We are involved in various lawsuits, arbitrations, investigations, and other legal actions from time to time with both private parties and governmental entities. These legal actions currently involve, for example, commercial, intellectual property, antitrust, environmental, securities, and employment matters. The following is a description of some claims we are currently defending, including some counterclaims brought against us in response to claims filed by us against third parties. We believe that we have meritorious defenses against the claims currently asserted against us, including those described below, and intend to defend them vigorously. However, the outcome of legal actions is inherently uncertain, and we cannot be sure that we will prevail in our defense of claims currently asserted against us. An adverse determination in the cases we are currently defending, particularly the claims against us described below under the heading “Commercial Litigation,” could have a material adverse effect on us, Applied Biosystems, Celera Genomics, or Celera Diagnostics.
Our company and some of our officers are defendants in a lawsuit brought on behalf of purchasers of Applera-Celera Genomics stock in our follow-on public offering of Applera-Celera Genomics stock completed on March 6, 2000. In the offering, we sold an aggregate of approximately 4.4 million shares of Applera-Celera Genomics stock at a public offering price of $225 per share. The lawsuit, which was commenced with the filing of several complaints in April and May 2000, is pending in the U.S. District Court for the District of Connecticut, and an amended consolidated complaint was filed on August 21, 2001. The consolidated complaint generally alleges that the prospectus used in connection with the offering was inaccurate or misleading because it failed to adequately disclose the alleged opposition of the Human Genome Project and two of its supporters, the governments of the U.S. and the U.K., to providing patent protection to our genomic-based products. Although Celera Genomics has never sought, or intended to seek, a patent on the basic human genome sequence data, the complaint also alleges that we did not adequately disclose the risk that Celera Genomics would not be able to patent this data. The consolidated complaint seeks monetary damages, rescission, costs and expenses, and other relief as the court deems proper. On March 31, 2005, the Court certified the case as a class action.
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claims against MJ Research on June 24, 1998, in the U.S. District Court for the District of Connecticut based on its alleged infringement of some polymerase chain reaction, or PCR, patents. In response to our claims, MJ Research filed counterclaims including, among others, allegations that we have licensed and enforced these patents through anticompetitive conduct in violation of federal and state antitrust laws, that some of our patents are unenforceable because of patent misuse, and that some of our patents are invalid and unenforceable because of inequitable conduct. MJ Research is seeking injunctive relief, monetary damages, costs and expenses, and other relief. These matters were adjudicated in part through a jury trial, which resulted in a verdict in our favor rendered in April 2004, and the remaining issues were resolved through a series of summary judgments granted by the District Court in several rulings issued in our favor between December 2004 and April 2005. As a result, MJ Research’s counterclaims were rejected and MJ Research has been held liable to us and Roche Molecular Systems, also a party to the litigation, for infringement of U.S. Patent Nos. 4,683,195, 4,683,202 and 4,965,188 (each relates to PCR process technology) and U.S. Patent Nos. 5,656,493, 5,333,675 and 5,475,610 (each relates to thermal cycler instrument technology). Further, the infringement of the‘195,‘202,‘188 and‘493 patents was held to be willful. As a result of these decisions in our favor, in April 2005, the District Court awarded us and Roche Molecular Systems damages of $35.4 million plus reasonable attorneys’ fees, an enhancement of the original damages award granted by the jury in the amount of $19.8 million. MJ Research has filed a notice of appeal. Additionally, on August 30, 2005, the Court issued an order enjoining MJ Research from infringing U.S. Patent Nos. 5,333,675, 5,656,493 and 5,475,610.
Subsequent to the filing of our claims against MJ Research which are described in the preceding paragraph, on September 21, 2000, MJ Research filed an action against us in the U.S. District Court for the District of Columbia. This complaint is based on the allegation that the patents underlying our DNA sequencing instruments were improperly obtained because one of the alleged inventors, whose work was funded in part by the U.S. government, was knowinglyomitted from the patent applications. Our patents at issue are U.S. Patent Nos. 5,171,534, entitled “Automated DNA Sequencing Technique,” 5,821,058, entitled “Automated DNA Sequencing Technique,” 6,200,748, entitled “Tagged Extendable Primers and Extension Products,” and 4,811,218, entitled “Real Time Scanning Electrophoresis Apparatus for DNA Sequencing.” The complaint asserts violations of the federal False Claims Act and the federal Bayh Dole Act, invalidity and unenforceability of the patents at issue, patent infringement, and various other civil claims against us. MJ Research is seeking monetary damages, costs and expenses, injunctive relief, transfer of ownership of the patents in dispute, and other relief as the court deems proper. MJ Research claims to be suing in the name of the U.S. government although the government has to date declined to participate in the suit. On October 9, 2003, the case against us was dismissed but MJ Research has filed an appeal.
Promega Corporation filed a patent infringement action against Lifecodes Corporation, Cellmark Diagnostics, Genomics International Corporation, and us in the U.S. District Court for the Western District of Wisconsin on April 24, 2001. The complaint alleges that the defendants are infringing Promega’s U.S. Patent Nos. 6,221,598 and 5,843,660, both entitled “Multiplex Amplification of Short Tandem Repeat Loci,” due to the defendants’ sale of forensic identification and paternity testing kits. Promega is seeking monetary damages, costs and expenses, injunctive relief, and other relief as the court deems proper. The defendants answered the complaint on July 9, 2001, and we asserted counterclaims alleging that Promega is infringing our U.S. Patent No. 6,200,748, entitled “Tagged Extendable Primers and Extension Products,” due to Promega’s sale of forensic identification and paternity testing kits. As a result of
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settlement negotiations, the case was dismissed without prejudice on October 29, 2002, but could be re-filed against us if settlement negotiations are not successful.
Beckman Coulter, Inc. filed a patent infringement action against us in the U.S. District Court for the Central District of California on July 3, 2002. The complaint alleges that we are infringing Beckman Coulter’s U.S. Patent Nos. RE 37,606 and 5,421,980, both entitled “Capillary Electrophoresis Using Replaceable Gels,” and U.S. Patent No. 5,552,580, entitled “Heated Cover Device.” The allegedly infringing products are Applied Biosystems’ capillary electrophoresis sequencing and genetic analysis instruments, and PCR and real-time PCR systems. Since Beckman Coulter filed this claim, U.S. Patent No. 5,421,980 has been reissued as U.S. Patent No. RE 37,941, entitled “Capillary Electrophoresis Using Replaceable Gels.” On January 13, 2003, the court permitted Beckman Coulter to make a corresponding amendment to its complaint. Beckman Coulter is seeking monetary damages, costs and expenses, injunctive relief, and other relief as the court deems proper. On February 10, 2003, we filed our answer to Beckman Coulter's allegations, and counterclaimed for declaratory relief that the Beckman Coulter patents underlying Beckman Coulter’s claim are invalid, unenforceable, and not infringed. We are seeking dismissal of Beckman Coulter’s complaint, costs and expenses, declaratory and injunctive relief, and other relief as the court deems proper.
Genetic Technologies Limited filed a patent infringement action against us in the U.S. District Court for the Northern District of California on March 26, 2003. They filed an amended complaint against us on August 12, 2003. The amended complaint alleges that we are infringing U.S. Patent No. 5,612,179, entitled “Intron Sequence Analysis Method for Detection of Adjacent and Remote Locus Alleles as Haplotypes,” and U.S. Patent No. 5,851,762, entitled “Genomic Mapping Method by Direct Haplotyping Using Intron Sequence Analysis.” The allegedly infringing products are cystic fibrosis reagent kits, TaqMan® genotyping and gene expression assay products for non-coding regions, TaqMan genotyping and gene expression assay services for non-coding regions, AmpFLSTR® kits, the SNPlex™ Genotyping System, the SNPbrowser™ tool, and the Celera Discovery System™. The complaint also alleges that haplotyping analysis performed by our businesses infringes the patents identified above. Genetic Technologies Limited is seeking monetary damages, costs, expenses, injunctive relief, and other relief as the court deems proper.
On-Line Technologies, Inc. (since acquired by MKS Instruments, Inc.) filed claims for patent infringement, trade secret misappropriation, fraud, breach of contract and unfair trade practices against PerkinElmer, Inc., Sick UPA, GmbH, and us in the U.S. District Court for the District of Connecticut on or about November 3, 1999. The complaint alleged that products called the Spectrum One and the MCS100E manufactured by former divisions of Applied Biosystems, which divisions were sold to the co-defendants in this case, were based on allegedly proprietary information belonging to On-Line Technologies and that the MCS100E infringed U.S. Patent No. 5,440,143. On-Line Technologies sought monetary damages, costs, expenses, injunctive relief, and other relief. On April 2, 2003, the U.S. District Court for the District of Connecticut granted our summary judgment motion and dismissed all claims brought by On-Line Technologies. On-Line Technologies filed an appeal with the U.S. Court of Appeals for the Federal Circuit seeking reinstatement of its claims, and on October 13, 2004, the Court of Appeals upheld dismissal of all claims except for the patent infringement claim, which will be decided by the District Court in subsequent proceedings.
Promega Corporation filed an action against us and some of our affiliates and Roche
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Molecular Systems, Inc. and Hoffmann-La Roche, Inc. in the U.S. District Court for the Eastern District of Virginia on April 10, 2000. The complaint asserts violations of the federal False Claims Act. On November 12, 2003, the court issued an order to have the complaint, which had previously been sealed, served on us and the other defendants. On February 9, 2004, we waived service of the complaint, which initiated our direct involvement in the case. The complaint alleges that we and Hoffmann-La Roche overcharged the U.S. government for thermal cyclers and PCR reagents. The overcharges are alleged to be the result of a licensing program based in part on U.S. Patent No. 4,889,818. Promega is asserting that U.S. Patent No. 4,889,818 was obtained fraudulently and that the licensing program run by us and Hoffmann-La Roche is the cause of the alleged overcharging. Promega is seeking monetary damages. Promega claims to be suing in the name of the U.S. government although the government has to date declined to participate in the suit. On June 29, 2004, the court granted our motion to dismiss for failure to state a claim upon which relief could be granted, but gave Promega the right to file an amended complaint. Promega filed an amended complaint on July 13, 2004, and we filed another motion to dismiss on August 6, 2004. The court granted our second motion and dismissed the case with prejudice on August 20, 2004. Promega has filed an appeal with the U.S. Court of Appeals for the Fourth Circuit.
Bio-Rad Laboratories, Inc. filed a patent infringement, trademark infringement, and unfair competition action against us in the U.S. District Court for the Northern District of California on December 26, 2002. The complaint alleges that we are infringing Bio-Rad’s U.S. Pat. No. 5,089,011, entitled “Electrophoretic Sieving in Gel-Free Media with Dissolved Polymers,” and infringing Bio-Rad's “Bio-Rad” trademark. They filed a third amended complaint against us on May 30, 2003. The allegedly infringing products according to the third amended complaint are instruments using, and reagents used for, capillary electrophoresis, and products using the BioCAD name. Bio-Rad submitted its final infringement contentions under the local court rules on April 22, 2004, and the parties held a court-ordered mediation conference on July 19, 2004. Bio-Rad is seeking monetary damages, costs, expenses, injunctive relief, and other relief as the court deems proper.
Enzo Biochem, Inc., Enzo Life Sciences, Inc., and Yale University filed a patent infringement action against us in the U.S. District Court for the District of Connecticut on June 8, 2004. The complaint alleges that we are infringing six patents. Four of these patents are assigned to Yale University and licensed exclusively to Enzo Biochem, i.e., U.S. Patent No. 4,476,928, entitled “Modified Nucleotides and Polynucleotides and Complexes Formed Therefrom,” U.S. Patent No. 5,449,767, entitled “Modified Nucleotides and Polynucleotides and Methods of Preparing Same,” U.S. Patent No. 5,328,824 entitled “Methods of Using Labeled Nucleotides,” and U.S. Patent No. 4,711,955, entitled “Modified Nucleotides and Polynucleotides and Methods of Preparing and Using Same.” The other two patents are assigned to Enzo Life Sciences, i.e., U.S. Patent No. 5,082,830 entitled “End Labeled Nucleotide Probe” and U.S. Patent No. 4,994,373 entitled “Methods and Structures Employing Compoundly – Labeled Polynucleotide Probes.” The allegedly infringing products include Applied Biosystems’ sequencing reagent kits, its TaqMan® genotyping and gene expression assays, and the gene expression microarrays used with its Expression Array System. Enzo Biochem, Enzo Life Sciences, and Yale University are seeking monetary damages, costs, expenses, injunctive relief, and other relief as the court deems proper.
Molecular Diagnostics Laboratories filed a class action complaint against us and Hoffmann-La Roche, Inc. in the U.S. District Court for the District of Columbia on September 23, 2004. The complaint alleges anticompetitive conduct in connection with the sale of Taq
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DNA polymerase and PCR-related products. The anticompetitive conduct is alleged to arise from the prosecution and enforcement of U.S. Patent No. 4,889,818. This patent is assigned to Hoffmann-La Roche, with whom we have a commercial relationship covering, among other things, this patent and the sale of Taq DNA polymerase. The complaint seeks monetary damages, costs, expenses, injunctive relief, and other relief as the court deems proper. This case is largely based on the same set of contentions underlying a claim filed against us by Promega Corporation in the U.S. District Court for the Eastern District of Virginia, which is described above. The Promega claim was dismissed in August 2004 for, among other reasons, failure to state a claim upon which relief could be granted.
We filed a patent infringement action against Bio-Rad Laboratories, Inc., MJ Research, Inc., and Stratagene Corporation in the U.S. District Court for the District of Connecticut on November 9, 2004. The complaint alleges that the defendants infringe U.S. Patent No. 6,814,934. The complaint specifically alleges that the defendants’ activities involving instruments for real-time PCR detection result in infringement. We are seeking monetary damages, costs, expenses, injunctive relief, and other relief as the court deems proper. Bio-Rad, MJ Research, and Stratagene have each answered the complaint and counterclaimed for declaratory relief that the ‘934 patent is invalid and not infringed. Bio-Rad, MJ Research, and Stratagene are seeking dismissal of our complaint, a judgment that the ‘934 patent is invalid and not infringed, costs and expenses, and other relief as the court deems proper.
Thermo Finnigan LLC filed a patent infringement action against us in the U.S. District Court for the District of Delaware on December 8, 2004. The complaint alleges that we have infringed U.S. Patent No. 5,385,654 as a result of, for example, Applied Biosystems’ commercialization of the ABI PRISM 3700 Genetic Analyzer. Thermo Finnigan is seeking monetary damages, costs, expenses, and other relief as the court deems proper.
U.S. v. Davis
We are a party to the actionU.S. v. Davis, pending in the U.S. District Court for the District of Rhode Island. We were brought into the case along with numerous other companies as a result of a third party complaint filed by United Technologies Corporation (“UTC”) seeking contribution for environmental cleanup costs imposed by the U.S. government. In December 1998, the District Court found us liable to UTC along with certain, but not all, of the defendants in the case. We believe the amount of such liability to be less than $200,000, which will be determined when all appeals have been concluded. Both UTC and we appealed the District Court’s decision. In August 2001, the U.S. Court of Appeals for the First Circuit affirmed the District Court’s decision and remanded the case to the District Court for further proceedings.
Settled Roche Legal Proceedings
We filed claims against Roche Molecular Systems, Inc., Hoffmann-La Roche, Inc., Roche Probe, Inc., F. Hoffmann-La Roche Ltd., and other potential defendants affiliated with the named defendants (“Roche”) in California Superior Court on October 9, 2003. Our complaint asserted, among other things, breach of contract and other contract claims against the defendants arising from agreements relating to polymerase chain reaction, or PCR, technology rights entered into between us and the defendants. Our complaint also asserted various tort claims against the defendants, including breach of trust, breach of fiduciary duty, and unfair competition, relating to our PCR rights. The defendants’ acts and omissions that formed the basis of the complaint included, among other things, the: (i) defendants’ failure to abide by contractual provisions
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intended to allow us to effectively compete with the defendants with respect to (a) sales of diagnostic PCR products and (b) conveyance of diagnostic PCR rights to third parties; (ii) defendants’ failure to pay us requisite royalties for sales by them of thermal cyclers and other products; (iii) defendants’ failure to negotiate in good faith new agreements directed at modifying the relationship between the parties in accordance with principles set forth in an existing letter agreement that states the intended framework for the negotiations (the “Letter Agreement”); (iv) defendants’ failure to provide us with diagnostic PCR rights on a nondiscriminatory basis as required by a European Union commission decree; (v) defendants’ failure to comply with their agreement to assign ownership to us of some PCR instrument patents and patent applications, and (vi) defendants’ mishandling of the prosecution of patent applications that the defendants were obligated to assign to us, in a manner that damaged us and precluded us from obtaining the full potential scope of patent protection for our instrument rights. Contemporaneously with our filing of this complaint, we also commenced arbitration proceedings with the American Arbitration Association against the defendants asserting, among other things, patent infringement claims (both direct infringement, contributory infringement and infringement by inducing third parties to infringe), breach of contract and other contract claims, and tort claims such as breach of fiduciary duty, breach of trust, and unfair competition. The arbitration was based on our allegation that the defendants (i) had infringed our exclusive rights to PCR patents in fields exclusively licensed to us pursuant to agreements with the defendants; and (ii) by their acts and omissions, had undermined the value of our exclusive PCR rights. In both the legal complaint and the arbitration, we were seeking monetary damages, costs, expenses, injunctive relief, and other relief as the court or arbitrator deems proper.
On December 15, 2003, Roche filed a motion in California Superior Court to compel arbitration of our state court complaint and to stay the litigation. Concurrently with the motion to compel arbitration, Roche also filed with the American Arbitration Association its response to our notice of arbitration in which Roche denied all of our claims against it. Roche’s response included counterclaims asserting, among other things, that our exclusive patent rights under some PCR patents licensed from Roche under an existing distribution agreement were converted into nonexclusive rights by the Letter Agreement, which was entered into subsequent to the distribution agreement. Roche also alleged that (i) we breached our contractual obligation under the Letter Agreement, including our obligation to source certain enzymes exclusively from Roche; and (ii) we failed to pay Roche the full royalties required pursuant to the distribution agreement. In its counterclaim, Roche sought a request for declaratory judgment confirming its assertions, interest, costs, and other relief as the arbitrator deems proper.
Effective May 6, 2005, the parties signed agreements settling these disputes, and they subsequently sought dismissal of the litigation and arbitration proceedings. The litigation was dismissed on June 10, 2005, and the dismissal of the arbitration was confirmed on June 16, 2005. More information about the settlement of these disputes is set forth above in Item 1 of this report under the heading “Business–Applied Biosystems Group Business–Patents, Licenses, and Franchises.” These legal proceedings had involved PCR rights used by Applied Biosystems and also rights that Applied Biosystems contributed to Celera Diagnostics.
| Item 4. | Submission of Matters to a Vote of Security Holders |
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PART II
| Item 5. | Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities |
Information about our Common Stock and its Holders
The principal U.S. market where our Applera-Applied Biosystems stock and Applera-Celera Genomics stock are traded is the New York Stock Exchange, although our stock is also traded on the Pacific Exchange.
Applera-Applied Biosystems stock is listed on the New York Stock Exchange under the trading symbol “ABI” and is intended to reflect the relative performance of Applied Biosystems. Applera-Celera Genomics stock is listed on the New York Stock Exchange under the trading symbol “CRA” and is intended to reflect the relative performance of Celera Genomics. There is no single security that represents our performance as a whole, nor is there a separate security traded for Celera Diagnostics.
Holders of Applera-Applied Biosystems stock and Applera-Celera Genomics stock are stockholders of Applera. Applied Biosystems and Celera Genomics are not separate legal entities, and holders of these stocks are stockholders of a single company, Applera. As a result, holders of these stocks are subject to all of the risks associated with an investment in Applera and all of its businesses, assets, and liabilities, including all of the risks described below in this Item 5 under the heading “Forward-Looking Statements and Risk Factors.”.
The high and low sales prices of Applera-Applied Biosystems stock and Applera-Celera Genomics stock for each quarterly period during our 2004 and 2005 fiscal years is incorporated herein by reference to Note 11, page 76, of our 2005 Annual Report.
On August 19, 2005, the approximate number of holders of Applera-Applied Biosystems stock was 5,896, and the approximate number of holders of Applera-Celera Genomics stock was 6,087. The approximate number of holders is based upon the actual number of holders registered in our records at such date and does not include holders of shares in "street name" or persons, partnerships, associations, corporations, or other entities identified in security position listings maintained by depository trust companies. The calculation of the market value of shares held by non-affiliates shown on the cover of this report was made on the assumption that there were no affiliates other than executive officers and directors as of the date of calculation.
Information regarding the amount of quarterly dividends during our 2004 and 2005 fiscal years is incorporated herein by reference to Note 11, page 76, of our 2005 Annual Report.
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Sale of Unregistered Securities
We have not sold any securities during our 2005 fiscal year that were not registered under the Securities Act of 1933.
Issuer Purchases of Equity Securities
This table provides information regarding our purchases of shares of Applera-Applied Biosystems stock during the fourth quarter of our 2005 fiscal year.
| Period | Total Number
of Shares
Purchased (1) | | Average Price
Paid per
Share | | Total Number of
Shares Purchased
as Part of Publicly
Announced Plans
or Programs | | Approximate Dollar Value
of Shares that May Yet Be
Purchased Under the
Plans or Programs (2)(3) |
|
|
|
|
|
|
|
|
| April 1-30, 2005 | 7,335 | | $20.16 | | – | | $ – |
| May 1-31, 2005 | – | | $ – | | – | | $ – |
| June 1-30, 2005 | 293,734 | | $21.43 | | 283,900 | | $ – |
|
|
|
|
|
|
|
|
| Total | 301,069 | | $21.40 | | 283,900 | | $ – |
|
|
|
|
|
|
|
|
| | | | | | | | |
| (1) | Consists of (a) the shares referred to in footnote (3) below, and (b) shares tendered by employees to cover the exercise of employee stock options and taxes relating to the vesting of restricted stock. |
| | |
| (2) | On July 27, 2005, Applied Biosystems announced that our Board of Directors has authorized the repurchase of up to 19,450,000 shares of Applera-Applied Biosystems stock, in addition to the authorization described in footnote (3) below. The new authorization has no time restrictions and delegates to company management discretion to purchase shares at times and prices it deems appropriate through open market purchases, privately negotiated transactions, tender offers, exchange offers, or otherwise. It is anticipated that repurchases will be made from time to time depending on market conditions and will be funded using Applied Biosystems’ U.S. cash reserves and cash generated from domestic operations, as well as funds to be borrowed under our revolving corporate credit facility, if and when required. |
| | |
| (3) | We previously announced that our Board of Directors has authorized the repurchase of shares of Applera-Applied Biosystems stock from time to time to replenish shares issued under our various employee stock benefit plans. This authorization has no set dollar or time limits and delegates to Company management discretion to purchase shares at times and prices it deems appropriate through open market or negotiated purchases. Accordingly, the amounts in this column do not reflect this authorization. 283,900 shares of Applera-Applied Biosystems stock were purchased under this authorization during the fourth quarter of our 2005 fiscal year |
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This table provides information regarding our purchases of shares of Applera-Celera Genomics stock during the fourth quarter of our 2005 fiscal year.
| Period | Total Number
of Shares
Purchased (1)
| | Average Price
Paid per
Share
| | Total Number of
Shares Purchased
as Part of Publicly
Announced Plans
or Programs
| | Approximate Dollar Value
of Shares that May Yet be
Purchased Under the
Plans or Programs (2) |
|
|
|
|
|
|
|
|
| April 1-30, 2005 | 6,292 | | $10.20 | | – | | $ – |
| May 1-31, 2005 | – | | $ – | | – | | $ – |
| June 1-30, 2005 | 3,278 | | $10.89 | | – | | $ – |
|
|
|
|
|
|
|
|
| Total | 9,570 | | $10.44 | | – | | $ – |
|
|
|
|
|
|
|
|
| | | | | | | | |
| (1) | Consists of shares tendered by employees to cover taxes relating to the vesting of restricted stock. |
| | |
| (2) | We previously announced that our Board of Directors has authorized the repurchase of shares of Applera-Celera Genomics stock from time to time to replenish shares issued under our various employee stock benefit plans. This authorization has no set dollar or time limits and delegates to Company management discretion to purchase shares at times and prices it deems appropriate through open market or negotiated purchases. Accordingly, the amounts in this column do not reflect this authorization. No shares of Applera-Celera Genomics stock were purchased under this authorization during the fourth quarter of our 2005 fiscal year. |
| | |
Forward-Looking Statements and Risk Factors
Some statements contained in, or incorporated by reference in, this report are forward-looking. Similarly, the press releases we issue and other public statements we make from time to time may contain language that is forward-looking. These forward-looking statements may be identified by the use of forward-looking words or phrases such as “forecast,” “believe,” “expect,” “intend,” “anticipate,” “should,” “plan,” “estimate,” and “potential,” among others. The forward-looking statements contained in this report are based on our current expectations, and those made at other times will be based on our expectations when the statements are made. We cannot guarantee that any forward-looking statements will be realized.
The Private Securities Litigation Reform Act of 1995 provides a “safe harbor” for forward-looking statements. In order to comply with the terms of the safe harbor, we note that a variety of factors could cause actual results and experience to differ materially from anticipated results or other expectations expressed in forward-looking statements. We also note that achievement of anticipated results or expectations in forward-looking statements is subject to the possibility that assumptions underlying forward-looking statements will prove to be inaccurate. Investors should bear this in mind as they consider forward-looking statements. The risks and uncertainties that may affect the operations, performance, development, and results of our business include, but are not limited to, those described below under the headings “Factors Relating to Applied Biosystems,” “Factors Relating to Celera Genomics,” and “Factors Relating to Celera Diagnostics, a 50/50 Joint Venture between Applied Biosystems and Celera Genomics.”
Also, we note that owners of Applera-Applied Biosystems stock and Applera-Celera Genomics stock are subject to risks arising from their ownership of common stock of a corporation with two separate classes of common stock. The risks and uncertainties that arise from our capital structure, particularly our two separate classes of common stock, include, but
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are not limited to, those described below under the heading “Risks Relating to a Capital Structure with Two Separate Classes of Common Stock.”
Factors Relating to Applied Biosystems
| | Rapidly changing technology in life sciences could make Applied Biosystems’ product line obsolete unless it continues to develop and manufacture new and improved products and services, and pursue new market opportunities. |
A significant portion of the net revenues for Applied Biosystems each year is derived from products and services that did not exist in the prior year. Applied Biosystems’ products and services are based on complex technology which is subject to rapid change as new technologies are developed and introduced in the marketplace. Applied Biosystems’ future success depends on its ability to continually improve its current products and services, develop and introduce, on a timely and cost-effective basis, new products and services that address the evolving needs of its customers, and pursue new market opportunities that develop as a result of technological and scientific advances in life sciences. These new market opportunities may be outside the scope of the group’s proven expertise or in areas which have unproven market demand. For example, Applied Biosystems has committed significant resources to researching, developing, marketing, and distributing new products and services designed to integrate laboratory experimentation with relevant scientific information, and to new Internet web sites devoted to promoting the group’s products and supporting customer research and development activities. These are emerging business areas for Applied Biosystems, and there can be no assurance that there will be market acceptance of the utility and value of these products and services. The inability to gain market acceptance of new products and services could adversely affect the group’s future operating results. The group’s future success also depends on its ability to manufacture these improved and new products to meet customer demand in a timely and cost-effective manner, including its ability to resolve in a timely manner manufacturing issues that may arise from time to time as the group commences production of these complex products. Unanticipated difficulties or delays in replacing existing products and services with new products and services or in manufacturing improved or new products in sufficient quantities to meet customer demand could adversely affect future demand for the group’s products and services and its future operating results.
| | Applied Biosystems relies on third parties for the manufacture of some of its products and also for the supply of some components of the products it manufactures on its own. |
Although Applied Biosystems has contracts with most of these manufacturers and suppliers, there can be no assurance that their operations will not be disrupted. Applied Biosystems does not currently have alternative third party manufacturing or supply arrangements for some of the key products and key components manufactured or supplied by third parties. Although Applied Biosystems has its own manufacturing facilities, and believes it might be able to manufacture some of the products and components currently sourced from third parties, it also believes that it would take considerable time and resources to establish the capability to do so. Accordingly, if third party manufacturers or suppliers are unable or fail to fulfill their obligations to Applied Biosystems, Applied Biosystems might not be able to satisfy customer demand in a timely manner, and its business could be adversely affected.
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A significant portion of sales depends on customers’ capital spending policies that may be subject to significant and unexpected decreases.
A significant portion of Applied Biosystems’ instrument product sales are capital purchases by its customers. Applied Biosystems’ customers include pharmaceutical, environmental, research, biotechnology, and chemical companies, and the capital spending policies of these companies can have a significant effect on the demand for Applied Biosystems’ products. These policies are based on a wide variety of factors, including the resources available to make purchases, the spending priorities among various types of research equipment, and policies regarding capital expenditures during recessionary periods. Any decrease in capital spending or change in spending policies of these companies could significantly reduce the demand for Applied Biosystems’ products.
A substantial portion ofApplied Biosystems’ sales is to customers at universities or research laboratories whose funding is dependent on both the amount and timing of funding from government sources.
As a result, the timing and amount of revenues from these sources may vary significantly due to factors that can be difficult to forecast. Research funding for life science research has increased more slowly during the past several years compared to previous years and has declined in some countries, and some grants have been frozen for extended periods or otherwise become unavailable to various institutions, sometimes without advance notice. Budgetary pressures may result in reduced allocations to government agencies that fund research and development activities. If government funding necessary to purchase Applied Biosystems’ products were to become unavailable to researchers for any extended period of time, or if overall research funding were to decrease, the business of Applied Biosystems could be adversely affected.
Applied Biosystems is currently, and could in the future be, subject to lawsuits, arbitrations, investigations, and other legal actions with private parties and governmental entities, particularly involving claims for infringement of patents and other intellectual property rights, and it may need to obtain licenses to intellectual property from others.
Applied Biosystems believes that it has meritorious defenses against the claims currently asserted against it and intends to defend them vigorously. However, the outcome of legal actions is inherently uncertain, and Applied Biosystems cannot be sure that it will prevail in any of these actions. An adverse determination in some of the group’s current legal actions, particularly the cases described below, could have a material adverse effect on our consolidated financial statements.
Applied Biosystems’ products are based on complex, rapidly developing technologies. These products could be developed without knowledge of previously filed patent applications that mature into patents that cover some aspect of these technologies. In addition, because patent litigation is complex and the outcome inherently uncertain, Applied Biosystems’ belief that its products do not infringe the technology covered by valid and enforceable patents could be successfully challenged by third parties. Applied Biosystems has from time to time been notified that it may be infringing patents and other intellectual property rights of others. Also, in thecourse of its business, Applied Biosystems may from time to time have access to confidential or proprietary information of third parties, and these parties could bring a claim against Applied Biosystems asserting that Applied Biosystems had misappropriated their technologies, which
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though not patented are protected as trade secrets, and had improperly incorporated such technologies into Applied Biosystems’ products. Due to these factors, there remains a constant risk of intellectual property litigation and other legal actions, which could include antitrust claims, affecting the group. Applied Biosystems has been made a party to litigation and has been subject to other legal actions regarding intellectual property matters, which have included claims of violations of antitrust laws. Such actions currently include the legal proceedings described in the following paragraph, some of which, if determined adversely, could have a material adverse effect on Applied Biosystems. To avoid or settle legal claims, it may be necessary or desirable in the future to obtain licenses relating to one or more products or relating to current or future technologies, and Applied Biosystems cannot be assured that it will be able to obtain these licenses or other rights on commercially reasonable terms, or at all.
Several legal actions have been filed against us that could affect the intellectual property rights of Applied Biosystems and its products and services, including the following:
| | • | In response to claims by us against MJ Research, Inc., MJ Research filed counterclaims against us including, among others, allegations that we have licensed and enforced some polymerase chain reaction, or PCR, patents through anticompetitive conduct in violation of federal and state antitrust laws. These claims have been rejected as a result of a jury verdict and a series of summary judgment rulings by the court, but MJ Research has filed a notice of appeal. Subsequently, MJ Research filed a lawsuit against us based on the allegation that four patents underlying Applied Biosystems’ DNA sequencing instruments were invalidly obtained because an alleged inventor, whose work was funded in part by the U.S. government, was knowingly omitted from the patent applications. MJ Research claims to be suing in the name of the U.S. government although the government has to date declined to participate in the lawsuit. The case was dismissed but the decision has been appealed by MJ Research. |
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| | • | Promega Corporation has filed a lawsuit against us alleging that Applied Biosystems, along with some other named defendants, is infringing two Promega patents due to the sale of forensic identification and paternity testing kits. |
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| | • | Beckman Coulter, Inc. has filed a lawsuit against us alleging that Applied Biosystems is infringing three Beckman Coulter patents. The allegedly infringing products are Applied Biosystems’ capillary electrophoresis sequencing and genetic analysis instruments, and PCR and real-time PCR systems. |
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| | • | Genetic Technologies Limited has filed a lawsuit against us alleging that we are infringing two of its patents due to the sale of cystic fibrosis reagent kits, some of our TaqMan® genotyping and gene expression products and services, AmpFLSTR® kits, the SNPlex™ Genotyping System, the SNPbrowser™ tool, and the Celera Discovery System™. Genetic Technologies has also alleged that haplotyping analysis performed by our businesses infringes these patents. |
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| | • | Enzo Biochem, Inc., Enzo Life Sciences, Inc., and Yale University have filed a lawsuit against us alleging that we are infringing six patents due to the sale of sequencing reagent kits, TaqMan® genotyping and gene expression assays, and the |
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| | | gene expression microarrays used with the Applied Biosystems’ Expression Array System. |
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| | • | Bio-Rad Laboratories, Inc. has filed a lawsuit against us alleging that we are infringing one of its patents due to our sale of instruments using, and reagents used for, capillary electrophoresis, and one of its trademarks due to our use of the BioCAD name. |
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| | • | Molecular Diagnostics Laboratories has filed a class action complaint against us and Hoffmann-La Roche, Inc. alleging anticompetitive conduct in connection with the sale of Taq DNA polymerase and PCR-related products. The anticompetitive conduct is alleged to arise from the prosecution and enforcement of U.S. Patent No 4,889,818. This patent is assigned to Hoffmann-La Roche, with whom we have a commercial relationship covering, among other things, this patent and the sale of Taq DNA polymerase. |
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| | • | In response to patent infringement claims made by us against Bio-Rad Laboratories, Inc., MJ Research, Inc. and Stratagene Corporation, Bio-Rad, MJ Research, and Stratagene have filed counterclaims seeking declaratory judgments that our U.S. Patent No. 6,814,934 in the field of real-time PCR is invalid and not infringed. |
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| | • | Thermo Finnigan LLC has filed a lawsuit against us alleging that we are infringing one of its patents as a result of, for example, Applied Biosystems’ commercialization of the ABI PRISM 3700 Genetic Analyzer. |
These cases are described in further detail above in Part I, Item 3 of this report under the heading “Legal Proceedings–Commercial Litigation.”
The cost of litigation and the amount of management time associated with these cases is expected to be significant. There can be no assurance that these matters will be resolved favorably; that we will not be enjoined from selling the products or services in question or other products or services as a result; or that any monetary or other damages assessed against us will not have a material adverse effect on the financial condition of our company, Applied Biosystems, Celera Genomics, or Celera Diagnostics.
Since Applied Biosystems’ business is dependent on foreign sales, fluctuating currencies will make revenues and operating results more volatile.
Approximately 55% of Applied Biosystems’ net revenues for our 2005 fiscal year were derived from sales to customers outside of the U.S. The majority of these sales were based on the relevant customer’s local currency. A significant portion of the related costs for Applied Biosystems are based on the U.S. dollar. As a result, Applied Biosystems’ reported and anticipated operating results and cash flows are subject to fluctuations due to material changes in foreign currency exchange rates that are beyond Applied Biosystems’ control.
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The future growth of Applied Biosystems depends in part on its ability to acquire complementary technologies through acquisitions, investments, or other strategic relationships or alliances, which may absorb significant resources, may be unsuccessful, and could dilute holders of Applera-Applied Biosystems stock.
Acquisitions, investments and other strategic relationships and alliances, if pursued, may involve significant cash expenditures, debt incurrence, and expenses that could have a material effect on Applied Biosystems’ financial condition and operating results. If these types of transactions are pursued, it may be difficult for Applied Biosystems to complete these transactions quickly and to integrate these acquired operations efficiently into its current business operations. Potential technological advances resulting from the integration of technologies may not be achieved as successfully or rapidly as anticipated, if at all. Any acquisitions, investments or other strategic relationships and alliances by Applied Biosystems may ultimately have a negative impact on its business and financial condition. In addition, future acquisitions may not be as successful as originally anticipated and may result in impairment charges. We have incurred these charges in recent years in relation to acquisitions. For example, we incurred charges for impairment of goodwill, intangibles and other assets and other charges in the amounts of $69.1 million during our 2001 fiscal year, $25.9 million during our 2002 fiscal year, and $4.5 million during our 2005 fiscal year in relation to Celera Genomics’ acquisition of Paracel, Inc. Similarly, we incurred charges for the impairment of patents and acquired technology in the amount of $14.9 million during our 2004 fiscal year in relation to Applied Biosystems’ acquisition of Boston Probes, Inc. In addition, acquisitions and other transactions may involve the issuance of a substantial amount of Applera-Applied Biosystems stock without the approval of the holders of Applera-Applied Biosystems stock. Any issuances of this nature could be dilutive to holders of Applera-Applied Biosystems stock.
Applied Biosystems’ businesses, particularly those focused on developing and marketing information-based products and services, depend on the continuous, effective, reliable, and secure operation of its computer hardware, software, and Internet applications and related tools and functions.
Applied Biosystems’ business requires manipulating and analyzing large amounts of data, and communicating the results of the analysis to its internal research personnel and to its customers via the Internet. Also, Applied Biosystems relies on a global enterprise software system to operate and manage its business. Applied Biosystems’ business therefore depends on the continuous, effective, reliable, and secure operation of its computer hardware, software, networks, Internet servers, and related infrastructure. To the extent that Applied Biosystems’ hardware or software malfunctions or access to Applied Biosystems’ data by internal research personnel or customers through the Internet is interrupted, Applied Biosystems’ business could suffer.
Applied Biosystems’ computer and communications hardware is protected through physical and software safeguards. However, it is still vulnerable to fire, storm, flood, power loss, earthquakes, telecommunications failures, physical or software break-ins, software viruses, and similar events. In addition, Applied Biosystems’ online products and services are complex and sophisticated, and as such, could contain data, design, or software errors that could be difficult to detect and correct. Software defects could be found in current or future products. If Applied Biosystems fails to maintain and further develop the necessary computer capacity and data to support its computational needs and its customers’ access to information-based product and service offerings, it could experience a loss of or delay in revenues or market acceptance. In
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addition, any sustained disruption in Internet access provided by third parties could adversely affect Applied Biosystems.
Applied Biosystems’ operations involve the use, manufacture, sale, and distribution of hazardous materials, and the mishandling of these hazardous materials could result in substantial liabilities and harm to Applied Biosystems.
Applied Biosystems’ research and development and manufacturing activities involve the controlled use of potentially hazardous materials, including biological materials, chemicals, and various radioactive compounds. Also, some of Applied Biosystems’ products are hazardous materials or include hazardous materials. Applied Biosystems cannot completely eliminate the risk of accidental or other contamination or injury from these materials, and Applied Biosystems could be held liable for resulting damages, which could be substantial. Under some laws and regulations, a party can be subject to “strict liability” for damages caused by some hazardous materials, which means that a party can be liable without regard to fault or negligence. In addition, Applied Biosystems is subject to federal, state, local, and foreign laws, regulations, and permits governing the use, storage, handling, and disposal of hazardous materials and specified waste products, as well as the shipment and labeling of materials and products containing hazardous materials. If Applied Biosystems fails to comply with any of these laws, regulations, or permits, we could be subject to substantial fine or penalty, payment of remediation costs, loss of permits, and/or other adverse governmental action. Any of these events could have a material adverse effect on Applied Biosystems’ business and financial condition.
Earthquakes could disrupt operations in California.
The headquarters and principal operations of Applied Biosystems are located in the San Francisco Bay area, a region near major California earthquake faults. The ultimate impact of earthquakes on Applied Biosystems, its significant suppliers, and the general infrastructure is unknown, but operating results could be materially affected in the event of a major earthquake.
Applera-Applied Biosystems stock price may be volatile.
The market price of Applera-Applied Biosystems stock has in the past been and may in the future be volatile due to the risks and uncertainties described in this section of this report, as well as other factors that may have affected or may in the future affect the market price, such as:
| | • | conditions and publicity regarding the genomics, biotechnology, pharmaceutical, or life sciences industries generally; |
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| | • | price and volume fluctuations in the stock market at large which do not relate to Applied Biosystems’ operating performance; and |
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| | • | comments by securities analysts or government officials, including with regard to the viability or profitability of the biotechnology sector generally or with regard to intellectual property rights of life science companies, or Applied Biosystems’ ability to meet market expectations. |
The stock market has from time to time experienced extreme price and volume fluctuations that are unrelated to the operating performance of particular companies. In the past, companies that have experienced volatility have sometimes been the subjects of securities class
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action litigation. If litigation was instituted on this basis, it could result in substantial costs and a diversion of management’s attention and resources.
Factors Relating to Celera Genomics
Celera Genomics has incurred net losses to date and may not achieve profitability.
Celera Genomics has accumulated net losses of approximately $794 million as of June 30, 2005, and expects that it will continue to incur net losses for the foreseeable future. These cumulative losses are expected to increase as Celera Genomics continues to make investments in new technology and product development, including its investments in the discovery and development of therapeutic products, as well as investments in diagnostics through Celera Diagnostics, its joint venture with Applied Biosystems. Celera Genomics will record all initial cash operating losses of Celera Diagnostics up to a maximum of $300 million, after which any additional operating losses would be shared equally by Celera Genomics and Applied Biosystems. However, Applied Biosystems reimburses Celera Genomics for all tax benefits generated by Celera Diagnostics to the extent such tax benefits are used by Applied Biosystems, and the effect of recording Celera Diagnostics’ operating losses on Celera Genomics’ net losses will be partially offset by this reimbursement. Celera Diagnostics has accumulated cash operating losses of approximately $148 million as of June 30, 2005. As an early stage business, Celera Genomics faces significant challenges in expanding its business operations into the discovery and development of therapeutic products. As a result, there is a high degree of uncertainty that Celera Genomics will be able to achieve profitable operations.
| | The marketing and distribution agreement with Applied Biosystems may not generate significant royalty payments. |
Applied Biosystems became the exclusive distributor of Celera Genomics’ human genomic and other biological and medical information under the terms of a marketing and distribution agreement that was effective in April 2002, the term of which was originally ten years but which was extended to 15 years in February 2005. Under the terms of that agreement, Applied Biosystems is obligated to pay a royalty to Celera Genomics based on sales of some products sold by Applied Biosystems on and after July 1, 2002. Applied Biosystems has not guaranteed any minimum royalty payments to Celera Genomics, and the actual amount of royalty payments to be paid to Celera Genomics depends on Applied Biosystems’ ability to successfully commercialize the products subject to the royalty. Applied Biosystems has not proven its ability to successfully commercialize these products, and sales of these products may not meet expectations. Such sales will depend on several factors that are not controlled by Celera Genomics, including general market conditions, customer acceptance, and the efforts of Applied Biosystems.
| | Celera Genomics’ ability to develop and commercialize proprietary therapeutic products is unproven and several of its programs rely on the use of novel discovery methods. |
As Celera Genomics expands its business operations in the area of therapeutic product discovery and development, it faces the difficulties inherent in developing and commercializing these products. It is possible that Celera Genomics’ discovery and development efforts will not result in any commercial products. Furthermore, Celera Genomics is seeking to identify novel methods of treating disease through the use of technology in the field of proteomics, the study of
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proteins. Celera Genomics is also seeking to capitalize on its relationship with Celera Diagnostics by incorporating novel findings arising from Celera Diagnostics’ disease association studies into its research. Celera Genomics is using the results of studies performed by Celera Diagnostics on its own behalf and also studies performed specifically for Celera Genomics. To our knowledge, neither of these approaches to therapeutic product discovery and development has to date been effectively used to develop a therapeutic product that has been commercialized, and therefore the potential benefit to Celera Genomics of its use of proteomics technology and Celera Diagnostics’ disease association studies is unknown. Also, Celera Diagnostics is not obligated to continue performing disease association studies on its own or on Celera Genomics’ behalf, and if Celera Diagnostics discontinues performing these studies Celera Genomics’ business and scientific plan could be adversely affected.
| | For some of Celera Genomics’ research and product development programs, particularly its proteomics efforts, Celera Genomics needs access to human and other tissue samples from diseased and healthy individuals, other biological materials, and related clinical and other information, which may be in limited supply. |
Celera Genomics may not be able to obtain or maintain access to these materials and information on acceptable terms, or may not be able to obtain needed consents from individuals providing tissue or other samples. In addition, government regulation in the U.S. and foreign countries could result in restricted access to, or use of, human and other tissue samples. If Celera Genomics loses access to sufficient numbers or sources of tissue samples or other required biological materials, or if tighter restrictions are imposed on the use of related clinical or other information or information generated from tissue samples or other biological materials, these research and development programs and Celera Genomics’ business could be adversely affected.
Therapeutic product candidates may never result in a commercialized product.
All of Celera Genomics’ therapeutic product candidates are in various stages of research and development and will require significant additional research and development efforts by Celera Genomics or its collaborators before they can be marketed. These efforts include extensive preclinical and clinical testing and lengthy regulatory review for approval by the U.S. Food and Drug Administration and comparable agencies in other countries. Celera Genomics’ development of therapeutic products is highly uncertain and subject to a number of significant risks. To date, Celera Genomics has not commercialized any therapeutic product and Celera Genomics does not expect any of its therapeutic product candidates to be commercially available for a number of years, if ever. Therapeutic product candidates that appear to be promising at early stages of development may not be developed into commercial products, or may not be successfully marketed, for a number of reasons, including:
| | • | Celera Genomics or its collaborators may not successfully complete research and development efforts; |
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| | • | Celera Genomics or its collaborators may not successfully build the necessary preclinical and clinical development organizations; |
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| • | any therapeutic product candidates that Celera Genomics or its collaborators develop may be found during preclinical testing or clinical trials to be ineffective or to cause harmful side effects; |
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| | • | Celera Genomics or its collaborators may fail to obtain required regulatory approvals for products they develop; |
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| | • | Celera Genomics or its collaborators may be unable to manufacture enough of any potential products at an acceptable cost and with appropriate quality; |
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| | • | Celera Genomics or its collaborators may fail to build necessary distribution channels; |
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| | • | Celera Genomics’ or its collaborators’ products may not be competitive with other existing or future products; |
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| | • | adequate reimbursement for Celera Genomics’ or its collaborators’ products may not be available to healthcare providers and patients from the government or insurance companies; and |
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| | • | Celera Genomics or its collaborators may be unable to obtain necessary intellectual property protection, or third parties may own proprietary rights that prevent Celera Genomics or its collaborators from commercializing their products. |
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| | If Celera Genomics fails to maintain its existing collaborative relationships and enter into new collaborative relationships, or if collaborators do not perform under collaboration agreements, development of its therapeutic product candidates could be delayed. |
Celera Genomics’ strategy for the discovery, development, clinical testing, manufacturing and/or commercialization of most of its therapeutic product candidates includes entering into collaborations with partners. Although Celera Genomics has expended, and continues to expend, time and money on internal research and development programs, it may be unsuccessful in creating therapeutic product candidates that would enable it to form additional collaborations and receive milestone and/or royalty payments from collaborators.
Each of Celera Genomics’ existing collaboration agreements may be canceled under some circumstances. In addition, the amount and timing of resources to be devoted to research, development, clinical trials and commercialization activities by Celera Genomics’ collaborators are not within Celera Genomics’ control. Celera Genomics cannot ensure that its collaborators will perform their obligations as expected. If any of Celera Genomics’ collaborators terminate their agreements or otherwise fail to conduct their collaborative activities in a timely manner, the development or commercialization of therapeutic products may be delayed or otherwise adversely affected. If in some cases Celera Genomics assumes responsibilities for continuing programs on its own after termination of a collaboration, Celera Genomics may be required to devote additional resources to product development and commercialization or Celera Genomics may need to cancel some development programs.
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| | If Celera Genomics or its collaborators fail to satisfy regulatory requirements for any therapeutic product candidate, Celera Genomics or its collaborators will be unable to complete the development and commercialization of that product. |
Celera Genomics is currently developing its internal capability to move potential products through clinical testing, manufacturing and the approval processes of the U.S. Food and Drug Administration, and comparable agencies in other countries. In the U.S., either Celera Genomics or its collaborators must show through pre-clinical studies and clinical trials that each of Celera Genomics’ or its collaborators’ therapeutic product candidates is safe and effective in humans for each indication before obtaining regulatory approval from the FDA for the commercial sale of that product. Outside of the U.S., the regulatory requirements for commercialization vary from country to country. If Celera Genomics or its collaborators fail to adequately show the safety and effectiveness of a therapeutic product, regulatory clearance or approval could be delayed or denied. The regulatory review and approval process can take many years and require substantial expense and may not be successful.
Even if Celera Genomics or its collaborators obtain regulatory clearance or approval for a particular therapeutic product, that product will be subject to risks and uncertainties relating to regulatory compliance, including post-approval clinical studies and inability to meet the compliance requirements of the FDA’s Good Manufacturing Practices regulations. In addition, identification of some adverse side effects after a therapeutic product is on the market or the occurrence of manufacturing problems could cause subsequent suspension of product manufacture or withdrawal of approval, or could require reformulation of a therapeutic product, additional testing, or changes in labeling of the product. This could delay or prevent Celera Genomics from generating revenues from the sale of that therapeutic product.
Clinical trials may not be successful.
Numerous unforeseen events during, or as a result of, clinical testing could delay or prevent commercialization of Celera Genomics’ or its collaborators’ therapeutic product candidates. Many companies in the pharmaceutical and biotechnology industries have suffered significant setbacks in advanced clinical trials, even after promising results in earlier studies. The results from pre-clinical studies may be different from the results that are obtained in clinical trials. Factors that could affect the success of clinical trials include:
| | • | Celera Genomics' or its collaborators’ product candidates may not prove to be efficacious or may cause unacceptable toxicity or other harmful side effects; |
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| | • | negative or inconclusive clinical trial results may require Celera Genomics or its collaborators to conduct further testing or to abandon projects that appeared promising in preliminary studies; |
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| | • | registration or enrollment of patients or other volunteer participants in Celera Genomics' or its collaborators’ clinical testing may be lower than anticipated, resulting in delay or cancellation of clinical testing; and |
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| | • | regulators or institutional review boards may prevent, delay, suspend, or terminate clinical research for various reasons, including noncompliance with regulatory requirements or their determination that participating patients or other volunteers are being exposed to unacceptable health risks. |
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If any of these events were to occur, significant delays in or termination of Celera Genomics' or its collaborators’ clinical testing may result. Celera Genomics has limited experience in conducting clinical trials and may not be able to rapidly or effectively continue the further development of its product candidates and meet current or future requirements, if any, identified by the U.S. Food and Drug Administration. Furthermore, clinical trials planned by Celera Genomics or its collaborators may not begin on time, may not be completed on schedule, or at all, or may not be sufficient for registration of the candidate compounds or to result in approvable products. Also, Celera Genomics' or its collaborators’ research and clinical testing of their therapeutic product candidates may be delayed or abandoned if they later discover other compounds that show significantly improved safety or efficacy compared to the current product candidates. Any of the foregoing events could limit Celera Genomics' ability to generate revenues, cause Celera Genomics to incur additional expenses, and adversely affect Celera Genomics' financial results.
Clinical trials may take several years or more and can be very expensive.
The length of time for clinical trials generally varies substantially according to the type, complexity, novelty, and intended use of a product candidate. The duration and costs of clinical trials may vary significantly over the life of a project as a result of factors relating to the trial, including, among others:
| | • | the number of patients or other volunteers that ultimately participate in the trial; |
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| | • | the duration of participant follow-up that is appropriate in view of the results; |
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| | • | the number of clinical sites included in the trials; and |
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| | • | the length of time required to enroll suitable participants. |
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Celera Genomics relies on other companies to conduct clinical trials.
Celera Genomics does not have the ability to independently conduct clinical trials for its therapeutic product candidates, and must rely on other companies, such as contract research organizations, medical institutions, clinical investigators, and contract laboratories to conduct clinical trials. If these other companies do not successfully perform their contractual duties or regulatory obligations or meet expected deadlines, if the other companies need to be replaced, or if the quality or accuracy of the data they obtain is compromised due to the failure to adhere to Celera Genomics' clinical protocols or regulatory requirements or for other reasons, Celera Genomics' product development activities and clinical trials may be extended, delayed, suspended, or terminated.
| | Celera Genomics’ relies on suppliers for materials needed to manufacture compounds for clinical trials. |
Celera Genomics relies on other companies to manufacture compounds that will be tested in Celera Genomics' clinical trials. These manufacturers need access to raw materials to manufacture those compounds, and Celera Genomics is responsible for obtaining some of these raw materials from suppliers. Suppliers may not sell these materials at the time when they are needed or on commercially reasonable terms. If it becomes necessary to change suppliers for any
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of these materials or if any of suppliers of these materials experience a shutdown or disruption in their facilities used to produce these materials, due to technical, regulatory, or other problems, it could adversely affect a manufacturer’s ability to manufacture adequate quantities of Celera Genomics' compounds. If Celera Genomics or its manufacturers are unable to obtain the materials needed for the manufacture of compounds used in Celera Genomics' clinical trials, product testing and potential regulatory approval could be delayed, adversely impacting Celera Genomics' ability to develop the product candidates.
Celera Genomics relies on other companies to manufacture its therapeutic product candidates.
Celera Genomics currently does not have manufacturing capabilities or experience necessary to produce materials for pre-clinical testing or clinical trials, including its cathepsin S compound in late pre-clinical development and its HDAC inhibitor in Phase I clinical trials. As a result, Celera Genomics must rely on other companies to produce Celera Genomics' compounds for pre-clinical testing and clinical trials. These manufacturers must comply with applicable regulatory requirements, including the U.S. Food and Drug Administration’s current Good Manufacturing Practices, or GMP, regulations. Celera Genomics' current and anticipated future dependence upon these manufacturers may adversely affect Celera Genomics' ability to develop and commercialize therapeutic products on a timely and competitive basis. These manufacturers may not be able to produce material on a timely basis or manufacture material at the quality level or in the quantity required to meet Celera Genomics' development timelines and applicable regulatory requirements, including the GMP regulations, other applicable FDA regulatory requirements, or similar regulations applicable outside of the U.S. Celera Genomics may not be able to maintain or renew its existing manufacturing arrangements, or enter into new arrangements, on a timely basis on commercially acceptable terms, or at all. Celera Genomics' manufacturers could terminate or decline to renew Celera Genomics' arrangements based on their own business priorities, at a time that is costly or inconvenient for Celera Genomics. If Celera Genomics is unable to contract on a timely basis for the production of materials in sufficient quantity and of sufficient quality on commercially acceptable terms, Celera Genomics' pre-clinical work or clinical trials may be delayed or prevented. Additionally, if Celera Genomics is required to enter into new manufacturing arrangements, it may not be able to obtain approval from the FDA of any alternate manufacturer in a timely manner, or at all, which could delay or prevent the clinical development and commercialization of any related product candidates.
Celera Genomics' collaborations with outside experts may be subject to restriction and change.
Celera Genomics collaborates with scientific and clinical experts at academic and other institutions that provide assistance and guidance to Celera Genomics' research and development efforts. These advisors and collaborators are not Celera Genomics' employees and may have other commitments that limit their availability to Celera Genomics. Although they generally agree not to do competing work, if a conflict of interest arises between their work for Celera Genomics and their work for another entity, Celera Genomics may lose the services of these experts. In addition, although Celera Genomics' advisors and collaborators sign agreements not to disclose Celera Genomics' confidential information, it is possible that valuable proprietary knowledge may become publicly known or otherwise available to other parties, including Celera Genomics’ competitors, through them.
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The pharmaceutical industry is intensely competitive and evolving.
There is intense competition among pharmaceutical and biotechnology companies attempting to discover candidates for potential new therapeutic products. These companies may:
| | • | develop new therapeutic products in advance of Celera Genomics or its collaborators; |
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| | • | develop therapeutic products which are more effective as therapeutics, or more cost-effective than those developed by Celera Genomics or its collaborators; |
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| | • | obtain regulatory approvals of their therapeutic products more rapidly than Celera Genomics or its collaborators; or |
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| | • | obtain patent protection or other intellectual property rights that would limit the ability of Celera Genomics or its collaborators to develop and commercialize therapeutic products. |
Introduction of new products may expose Celera Genomics to product liability claims.
New products developed by Celera Genomics or its collaborators could expose Celera Genomics to potential product liability risks that are inherent in the testing, manufacturing, marketing and sale of human therapeutic products. Product liability claims or product recalls, regardless of the ultimate outcome, could require Celera Genomics to spend significant time and money in litigation and to pay significant damages. Although Celera Genomics expects to seek and maintain product liability insurance to cover claims relating to the testing and use of therapeutic products, there can be no assurance that such insurance will be available on commercially reasonable terms, if at all, or that the amount of coverage obtained will be adequate to cover losses from any particular claim.
Therapeutics discovery and development is a highly technical field and there is a competitive market for personnel with the expertise needed for the expansion of Celera Genomics’ business operations within this field.
Celera Genomics believes that in order to develop and commercialize therapeutic products, it will need to continue to recruit and retain scientific and management personnel having specialized training and/or advanced degrees, or otherwise having the technical background, necessary for an understanding of therapeutic products. There is a shortage of qualified scientific and management personnel who possess this technical background. Celera Genomics competes for these personnel with other pharmaceutical and biotechnology companies, academic institutions and government entities. If Celera Genomics is unable to retain and attract qualified scientific and management personnel, the growth of the group’s business operations in the area of therapeutic product discovery and development could be delayed or curtailed.
Celera Genomics could incur liabilities relating to hazardous materials that it uses in its research and development activities.
Celera Genomics’ research and development activities involve the controlled use of potentially hazardous materials, including biological materials, chemicals, and various
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radioactive compounds. Celera Genomics cannot completely eliminate the risk of accidental or othercontamination or injury from these materials, and Celera Genomics could be held liable for resulting damages, which could be substantial. Under some laws and regulations, a party can be subject to “strict liability” for damages caused by some hazardous materials, which means that a party can be liable without regard to fault or negligence. In addition, Celera Genomics is subject to federal, state, local, and foreign laws, regulations, and permits governing the use, storage, handling, and disposal of hazardous materials and specified waste products. If Celera Genomics fails to comply with any of these laws, regulations, or permits, we could be subject to substantial fine or penalty, payment of remediation costs, loss of permits, and/or other adverse governmental action. Any of these events could have a material adverse effect on Celera Genomics’ business and financial condition.
Celera Genomics’ business depends on the continuous, effective, reliable, and secure operation of its computer hardware, software, and Internet applications and related tools and functions.
Celera Genomics’ business requires manipulating and analyzing large amounts of data, and communicating the results of the analysis to its internal research personnel via the Internet. Also, Celera Genomics relies on a global enterprise software system to operate and manage its business. Celera Genomics’ business therefore depends on the continuous, effective, reliable, and secure operation of its computer hardware, software, networks, Internet servers, and related infrastructure. To the extent that Celera Genomics’ hardware or software malfunctions or access to Celera Genomics’ data by Celera Genomics’ internal research personnel through the Internet is interrupted, the group’s business could suffer.
Celera Genomics’ computer and communications hardware is protected through physical and software safeguards. However, it is still vulnerable to fire, storm, flood, power loss, earthquakes, telecommunications failures, physical or software break-ins, software viruses, and similar events. If Celera Genomics fails to maintain and further develop the necessary computer capacity and data to support its therapeutic products discovery and development programs, it could experience a loss of or delay in revenues. In addition, any sustained disruption in Internet access provided by third parties could adversely affect Celera Genomics’ business.
Celera Genomics’ competitive position depends on maintaining its intellectual property protection.
Celera Genomics’ ability to compete and to achieve and maintain profitability depends, in part, on its ability to protect its proprietary discoveries and technologies through obtaining and enforcing patent rights, obtaining copyright protection, maintaining its trade secrets, and operating without infringing the intellectual property rights of others. Celera Genomics’ ability to obtain patent protection for the inventions it makes is uncertain. The patentability of biotechnology and pharmaceutical inventions involves complex factual, scientific, and legal questions. As a result, it is difficult to predict whether patents will issue or the breadth of claims that will be allowed in biotechnology and pharmaceutical patents. This may be particularly true with regard to the patenting of gene sequences, gene functions, and genetic variations. In this regard, the U.S. Patent and Trademark Office has adopted guidelines for use in the review of the utility of inventions, particularly biotechnology inventions. These guidelines increased the amount of evidence required to demonstrate utility in order to obtain a patent in the biotechnology field, making patent protection more difficult to obtain. Also, Celera Genomics cannot ensure that changes in policies or to laws, or interpretations of these policies or laws,
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relevant to the patenting of biotechnology and pharmaceutical inventions will not adversely affectits patent position in the U.S. or other countries. Opposition to the protection of these inventions in the U.S. or other countries could result in stricter standards for obtaining or enforcing biotechnology or pharmaceutical patent rights.
In some instances, patent applications in the U.S. are maintained in secrecy until a patent issues. In most instances, the content of U.S. and international patent applications is made available to the public approximately 18 months after the initial filing from which priority is claimed. As a result, Celera Genomics cannot be certain that others have not filed patent applications for inventions covered by Celera Genomics’ patent applications or that Celera Genomics inventors were the first to make the invention. Accordingly, Celera Genomics’ patent applications may be preempted or Celera Genomics may have to participate in interference proceedings before the U.S. Patent and Trademark Office. These proceedings determine the priority of invention and the right to a patent for the claimed invention in the U.S.
Celera Genomics may be dependent on protecting its proprietary databases through copyright law to prevent other organizations from taking information from those databases and copying and reselling it. Copyright law currently provides uncertain protection regarding the copying and resale of factual data. Changes in copyright law could either expand or reduce the extent to which Celera Genomics and its customers are able to protect their intellectual property. Accordingly, Celera Genomics is uncertain as to whether it can prevent such copying or resale through copyright law.
Celera Genomics also relies on trade secret protection for its confidential and proprietary information and procedures, including procedures related to sequencing genes and to searching and identifying important regions of genetic information. Celera Genomics protects its trade secrets through recognized practices, including access control, confidentiality and nonuse agreements with employees, consultants, collaborators and customers, and other security measures. These confidentiality and nonuse agreements may be breached, however, and Celera Genomics may not have adequate remedies for a breach. In addition, Celera Genomics’ trade secrets may otherwise become known or be independently developed by competitors. Accordingly, it is uncertain whether Celera Genomics’ reliance on trade secret protection will be adequate to safeguard its confidential and proprietary information and procedures.
Disputes may arise in the future with regard to the ownership of rights to any invention developed with collaborators. These and other possible disagreements with collaborators could lead to delays in the achievement of milestones or receipt of royalty payments or in research, development and commercialization of Celera Genomics’ products. In addition, these disputes could require or result in lawsuits or arbitration. Lawsuits and arbitration are time-consuming and expensive. Even if Celera Genomics wins, the cost of these proceedings could adversely affect its business, financial condition and operating results.
Celera Genomics may infringe the intellectual property rights of third parties, may become involved in expensive intellectual property legal proceedings, and may need to obtain licenses to intellectual property from others.
There has been substantial litigation and other legal proceedings regarding patents and other intellectual property rights in the biotechnology, pharmaceutical, and diagnostic industries. The intellectual property rights of biotechnology companies, including Celera Genomics, are generally uncertain and involve complex factual, scientific, and legal questions. Celera
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Genomics’ success in therapeutic product discovery and development may depend, in part, on itsability to operate without infringing the intellectual property rights of others and to prevent others from infringing its intellectual property rights.
Celera Genomics may initiate proceedings at the U.S. Patent and Trademark Office to determine its patent rights with respect to third parties, referred to as “interference proceedings.” Also, Celera Genomics may initiate patent litigation to enforce its patent rights or invalidate patents held by third parties. These legal actions may similarly be initiated against Celera Genomics by third parties alleging that Celera Genomics is infringing their rights. The cost to Celera Genomics of any patent litigation or proceedings, even if Celera Genomics is successful, could be substantial, and these legal actions may absorb significant management time. If infringement claims against Celera Genomics are resolved unfavorably to Celera Genomics, Celera Genomics may be enjoined from manufacturing or selling its products or services without a license from a third party, and Celera Genomics may not be able to obtain a license on commercially acceptable terms, or at all. Also, Celera Genomics could become subject to significant liabilities to third parties if these claims are resolved unfavorably to Celera Genomics.
Ethical, legal, and social issues related to the use of genetic information and genetic testing may cause less demand for Celera Genomics’ products.
Genetic testing has raised issues regarding confidentiality and the appropriate uses of the resulting information. For example, concerns have been expressed regarding the use of genetic test results by insurance carriers or employers to discriminate on the basis of this information, resulting in barriers to the acceptance of genetic tests by consumers. This could lead to governmental authorities calling for limits on or regulation of the use of genetic testing or prohibiting testing for genetic predisposition to some diseases, particularly those that have no known cure. Any of these scenarios could reduce the potential markets for products of Celera Genomics.
Celera Genomics may pursue acquisitions, investments, or other strategic relationships or alliances, which may consume significant resources, may be unsuccessful, and could dilute the holders of Applera-Celera Genomics stock.
Acquisitions, investments and other strategic relationships and alliances, if pursued, may involve significant cash expenditures, debt incurrence, additional operating losses, and expenses that could have a material effect on Celera Genomics’ financial condition and operating results. Acquisitions involve numerous other risks, including:
| | • | diversion of management from daily operations; |
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| | • | difficulties integrating acquired technologies and personnel into the business of Celera Genomics; |
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| | • | inability to obtain required financing on favorable terms; |
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| | • | entry into new markets in which Celera Genomics has little previous experience; |
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| | • | potential loss of key employees, key contractual relationships, or key customers of acquired companies or of Celera Genomics; and |
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| | • | assumption of the liabilities and exposure to unforeseen liabilities of acquired companies. |
If these types of transactions are pursued, it may be difficult for Celera Genomics to complete these transactions quickly and to integrate these acquired operations efficiently into its current business operations. Any acquisitions, investments or other strategic relationships and alliances by Celera Genomics may ultimately have a negative impact on its business and financial condition. In addition, future acquisitions may not be as successful as originally anticipated and may result in impairment charges. We have incurred these charges in recent years in relation to acquisitions. For example, we incurred charges for impairment of goodwill, intangibles and other assets and other charges in the amounts of $69.1 million during our 2001 fiscal year, $25.9 million during our 2002 fiscal year, and $4.5 million during our 2005 fiscal year in relation to Celera Genomics’ acquisition of Paracel, Inc. Similarly, we incurred charges for the impairment of patents and acquired technology in the amount of $14.9 million during our 2004 fiscal year in relation to Applied Biosystems’ acquisition of Boston Probes, Inc.
In addition, acquisitions and other transactions may involve the issuance of a substantial amount of Applera-Celera Genomics stock without the approval of the holders of Applera-Celera Genomics stock. Any issuances of this nature could be dilutive to holders of Applera-Celera Genomics stock.
Earthquakes could disrupt operations in California.
Celera Genomics has research and development and administrative facilities in South San Francisco, California. South San Francisco is located near major California earthquake faults. The ultimate impact of earthquakes on Celera Genomics, its significant suppliers, and the general infrastructure is unknown, but operating results could be materially affected in the event of a major earthquake.
Applera-Celera Genomics stock price may be volatile.
The market price of Applera-Celera Genomics stock has in the past been and may in the future be volatile due to the risks and uncertainties described in this section of this report, as well as other factors that may have affected or may in the future affect the market price, such as:
| | • | conditions and publicity regarding the genomics, biotechnology, pharmaceutical, or life sciences industries generally; |
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| | • | price and volume fluctuations in the stock market at large which do not relate to Celera Genomics’ operating performance; and |
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| | • | comments by securities analysts or government officials, including with regard to the viability or profitability of the biotechnology sector generally or with regard to intellectual property rights of life science companies, or Celera Genomics’ ability to meet market expectations. |
The stock market has from time to time experienced extreme price and volume fluctuations that are unrelated to the operating performance of particular companies. In the past, companies that have experienced volatility have sometimes been the subjects of securities class
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action litigation. If litigation was instituted on this basis, it could result in substantial costs and a diversion of management’s attention and resources.
| | Our company is subject to a class action lawsuit relating to its 2000 offering of shares of Applera-Celera Genomics stock that may be expensive and time consuming. |
Our company and some of our officers are defendants in a lawsuit brought on behalf of purchasers of Applera-Celera Genomics stock in our follow-on public offering of Applera-Celera Genomics stock completed on March 6, 2000. In the offering, we sold an aggregate of approximately 4.4 million shares of Applera-Celera Genomics stock at a public offering price of $225 per share. The lawsuit was commenced with the filing of several complaints in 2000, which have been consolidated into a single case which has been certified by the court as a class action. The consolidated complaint generally alleges that the prospectus used in connection with the offering was inaccurate or misleading because it failed to adequately disclose the alleged opposition of the Human Genome Project and two of its supporters, the governments of the U.S. and the U.K., to providing patent protection to our genomic-based products. Although Celera Genomics has never sought, or intended to seek, a patent on the basic human genome sequence data, the complaint also alleges that we did not adequately disclose the risk that Celera Genomics would not be able to patent this data. The consolidated complaint seeks unspecified monetary damages, rescission, costs and expenses, and other relief as the court deems proper. Although we believe the asserted claims are without merit and intend to defend the case vigorously, the outcome of this or any other litigation is inherently uncertain. The defense of this case will require management attention and resources.
| | Factors Relating to Celera Diagnostics, a 50/50 Joint Venture between Applied Biosystems and Celera Genomics |
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| | Celera Diagnostics’ ability to develop and commercialize proprietary diagnostic products is unproven. |
Celera Diagnostics faces the difficulties inherent in developing and commercializing diagnostic products. It is possible that Celera Diagnostics’ discovery and development efforts will not result in any new commercial products or services. In particular, Celera Diagnostics and its collaborators are seeking to develop new diagnostic products based on information derived from the study of the genetic material of organisms, or genomics. This method carries inherent risks, as only a limited number of diagnostic products based on genomic discoveries have been developed and commercialized to date.
| | Diagnostic product candidates may never result in a commercialized product. |
Most of Celera Diagnostics’ potential diagnostic products are in various stages of research and development and will require significant additional research and development efforts by Celera Diagnostics or its collaborators before they can be marketed. These efforts include extensive clinical testing and may require lengthy regulatory review and clearance or approval by the U.S. Food and Drug Administration and comparable agencies in other countries. Celera Diagnostics’ development of new diagnostic products is highly uncertain and subject to a number of significant risks. Diagnostic product candidates that appear to be promising at early stages of development may not be developed into commercial products, or may not be successfully marketed, for a number of reasons, including:
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| | • | Celera Diagnostics or its collaborators may not successfully complete research and development efforts; |
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| | • | any diagnostic products that Celera Diagnostics or its collaborators develop may be found during clinical trials to have limited medical value; |
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| | • | Celera Diagnostics or its collaborators may fail to obtain required regulatory clearances or approvals for products they develop; |
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| | • | Celera Diagnostics or its collaborators may be unable to manufacture enough of any potential products at an acceptable cost and with appropriate quality; |
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| | • | any diagnostic products Celera Diagnostics or its collaborators develop may not be competitive with other existing or future products; |
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| | • | adequate reimbursement for Celera Diagnostics’ and its collaborators’ products may not be available to physicians or patients from the government or insurance companies; and |
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| | • | Celera Diagnostics may be unable to obtain necessary intellectual property protection, or third parties may own proprietary rights that prevent Celera Diagnostics or its collaborators from commercializing their products. |
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| | If Celera Diagnostics or its collaborators fail to satisfy regulatory requirements for any diagnostic product candidate, they may be unable to complete the development and commercialization of that product. |
Celera Diagnostics is currently developing its capability to move potential products through clinical testing, manufacturing, and the approval processes of the U.S. Food and Drug Administration and comparable agencies in other countries. In the U.S., either Celera Diagnostics or its collaborators must show through pre-clinical studies and clinical trials that each of Celera Diagnostics’ or its collaborators’ diagnostic product candidates is safe and effective for each indication before obtaining regulatory clearance or approval from the FDA for the commercial sale of that product as anin-vitro diagnostic product with clinical claims. Outside of the U.S., the regulatory requirements vary from country to country. If Celera Diagnostics or its collaborators fail to adequately show the safety and effectiveness of a diagnostic product, regulatory clearance or approval could be delayed or denied. The results from pre-clinical studies may be different from the results that are obtained in clinical trials. Celera Diagnostics cannot be certain that it or its collaborators will show sufficient safety and effectiveness in its clinical trials to allow them to obtain the needed regulatory clearance or approval. The regulatory review and approval process can take many years and require substantial expense and may not be successful. A number of companies in the diagnostics industry, including biotechnology companies, have suffered significant setbacks in advanced clinical trials, even after promising results in earlier studies.
Even if Celera Diagnostics or its collaborators obtain regulatory clearance or approval for a product, that product will be subject to risks and uncertainties relating to regulatory compliance, including post-clearance or approval clinical studies and inability to meet the compliance requirements of the FDA’s Quality System Regulations, which relate to
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manufacturing ofdiagnostic products. In addition, the occurrence of manufacturing problems could cause subsequent suspension of product manufacture or withdrawal of clearance or approval, or could require reformulation of a diagnostic product, additional testing, or changes in labeling of the product. This could delay or prevent Celera Diagnostics from generating revenues from the sale of that diagnostic product.
| | Celera Diagnostics’ products may not be fully accepted by physicians and laboratories. |
Celera Diagnostics’ growth and success will depend on market acceptance by physicians and laboratories of its products as clinically useful and cost-effective. Celera Diagnostics expects that most of its products will use genotyping and gene expression information to predict predisposition to diseases, disease progression or severity, or responsiveness to treatment. Market acceptance will depend on the widespread acceptance and use by doctors and clinicians of genetic testing for these purposes. The use of genotyping and gene expression information by doctors and clinicians for these purposes is relatively new. Celera Diagnostics cannot be certain that doctors and clinicians will want to use its products designed for these purposes.
Even if genetic testing is accepted as a method to manage health care, Celera Diagnostics cannot be certain that its products will be accepted in the clinical diagnostic market. If genetic testing becomes widely accepted in the clinical diagnostic market, Celera Diagnostics cannot predict the extent to which doctors and clinicians may be willing to utilize Celera Diagnostics’ products in providing patient care. Doctors and clinicians may prefer competing technologies and products that can be used for the same purposes as Celera Diagnostics’ products.
| | Ethical, legal, and social issues related to the use of genetic information and genetic testing may cause less demand for Celera Diagnostics’ products. |
Genetic testing has raised issues regarding confidentiality and the appropriate uses of the resulting information. For example, concerns have been expressed regarding the use of genetic test results by insurance carriers or employers to discriminate on the basis of this information, resulting in barriers to the acceptance of genetic tests by consumers. This could lead to governmental authorities calling for limits on or regulation of the use of genetic testing or prohibiting testing for genetic predisposition to some diseases, particularly those that have no known cure. Any of these scenarios could reduce the potential markets for products of Celera Diagnostics.
| | If insurance companies and other third-party payors do not reimburse doctors and patients for Celera Diagnostics’ tests, its ability to sell its products to the clinical diagnostics market will be impaired. |
Sales of Celera Diagnostics’ products will depend, in large part, on the availability of adequate reimbursement to users of those products from government insurance plans, including Medicare and Medicaid in the U.S., managed care organizations, and private insurance plans. Physicians’ recommendations to use diagnostic tests, as well as decisions by patients to pursue those tests, are likely to be influenced by the availability of reimbursement by insurance companies and other third party payors. Third-party payors are increasingly attempting to contain health care costs by limiting both the extent of coverage and the reimbursement rate for testing and treatment products and services. In particular, products and services that are
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determined to be investigational in nature or that are not considered “reasonably necessary” for diagnosis or treatment may be denied reimbursement coverage. In addition, third-party payors are increasingly limiting reimbursement coverage for medical diagnostic products and, in many instances, are exerting pressure on medical suppliers to reduce their prices. Thus, third-party reimbursement may not be consistently available or financially adequate to cover the cost of Celera Diagnostics’ products. This could limit the ability of Celera Diagnostics to sell its products, cause Celera Diagnostics to reduce the prices of its products, or otherwise adversely affect Celera Diagnostics’ operating results.
Because each third-party payor individually approves reimbursement, obtaining these approvals is a time-consuming and costly process that requires Celera Diagnostics to provide scientific and clinical support for the use of each of its products to each payor separately with no assurance that such approval will be obtained. This process can delay the broad market introduction of new products and could have a negative effect on Celera Diagnostics’ revenues and operating results.
| | If Celera Diagnostics fails to maintain its existing collaborative relationships and enter into new collaborative relationships, or if collaborators do not perform under collaboration agreements, development of its diagnostic products could be delayed. |
Celera Diagnostics’ strategy for the discovery, development, clinical testing, manufacturing and commercialization of most of its diagnostic product candidates includes entering into collaborations with partners. Although Celera Diagnostics has expended, and continues to expend, time and money on internal research and development programs, it may be unsuccessful in creating diagnostic product candidates that would enable it to form additional collaborations. Celera Diagnostics cannot ensure that its collaborators will perform their obligations as expected. If any of Celera Diagnostics’ collaborators terminate or elect to cancel their agreements or otherwise fail to conduct their collaborative activities in a timely manner, the development or commercialization of diagnostics products may be delayed or otherwise adversely affected. If in some cases Celera Diagnostics assumes responsibilities for continuing programs on its own after termination of a collaboration, Celera Diagnostics may be required to devote additional resources to product development and commercialization or Celera Diagnostics may need to cancel some development programs.
Celera Diagnostics has entered into a strategic alliance agreement with Abbott Laboratories for the joint discovery, development, manufacturing, and commercialization of nucleic acid-based diagnostic products. Although this is a long-term alliance, the alliance agreement contains provisions that could result in early termination for reasons that include the following: breach by either company; a change in control of either company; either company’s dissatisfaction with the performance of the alliance according to specific timelines for such judgments set forth in the alliance agreement; or by either company if the other party fails to meet performance criteria applicable to the other party set forth in the alliance agreement. In addition, the amount and timing of resources to be devoted to research, development, eventual clinical trials and commercialization activities by Abbott are not within Celera Diagnostics’ control. Future strategic alliances, if any, with other third parties are likely to be subject to similar terms and conditions.
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Celera Diagnostics does not have a sales and service capability in the clinical diagnostic market.
Celera Diagnostics currently does not have a sales and service organization. Accordingly, its ability to successfully sell its products will depend on its ability to either develop a sales and service organization, work with Abbott Laboratories under the existing alliance agreement, work with another distributor, or pursue a combination of these alternatives. In jurisdictions where Celera Diagnostics uses third party distributors, its success will depend to a great extent on the efforts of the distributors.
Celera Diagnostics has limited manufacturing capability and may encounter difficulties expanding Celera Diagnostics’ operations.
Celera Diagnostics has limited commercial manufacturing experience and capabilities. If product sales increase, Celera Diagnostics will have to increase the capacity of its manufacturing processes and facilities or rely on its collaborators, if any. Celera Diagnostics may encounter difficulties in scaling-up manufacturing processes and may be unsuccessful in overcoming such difficulties. In such circumstances, Celera Diagnostics’ ability to meet product demand may be impaired or delayed.
Celera Diagnostics’ facilities are subject, on an ongoing basis, to the FDA’s Quality System Regulations, international quality standards and other regulatory requirements, including requirements for good manufacturing practices and the State of California Department of Health Services Food and Drug Branch requirements. Celera Diagnostics may encounter difficulties expanding Celera Diagnostics’ manufacturing operations in accordance with these regulations and standards, which could result in a delay or termination of manufacturing or an inability to meet product demand.
Celera Diagnostics’ manufacturing operations are located in a facility in Alameda, California. Celera Diagnostics expects to operate its manufacturing out of this facility for the foreseeable future, and it does not have alternative production plans in place or alternative facilities available should its existing manufacturing facility cease to function. Accordingly, Celera Diagnostics’ business could be adversely affected by unexpected interruptions in manufacturing caused by events such as labor problems, equipment failures, or other factors, and the resulting inability to meet customer orders on a timely basis.
Celera Diagnostics’ research and product development depends on access to tissue and blood samples from diseased and healthy individuals, other biological materials, and related clinical and other information, which may be in limited supply.
Celera Diagnostics may not be able to obtain or maintain access to these materials and information on acceptable terms, or may not be able to obtain needed consents from individuals providing tissue or blood samples. In addition, government regulation in the U.S. and foreign countries could result in restricted access to, or use of, human tissue or blood samples. If Celera Diagnostics loses access to sufficient numbers or sources of tissue or blood samples, or if tighter restrictions are imposed on its use of the information generated from tissue or blood samples, its business may be harmed.
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Single suppliers or a limited number of suppliers provide key components of Celera Diagnostics’ products. If these suppliers fail to supply these components, Celera Diagnostics may be unable to satisfy product demand.
Several key components of Celera Diagnostics’ products come from, or are manufactured for Celera Diagnostics by, a single supplier or a limited number of suppliers. This applies in particular to components such as enzymes, florescent dyes, phosphoramadites, and oligonucleotides. Celera Diagnostics acquires some of these and other key components on a purchase-order basis, meaning that the supplier is not required to supply Celera Diagnostics with specified quantities over any set period of time or set aside part of its inventory for Celera Diagnostics’ forecasted requirements. Celera Diagnostics has not arranged for alternative supply sources for some of these components and it may be difficult to find alternative suppliers, especially to replace enzymes and oligonucleotides. Furthermore, in order to maintain compliance with Quality System Regulations, Celera Diagnostics must verify that its suppliers of key components are in compliance with all applicable U.S. Food and Drug Administration regulations. Celera Diagnostics believes that compliance with these regulatory requirements would increase the difficulty in arranging for needed alternative supply sources, particularly for components that are from “single source” suppliers, which means that they are currently the only supplier of custom-ordered components. If Celera Diagnostics’ product sales increase beyond the forecast levels, or if its suppliers are unable or unwilling to supply it on commercially acceptable terms or comply with regulations applicable to manufacturing of Celera Diagnostics’ products, it may not have access to sufficient quantities of key components on a timely basis and may be unable to satisfy product demand.
In addition, if any of the components of Celera Diagnostics’ products are no longer available in the marketplace, it may be forced to further develop its products or technology to incorporate alternate components. The incorporation of new components into its products may require Celera Diagnostics to seek clearances or approvals from the FDA or foreign regulatory agencies prior to commercialization.
Celera Diagnostics’ operations involve the use, manufacture, sale, and distribution of hazardous materials, and the mishandling of these hazardous materials could result in substantial liabilities and harm to Celera Diagnostics.
Celera Diagnostics’ research and development and manufacturing activities involve the controlled use of potentially hazardous materials, including biological materials and chemicals. Also, some of Celera Diagnostics’ products, including products sold through its strategic alliance with Abbott Laboratories, are hazardous materials or include hazardous materials. Celera Diagnostics cannot completely eliminate the risk of accidental or other contamination or injury from these materials, and Celera Diagnostics could be held liable for resulting damages, which could be substantial. Under some laws and regulations, a party can be subject to “strict liability” for damages caused by some hazardous materials, which means that a party can be liable without regard to fault or negligence. Furthermore, Celera Diagnostics could be held indirectly responsible for contamination or injury arising from the conduct of Abbott Laboratories in manufacturing, selling, or distributing alliance products. In addition, Celera Diagnostics is subject to federal, state, local, and foreign laws, regulations, and permits governing the use, storage, handling, and disposal of hazardous materials and specified waste products, as well as the shipment and labeling of materials and products containing hazardous materials. If Celera Diagnostics fails to comply with any of these laws, regulations, or permits, or if Celera Diagnostics is held indirectly responsible for conduct of Abbott Laboratories found to be non-
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compliant, we could be subject to substantial fine or penalty, payment of remediation costs, loss of permits, and/or other adverse governmental action. Similar consequences could arise if Celera Diagnostics is held indirectly responsible for conduct of Abbott Laboratories found to be non-compliant. Any of these events could have a material adverse effect on Celera Diagnostics’ business and financial condition.
Celera Diagnostics’ business depends on the continuous, effective, reliable, and secure operation of its computer hardware, software, and Internet applications and related tools and functions.
Celera Diagnostics’ business requires manipulating and analyzing large amounts of data, and communicating the results of the analysis to its internal research personnel and to its collaborators via the Internet. Also, Celera Diagnostics relies on a global enterprise software system to operate and manage its business. Celera Diagnostics’ business therefore depends on the continuous, effective, reliable, and secure operation of its computer hardware, software, networks, Internet servers, and related infrastructure. To the extent that Celera Diagnostics’ hardware or software malfunctions or access to Celera Diagnostics’ data by Celera Diagnostics’ internal research personnel or collaborators through the Internet is interrupted, its business could suffer.
Celera Diagnostics’ computer and communications hardware is protected through physical and software safeguards. However, it is still vulnerable to fire, storm, flood, power loss, earthquakes, telecommunications failures, physical or software break-ins, software viruses, and similar events. If Celera Diagnostics fails to maintain and further develop the necessary computer capacity and data to support its computational needs, its diagnostic product discovery and research efforts, and Celera Genomics’ and its collaborators’ therapeutic products discovery and research efforts, it could experience a loss of or delay in revenues. In addition, any sustained disruption in Internet access provided by third parties could adversely affect Celera Diagnostics’ business.
Celera Diagnostics’ competitive position depends on maintaining its intellectual property protection.
Celera Diagnostics’ ability to compete and to achieve and maintain profitability depends, in part, on its ability to protect its proprietary discoveries and technologies through obtaining and enforcing patent rights, maintaining its trade secrets, and operating without infringing the intellectual property rights of others. Celera Diagnostics’ ability to obtain patent protection for the inventions it makes is uncertain. The patentability of biotechnology inventions involves complex factual, scientific, and legal questions. As a result, it is difficult to predict whether patents will issue or the breadth of claims that will be allowed in biotechnology and pharmaceutical patents. This may be particularly true with regard to the patenting of gene sequences, gene functions, and genetic variations. In this regard, the U.S. Patent and Trademark Office has adopted guidelines for use in the review of the utility of inventions, particularly biotechnology inventions. These guidelines increased the amount of evidence required to demonstrate utility in order to obtain a patent in the biotechnology field, making patent protection more difficult to obtain. Also, Celera Diagnostics cannot ensure that changes in policies or to laws, or interpretations of these policies or laws, relevant to the patenting of biotechnology inventions will not adversely affect its patent position in the U.S. or other countries. Opposition to the protection of these inventions in the U.S. or other countries could result in stricter standards for obtaining or enforcing biotechnology patent rights.
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In some instances, patent applications in the U.S. are maintained in secrecy until a patent issues. In most instances, the content of U.S. and international patent applications is made available to the public approximately 18 months after the initial filing from which priority is claimed. As a result, Celera Diagnostics cannot be certain that others have not filed patent applications for inventions covered by Celera Diagnostics’ patent applications or that Celera Diagnostics inventors were the first to make the invention. Accordingly, Celera Diagnostics’ patent applications may be preempted or Celera Diagnostics may have to participate in interference proceedings before the U.S. Patent and Trademark Office. These proceedings determine the priority of invention and the right to a patent for the claimed invention in the U.S.
Celera Diagnostics also relies on trade secret protection for its confidential and proprietary information and procedures. Celera Diagnostics protects its trade secrets through recognized practices, including access control, confidentiality and nonuse agreements with employees, consultants, collaborators and customers, and other security measures. These confidentiality and nonuse agreements may be breached, however, and Celera Diagnostics may not have adequate remedies for a breach. In addition, Celera Diagnostics’ trade secrets may otherwise become known or be independently developed by competitors. Accordingly, it is uncertain whether Celera Diagnostics’ reliance on trade secret protection will be adequate to safeguard its confidential and proprietary information and procedures.
Disputes may arise in the future with regard to the ownership of rights to any invention developed with collaborators. These and other possible disagreements with collaborators could lead to delays in the achievement of milestones or receipt of royalty payments or in research, development, and commercialization of Celera Diagnostics’ products. In addition, these disputes could require or result in lawsuits or arbitration. Lawsuits and arbitration are time-consuming and expensive. Even if Celera Diagnostics wins, the cost of these proceedings could adversely affect its business, financial condition and operating results.
Celera Diagnostics may infringe the intellectual property rights of third parties, may become involved in expensive intellectual property legal proceedings, and may need to obtain licenses to intellectual property from others.
There has been substantial litigation and other legal proceedings regarding patents and other intellectual property rights in the biotechnology, pharmaceutical, and diagnostic industries. The intellectual property rights of biotechnology companies, including Celera Diagnostics, are generally uncertain and involve complex factual, scientific, and legal questions. Celera Diagnostics’ success in diagnostic discovery and development may depend, in part, on its ability to operate without infringing the intellectual property rights of others and to prevent others from infringing its intellectual property rights.
Celera Diagnostics may initiate proceedings at the U.S. Patent and Trademark Office to determine its patent rights with respect to third parties, referred to as interference proceedings. Also, Celera Diagnostics may initiate patent litigation to enforce its patent rights or invalidate patents held by third parties. These legal actions may similarly be initiated against Celera Diagnostics by third parties alleging that Celera Diagnostics is infringing their rights. For example, Genetic Technologies Limited has filed a lawsuit against us alleging that we are infringing two of its patents due to the sale of cystic fibrosis reagent kits. This case is described in further detail above in Part I, Item 3 of this report under the heading “Legal Proceedings–Commercial Litigation.” The cost to Celera Diagnostics of any patent litigation or proceedings,
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even if Celera Diagnostics is successful, could be substantial, and these legal actions may absorb significant management time. If infringement claims against Celera Diagnostics are resolved unfavorably to Celera Diagnostics, Celera Diagnostics may be enjoined from manufacturing or selling its products or services without a license from a third party, and Celera Diagnostics may not be able to obtain a license on commercially acceptable terms, or at all. Also, Celera Diagnostics could become subject to significant liabilities to third parties if these claims are resolved unfavorably to Celera Diagnostics. Similarly, contractual disputes related to existing license rights under third party patents may affect Celera Diagnostics’ ability to develop, manufacture, and sell its products.
Introduction of new products may expose Celera Diagnostics to product liability claims.
New products developed by Celera Diagnostics or its collaborators could expose Celera Diagnostics to potential product liability risks that are inherent in the testing, manufacturing, marketing, and sale of human diagnostic products. In addition, clinicians, patients, third-party payors, and others may at times seek damages based on testing or analysis errors based on a technician’s misreading of results, mishandling of the patient samples, or similar claims. Product liability claims or product recalls, regardless of the ultimate outcome, could require Celera Diagnostics to spend significant time and money in litigation and to pay significant damages. Although Celera Diagnostics expects to seek and maintain product liability insurance to cover claims relating to the testing and use of diagnostic products, there can be no assurance that such insurance will be available on commercially reasonable terms, if at all, or that the amount of coverage obtained will be adequate to cover losses from any particular claim.
The diagnostics industry is intensely competitive and evolving.
There is intense competition among health care, biotechnology, and diagnostic companies attempting to discover candidates for potential new diagnostic products. These companies may:
| | • | develop new diagnostic products in advance of Celera Diagnostics or its collaborators; |
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| | • | develop diagnostic products which are more effective or more cost-effective than those developed by Celera Diagnostics or its collaborators; |
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| | • | obtain regulatory clearances or approvals of their diagnostic products more rapidly than Celera Diagnostics or its collaborators; or |
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| | • | obtain patent protection or other intellectual property rights that would limit Celera Diagnostics’ or its collaborators’ ability to develop and commercialize, or their customers’ ability to use, Celera Diagnostics’ or its collaborators’ diagnostic products. |
Celera Diagnostics competes with companies in the U.S. and abroad that are engaged in the development and commercialization of products and services that provide genetic information. These companies may develop products that are competitive with the products offered by Celera Diagnostics or its collaborators, such as analyte specific reagents or diagnostic test kits that perform the same or similar purposes as Celera Diagnostics’ or its collaborators’
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products. Also, clinical laboratories may offer testing services that are competitive with the products sold by Celera Diagnostics or its collaborators. For example, a clinical laboratory can use either reagents purchased from manufacturers other than Celera Diagnostics, or use their own internally developed reagents, to make diagnostic tests. If clinical laboratories make tests in this manner for a particular disease, they could offer testing services for that disease as an alternative to products sold by Celera Diagnostics used to test for the same disease. The testing services offered by clinical laboratories may be easier to develop and market than test kits developed by Celera Diagnostics or its collaborators because the testing services are not subject to the same clinical validation requirements that are applicable to FDA-cleared or approved diagnostic test kits. The diagnostic testing services market is dominated by a small number of large clinical testing laboratories, including Laboratory Corporation of America Holdings, Quest Diagnostics Inc., and Specialty Laboratories, Inc.
Also, a substantial portion of all sales of diagnostic products are made to a small number of clinical reference laboratories, including those identified above, and therefore Celera Diagnostics expects to rely on these laboratories for a substantial portion of its sales. Celera Diagnostics’ inability to establish or maintain one or more of these laboratories as a customer could adversely affect its business, financial condition, and operating results.
Earthquakes could disrupt operations in California.
The headquarters and operations of Celera Diagnostics are located in Alameda, California. Alameda is located near major California earthquake faults. The ultimate impact of earthquakes on Celera Diagnostics, its significant suppliers, and the general infrastructure is unknown, but operating results could be materially affected in the event of a major earthquake.
Risks Relating to a Capital Structure with Two Separate Classes of Common Stock
Stockholders of Applera Corporation are stockholders of one company and, therefore, financial effects on one group could adversely affect the other.
Applied Biosystems and Celera Genomics are not separate legal entities. As a result, stockholders will continue to be subject to all of the risks of an investment in Applera Corporation, including Applied Biosystems and Celera Genomics. The risks and uncertainties that may affect the operations, performance, development, and results of the businesses of Applied Biosystems and Celera Genomics are described above. The assets attributed to one group could be subject to the liabilities of the other group, even if these 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 attributed to it, we may be required to satisfy those liabilities with assets 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 preferred stock will reduce the funds we can pay as dividends on each class of common stock under Delaware law. For these reasons, stockholders should read the consolidated financial information with the financial information we provide for each group.
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The market price of either class of our common stock may not reflect the separate performance of the group related to that common stock.
The market price of Applera-Applied Biosystems stock and Applera-Celera Genomics stock may not reflect the separate performance of the business of the group relating to that class of common stock. The market price of either class of common stock could simply reflect our performance as a whole, or the market price of either class of common stock could move independently of the performance of the business of either group. Investors may discount the value of either class of common stock because it is part of a common enterprise rather than a stand-alone company.
The market price of either class of our common stock may be affected by factors that do not affect traditional common stock.
| | • | The complex nature of the terms of Applera-Applied Biosystems stock and Applera-Celera Genomics stock may adversely affect the market price of either class of common stock. The complex nature of the terms of the two classes of common stock, such as the convertibility of Applera-Applied Biosystems stock into Applera-Celera Genomics stock, or vice versa, and the potential difficulties investors may have understanding these terms, may adversely affect the market price of either class of common stock. |
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| | • | The market price of Applera-Applied Biosystems stock or Applera-Celera Genomics stock may be adversely affected by the fact that holders have limited legal interests in the group relating to the class of common stock held as a separate legal entity. For example, as described in greater detail in the subsequent risk factors, holders of either class of common stock generally do not have separate class voting rights with respect to significant matters affecting either group. In addition, upon our liquidation or dissolution, holders of either class of common stock will not have specific rights to the assets of the group relating to the class of common stock held and will not be entitled to receive proceeds that are proportional to the relative performance of that group. |
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| | • | The market price of Applera-Applied Biosystems stock or Applera-Celera Genomics stock may be adversely affected by events involving the group relating to the other class of common stock or the performance of the class of common stock relating to that group. Events, such as earnings announcements or other developments concerning one group that the market does not view favorably and which thus adversely affect the market price of the class of common stock relating to that group, may adversely affect the market price of the class of common stock relating to the other group. Because both classes of common stock are common stock of Applera Corporation, an adverse market reaction to one class of common stock may, by association, cause an adverse reaction to the other class of common stock. This reaction may occur even if the triggering event was not material to us as a whole. |
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| | Limits exist on the voting power of group common stock. |
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| | • | Applera-Celera Genomics stock may not have any influence on the outcome of stockholder voting.Applera-Applied Biosystems stock currently has a substantial majority of the voting power of our common stock and had approximately82% of |
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| | | the voting power as of September 1, 2005, the record date for our 2005 annual meeting of stockholders. Except in limited circumstances where there is separate class voting, the relative voting power of the two classes of common stock fluctuates based on their relative market values. Therefore, except in cases of separate class voting, either class of common stock that is entitled to more than the number of votes required to approve any stockholder action could control the outcome of the vote even if the matter involves a divergence or conflict of the interests of the holders of Applera-Applied Biosystems stock and Applera-Celera Genomics stock. These matters may include mergers and other extraordinary transactions. |
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| | • | A class of group common stock with less than majority voting power can block action if a class vote is required. If Delaware law, stock exchange rules, or our Board of Directors requires a separate vote on a matter by the holders of either Applera-Applied Biosystems stock or Applera-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. As a result, in cases where holders of Applera-Applied Biosystems stock or Applera-Celera Genomics stock vote as separate classes on a proposal, the affirmative vote of shares representing a majority of one class of common stock will not prevent the holders of the other class of common stock from defeating the proposal. |
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| | • | Holders of only one class of common stock cannot ensure that their voting power will be sufficient to protect their interests. Since the relative voting power per share of Applera-Applied Biosystems stock and Applera-Celera Genomics stock will fluctuate based on the market values of the two classes of common stock, the relative voting power of a class of common stock could decrease. As a result, holders of shares of only one of the two classes of common stock cannot ensure that their voting power will be sufficient to protect their interests. |
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| | • | Stockholders of either class of common stock will not have some of the stockholder rights traditionally associated with common stock. Neither Applied Biosystems nor Celera Genomics will have a separate board of directors to represent solely the interests of either class of common stock as holders of that class. Consequently, there will be no board of directors that owes any separate duties to holders of one class of common stock as holders of that class. Our Board of Directors will act in accordance with its good faith business judgment of our best interests, taking into consideration the interests of all common stockholders regardless of class or series, which may be detrimental to holders of one class of common stock as holders of that class. |
Stockholders may not have any remedies for breach of fiduciary duties if any action by directors or officers has a disadvantageous effect on either class of common stock.
Stockholders may not have any remedies if any action or decision of our Board of Directors or officers has a disadvantageous effect on Applera-Applied Biosystems stock or Applera-Celera Genomics stock compared to the other class of common stock. Cases in Delaware involving tracking stocks have established that decisions by directors or officers involving differing treatment of tracking stocks are judged under the principle known as the
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“business judgment rule” unless self-interest is shown.
In addition, principles of Delaware law established in cases involving differing treatment of two classes of common stock or two groups of holders of the same class of common stock provide that a board of directors owes an equal duty to all stockholders regardless of class or series. Absent abuse of discretion, a good faith business decision made by a disinterested and adequately informed Applera Corporation Board of Directors, Board of Directors’ committee, or officer with respect to any matter having different effects on holders of Applera-Applied Biosystems stock and holders of Applera-Celera Genomics stock would be a defense to any challenge to the determination made by or on behalf of the holders of either class of common stock.
Stock ownership could cause directors and officers to favor one group over the other.
As a policy, our Board of Directors periodically monitors the ownership of shares of Applera-Applied Biosystems stock and Applera-Celera Genomics stock by our directors and senior officers as well as their option holdings and other benefits so that their interests are not misaligned with the two classes of common stock and with their duty to act in the best interests of us and our stockholders as a whole. However, because the actual stock market value of their interests in Applera-Applied Biosystems stock and Applera-Celera Genomics stock could vary significantly, it is possible that they could favor one group over the other as a result of their common stock holdings, options and other benefits. As of August 19, 2005, our directors and executive officers held shares of Applera-Applied Biosystems stock and Applera-Celera Genomics stock representing approximately equal percentages of the total shares outstanding of Applera-Applied Biosystems stock and Applera-Celera Genomics stock. The stock market value of these shares will vary with fluctuations in the market price of Applera-Applied Biosystems stock and Applera-Celera Genomics stock. However, the market capitalization of Applied Biosystems is substantially greater than that of Celera Genomics and, therefore, the market value of Applera-Applied Biosystems stock held by our directors and senior officers was significantly higher than the market value of Applera-Celera Genomics stock held by them on that date.
Numerous potential conflicts of interest exist between the classes of common stock that may be difficult to resolve by our Board of Directors or that may be resolved adversely to one of the classes.
| | • | Allocation of corporate opportunities could favor one group over the other. Our Board of Directors may be required to allocate corporate opportunities between Applied Biosystems and Celera Genomics. In some cases, our directors could determine that a corporate opportunity, such as a business that we are acquiring or a new business, should be shared by the groups or be allocated to one group over the other. Any decisions could favor one group to the detriment of the other. |
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| | • | Applied Biosystems and Celera Genomics may compete with each other to the detriment of their businesses. The existence of two separate classes of common stock will not prevent Applied Biosystems and Celera Genomics from competing with each other. Any competition between Applied Biosystems and Celera Genomics could be detrimental to the businesses of either or both of the groups. Under a Board of Directors’ policy, the groups will generally not engage in the principal businesses of the other, except for joint transactions with each other. |
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| | | However, our Chief Executive Officer or Board of Directors will permit indirect competition between the groups, such as one group doing business with a competitor of the other group, based on his or its good faith business judgment that the competition is in our best interests and the best interests of all of our stockholders as a whole. In addition, the groups may compete in a business that is not a principal business of the other group. |
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| | • | Our Board of Directors may pay more or less dividends on group common stock than if that group were a separate company.Subject to the limitations referred to below, our Board of Directors has the authority to declare and pay dividends on Applera-Applied Biosystems stock and Applera-Celera Genomics stock in any amount and could, in its sole discretion, declare and pay dividends exclusively on Applera-Applied Biosystems stock, exclusively on Applera-Celera Genomics stock, or on both, in equal or unequal amounts. Our Board of Directors is not required to consider the amount of dividends previously declared on each class, the respective voting or liquidation rights of each class, or any other factor. The performance of one group may cause our Board of Directors to pay more or less dividends on the common stock relating to the other group than if that other group were a stand-alone company. In addition, Delaware law and our certificate of incorporation impose limitations on the amount of dividends that may be paid on each class of common stock. |
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| | • | Proceeds of mergers or consolidations may be allocated unfavorably. Our Board of Directors will determine how consideration to be received by holders of common stock in connection with a merger or consolidation involving us is to be allocated among holders of each class of common stock. This percentage may be materially more or less than that which might have been allocated to the holders had our Board of Directors chosen a different method of allocation. |
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| | • | Holders of either class of common stock may be adversely affected by a conversion of group common stock.Our Board of Directors could, in its sole discretion and without stockholder approval, determine to convert shares of Applera-Applied Biosystems stock into shares of Applera-Celera Genomics stock, or vice versa, at any time, including when either or both classes of common stock may be considered to be overvalued or undervalued. If our Board of Directors chose to issue Applera-Celera Genomics stock in exchange for Applera-Applied Biosystems stock, or vice versa, the conversion would dilute the interests in us of the holders of the class of common stock being issued in the conversion. If our Board of Directors were to choose to issue Applera-Celera Genomics stock in exchange for Applera-Applied Biosystems stock, or vice versa, the conversion could give holders of shares of the class of common stock being converted a greater or lesser premium than any premium that was paid or might be paid by a third-party buyer of all or substantially all of the assets of the group whose stock is converted. |
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| | • | Cash proceeds of newly issued Applera-Celera Genomics stock in the future could be allocated to Applied Biosystems.If and to the extent Applied Biosystems holds “Celera Genomics Designated Shares” at the time of any future sale of Applera-Celera Genomics stock, our Board of Directors could allocate some or all of the proceeds of that sale to Applied Biosystems in consideration of a reduction in the number of these shares. Celera Genomics Designated Shares are a type of |
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| | | authorized shares of Applera-Celera Genomics stock. Any decision could favor one group over the other group. For example, the decision to allocate the proceeds of that sale to Applied Biosystems could adversely affect Celera Genomics’ ability to obtain funds to finance its growth strategies. Applied Biosystems does not hold any Celera Genomics Designated Shares as of the date of this report. Celera Genomics Designated Shares could be issued in the future if our Board of Directors determines that Celera Genomics requires additional capital to finance its business and that Applied Biosystems should supply that capital. |
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| | Our Board of Directors may change its management and allocation policies without stockholder approval to the detriment of either group. |
Our Board of Directors may modify or rescind our policies with respect to the allocation of corporate overhead, taxes, debt, interest, and other matters, or may adopt additional policies, in its sole discretion without stockholder approval. A decision to modify or rescind these policies, or adopt additional policies, could have different effects on holders of Applera-Applied Biosystems stock and holders of Applera-Celera Genomics stock or could result in a benefit or detriment to one class of stockholders compared to the other class. Our Board of Directors will make any decision in accordance with its good faith business judgment that the decision is in our best interests and the best interests of all of our stockholders as a whole.
| | Either Applied Biosystems or Celera Genomics may finance the other group on terms unfavorable to either group. |
From time to time, we anticipate that we will transfer cash and other property between groups to finance their business activities. When this occurs, the group providing the financing will be subject to the risks relating to the group receiving the financing. We will account for those transfers in one of the following ways:
| | • | as a reallocation of pooled debt or preferred stock; |
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| | • | as a short-term or long-term loan between groups or as a repayment of a previous borrowing; |
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| | • | as an increase or decrease in Celera Genomics Designated Shares; or |
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| | • | as a sale of assets between groups. |
Our Board of Directors has not adopted specific criteria for determining when it will account for the transfer of cash or other property as a reallocation of pooled debt or preferred stock, a loan or repayment, an increase or decrease in Celera Genomics Designated Shares, or a sale of assets. These determinations, including the terms of any transactions accounted for as debt, may be unfavorable to either the group transferring or receiving the cash or other property. Our Board of Directors expects to make these determinations, either in specific instances or by setting generally applicable policies, after considering the financing requirements and objectives of the receiving group, the investment objectives of the transferring group, and the availability, cost, and time associated with alternative financing sources, prevailing interest rates, and general economic conditions.
We cannot assure stockholders that any terms that we fix for debt will approximate those that could have been obtained by the borrowing group if it were a stand-alone company.
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| | Celera Genomics could incur a higher tax liability than if it were a stand-alone taxpayer. |
Our tax allocation policy provides that some tax benefits that cannot be used by the group generating those benefits but can be used on a consolidated basis are to be transferred, without reimbursement, to the group that can use the benefits. Any tax benefits that are transferred from Celera Genomics to Applied Biosystems will not be carried forward to reduce Celera Genomics’ future tax liability. As a result of this policy, Celera Genomics generated tax benefits of $28.1 million in our 2003 fiscal year, $12.3 million in our 2004 fiscal year, and $51.1 million in our 2005 fiscal year that were utilized by Applied Biosystems with no reimbursement to Celera Genomics. This and future use by Applied Biosystems, without reimbursement, of tax benefits generated by Celera Genomics could result in Celera Genomics paying a greater portion of the total corporate tax liability over time than would have been the case if Celera Genomics were a stand-alone taxpayer.
| | Holders of group common stock may receive less consideration upon a sale of assets than if the group were a separate company. |
Our certificate of incorporation provides that if a disposition of all or substantially all of the assets of either group occurs, we must, subject to some exceptions:
| | • | distribute to holders of the class of common stock relating to that group an amount equal to the net proceeds of such disposition; or |
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| | • | convert at a 10% premium the common stock relating to that group 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, some of the costs of that disposition, including corporate level taxes, might not be payable in connection with that acquisition. As a result, if the group subject to the disposition were a stand-alone company, stockholders of that group might receive a greater amount than the net proceeds that would be received by those stockholders if the assets of that group were sold and the proceeds distributed to those stockholders. In addition, we cannot assure stockholders 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 that common stock prior to or after announcement of a disposition.
| | Our capital structure and variable vote per share may discourage acquisitions of a group or a class of common stock. |
A potential acquirer could acquire control of us by acquiring shares of common stock having a majority of the voting power of all shares of common stock outstanding. This 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 the voting power, only shares of that class since the relative aggregate voting power of the two classes of common stock fluctuates based on their relative aggregate market values. Currently, Applera-Applied Biosystems stock has a substantial majority of the voting power. As a result, it might be possible for an acquirer to obtain control by purchasing only shares of Applera-Applied Biosystems stock.
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| | Decisions by our Board of Directors and officers that affect market values could adversely affect voting and conversion rights. |
The relative voting power per share of each class of common stock and the number of shares of one class of common stock issuable upon the conversion of the other class of common stock will vary depending upon the relative market values of Applera-Applied Biosystems stock and Applera-Celera Genomics stock. The market value of either or both classes of common stock could be adversely affected by market reaction to decisions by our Board of Directors or management that investors perceive as affecting 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.
| | Provisions governing common stock could discourage a change of control and the payment of a premium for stockholders’ shares. |
Our stockholder rights plan could prevent stockholders from profiting from an increase in the market value of their shares as a result of a change in control of us by delaying or preventing a change in control. The existence of two classes of common stock could also present complexities and may pose obstacles, financial and otherwise, to an acquiring person. In addition, provisions of Delaware law and our certificate of incorporation and bylaws may also deter hostile takeover attempts.
| Item 6. | Selected Financial Data |
We incorporate herein by reference pages 19 and 20 of our 2005 Annual Report.
| Item 7. | Management's Discussion and Analysis of Financial Condition and Results of Operations |
We incorporate herein by reference pages 21 through 46 of our 2005 Annual Report.
| Item 7A. | Quantitative and Qualitative Disclosures about Market Risk |
We incorporate herein by reference page 44 of our 2005 Annual Report.
| Item 8. | Financial Statements and Supplementary Data |
The following financial statements and the supplementary financial information included in our 2005 Annual Report are incorporated herein by reference: the Consolidated Financial Statements and the report thereon of PricewaterhouseCoopers LLP dated August 31, 2005, on pages 47 through 92 of our 2005 Annual Report, including Note 11, page 76, which contains unaudited quarterly financial information.
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| Item 9. | Changes in and Disagreements with Accountants on Accounting and Financial Disclosure |
| Item 9A. | Controls and Procedures |
Disclosure Controls and Procedures
We are responsible for maintaining adequate disclosure controls and procedures as defined by the Securities and Exchange Commission in its Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934. Generally, these are controls and procedures designed to ensure that the information required to be disclosed in the reports that we file or submit under the Securities Exchange Act is recorded, processed, summarized, and reported within the time periods specified in the SEC’s rules and forms. Our management, with the participation of our Chief Executive Officer and Chief Financial Officer, evaluated the effectiveness of these disclosure controls and procedures as of the end of our 2005 fiscal year, the period covered by this report. Based on that evaluation, our Chief Executive Officer and Chief Financial Officer have concluded that our disclosure controls and procedures are effective to achieve their stated purpose. However, there is no assurance that our disclosure controls and procedures will operate effectively under all circumstances.
Internal Control Over Financial Reporting
General.We are responsible for establishing and maintaining adequate internal control over financial reporting. Internal control over financial reporting is defined by the Securities and Exchange Commission in its Rules 13a-15(f) and 15d-15(f) under the Securities Exchange Act of 1934. Generally, internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements.
Management’s Report on Internal Control Over Financial Reporting.Our management, with the participation of our Chief Executive Officer and Chief Financial Officer, evaluated the effectiveness of our internal control over financial reporting as of the end of our 2005 fiscal year, the period covered by this report. The report of our management on internal control over financial reporting, based on this evaluation, appears on page 91 of our 2005 Annual Report. The management report is incorporated into this report by reference.
Attestation Report of our Registered Public Accounting Firm.The report of our independent registered public accounting firm on our management’s assessment of the effectiveness of our internal control over financial reporting appears on page 92 of our 2005 Annual Report. The attestation report is incorporated into this report by reference.
Changes in Internal Control Over Financial Reporting.Based on our management’s review of internal control over financial reporting as described above, we have determined that no changes were made to our internal control over financial reporting during the fourth fiscal
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quarterof our 2005 fiscal year that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
| Item 9B. | Other Information |
PART III
| Item 10. | Directors and Executive Officers of the Registrant |
Identification and Business Experience of Directors
With respect to the identification and business experience of our directors and persons nominated to become directors, we incorporate herein by reference the information contained in pages 24–26 of our 2005 Proxy Statement under the heading “Proposal 1–Election of Directors.”
Identification and Business Experience of Executive Officers
The following is a list of our executive officers, identifying as of September 8, 2005, their: ages; corporate offices presently held and year first elected to those offices; and other positions currently held.
| Name | Age | Present Corporate Offices (Year First Elected) | Other Positions Currently Held |
| Robert F.G. Booth, Ph.D. | 51 | Vice President (2002) | Chief Scientific Officer, Celera Genomics Group |
| Catherine M. Burzik | 54 | Senior Vice President, and President, Applied Biosystems Group (2004) | Not applicable |
| Ugo D. DeBlasi | 43 | Vice President and Controller (2003) | Not applicable |
| Dennis A. Gilbert, Ph.D. | 47 | Vice President (2004) | Vice President-Research and Chief Scientific Officer, Applied Biosystems |
| Barbara J. Kerr | 59 | Vice President, Human Resources (2000) | Not applicable |
| Sandeep Nayyar | 45 | Assistant Controller (2002) | Vice President, Finance, Applied Biosystems Group |
| Kathy P. Ordoñez | 54 | Senior Vice President, and President, Celera Genomics Group and Celera Diagnostics (2002) | Not applicable |
| William B. Sawch | 50 | Senior Vice President (1997) and General Counsel (1993) | Not applicable |
| Tony L. White | 59 | Chairman, President, and Chief Executive Officer (1995) | Not applicable |
| Dennis L. Winger | 57 | Senior Vice President and Chief Financial Officer (1997) | Not applicable |
Each of the executive officers identified above was most recently elected to the corporate offices identified above by our Board of Directors in August 2005. The term of each officer will continue until their successors have been duly elected or, if earlier, their death, resignation, or removal. Each of the executive officers has been employed by us or a subsidiary in one or more
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executive or managerial capacities for at least the past five years, with the exception of Dr. Booth, Ms. Burzik, Dr. Gilbert, Mr. Nayyar, and Ms. Ordoñez.
Dr. Booth was elected Vice President on August 15, 2002. Prior to our employment of him in August 2002, Dr. Booth was employed by Hoffmann-La Roche, a leading international healthcare company, where he held a series of executive positions over 13 years, including most recently as Senior Vice President responsible for all research and early development of inflammatory, viral, respiratory, and bone disease products from January 1996 to August 2002.
Ms. Burzik was first elected as Vice President on September 2, 2003, and was elected to her current position of Senior Vice President, and President, Applied Biosystems Group, on August 20, 2004. Prior to our employment of her in September 2003, she was employed by Johnson & Johnson, a leading international provider of health care products, where she was President of its Ortho-Clinical Diagnostics, Inc. subsidiary from 1998 to 2003, and General Manager of its Critikon, Inc. business from 1997 to 1998. Prior to that, Ms. Burzik was employed by Eastman Kodak Company, a leading international provider of imaging products and services, where she held various operations and marketing positions over 20 years. These positions included most recently Vice President, Corporate Marketing from 1996 to 1997, and Chief Executive Officer and President of its former subsidiary Kodak Health Imaging Systems, Inc.
Dr. Gilbert was elected Vice President on November 18, 2004. Dr. Gilbert was first employed by us in 1994 as a research scientist, and since then he has held positions of increasing responsibility at Applera, including most recently Vice President, Advanced Research and Technology at Applied Biosystems. Prior to that he held various other management positions within Applera businesses, including Vice President, Genomics Applications at Applied Biosystems and Vice President, Gene Discovery at Celera Genomics.
Mr. Nayyar was elected Assistant Controller on April 5, 2002. Prior to our employment of him in October 2001, Mr. Nayyar was employed by Quantum Corporation, a data storage company, where he was Vice President of Finance for the Hard Disk Drive Group from 2000 to 2001, Vice President, Finance for the High-end Storage Division from 1998 to 2000, Director of Finance for the Corporate Finance Group from 1997 to 1998, and Controller for the High Capacity Storage Group from 1994 to 1997.
Ms. Ordoñez was first elected to serve as a corporate officer on December 1, 2000, and was elected to her current position of Senior Vice President, and President, Celera Genomics Group and Celera Diagnostics on August 15, 2002. Prior to our employment of her in December 2000, Ms. Ordoñez was employed by Hoffmann-La Roche, a leading international healthcare company, where she was President and Chief Executive Officer of Roche Molecular Systems from 1991 to 2000.
Family Relationships
To the best of our knowledge and belief, there is no family relationship between any of our directors, executive officers, or persons nominated or chosen by us to become a director or an executive officer.
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Involvement in Certain Legal Proceedings
To the best of our knowledge and belief, none of our directors, persons nominated to become directors, or executive officers has been involved in any proceedings during the past five years that are material to an evaluation of the ability or integrity of such persons to be our directors or executive officers.
Audit Committee and Audit Committee Financial Expert
We have a separately designated standing audit committee established in accordance with Section 3(a)(58)(A) of the Securities Exchange Act of 1934. We have named that committee our “Audit/Finance Committee.” The members of that committee as of the date of this report are Richard H. Ayers, Robert H. Hayes (co-chair), Theodore E. Martin, and James R. Tobin (co-chair). Our Board of Directors has determined that our Audit/Finance Committee has three “audit committee financial experts” as that term has been defined by the Securities and Exchange Commission in Item 401(h) of its Regulation S-K, constituting all members of the Committee except Robert H. Hayes. The designation of members of our Audit/Finance Committee as “audit committee financial experts” does not impose on those members any duties, obligations, or liabilities that are greater than are generally imposed on them as members of our Audit/Finance Committee and Board of Directors, and does not affect the duties, obligations, or liabilities of any other member of our Audit/Finance Committee or Board of Directors. All of the members of our Audit/Finance Committee, including those that our Board of Directors have determined are audit committee financial experts, are “independent” as that term has been defined by the SEC in Item 7(d)(3)(iv) of Schedule 14A. Additional information regarding our Audit/Finance Committee is incorporated by reference to the information contained in pages 4 and 5 of our 2005 Proxy Statement under the heading “Board of Directors and Committees–Board Committees–Audit/Finance Committee.”
Recommendation of Nominees to our Board of Directors
Information concerning our procedures by which security holders may recommend nominees to our Board of Directors is incorporated herein by reference to the information contained in pages 5 and 6 of our 2005 Proxy Statement under the heading “Board of Directors and Committees–Board Committees–Nominating/Corporate Governance Committee.”
Section 16(a) Beneficial Ownership Reporting Compliance
Information concerning compliance with Section 16(a) of the Securities Exchange Act of 1934 is incorporated herein by reference to the information contained in page 11 of our 2005 Proxy Statement under the heading “Ownership of Company Stock–Section 16(a) Beneficial Ownership Reporting Compliance.”
Code of Ethics
We have adopted a code of ethics that applies to our officers, directors, and employees. Our code of ethics, which we refer to as our “Code of Business Conduct and Ethics,” was designed to comply with the definition of “code of ethics” adopted by the Securities and Exchange Commission as applicable to our Chief Executive Officer (our principal executive officer), our Chief Financial Officer (our principal financial officer), and our Controller (our principal accounting officer). This definition is contained in Item 406(b) of the SEC’s
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Back to ContentsRegulation S-K. Our code of ethics was also designed to meet the code of business conduct and ethics requirements promulgated by the New York Stock Exchange, which requirements are set forth in Section 303A.10 of the NYSE Listed Company Manual.
Our Code of Business Conduct and Ethics is posted on our Applera, Applied Biosystems, and Celera Genomics Internet websites. Also, we intend to post any amendments to or waivers from the code that are applicable to our officers or directors on these Internet websites as required to satisfy SEC and New York Stock Exchange disclosure requirements applicable to amendments and waivers. This information can be accessed on our websites free of charge as described in Part I of this report on pages 2 and 3 under the heading “Business–Company Overview–Available Information.” In addition, you can obtain this information free of charge by calling our corporate Secretary at 203-840-2000 or by making a request in writing mailed to: Applera Corporation, Attention: Secretary, Applera Corporation, 301 Merritt 7, P.O. Box 5435, Norwalk, CT 06856-5435.
| Item 11. | Executive Compensation |
We incorporate herein by reference the information contained in pages 12–23 of our 2005 Proxy Statement under the heading “Executive Compensation.”
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| Item 12. | Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters |
Securities Authorized for Issuance Under Equity Compensation Plans
The following table provides information about shares of Applera common stock that may be issued under our equity compensation plans, including compensation plans that were approved by our stockholders as well as compensation plans that were not approved by our stockholders. Information in the table is as of the end of our 2005 fiscal year.
| | | | | | | Number of shares | |
| remaining available |
| for future issuance |
| Number of shares to be | Weighted-average | under equity |
| issued upon exercise of | exercise price of | compensation plans |
| outstanding options, | outstanding options, | (excluding securities |
| warrants, and rights | warrants, and rights | reflected in column (a)) |
| Plan Category | (a) | (b) | (c) |
| |
| |
| |
| |
Applera-Applied
Biosystems stock | | | | | | | |
Equity compensation
plans approved by stockholders | | 35,479,9221 | | $30.9027 | | 12,637,5232 | |
Equity compensation
plans not approved by
stockholders | | 03 | | | | | |
| Total | | 35,479,922 | | $30.9027 | | 12,637,523 | |
Applera-Celera Genomics stock | | | | | | | |
Equity compensation
plans approved by stockholders | | 10,254, 9524 | | $18.8438 | | 7,279,6915 | |
Equity compensation
plans not approved by
stockholders | | 77,6166,7 | | $27.6148 | | 581,4967 | |
| Total | | 10, 332,568 | | $18.9096 | | 7,861,187 | |
| | | | | | | | |
| | | | | | | |
| 1 | Represents shares of Applera-Applied Biosystems stock issuable upon the exercise of options outstanding under the following equity compensation plans: The Perkin-Elmer Corporation 1993 Stock Incentive Plan for Key Employees; The Perkin-Elmer Corporation 1996 Stock Incentive Plan; The Perkin-Elmer Corporation 1997 Stock Incentive Plan; and The Perkin-Elmer Corporation 1998 Stock Incentive Plan (collectively, the “Frozen Applera Equity Plans”); and the Applera Corporation/Applied Biosystems Group Amended and Restated 1999 Stock Incentive Plan. |
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| 2 | Represents shares of Applera-Applied Biosystems stock issuable pursuant to options and other rights authorized for future issuance under the Applera Corporation/Applied Biosystems Group Amended and Restated 1999 Stock Incentive Plan and the Applera Corporation 1999 Employee Stock Purchase Plan. Also includes 194,858 shares of Applera-Applied Biosystems stock remaining available for future issuance under the Applera Corporation 1993 Director Stock Purchase and Deferred Compensation Plan. |
| | |
| 3 | As of the end of our 2005 fiscal year, options to purchase 66,494 shares of Applera-Applied Biosystems stock were outstanding under the following equity compensation plans: the Molecular Informatics, Inc. 1997 Equity Ownership Plan; the PerSeptive Biosystems 1992 Stock Plan; and the PerSeptive Biosystems 1997 Non-Qualified Stock Option Plan. These options were assumed in connection with merger and acquisition transactions. The weighted-average exercise price of these options as of such date was $8.1846. No new options or other rights to equity compensation will be issued under these equity compensation plans, and the options outstanding under these equity compensation plans are not reflected in the table above. |
| | |
| 4 | Represents shares of Applera-Celera Genomics stock issuable upon the exercise of options outstanding under the Frozen Applera Equity Plans and the Applera Corporation/Celera Genomics Group Amended and Restated 1999 Stock Incentive Plan. |
| | |
| 5 | Represents shares of Applera-Celera Genomics stock issuable pursuant to options and other rights authorized for future issuance under the Applera Corporation/Celera Genomics Group Amended and Restated 1999 Stock Incentive Plan and the Applera Corporation 1999 Employee Stock Purchase Plan. Also includes 43,208 shares of Applera-Celera Genomics stock remaining available for future issuance under the Applera Corporation 1993 Director Stock Purchase and Deferred Compensation Plan. |
| | |
| 6 | As of the end of our 2005 fiscal year, options to purchase 214,182 shares of Applera-Celera Genomics stock were outstanding under the following equity compensation plans: the Molecular Informatics, Inc. 1997 Equity Ownership Plan; the Axys Pharmaceuticals, Inc. 1989 Stock Plan; the Axys Pharmaceuticals, Inc. 1997 Equity Incentive Plan; the Axys Pharmaceuticals, Inc. 1997 Non-Officer Equity Incentive Plan; the PerSeptive Biosystems 1992 Stock Plan; the PerSeptive Biosystems 1997 Non-Qualified Stock Option Plan; and the Paracel, Inc. Stock Option Plan. These options were assumed in connection with merger and acquisition transactions. The weighted average exercise price of these options as of such date was $24.6228. No new options or other rights to equity compensation will be issued under these equity compensation plans, and the options outstanding under these equity compensation plans are not reflected in the table above, except for the Axys Pharmaceuticals, Inc. 1997 Equity Incentive Plan. |
| | |
| 7 | Represents shares of Applera-Celera Genomics stock issuable pursuant to options outstanding under the Axys Pharmaceuticals, Inc. 1997 Equity Incentive Plan, and shares of Applera-Celera Genomics stock issuable pursuant to options and other rights authorized for future issuance under that plan. |
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The following is a description of the material features of our equity compensation plans that were not approved by our stockholders:
Molecular Informatics, Inc. 1997 Equity Ownership Plan.We assumed this plan in connection with the acquisition of Molecular Informatics, Inc. No new options or other rights to equity compensation will be issued under this plan. As of the end of our 2005 fiscal year, there were options to purchase 5,544 shares of Applera-Applied Biosystems stock and 2,004 shares of Applera-Celera Genomics stock outstanding under this plan. The last of these options that were issued are scheduled to terminate in July 2007.
PerSeptive Biosystems 1992 Stock Plan.We assumed this plan in connection with the acquisition of PerSeptive Biosystems, Inc. No new options or other rights to equity compensation will be issued under this plan. As of the end of our 2005 fiscal year, there were options to purchase 56,334 shares of Applera-Applied Biosystems stock and 18,072 shares of Applera-Celera Genomics stock outstanding under this plan. The last of these options that were issued are scheduled to terminate in July 2007.
PerSeptive Biosystems 1997 Non-Qualified Stock Option Plan.We assumed this plan in connection with the acquisition of PerSeptive Biosystems, Inc. No new options or other rights to equity compensation will be issued under this plan. As of the end of our 2005 fiscal year, there were options to purchase 4,616 shares of Applera-Applied Biosystems stock and 578 shares of Applera-Celera Genomics stock outstanding under this plan. The last of these options that were issued are scheduled to terminate in August 2007.
Paracel, Inc. Stock Option Plan.We assumed this plan in connection with the acquisition of Paracel, Inc. No new options or other rights to equity compensation will be issued under this plan. As of the end of our 2005 fiscal year, there were options to purchase 23,915 shares of Applera-Celera Genomics stock outstanding under this plan. The last of these options that were issued are scheduled to terminate in February 2007.
Axys Pharmaceuticals, Inc. 1989 Stock Plan.We assumed this plan in connection with the acquisition of Axys Pharmaceuticals, Inc. No new options or other rights to equity compensation will be issued under this plan. As of the end of our 2005 fiscal year, there were options to purchase 35,288 shares of Applera-Celera Genomics stock outstanding under this plan. The last of these options that were issued are scheduled to terminate in May 2009.
Axys Pharmaceuticals, Inc. 1997 Equity Incentive Plan.We assumed this plan in connection with the acquisition of Axys Pharmaceuticals, Inc. As of the end of our 2005 fiscal year, there were options to purchase 77,616 shares of Applera-Celera Genomics stock outstanding under this plan. The last of these options that were issued are scheduled to terminate in November 2011. 581,496 shares of Applera-Celera Genomics stock are authorized for future issuance as equity compensation under this plan pursuant to stock options, stock awards, and stock purchase awards. Employees and directors of and consultants to Axys Pharmaceuticals, one of our a wholly owned subsidiaries, and its affiliates are generally eligible for the grant of equity compensation under this plan. The exercise price, vesting period, and all other terms and conditions of each option granted under this plan will be determined by our Management Resources Committee, except that the exercise price may not be less than the fair market value on the date of grant, and the term of each option may not be more than 10 years. Stock awards and stock purchase awards under this plan may be subject to such restrictions as may be determined by the Committee and may be subject to repurchase rights in favor of the Company. Stock purchase awards under this plan may
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not have a purchase price less than the fair market value on the date of the award. This plan expires in November 2007, after which no equity compensation may be issued under this plan.
Axys Pharmaceuticals, Inc. 1997 Non-Officer Equity Incentive Plan.We assumed this plan in connection with the acquisition of Axys Pharmaceuticals, Inc. No new options or other rights to equity compensation will be issued under this plan. As of the end of our 2005 fiscal year, there were options to purchase 56,709 shares of Applera-Celera Genomics stock outstanding under this plan. The last of these options that were issued are scheduled to terminate in October 2011.
Security Ownership of Certain Beneficial Owners
Information concerning the security ownership of certain beneficial owners is incorporated herein by reference to the information contained in page 9 of our 2005 Proxy Statement under the heading “Ownership of Company Stock–Greater than 5% Beneficial Owners.”
Security Ownership of Management
Information concerning the security ownership of management is incorporated herein by reference to the information contained in pages 10 and 11 of our 2005 Proxy Statement under the heading “Ownership of Company Stock–Directors and Executive Officers.”
Changes in Control
We know of no arrangements, including any pledge by any person of our securities, the operation of which may at a subsequent date result in a change in control of Applera.
| Item 13. | Certain Relationships and Related Transactions |
Information concerning certain relationships and related transactions is incorporated herein by reference to the information contained in pages 21–23 of our 2005 Proxy Statement under the heading “Executive Compensation–Employment Agreements and Other Relationships.”
| Item 14. | Principal Accountant Fees and Services |
Information concerning fees billed by PricewaterhouseCoopers LLP, our independent registered public accounting firm, during our 2004 and 2005 fiscal years, and information concerning the pre-approval policies and procedures of the Audit/Finance Committee of our Board of Directors, is incorporated herein by reference to the information contained in pages 26 and 27 of our 2005 Proxy Statement under the heading “Proposal 2–Ratification of the Selection of Independent Registered Public Accounting Firm.”
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PART IV
| Item 15. | Exhibits and Financial Statement Schedules |
Financial Statements
The following financial statements, together with the report thereon of PricewaterhouseCoopers LLP dated August 31, 2005, appearing in our 2005 Annual Report, are incorporated by reference in this report. With the exception of the aforementioned information and that which is specifically incorporated in Parts I and II of this report, our 2005 Annual Report is not to be deemed filed as part of this report.
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Financial Statement Schedule
The following additional financial data should be read in conjunction with the consolidated financial statements in our 2005 Annual Report. Schedules not included with this additional financial data have been omitted because they are not applicable or the required information is shown in the consolidated financial statements or notes thereto.
| | 10-K Page No. |
| |
|
| Report of Independent Registered PublicAccounting Firm on Financial StatementSchedule | 121 |
| | |
| Schedule II – Valuation and QualifyingAccounts and Reserves | 122 |
| Exhibits | |
| | |
| Exhibit | |
| No. | |
| |
| 2.1 | Agreement and Plan of Merger dated March 10, 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 (incorporated by reference to Exhibit 2.1 to our Registration Statement on Form S-4 (No. 333-67797)). |
| | |
| 3.1.1 | Restated Certificate of Incorporation of Applera (incorporated by reference to Exhibit 3(i) to our Quarterly Report on Form 10-Q for the fiscal quarter ended December 31, 2000 (Commission file number 1-4389)). |
| | |
| 3.1.2 | Certificate of Designations of Series A Participating Junior Preferred Stock and Series B Participating Junior Preferred Stock (incorporated by reference to Exhibit A to Exhibit 4.1 to our Registration Statement on Form S-4 (No. 333-67797)). |
| | |
| 3.2 | By-laws of Applera (incorporated by reference to Exhibit 3.2 to our Registration Statement on Form S-4 (No. 333-67797)). |
| | |
| 4.1 | Stockholder Protection Rights Agreement dated as of April 28, 1999, between Applera and BankBoston, N.A. (incorporated by reference to Exhibit 4.1 to our Registration Statement on Form S-4 (No. 333-67797)). |
| | |
| 4.2 | Amendment to Rights Agreement dated as of April 17, 2002, among BankBoston, N.A., EquiServe Trust Company, N.A., and Applera (incorporated by reference to Exhibit 4.2 to our Annual Report on Form 10-K for the fiscal year ended June 30, 2002 (Commission file number 1-4389)). |
| | |
| 4.3 | Credit Agreement dated as of April 15, 2005, among Applera, the initial lenders named therein, Citigroup Global Markets Inc., as sole arranger, JPMorgan Chase Bank, N.A., as syndication agent, Bank of America, N.A. and ABN AMRO Bank N.V., as co-documentation agents, and Citibank, N.A., as administrative agent (incorporated by reference to Exhibit 4.1 to our Current Report on Form 8-K dated April 15, 2005, and filed April 20, 2005 (Commission file number 1-4389)). |
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| 10.1 | The Perkin-Elmer Corporation 1993 Stock Incentive Plan for Key Employees (incorporated by reference to Exhibit 99 to our Registration Statement on Form S-8 (No. 33-50847)).* |
| | |
| 10.2.1 | The Perkin-Elmer Corporation 1996 Stock Incentive Plan (incorporated by reference to Exhibit 99 to our Registration Statement on Form S-8 (No. 333-15189)).* |
| | |
| 10.2.2 | Form of Non-Qualified Stock Option Agreement for executive officers pursuant to The Perkin-Elmer Corporation 1996 Stock Incentive Plan.* |
| | |
| 10.2.3 | Form of Incentive Stock Option Agreement for executive officers pursuant to The Perkin-Elmer Corporation 1996 Stock Incentive Plan.* |
| | |
| 10.2.4 | Form of Director Stock Option Agreement pursuant to The Perkin-Elmer Corporation 1996 Stock Incentive Plan.* |
| | |
| 10.3 | The Perkin-Elmer Corporation 1996 Employee Stock Purchase Plan, as amended October 15, 1998 (incorporated by reference to Exhibit A to our Proxy Statement for our 1998 Annual Meeting of Stockholders (Commission file number 1-4389)).* |
| | |
| 10.4.1 | The Perkin-Elmer Corporation 1997 Stock Incentive Plan (incorporated by reference to Exhibit 99 to our Registration Statement on Form S-8 (No. 333-38713)).* |
| | |
| 10.4.2 | Form of Non-Qualified Stock Option Agreement for executive officers pursuant to The Perkin-Elmer Corporation 1997 Stock Incentive Plan.* |
| | |
| 10.5.1 | The Perkin-Elmer Corporation 1998 Stock Incentive Plan (incorporated by reference to Exhibit B to our Proxy Statement for our 1998 Annual Meeting of Stockholders (Commission file number 1-4389)).* |
| | |
| 10.5.2 | Form of Director Stock Option Agreement pursuant to The Perkin-Elmer Corporation 1998 Stock Incentive Plan.* |
| | |
| 10.6 | Applera Corporation 1999 Employee Stock Purchase Plan, as amended October 21, 2004 (incorporated by reference to Annex A to Schedule 14A, filed September 17, 2004, containing our definitive Proxy Statement for our 2004 Annual Meeting of Stockholders (Commission file number 1-4389)).* |
| | |
| 10.7.1 | Applera Corporation/Applied Biosystems Group 1999 Stock Incentive Plan, as amended through August 21, 2003 (incorporated by reference to Exhibit 10.7 to our Annual Report on Form 10-K for the fiscal year ended June 30, 2003 (Commission file number 1-4389)).* |
| | |
| 10.7.2 | Form of Non-Qualified Stock Option Agreement for executive officers pursuant to the Applera Corporation/Applied Biosystems Group 1999 Stock Incentive Plan.* |
| | |
| 10.7.3 | Form of Incentive Stock Option Agreement for executive officers pursuant to the Applera Corporation/Applied Biosystems Group 1999 Stock Incentive Plan.* |
| | |
| 10.7.4 | Forms of Stock Option Agreements for executive officers pursuant to the Applera Corporation/Applied Biosystems Group 1999 Stock Incentive Plan, relating to non-qualified options issued in conjunction with awards under the Applera Corporation Performance Unit Bonus Plan.* |
| | |
| 10.7.5 | Form of Employee Stock Award Agreement for executive officers pursuant to the Applera Corporation/Applied Biosystems Group 1999 Stock Incentive Plan.* |
| | |
| 10.7.6 | Form of Director Stock Option Agreement pursuant to the Applera Corporation/Applied Biosystems Group 1999 Stock Incentive Plan.* |
| | |
| 10.7.7 | Forms of Performance Stock Option Agreements for executive officers pursuant to the Applera Corporation/Applied Biosystems Group 1999 Stock Incentive Plan.* |
| | |
| 10.7.8 | Form of Performance Share Award Agreement for executive officers pursuant to the Applera Corporation/Applied Biosystems Group 1999 Stock Incentive Plan.* |
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| 10.8.1 | Applera Corporation/Applied Biosystems Group Amended and Restated 1999 Stock Incentive Plan, effective October 21, 2004 (incorporated by reference to Annex B to Schedule 14A, filed September 17, 2004, containing our definitive Proxy Statement for our 2004 Annual Meeting of Stockholders (Commission file number 1-4389)).* |
| | |
| 10.8.2 | Form of Non-Qualified Stock Option Agreement for executive officers pursuant to the Applera Corporation/Applied Biosystems Group Amended and Restated 1999 Stock Incentive Plan.* |
| | |
| 10.8.3 | Form of Incentive Stock Option Agreement for executive officers pursuant to the Applera Corporation/Applied Biosystems Group Amended and Restated 1999 Stock Incentive Plan.* |
| | |
| 10.8.4 | Form of Restricted Stock Bonus Agreement for executive officers pursuant to the Applera Corporation/Applied Biosystems Group Amended and Restated 1999 Stock Incentive Plan.* |
| | |
| 10.8.5 | Form of Director Stock Option Agreement pursuant to the Applera Corporation/Applied Biosystems Group Amended and Restated 1999 Stock Incentive Plan (incorporated by reference to Exhibit 10.6 to our Current Report on Form 8-K dated October 21, 2004, and filed October 27, 2004 (Commission file number 1-4389)).* |
| | |
| 10.8.6 | Form of Director Stock Award Agreement pursuant to the Applera Corporation/Applied Biosystems Group Amended and Restated 1999 Stock Incentive Plan (incorporated by reference to Exhibit 10.4 to our Current Report on Form 8-K dated October 21, 2004, and filed October 27, 2004 (Commission file number 1-4389)).* |
| | |
| 10.9.1 | Applera Corporation/Celera Genomics Group 1999 Stock Incentive Plan, as amended through August 21, 2003 (incorporated by reference to Exhibit 10.8 to our Annual Report on Form 10-K for the fiscal year ended June 30, 2003 (Commission file number 1-4389)).* |
| | |
| 10.9.2 | Form of Non-Qualified Stock Option Agreement for executive officers pursuant to the Applera Corporation/Celera Genomics Group 1999 Stock Incentive Plan.* |
| | |
| 10.9.3 | Form of Incentive Stock Option Agreement for executive officers pursuant to the Applera Corporation/Celera Genomics Group 1999 Stock Incentive Plan.* |
| | |
| 10.9.4 | Forms of Stock Option Agreements for executive officers pursuant to the Applera Corporation/Celera Genomics Group 1999 Stock Incentive Plan, relating to non-qualified options issued in conjunction with awards under the Applera Corporation Performance Unit Bonus Plan.* |
| | |
| 10.9.5 | Form of Employee Stock Award Agreement for executive officers pursuant to the Applera Corporation/Celera Genomics Group 1999 Stock Incentive Plan.* |
| | |
| 10.9.6 | Form of Director Stock Option Agreement pursuant to the Applera Corporation/Celera Genomics Group 1999 Stock Incentive Plan.* |
| | |
| 10.9.7 | Form of Scientific Advisory Board Stock Option Agreement pursuant to the Applera Corporation/Celera Genomics Group 1999 Stock Incentive Plan.* |
| | |
| 10.9.8 | Form of Performance Share Award Agreement for executive officers pursuant to the Applera Corporation/Celera Genomics 1999 Stock Incentive Plan.* |
| | |
| 10.10.1 | Applera Corporation/Applied Biosystems Group Amended and Restated 1999 Stock Incentive Plan, effective October 21, 2004 (incorporated by reference to Annex B to Schedule 14A, filed September 17, 2004, containing our definitive Proxy Statement for our 2004 Annual Meeting of Stockholders (Commission file number 1-4389)).* |
| | |
| 10.10.2 | Form of Non-Qualified Stock Option Agreement for executive officers pursuant to the Applera Corporation/Applied Biosystems Group Amended and Restated 1999 Stock Incentive Plan.* |
| | |
| 10.10.3 | Form of Incentive Stock Option Agreement for executive officers pursuant to the Applera Corporation/Applied Biosystems Group Amended and Restated 1999 Stock Incentive Plan.* |
| | |
| 10.10.4 | Form of Restricted Stock Bonus Agreement for executive officers pursuant to the Applera Corporation/Applied Biosystems Group Amended and Restated 1999 Stock Incentive Plan.* |
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| 10.10.5 | Form of Director Stock Option Agreement pursuant to the Applera Corporation/Celera Genomics Group Amended and Restated 1999 Stock Incentive Plan (incorporated by reference to Exhibit 10.7 to our Current Report on Form 8-K dated October 21, 2004, and filed October 27, 2004 (Commission file number 1-4389)).* |
| | |
| 10.10.6 | Form of Director Stock Award Agreement pursuant to the Applera Corporation/Celera Genomics Group Amended and Restated 1999 Stock Incentive Plan (incorporated by reference to Exhibit 10.5 to our Current Report on Form 8-K dated October 21, 2004, and filed October 27, 2004 (Commission file number 1-4389)).* |
| | |
| 10.11 | The Perkin-Elmer Corporation Supplemental Retirement Plan effective as of August 1, 1979, as amended through October 1, 1996 (incorporated by reference to Exhibit 10(22) to our Annual Report on Form 10-K for the fiscal year ended June 30, 2000 (Commission file number 1-4389)).* |
| | |
| 10.12 | The Excess Benefit Plan of Applera Corporation, as amended and restated effective July 1, 2004 (incorporated by reference to Exhibit 10.10 to our Annual Report on Form 10-K for the fiscal year ended June 30, 2004 (Commission file number 1-4389)) ..* |
| | |
| 10.13 | 1993 Director Stock Purchase and Deferred Compensation Plan, as amended through March 17, 2000 (incorporated by reference to Exhibit 10.1 to our Quarterly Report on Form 10-Q for the quarter ended March 31, 2000 (Commission file number 1-4389)).* |
| | |
| 10.14.1 | Applera Corporation Performance Unit Bonus Plan, as amended through August 21, 2003 (incorporated by reference to Exhibit 10.14 to our Annual Report on Form 10-K for the fiscal year ended June 30, 2003 (Commission file number 1-4389)).* |
| | |
| 10.14.2 | Forms of Performance Unit Agreements for executive officers pursuant to the Applera Corporation Performance Unit Bonus Plan.* |
| | |
| 10.15 | The Estate Enhancement Plan of The Perkin-Elmer Corporation (incorporated by reference to Exhibit 10(22) to our Annual Report on Form 10-K for the fiscal year ended June 30, 1997 (Commission file number 1-4389)).* |
| | |
| 10.16 | Applera Corporation Deferred Compensation Plan, as amended and restated effective as of January 1, 2002 (incorporated by reference to Exhibit 10.2 to our Quarterly Report on Form 10-Q for the quarter ended December 31, 2001 (Commission file number 1-4389)).* |
| | |
| 10.17 | PerSeptive Biosystems, Inc. 1992 Stock Plan, as amended January 20, 1997 (incorporated by reference to Exhibit 4.1 to the Quarterly Report on Form 10-Q of PerSeptive Biosystems, Inc. for the fiscal quarter ended March 29, 1997 (Commission file No. 0-20032)).* |
| | |
| 10.18 | PerSeptive Biosystems, Inc. 1997 Non-Qualified Stock Option Plan, as amended August 21, 1997 (incorporated by reference to Exhibit 4.1 to the Registration Statement on Form S-8 of PerSeptive Biosystems, Inc. (No. 333-38989)).* |
| | |
| 10.19 | Molecular Informatics, Inc. 1997 Equity Ownership Plan (incorporated by reference to Exhibit 99 to our Registration Statement on Form S-8 (No. 333-42683)).* |
| | |
| 10.20 | Paracel, Inc. Stock Option Plan (incorporated by reference to Exhibit 10.22 to our Annual Report on Form 10-K for the fiscal year ended June 30, 2002 (Commission file number 1-4389)).* |
| | |
| 10.21 | Axys Pharmaceuticals, Inc. 1989 Stock Plan, as amended through May 21, 1997 (incorporated by reference to Exhibit 10.2 to Annual Report on Form 10-K of Axys Pharmaceuticals, Inc. for the fiscal year ended December 31, 1996 (Commission file number 0-22788)). * |
| | |
| 10.22 | Axys Pharmaceuticals, Inc. 1997 Equity Incentive Plan, as amended through May 14, 2001 (incorporated by reference to Exhibit 10.30 to our Registration Statement on Form S-8 (No. 333-73980)).* |
| | |
| 10.23 | Axys Pharmaceuticals, Inc. 1997 Non-Officer Equity Incentive Plan, as amended through October 16, 1998 (incorporated by reference to Exhibit 10.31 to our Registration Statement on Form S-8 (No. 33-73980)).* |
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| 10.24 | Form of notice to directors, officers, and other employees regarding January 20, 2005, acceleration of stock option vesting, including notice to directors and executive officers regarding restrictions imposed on their accelerated options (incorporated by reference to Exhibit 10.2 to our Quarterly Report on Form 10-Q for the quarter ended December 31, 2004 (Commission file number 1-4389)).* |
| | |
| 10.25 | Form of notice to executive officers, and other employees regarding June 2, 2005, acceleration of performance unit bonus plan stock option vesting, including notice regarding restrictions imposed on their accelerated options.* |
| | |
| 10.26 | Employment Agreement dated as of September 12, 1995, between Applera and Tony L. White (incorporated by reference to Exhibit 10(21) to our Annual Report on Form 10-K for the fiscal year ended June 30, 1995 (Commission file number 1-4389)).* |
| | |
| 10.27 | Amendment dated August 17, 2001, to Employment Agreement dated as of September 12, 1995, between Applera and Tony L. White (incorporated by reference to Exhibit 10.l4 to our Annual Report on Form 10-K for the fiscal year ended June 30, 2001 (Commission file number 1-4389)).* |
| | |
| 10.28 | Change of Control Agreement dated as of September 12, 1995, between Applera and Tony L. White (incorporated by reference to Exhibit 10(16) to our Annual Report on Form 10-K for the fiscal year ended June 30, 1995 (Commission file number 1-4389)).* |
| | |
| 10.29 | Employment Agreement dated as of November 16, 1995, between Applera and William B. Sawch (incorporated by reference to Exhibit 10(16) to our Annual Report on Form 10-K for fiscal year ended June 30, 1998 (Commission file number 1-4389)).* |
| | |
| 10.30 | Deferred Compensation Contract dated as of July 15, 1993, between Applera and William B. Sawch (incorporated by reference to Exhibit 10(19) to our Annual Report on Form 10-K for the fiscal year ended June 30, 1998 (Commission file number 1-4389)).* |
| | |
| 10.31 | Letter dated June 24, 1997, from Applera to Dennis L. Winger (incorporated by reference to Exhibit 10(18) to our Annual Report on Form 10-K for the fiscal year ended June 30, 1998 (Commission file number 1-4389)). * |
| | |
| 10.32 | Employment Agreement dated as of September 25, 1997, between Applera and Dennis L. Winger (incorporated by reference to Exhibit 10(17) to our Annual Report on Form 10-K for the fiscal year ended June 30, 1998 (Commission file number 1-4389)).* |
| | |
| 10.33 | Letter dated August 21, 2003, from Applera to Dennis L. Winger regarding the letter dated June 24, 1997, from Applera to Dennis L. Winger (incorporated by reference to Exhibit 10.33 to our Annual Report on Form 10-K for the fiscal year ended June 30, 2003 (Commission file number 1-4389)).* |
| | |
| 10.34 | Employment Agreement dated as of December 1, 2000, between Applera and Kathy P. Ordoñez (incorporated by reference to Exhibit 10.35 to our Annual Report on Form 10-K for the fiscal year ended June 30, 2002 (Commission file number 1-4389)).* |
| | |
| 10.35 | Employment Agreement dated as of September 2, 2003, between Applera Corporation and Catherine M. Burzik.* |
| | |
| 10.36 | Letter agreement dated July 25, 2003, between Applera Corporation and Catherine M. Burzik.* |
| | |
| 10.37 | Employment Agreement dated as of September 5, 2000, between Applera Corporation and Barbara J. Kerr.* |
| | |
| 10.38 | Employment Agreement dated as of December 2, 1996, between Applera Corporation and Ugo D. DeBlasi.* |
| | |
| 10.39 | Description of fiscal year 2005 incentive compensation program (incorporated by reference to Exhibit 10.8 to our Current Report on Form 8-K dated October 21, 2004, and filed October 27, 2004 (Commission file number 1-4389)).* |
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| 10.40 | Description of Applera Corporation fiscal year 2006 Incentive Compensation Program (incorporated by reference to Item 1.01 of our Current Report on Form 8-K dated August 18, 2005, and filed August24, 2005 (Commission file number 1-4389)).* |
| | |
| 10.41.1 | Celera Diagnostics Joint Venture Agreement dated as of April 1, 2001, among Applera, its Applied Biosystems Group, its Celera Genomics Group, Foster City Holdings, LLC, and Rockville Holdings, LLC (incorporated by reference to Exhibit 10.36 to our Annual Report on Form 10-K for the fiscal year ended June 30, 2002 (Commission file number 1-4389)). |
| | |
| 10.41.2 | Amendment, dated as of June 22, 2004, to Celera Diagnostics Joint Venture Agreement dated as of April 1, 2001, among Applera, its Applied Biosystems Group, its Celera Genomics Group, Foster City Holdings, LLC, and Rockville Holdings, LLC (incorporated by reference to Exhibit 10.34 to our Annual Report on Form 10-K for the fiscal year ended June 30, 2004 (Commission file no. 1-4389)). |
| | |
| 10.42.1 | Celera Genomics/Applied Biosystems Marketing and Distribution Agreement dated as of February 27, 2003, and effective as of April 1, 2002, among Applera, its Applied Biosystems group, and its Celera Genomics group (incorporated by reference to Exhibit 10.1 to our Quarterly Report on Form 10-Q for the quarter ended March 31, 2003 (Commission file no. 1-4389)). |
| | |
| 10.42.2 | Amended and Restated Celera Genomics/Applied Biosystems Marketing and Distribution Agreement dated as of June 22, 2004 among Applera, its Applied Biosystems group, and its Celera Genomics group (incorporated by reference to Exhibit 10.36 to our Annual Report on Form 10-K for the fiscal year ended June 30, 2004 (Commission file no. 1-4389)). |
| | |
| 10.42.3 | Amendment, dated as of February 4, 2005, to Celera Genomics/Applied Biosystems Marketing and Distribution Agreement among Applera, its Applied Biosystems group, and its Celera Genomics group (incorporated by reference to Exhibit 10.1 to our Quarterly Report on Form 10-Q for the quarter ended December 31, 2004 (Commission file no. 1-4389)). |
| | |
| 11 | Computation of Net Income (Loss) per Share for the three years ended June 30, 2005 (incorporated by reference to Note 1 to Consolidated Financial Statements of Annual Report to Stockholders for the fiscal year ended June 30, 2005). |
| | |
| 13 | Annual Report to Stockholders for the fiscal year ended June 30, 2005 (to the extent incorporated herein by reference). |
| | |
| 21 | List of Subsidiaries. |
| | |
| 23 | Consent of Independent Registered Public Accounting Firm. |
| | |
| 31.1 | Certification of Principal Executive Officer pursuant to Exchange Act Rule 13a-14(a)/15d-14(a), as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. |
| | |
| 31.2 | Certification of Principal Financial Officer pursuant to Exchange Act Rule 13a-14(a)/15d-14(a), as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. |
| | |
| 32.1 | Certification of Chief Executive Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. |
| | |
| 32.2 | Certification of Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. |
| | |
| | |
* Management plan or compensatory plan or arrangement |
118
Back to ContentsSIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
| | APPLERA CORPORATION |
| | | |
| | By | /s/ William B. Sawch |
| | |
|
| | | William B. Sawch
Senior Vice President and General Counsel |
Date: September 8, 2005
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated.
| /s/ Tony L. White | September 8, 2005 |
| |
Tony L. White
Chairman of the Board of Directors, President
and Chief Executive Officer
(Principal Executive Officer) |
| | |
| /s/ Dennis L. Winger | September 8, 2005 |
| |
Dennis L. Winger
Senior Vice President and Chief Financial Officer
(Principal Financial Officer) |
| | |
| /s/ Ugo D. DeBlasi | September 8, 2005 |
| |
Ugo D. DeBlasi
Vice President and Controller
(Principal Accounting Officer) |
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| /s/ Richard H. Ayers | September 8, 2005 |
| |
Richard H. Ayers
Director |
| | |
| /s/ Jean-Luc Bélingard | September 8, 2005 |
| |
Jean-Luc Bélingard
Director |
| | |
| /s/ Robert H. Hayes | September 8, 2005 |
| |
Robert H. Hayes
Director |
| | |
| /s/ Arnold J. Levine | September 8, 2005 |
| |
Arnold J. Levine
Director |
| | |
| /s/ William H. Longfield | September 8, 2005 |
| |
William H. Longfield
Director |
| | |
| /s/ Theodore E. Martin | September 8, 2005 |
| |
Theodore E. Martin
Director |
| | |
| /s/ Carolyn W. Slayman | September 8, 2005 |
| |
Carolyn W. Slayman
Director |
| | |
| /s/ Orin R. Smith | September 8, 2005 |
| |
Orin R. Smith
Director |
| | |
| /s/ James R. Tobin | September 8, 2005 |
| |
James R. Tobin
Director |
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REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
ON FINANCIAL STATEMENT SCHEDULE
To the Board of Directors and Stockholders
of Applera Corporation
Our audits of the consolidated financial statements, of management’s assessment of the effectiveness of internal control over financial reporting and of the effectiveness of internal control over financial reporting referred to in our report dated August 31, 2005 appearing in the 2005 Annual Report to Stockholders of Applera Corporation (which report, consolidated financial statements and assessment are incorporated by reference in this Annual Report on Form 10-K) also included an audit of the financial statement schedule listed in Item 15(a)(2) of this Form 10-K. In our opinion, this financial statement schedule presents fairly, in all material respects, the information set forth therein when read in conjunction with the related consolidated financial statements.
/s/ PricewaterhouseCoopers LLP
PricewaterhouseCoopers LLP
Stamford, Connecticut
August 31, 2005
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APPLERA CORPORATION
VALUATION AND QUALIFYING ACCOUNTS AND RESERVES
FOR THE FISCAL YEARS ENDED JUNE 30, 2003, 2004 AND 2005
| (Amounts in thousands) | | | |
| | | ALLOWANCE FOR
DOUBTFUL ACCOUNTS | |
| | | | |
| Balance at June 30, 2002 | $ | 10,950 | |
| Charged to income in fiscal year 2003 | | 4,288 | |
| Deductions from reserve in fiscal year 2003 | | (4,731 | ) |
| |
|
| |
| Balance at June 30, 2003 | | 10,507 | |
| Charged to income in fiscal year 2004 | | 2,866 | |
| Deductions from reserve in fiscal year 2004 | | (4,425 | ) |
| |
|
| |
| Balance at June 30, 2004 (1) | | 8,948 | |
| Charged to income in fiscal year 2005 | | 130 | |
| Deductions from reserve in fiscal year 2005 | | (2,053 | ) |
| |
|
| |
| Balance at June 30, 2005 (1) | $ | 7,025 | |
| |
|
| |
| | |
| (1) | Deducted in the Consolidated Statements of Financial Position from accounts receivable. |
SCHEDULE II
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EXHIBIT INDEX
Exhibit
Number | |
| | |
| 10.2.2 | Form of Non-Qualified Stock Option Agreement for executive officers pursuant to The Perkin-Elmer Corporation 1996 Stock Incentive Plan. |
| | |
| 10.2.3 | Form of Incentive Stock Option Agreement for executive officers pursuant to The Perkin-Elmer Corporation 1996 Stock Incentive Plan. |
| | |
| 10.2.4 | Form of Director Stock Option Agreement pursuant to The Perkin-Elmer Corporation 1996 Stock Incentive Plan. |
| | |
| 10.4.2 | Form of Non-Qualified Stock Option Agreement for executive officers pursuant to The Perkin-Elmer Corporation 1997 Stock Incentive Plan. |
| | |
| 10.5.2 | Form of Director Stock Option Agreement pursuant to The Perkin-Elmer Corporation 1998 Stock Incentive Plan. |
| | |
| 10.7.2 | Form of Non-Qualified Stock Option Agreement for executive officers pursuant to the Applera Corporation/Applied Biosystems Group 1999 Stock Incentive Plan. |
| | |
| 10.7.3 | Form of Incentive Stock Option Agreement for executive officers pursuant to the Applera Corporation/Applied Biosystems Group 1999 Stock Incentive Plan. |
| | |
| 10.7.4 | Forms of Stock Option Agreements for executive officers pursuant to the Applera Corporation/Applied Biosystems Group 1999 Stock Incentive Plan, relating to non-qualified options issued in conjunction with awards under the Applera Corporation Performance Unit Bonus Plan. |
| | |
| 10.7.5 | Form of Employee Stock Award Agreement for executive officers pursuant to the Applera Corporation/Applied Biosystems Group 1999 Stock Incentive Plan. |
| | |
| 10.7.6 | Form of Director Stock Option Agreement pursuant to the Applera Corporation/Applied Biosystems Group 1999 Stock Incentive Plan. |
| | |
| 10.7.7 | Forms of Performance Stock Option Agreements for executive officers pursuant to the Applera Corporation/Applied Biosystems Group 1999 Stock Incentive Plan. |
| | |
| 10.7.8 | Form of Performance Share Award Agreement for executive officers pursuant to the Applera Corporation/Applied Biosystems Group 1999 Stock Incentive Plan. |
| | |
| 10.8.2 | Form of Non-Qualified Stock Option Agreement for executive officers pursuant to the Applera Corporation/Applied Biosystems Group Amended and Restated 1999 Stock Incentive Plan. |
| | |
| 10.8.3 | Form of Incentive Stock Option Agreement for executive officers pursuant to the Applera Corporation/Applied Biosystems Group Amended and Restated 1999 Stock Incentive Plan. |
| | |
| 10.8.4 | Form of Restricted Stock Bonus Agreement for executive officers pursuant to the Applera Corporation/Applied Biosystems Group Amended and Restated 1999 Stock Incentive Plan. |
| | |
| 10.9.2 | Form of Non-Qualified Stock Option Agreement for executive officers pursuant to the Applera Corporation/Celera Genomics Group 1999 Stock Incentive Plan. |
| | |
| 10.9.3 | Form of Incentive Stock Option Agreement for executive officers pursuant to the Applera Corporation/Celera Genomics Group 1999 Stock Incentive Plan. |
| | |
| 10.9.4 | Forms of Stock Option Agreements for executive officers pursuant to the Applera Corporation/Celera Genomics Group 1999 Stock Incentive Plan, relating to non-qualified options issued in conjunction with awards under the Applera Corporation Performance Unit Bonus Plan. |
| | |
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| 10.9.5 | Form of Employee Stock Award Agreement for executive officers pursuant to the Applera Corporation/Celera Genomics Group 1999 Stock Incentive Plan. |
| | |
| 10.9.6 | Form of Director Stock Option Agreement pursuant to the Applera Corporation/Celera Genomics Group 1999 Stock Incentive Plan. |
| | |
| 10.9.7 | Form of Scientific Advisory Board Stock Option Agreement pursuant to the Applera Corporation/Celera Genomics Group 1999 Stock Incentive Plan. |
| | |
| 10.9.8 | Form of Performance Share Award Agreement for executive officers pursuant to the Applera Corporation/Celera Genomics 1999 Stock Incentive Plan. |
| | |
| 10.10.2 | Form of Non-Qualified Stock Option Agreement for executive officers pursuant to the Applera Corporation/Applied Biosystems Group Amended and Restated 1999 Stock Incentive Plan. |
| | |
| 10.10.3 | Form of Incentive Stock Option Agreement for executive officers pursuant to the Applera Corporation/Applied Biosystems Group Amended and Restated 1999 Stock Incentive Plan. |
| | |
| 10.10.4 | Form of Restricted Stock Bonus Agreement for executive officers pursuant to the Applera Corporation/Applied Biosystems Group Amended and Restated 1999 Stock Incentive Plan. |
| | |
| 10.14.2 | Forms of Performance Unit Agreements for executive officers pursuant to the Applera Corporation Performance Unit Bonus Plan. |
| | |
| 10.25 | Form of notice to executive officers and other employees regarding June 2, 2005, acceleration of performance unit bonus plan stock option vesting, including notice regarding restrictions imposed on their accelerated options. |
| | |
| 10.35 | Employment Agreement dated as of September 2, 2003, between Applera Corporation and Catherine M. Burzik. |
| | |
| 10.36 | Letter agreement dated July 25, 2003, between Applera Corporation and Catherine M. Burzik. |
| | |
| 10.37 | Employment Agreement dated as of September 5, 2000, between Applera Corporation and Barbara J. Kerr. |
| | |
| 10.38 | Employment Agreement dated as of December 2, 1996, between Applera Corporation and Ugo D. DeBlasi. |
| | |
| 13 | Annual Report to Stockholders for the fiscal year ended June 30, 2005 (to the extent incorporated herein by reference). |
| | |
| 21 | List of Subsidiaries. |
| | |
| 23 | Consent of Independent Registered Public Accounting Firm. |
| | |
| 31.1 | Certification of Principal Executive Officer pursuant to Exchange Act Rule 13a-14(a)/15d-14(a), as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. |
| | |
| 31.2 | Certification of Principal Financial Officer pursuant to Exchange Act Rule 13a-14(a)/15d-14(a), as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. |
| | |
| 32.1 | Certification of Chief Executive Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. |
| | |
| 32.2 | Certification of Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. |
Annual Report Pursuant to Section 13 Or 15(d) of the Securities Exchange Act of 1934
Transition Report Pursuant to Section 13 Or 15(d) of the Securities Exchange Act of 1934
