To: Probity Investments

CC: Alan C. Palmiter

From: Christopher Alan Jennings; Diaz, Pyle, and Jennings LLP

Date: November 22, 2000

Re: Deficiencies in PE Corporation’s prospectus, offering shares of its Celera Genomics Group stock, as filed with the Securities and Exchange Commission on February 28, 2000 (registration no. 333-95771).

“What can be said at all can be stated clearly,

and whereof one cannot speak thereof, one must remain silent.”

- Ludwig Wittgenstein

Tractatus: Logico Philosophicus

“[T]he most common problem [with disclosure documents filed with the SEC]

is that a well intentioned and informed writer simply fails to get the message across

to an intelligent, interested reader. In that case, stilted jargon and complex

constructions are usually the villains.”

- Warren E. Buffet

Preface to “Writing in Plain English: how to create clear SEC disclosure documents.”

Introduction

In “Writing in Plain English: how to create clear SEC disclosure documents” the SEC turns its regulatory eye from the substance of disclosure to the form of presentation. The SEC’s “Plain English” movement does not seek to "dumb down" its disclosure regime by draining substance from documents. Rather, by focusing on the form of disclosure, the movement seeks to give interested and intelligent readers, like Warren Buffet, the best possible chance of understanding the complex information contained in disclosure documents. Indeed, when poor writing obscures a document’s meaning, when baroque style clouds its truth, the author may as well remain silent. Poor writing undercuts the policy of compelled disclosure when it prevents the message from getting across to an intelligent audience. Applying norms of plain English, the SEC seeks to improve the quality of disclosure by encouraging tight sentence structure, word economy, direct tone, active voice, logical document structure, and appealing design. In short, disclosure documents should be “easy to read and look like they are meant to be read.”

This memorandum evaluates PE Corporation’s prospectus as filed with the Securities and Exchange Commission on February 28, 2000 (registration no. 333-95771) against the SEC’s benchmark of precision and clarity for disclosure documents. On balance, the prospectus scores high under the SEC’s standards for prose, but the clarity and force of the prospectus is severely undermined by its disinterestedness in organization and design. Couching the prospectus in a more inviting and informative format would markedly improve the document. In this memorandum, I critique PE Corporation’s February prospectus under the SEC’s plain language initiative, suggest revisions, and unearth useful investment information not found in the prospectus. Additionally, I augment my discussion with links to sources on the world wide web.

Compliance with the SEC’s “Plain English” Initiative.

PE Corporation’s prospectus is out of step with the SEC’s “Plain English” norms. The “Plain English” initiative is not merely aesthetic, but responds to the inextricable relationship of substance and form in the production of meaning. For decades, the SEC’s ignored this interdependent relationship by focusing merely on substance (i.e. what information should be disclosed). Now, formal considerations inform the SEC’s regulatory regime. The SEC encourages reform in three general areas: (1) organization, (2) prose, and (3) design. The prose of PE Corporation’s prospectus is outstanding–it speaks in an active voice, uses simple and direct sentences to convey complex ideas, avoids legalese and jargon, employs concrete terminology to communicate abstract ideas, and omits superfluous words. A good start, but the document fails to comply with the SEC’s standards for design and organization.

Design: the aesthetics of disclosure

The SEC’s encourages design reform in four general areas: (1) outlining, (2) typography, (3) Layout, and (4) Graphics. Outlining a document's hierarchy visually distinguishes different levels of information, and thereby distinguishes big picture information from minutia. Typography strongly defines the aesthetic character of a document, and can be used to emphasize text containing important information. Layout considerations such as white space, column width, linespacing, and use of sidebar paragraphs can make a document easier to read and use. Relative to a narrative description of information, use of graphics, such as a graph, chart, matrix or tables, can often illustrate information in a clearer and more efficient way (particularly with financial information). PE Corporation’s prospectus needs revising in all four areas, but I will critique the prospectus’ non-use of graphics.

In an attorney’s design arsenal, graphics are a powerful tool. Aside from some token charts, PE Corporation exclusively relied on narration to convey its prospectus information. This design decision renders the document cold, uninviting, and ultimately less informative. For instance, a graphic would help a reader understand the anatomy of PE Corporation’s capital structure. PE Corporation conducts its business through Celera Genomics Group and PE Biosystems. Its capital structure has two classes of common stock, each intended to reflect the performance of each business. This is a fairly sophisticated capital structure. Using a chart or schema is superior to a textual description of Celera’s interface with PE Biosystems viz. PE Corporation. In fact, one is displayed on PE Corporation’s website.

Organization: the metaphysics of disclosure

Three principles inform the SEC’s standards for “good organization”: (1) start with the big picture, (2) use descriptive headings and subheadings, and (3) group related information together. Starting with the big picture adds significance to an individual piece of information by linking it to a master narrative. Using descriptive headings and subheadings presents prospectus information in bite-size pieces, making the document easier to comprehend and manage. Grouping related information together streamlines disclosure, rendering the document more efficient and its meaning less disjointed. In essence, “good organization” implies that a prospectus should read like a coherent whole.

PE Corporation’s prospectus reads like a Chinese menu. Little thought, beyond following the SEC’s substantive guidelines for disclosure, went to organization. For instance, the prospectus’ discussion of investment risk factors pays cursory attention to the SEC’s principles of organization. The prospectus parcels out the risk factors under two broad categories: (1) “Risks Relating to the Celera Genomics Group,” and (2) “Risks Relating to a Capital Structure with Two Separate Classes of Common Stock.” (One class of PE Corporation’s common stock is Celera Genomics Group, the other is PE Biosystems. Its prospectus only offers shares in Celera.) Categorizing risks in this way places discrete pockets of information in a logical order, as the first category speaks to investment risks relating to the Celera Genomics Group’s mission, and the second category speaks to risks relating to Celera’s structural relationship with PE Biosystems viz. PE Corporation. However, the prospectus presents the specific risk factors under each category as laundry lists, rendering it disjointed, hard to digest, and wanting for a master narrative. The prospectus needs reforming–I will demonstrate how.

Application of the SEC’s organizational norms is context dependant–there is no magic formula for creating a prospectus that reads like a coherent whole. However, a few generalizations guide a drafting attorney. Every prospectus tells a story of telos, method, utility and risk. That is, a prospectus describes the corporation’s design, i.e. its exploitation of order for a purpose; explains how management translates that design into ends (structurally), and how it purports to obtain those ends (practically); suggests why those ends are useful to a marketplace; and, highlights environmental conditions that could frustrate those ends. A master narrative weaves these elements together to convey the corporation’s essence, and is the starting point for creating a well organized document. The master narrative raises basic themes relating to a company’s struggle to fulfill its corporate mission, and these themes constitute the logical framework of the document as a whole. Headings and subheadings signify these themes and thus embody the prospectus’ logical framework. Once the logical framework is understood, an attorney may extend the master narrative’s basic themes with specific information and risk factors under the relevant heading. In this way, use of headings and subheadings allows the prospectus to simultaneously delve into minutia and keep the reader tethered to the master narrative. After laying this groundwork, principles of logic and rationality compels related information to be grouped together.

Buried in the PE Corporation’s prospectus and other public information, a master narrative exists, waiting to emerge. I will focus on that portion of the narrative relating to risks facing the Celera Genomics Group. This narrative tells the story of Celera Genomics Group’s mission to become the “definitive source of genomic and related medical and related agricultural information” for the biotech, medical, and health industries. Competing chiefly with the “Human Genome Project,” a publically funded, international consortium of scientists and research institutions, sequencing and mapping the human genome is essential to its mission. Ranking this endeavor among the historic feats of scientific discovery, it is on the order of magnitude of debunking the heliocentric view of the earth’s position in the universe, the theory of evolution, Heisenberg’s uncertainty principle, Eienstein’s theory of relativity, splitting the atom, the discovery of DNA, and landing on the moon. Celera (a play on the word “celerity,” meaning swiftness or speed) proposes to produce, present, and extend this knowledge more efficiently than the traditional academic model employed by the Human Genome Project. With the elements of telos, method, utility, and risk in mind, this narrative uncovers three basic themes relating to the Celera Genomics Group mission: (1) using a corporate form for academic ends, (2) the quality and usefulness of Celera’s science, and (3) legal and political risks. These themes constitute the logical scaffolding of the prospectus’ discussion of the Celera Genomics Group (and essentially the prospectus as a whole). After sketching this story, I will recommend a system of headings and subheadings that should transform the prospectus’ discussion of risk factors from a disjointed laundry list into a coherent whole.

Theme One: Employing a Corporate Structure for Quasi-Academic Ends. Unlike its scientific antecedents and its competitors at the Human Genome project, Celera’s raison d’etre is not just pure knowledge, but pure knowledge for profit. Indeed, Celera’s telos blurs the lines between pure science research institutions, like Lawrence Livermore National Laboratory (a leader in revolutionary and foundational science), and science-for-profit institutions, like Pfizer (a leader in applied and extensional science). In other words, its telos exploits the ordering principles of a corporate entity for purposes traditionally pursued by public institutions supported by public dollars. Structurally, Celera must resort to America’s capital markets to amass the resources necessary to take on the inherent power of the academy’s ordered collective action and the Human Genome Project’s tremendous material resources, and return a profit to its investors. Though Celera’s ambition is worthy of admiration, an investor should recognize that Celera has made a management decision to define the Human Genome Project as a competitor rather than a public-private partner. And, in general, an investor should note that Celera is testing the science-for-profit corporate model in uncharted territory, and should ask whether a private institution acting unilaterally is equipped to tackle such a monumental task.

Theme 2: The Quality and Usefulness of Celera’s Science. As information is Celera’s only commodity, the utility of its science is essential to profitability. After Celera pieces together its genome map, using its own gene-isolation system, it plans to sell access to its databases to drug makers (like America Home Products), researcher institutions (like Harvard University), even curious individuals. Currently, Celera has deposited its ''90 percent complete'' map on a database that is available only by subscription, and for which some drug companies are paying a reported $5 million a year. By contrast, the Human Genome Project claims to have mapped out 75 percent of the data, which it posts, free of charge, on a Web site called GenBank . This spring, there was a push for the rivals to post their data on the same database, but that fell apart when Celera demanded exclusive rights to market any such database for several years. In another parry, Celera announced its intention to publish conclusions based on both its proprietary data and GenBank data. (In the genome business, what makes ''publication'' significant is not the data, but the authors' interpretations, which must undergo peer review before receiving validation by the scientific community.) Once Celera completes it database, Celera plans to expand its services to enter into new markets, including functional genomics (the understanding of gene and protein function and expression) and personalized health/medicine (tailoring medical diagnostic and treatment strategies to address genetic variability among individuals). Positioning itself to be “definitive source of genomic and related medical information,” Celera aspires to be the Bloomberg of biotechnology. As such, the ability of Celera to obtain its ends turns on the quality, speed, and utility of its science, and the management and marketing of that information. From this framework, a number of factors are essential to obtaining Celera’s ends, such as (1) the timely completion of sequencing and mapping the human genome, (2) beating the Human Genome Project to the finish line, (3) medical application of genomic information, (4) the viability of its extensional products, like functional genomics, and (5) outstripping the value of GenBank’s free database by providing value added information and services from its database.

Theme Three: Political and Legal risks. Political risks abound. First, critics of genomics argue that it is unethical for companies to treat the genetic code as a commodity, and are pushing for all the information to be made free to the public. Second, genetic testing has raised issues regarding confidentiality and the appropriate uses of the resulting information. For example, concerns have been aired about insurance company use of genetic information to screen its customers. Concerns like these could trigger political pressures to limit the use of genetic data, and thereby limit the potential market for genomics data. The use of Celera’s genomics’ products and services may be subject to heightened government regulation. For example, within the field of personalized health/medicine, current and future patient privacy and health care laws and regulation issued by Congress or the FDA may limit the use of polymorphism data. Aside from political risks, Celera faces many legal risks. Celera’s competitive position may depend on patent and copyright protection, which may not be sufficiently available (Can you copyright a gene?). Aside from the ability to copyright, public disclosure of genomics sequencing data could jeopardize Celera’s intellectual property in the first place. Moreover, Celera could incur liabilities relating to hazardous materials that it uses in it research activities, or product liability claims.

These themes compel a logical structure. PE Corporation’s initial organizational split is a good starting point: (1) “Risks Relating to the Celera Genomics Group,” and (2) “Risks Relating to a Capital Structure with Two Separate Classes of Common Stock.” But this is not sufficient. Based off of my sketch of Celera’s master narrative, a much more coherent structure follows. Though incomplete, my suggested changes would markedly improve the document.

BEFORE:

Risks Relating to Celera Genomics Group.

[Laundry List of Risks]

Relating to a Capital Structure with Two Separate Classes of Common Stock.

[Laundry List of Risks]

AFTER:

Risks Relating to the Celera Genomics Group

Employing a Corporate Structure for Quasi-Academic Ends

Celera’s Relationship with the Human Genome Project: competitor or partner?

The Institutional Competency to Map and Sequence the Human Genetic Code

Celera’s Science

Academic v. Corporate Process

Sequencing and Mapping the Human Genome

Celera’s Celerity

Scientific Process and Method

Interpreting Genetic Information

Extending and Using Genetic Information

Functional Genomics

Personalized Health/Medicine

Presentation of Genetic Information

Database technology

Legal and Political Risks

Legal Risks

Protecting Celera’s Intellectual Property

Products Liability

Political Risks

Freedom of Information

Regulation of Genetic Information

Rights of Privacy

Risks Relating to a Capital Structure with Two Separate Classes of Common Stock.

[An attorney should use my “master narrative” analysis to this section and develop a system of themes to map out a logical structure.]

More Useful Investment Information Not Found in the Prospectus

http://finance.yahoo.com/q?s=CRA&d=1yLast November, researchers were surprised to find Celera and the Human Genome Project in talks to collaborate on mapping the human genome. As indicated above, these talks fell through, because Celera demanded five years of exclusive rights to the data. This information was not included in the prospectus. This omission is now the subject of a law suit.

On March 14, President Clinton and Prime Minister Blair said research into the human genetic blueprint was "one of the most significant scientific projects of all time . . . To realize full promise of the research, raw fundamental data on the human genome __ including the human DNA sequence and its variations __ should be made freely available to scientists everywhere.” Celera's stock price dropped 19 percent on the day of the Clinton/Blair announcement.

Celera’s Investor Relations provides links to its SEC filings, annual and quarterly reports, and other financial information.

Yahoo’s finance web page provide links to news events involving Celera..