,373.3
million for fiscal 1997, an increase of 11.5%. Excluding Tecan, revenues
increased 7.8% compared with the prior year. The effects of currency translation
decreased net revenues by approximately $68 million, or 5%, compared with the
prior year, as the U.S. dollar strengthened against most European and Far
Eastern currencies. Geographically, the Perkin-Elmer Group reported revenue
growth in all regions compared with the prior year. The United States reported
the strongest growth with revenues increasing 22.3%, or 18.6% excluding Tecan,
benefiting from growth in both the PE Biosystems and Analytical Instruments
business segments. Revenues increased 5.3% in Europe, 1% in the Far East, and
14.9% in other markets, specifically Latin America, where revenues increased 36%
compared with the prior year. Excluding Tecan, revenues remained essentially
V-17
<PAGE>
unchanged in Europe and the Far East compared with the prior year. Before the
effects of currency translation and excluding Tecan, revenues would have
increased approximately 8% in Europe, 9% in the Far East, and 19% in other
markets. Growth in the Far East market was adversely affected by the economic
turmoil in the Pacific Rim and the weakening of the Japanese Yen.
NET REVENUES BY BUSINESS SEGMENT
<TABLE>
<CAPTION>
(DOLLAR AMOUNTS IN MILLIONS) 1997 1998
- ------------------------------- --------- ---------
<S> <C> <C>
PE Biosystems.................. $ 749.2 $ 921.5
Analytical Instruments......... 624.1 609.4
--------- ---------
$ 1,373.3 $ 1,530.9
--------- ---------
--------- ---------
</TABLE>
On a business segment basis, net revenues of PE Biosystems, which includes
PE Applied Biosystems, PerSeptive, Molecular Informatics, Tropix, and Tecan,
increased 23.0% to $921.5 million for fiscal 1998 compared with $749.2 million
for the prior year. Excluding Tecan, revenues increased 16.2% over the prior
year. The negative effects of a strong U.S. dollar reduced the division's
revenues by approximately $33 million, or 4%. 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 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 25.3%, 10.1%,
and 4.5%, 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
Perkin-Elmer 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.
Net revenues for Analytical Instruments were $609.4 million for fiscal 1998
compared with $624.1 million for the prior year, a decrease of 2.4%. The effects
of currency translation decreased net revenues by approximately $35 million, or
6%. Excluding currency effects, revenues would have increased approximately 3%.
Increased revenues of chromatography products, primarily data handling and
Laboratory Information Management Systems ("LIMS"), were more than offset by
lower demand for organic and inorganic products. Geographically, revenues in the
United States and other markets increased 6.5% and 10.1%, respectively. Revenues
in Latin America, included in other markets, increased 25% compared with the
prior year. Revenues in Europe and the Far East decreased 7.5% and 9.6%,
respectively; however, excluding the effects of currency translation, revenues
in Europe and the Far East remained essentially unchanged compared with fiscal
1997.
Gross margin as a percentage of net revenues was 50.9% for fiscal 1998
compared with 49.5% 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 $7.5 million for the impairment of assets
associated primarily with Analytical Instruments. Excluding the special items,
fiscal 1998 gross margin increased to 51.2% of revenues compared with 50.1% for
fiscal 1997. Benefits realized by PE Biosystems from the sale of higher-margin
genetic analysis products, increased royalty revenues in the United States, and
cost savings resulting from Analytical Instruments' restructuring actions more
than offset the negative effects of currency translation.
SG&A expenses were $457.7 million for fiscal 1998 compared with $416.3
million for the prior year. The 9.9% increase in expenses, or 6.2% excluding
Tecan, was due to higher planned worldwide selling and marketing expenses for PE
Biosystems, commensurate with the substantially higher revenue and order growth.
Before the effects of currency translation and Tecan, SG&A expenses increased
6.9% compared with the prior year. SG&A expenses
V-18
<PAGE>
for Analytical Instruments decreased 3.3% compared with the prior year,
primarily because of lower expenses in Europe resulting in part from the
restructuring plans. As a percentage of net revenues, SG&A expenses for the
Perkin-Elmer Group decreased to 29.9% compared with 30.3% in the prior year.
R&D expenses of $147.9 million increased 22.9% over the prior year, or 18.2%
excluding Tecan. R&D spending in PE Biosystems increased 34.2%, or 27.0%
excluding Tecan, over the prior year as the Perkin-Elmer Group continued its
product development efforts and preparation for new product launches in this
segment. The division's spending accounted for 71.6% of the Perkin-Elmer Group's
R&D expenses. R&D expenses for Analytical Instruments remained essentially
unchanged compared with the prior year. As a percentage of net revenues, the
Perkin-Elmer Group's R&D expenses increased to 9.7% compared with 8.8% 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 Perkin-Elmer Group
following the acquisition (see Note 10 to the Perkin-Elmer 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 Perkin-Elmer
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.
The restructuring plan actions announced in the fourth quarter of fiscal
1997 have been proceeding as planned. These actions focused on the transition of
Analytical Instruments from a highly vertical manufacturing operation to one
that relies more on outsourcing functions not considered core competencies. The
plan also included actions to finalize consolidation of sales and administrative
support, primarily in Europe (see Note 10 to the Perkin-Elmer Group combined
financial statements). For the year ended June 30, 1998, the Perkin-Elmer Group
achieved approximately $9 million in before-tax savings attributable to this
plan, and expects to achieve approximately $19 million in succeeding fiscal
years.
Fiscal 1998 included $28.9 million of purchased in-process research and
development associated with the acquisition of Molecular Informatics. In fiscal
1997, the Perkin-Elmer Group recorded a charge of $1.4 million of in-process
research and development related to the acquisition of Linkage Genetics, Inc.
V-19
<PAGE>
Operating income decreased to $100.7 million for fiscal 1998 compared with
$128.9 million for the prior year. Excluding special items, operating income
increased 17.8% to $177.6 million for fiscal 1998 compared with $150.8 million
for fiscal 1997. Excluding Tecan and special items, operating income increased
by 12.8% compared with the prior year. On a comparable basis excluding special
items, Tecan, and the effects of currency translation, operating income would
have increased 29.5% compared with the prior year. The effects of currency
translation decreased operating income by approximately $25 million compared
with the prior year. A combination of revenue growth in PE Biosystems and
reduced expense levels, resulting in part from restructuring plans in Analytical
Instruments, contributed to the improvement.
OPERATING INCOME BY BUSINESS SEGMENT
<TABLE>
<CAPTION>
ANALYTICAL
(DOLLAR AMOUNTS IN MILLIONS) PE BIOSYSTEMS INSTRUMENTS
- ------------------------------- ------------- ---------------
<S> <C> <C>
1997
Segment income................. $ 125.9 $ 56.1
Restructuring.................. (13.0)
Acquired R&D................... (1.4)
Impairment of assets........... (.7) (6.8)
------ -----
Operating income............. $ 123.8 $ 36.3
------ -----
------ -----
1998
Segment income................. $ 157.0 $ 57.4
Restructuring and other merger
costs........................ (48.1)
Acquired R&D................... (28.9)
------ -----
Operating income............. $ 80.0 $ 57.4
------ -----
------ -----
</TABLE>
Operating income for PE Biosystems decreased to $80.0 million for fiscal
1998 compared with $123.8 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 $31.1 million, or 24.7%,
primarily as a result of increased volume and improved margins. Excluding Tecan,
operating income increased 18.9% compared with the prior year. Before the
effects of currency translation and excluding Tecan, fiscal 1998 operating
income increased 32.2% compared with the prior year. Geographically, fiscal 1998
segment income increased 63.6% in the United States, 20% in the Far East, and
17% in Europe compared with fiscal 1997. A 23.5% increase in operating income
from higher-margin sequencing and mapping systems was the primary contributor.
Excluding the effects of currency translation, segment income would have
increased approximately 38.2%. As a percentage of net revenues, segment income,
before special items, remained essentially unchanged compared with the prior
year.
Operating income for Analytical Instruments increased to $57.4 million for
fiscal 1998 compared with $36.3 million for fiscal 1997. Operating income for
the division, excluding the fiscal 1997 charges for restructuring costs and
impairment of assets, increased by 2.3% compared with the prior year. Lower
expense levels resulting from cost control and the actions of the restructuring
programs were essentially offset by lower sales volume. Excluding currency
effects, segment income would have increased approximately 17%. As a percentage
of net revenues, segment income before special items increased to 9.4% for
fiscal 1998 from 9.0% for fiscal 1997.
In fiscal 1998 and 1997, the Perkin-Elmer Group 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 Perkin-Elmer
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 Perkin-Elmer Group's
continued investments and acquisitions in the life science segment, as well as
from lower interest rates.
Other income, net for fiscal 1998 of $3.5 million, primarily related to the
sale of certain operating and non-operating assets,
V-20
<PAGE>
compared with other income, net of $1.8 million for the prior year.
The effective income tax rate was 38.2% for fiscal 1998 and 21.4% for fiscal
1997. Excluding Tecan in fiscal 1998, and special items in fiscal 1998 and
fiscal 1997, the effective income tax rate was 25.4% for fiscal 1998 compared
with 21.1% for fiscal 1997. The rate for fiscal 1997 was favorably impacted by
PerSeptive's utilization of loss carryforwards. An analysis of the differences
between the federal statutory income tax rate and the effective rate is provided
in Note 4 to the Perkin-Elmer Group combined financial statements.
Minority interest expense of $5.6 million was recognized in fiscal 1998
relating to the Company's 14.5% financial interest in Tecan (see Note 2 to the
Perkin-Elmer Group combined financial statements).
RESULTS OF OPERATIONS--1997 COMPARED WITH 1996
The Perkin-Elmer Group reported net income of $156.2 million for fiscal 1997
compared with a net loss of $36.5 million for fiscal 1996. On a comparable
basis, excluding the special items previously described, net income increased
50%.
Net revenues for fiscal 1997 were $1,373.3 million, an increase of 10% over
the $1,249.0 million reported for fiscal 1996. The effects of currency rate
movements decreased net revenues by approximately $45 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 increased 13.4% over the prior year, benefiting
from growth in both PE Biosystems and Analytical Instruments. Net revenues in
Europe and the Far East increased 8.6% and 8.2%, respectively, as higher
revenues from PE Biosystems were partially offset by decreases in Analytical
Instruments' revenues. In Europe, a 26.3% increase in revenues from PE
Biosystems was partially offset by a 2.3% decline in Analytical Instruments'
revenues. In the Far East, a 16.3% increase in PE Biosystems revenues was
partially offset by a 2.3% decrease in Analytical Instruments' revenues.
Excluding currency effects, total revenues in Europe and the Far East would have
increased approximately 13% and 18%, respectively.
NET REVENUES BY BUSINESS SEGMENT
<TABLE>
<CAPTION>
(DOLLAR AMOUNTS IN MILLIONS) 1996 1997
- ------------------------------- --------- ---------
<S> <C> <C>
PE Biosystems.................. $ 618.4 $ 749.2
Analytical Instruments......... 630.6 624.1
--------- ---------
$ 1,249.0 $ 1,373.3
--------- ---------
--------- ---------
</TABLE>
Including currency effects, which reduced reported revenues by approximately
$25 million, or 4%, net revenues of PE Biosystems increased 21.2% over fiscal
1996. Net revenues in the United States, Europe, and the Far East increased
20.7%, 26.3%, and 16.3%, respectively. Increased demand for genetic analysis,
LC/MS, and the PCR product lines was the primary contributor.
Analytical Instruments experienced a 1% decline in net revenues compared
with the prior year. Currency rate movements reduced revenues by approximately
$20 million, or 3%. While revenues in the United States increased 2.5%, this was
offset by a decrease of 2.3% in both Europe and the Far East. Excluding the
effects of currency translation, revenues in Europe and the Far East would have
increased approximately 2% and 4%, respectively.
Gross margin as a percentage of net revenues was 49.5% for fiscal 1997
compared with 47.7% for fiscal 1996. Excluding the $7.5 million and $9.9 million
charges for impaired assets, recorded in cost of sales, for fiscal 1997 and
1996, respectively, gross margin was 50.1% compared with 48.5%. Both divisions
experienced improved gross margin for fiscal 1997. PE Biosystems' improvement
was the result of the overall unit volume increase and product mix. The benefits
realized from the fiscal 1996 restructuring plan, combined with a more favorable
product mix, contributed to an improved gross margin for Analytical Instruments.
V-21
<PAGE>
SG&A expenses were $416.3 million for fiscal 1997 compared with $380.4
million for fiscal 1996, an increase of 9.4%. Lower expense levels resulting
from cost controls and the actions of the restructuring programs in Analytical
Instruments were more than offset by increased expenses of 20.5% in PE
Biosystems and costs for the Company's restricted stock and performance-based
compensation programs, including a long-term divisional plan that was effective
for fiscal 1997. The total expense for the restricted stock, performance-based
programs, and long-term division plan was $26.3 million and $11.8 million for
fiscal 1997 and 1996, respectively. As a percentage of net revenues, SG&A
expenses for the Perkin-Elmer Group remained essentially unchanged at
approximately 30% for both fiscal 1997 and fiscal 1996.
R&D expenses were $120.3 million for fiscal 1997 compared with $113.7
million for fiscal 1996. R&D spending in PE Biosystems increased 28.4% over the
prior year as the Perkin-Elmer Group continued its product development efforts
for the bioresearch markets. In fiscal 1997, Analytical Instruments recorded a
20.9% decrease in R&D expenditures, which reflected the objectives of
restructuring actions and product line reviews.
Operating income for fiscal 1997 was $128.9 million compared with an
operating loss of $21.5 million for fiscal 1996. Fiscal 1997 and 1996 included
charges of $1.4 million and $33.9 million, respectively, for acquired research
and development related to acquisitions for PE Biosystems. Fiscal 1997 and 1996
also included charges for restructuring of $13.0 million and $89.1 million,
respectively. On a comparable basis, excluding special items in both years,
operating income increased 35.4% compared with the prior year.
During the fourth quarter of fiscal 1997, the Perkin-Elmer Group announced a
follow-on phase to Analytical Instruments' profit improvement program. The
restructuring cost for this action was $24.2 million 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 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 seventeen facilities were closed.
The workforce reductions under this action totaled 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 the functions to
be outsourced.
The fiscal 1996 restructuring charge included $71.6 million for the first
phase of Analytical Instruments' profit improvement plan. In connection with the
program, the division was reorganized into three vertically integrated, fiscally
accountable operating units, a distribution center in Holland was established 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 costs and asset-related write-offs associated with the
discontinuation of various product lines. In the fourth quarter of fiscal 1997,
the Perkin-Elmer Group finalized the actions associated with this program. The
costs to implement the program were $11.2 million less than the $71.6 million
charge recorded in fiscal 1996. As a result, during the fourth quarter of fiscal
1997, the Perkin-Elmer Group recorded an $11.2 million reduction of charges
required to implement the fiscal 1996 program.
Fiscal 1996 also included a restructuring charge of $17.5 million for
restructuring actions
V-22
<PAGE>
and other related costs associated with PerSeptive.
OPERATING INCOME (LOSS) BY BUSINESS SEGMENT
<TABLE>
<CAPTION>
PE ANALYTICAL
(DOLLAR AMOUNTS IN MILLIONS) BIOSYSTEMS INSTRUMENTS
- ------------------------------- ----------- -------------
<S> <C> <C>
1996
Segment income................. $ 107.2 $ 28.7
Restructuring.................. (17.5) (71.6)
Acquired R&D................... (33.9)
Impairment of assets........... (9.9)
----------- ------
Operating income (loss)...... $ 45.9 $ (42.9)
----------- ------
----------- ------
1997
Segment income................. $ 125.9 $ 56.1
Restructuring.................. (13.0)
Acquired R&D................... (1.4)
Impairment of assets........... (.7) (6.8)
----------- ------
Operating income............. $ 123.8 $ 36.3
----------- ------
----------- ------
</TABLE>
Operating income for PE Biosystems, excluding special items, increased $18.7
million, or 17.4%, as a result of increased volume and improved margin. All
geographic markets contributed to the improved segment income. An increase in
operating income from high-margin sequencing systems was the primary
contributor. The strongest growth was in Europe, where fiscal 1997 segment
income increased 33% compared with fiscal 1996. Excluding currency translation
effects, segment income would have increased approximately 27%. As a percentage
of net revenues, segment income decreased to 16.7% for fiscal 1997 from 17.3%
for fiscal 1996.
Operating income for Analytical Instruments, excluding the charges for
restructuring and impairment of assets, increased to $56.1 million for fiscal
1997 from $28.7 million for fiscal 1996. As a percentage of net revenues,
segment income increased to 9.0% for fiscal 1997 from 4.6% for fiscal 1996. The
cost savings realized from the restructuring actions and cost controls were the
primary reasons for the improvement. Compared with the prior year, operating
income in Europe decreased 2.9% resulting primarily from the effects of a
stronger U.S. dollar and was more than offset by improvements in other
geographic areas, primarily the United States.
In fiscal 1997 and 1996, the Perkin-Elmer 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 $1.8 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 21.4%. Fiscal 1996
incurred a provision of $21.6 million on a before-tax loss of $15.0 million.
Both years were impacted by special items. 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, the Company reduced its 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 Perkin-Elmer Group operates internationally, with manufacturing and
distribution facilities in various countries throughout the world. For the first
quarter of fiscal 1999 and for fiscal 1998, the Perkin-Elmer Group derived
approximately 53% and 57%, respectively, of its revenues from countries outside
of the United States. Results continue to
V-23
<PAGE>
be affected by market risk, including fluctuations in foreign currency exchange
rates and changes in economic conditions in foreign markets.
The Perkin-Elmer 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 Perkin-Elmer
Group does not use derivative financial instruments for trading or other
speculative purposes, nor is the Perkin-Elmer Group a party to leveraged
derivatives. At September 30, 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.
The Perkin-Elmer Group performed a sensitivity analysis as of September 30,
1998 and June 30, 1998 assuming a hypothetical 10% adverse movement in foreign
currency exchange rates applied to its outstanding hedge contracts and
associated exposures. The analysis indicated that such a market movement would
not have had a material effect on the Perkin-Elmer Group's consolidated
financial position, results of operations, or cash flows. Actual gains and
losses in the future could, however, differ materially from this analysis, based
on changes in the timing and amount of foreign currency exchange rate movements
and the Perkin-Elmer Group's actual exposures and hedges.
Interest rate swaps are used to hedge underlying debt obligations. In fiscal
1997, the Company executed an interest rate swap allocated to the Perkin-Elmer
Group in conjunction with its entering into a five-year Japanese Yen debt
obligation. Under the terms of the swap agreement, the Company 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 ($27.0 million). The maturity date of the swap coincides with
the maturity of the Yen loan in March 2002.
Based on the Perkin-Elmer Group's overall interest rate exposure at
September 30, 1998 and June 30, 1998, including derivative and other interest
rate sensitive instruments, a near-term change in interest rates would not
materially affect the consolidated financial position, results of operations, or
cash flows of the Perkin-Elmer Group. Further discussion of the Perkin-Elmer
Group's foreign currency and interest rate management activities is provided in
Note 12 to the Perkin-Elmer Group's combined financial statements.
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 the Company have
been allocated to the Perkin-Elmer Group. Cash and cash equivalents were $71.8
million at September 30, 1998, $82.9 million at June 30, 1998, and $213.0
million at June 30, 1997, with total debt of $88.4 million at September 30,
1998, $45.8 million at June 30, 1998, and $89.1 million at June 30, 1997.
Working capital was $289.3 million at September 30, 1998, $286.4 million at June
30, 1998, and $354.7 million at June 30, 1997. Debt to total capitalization
increased to 13% at September 30, 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.
The Company intends to allocate to the Celera Genomics Group a note payable
of the Perkin-Elmer Group. The Company believes its capital resources and the
cash flows of the Perkin-Elmer Group will be sufficient to fund the note payable
to the Celera Genomics Group and to maintain and support the growth requirements
of the Perkin-Elmer Group's current operations.
V-24
<PAGE>
In addition, the Board of Directors of the Company has adopted a financing
policy, included in Note 1 to the Perkin-Elmer Group combined financial
statements, which will permit the Perkin-Elmer 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
At September 30, 1998 accounts receivable of $376.4 million remained
essentially unchanged from the June 30, 1998 balance of $374.6 million. The
inventory balance increased by $17.1 million from June 30, 1998, resulting from
growth in PE Biosystems, partially offset by a decline in Analytical
Instruments.
Accounts receivable and inventory balances increased from June 30, 1997 to
June 30, 1998 by $40.7 million and $25.4 million, respectively. Excluding Tecan,
accounts receivable and inventory balances increased by $19.2 million and $15.6
million, from June 30, 1997 to June 30, 1998 reflecting the growth in PE
Biosystems.
Other long-term assets decreased by $4.7 million at September 30, 1998 to
$273.6 million from $278.3 million at June 30, 1998. Other long-term assets
increased to $278.3 million at June 30, 1998 from $190.7 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 for PE Biosystems, and a $10.2 million increase in prepaid pension
asset, partially offset by the sale of certain non-operating assets.
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.
Accounts payable decreased $40.0 million to $125.0 million at September 30,
1998 from $165.0 million at June 30, 1998 reflecting payments for higher
purchases made during the fourth quarter of fiscal 1998. Accounts payable
increased $33.6 million to $165.0 million at June 30, 1998 from $131.4 million
at June 30, 1997. The increase resulted from higher purchases to support
production and operating requirements.
At September 30, 1998 and June 30, 1998, $49.2 million and $43.8 million,
respectively, of minority interest was recognized in connection with Tecan.
COMBINED STATEMENTS OF CASH FLOWS
Net cash used by operating activities was $16.3 million for the first three
months of fiscal 1999 compared with $18.1 million for the same period in fiscal
1998. For the first three months of fiscal 1999, lower net income-related cash
flow and higher payments to suppliers were partially offset by lower accounts
receivable and prepaid expenses, primarily from the collection of non-trade
receivables. Operating activities generated $83.3 million of cash in fiscal 1998
compared with $113.6 million in fiscal 1997 and $90.9 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. The increase related primarily to
PE Biosystems, reflecting the division's continued growth.
Net cash used by investing activities was $26.8 million for the first three
months of fiscal 1999 compared with $25.9 million for the first three months of
fiscal 1998. In the first quarter of fiscal 1999, the Perkin-Elmer Group
generated $14.3 million in net cash proceeds
V-25
<PAGE>
from the sale of certain non-operating assets, compared with $13.9 million in
the prior year from the sale of certain non-operating assets and the collection
of a note receivable. For the first three months of fiscal 1999 cash proceeds
were more than offset by capital expenditures of $41.8 million, which included
$9.5 million related to improvement of the Perkin-Elmer Group's information
technology infrastructure, and $17.5 million for the acquisition of an airplane.
For the first three months of fiscal 1998 cash proceeds were more than offset by
capital expenditures of $33.7 million, primarily related to improvement of the
Perkin-Elmer Group's information technology infrastructure, and $7.2 million
related to various investments and collaborations. In fiscal 1998, net cash used
by investing activities was $166.9 million compared with net cash provided by
investing activities of $34.7 million in fiscal 1997. During fiscal 1998, the
Perkin-Elmer 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 $113.6 million of capital expenditures and $98.0
million for acquisitions and investments, primarily Tecan and Molecular
Informatics (see Note 2 to the Perkin-Elmer Group combined financial
statements). For fiscal 1997, the Perkin-Elmer Group generated $99.7 million in
net cash proceeds from the sale of the 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 $6.4 million
used for acquisitions (see Note 2 to the Perkin-Elmer Group combined financial
statements), and $69.8 million for capital expenditures. In fiscal 1996, $119.2
million of cash was used for acquisitions and $44.3 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.
Capital expenditures for the three months ended September 30, 1998 were
$41.8 million: $12.0 million for PE Biosystems, $1.7 million for Analytical
Instruments, and $28.1 million for other. As previously mentioned, fiscal 1999
capital expenditures included $9.5 million related to improvement of the
Perkin-Elmer Group's information technology infrastructure, and $17.5 million
for the acquisition of an airplane. Fiscal 1998 capital expenditures were $113.6
million: $69.5 million for PE Biosystems, $42.9 million for Analytical
Instruments, and $1.2 million for other. The Perkin-Elmer Group's expenditures
included $65.9 million as part of the strategic program to improve its
information technology infrastructure. Capital expenditures for fiscal 1997
totaled $69.8 million: $42.1 million for PE Biosystems, $14.1 million for
Analytical Instruments, and $13.6 million for other. Fiscal 1997 expenditures
included $11.1 million for information technology infrastructure improvements
and $12.1 million for the acquisition of an airplane.
Net cash provided by financing activities was $29.8 million in the first
quarter of fiscal 1999 compared with a net cash use of $1.1 million in the prior
period. In the first quarter of fiscal 1999, the Perkin-Elmer Group received
$6.4 million in proceeds from employee stock option plan exercises compared with
$2.9 million in the prior period. Loans payable increased $43.8 million in the
first quarter of fiscal 1999 compared with an increase of $4.3 million for the
prior year. In fiscal 1998 net cash used by financing activities was $45.9
million compared with $37.6 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, the Company
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 the Company's various stock plans. No
shares were repurchased during fiscal 1998.
V-26
<PAGE>
As previously mentioned, the Perkin-Elmer Group recorded before-tax
restructuring charges and other merger costs of $48.1 million, $24.2 million,
and $89.1 million in fiscal 1998, 1997, and 1996, respectively. Fiscal 1997 also
included an $11.2 million before-tax reduction of charges associated with the
fiscal 1996 restructuring plan. During fiscal 1998, the Perkin-Elmer Group made
cash payments of $39.5 million for obligations related to restructuring plans
and other merger costs. Liabilities remaining at June 30, 1998 were $26.9
million and $4.4 million for the fiscal 1998 and 1997 plans, respectively (see
Note 10 to the Perkin-Elmer Group combined financial statements). The funding
for the remaining restructuring liabilities will be from current cash balances,
including realized benefits from the restructuring activities.
The Perkin-Elmer 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, the Company had unused credit facilities totaling $343
million.
IMPACT OF INFLATION AND CHANGING PRICES
Inflation and changing prices are continually monitored. The Perkin-Elmer
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
Perkin-Elmer Group attempts to recover such costs by increasing, over time, the
selling price of its products and services. The Perkin-Elmer 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, the Company initiated a worldwide program to assess the
expected impact of the Year 2000 date recognition problem on its existing
internal computer systems, including embedded and
process-control systems, product offerings, and significant suppliers. The
purpose of this program is to ensure the event does not have a material adverse
effect on the Company's business operations.
The operations of the Perkin-Elmer Group are included within this program.
At this time, the Company is not able to determine the relative resources
required to implement this program in the Perkin-Elmer Group. However, the
Company believes that a substantial portion of the resources required will be
allocated to the Perkin-Elmer Group.
Regarding the Company'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 in the United States by December 31,
1998, and 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 the Company's 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 the Company expects the
Perkin-Elmer Group's current product offerings to be Year 2000 compliant by
December 31, 1999. A substantial portion of the Perkin-Elmer Group's current
product offerings are Year 2000 compliant.
The program also addresses the Year 2000 compliance efforts of the Company's
significant suppliers, vendors, and third-party interface systems. As part of
this analysis, the Company is seeking written assurances from these suppliers,
vendors, and third parties that they will be Year 2000 compliant. While the
Company has begun such efforts, there can be no assurance that the systems of
other companies with which the Company deals, or on which the Company's
V-27
<PAGE>
systems rely will be timely converted, or that any such failure to convert by
another company could not have a material adverse effect on the Company. The
Company has not fully determined the extent to which the Company's interface
systems may be impacted by third parties' systems, which may not be Year 2000
compliant.
The Company'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 the Company's information systems, production and
facilities equipment. The redirection of spending to implement Year 2000
compliance plans may in some instances delay productivity improvements.
The Company has also engaged a consulting firm to provide periodic
assessments of the Company's Year 2000 project plans and progress. Because of
the importance of addressing the Year 2000 problem, the Company 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 the Company's Year 2000 compliance plan in a timely manner.
If the Company 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 the
Company's consolidated results of operations and financial condition.
At this stage of the process, the Company 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 the Company's operations and have a material
adverse effect on the Company's financial condition. The impact of such
disruption cannot be estimated at this time. In the event the Company believes
that any of its significant suppliers or vendors are unlikely to be able to
resolve their own Year 2000 issues, the Company's contingency plan would include
seeking additional sources of supply.
EURO CONVERSION
A single currency called the euro will be introduced in Europe on January 1,
1999. Eleven of the fifteen member countries of the European Union have 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 will be 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 Perkin-Elmer Group is currently evaluating the impact of the euro
conversion on its computer and financial systems, business processes, market
risk, and price competition. The Perkin-Elmer 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 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. The
Perkin-Elmer Group is required to implement the statement in the first quarter
of fiscal 2000. The Perkin-Elmer Group is currently analyzing the statement to
determine the impact, if any, on its combined financial statements.
V-28
<PAGE>
The FASB issued the following Statement of Financial Accounting Standards,
which will become effective for the Perkin-Elmer 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 Perkin-Elmer Group.
OUTLOOK
PE Biosystems is expected to continue to grow and maintain profitability for
fiscal 1999 on the strength of robust demand and several new products. Excluding
Tecan, orders for PE Biosystems products increased by 35% over the first quarter
a year ago, and the backlog in orders for the first quarter was $119 million
compared with $98 million at the end of fiscal 1998. Orders were particularly
strong for genetic analysis systems, sequence detection systems, and products
for applied markets, such as forensics, that are driven by molecular
biology-based reagents. PE Biosystems also began taking orders for its ABI
PRISM-Registered Trademark- 3700 DNA Analyzer, which was introduced late in the
quarter. Excluding orders from the Celera Genomics Group, PE Biosystems accepted
orders for more than 70 units of the 3700 in the first two weeks following its
introduction. Shipments of the 3700 DNA Analyzer to early-access customers and
the Celera Genomics Group are expected to begin during the second quarter. Other
significant new PE Biosystems' instrument systems and services introduced during
the quarter include: several applied genetic analysis kits, including one for
HIV profiling; high-throughput drug discovery screening services through Tropix;
and FMAT, a new bioassay system to detect cells in vitro for drug discovery,
which was developed in collaboration with Biometric Imaging, Inc. These products
began generating revenues late in the quarter and are expected to contribute to
revenues over the balance of the year.
For Analytical Instruments, revenue growth is expected to be in the low
single digits for fiscal 1999. The Company has engaged Warburg Dillon Read LLC
to explore strategic alternatives for the analytical instruments business.
Options to be explored include selling the business, spinning it off as a
separate company, or retaining it as part of the Perkin-Elmer Group. The Company
expects to announce the conclusion of this process by early 1999.
Adverse currency effects remain a concern for the Perkin-Elmer Group because
approximately 53% of its revenues were derived from regions outside the United
States as of September 30, 1998. Recently, the U.S. dollar has weakened, which
should moderate the effects of currency translation for fiscal 1999. If currency
rates are maintained at current levels, the negative effects of currency
translation may be eliminated by the third quarter of this fiscal year.
FORWARD LOOKING STATEMENTS
Certain statements contained in this Management's Discussion and Analysis,
including the Outlook section, are forward looking and are subject to a variety
of risks and uncertainties. These statements 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 upon the Perkin-Elmer Group's 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, the Perkin-Elmer Group notes that a variety of factors, discussed
in detail under "Risk Factors," could cause the Perkin-Elmer Group's actual
results and experience to differ materially from the anticipated results or
other expectations expressed in such forward looking statements. The risks and
uncertainties that may affect the operations, performance, development, and
V-29
<PAGE>
results of the Perkin-Elmer Group's business include, but are not limited to:
- - Dependence on new products and rapid technological change;
- - Substantial competition;
- - Sales dependent on customers' capital spending policies;
- - Patents, proprietary technology and trade secrets;
- - Government sponsored research dependent on funding;
- - Dependence on key employees;
- - Currency exchange risks; other risks of international sales and operations;
- - Potential difficulties in implementing business strategy;
- - Year 2000;
- - Other risks, including the impact of earthquakes; and
- - Future performance.
V-30
<PAGE>
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 Perkin-Elmer 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 Perkin-Elmer Group combined
financial statements, the Perkin-Elmer Group is a group of The Perkin-Elmer
Corporation; accordingly, the combined financial statements of the Perkin-Elmer
Group should be read in conjunction with the audited financial statements of The
Perkin-Elmer Corporation.
PricewaterhouseCoopers LLP
Stamford, Connecticut
July 31, 1998
V-31
<PAGE>
PERKIN-ELMER GROUP
COMBINED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
FOR THE THREE MONTHS
ENDED
FOR THE YEARS ENDED JUNE 30, SEPTEMBER 30,
(DOLLAR AMOUNTS IN THOUSANDS ----------------------------------------- -----------------------
EXCEPT PER SHARE AMOUNTS) 1996 1997 1998 1997 1998
- --------------------------------------------- ------------- ------------ ------------ ----------- ----------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
NET REVENUES................................. $ 1,248,967 $ 1,373,282 $ 1,530,864 $ 322,707 $ 376,185
Cost of sales................................ 653,427 693,343 751,744 165,311 184,143
------------- ------------ ------------ ----------- ----------
GROSS MARGIN................................. 595,540 679,939 779,120 157,396 192,042
------------- ------------ ------------ ----------- ----------
Selling, general and administrative.......... 380,390 416,293 457,689 100,916 113,864
Research, development and engineering........ 113,680 120,319 147,887 31,265 44,374
Restructuring and other merger costs......... 89,054 13,000 43,980 -- 938
Acquired research and development............ 33,878 1,400 28,850 -- --
------------- ------------ ------------ ----------- ----------
OPERATING INCOME (LOSS)...................... (21,462) 128,927 100,714 25,215 32,866
Gain on investments.......................... 11,704 64,850 1,605 845
Interest expense............................. 8,444 5,859 4,905 1,275 802
Interest income.............................. 5,376 8,826 5,938 2,358 490
Other income (expense), net.................. (2,140) 1,846 3,511 373 1,707
------------- ------------ ------------ ----------- ----------
INCOME (LOSS) BEFORE INCOME TAXES............ (14,966) 198,590 106,863 27,516 34,261
Provision for income taxes................... 21,557 42,422 40,841 5,927 9,917
Minority interest............................ -- -- 5,597 -- 3,108
------------- ------------ ------------ ----------- ----------
NET INCOME (LOSS)............................ $ (36,523) $ 156,168 $ 60,425 $ 21,589 $ 21,236
------------- ------------ ------------ ----------- ----------
------------- ------------ ------------ ----------- ----------
UNAUDITED PRO FORMA NET INCOME PER SHARE (SEE
NOTE 1):
Basic........................................ $ 1.25 $ .44
Diluted...................................... $ 1.21 $ .43
</TABLE>
SEE ACCOMPANYING NOTES TO THE PERKIN-ELMER GROUP COMBINED FINANCIAL STATEMENTS.
V-32
<PAGE>
PERKIN-ELMER GROUP
COMBINED STATEMENTS OF FINANCIAL POSITION
<TABLE>
<CAPTION>
AT JUNE 30,
--------------------------
(DOLLAR AMOUNTS IN THOUSANDS) 1997 1998
- ----------------------------------------------------------------------- ------------ ------------ AT
SEPTEMBER 30,
1998
-------------
(UNAUDITED)
<S> <C> <C> <C>
ASSETS
Current assets
Cash and cash equivalents............................................ $ 213,028 $ 82,865 $ 71,848
Short-term investments............................................... 4,194 1,226 --
Accounts receivable, less allowances for doubtful accounts of $7,407,
$9,277, and $9,932 at June 30, 1997 and 1998, and September 30,
1998 (unaudited)................................................... 333,915 374,648 376,382
Inventories.......................................................... 214,618 240,031 257,171
Prepaid expenses and other current assets............................ 83,576 97,082 97,861
------------ ------------ -------------
Total current assets................................................... 849,331 795,852 803,262
Property, plant and equipment, net..................................... 197,304 256,006 280,560
Other long-term assets................................................. 190,713 278,345 273,609
------------ ------------ -------------
TOTAL ASSETS........................................................... $ 1,237,348 $ 1,330,203 $ 1,357,431
------------ ------------ -------------
------------ ------------ -------------
LIABILITIES AND GROUP EQUITY
Current liabilities
Loans payable........................................................ $ 29,916 $ 12,099 $ 58,794
Note payable to the Celera Genomics Group (see Note 7)...............
Tax benefit payable to the Celera Genomics Group (See Note 1)........ 199 2,423 4,750
Accounts payable..................................................... 131,413 165,006 124,960
Accrued salaries and wages........................................... 48,183 48,936 46,375
Accrued taxes on income.............................................. 98,307 79,860 80,598
Other accrued expenses............................................... 186,622 201,164 198,468
------------ ------------ -------------
Total current liabilities.............................................. 494,640 509,488 513,945
Long-term debt......................................................... 59,152 33,726 29,650
Other long-term liabilities............................................ 175,237 179,098 187,231
------------ ------------ -------------
Total liabilities...................................................... 729,029 722,312 730,826
------------ ------------ -------------
Minority interest...................................................... -- 43,757 49,177
Commitments and contingencies (see Note 11)
Group equity........................................................... 508,319 564,134 577,428
------------ ------------ -------------
TOTAL LIABILITIES AND GROUP EQUITY..................................... $ 1,237,348 $ 1,330,203 $ 1,357,431
------------ ------------ -------------
------------ ------------ -------------
</TABLE>
SEE ACCOMPANYING NOTES TO THE PERKIN-ELMER GROUP COMBINED FINANCIAL STATEMENTS.
V-33
<PAGE>
PERKIN-ELMER GROUP
COMBINED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
FOR THE THREE MONTHS
FOR THE YEARS ENDED JUNE 30, ENDED SEPTEMBER 30,
------------------------------- --------------------
(DOLLAR AMOUNTS IN THOUSANDS) 1996 1997 1998 1997 1998
- -------------------------------------------------------------------- --------- --------- --------- --------- ---------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
OPERATING ACTIVITIES
Net income (loss)................................................... $ (36,523) $ 156,168 $ 60,425 $ 21,589 $ 21,236
Adjustments to reconcile net income (loss) to net cash
provided (used) by operating activities:
Depreciation and amortization................................... 51,770 43,833 52,664 9,667 13,066
Long-term compensation programs................................. 5,072 11,678 8,062 1,382 939
Deferred income taxes........................................... (13,110) (37,799) 12,892 (961) (1,896)
Gains from the sale of assets................................... (11,704) (66,636) (3,052) -- --
Provision for restructured operations and other merger costs.... 89,054 13,000 48,080 -- --
Acquired research and development............................... 33,878 1,400 28,850 -- --
Impairment of assets............................................ 9,906 7,500 -- -- --
Changes in operating assets and liabilities:
(Increase) decrease in accounts receivable........................ (33,141) (68,313) (26,387) 774 6,772
(Increase) decrease in inventories................................ (11,225) 5,198 (24,975) (13,508) (12,043)
Increase in prepaid expenses and other assets..................... (8,959) (3,653) (48,271) (14,893) (2,404)
Increase (decrease) in accounts payable and other liabilities..... 15,890 51,201 (24,984) (22,162) (41,937)
--------- --------- --------- --------- ---------
NET CASH PROVIDED (USED) BY OPERATING ACTIVITIES.................... 90,908 113,577 83,304 (18,112) (16,267)
--------- --------- --------- --------- ---------
INVESTING ACTIVITIES
Additions to property, plant and equipment (net of disposals of
$4,927, $6,188, $15,588, $1,152 (unaudited) and $695 (unaudited),
respectively)..................................................... (39,382) (63,571) (98,065) (32,561) (41,128)
Acquisitions and investments, net................................... (119,189) (6,400) (97,998) (7,238) --
Proceeds from the sale of assets, net............................... 102,318 99,710 19,496 4,195 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.................... (50,480) 34,717 (166,894) (25,931) (26,827)
--------- --------- --------- --------- ---------
FINANCING ACTIVITIES
Net change in loans payable......................................... (17,040) (4,914) (6,797) 4,327 43,837
Proceeds from long-term debt........................................ -- 31,033 -- -- (5,297)
Principal payments on long-term debt................................ -- (22,908) (25,449) -- --
Dividends paid on Perkin-Elmer Common Stock......................... (29,095) (29,459) (39,072) (7,454) (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 2,889 6,375
Net cash allocated to the Celera Genomics Group..................... -- (21,721) (8,200) (868) (6,673)
--------- --------- --------- --------- ---------
NET CASH PROVIDED (USED) BY FINANCING ACTIVITIES.................... (22,209) (37,612) (45,889) (1,106) 29,846
--------- --------- --------- --------- ---------
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) 1,020 2,231
--------- --------- --------- --------- ---------
NET CHANGE IN CASH AND CASH EQUIVALENTS............................. 15,520 112,283 (130,163) (41,539) (11,017)
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 $ 171,489 $ 71,848
--------- --------- --------- --------- ---------
--------- --------- --------- --------- ---------
</TABLE>
SEE ACCOMPANYING NOTES TO THE PERKIN-ELMER GROUP COMBINED FINANCIAL STATEMENTS.
V-34
<PAGE>
PERKIN-ELMER GROUP
COMBINED STATEMENTS OF GROUP EQUITY AND COMPREHENSIVE INCOME (LOSS)
<TABLE>
<CAPTION>
ACCUMULATED
OTHER
RETAINED COMPREHENSIVE GROUP
(DOLLAR AMOUNTS IN THOUSANDS) OTHER EARNINGS INCOME (LOSS) EQUITY
- -------------------------------------------------------------------- --------- ----------- --------------- ---------
<S> <C> <C> <C> <C>
BALANCE AT JUNE 30, 1995............................................ $ 251,481 $ 142,741 $ (24,415) $ 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 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
Other............................................................... 2,064 (1,977) -- 87
--------- ----------- --------------- ---------
BALANCE AT JUNE 30, 1996............................................ 311,325 69,519 (7,117) 373,727
---------
Comprehensive income
Net income........................................................ -- 156,168 -- 156,168
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................................................ -- -- -- 160,614
---------
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..................... (21,721) -- -- (21,721)
Other............................................................... 1,427 (1,440) -- (13)
--------- ----------- --------------- ---------
BALANCE AT JUNE 30, 1997............................................ 317,738 193,252 (2,671) 508,319
---------
Comprehensive income
Net income........................................................ -- 60,425 -- 60,425
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................................................ -- -- -- 53,583
---------
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..................... (8,200) -- -- (8,200)
Other............................................................... -- (286) -- (286)
--------- ----------- --------------- ---------
BALANCE AT JUNE 30, 1998............................................ 352,874 220,773 (9,513) 564,134
--------- ----------- --------------- ---------
Comprehensive income
Net income........................................................ -- 21,236 -- 21,236
Other comprehensive income, net of tax
Foreign currency translation adjustments........................ -- -- 6,197
Unrealized loss on investments, net............................. -- -- (4,012)
---------------
Other comprehensive income........................................ -- -- 2,185 2,185
---------
Comprehensive income................................................ -- -- -- 23,421
---------
Cash dividends declared on Perkin-Elmer Common Stock................ -- (8,396) -- (8,396)
Shares issued under Perkin-Elmer Common Stock plans................. 7,986 (3,130) -- 4,856
Perkin-Elmer restricted stock plan.................................. (1,121) 1,207 -- 86
Net cash allocated to Perkin-Elmer Celera Genomics Group............ (6,673) -- -- (6,673)
--------- ----------- --------------- ---------
BALANCE AT SEPTEMBER 30, 1998 (UNAUDITED)........................... $ 353,066 $ 231,690 $ (7,328) $ 577,428
--------- ----------- --------------- ---------
--------- ----------- --------------- ---------
</TABLE>
SEE ACCOMPANYING NOTES TO THE PERKIN-ELMER GROUP COMBINED FINANCIAL STATEMENTS.
V-35
<PAGE>
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 three separate business segments: PE Biosystems, Analytical Instruments, and
the recently formed Celera Genomics business. PE Biosystems manufactures and
markets biochemical instrument systems and associated consumable products for
life science research and related applications. Analytical Instruments
manufactures and markets equipment and systems used for determining the
composition and molecular structure of chemical substances, both organic and
inorganic, and systems for data handling and data management. 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 The Perkin-Elmer
Corporation, a new Delaware Corporation, and the issuance to stockholders in the
merger of two new classes of common stock called The Perkin-Elmer
Corporation-Perkin-Elmer Group Common Stock ("Perkin-Elmer Group Stock") and The
Perkin-Elmer Corporation-Celera Genomics Group Common Stock ("Celera Genomics
Stock"). Perkin-Elmer Group Stock is intended to reflect separately the
performance of the established PE Biosystems' life sciences and Analytical
Instruments businesses ("Perkin-Elmer Group"), and Celera Genomics Stock is
intended to reflect separately the performance of the new Celera Genomics
business ("Celera Genomics Group"). Each share of existing Perkin-Elmer Common
Stock will be converted into one share of Perkin-Elmer Group 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 Perkin-Elmer Group Stock and Celera Genomics Stock.
The combined financial statements of the Perkin-Elmer 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 Perkin-Elmer Group and Celera Genomics
Group combined financial statements have been prepared on a basis that
management believes to be reasonable and appropriate and reflect (i) 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, (ii) 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 (iii) in the case of the Perkin-Elmer 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
Perkin-Elmer Group and the Celera Genomics Group have not been eliminated in the
Perkin-Elmer Group's combined financial statements.
Holders of Perkin-Elmer Group Stock and Celera Genomics Stock will be
stockholders of a single company. The Perkin-Elmer 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 Perkin-Elmer
Group Stock and Celera Genomics Stock and the allocations of
V-36
<PAGE>
assets and liabilities between the Perkin-Elmer 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 could be subject to the liabilities of the other
Group, whether such liabilities arise from lawsuits, contracts or indebteness
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
Perkin-Elmer Group or the Celera Genomics Group and dividends or distributions
on, or repurchases of, Perkin-Elmer Group Stock or Celera Genomics Stock or
repurchases of preferred stock or junior preferred stock of the Company will
reduce the assets of the Company legally available for payment of dividends on
Perkin-Elmer Group Stock.
The management and allocation policies applicable to the preparation of the
financial statements of the Perkin-Elmer 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
Perkin-Elmer 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 Perkin-Elmer 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
Perkin-Elmer 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 Perkin-Elmer Group.
The Board has adopted the following financing policy which will affect the
combined statements of the Perkin-Elmer Group and the Celera Genomics Group.
The Company will allocate the Company's debt between the Perkin-Elmer 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.
V-37
<PAGE>
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, cash allocated to the Perkin-Elmer 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 Perkin-Elmer 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
Perkin-Elmer Group. The total of these allocations were $24.5 million, $31.2
million and $35.1 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 Perkin-Elmer 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, which then can be utilized on a consolidated basis, will be credited to
the Celera Genomics Group up to a maximum limit of $ million. The tax
benefit payable by the Perkin-Elmer Group to the Celera Genomics Group was $2.4
million at June 30, 1998.
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
V-38
<PAGE>
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 Perkin-Elmer Group's income taxes (see Note 4) should
be read in conjunction with the Company's consolidated financial statements and
notes thereto.
DIVIDENDS
For purposes of the historical combined financial statements of the
Perkin-Elmer Group and the Celera Genomics Group, all dividends declared and
paid by the Company have been allocated to the Perkin-Elmer Group. The Company
initially intends to pay a dividend on Perkin-Elmer Group Stock but does not
anticipate paying dividends on Celera Genomics Stock for the foreseeable future.
PRINCIPLES OF COMBINATION
The Perkin-Elmer 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 Perkin-Elmer Group include the
accounts or assets of the Company specifically allocated to the Perkin-Elmer
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 Perkin-Elmer Group's financial results have been restated
to include the combined operations (see Note 2). The Perkin-Elmer 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 Perkin-Elmer
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 Perkin-Elmer 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 Perkin-Elmer Group's Combined Statements of
Operations for the fiscal years ended June 30, 1997 and 1998.
RECENT ACCOUNTING STANDARDS
During the first quarter of fiscal 1999, The Perkin-Elmer 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
V-39
<PAGE>
adjustments, unrealized gains and losses on available-for-sale investments, and
minimum pension liability adjustment. The Perkin-Elmer 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 Perkin-Elmer 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 Perkin-Elmer Group Stock was not part of the capital
structure of Perkin-Elmer for the periods presented. Following implementation of
the Recapitalization Proposal, earnings per share for Perkin-Elmer Group 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 Perkin-Elmer Group Stock outstanding.
Diluted earnings per share will be computed by dividing net income for the
period by the weighted average number of Perkin-Elmer Group Stock outstanding
including the dilutive effect of Perkin-Elmer Group Stock equivalents. Pro-forma
earnings per share, reflecting Perkin-Elmer Group Stock issued under the
Recapitalization Proposal, is presented in the Perkin-Elmer 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.
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 statement amounts have been allocated to the
Perkin-Elmer 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 Perkin-Elmer Group
was allocated all cash proceeds received of $83.0 million, $82.9 million and
$111.9 million, respectively, from the sale of such receivables. The
Perkin-Elmer Group
V-40
<PAGE>
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 September 30, 1998,
included the following components:
<TABLE>
<CAPTION>
JUNE 30,
(DOLLAR AMOUNTS IN --------------------
MILLIONS) 1997 1998
- ------------------------ --------- --------- SEPTEMBER 30,
1998
---------------
(UNAUDITED)
<S> <C> <C> <C>
Raw materials and
supplies.............. $ 40.3 $ 62.6 $ 59.4
Work-in-process......... 18.0 16.9 14.3
Finished products....... 156.3 160.5 183.5
--------- --------- ------
Total inventories....... $ 214.6 $ 240.0 $ 257.2
--------- --------- ------
--------- --------- ------
</TABLE>
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:
<TABLE>
<CAPTION>
(DOLLAR AMOUNTS IN MILLIONS) 1997 1998
- ------------------------------------- --------- ---------
<S> <C> <C>
Land................................. $ 23.1 $ 21.8
Buildings and leasehold
improvements....................... 156.2 170.7
Machinery and equipment.............. 266.8 314.8
--------- ---------
Property, plant and equipment, at
cost............................... 446.1 507.3
Accumulated depreciation and
amortization....................... 248.8 251.3
--------- ---------
Property, plant and equipment, net... $ 197.3 $ 256.0
--------- ---------
--------- ---------
</TABLE>
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 $11.1 million and $77.0 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 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 $9.0 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 September 30, 1998
(unaudited), other long-term assets included goodwill, net of accumulated
amortization, of $32.7 million, $84.5 million and $83.1 million, respectively.
Accumulated amortization of goodwill was $14.0 million, $17.4 million, and $18.8
million at June 30, 1997 and 1998, and September 30, 1998 (unaudited),
respectively.
V-41
<PAGE>
ASSET IMPAIRMENT
The Perkin-Elmer 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 the net realizable value when the carrying costs exceed this
amount. In fiscal 1996, the Perkin-Elmer 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
Perkin-Elmer Group recorded a $7.5 million cost of sales charge to write-down
$5.6 million of goodwill associated with the fiscal 1995 acquisition of Photovac
Inc. and $1.9 million of other assets primarily associated with the Analytical
Instruments Division. 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 was
allocated to the Perkin-Elmer Group:
<TABLE>
<CAPTION>
FOR THE
THREE MONTHS ENDED
FOR THE
YEARS ENDED JUNE 30, SEPTEMBER 30,
(DOLLAR AMOUNTS ------------------------------- --------------------
IN MILLIONS) 1996 1997 1998 1997 1998
- ---------------- --------- --------- --------- --------- ---------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Interest........ $ 8.9 $ 6.0 $ 5.7 $ 1.6 $ .6
Income taxes.... $ 15.0 $ 31.3 $ 60.5 $ 10.8 $ 5.7
</TABLE>
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
Perkin-Elmer 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 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
V-42
<PAGE>
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 Perkin-Elmer Group financial results
have been restated to include the combined operations.
Combined and separate results of the Perkin-Elmer Group and PerSeptive
during the periods preceding the Merger were as follows:
<TABLE>
<CAPTION>
PERKIN-
ELMER PER-
(DOLLAR AMOUNTS IN MILLIONS) GROUP SEPTIVE ADJ. COMBINED
- -------------------------------- --------- ----------- --- -----------
<S> <C> <C> <C> <C>
Fiscal year ended June 30, 1996:
Net revenues.................... $ 1,162.9 $ 86.1 $ 1,249.0
Net income (loss)............... $ 13.9 $ (50.4) $ (36.5)
Fiscal year ended June 30, 1997:
Net revenues.................... $ 1,276.8 $ 96.5 $ 1,373.3
Net income...................... $ 141.0 $ 15.2 $ 156.2
Six months ended December 31,
1997 (unaudited):
Net revenues.................... $ 639.3 $ 52.6 $ 691.9
Net income (loss)............... $ 32.8 $ (5.4) $ .6 $ 28.0
</TABLE>
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
Perkin-Elmer 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.
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 Perkin-Elmer
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.
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.
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
V-43
<PAGE>
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; Tropix, Inc., a world leader in the development,
manufacture, and sale of chemiluminescent detection technology and a minority
equity interest in Paracel, Inc., a provider of information filtering
technologies for a total cost, net of cash acquired, of $42.5 million. In
connection with these and other life science acquisitions, the Perkin-Elmer
Group was allocated $33.9 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 Perkin-Elmer Group since the date of each
acquisition. The pro forma effect of these acquisitions, individually or in the
aggregate, on the Perkin-Elmer Group's combined financial statements was not
significant.
DISPOSITIONS
MILLENNIUM PHARMACEUTICALS, INC.
During fiscal 1998, the Perkin-Elmer 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 Perkin-Elmer 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 Perkin-Elmer 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
All historical debt activity has been allocated to the Perkin-Elmer Group.
Loans payable and long-term debt at June 30, 1997 and 1998 and September 30,
1998 are summarized below:
<TABLE>
<CAPTION>
JUNE 30,
(DOLLAR AMOUNTS IN --------------------
MILLIONS) 1997 1998
- ---------------------- --------- --------- SEPTEMBER 30,
1998
---------------
(UNAUDITED)
<S> <C> <C> <C>
Loans payable:
Short-term loans...... $ 23.1 $ 12.1 $ 58.8
Current portion of
convertible
subordinated
notes............... 6.8
--------- --------- -----
Total loans payable... $ 29.9 $ 12.1 $ 58.8
--------- --------- -----
--------- --------- -----
Long-term debt:
Yen loan.............. $ 33.6 $ 27.0 $ 28.0
Convertible
subordinated
notes............... 20.4
Other................. 5.2 6.7 1.7
--------- --------- -----
Total long-term
debt................ $ 59.2 $ 33.7 $ 29.7
--------- --------- -----
--------- --------- -----
</TABLE>
The weighted average interest rates at June 30, 1997 and 1998, and September
30, 1998 (unaudited) for loans payable were 3.6% and 1.8%, and 4.3%
respectively.
V-44
<PAGE>
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 September 30, 1998, the Company had unused credit
facilities for short-term borrowings from domestic and foreign banks in various
currencies totaling $343 million and $313 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 4 INCOME TAXES
Income (loss) before income taxes for fiscal 1996, 1997, and 1998 is
summarized below:
<TABLE>
<CAPTION>
(DOLLAR AMOUNTS IN
MILLIONS) 1996 1997 1998
- ------------------------- --------- --------- ---------
<S> <C> <C> <C>
United States............ $ (28.5) $ 147.0 $ 2.4
Foreign.................. 13.5 51.6 104.5
--------- --------- ---------
Total.................... $ (15.0) $ 198.6 $ 106.9
--------- --------- ---------
--------- --------- ---------
</TABLE>
The provision for income taxes includes the Perkin-Elmer 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 Perkin-Elmer Group's provision for income taxes consists of the
following:
<TABLE>
<CAPTION>
(DOLLAR AMOUNTS IN
MILLIONS) 1996 1997 1998
- --------------------------- --------- --------- ---------
<S> <C> <C> <C>
Currently payable:
Domestic................... $ 10.4 $ 56.4 $ 2.3
Foreign.................... 24.3 23.8 25.6
--------- --------- ---------
Total currently payable.... 34.7 80.2 27.9
--------- --------- ---------
Deferred:
Domestic................... (4.4) (41.0) 11.0
Foreign.................... (8.7) 3.2 1.9
--------- --------- ---------
Total deferred............. (13.1) (37.8) 12.9
--------- --------- ---------
Total provision for income
taxes.................... $ 21.6 $ 42.4 $ 40.8
--------- --------- ---------
--------- --------- ---------
</TABLE>
Of the amounts currently payable, $.2 million and $2.4 million were payable
to the Celera Genomics Group at June 30, 1997 and 1998, respectively.
Significant components of deferred tax assets and liabilities at June 30,
1997 and 1998 are summarized below:
<TABLE>
<CAPTION>
(DOLLAR AMOUNTS IN MILLIONS) 1997 1998
- ----------------------------------- --------- ---------
<S> <C> <C>
Deferred tax assets:
Intangibles........................ $ 6.4 $ 5.8
Inventories........................ 8.4 7.9
Postretirement and postemployment
benefits......................... 35.7 35.0
Other reserves and accruals........ 54.3 40.0
Tax credit and loss
carryforwards.................... 50.9 50.1
--------- ---------
Subtotal........................... 155.7 138.8
Valuation allowance................ (78.6) (71.7)
--------- ---------
Total deferred tax assets.......... 77.1 67.1
--------- ---------
Deferred tax liabilities:
Inventories........................ .5 .5
Millennium equity transaction...... 4.3
Other reserves and accruals........ 6.1 7.9
--------- ---------
Total deferred tax liabilities..... 10.9 8.4
--------- ---------
Total deferred tax assets, net..... $ 66.2 $ 58.7
--------- ---------
--------- ---------
</TABLE>
V-45
<PAGE>
A reconciliation of the federal statutory tax to the Perkin-Elmer Group's
tax provision for fiscal 1996, 1997, and 1998 is set forth in the following
table:
<TABLE>
<CAPTION>
(DOLLAR AMOUNTS IN
MILLIONS) 1996 1997 1998
- --------------------------- --------- --------- ---------
<S> <C> <C> <C>
Federal statutory rate..... 35% 35% 35%
--------- --------- ---------
Tax at federal statutory
rate..................... $ (5.2) $ 69.5 $ 37.4
State income taxes (net of
federal benefit)......... (1.5) .2 .3
Effect on income from
foreign operations....... 14.7 42.6 6.7
Effect on income from
foreign sales
corporation.............. (3.2) (4.8) (7.5)
Acquired research and
development.............. 11.9 .5 10.1
Restructuring and other
merger costs............. 5.2
Domestic temporary
differences for which
benefit is recognized.... (12.7) (60.6) (11.1)
Benefit of loss not
recognized/(utilization
of net operating
losses).................. 16.9 (7.6)
Other...................... .7 2.6 (.3)
--------- --------- ---------
Total provision for income
taxes.................... $ 21.6 $ 42.4 $ 40.8
--------- --------- ---------
--------- --------- ---------
</TABLE>
At June 30, 1998, the Perkin-Elmer 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 Perkin-Elmer 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 Perkin-Elmer 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 $144 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 Perkin-Elmer 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 Perkin-Elmer Group.
The total worldwide pension expense for all employee pension plans was $15.2
million, $15.1 million, and $14.0 million for fiscal 1996, 1997, and 1998,
respectively. The components of
V-46
<PAGE>
net pension expense are set forth in the following table:
<TABLE>
<CAPTION>
(DOLLAR AMOUNTS IN MILLIONS) 1996 1997 1998
- ------------------------------ --------- --------- ---------
<S> <C> <C> <C>
Domestic Plans:
Service cost.................. $ 7.6 $ 8.0 $ 9.0
Interest cost................. 33.0 37.0 41.3
Actual return on assets....... (32.1) (35.6) (40.5)
Net amortization and
deferral.................... (1.4) (1.0) (1.8)
--------- --------- ---------
Net pension expense........... $ 7.1 $ 8.4 $ 8.0
--------- --------- ---------
--------- --------- ---------
Foreign Plans:
Service cost.................. $ 3.2 $ 2.7 $ 2.7
Interest cost................. 6.7 6.3 5.9
Actual return on assets....... (4.0) (3.5) (5.7)
Net amortization and
deferral.................... 2.2 1.2 3.1
--------- --------- ---------
Net pension expense........... $ 8.1 $ 6.7 $ 6.0
--------- --------- ---------
--------- --------- ---------
</TABLE>
The following table sets forth the funded status of the plans and amounts
recognized in the Perkin-Elmer Group Combined Statements of Financial Position
at June 30, 1997 and 1998:
<TABLE>
<CAPTION>
DOMESTIC PLANS
------------------------------------------
ASSETS EXCEED ACCUMULATED BENEFITS
ACCUMULATED BENEFITS EXCEED ASSETS
-------------------- --------------------
(DOLLAR AMOUNTS IN MILLIONS) 1997 1998 1997 1998
- ---------------------------------- --------- --------- --------- ---------
<S> <C> <C> <C> <C>
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
</TABLE>
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.
<TABLE>
<CAPTION>
FOREIGN PLANS
------------------------------------------
ASSETS EXCEED ACCUMULATED BENEFITS
ACCUMULATED BENEFITS EXCEED ASSETS
-------------------- --------------------
(DOLLAR AMOUNTS IN MILLIONS) 1997 1998 1997 1998
- ----------------------------------- --------- --------- --------- ---------
<S> <C> <C> <C> <C>
Plan assets at fair value.......... $ 32.0 $ 36.2 $ -- $ --
Projected benefit obligation....... 30.3 36.9 64.9 62.0
Plan assets greater (less) than
projected benefit obligation..... 1.7 (.7) (64.9) (62.0)
Unrecognized items:
Net actuarial (gain) loss........ 3.2 6.6 (2.5) (5.1)
Prior service cost............... 1.5 1.3
Net transition (asset)
obligation..................... (1.9) (1.5) 4.0 3.4
--------- --------- --------- ---------
Prepaid (accrued) pension expense.. $ 4.5 $ 5.7 $ (63.4) $ (63.7)
--------- --------- --------- ---------
--------- --------- --------- ---------
Actuarial present value of
accumulated benefits............. $ 28.0 $ 33.7 $ 56.1 $ 55.3
Accumulated benefit obligation
related to vested benefits....... $ 27.8 $ 33.6 $ 52.5 $ 52.4
</TABLE>
The following actuarial assumptions were used in accounting for the defined
benefit plans:
<TABLE>
<CAPTION>
1997 1998
----------- -----------
<S> <C> <C>
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:
5 1/2 -
Discount rate 6 - 8% 6 3/4%
3 1/2 - 3 1/2 -
Compensation increase.. 4 1/2% 4 1/2%
Long-term rate of 6 1/2 - 6 1/2 -
return............... 9 1/2% 9 1/2%
</TABLE>
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 of $7.4 million, $9.6 million, and $10.7
million for fiscal 1996, 1997, and 1998, respectively, were allocated to the
Perkin-Elmer 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
V-47
<PAGE>
number of the Celera Genomic Group employees were eligible for these benefits,
the amounts of which were not material, the postretirement liability has been
allocated to the Perkin-Elmer Group.
The following table sets forth the accrued postretirement benefit liability
recognized in the Perkin-Elmer Group Combined Statements of Financial Position
at June 30, 1997 and 1998:
<TABLE>
<CAPTION>
(DOLLAR AMOUNTS IN MILLIONS) 1997 1998
- --------------------------------------- --------- ---------
<S> <C> <C>
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
--------- ---------
--------- ---------
</TABLE>
The net postretirement benefit cost for fiscal 1997 and 1998 included the
following components:
<TABLE>
<CAPTION>
(DOLLAR AMOUNTS IN MILLIONS) 1997 1998
- ---------------------------------------- --------- ---------
<S> <C> <C>
Service cost............................ $ .6 $ .6
Interest cost........................... 5.8 5.7
Amortization of unrecognized gain....... (1.3) (1.4)
--------- ---------
Net postretirement benefit cost......... $ 5.1 $ 4.9
--------- ---------
--------- ---------
</TABLE>
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:
<TABLE>
<CAPTION>
1997 1998
----- -----
<S> <C> <C>
Participants under age 65............... 10.3% 9.6%
Participants age 65 and over............ 7.7% 7.4%
</TABLE>
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 Perkin-Elmer Group is comprised of two separate business segments: PE
Biosystems and Analytical Instruments. PE Biosystems includes PE Applied
Biosystems, PerSeptive, Molecular Informatics, Tropix, and Tecan. The
Perkin-Elmer Group 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.
Analytical Instruments manufactures and markets equipment and systems used
for determining the composition and molecular structure of chemical substances,
both organic and inorganic, and systems for data handling and data management.
Through a joint venture, the Company manufactures mass spectrometry instrument
systems sold in the PE Biosystems segment and Analytical Instruments segments.
GEOGRAPHIC AREAS
Revenues between geographic areas are primarily comprised of the sale of
products by the Perkin-Elmer 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 includes allocated corporate overhead and administrative shared
services. Identifiable assets include all assets directly identified with those
geographic areas. Other includes 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 $50.0 million,
$51.3 million, and $50.7 million, respectively.
V-48
<PAGE>
BUSINESS SEGMENTS
<TABLE>
<CAPTION>
ANALYTICAL
(DOLLAR AMOUNTS IN MILLIONS) PE BIOSYSTEMS INSTRUMENTS OTHER COMBINED
- --------------------------------------------------------------- ------------- ----------- --------- -----------
<S> <C> <C> <C> <C>
1996
Net revenues................................................... $ 618.4 $ 630.6 $ -- $ 1,249.0
------ ----------- --------- -----------
Segment income (loss).......................................... $ 107.2 $ 28.7 $ (24.5) $ 111.4
Restructuring charge........................................... (17.5) (71.6) (89.1)
Acquired research and development.............................. (33.9) (33.9)
Impairment of assets........................................... (9.9) (9.9)
------ ----------- --------- -----------
Operating income (loss)...................................... $ 45.9 $ (42.9) $ (24.5) $ (21.5)
------ ----------- --------- -----------
Identifiable assets............................................ $ 435.6 $ 401.6 $ 225.8 $ 1,063.0
Capital expenditures........................................... $ 30.1 $ 13.6 $ .6 $ 44.3
Depreciation and amortization.................................. $ 22.7 $ 28.7 $ .4 $ 51.8
1997
Net revenues................................................... $ 749.2 $ 624.1 $ -- $ 1,373.3
------ ----------- --------- -----------
Segment income (loss).......................................... $ 125.9 $ 56.1 $ (31.2) $ 150.8
Restructuring charge........................................... (13.0) (13.0)
Acquired research and development.............................. (1.4) (1.4)
Impairment of assets........................................... (.7) (6.8) (7.5)
------ ----------- --------- -----------
Operating income (loss)...................................... $ 123.8 $ 36.3 $ (31.2) $ 128.9
------ ----------- --------- -----------
Identifiable assets............................................ $ 502.6 $ 384.5 $ 350.2 $ 1,237.3
Capital expenditures........................................... $ 42.1 $ 14.1 $ 13.6 $ 69.8
Depreciation and amortization.................................. $ 23.5 $ 18.6 $ 1.7 $ 43.8
1998
Net revenues................................................... $ 921.5 $ 609.4 $ -- $ 1,530.9
------ ----------- --------- -----------
Segment income (loss).......................................... $ 157.0 $ 57.4 $ (36.7) $ 177.7
Restructuring and other merger costs........................... (48.1) (48.1)
Acquired research and development.............................. (28.9) (28.9)
------ ----------- --------- -----------
Operating income (loss)...................................... $ 80.0 $ 57.4 $ (36.7) $ 100.7
------ ----------- --------- -----------
Identifiable assets............................................ $ 714.9 $ 426.0 $ 189.3 $ 1,330.2
Capital expenditures........................................... $ 72.6 $ 42.9 $ 1.2 $ 116.7
Depreciation and amortization.................................. $ 33.1 $ 17.7 $ 1.9 $ 52.7
</TABLE>
V-49
<PAGE>
GEOGRAPHIC AREAS
<TABLE>
<CAPTION>
UNITED FAR OTHER
(DOLLAR AMOUNTS IN MILLIONS) STATES EUROPE EAST COUNTRIES OTHER COMBINED
- -------------------------------------------------- --------- --------- --------- ----------- --------- -----------
<S> <C> <C> <C> <C> <C> <C>
1996
Total revenues.................................... $ 529.7 $ 606.7 $ 365.2 $ 79.3 $ -- $ 1,580.9
Transfers between geographic areas................ (60.6) (128.8) (124.6) (17.9) (331.9)
--------- --------- --------- ----------- --------- -----------
Revenues to unaffiliated customers................ $ 469.1 $ 477.9 $ 240.6 $ 61.4 $ $ 1,249.0
--------- --------- --------- ----------- --------- -----------
Income (loss)..................................... $ (18.1) $ 73.7 $ 70.9 $ 9.4 $ (24.5) $ 111.4
Restructuring charge.............................. (29.9) (59.2) (89.1)
Acquired research and development................. (33.9) (33.9)
Impairment of assets.............................. (9.9) (9.9)
--------- --------- --------- ----------- --------- -----------
Operating income (loss)......................... $ (91.8) $ 14.5 $ 70.9 $ 9.4 $ (24.5) $ (21.5)
--------- --------- --------- ----------- --------- -----------
Identifiable assets............................... $ 433.5 $ 269.7 $ 103.4 $ 30.6 $ 225.8 $ 1,063.0
1997
Total revenues.................................... $ 599.3 $ 663.6 $ 407.7 $ 83.5 $ -- $ 1,754.1
Transfers between geographic areas................ (67.2) (144.6) (147.3) (21.7) (380.8)
--------- --------- --------- ----------- --------- -----------
Revenues to unaffiliated customers................ $ 532.1 $ 519.0 $ 260.4 $ 61.8 $ $ 1,373.3
--------- --------- --------- ----------- --------- -----------
Income (loss)..................................... $ 3.7 $ 101.3 $ 68.6 $ 8.4 $ (31.2) $ 150.8
Restructuring charge.............................. (5.2) (5.9) (.9) (1.0) (13.0)
Acquired research and development................. (1.4) (1.4)
Impairment of assets.............................. (1.9) (5.6) (7.5)
--------- --------- --------- ----------- --------- -----------
Operating income (loss)......................... $ (4.8) $ 95.4 $ 67.7 $ 1.8 $ (31.2) $ 128.9
--------- --------- --------- ----------- --------- -----------
Identifiable assets............................... $ 461.1 $ 280.2 $ 117.1 $ 28.7 $ 350.2 $ 1,237.3
1998
Total revenues.................................... $ 732.4 $ 679.7 $ 419.2 $ 103.6 $ -- $ 1,934.9
Transfers between geographic areas................ (81.7) (132.6) (157.1) (32.6) (404.0)
--------- --------- --------- ----------- --------- -----------
Revenues to unaffiliated customers................ $ 650.7 $ 547.1 $ 262.1 $ 71.0 $ $ 1,530.9
--------- --------- --------- ----------- --------- -----------
Income (loss)..................................... $ 33.3 $ 108.9 $ 65.6 $ 6.6 $ (36.7) $ 177.7
Restructuring and other merger costs.............. (26.2) (21.7) (.2) (48.1)
Acquired research and development................. (28.9) (28.9)
--------- --------- --------- ----------- --------- -----------
Operating income (loss)......................... $ (21.8) $ 87.2 $ 65.4 $ 6.6 $ (36.7) $ 100.7
--------- --------- --------- ----------- --------- -----------
Identifiable assets............................... $ 626.2 $ 377.6 $ 100.4 $ 36.7 $ 189.3 $ 1,330.2
</TABLE>
V-50
<PAGE>
NOTE 7 GROUP EQUITY AND NOTE PAYABLE
Perkin-Elmer Group stock will represent a separate class of the new Delaware
company's common stock if the Company's Recapitalization Proposal is approved.
Additional Perkin-Elmer Group Stock may be issued from time to time upon
exercise of stock options or at the discretion of the Company's Board.
NOTE PAYABLE TO THE CELERA GENOMICS GROUP
The Company intends to allocate to the Celera Genomics Group a note payable
of the Perkin-Elmer Group. The Company believes its capital resources and the
cash flows of the Perkin-Elmer Group will be sufficient to fund the note payable
to the Celera Genomics Group and to maintain and support the growth requirements
of the Perkin-Elmer Group's current operations.
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 approved by stockholders and implemented
by the Board, the Company will redeem prior to the effective time, the Original
Rights at a redemption price of $0.01 per Original Right. In addition, the Board
will adopt a new rights agreement (the "New Rights Agreement"), substantially
similar to the Original Rights Agreement containing provisions designed to,
among other things, (i) reflect the new equity structure of the Company and (ii)
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,
the Board will by resolution, (i) designate a new series of Preferred Stock as
the Series A Participating Junior Preferred Stock, (ii) designate another new
series of Preferred Stock as the Series B Participating Junior Preferred Stock,
(iii) issue one right for each share of Perkin-Elmer Group Stock (a "Perkin-
Elmer Right"), which will allow holders to purchase shares of Series A
Participating Junior Preferred Stock under conditions specified in the New
Rights Agreement and (iv) 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 15% or more of the total
voting rights of the then outstanding shares of common stock or commences a
tender offer that would result in such person or groups
V-51
<PAGE>
beneficially owning 15% or more of the total voting rights of the common stock.
In such event, each right would entitle the holder to purchase from the Company
(i) in the case of a Perkin-Elmer Right, one one-thousandth ( 1/1000th) of a
share of Series A Participating Junior Preferred Stock at a purchase price to be
determined by the Board, and (ii) 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 to be determined by the Board.
NOTE 8 STOCK INCENTIVE PLANS
1999 INCENTIVE STOCK PLANS
The Board has approved The Perkin-Elmer Corporation/Perkin-Elmer Group 1999
Stock Incentive Plan (the "Perkin-Elmer Group Plan") and The Perkin-Elmer
Corporation/Celera Genomics Group 1999 Stock Incentive Plan (the "Celera
Genomics Group Plan"), subject to shareholder approval. The Perkin-Elmer Group
Plan authorizes grants of stock options, stock awards and performance shares
with respect to Perkin-Elmer Group 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 Perkin-Elmer 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 Perkin-Elmer
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:
<TABLE>
<CAPTION>
WEIGHTED
NUMBER OF AVERAGE
OPTIONS EXERCISE PRICE
--------- ---------------
<S> <C> <C>
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
</TABLE>
At June 30, 1998, 241,437 shares remained available for option grant.
V-52
<PAGE>
The following table summarizes information regarding options outstanding and
exercisable at June 30, 1998:
<TABLE>
<CAPTION>
WEIGHTED AVERAGE
----------------------------
CONTRACTUAL
(OPTION PRICES PER NUMBER OF LIFE REMAINING EXERCISE
SHARE) OPTIONS IN YEARS PRICE
- ------------------------ ----------- --------------- -----------
<S> <C> <C> <C>
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
</TABLE>
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 into separately exercisable options to
acquire one share of Perkin-Elmer Group Stock and 0.5 of a share of Celera
Genomics Stock. The exercise price for the resulting Perkin-Elmer Group 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
Perkin-Elmer Group 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 NASDAQ
Stock Market (regular way), respectively, and the denominator of which is the
sum of such Perkin-Elmer Group Stock and Celera Genomics Stock prices. This is
intended to ensure that the aggregate intrinsic value of the options will be
preserved, 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 Perkin-Elmer Group 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 Perkin-Elmer Group 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 Perkin-Elmer Group Stock and Celera Genomics Stock in a ratio
approximately equal to the number of shares of Perkin-Elmer Group Stock and
Celera Genomics Stock outstanding.
RESTRICTED STOCK
As part of the Company's stock incentive plans, key employees may be, and
non-employee
V-53
<PAGE>
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 recognized by the Perkin-Elmer
Group for these awards was $5.1 million, $11.7 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 into one share of
Perkin-Elmer Group 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.
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 recognized by the
Perkin-Elmer Group for these awards totaled $6.3 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 Perkin-Elmer Group 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
Perkin-Elmer Group 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:
<TABLE>
<CAPTION>
AT JUNE 30,
--------------------
(DOLLAR AMOUNTS IN MILLIONS) 1997 1998
- ----------------------------------- --------- ---------
<S> <C> <C>
Other long-term assets:
Goodwill........................... $ 32.7 $ 84.5
Other.............................. 158.0 193.8
--------- ---------
Total other long-term assets....... $ 190.7 $ 278.3
--------- ---------
--------- ---------
Other accrued expenses:
Deferred service contract
revenues......................... $ 45.1 $ 54.8
Accrued pension liabilities........ 17.9 17.5
Restructuring provisions........... 33.3 31.3
Other.............................. 90.3 97.6
--------- ---------
Total other accrued expenses....... $ 186.6 $ 201.2
--------- ---------
--------- ---------
Other long-term liabilities:
Accrued pension liabilities........ $ 62.3 $ 62.7
Accrued postretirement benefits.... 91.2 87.4
Other.............................. 21.7 29.0
--------- ---------
Total other long-term liabilities.. $ 175.2 $ 179.1
--------- ---------
--------- ---------
</TABLE>
V-54
<PAGE>
NOTE 10 RESTRUCTURING AND OTHER MERGER COSTS
The Perkin-Elmer Group initiated a restructuring plan in fiscal 1998 for
actions associated with the acquisition of PerSeptive. In fiscal 1996 and 1997,
restructuring actions were undertaken primarily to improve the profitability and
cash flow performance of Analytical Instruments. 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 $89.1 million, $24.2 million, and $48.1 million for fiscal 1996,
1997, and 1998, respectively. In addition, fiscal 1997 reflected an $11.2
million before-tax reduction of charges required to implement the fiscal 1996
Analytical Instruments' plan.
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 Analytical Instruments. In connection with the plan, the division
was reorganized into three vertically integrated, fiscally accountable operating
units; a distribution center in Holland was established 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 Perkin-Elmer 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 Perkin-Elmer 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.
V-55
<PAGE>
The following table details the major components of the $71.6 million fiscal
1996 restructuring provision:
<TABLE>
<CAPTION>
FACILITY
CONSOLIDATION AND
ASSET RELATED
(DOLLAR AMOUNTS IN MILLIONS) PERSONNEL WRITE-OFFS
- ----------------------------------------------------------------------------------------- ------------- ---------------------
<S> <C> <C>
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................................................................. $ -- $ --
----- -----
----- -----
<CAPTION>
(DOLLAR AMOUNTS IN MILLIONS) TOTAL
- ----------------------------------------------------------------------------------------- ---------
<S> <C>
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................................................................. $ --
---------
---------
</TABLE>
A before-tax charge of $17.5 million was also recognized by PerSeptive for
restructuring actions and other related costs in fiscal 1996. 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 Perkin-Elmer 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 seventeen
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.
V-56
<PAGE>
The following table details the major components of the fiscal 1997
restructuring provision:
<TABLE>
<CAPTION>
FACILITY
CONSOLIDATION AND
ASSET RELATED
(DOLLAR AMOUNTS IN MILLIONS) PERSONNEL WRITE-OFFS TOTAL
- ---------------------------------------------------------------------------- ------------- ------------------- ---------
<S> <C> <C> <C>
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......................................... $ 1.4 $ -- $ 1.4
Consolidation of sales and administrative support........................... .1 .1 .2
----- ----- ---------
Total fiscal 1999 activity (unaudited)...................................... $ 1.5 $ .1 $ 1.6
----- ----- ---------
Balance at September 30, 1998:
Changes in manufacturing operations......................................... $ .3 $ .3 $ .6
Consolidation of sales and administrative support........................... .9 1.3 2.2
----- ----- ---------
Balance at September 30, 1998 (unaudited)................................... $ 1.2 $ 1.6 $ 2.8
----- ----- ---------
----- ----- ---------
</TABLE>
FISCAL 1998
During fiscal 1998, the Perkin-Elmer Group recorded a $48.1 million
before-tax charge for restructuring and other merger costs to integrate
PerSeptive into the Perkin-Elmer 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 Perkin-Elmer Group recognized $.9
million of additional merger-related period expenses as part of this plan, and
the Perkin-Elmer Group expects to incur an additional $5.5 million to $7.5
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 September 30, 1998, approximately 32 employees were separated under the plan,
and the actions are proceeding as planned.
V-57
<PAGE>
The following table details the major components of the fiscal 1998
restructuring plan:
<TABLE>
<CAPTION>
FACILITY
CONSOLIDATION AND
ASSET RELATED
(DOLLAR AMOUNTS IN MILLIONS) PERSONNEL WRITE-OFFS TOTAL
- ---------------------------------------------------------------------------- ------------- ------------------- ---------
<S> <C> <C> <C>
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......................... $ -- $ 3.6 $ 3.6
Consolidation of sales and administrative support........................... 2.1 .5 2.6
Other....................................................................... .1 .1
----- ----- ---------
Total fiscal 1999 activity (unaudited)...................................... $ 2.1 $ 4.2 $ 6.3
----- ----- ---------
Balance at September 30, 1998:
Reduction of excess European manufacturing capacity......................... $ 5.1 $ 7.7 $ 12.8
Consolidation of sales and administrative support........................... 6.3 1.5 7.8
Other.......................................................................
----- ----- ---------
Balance at September 30, 1998 (unaudited)................................... $ 11.4 $ 9.2 $ 20.6
----- ----- ---------
----- ----- ---------
</TABLE>
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:
<TABLE>
<CAPTION>
(DOLLAR AMOUNTS IN MILLIONS)
- -----------------------------------
<S> <C> <C>
1999............................... $ 25.0
2000............................... 18.9
2001............................... 16.1
2002............................... 13.9
2003............................... 12.6
2004 and thereafter................ 61.2
---------
Total.............................. $ 147.7
---------
---------
</TABLE>
Rental expense was $33.9 million in fiscal 1996, $32.0 million in fiscal
1997, and $33.7 million in fiscal 1998.
In fiscal 1997, the Perkin-Elmer 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
Perkin-Elmer 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
Perkin-Elmer Group or the Company.
The holders of Perkin-Elmer Group 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
DERIVATIVES
The Perkin-Elmer 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 Perkin-Elmer Group does not use derivative
financial instruments for trading or
V-58
<PAGE>
other speculative purposes, nor is the Perkin-Elmer 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 September 30, 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:
<TABLE>
<CAPTION>
SEPTEMBER 30, 1998
(DOLLAR
AMOUNTS JUNE 30, 1997 JUNE 30, 1998 (UNAUDITED)
IN ------------------------ ------------------------ ------------------------
MILLIONS) SALE PURCHASE SALE PURCHASE SALE PURCHASE
- --------- --------- ------------- --------- ------------- --------- -------------
<S> <C> <C> <C> <C> <C> <C>
Japanese
Yen $ 83.5 $ -- $ 109.2 $ -- $ 115.5 $ 7.1
French
Francs 18.1 28.3 .2 23.3
Australian
Dollars 13.7 10.8 8.9
German
Marks 13.4 2.3 28.3 1.9 23.2 1.5
Italian
Lira 5.6 1.2 38.0 1.4 34.6
British
Pounds 8.3 29.2 19.6 27.4 14.9
Swiss
Francs 5.4 10.5 4.0 9.1 3.5
Swedish
Krona 2.4 11.9 9.5
Danish
Krona 1.7 10.3 7.4
Other 5.8 44.7 5.1 38.0 3.8
--------- ----- --------- ----- --------- -----
Total $ 149.6 $ 11.8 $ 321.2 $ 32.2 $ 296.9 $ 30.8
--------- ----- --------- ----- --------- -----
--------- ----- --------- ----- --------- -----
</TABLE>
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 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
V-59
<PAGE>
to maturity. A change in interest rates would have no impact on the Company
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:
<TABLE>
<CAPTION>
1997 1998
------------------------ ------------------------
(DOLLAR AMOUNTS IN NOTIONAL NOTIONAL
MILLIONS) AMOUNT FAIR VALUE AMOUNT FAIR VALUE
- ------------------ ----------- ----- ----------- -----
<S> <C> <C> <C> <C>
Forward
contracts....... $ 114.0 $ (3.7) $ 179.2 $ 2.8
Purchased
options......... $ 47.4 $ .7 $ 112.7 $ 1.6
Synthetic
forwards........ $ 61.5 $ 1.9
Interest rate
swap............ $ 33.6 $ .2 $ 27.0 $ (.9)
</TABLE>
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 other financial instruments at June 30, 1997 and
1998:
<TABLE>
<CAPTION>
1997 1998
---------------------- ------------------------
(DOLLAR AMOUNTS IN CARRYING FAIR CARRYING
MILLIONS) AMOUNT VALUE AMOUNT FAIR VALUE
- ----------------------- ----------- --------- ----------- -----
<S> <C> <C> <C> <C>
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
</TABLE>
Net unrealized gains and losses on minority equity investments are reported
as a separate component of shareholders' equity. The Perkin-Elmer 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.
V-60
<PAGE>
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 Perkin-Elmer 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 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.
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 remains 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 three months ended September 30, 1998 (unaudited) is as follows:
<TABLE>
<CAPTION>
FOREIGN MINIMUM
CURRENCY UNREALIZED PENSION
TRANSLATION GAIN (LOSS) ON LIABILITY
(DOLLARS AMOUNTS IN MILLIONS) ADJUSTMENTS INVESTMENTS ADJUSTMENT
- ---------------------------------------------------------------------- ----------- -------------- -----------
<S> <C> <C> <C>
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............................................... 6.2 (4.0)
----------- ------- -----------
Balance at September 30, 1998 (unaudited)............................. $ (1.6) $ (5.4) $ (.4)
----------- ------- -----------
----------- ------- -----------
</TABLE>
V-61
<PAGE>
ANNEX VI
CELERA GENOMICS GROUP
<TABLE>
<CAPTION>
PAGE
---------
<S> <C>
Business................................................................................................ VI-2
Management's Discussion and Analysis.................................................................... VI-22
Report of Independent Accountants....................................................................... VI-27
Combined Financial Statements........................................................................... VI-28
</TABLE>
VI-1
<PAGE>
BUSINESS
OVERVIEW
The Celera Genomics Group ("Celera Genomics") is engaged principally in the
generation, sale and support of genomic information ("content") databases
supported by software and analysis systems; discovery, validation and licensing
of proprietary gene products, genetic markers and information concerning genetic
variability; and related consulting and contract research and development
services.
The Perkin-Elmer Corporation ("Perkin-Elmer") and Dr. J. Craig Venter, a
leading genomic scientist and founder of The Institute for Genomic Research
("TIGR"), announced their intent to form Celera Genomics in May 1998. Celera
Genomics commenced operations in August 1998. Celera Genomics 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. Target areas of research
include:
- 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 Celera Genomics' strategy is the sequencing of the human
genome, which Celera Genomics expects it will complete by December 31, 2001. The
underlying human genetic sequence will be the basis for Celera Genomics'
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. Celera Genomics
anticipates using its genomic data as a platform upon which to develop tools and
services that 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, Celera Genomics plans to sequence the entire human
genome using whole genome shotgun sequencing, a unique sequencing strategy
designed to produce genomic data rapidly and efficiently. Celera Genomics' goal
is to create a comprehensive knowledge base of the human genome that will allow
multiple scientific and commercial applications. Celera Genomics believes that
its shotgun sequencing strategy 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 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 20 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. No other entity has published more than one complete
genome.
Celera Genomics includes GenScope, a company acquired by Perkin-Elmer 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.
Celera Genomics believes that it has competitive advantages that
differentiate it from
VI-2
<PAGE>
other genomic companies. These advantages include:
- EXPERTISE OF KEY SCIENTIFIC PERSONNEL
-- Recognized leading scientific expertise of Celera Genomics' 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 Perkin-Elmer Group's new DNA
sequencers, which use unique high-throughput (high-volume) 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 Perkin-Elmer 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.
- PERKIN-ELMER'S RESOURCES AND MARKET EXPERIENCE
-- Access to Perkin-Elmer's financial resources that provide a source of
capital for Celera Genomics' business;
-- Administrative shared services provided by Perkin-Elmer that permit
Celera Genomics to focus on its mission;
-- Perkin-Elmer's established track record in developing new
applications and technologies in life sciences markets; and
-- Perkin-Elmer'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 (for example, 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 (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.
VI-3
<PAGE>
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.
Celera Genomics 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.
Celera Genomics believes that the field of genomics will affect medicine in
at least three significant ways:
- TARGET IDENTIFICATION AND DRUG DISCOVERY. Celera Genomics 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. Celera Genomics 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. Celera Genomics expects the application of
pharmacogenomics to improve the drug development process.
- DIAGNOSTICS AND DISEASE MANAGEMENT. As the understanding of genetic
causes of disease improves, Celera Genomics 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 generation of genomic data
and the understanding of biological systems. Moreover, substantial amounts of
time and money are
VI-4
<PAGE>
required for mapping the human genome and the development of samples prior to
sequencing. As a result, less than 5% 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 companies like Celera Genomics. 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 Celera Genomics 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, Celera Genomics 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. Celera Genomics
believes that the NIH's ability 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 Celera Genomics'
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 derived from
tissues in which individual genes are expressed and help identify specific genes
VI-5
<PAGE>
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 Celera Genomics 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,
Celera Genomics believes that gaining an understanding of the whole human genome
will yield valuable biological and medical information. Such information
includes gene timing and tissue localization instructions, which are not found
in gene transcripts (i.e., cDNA and EST sequences). Celera Genomics 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, Celera Genomics 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 Perkin-Elmer's
higher-volume sequencing equipment, together with the advances in sequencing
strategy developed by Dr. Venter and his scientific team at TIGR, led
Perkin-Elmer to believe that it might be possible to sequence the entire human
genome efficiently. This
VI-6
<PAGE>
combination of advanced technology and the shotgun sequencing approach allowed
Perkin-Elmer and Dr. Venter and his team to conclude that whole genome
sequencing could be commercially viable.
Celera Genomics' 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.
Celera Genomics 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, Celera Genomics expects to employ GeneTag-TM- gene
expression sequence technology, a leading technology for identifying
rarely-expressed genes.
Celera Genomics 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.
Celera Genomics expects to sell access to its genomics information to
customers for their internal use. For certain information products, Celera
Genomics 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 Celera Genomics from other
genomics companies that seek intellectual property rights in their customers'
discoveries based solely upon access to those companies' database information.
Celera Genomics 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, Celera
Genomics intends to share with its customers intellectual property rights on
discoveries resulting from those collaborations.
Celera Genomics 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. Celera Genomics intends to make available
this information on a quarterly basis in the form of unordered consensus human
sequence data in excess of specified lengths.
Celera Genomics has not yet determined the precise form in which the data
will be made available, whether in viewable form on Celera Genomics' 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 Celera Genomics' assessment of the likelihood that
other organizations may seek to obtain Celera Genomics' data and resell it to
their own customers. Celera Genomics 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, Celera Genomics expects to release a
detailed ordered consensus human genome assembly.
Celera Genomics 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 Celera Genomics'
customers. Celera Genomics will make available to its customers, on a
subscription basis, the assets that are most responsible for the value of
VI-7
<PAGE>
its products and 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
Celera Genomics' 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. Celera Genomics intends to use the genomic information derived
from its human genome sequencing program as a platform upon which to develop an
integrated discovery and information system.
Celera Genomics 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.
Celera Genomics 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 Celera Genomics' strategy include:
- "SHOTGUN" SEQUENCING OF THE ENTIRE HUMAN GENOME
Celera Genomics 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
Celera Genomics intends to develop an integrated information system that
will include the most comprehensive and integrated databases of genomic
and medically-related information available. Celera Genomics 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. Celera
Genomics also expects to offer a variety of services to customers to
assist in the analysis and interpretation of the data.
Celera Genomics 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, Celera Genomics 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 Celera Genomics'
comparative genomic information and is intended to add to the
understanding of human genomic data, particularly in furthering the
understanding of neurological function.
- POLYMORPHIC DISCOVERIES AND BIOLOGICAL ASSAY SYSTEMS
Celera Genomics believes that its sequencing efforts using the DNA from
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<PAGE>
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, Celera Genomics believes that the
polymorphisms it discovers will add considerable value to its integrated
information system.
After it generates the polymorphism data, Celera Genomics 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 Celera Genomics intends to develop will be
flexible systems that allow for this study of genetic variances at
various levels of detail.
Use of Celera Genomics' polymorphism information will depend on the cost
of applying polymorphism assays to large clinical trials and patient
samples in drug discovery and drug development. Celera Genomics believes
that, through its relationship with the Perkin-Elmer 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
Celera Genomics 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
Celera Genomics 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 genomes sequenced
and published (or expected to be published) by TIGR. The whole genome
shotgun sequencing approach to be used by Celera Genomics was used to
sequence each of these genomes. No other single organization has
published the complete sequence of more than one genome.
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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<PAGE>
required to develop potential medical applications for genomic
information.
- WHOLE GENOME SHOTGUN SEQUENCING STRATEGY
Celera Genomics 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.
Celera Genomics 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. Celera Genomics 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 Celera Genomics'
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, Celera
Genomics 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. Celera Genomics will use the Perkin-Elmer
Group's new high-throughput 3700 DNA sequencers to produce
significantly more sequence information than that being produced by
other sequencing efforts. Celera Genomics expects that this facility
will have the capacity to sequence more than 100 million base pairs of
DNA daily. Celera Genomics believes the capacity of this facility will
exceed the worldwide sequencing capacity in operation today.
-- EARLY ACCESS TO OTHER PERKIN-ELMER GROUP TECHNOLOGIES AND PRODUCTS.
Celera Genomics expects to capitalize on opportunities to apply the
Perkin-Elmer 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 Perkin-
Elmer Group, Celera Genomics expects to stay at the leading edge of
technology.
-- INCORPORATION OF GENSCOPE TECHNOLOGY. Celera Genomics expects to
apply Genscope's technology and expertise in gene expression profiling
which will provide value-added technology for Celera Genomics' gene
discovery and functional analysis programs.
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-- STRATEGIC ALLIANCE WITH COMPAQ COMPUTER CORPORATION. Celera Genomics
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.
- PERKIN-ELMER RESOURCES AND MARKET EXPERIENCE
-- ACCESS TO CAPITAL. As part of Perkin-Elmer, Celera Genomics has
access to capital.
-- ADMINISTRATIVE SHARED SERVICES. Perkin-Elmer provides other
resources, such as accounting, human resources and other corporate
services, to Celera Genomics that it would otherwise have to provide
for itself if it were an independent company. As a result, Celera
Genomics is able to focus on its mission.
-- ESTABLISHED TRACK RECORD. Perkin-Elmer's established track record in
developing new applications and technologies in life sciences markets.
-- CUSTOMER RELATIONSHIPS. Perkin-Elmer's extensive relationships with
users of life sciences products.
COMMERCIAL APPLICATIONS OF GENOMICS
Celera Genomics 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 Celera Genomics believes will benefit from
genomic information include pharmaceutical drug discovery and development,
medical diagnostics, agriculture and other applied medical markets.
DRUG DISCOVERY AND DEVELOPMENT
Celera Genomics 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.
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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;
- 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
Celera Genomics 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. Celera Genomics 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
Celera Genomics 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
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service agreements using the polymorphism data resulting from Celera
Genomics' sequencing;
- Gene discovery services in collaboration with customers to pursue novel
discoveries;
- Other business extensions, involving Celera Genomics' own gene
discoveries, population genomics analysis, sequencing of additional
genomes and contract sequencing; and
- 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
Celera Genomics 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. Celera Genomics expects to
continue to generate revenues through GenScope's services in gene expression
analysis.
Celera Genomics 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, Celera Genomics expects to enter into agreements with a
limited number of early access subscribers to its information and discovery
system. Celera Genomics' 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. Celera Genomics 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 Celera
Genomics' product and service offerings. The most likely early access candidates
are companies with experience in genomics, such as pharmaceutical companies and
larger companies with businesses focused on gene discovery.
SECOND PHASE. Celera Genomics 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. Celera Genomics 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. Celera Genomics 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. Celera Genomics 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. Celera Genomics 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, Celera Genomics believes these products and services could
generate significant revenues over time.
In this phase, Celera Genomics also anticipates broadening its analysis
capability by incorporating more sophisticated search and other software tools
in its product offerings. Celera Genomics 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. Celera Genomics also
expects to generate licensing revenues from its own gene discovery efforts.
LATER STAGES. In the later stages of its business development, Celera
Genomics anticipates developing the technological capabilities to provide access
to its databases to broader customer groups, including physicians, patients and
individual researchers. Celera Genomics expects that access for these customers
will be available on a different basis than access for its other genomics
customers.
INFORMATION PRODUCTS
Celera Genomics' 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 that 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.
Celera Genomics is initially offering the following information products:
HUMAN GENE INDEX. Celera Genomics 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 Celera 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, including information from mapping data, genomic sequences,
expression data and the Human Genome Project's databases.
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DROSOPHILA GENOME DATABASE. Celera Genomics expects that the first complete
sequence of available data generated by Celera Genomics' 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 Celera Genomics. Over time, Celera
Genomics 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. Celera Genomics 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.
Celera Genomics 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 Celera Genomics' polymorphism database as well its assay
development capability. Celera Genomics intends to pursue scientific
collaborations with a number of customers to leverage the use of Celera
Genomic's polymorphism information in customers' research and development
efforts. From its shotgun sequencing strategy and the use of DNA from three to
five individuals, Celera Genomics expects to generate from 10 million to 30
million polymorphisms, which will be included in a database accessible by Celera
Genomics' customers and collaborators. From that information, Celera Genomics
expects to work with collaborators to select 100,000 to 500,000 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. Celera Genomics
intends to seek protection of intellectual property rights in such polymorphism
information.
Celera Genomics 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. Celera Genomics intends to utilize technology developed by the
Perkin-Elmer Group and other companies 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
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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 Celera Genomics.
GENE DISCOVERY SERVICES
Celera Genomics 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 Celera Genomics 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
Celera Genomics 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.
Celera Genomics intends to conduct its own gene discovery initiatives as
part of its analysis of genomic data generated through its sequencing efforts.
Celera Genomics currently intends to pursue intellectual property protection on
a limited number of novel gene discoveries. If Celera Genomics is successful in
making novel discoveries and generally establishing intellectual property
rights, it expects to license most of its discoveries broadly.
Celera Genomics 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 genomics 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. Celera
Genomics anticipates that the terms of these collaborative arrangements will
generally provide for up-front license fees, research fees and joint ownership
of any discoveries.
GENSCOPE
GenScope, a unit of Celera Genomics, 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 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
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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
Celera Genomics' 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. Celera Genomics' 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 Celera Genomics will be
directly competing include Curagen, Genset, Inc. and Incyte Pharmaceuticals,
Inc. There are also a number of companies with which Celera Genomics will
indirectly compete in particular lines of business, such as in gene discovery
and the development of drug targets. In addition, some of Celera Genomics'
potential customers (for example, pharmaceutical companies) may choose to
develop technologies similar to those offered by Celera Genomics. Finally, new
technologies that improve the gene analysis and discovery process may emerge
over time and could compete with those being developed by Celera Genomics, or
otherwise affect its business strategy.
Some competitors may add data made available to the public by Celera
Genomics to their own databases for resale to their customers. To prevent this,
Celera Genomics intends to seek contractual and intellectual property
protection.
Celera Genomics 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. Celera Genomics 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
Celera Genomics' 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. Celera Genomics'
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 Celera Genomics' customers on their own behalf and by collaborators.
Celera Genomics 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.
Celera Genomics' current plan is to apply for patent protection upon the
identification of candidate novel genes, novel gene fragments and their
biological function or utility. Celera Genomics 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 Celera Genomics' business, Celera Genomics 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, Celera Genomics anticipates that these patent rights will be
jointly owned by Celera Genomics and the customer or collaborator. If a gene
product was developed,
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Celera Genomics 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 Celera
Genomics applies for patent protection based on the full-length gene sequences
or different partial gene sequences in the same gene may affect Celera Genomics'
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 Celera Genomics' claims or
make subsequent discoveries related to full-length genes unpatentable. While
Celera Genomics 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.
There can be no assurance that these or other uncertainties will not result
in changes in, or interpretations of, the patent laws that will adversely affect
Celera Genomics' patent position. Celera Genomics anticipates that there will be
significant litigation in the industry regarding genomic patent and other
intellectual property rights. If Celera Genomics becomes involved in such
litigation, it could consume a substantial portion of Celera Genomics'
resources.
Celera Genomics also intends to rely on trade secret protection for its
confidential and proprietary information. Celera Genomics believes it has
developed proprietary procedures for sequencing and analyzing genes and for
assembling the genes in their naturally occurring order. In addition, Celera
Genomics believes it has developed novel methods for searching and identifying
particularly important regions of genetic information or whole genes of
interest. Celera Genomics 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.
Celera Genomics 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. Celera Genomics 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 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
Celera Genomics' 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 NIH, Dr. Venter
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developed ESTs, a new strategy for gene discovery, and using the EST 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 Perkin-Elmer
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 Perkin-Elmer in 1979 and has held a
number of managerial positions in the United States and Europe, including
executive management in Perkin-Elmer's life science business from 1990 to 1995.
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.
MARGARET BYWATER, M.D., Med. Ph. Lic. (Pathology), Corporate Staff Vice
President, Perkin-Elmer and General Manager, GenScope. Prior to joining Celera
Genomics, she was responsible for the strategy and implementation of corporate
initiatives to broaden Perkin-Elmer's position in the pharmaceutical market.
Prior to her service with Perkin-Elmer, she held several positions in sales and
market development, and business development at Pharmacia Biotech, including
that of Director of Business Development--Molecular Medicine and as Vice
President of Business Development and Clinical Operations at OncorMed, Inc. in
Gaithersburg, Maryland.
ANNE DESLATTES MAYS, Director 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., Director of Research and Operations, 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 developed
technology on the ABI 377 and ABI 310 instruments for linkage mapping and
characterization of genes involved in human diseases. Prior to joining
Perkin-Elmer, 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.
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 Celera
Genomics. Prior to TIGR, he worked in
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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.
L. STEVENSON PARKER, Vice President of Administration and Legal Affairs, was
a partner at Arnold & Porter, a leading international law firm based in
Washington, D.C. from 1991 to 1998. At Arnold & Porter, Mr. Parker specialized
in the corporate and securities and intellectual property/technology practice
areas, and has represented clients in a wide variety of corporate and commercial
matters including mergers and acquisitions, securities offerings, and employee
benefits and compensation plans. Mr. Parker also counseled clients involved in
biotechnology, including TIGR since its formation. He also counseled clients
involved in information technology and medical technology on transactions
involving intellectual property, capital raising, employee compensation, joint
ventures, and collaborative research agreements.
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
Celera Genomics.
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.
SCIENTIFIC ADVISORY BOARD
Celera'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.
VICTOR A. MCKUSICK, M.D. is University Professor of Medical Genetics at The
Johns Hopkins University and a physician at Johns
VI-20
<PAGE>
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
Celera Genomics depends on the Perkin-Elmer Group for several critical
materials, including reagents and capillary arrays, required for sequencing. For
certain of these materials, the Perkin-Elmer Group is the sole supplier, and for
other materials Celera Genomics believes that the Perkin-Elmer 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
Celera Genomics had approximately 90 employees as of September 30, 1998 of
which 40 were at GenScope.
PROPERTIES
Celera Genomics' headquarters are in Rockville, Maryland, where its
administrative facilities, sequencing facility, laboratories and bioinformatics
facilities are located. Celera 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 Perkin-Elmer Group.
LEGAL PROCEEDINGS
On October 19, 1998, Amersham Pharmacia Biotech, Inc. filed a patent
infringement action against Celera Genomics in the United States District Court
for the District of Delaware. The complaint alleges that Celera Genomics 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. Celera Genomics answered the
complaint, alleging that the `648 patent is invalid and that Celera Genomics has
not infringed the `648 patent.
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<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS
MANAGEMENT'S DISCUSSION OF OPERATIONS
The following discussion should be read in conjunction with the combined
financial statements and related notes of the Celera Genomics Group and the
consolidated financial statements and related notes of The Perkin-Elmer
Corporation ("Perkin-Elmer" or the "Company"). Historical results and percentage
relationships are not necessarily indicative of operating results for any future
periods.
OVERVIEW
The Celera Genomics Group was formed by the Company and Dr. J. Craig Venter
of The Institute for Genomic Research ("TIGR") 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 supported by
software and analysis systems; 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. GenScope provides genomic-related contract research and discovery
services, utilizing AFLP gene expression profiling technology.
Operations to date have been principally funded from the Company's working
capital and GenScope's collaborative arrangements. Contract research services of
GenScope have accounted for all of the Celera Genomics Group's revenues to date.
Net losses for the three months ended September 30, 1998 and 1997, were $4.2
million and $.2 million, respectively. Net losses for the fiscal years ended
June 30, 1998 and 1997 were $4.0 million and $25.8 million, respectively.
Results through fiscal 1998 have primarily reflected the operations of GenScope.
Fiscal 1997 included a charge of $25.4 million 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, the Company acquired GenScope,
Inc., a company then solely engaged in the development of gene expression
technology, for $26.8 million. The Company recorded a charge of $25.4 million
attributable to the in-process technology purchased. 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.
RESULTS OF OPERATIONS FOR THE THREE MONTHS ENDED SEPTEMBER 30, 1998 COMPARED
WITH SEPTEMBER 30, 1997
The Celera Genomics Group reported a net loss of $4.2 million for the first
quarter of fiscal 1999 compared with a net loss of $.2 million for the first
quarter 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.
No revenues were recognized in the first quarter of fiscal 1999 and 1998. In
the first quarter of fiscal 1999, the Company entered into
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<PAGE>
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.
Selling, general and administrative ("SG&A") expenses were $3.5 million in
the first quarter of fiscal 1999. The first quarter of fiscal 1999 included the
allocation of $.7 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 not material for the first quarter of
fiscal 1998. SG&A expenses represented 54% of total operating expenses for the
first quarter of fiscal 1999. SG&A expenses for the first quarter of fiscal 1998
reflected only the costs associated with the GenScope business. The first
quarter 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, the Company entered into a ten-year
non-cancelable lease for the Celera Genomics Group's Rockville facility.
Approximately 90 employees were employed by the Celera Genomics Group at
September 30, 1998, compared with approximately 50 at June 30, 1998.
Research and development ("R&D") expenses were $3.0 million for the first
quarter of fiscal 1999 compared with $.3 million for the prior period. The first
three months of fiscal 1999 included a cost of $.4 million (including overhead)
for research performed by the Perkin-Elmer Group on behalf of the Celera
Genomics Group. GenScope's related R&D expenses increased $1.8 million for the
first three 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 commercially viable product for the health care
industry.
The income tax benefit was computed using an effective tax rate of 35% for
the first quarter 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 $4.0 million for fiscal
1998, compared with a net loss of $25.8 million for fiscal 1997. Fiscal 1997
included a $25.4 million charge for purchased in-process research and
development in connection with the GenScope acquisition.
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 the
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 fiscal 1997.
Selling, general, and administrative expenses of $1.9 million for fiscal
1998, included $.9 million of corporate overhead and administrative shared
services. The amount of allocated corporate overhead and shared services was not
material for fiscal 1997. Fiscal 1997 included only the operations of GenScope
from the date of acquisition.
Research and development expenses were $4.3 million for fiscal 1998 compared
with $.6 million for fiscal 1997. Fiscal 1997 included only the operations of
GenScope from the date of acquisition.
The income tax benefit was computed using an effective tax rate of 35% for
fiscal 1998. Fiscal 1997 included a tax benefit of $.2 million on a before-tax
loss of $26.0 million. The charge of $25.4 million for acquired research and
development was not deductible for tax purposes
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<PAGE>
(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 the Company to fund its
operations and capital expenditures. At September 30, 1998 the Celera Genomics
Group was not allocated cash or cash equivalents from the Company. Working
capital was $2.6 million at September 30, 1998 compared with $1.6 million at
June 30, 1998.
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
Company intends to allocate to the Celera Genomics Group a note receivable from
the Perkin-Elmer Group. The Company is finalizing its estimate of the Celera
Genomics Group's financial requirements to ensure that the Company's financial
commitment is commensurate with the size of the expected economic opportunities.
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. The Company believes 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, the Board of Directors of the Company has adopted a financing
policy, included in Note 1 to the Celera Genomics Group combined financial
statements, which will permit the Perkin-Elmer 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 Perkin-Elmer Group increased to $4.8 million
at September 30, 1998, from $2.4 million at June 30, 1998, as a result of
continuing net operating losses. Management intends to settle in cash the tax
benefit receivable on a quarterly basis following the Recapitalization Proposal.
Other accrued expenses increased by $1.1 million, to $1.8 million at
September 30, 1998, from $.7 million at June 30, 1998. Increased deferred
contract research service revenues of $.7 million, pertaining to the contract
entered into in the first quarter of fiscal 1999, primarily accounted for the
change. A $.4 million accrual for services provided by TIGR to the Celera
Genomics Group, primarily accounted for the increase in other accrued expenses
from June 30, 1997 to June 30, 1998.
Other long-term liabilities increased by $.3 million at September 30, 1998
from June 30, 1998, representing the long-term portion of the deferred contract
revenues on the $1.0 million agreement that was entered into during the quarter.
COMBINED STATEMENTS OF CASH FLOWS
Cash used by operating activities was $4.7 million for the first quarter of
fiscal 1999 compared with $.5 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 Perkin-Elmer Group,
partially offset by an increase of $1.0 million in deferred revenues. For fiscal
1998, net cash used by operating activities was $5.1 million, compared with $.4
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 Perkin-Elmer
Group of $2.2 million was partially offset by an increase in current
liabilities.
Net cash used by investing activities was $2.0 million for the three months
ended September 30, 1998 compared with $.4 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. Net cash
used by investing activities of $3.1 million for fiscal 1998 reflected the
Company's capital investment in the GenScope business. Net cash used for
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<PAGE>
investing activities for fiscal 1997 was $21.3 million and was related to the
acquisition of GenScope in the third quarter of fiscal 1997 (see Note 2 to the
Celera Genomics Group combined financial statements).
YEAR 2000
In fiscal 1997, the Company initiated a worldwide program to assess the
expected impact of the Year 2000 date recognition problem on its existing
internal computer systems, including embedded and process-
control systems, product offerings, and significant suppliers. The purpose of
this program is to ensure the event does not have
a material adverse effect on the Company's business operations.
The operations of the Celera Genomics Group are included within this
program. At this time, the Company is not able to determine the relative
resources required to implement this program in the Celera Genomics Group.
However, the Company believes that a substantial portion of the resources
required will be allocated to the Perkin-Elmer Group.
Regarding the Company'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 in the United States by December 31,
1998, and 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 the Company'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 the Company's
significant suppliers, vendors, and third-party interface systems. As part of
this analysis, the Company is seeking written assurances from these suppliers,
vendors, and third parties that they will be Year 2000 compliant. While the
Company has begun such efforts, there can be no assurance that the systems of
other companies with which the Company deals, or on which the Company'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 the Company. The Company has
not fully determined the extent to which the Company's interface systems may be
impacted by third parties' systems, which may not be Year 2000 compliant.
The Company'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 the Company's information systems, production and
facilities equipment. The redirection of spending to implement Year 2000
compliance plans may in some instances delay productivity improvements.
The Company has also engaged a consulting firm to provide periodic
assessments of the Company's Year 2000 project plans and progress. Because of
the importance of addressing the Year 2000 problem, the Company 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 the Company's Year 2000 compliance plan in a timely manner.
If the Company 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
VI-25
<PAGE>
adverse effect on the Company's consolidated results of operations and financial
condition.
At this stage of the process, the Company 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 the Company's operations and have a material
adverse effect on the Company's financial condition. The impact of such
disruption cannot be estimated at this time. In the event the Company believes
that any of its significant suppliers or vendors are unlikely to be able to
resolve their own Year 2000 issues, the Company's contingency plan would include
seeking additional sources of supply.
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. 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.
FORWARD LOOKING STATEMENTS
Certain statements contained in this Management's Discussion and Analysis
are forward looking and are subject to a variety of risks and uncertainties.
These statements 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 upon the Celera Genomics Group's 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, the Celera Genomics Group notes that a variety of factors, discussed in
detail under "Risk Factors," could cause the Celera Genomics Group's actual
results and experience to differ materially from the anticipated results or
other expectations expressed in such forward looking statements. The risks and
uncertainties that may affect the operations, performance, development, and
results of the Celera Genomics Group's business include, but are not limited to:
- - Early stage of operations;
- - No precedent for Celera Genomics' business plan;
- - Need to manage rapid growth;
- - Uncertainty of sequencing strategy;
- - Uncertainty of successful operation of new sequencers;
- - Uncertainty of sequencing operations;
- - Uncertainty of value of polymorphism data;
- - Initial reliance on pharmaceutical industry;
- - Anticipated future losses; uncertainty of operating results;
- - Highly dependent on key employees;
- - Uncertain protection of intellectual property and proprietary rights;
- - Adverse effect of public disclosure of genomic sequence data;
- - Highly competitive business; and
- - Year 2000.
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<PAGE>
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
VI-27
<PAGE>
CELERA GENOMICS GROUP
COMBINED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
FOR THE THREE MONTHS
FOR THE YEARS ENDED
JUNE 30, ENDED SEPTEMBER 30,
(DOLLAR AMOUNTS IN THOUSANDS --------------------- --------------------
EXCEPT PER SHARE AMOUNTS) 1997 1998 1997 1998
- ------------------------------------------------------------------------ ---------- --------- --------- ---------
(UNAUDITED)
<S> <C> <C> <C> <C>
NET REVENUES............................................................ $ -- $ 301 $ -- $ --
Cost of sales........................................................... -- 301 -- --
---------- --------- --------- ---------
GROSS MARGIN............................................................ -- -- -- --
---------- --------- --------- ---------
Selling, general and administrative..................................... 12 1,946 7 3,526
Research and development................................................ 556 4,315 251 3,028
Acquired research and development....................................... 25,401 -- -- --
---------- --------- --------- ---------
OPERATING LOSS.......................................................... (25,969) (6,261) (258) (6,554)
---------- --------- --------- ---------
LOSS BEFORE INCOME TAXES................................................ (25,969) (6,261) (258) (6,554)
Income tax benefit...................................................... 199 2,224 90 2,327
---------- --------- --------- ---------
NET LOSS................................................................ $ (25,770) $ (4,037) $ (168) $ (4,227)
---------- --------- --------- ---------
---------- --------- --------- ---------
UNAUDITED PRO FORMA NET LOSS PER SHARE
(SEE NOTE 1):
Basic................................................................... $ (.17) $ (.17)
Diluted................................................................. $ (.17) $ (.17)
</TABLE>
SEE ACCOMPANYING NOTES TO THE CELERA GENOMICS GROUP COMBINED FINANCIAL
STATEMENTS.
VI-28
<PAGE>
CELERA GENOMICS GROUP
COMBINED STATEMENTS OF FINANCIAL POSITION
<TABLE>
<CAPTION>
AT JUNE 30,
--------------------
(DOLLAR AMOUNTS IN THOUSANDS) 1997 1998
- ------------------------------------------------------------------------------ --------- --------- AT SEPTEMBER
30, 1998
-------------
(UNAUDITED)
<S> <C> <C> <C>
ASSETS
Current assets
Accounts receivable......................................................... $ -- $ 250 $ --
Note receivable from the Perkin-Elmer Group (see Note 5)
Tax benefit receivable from the Perkin-Elmer Group (see Note 1)............. 199 2,423 4,750
Prepaid expenses and other current assets................................... -- 34 20
--------- --------- -------------
Total current assets.......................................................... 199 2,707 4,770
Property and equipment, net................................................... 63 2,794 4,524
Other long-term assets........................................................ 1,338 1,193 1,159
--------- --------- -------------
TOTAL ASSETS.................................................................. $ 1,600 $ 6,694 $ 10,453
--------- --------- -------------
--------- --------- -------------
LIABILITIES AND GROUP EQUITY
Current liabilities
Accounts payable............................................................ $ -- $ 283 $ 121
Accrued salaries and wages.................................................. -- 63 227
Other accrued expenses...................................................... 149 734 1,795
--------- --------- -------------
Total current liabilities..................................................... 149 1,080 2,143
Other long-term liabilities................................................... 5,500 5,500 5,750
--------- --------- -------------
Total liabilities............................................................. 5,649 6,580 7,893
--------- --------- -------------
Commitments and contingencies (see Note 7)
Group equity (deficit)........................................................ (4,049) 114 2,560
--------- --------- -------------
TOTAL LIABILITIES AND GROUP EQUITY............................................ $ 1,600 $ 6,694 $ 10,453
--------- --------- -------------
--------- --------- -------------
</TABLE>
SEE ACCOMPANYING NOTES TO THE CELERA GENOMICS GROUP COMBINED FINANCIAL
STATEMENTS.
VI-29
<PAGE>
CELERA GENOMICS GROUP
COMBINED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
FOR THE THREE MONTHS
FOR THE YEARS ENDED
JUNE 30, ENDED SEPTEMBER 30,
--------------------- --------------------
(DOLLAR AMOUNTS IN THOUSANDS) 1997 1998 1997 1998
- ------------------------------------------------------------------------ ---------- --------- --------- ---------
(UNAUDITED)
<S> <C> <C> <C> <C>
OPERATING ACTIVITIES
Net loss................................................................ $ (25,770) $ (4,037) $ (168) $ (4,227)
Adjustments to reconcile net loss to net cash used by operating
activities:
Depreciation and amortization......................................... 46 462 35 274
Acquired research and development..................................... 25,401 -- -- --
Changes in operating assets and liabilities:
(Increase) decrease in accounts receivable............................ -- (250) -- 250
Increase in tax benefit receivable from
the Perkin-Elmer Group.............................................. (199) (2,224) (90) (2,327)
(Increase) decrease in prepaid expenses and other assets.............. (9) (27) (140) 14
Increase (decrease) in accounts payable and other liabilities......... 149 931 (123) 1,313
---------- --------- --------- ---------
NET CASH USED BY OPERATING ACTIVITIES................................... (382) (5,145) (486) (4,703)
---------- --------- --------- ---------
INVESTING ACTIVITIES
Additions to property and equipment..................................... (63) (3,055) (382) (1,970)
Acquisitions and investments, net....................................... (21,276) -- -- --
---------- --------- --------- ---------
NET CASH USED BY INVESTING ACTIVITIES................................... (21,339) (3,055) (382) (1,970)
---------- --------- --------- ---------
FINANCING ACTIVITIES
Net cash allocated from the Perkin-Elmer Group.......................... 21,721 8,200 868 6,673
---------- --------- --------- ---------
NET CASH PROVIDED BY FINANCING ACTIVITIES............................... 21,721 8,200 868 6,673
---------- --------- --------- ---------
NET CHANGE IN CASH AND CASH EQUIVALENTS................................. -- -- -- --
CASH AND CASH EQUIVALENTS BEGINNING OF PERIOD........................... -- -- -- --
---------- --------- --------- ---------
CASH AND CASH EQUIVALENTS END OF PERIOD................................. $ -- $ -- $ -- $ --
---------- --------- --------- ---------
---------- --------- --------- ---------
</TABLE>
SEE ACCOMPANYING NOTES TO THE CELERA GENOMICS GROUP COMBINED FINANCIAL
STATEMENTS.
VI-30
<PAGE>
CELERA GENOMICS GROUP
COMBINED STATEMENTS OF GROUP EQUITY
<TABLE>
<CAPTION>
ACCUMULATED GROUP
(DOLLAR AMOUNTS IN THOUSANDS) OTHER DEFICIT EQUITY
- ---------------------------------------------------------------------------- ---------- ------------ ----------
<S> <C> <C> <C>
BALANCE AT JUNE 30, 1996.................................................... $ -- $ -- $ --
Net cash allocated from the Perkin-Elmer Group.............................. 21,721 -- 21,721
Net loss.................................................................... -- (25,770) (25,770)
---------- ------------ ----------
BALANCE AT JUNE 30, 1997.................................................... 21,721 (25,770) (4,049)
Net cash allocated from the Perkin-Elmer Group.............................. 8,200 -- 8,200
Net loss.................................................................... -- (4,037) (4,037)
---------- ------------ ----------
BALANCE AT JUNE 30, 1998.................................................... 29,921 (29,807) 114
Net cash allocated from the Perkin-Elmer Group.............................. 6,673 -- 6,673
Net loss.................................................................... -- (4,227) (4,227)
---------- ------------ ----------
BALANCE AT SEPTEMBER 30, 1998 (UNAUDITED)................................... $ 36,594 $ (34,034) $ 2,560
---------- ------------ ----------
---------- ------------ ----------
</TABLE>
SEE ACCOMPANYING NOTES TO THE CELERA GENOMICS GROUP COMBINED FINANCIAL
STATEMENTS.
VI-31
<PAGE>
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 three separate business segments: PE Biosystems, Analytical Instruments, and
the recently formed Celera Genomics business. PE Biosystems manufactures and
markets biochemical instrument systems and associated consumable products for
life science research and related applications. Analytical Instruments
manufactures and markets equipment and systems used for determining the
composition and molecular structure of chemical substances, both organic and
inorganic, and systems for data handling and data management. The Celera
Genomics Group is engaged principally in the generation, sale and support of
genomic information databases supported by software and analysis systems;
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. GenScope provides genomic-
related contract research and discovery services, utilizing AFLP gene expression
profiling technology.
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 The Perkin-Elmer
Corporation, a new Delaware corporation, and the issuance to stockholders in the
merger of two new classes of common stock called The Perkin-Elmer
Corporation-Perkin-Elmer Group Common Stock ("Perkin-Elmer Group Stock") and The
Perkin-Elmer Corporation-Celera Genomics Group Common Stock ("Celera Genomics
Stock"). Perkin-Elmer Group Stock is intended to reflect separately the
performance of the established PE Biosystems' life sciences and Analytical
Instruments businesses ("Perkin-Elmer 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 Perkin-Elmer 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
Perkin-Elmer Group Stock and the Celera Genomics Stock.
The combined financial statements of the Celera Genomics Group and the
Perkin-Elmer 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 Perkin-Elmer
Group combined financial statements have been prepared on a basis that
management believes to be reasonable and appropriate and reflect (i) 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, (ii) 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 (iii) in the case of the Perkin-Elmer 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 Perkin-Elmer Group have not been eliminated in the Celera
Genomics Group's combined financial statements.
VI-32
<PAGE>
Holders of Celera Genomics Stock and Perkin-Elmer Group Stock will be
stockholders of a single company. The Celera Genomics Group and the Perkin-Elmer
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 Perkin-Elmer Group Stock and the allocations of assets and
liabilities between the Celera Genomics Group and the Perkin-Elmer 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 Perkin-Elmer Group and dividends or distributions
on, or repurchases of, Celera Genomics Stock or Perkin-Elmer Group Stock or
repurchases of preferred stock or junior 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 Perkin-Elmer
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 Perkin-Elmer 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 Perkin-Elmer Group.
The Board has adopted the following financing policy which will affect the
combined statements of the Celera Genomics Group and the Perkin-Elmer Group.
The Company will allocate the Company's debt between the Celera Genomics
Group and the Perkin-Elmer 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
VI-33
<PAGE>
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, cash allocated to the Perkin-Elmer 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 allocations for fiscal 1997 were not material. The
total of these allocations was $.9 million for fiscal 1998 and $.7 million for
the three months ended September 30, 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, which then can be utilized on a consolidated basis, will be credited to
the Celera Genomics Group up to a maximum limit of $ million. The tax benefit
receivable from the Perkin-Elmer Group at June 30, 1998 was $2.4 million.
VI-34
<PAGE>
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
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 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.
DIVIDENDS
For purposes of the historical combined financial statements of the Celera
Genomics Group and the Perkin-Elmer Group, all dividends declared and paid by
the Company have been allocated to the Perkin-Elmer Group. The Company initially
intends to pay a dividend on Perkin-Elmer Group 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 Perkin-Elmer 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 requires 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 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.
VI-35
<PAGE>
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 Perkin-Elmer 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 Celera Genomics Stock outstanding. Diluted earnings
per share will be computed by dividing net income for the period by the weighted
average number 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, is
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:
<TABLE>
<CAPTION>
JUNE 30,
----------------------
(DOLLAR AMOUNTS IN MILLIONS) 1997 1998
- ---------------------------------------- ----- ---------
<S> <C> <C>
Machinery and equipment................. $ .1 $ 1.9
Leasehold improvements.................. -- 1.2
--
---
Property and equipment, at cost......... .1 3.1
Accumulated depreciation and
amortization.......................... -- .3
--
---
Property and equipment, net............. $ .1 $ 2.8
--
--
---
---
</TABLE>
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 September 30,
1998 (unaudited), other long-term assets included purchased technology rights,
net of accumulated amortization, of $1.3 million, $1.2 million, and $1.1
million, respectively. Accumulated amortization of purchased technology rights
was $.1 million, $.2 million, and $.3 million at June 30, 1997, and 1998, and
September 30, 1998 (unaudited), respectively.
REVENUES
Revenues are currently generated from the Celera Genomics Group's GenScope
business in the form of contract research services utilizing gene expression
technology. Contract 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.
RESEARCH AND DEVELOPMENT
Research and development costs are expensed when incurred.
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.
VI-36
<PAGE>
NOTE 2 ACQUISITION
GENSCOPE, INC.
During the third quarter of fiscal 1997, the Company acquired GenScope,
Inc., a company solely engaged in the development of gene expression technology.
The acquisition cost was $26.8 million and was accounted for as a purchase. In
connection with the acquisition, $25.4 million was expensed as in-process R&D
and $1.4 million was allocated to purchased technology rights. Of the $25.4
million expensed as in-process R&D, $5.5 million, recorded in other long-term
liabilities, represented a contingent liability due on the issuance of a process
patent for technology under development.
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 1997 and 1998, was $26.0 million and $6.3 million,
respectively. The domestic income tax benefit for fiscal 1997 and 1998 was $.2
million and $2.2 million, respectively.
A reconciliation of the federal statutory tax to the tax benefit for fiscal
1997 and 1998 is set forth in the following table:
<TABLE>
<CAPTION>
(DOLLAR AMOUNTS IN MILLIONS) 1997 1998
- ---------------------------------- --------- ---------
<S> <C> <C>
Federal statutory rate............ 35% 35%
--------- ---------
Tax at federal statutory rate..... $ 9.1 $ 2.2
Acquired research and
development..................... (8.9) --
--------- ---------
Income tax benefit................ $ .2 $ 2.2
--------- ---------
--------- ---------
</TABLE>
NOTE 4 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. Pension expense allocated to the Celera Genomics
Group for fiscal 1997 and 1998 was not material. As the pension activity
attributable to the Celera Genomics Group was not material, all amounts
recognized in the Company's Consolidated Statements of Financial Position have
been allocated to the Perkin-Elmer Group.
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 allocated to the Celera Genomics Group was $.1
million for fiscal 1998. Amounts allocated for fiscal 1997 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. The postretirement benefit
expense allocated to the Celera Genomics Group was not material for fiscal 1997
and 1998. As activity attributable to this Group is not material, the accrued
postretirement liability recognized in the Company's Consolidated Statements of
Financial Position has been allocated to the Perkin-Elmer Group.
VI-37
<PAGE>
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 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
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 PERKIN-ELMER 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
Company intends to allocate to the Celera Genomics Group a note receivable from
the Perkin-Elmer Group. The Company is finalizing its estimate of the Celera
Genomics Group's financial requirements to ensure that the Company's financial
commitment is commensurate with the size of the expected economic opportunities.
The Company also intends to allocate tax benefits to the Celera Genomics Group
for losses incurred, resulting in up to $ million of additional cash resources
for the Celera Genomics Group. The Company believes 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.
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 approved by shareholders and implemented
by the Board, the Company will redeem prior to the effective time, the Original
Rights at a redemption price of $0.01 per Original Right. In addition, the Board
will adopt a new rights agreement (the "New Rights Agreement"), substantially
similar to the Original Rights Agreement containing provisions designed to,
among other things, (i) reflect the new equity structure of the Company, and
(ii) 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, the Board will by resolution, (i) designate a new series of Preferred
Stock as the Series A Participating Junior Preferred Stock, (ii) designate
another new series of Preferred Stock as the Series B Participating Junior
Preferred Stock, (iii) issue one right for each share of Perkin-Elmer Group
Stock (a "Perkin-Elmer Right"), which will allow holders to purchase shares of
Series A Participating Junior Preferred Stock under
VI-38
<PAGE>
conditions specified in the New Rights Agreement and (iv) 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 15% or more of the total
voting rights of the then outstanding shares of common stock or commences a
tender offer that would result in such person or groups beneficially owning 15%
or more of the total voting rights of the common stock. In such event, each
right would entitle the holder to purchase from the Company (i) in the case of a
Perkin-Elmer Right, one one-thousandth (1/1000th) of a share of Series A
Participating Junior Preferred Stock at a purchase price to be determined by the
Board and (ii) 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 to be determined by the Board.
NOTE 6 STOCK INCENTIVE PLANS
1999 INCENTIVE STOCK PLANS
The Board has approved the Perkin-Elmer Corporation/Perkin-Elmer Group 1999
Stock Incentive Plan (the "Perkin-Elmer Group Plan") and the Perkin-Elmer
Corporation/Celera Genomics Group 1999 Stock Incentive Plan (the "Celera
Genomics Group Plan"), subject to shareholder approval. The Perkin-Elmer Group
Plan authorizes grants of stock options, stock awards and performance shares
with respect to Perkin-Elmer Group 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 Perkin-Elmer 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 Perkin-Elmer
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.
VI-39
<PAGE>
Transactions relating to the stock option plans of the Company are
summarized below:
<TABLE>
<CAPTION>
WEIGHTED
NUMBER OF AVERAGE
OPTIONS EXERCISE PRICE
----------- ---------------
<S> <C> <C>
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
</TABLE>
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:
<TABLE>
<CAPTION>
WEIGHTED AVERAGE
----------------------------
CONTRACTUAL
(OPTION PRICES PER NUMBER OF LIFE REMAINING EXERCISE
SHARE) OPTIONS IN YEARS PRICE
- ------------------------ ----------- --------------- -----------
<S> <C> <C> <C>
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
</TABLE>
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 into separately exercisable options to
acquire one share of Perkin-Elmer Group Stock and 0.5 of a share of Celera
Genomics Stock. The exercise price for the resulting Perkin-Elmer Group 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
Perkin-Elmer Group 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 Nasdaq
Stock Market (regular way), respectively, and the denominator of which is the
sum of such Perkin-Elmer Group Stock and Celera Genomics Stock prices. This is
intended to ensure that the aggregate intrinsic value of the options will be
preserved, 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 Perkin-Elmer Group Stock or Celera Genomics Stock
for each share of existing common stock.
VI-40
<PAGE>
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 Perkin-Elmer Group 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 Perkin-Elmer Group Stock and Celera Genomics Stock in a ratio
approximately equal to the number of shares of Perkin-Elmer Group 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 into one share of
Perkin-Elmer Group 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.
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 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
On July 10, 1998, the Company entered into a ten year non-cancellable lease
for the Celera Genomics Group's facility in Rockville, Maryland. Total lease
payments over the ten-year period will be approximately $22 million.
VI-41
<PAGE>
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.
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
Perkin-Elmer Group 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 three month period ended September 30, 1998, R&D expense
includes $.4 million of services provided by the Perkin-Elmer 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 remains 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:
<TABLE>
<CAPTION>
AT JUNE 30,
--------------------
1997 1998
--------- ---------
<S> <C> <C>
Other accrued expenses:
Deferred contract research
revenues........................ $ -- $ .3
Other............................. .1 .4
--------- ---------
Total other accrued expenses...... $ .1 $ .7
--------- ---------
--------- ---------
</TABLE>
VI-42
<PAGE>
ANNEX VII
THE PERKIN-ELMER CORPORATION/PERKIN-ELMER GROUP
1999 STOCK INCENTIVE PLAN
1. PURPOSE OF THE PLAN.
The purpose of The Perkin-Elmer Corporation/Perkin-Elmer Group 1999 Stock
Incentive Plan (the "Plan") is to increase stockholder value and to advance the
interests of The Perkin-Elmer 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 (i) outside directors as defined in Section 162(m) of the
Code and the Treasury Regulations issued pursuant thereto and (ii) 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.
VII-1
<PAGE>
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 Perkin-Elmer Group 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.
VII-2
<PAGE>
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
VII-3
<PAGE>
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
VII-4
<PAGE>
by the Committee, an Option may not be exercised as to fewer than 100 shares, or
the remaining 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.
VII-5
<PAGE>
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
VII-6
<PAGE>
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
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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
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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 for up to a period of ninety (90) days after the commencement of
such tender offer or exchange offer; 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
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necessary to effectuate the acceleration of the exercisability of Options,
termination of Stock Restrictions, and attainment of performance objectives as
described above.
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,
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adversely affect in any material manner the rights of such Optionee or Award
Recipient under any Option or Award.
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 VIII
THE PERKIN-ELMER CORPORATION/CELERA GENOMICS GROUP
1999 STOCK INCENTIVE PLAN
1. PURPOSE OF THE PLAN.
The purpose of The Perkin-Elmer Corporation/Celera Genomics Group 1999 Stock
Incentive Plan (the "Plan") is to increase stockholder value and to advance the
interests of The Perkin-Elmer 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 (i) outside directors as defined in Section 162(m) of the
Code and the Treasury Regulations issued pursuant thereto and (ii) 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 Celera Genomics Group 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 , 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
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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 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 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 , 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 Committee has determined that the
performance goals and other Stock Restrictions with respect to such Performance
Shares have been met.
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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 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 , 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 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 pursuant to the Director
Stock Award, including the right to receive dividends and to vote such shares
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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
conversion of Stock Units credited to Deferral Accounts into units equal to
shares of stock of the
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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 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
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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 for up to a period of ninety (90) days after the commencement of
such tender offer or exchange offer; 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.
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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.
VIII-12
<PAGE>
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
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2.1 Agreement and Plan of Merger, dated as of 1999, among The Perkin-Elmer
Corporation, a New York corporation, The Perkin-Elmer 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 (to be filed by amendment).
3.3 Certificate of Designations for the Series A Participating Junior Preferred Stock
and Series B Participating Junior Preferred Stock (to be filed by amendment).
4 Rights Agreement, dated as of , 1999, between The Perkin-Elmer Corporation
and (to be filed by amendment).
5 Opinion of Simpson Thacher & Bartlett as to the legality of the securities (to be
filed by amendment).
8.1 Opinion of Simpson Thacher & Bartlett as to tax matters (to be filed by
amendment).
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II-1
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10.1 The Perkin-Elmer Corporation/Perkin-Elmer Group 1999 Stock Incentive Plan
(included as Annex VII to the Proxy Statement and Prospectus).
10.2 The Perkin-Elmer Corporation/Celera Genomics Group 1999 Stock Incentive Plan
(included as Annex VIII to the Proxy Statement and Prospectus).
11 Statement re Computation of Per Share Earnings (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 Powers of Attorney (included as signature page).
27 Financial Data Schedule (to be filed by amendment).
99 Form of Proxy.
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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 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 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
II-2
<PAGE>
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
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the registrant
has duly caused this registration statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the City of Norwalk, State of
Connecticut, on November 24, 1998.
THE PERKIN-ELMER CORPORATION
By /s/ TONY L. WHITE
-----------------------------------------
Name: Tony L. White
Title: Chairman of the Board, President
and Chief Executive Officer
POWER OF ATTORNEY
We, the undersigned directors and officers of the registrant, do hereby
constitute and appoint Tony L. White and William B. Sawch, or either of them,
our true and lawful attorneys and agents, to do any and all acts and things in
our name and on our behalf in our capacities as directors and officers and to
execute any and all instruments for us and in our names in the capacities
indicated below, which said attorneys and agents, or either of them, may deem
necessary or advisable to enable said corporation to comply with the Securities
Act of 1933 and any rules, regulations and requirements of the Securities and
Exchange Commission, in connection with this Registration Statement, including
specifically, but without limitation, power and authority to sign for us or any
of us in our names in the capacities indicated below, any and all amendments
(including post-effective amendments) hereto and we do hereby ratify and confirm
all that said attorneys and agents, or either of them, shall do or cause to be
done by virtue hereof.
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed by the following persons in the
capacities and on the dates indicated.
SIGNATURE TITLE DATE
- ------------------------------ --------------------------- -------------------
/s/ TONY L. WHITE
- ------------------------------ Chairman of the Board of November 24, 1998
Tony L. White Directors, President and
Chief Executive Officer
(principal executive
officer)
/s/ DENNIS L. WINGER
- ------------------------------ Senior Vice President and November 24, 1998
Dennis L. Winger Chief Financial Officer
(principal financial
officer)
/s/ UGO D. DEBLASI
- ------------------------------ Corporate Controller November 24, 1998
Ugo D. DeBlasi (principal accounting
officer)
/s/ JOSEPH F. ABELY, JR.
- ------------------------------ Director November 24, 1998
Joseph F. Abely, Jr.
II-4
<PAGE>
SIGNATURE TITLE DATE
- ------------------------------ --------------------------- -------------------
/s/ RICHARD H. AYERS
- ------------------------------ Director November 24, 1998
Richard H. Ayers
/s/ JEAN-LUC BELINGARD
- ------------------------------ Director November 24, 1998
Jean-Luc Belingard
/s/ ROBERT H. HAYES
- ------------------------------ Director November 24, 1998
Robert H. Hayes
/s/ GEORGES C. ST. LAURENT,
JR. Director
- ------------------------------ November 24, 1998
Georges C. St. Laurent, Jr.
/s/ CAROLYN W. SLAYMAN
- ------------------------------ Director November 24, 1998
Carolyn W. Slayman
/s/ ORIN R. SMITH
- ------------------------------ Director November 24, 1998
Orin R. Smith
II-5
<PAGE>
Exhibit 23.1
CONSENT OF INDEPENDENT ACCOUNTANTS
----------------------------------
We hereby consent to the incorporation by reference in the Prospectus
constituting part of this Registration Statement on Form S-4 of The
Perkin-Elmer Corporation of our report dated July 31, 1998, which appears on
page 62 of the 1998 Annual Report to Shareholders of The Perkin-Elmer
Corporation, which is incorporated by reference in its Annual Report on Form
10-K for the year ended June 30, 1998. We also consent to the incorporation
by reference of our report on the Financial Statement Schedule, which appears
on page 25 of such Annual Report on Form 10-K. We also consent to the
reference to us under the heading "Experts" in such Prospectus.
PricewaterhouseCoopers LLP
Stamford, CT
November 20, 1998
<PAGE>
Exhibit 99
THE PERKIN-ELMER CORPORATION
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
FOR THE SPECIAL MEETING OF SHAREHOLDERS TO BE HELD ON __________ __, 1999
The undersigned shareholder(s) of The Perkin-Elmer Corporation (the
"Corporation") hereby appoints TONY L. WHITE, DENNIS L. WINGER, WILLIAM B.
P SAWCH, and each of them, as proxy or proxies, with power of substitution
to vote all shares of Common Stock of the Corporation which the undersigned
R is entitled to vote (including shares, if any, held on behalf of the
undersigned, and indicated on the reverse hereof, by BankBoston, N.A.,
O under the Corporation's dividend reinvestment plan and by ChaseMellon
Shareholder Services, L.L.C. under the Corporation's employee stock
X purchase plans) at the Special Meeting of Shareholders and at any
adjournment or adjournments thereof, as indicated on the reverse side
Y hereof, and, in their discretion, upon such other matters as may
properly come before the meeting, all as more fully described in
the Proxy Statement for such Special Meeting.
THIS PROXY WHEN PROPERLY EXECUTED AND RETURNED WILL BE VOTED AS
DIRECTED ON THE REVERSE SIDE OR, IF NO DIRECTION IS GIVEN, IT WILL BE
VOTED FOR EACH OF THE PROPOSALS.
----------------
SEE REVERSE
CONTINUED, AND TO BE SIGNED ON REVERSE SIDE SIDE
----------------
<PAGE>
PERKIN ELMER
YOUR VOTE IS IMPORTANT
PLEASE VOTE YOUR PREFERENCES ON THE PROXY CARD BELOW.
SIGN, DATE, AND RETURN YOUR PROXY AS SOON AS POSSIBLE IN THE
ENCLOSED PRE-ADDRESSED ENVELOPE.
DETACH HERE
PLEASE MARK
/X/ VOTES AS IN
THIS EXAMPLE.
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THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR ALL PROPOSALS.
FOR AGAINST ABSTAIN
1. Approval of the Recapitalization Proposal. / / / / / /
2. Approval of The Perkin-Elmer Corporation/ / / / / / /
Perkin-Elmer Group 1999 Stock Incentive Plan.
3. Approval of The Perkin-Elmer Corporation/ / / / / / /
Celera Genomics Group 1999 Stock Incentive Plan.
MARK HERE MARK HERE
FOR ADDRESS / / IF YOU PLAN / /
CHANGE AND TO ATTEND
NOTE AT LEFT THE MEETING
PLEASE SIGN EXACTLY AS YOUR NAME APPEARS. IF ACTING AS ATTORNEY,
EXECUTOR, TRUSTEE, OR IN REPRESENTATIVE CAPACITY, SIGN NAME AND TITLE.
Signature:__________________________ Date:_________ Signature:_________________________ Date:________
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