S-4/A
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As filed with the Securities and Exchange Commission on December 19, 2006
Registration No. 333-139111
 
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
 
 
 
 
Amendment No. 1
to
Form S-4
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
 
 
 
 
ILLUMINA, INC.
(Exact name of registrant as specified in its charter)
 
 
 
 
         
Delaware   3826   33-0804655
(State or other jurisdiction of
incorporation or organization)
  (Primary Standard Industrial
Classification Code Number)
  (I.R.S. Employer
Identification No.)
 
9885 Towne Centre Drive
San Diego, California 92121-1975
(858) 202-4500
(Address, including zip code, and telephone number, including area code, of Registrant’s principal executive offices)
 
Christian G. Cabou
Senior Vice President, General Counsel and Secretary
Illumina, Inc.
9885 Towne Centre Drive
San Diego, California 92121-1975
(858) 202-4500
(Name, address, including zip code, and telephone number, including area code, of agent for service)
 
 
 
 
COPIES TO:
 
     
Frederick W. Kanner, Esq.   James Kitch, Esq.
Michael J. Aiello, Esq.   Jennifer Fonner Dinucci, Esq.
Dewey Ballantine LLP   Cooley Godward Kronish LLP
1301 Avenue of the Americas   Five Palo Alto Square
New York, New York 10019   3000 El Camino Real
(212) 259-8000   Palo Alto, California 94306
(650) 843-5000
 
 
 
 
Approximate date of commencement of proposed sale to the public: As soon as practicable after the effectiveness of this Registration Statement and the effective time of the merger of Callisto Acquisition Corp., a direct, wholly-owned subsidiary of the Registrant, with and into Solexa, Inc. as described in the Agreement and Plan of Merger, dated as of November 12, 2006, included as Annex A to the joint proxy statement/ prospectus forming a part of this Registration Statement.
 
If the securities being registered on this Form are being offered in connection with the formation of a holding company and there is compliance with General Instruction G, check the following box.  o
 
If this Form is filed to register additional securities for an offering pursuant to Rule 462(b) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering.  o
 
If this Form is a post-effective amendment filed pursuant to Rule 462(d) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering.  o
 
 
 
 
 
The Registrant hereby amends this Registration Statement on such date or dates as may be necessary to delay its effective date until the Registrant shall file a further amendment which specifically states that this Registration Statement shall thereafter become effective in accordance with Section 8(a) of the Securities Act of 1933 or until the Registration Statement shall become effective on such date as the Securities and Exchange Commission, acting pursuant to Section 8(a), may determine.
 


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(ILLUMINA AND SOLEXA LOGOS)
   
 
MERGER PROPOSED — YOUR VOTE IS VERY IMPORTANT
 
The board of directors of Illumina, Inc. and the board of directors of Solexa, Inc. have agreed to the acquisition of Solexa by Illumina by way of a merger pursuant to the terms of the Agreement and Plan of Merger, dated as of November 12, 2006, which agreement is referred to as the merger agreement. Upon completion of the merger of a direct, wholly-owned subsidiary of Illumina with and into Solexa, Illumina will acquire Solexa, and Solexa will become a direct, wholly-owned subsidiary of Illumina.
 
If the merger is completed, Solexa stockholders will have the right to receive shares of Illumina common stock for their shares of Solexa common stock based on an exchange ratio to be determined at the closing of the merger. This exchange ratio will be determined by dividing $14.00 by the volume weighted average trading price of Illumina common stock, which is referred to as the Illumina Average Price, as reported by the NASDAQ Global Market for ten randomly selected trading days during the 20-day trading period ending five trading days prior to closing of the merger. However, if the Illumina Average Price is equal to or greater than $47.30, then the exchange ratio will be fixed at 0.296 of a share of Illumina common stock for each share of Solexa common stock, and if the Illumina Average Price is equal to or less than $40.70, then the exchange ratio will be fixed at 0.344 of a share of Illumina common stock for each share of Solexa common stock. Illumina stockholders will continue to own their existing Illumina shares. Illumina common stock is listed and traded on the NASDAQ Global Market under the trading symbol “ILMN,” and Solexa common stock is listed and traded on the NASDAQ Global Market under the trading symbol “SLXA.”
 
At the special meeting of Illumina stockholders, which we refer to as the Illumina special meeting, Illumina stockholders will be asked to vote on the issuance of Illumina common stock to Solexa stockholders, which is necessary to effect the merger. The stock issuance proposal requires the affirmative vote of holders of a majority of the shares of Illumina common stock present or represented and entitled to vote on the proposal at the Illumina special meeting.
 
At the special meeting of Solexa stockholders, which is referred to as the Solexa special meeting, Solexa stockholders will be asked to vote on the approval and adoption of the merger agreement. In order to complete the merger, an affirmative vote of holders of a majority of the outstanding shares of Solexa common stock must vote, whether in person or by proxy, at the Solexa special meeting to approve and adopt the merger agreement.
 
The Illumina board of directors unanimously recommends that the Illumina stockholders vote “FOR” the proposal to issue shares of Illumina common stock in the merger.
 
The Solexa board of directors unanimously recommends that the Solexa stockholders vote “FOR” the proposal to approve and adopt the merger agreement.
 
The obligations of Illumina and Solexa to complete the merger are subject to the satisfaction or waiver of several conditions set forth in the merger agreement. The enclosed joint proxy statement/ prospectus provides you with more information about the merger, Illumina and Solexa. We encourage you to read the joint proxy statement/ prospectus carefully in its entirety. In particular, you should carefully read the section entitled “Risk Factors” beginning on page 11 of the enclosed joint proxy statement/ prospectus. You may obtain additional information about Illumina and Solexa from documents Illumina and Solexa have filed with the Securities and Exchange Commission by following the procedures discussed under the section entitled “Where You Can Find More Information” beginning on page 81 of the enclosed joint proxy statement/ prospectus.
 
     
     
Sincerely,
 
Sincerely,
     
-s- Jay T. Flatley
 


-s- John West
Jay T. Flatley
 
John West
President and Chief Executive Officer
 
Chief Executive Officer
Illumina, Inc. 
 
Solexa, Inc.
 
 
 
 
Neither the Securities and Exchange Commission nor any state securities commission has approved or disapproved of the securities to be issued under this joint proxy statement/ prospectus or determined that this joint proxy statement/prospectus is accurate or complete. Any representation to the contrary is a criminal offense.
 
 
 
 
This joint proxy statement/ prospectus is dated December 19, 2006 and is first being mailed to the stockholders of Illumina and Solexa on or about December 21, 2006.


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(ILLUMINA LOGO)
Illumina, Inc.
9885 Towne Centre Drive
San Diego, California 92121-1975
(858) 202-4500
 
 
NOTICE OF SPECIAL MEETING OF STOCKHOLDERS
To Be Held On January 26, 2007
 
 
Dear Stockholders of Illumina:
 
We are pleased to invite you to attend the special meeting of stockholders of Illumina, Inc., a Delaware corporation, which will be held at 9885 Towne Centre Drive, San Diego, California, 92121-1975, on January 26, 2007 at 9:00 a.m., local time, for the following purposes:
 
  •  to consider and vote on a proposal to approve the issuance of shares of Illumina common stock, par value $0.01 per share, in connection with the merger contemplated by the Agreement and Plan of Merger, dated as of November 12, 2006, by and among Illumina, Callisto Acquisition Corp., a direct, wholly-owned subsidiary of Illumina, and Solexa, Inc., a copy of which is attached as Annex A to the joint proxy statement/ prospectus accompanying this notice;
 
  •  to vote upon an adjournment of the Illumina special meeting, if necessary, to solicit additional proxies if there are not sufficient votes for the foregoing proposal; and
 
  •  to transact any other business that may properly be brought before the Illumina special meeting or any adjournments or postponements thereof.
 
Please refer to the attached joint proxy statement/ prospectus for further information with respect to the business to be transacted at the Illumina special meeting.
 
The close of business on December 15, 2006 has been fixed as the record date for the determination of stockholders entitled to notice of, and to vote at, the Illumina special meeting or any adjournments or postponements thereof. Only holders of record of Illumina common stock at the close of business on the record date are entitled to notice of, and to vote at, the Illumina special meeting.
 
The issuance of shares of Illumina common stock to Solexa stockholders requires the affirmative vote of holders of a majority of the Illumina common stock present or represented and entitled to vote on the proposal at the Illumina special meeting.
 
Your vote is important. Whether or not you expect to attend in person, we urge you to vote your shares as promptly as possible by (1) accessing the Internet website specified on your proxy card; (2) calling the toll-free number specified on your proxy card; or (3) signing and returning the enclosed proxy card in the postage-paid envelope provided, so that your shares may be represented and voted at the Illumina special meeting. If your shares are held in the name of a bank, broker or other fiduciary, please follow the instructions on the voting instruction card furnished by the record holder.
 
A list of the holders of Illumina common stock entitled to vote at the Illumina special meeting will be available for examination by any Illumina stockholder, for any purpose germane to the Illumina special meeting, at Illumina’s principal executive offices at 9885 Towne Centre Drive, San Diego, California, 92121-1975, for ten days prior to the Illumina special meeting, between the hours of 9:00 a.m. and 3:00 p.m., local time, and at the Illumina special meeting during the entire time thereof.
 
By Order of the Board of Directors,
 
-s- Christian G. Cabou
Christian G. Cabou
Senior Vice President, General Counsel and Secretary
San Diego, California
December 19, 2006


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(SOLEXA LOGO)
 
Solexa, Inc.
25861 Industrial Boulevard
Hayward, California 94545
(510) 670-9300
 
NOTICE OF SPECIAL MEETING OF STOCKHOLDERS
To Be Held On January 26, 2007
 
Dear Stockholders of Solexa:
 
We are pleased to invite you to attend the special meeting of stockholders of Solexa, Inc., a Delaware corporation, which will be held at 25861 Industrial Boulevard, Hayward, California, 94545, on January 26, 2007 at 9:00 a.m., local time, for the following purposes:
 
  •  to consider and vote on a proposal to approve and adopt the Agreement and Plan of Merger, dated as of November 12, 2006, by and among Illumina, Inc., Callisto Acquisition Corp., a direct, wholly-owned subsidiary of Illumina, and Solexa, a copy of which is attached as Annex A to the joint proxy statement/ prospectus accompanying this notice;
 
  •  to vote upon an adjournment of the Solexa special meeting, if necessary, to solicit additional proxies if there are not sufficient votes for the foregoing proposal; and
 
  •  to transact any other business that may properly be brought before the Solexa special meeting or any adjournments or postponements thereof.
 
Please refer to the attached joint proxy statement/ prospectus for further information with respect to the business to be transacted at the Solexa special meeting.
 
The close of business on December 15, 2006 has been fixed as the record date for the determination of stockholders entitled to notice of, and to vote at, the Solexa special meeting or any adjournments or postponements thereof. Only holders of record of Solexa common stock at the close of business on the record date are entitled to notice of, and to vote at, the Solexa special meeting.
 
Approval and adoption of the Agreement and Plan of Merger requires the affirmative vote of holders of a majority of the outstanding shares of Solexa common stock entitled to vote on the proposal at the Solexa special meeting.
 
Your vote is important. Whether or not you expect to attend in person, we urge you to vote your shares as promptly as possible by (1) calling the toll-free number specified on your proxy card or (2) signing and returning the enclosed proxy card in the postage-paid envelope provided, so that your shares may be represented and voted at the Solexa special meeting. If your shares are held in the name of a bank, broker or other fiduciary, please follow the instructions on the voting instruction card furnished by the record holder.
 
A list of the holders of Solexa common stock entitled to vote at the Solexa special meeting will be available for examination by any Solexa stockholder, for any purpose germane to the Solexa special meeting, at Solexa’s principal executive offices at 25861 Industrial Boulevard, Hayward, California, 94545, for ten days prior to the Solexa special meeting, between the hours of 9:00 a.m. and 3:00 p.m., local time, and at the Solexa special meeting during the entire time thereof.
 
By Order of the Board of Directors,
 
-s- Linda M. Rubinstein
Linda M. Rubinstein
Secretary
 
Hayward, California
December 19, 2006


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ADDITIONAL INFORMATION
 
This document incorporates important business and financial information about Illumina and Solexa from other documents that are not included in or delivered with this document. This information is available to you without charge upon your request. You can obtain the documents incorporated by reference into this document by requesting them in writing or by telephone from the appropriate company at the following addresses and telephone numbers:
 
     
Illumina, Inc.    Solexa, Inc.
9885 Towne Centre Drive   25861 Industrial Boulevard
San Diego, California 92121-1975   Hayward, California 94545
(858) 202-4500   (510) 670-9300
Attn: Investor Relations   Attn: Investor Relations
Or   Or
 InvestorCom, Inc.   The Altman Group
110 Wall Street   1275 Valley Brook Avenue
New York, New York 10005   Lyndhurst, New Jersey 07071
(800) 503-3375   (201) 460-1200
 
Investors may also consult Illumina’s or Solexa’s website for more information concerning the merger described in this document. Illumina’s website is www.illumina.com. Solexa’s website is www.solexa.com.   Information included on either website is not incorporated by reference into this document.
 
If you would like to request any documents relating to the merger, please do so by January 19, 2007 in order to receive them before the meetings.
 
For more information, see “Where You Can Find More Information” beginning on page 81.
 
You should rely only on the information contained in, or incorporated by reference into, this document. No one has been authorized to provide you with information that is different from that contained in, or incorporated by reference into, this document. This document is dated December 19, 2006. You should not assume that the information contained in, or incorporated by reference into, this document is accurate as of any date other than that date. Neither our mailing of this document to Illumina stockholders or Solexa stockholders nor the issuance by Illumina of common stock in connection with the merger will create any implication to the contrary.
 
This document does not constitute an offer to sell, or a solicitation of an offer to buy, any securities, or the solicitation of a proxy, in any jurisdiction to or from any person to whom it is unlawful to make any such offer or solicitation in such jurisdiction. Information contained in this document regarding Illumina has been provided by Illumina and information contained in this document regarding Solexa has been provided by Solexa.


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TABLE OF CONTENTS
 
         
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QUESTIONS AND ANSWERS   iv
SUMMARY   1
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RISK FACTORS   11
CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING STATEMENTS   14
THE MERGER   15
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THE MERGER AGREEMENT   44
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THE COMPANIES   53
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UNAUDITED PRO FORMA COMBINED CONDENSED FINANCIAL STATEMENTS   54
THE ILLUMINA SPECIAL MEETING   63
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QUESTIONS AND ANSWERS
 
The following are some questions that you, as a stockholder of Illumina or Solexa, may have regarding the merger and the other matters being considered at the stockholders’ meetings and the answers to those questions. Illumina and Solexa urge you to read carefully the remainder of this document because the information in this section does not provide all the information that might be important to you with respect to the merger and the other matters being considered at the stockholders’ meetings. Additional important information is also contained in the annexes to, and the documents incorporated by reference into, this document.
 
Q: Why am I receiving this document?
 
A: Illumina and Solexa have agreed to the combination of Solexa with Illumina under the terms of a merger agreement that is described in this document. A copy of the merger agreement is attached to this document as Annex A.
 
In order to complete the merger, Illumina stockholders must vote to approve the issuance of shares of Illumina common stock in connection with the merger, and Solexa stockholders must vote to approve and adopt the merger agreement.
 
Illumina and Solexa will hold separate stockholders’ meetings to obtain these approvals. This document contains important information about the merger and the meetings of the respective stockholders of Illumina and Solexa, and you should read it carefully. The enclosed voting materials allow you to vote your shares without attending your respective stockholders’ meeting.
 
Your vote is important. We encourage you to vote as soon as possible.
 
Q: When and where will the stockholders’ meetings be held?
 
A: The Illumina special meeting will be held at 9885 Towne Center Drive, San Diego, California, 92121-1975, on January 26, 2007 at 9:00 a.m., local time. The Solexa special meeting will be held at 25861 Industrial Boulevard, Hayward, California, 94545, on January 26, 2007 at 9:00 a.m., local time.
 
Q: How do I vote?
 
A: If you are a stockholder of record of Illumina as of the record date for the Illumina special meeting or a stockholder of record of Solexa as of the record date for the Solexa special meeting, you may vote in person by attending your stockholders’ meeting or, to ensure your shares are represented at the meeting, you may vote by:
 
 • accessing the Internet website specified on your proxy card (applicable only to Illumina stockholders);
 
 • calling the toll-free number specified on your proxy card; or
 
 • signing and returning the enclosed proxy card in the postage-paid envelope provided.
 
If you hold Illumina shares or Solexa shares in the name of a bank or broker, please follow the voting instructions provided by your bank or broker to ensure that your shares are represented at your stockholders’ meeting.
 
Q: What will happen if I fail to vote or I abstain from voting?
 
A: If you are an Illumina stockholder and fail to vote:
 
 • it will make it difficult for Illumina to establish a quorum at the stockholders’ meeting; however, assuming a quorum is present at the stockholders’ meeting, your failure to vote will have no effect on the proposal to approve the issuance of shares of Illumina common stock in the merger.
 
If you are an Illumina stockholder and vote to abstain:
 
 • it will have the same effect as a vote against the proposal to approve the issuance of shares of Illumina common stock in the merger.


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If you are a Solexa stockholder and fail to vote or vote to abstain:
 
 • it will have the same effect as a vote against the proposal to approve and adopt the merger agreement.
 
Q: If my shares are held in street name by my broker, will my broker vote my shares for me?
 
A: If you hold your shares in a stock brokerage account or if your shares are held by a bank or nominee (that is, in street name), you must provide the record holder of your shares with instructions on how to vote your shares. Please follow the voting instructions provided by your bank or broker. In addition, please note that you may not vote shares held in street name by returning a proxy card directly to Illumina or Solexa or by voting in person at your stockholders’ meeting unless you provide a “legal proxy,” which you must obtain from your bank or broker. Further, brokers who hold shares of Illumina or Solexa common stock on behalf of their customers may not give a proxy to Illumina or Solexa to vote those shares without specific instructions from their customers.
 
If you are an Illumina stockholder and you do not instruct your broker on how to vote your shares:
 
 • your broker may not vote your shares on the proposal to approve the issuance of shares of Illumina common stock in the merger, which will have no effect on the vote on this proposal, assuming a quorum is present.
 
If you are a Solexa stockholder and you do not instruct your broker on how to vote your shares:
 
 • your broker may not vote your shares, which will have the same effect as a vote against the proposal to approve and adopt the merger agreement.
 
Q: What will happen if I return my proxy card without indicating how to vote?
 
A: If you return your proxy card without indicating how to vote on any particular proposal, the Illumina or Solexa common stock represented by your proxy will be voted in favor of that proposal.
 
Q: Can I change my vote after I have returned a proxy or voting instruction card?
 
A: Yes. You can change your vote at any time before your proxy is voted at your stockholders’ meeting.
 
You can do this in one of three ways:
 
 • you can send a signed notice of revocation;
 
 • you can grant a new, valid proxy bearing a later date; or
 
 • if you are a holder of record, you can attend your stockholders’ meeting and vote in person, which will automatically cancel any proxy previously given, or you may revoke your proxy in person, but your attendance alone will not revoke any proxy that you have previously given.
 
If you choose either of the first two methods, you must submit your notice of revocation or your new proxy to the Secretary of Illumina or Solexa, as appropriate, no later than the beginning of the applicable stockholders’ meeting. If your shares are held in street name by your bank or broker, you should contact your broker to change your vote.
 
Q: What do I need to do now?
 
A: Carefully read and consider the information contained in and incorporated by reference into this document, including its annexes.
 
In order for your shares to be represented at your stockholders’ meeting:
 
 • you can attend your stockholders’ meeting in person;
 
 • if you are an Illumina stockholder, you can vote through the Internet or by telephone by following the instructions included on your proxy card, and if you are a Solexa stockholder you can vote by telephone by following the instructions on your proxy card; or


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 • you can indicate on the enclosed proxy card how you would like to vote and return the proxy card in the accompanying pre-addressed postage paid envelope.
 
Q: Should I send in my Solexa stock certificates now?
 
A: No. Solexa stockholders should not send in any stock certificates now. After the merger is completed, Illumina’s exchange agent will send former Solexa stockholders a letter of transmittal explaining what they must do to exchange their Solexa stock certificates for the merger consideration payable to them.
 
If you are an Illumina stockholder, you are not required to take any action with respect to your Illumina stock certificates.
 
Q: Where will my shares of Illumina common stock be listed?
 
A: We intend to apply to list the additional shares of Illumina common stock to be issued in the proposed merger on the NASDAQ Global Market under the trading symbol “ILMN.” It is a condition to the consummation of the proposed merger that the shares of Illumina common stock issuable in the proposed merger be approved for listing on the NASDAQ Global Market, subject to official notice of issuance.
 
Q: Is the merger taxable?
 
A: Illumina and Solexa each expect the merger to qualify for United States federal income tax purposes as a reorganization within the meaning of Section 368(a) of the Internal Revenue Code and it is a condition to the completion of the merger that legal counsel will be able to deliver opinions to that effect. Assuming the merger so qualifies, the receipt of Illumina common stock in exchange for Solexa common stock pursuant to the merger generally will be tax-free to the holders of Solexa common stock except to the extent that holders receive cash instead of fractional Illumina shares. We describe the material United States federal income tax consequences of the merger in more detail beginning on page 39 of this joint proxy statement/ prospectus.
 
Tax matters are very complicated, and the tax consequences of the merger to a particular stockholder will depend in part on such stockholder’s circumstances. Solexa stockholders are urged to read the discussion in the section entitled “The Merger — Material United States Federal Income Tax Consequences of the Merger” beginning on page 39 of this joint proxy statement/ prospectus and to consult their tax advisors as to the United States federal income tax consequences of the merger, as well as the effects of state, local and non-United States tax laws.
 
Q: When do you expect the proposed merger to be complete?
 
A: We are working to complete the proposed merger as quickly as possible, and we currently expect to complete the proposed merger by the end of the first quarter of 2007. However, it is possible that factors outside our control could require us to complete the proposed merger at a later time.
 
Q: Who can help answer my questions?
 
A: Illumina or Solexa stockholders who have questions about the merger or the other matters to be voted on at the stockholders’ meetings or desire additional copies of this document or additional proxy cards should contact:
 
     
If you are an Illumina stockholder:   If you are a Solexa stockholder:
InvestorCom, Inc.
  The Altman Group
110 Wall Street
  1275 Valley Brook Avenue
New York, New York 10005
  Lyndhurst, New Jersey 07071
(800) 503-3375
  (201) 460-1200


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SUMMARY
 
This summary highlights information contained elsewhere in this document and may not contain all the information that is important to you. Illumina and Solexa urge you to read carefully the remainder of this document, including the attached annexes, and the other documents to which we have referred you because this section does not provide all the information that might be important to you with respect to the merger and the other matters being considered at the applicable stockholders’ meeting. See also the section entitled “Where You Can Find More Information” beginning on page 81. We have included page references to direct you to a more complete description of the topics presented in this summary. Unless the context otherwise requires, references to “we,” “our” and “us” in this document refer collectively to Illumina and Solexa.
 
The Companies
 
Illumina (See page 53)
 
Illumina, Inc.
9885 Towne Centre Drive
San Diego, California 92121-1975
(858) 202-4500
 
Illumina, Inc. develops and markets next generation tools for the large-scale analysis of genetic variation and function. Illumina has developed a comprehensive line of products designed to provide the performance, throughput, cost effectiveness and flexibility necessary to enable researchers in the life sciences and pharmaceutical industries to perform the billions of tests necessary to extract medically valuable information from advances in genomics. This information is expected to correlate genetic variation and gene function with particular disease states, enhancing drug discovery, allowing diseases to be detected earlier and more specifically, and permitting better choices of drugs for individual patients.
 
Illumina, a Delaware corporation, was founded in 1998 in San Diego, California. The company completed its initial public offering and was listed on the NASDAQ Global Market, which we refer to as NASDAQ, under the symbol “ILMN” in July 2000.
 
Solexa (See page 53)
 
Solexa, Inc.
25861 Industrial Boulevard
Hayward, California 94545
(510) 670-9300
 
Solexa, Inc. develops and commercializes genetic analysis technologies. Solexa’s platform is expected to support many types of genetic analyses, including whole genome resequencing, gene expression analysis and small RNA analysis. Solexa believes that this technology, which can potentially generate over a billion bases of DNA sequence from a single experiment with a single sample preparation, will dramatically reduce the cost, and improve the practicality, of human resequencing relative to conventional technologies. Solexa commenced commercial shipment of its first-generation genetic analysis system, which includes the 1G Genome Analyzer, in the second quarter of 2006. Solexa’s longer-term goal is to further reduce the cost of human resequencing to a few thousand dollars for use in a wide range of applications from basic research through clinical diagnostics.
 
Solexa, a Delaware corporation, was founded in 1992 in Hayward, California, as Lynx Therapeutics, Inc., a Delaware corporation, which we refer to as Lynx. On March 4, 2005, Solexa Limited, a privately-held company registered in England and Wales, and Lynx completed a business combination. The name of the company was changed from Lynx Therapeutics, Inc. to Solexa, Inc. on March 7, 2005. Solexa began trading on the Nasdaq SmallCap Market under the symbol “SLXA” in March 2005 and was listed under the symbol “LYNX” prior to that time. In February 2006, Solexa’s listing was transferred to NASDAQ.


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The Merger and the Merger Agreement
 
The Merger (See page 15)
 
A copy of the agreement and plan of merger, dated November 12, 2006, among Illumina, Callisto Acquisition Corp., a direct, wholly-owned subsidiary of Illumina, and Solexa, which we refer to as the merger agreement, is attached as Annex A to this document. Illumina and Solexa encourage you to read the entire merger agreement carefully because it is the principal document governing the merger.
 
Form of Merger (See page 15)
 
Subject to the terms and conditions of the merger agreement, at the effective time of the merger, Callisto Acquisition Corp., a direct, wholly-owned subsidiary of Illumina formed for the purposes of the merger, will be merged with and into Solexa. Solexa will survive the merger as a direct, wholly-owned subsidiary of Illumina.
 
Effect of the Merger; Consideration to be Received in the Merger; Treatment of Solexa Stock Options and Warrants (See page 15)
 
Solexa stockholders will receive newly issued shares of Illumina common stock for their shares of Solexa common stock based on an exchange ratio to be determined at closing. This exchange ratio will be determined by dividing $14.00 by the volume weighted average trading price of Illumina common stock as reported by NASDAQ for ten randomly selected days during the 20-day trading period ending five trading days prior to closing of the merger. This volume weighted average price of Illumina common stock is referred to as the Illumina Average Price. However, if the Illumina Average Price is equal to or greater than $47.30, then the exchange ratio will be fixed at 0.296 of a share of Illumina common stock for each share of Solexa common stock, and if the Illumina Average Price is equal to or less than $40.70, then the exchange ratio will be fixed at 0.344 of a share of Illumina common stock for each share of Solexa common stock.
 
Upon completion of the merger, each outstanding option and warrant to acquire Solexa common stock will be automatically converted into an option or warrant, as applicable, to acquire a number of whole shares of Illumina common stock equal to the product of the number of shares of Solexa common stock that were subject to the original Solexa stock option or warrant multiplied by the exchange ratio (rounded down to the nearest whole share) at a per share exercise price or purchase price, as applicable, equal to the per share exercise price or purchase price of the original Solexa stock option or warrant divided by the exchange ratio (rounded up to the nearest whole cent). Each converted Solexa stock option and warrant will have substantially the same terms and conditions as were in effect immediately prior to the completion of the merger, including, as applicable, vesting and terms of exercise.
 
Based on the number of outstanding shares of Solexa common stock and Illumina common stock on December 15, 2006, if the closing price for a share of Illumina common stock on December 15, 2006 of $39.95 were used to determine the exchange ratio, then Illumina would issue approximately 12,921,484 shares of Illumina common stock to Solexa stockholders in the merger, which would represent approximately 21.6% of the outstanding shares of Illumina common stock, immediately after the consummation of the merger.
 
Material United States Federal Income Tax Consequences of the Merger (See page 39)
 
Illumina and Solexa each expects that the merger will qualify as a “reorganization” within the meaning of Section 368(a) of the Internal Revenue Code of 1986, as amended, which we refer to as the Code. Assuming the merger qualifies as such a reorganization, for United States federal income tax purposes, holders of Solexa common stock whose shares of Solexa common stock are exchanged in the merger for shares of Illumina common stock will not recognize gain or loss except to the extent that holders receive cash instead of fractional shares of Illumina common stock. It is a condition to the completion of the merger that Illumina and Solexa receive written opinions from legal counsel to the effect that the merger will qualify as a reorganization within the meaning of Section 368(a) of the Code.


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Tax matters are very complicated, and the tax consequences of the merger to a particular stockholder will depend in part on such stockholder’s circumstances. Solexa stockholders are urged to read the discussion in the section entitled “The Merger — Material United States Federal Income Tax Consequences of the Merger” beginning on page 39 of this joint proxy statement/ prospectus and to consult their tax advisors as to the United States federal income tax consequences of the merger, as well as the effect of state, local and non-United States tax laws.
 
Recommendations of the Boards of Directors
 
Illumina (See page 19)
 
After careful consideration, the Illumina board of directors, on November 10, 2006, unanimously approved the merger agreement. For the factors considered by the Illumina board of directors in reaching its decision to approve the merger agreement, see the section entitled “The Merger — Illumina’s Reasons for the Merger; Recommendation of the Stock Issuance by the Illumina Board of Directors” beginning on page 19. The Illumina board of directors unanimously recommends that the Illumina stockholders vote “FOR” the proposal to approve the issuance of Illumina common stock in the merger at the Illumina special meeting.
 
Solexa (See page 21)
 
After careful consideration, the Solexa board of directors, on November 12, 2006, unanimously approved and adopted the merger agreement. For the factors considered by the Solexa board of directors in reaching its decision to approve and adopt the merger agreement, see the section entitled “The Merger — Solexa’s Reasons for the Merger; Recommendation of the Merger by the Solexa Board of Directors” beginning on page 21. The Solexa board of directors unanimously recommends that the Solexa stockholders vote “FOR” the proposal to approve and adopt the merger agreement at the Solexa special meeting.
 
Opinions of Financial Advisors
 
Opinion of Illumina’s Financial Advisor (See page 22)
 
On November 10, 2006, Illumina’s financial advisor, Merrill Lynch, Pierce, Fenner & Smith Incorporated, which we refer to as Merrill Lynch, delivered to the Illumina board of directors its oral opinion, which opinion was subsequently confirmed in writing, to the effect that, as of the date of the opinion and based upon the assumptions made, matters considered and limits of review set forth in its written opinion, the exchange ratio provided in the merger agreement was fair from a financial point of view to Illumina. A copy of Merrill Lynch’s written opinion is attached to this joint proxy statement/ prospectus as Annex C.
 
Illumina encourages you to read carefully both the section entitled “The Merger — Opinions of Financial Advisors — Opinion of Illumina’s Financial Advisor” beginning on page 22 and Merrill Lynch’s written opinion in its entirety for a description of the assumptions made, matters considered and limits on the scope of review undertaken by Merrill Lynch. Merrill Lynch’s opinion was intended for the use and benefit of the Illumina board of directors, does not address the merits of the underlying decision by Illumina to enter into the merger agreement or any of the transactions contemplated thereby, including the merger, and does not constitute a recommendation as to how any holder of Illumina common stock should vote on, or take any action with respect to, the merger or any related matter.
 
Opinion of Solexa’s Financial Advisor (See page 28)
 
Solexa’s financial advisor, Lazard Frères & Co. LLC, which we refer to as Lazard, delivered its opinion to the Solexa board of directors that, as of the date of the opinion and based upon and subject to the factors, assumptions and limitations set forth therein, the exchange ratio, as defined in the merger agreement, was fair from a financial point of view to the holders of Solexa common stock. A copy of Lazard’s written opinion is attached to this joint proxy statement/ prospectus as Annex D.


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Solexa encourages you to read carefully both the section entitled “The Merger — Opinions of Financial Advisors — Opinion of Solexa’s Financial Advisor” beginning on page 28 and Lazard’s written opinion in its entirety for a description of the assumptions made, procedures followed, matters considered and limitations on the review undertaken in connection with the opinion. Lazard provided its opinion for the information and assistance of the Solexa board of directors in connection with its consideration of the merger. Lazard’s opinion is directed to the Solexa board of directors and is one of many factors considered by the Solexa board of directors in deciding to approve the merger. The Lazard opinion is not a recommendation as to how any holder of Solexa common stock should vote on, or take any action with respect to, the merger or any related matter.
 
Interests of Solexa’s Directors and Officers in the Merger; Relationship between Illumina and Solexa (See page 33)
 
When considering the recommendations by the Solexa board of directors, you should be aware that a number of Solexa’s executive officers and directors have interests in the merger that are different from those of other Solexa stockholders.
 
Securities Purchase Agreement (See page 37)
 
On November 13, 2006, Illumina purchased 5,154,639 newly issued shares of Solexa common stock at a purchase price of $9.70 per share, representing approximately 12.3% of the outstanding shares of Solexa common stock as of November 13, 2006, after giving effect to the issuance. These shares were purchased pursuant to the securities purchase agreement, dated November 12, 2006, between Illumina and Solexa, which we refer to as the securities purchase agreement. Illumina entered into the securities purchase agreement with Solexa as part of the transactions contemplated by the merger agreement and to provide Solexa with financing sufficient to meet Solexa’s expected working capital requirements if, for any reason, the merger is not consummated.
 
Under the terms of the securities purchase agreement, shares of Solexa common stock held by Illumina will be voted proportionately with the votes cast by other Solexa stockholders at any meeting of the Solexa stockholders to vote on the proposed merger and any related transactions and matters.
 
The securities purchase agreement provides Illumina with registration rights and rights to participate in Solexa’s underwritten offerings of Solexa common stock if the merger agreement is terminated. Additionally, the securities purchase agreement provides Illumina with the right to require Solexa to repurchase Illumina’s shares of Solexa common stock if the merger agreement is terminated and subsequently Solexa effects an alternative transaction under specified circumstances, as more fully set forth in the securities purchase agreement. See the section entitled “The Merger — Interests of Solexa’s Directors and Officers in the Merger; Relationship Between Illumina and Solexa” beginning on page 33 for a discussion of the terms of the securities purchase agreement.
 
Directors and Management Following the Merger (See page 39)
 
Following the merger, the board of directors of the combined company will consist of ten directors. The board will be comprised of Illumina’s current directors and two additional independent directors to be selected by the Illumina board of directors and agreed to by Solexa.
 
Following the merger, Jay T. Flatley will serve as President and Chief Executive Officer, and John West will serve as Senior Vice President and General Manager of the Sequencing Business Unit, of the combined company.
 
Regulatory Approvals Required for the Merger (See page 41)
 
Illumina and Solexa have each agreed to use reasonable efforts in order to obtain all regulatory approvals required in order to consummate the merger. These approvals include antitrust filings with the United States Department of Justice, which we refer to as the DOJ, and the United States Federal Trade Commission, which we refer to as the FTC, made by Illumina and Solexa on November 20, 2006 pursuant to the


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Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended, which we refer to as the HSR Act, and expiration or termination of the required waiting periods. We also expect to file notices with antitrust and competition authorities in other jurisdictions to the extent any such filings are required. Although we do not expect regulatory authorities to raise any significant objections in connection with their review of the merger, we cannot assure you that we will obtain all required regulatory approvals or that these regulatory approvals will not contain terms, conditions or restrictions that would be detrimental to the combined company after the completion of the merger.
 
Expected Timing of the Merger (See page 44)
 
We currently expect to complete the merger by the end of the first quarter of 2007, subject to the receipt of required stockholder and regulatory approvals and satisfaction of the other conditions to completion of the merger.
 
Conditions to Completion of the Merger (See page 44)
 
The obligations of Solexa and Illumina to complete the merger are subject to the satisfaction of the conditions specified in the merger agreement, including the following:
 
  •  the adoption of the merger agreement by Solexa stockholders;
 
  •  the approval of the issuance of shares of Illumina common stock in the merger by Illumina stockholders;
 
  •  no law, order or other legal prohibition of any court or other governmental entity shall be in effect that prohibits the completion of the merger;
 
  •  the termination or expiration of the applicable waiting periods under the HSR Act;
 
  •  the receipt of other requisite governmental approvals or consents required to consummate the transactions contemplated by the merger agreement;
 
  •  the authorization for listing by NASDAQ of the Illumina common stock issuable to Solexa stockholders in the merger and such other shares to be reserved for issuance in connection with the merger;
 
  •  the Securities and Exchange Commission, which we refer to as the SEC, having declared effective the registration statement of which this document forms a part;
 
  •  the representations and warranties of the other party being true and correct, subject to the material adverse effect standard provided in the merger agreement;
 
  •  the other party having performed or complied with, in all material respects, all obligations required to be performed or complied with by it under the merger agreement;
 
  •  the receipt of an officer’s certificate of an executive officer stating that the two preceding conditions have been satisfied;
 
  •  the other party and its subsidiaries, taken as a whole, not having suffered any material adverse effect, as defined in the merger agreement; and
 
  •  the receipt of tax opinions of legal counsel to the effect that the merger will qualify as a “reorganization” within the meaning of Section 368(a) of the Code.
 
In addition, Illumina’s obligation to complete the merger is subject to the satisfaction or waiver of the following additional conditions:
 
  •  the receipt of all consents, approvals, authorizations, qualifications and orders of third parties required in connection with the transactions contemplated by the merger agreement, other than those previously disclosed to Illumina and those the absence of which would not reasonably be expected to have a material adverse effect on Solexa and its subsidiaries, taken as a whole;


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  •  the absence of pending suits, actions or proceedings by any governmental entity that relate to the merger, are reasonably likely to succeed and:
 
  —  challenge Illumina’s acquisition of shares of Solexa common stock;
 
  —  seek to restrain or prohibit the proposed merger;
 
  —  seek to prevent or materially limit the ownership or operation by Illumina, Solexa or their respective subsidiaries of their respective businesses or assets;
 
  —  compel any of Illumina, Solexa or their respective subsidiaries to divest or hold separate any material portion of their businesses or assets; or
 
  —  seek to prohibit Illumina or any of its subsidiaries from effectively controlling in any material respect the businesses or operations of Solexa or any of its subsidiaries.
 
  •  Mr. West, Chief Executive Officer of Solexa, and Tony Smith, Ph.D., Vice President and Chief Scientific Officer of Solexa, shall be actively employed by Solexa on the closing date (unless not employed by reason of death or disability);
 
  •  receipt of a FIRPTA certificate from Solexa certifying that an interest in Solexa is not a real property interest; and
 
  •  there being no bonus plans or other arrangements of Solexa other than those previously disclosed to Illumina.
 
Termination of the Merger Agreement (See page 47)
 
Illumina and Solexa can jointly agree to terminate the merger agreement at any given time. Either company may also terminate the merger agreement if the merger is not completed by May 11, 2007 or under other circumstances described in this document. See the section entitled “The Merger Agreement — Termination of the Merger Agreement” beginning on page 47 for a discussion of each of Illumina’s and Solexa’s rights to terminate the merger agreement.
 
Expenses and Termination Fees (See pages 48 and 50)
 
Generally, all fees and expenses incurred in connection with the merger agreement and the transactions contemplated by the merger agreement will be paid by the party incurring those expenses. If the merger agreement is terminated under specified circumstances, Solexa or Illumina may be required to pay the other party a termination fee of $18 million. See the section entitled “The Merger Agreement — Termination Fee” beginning on page 48 for a discussion of the circumstances under which termination fees will be required to be paid.
 
Appraisal Rights (See page 80)
 
Under Delaware law, the holders of Solexa common stock are not entitled to appraisal rights in connection with the merger.
 
The Special Meetings
 
The Illumina Special Meeting (See page 63)
 
The Illumina special meeting will be held at 9885 Towne Centre Drive, San Diego, California, 92121-1975, at 9:00 a.m., local time, on January 26, 2007. At the Illumina special meeting, Illumina stockholders will be asked to:
 
  •  approve the issuance of Illumina common stock in the merger;
 
  •  vote upon an adjournment of the Illumina special meeting, if necessary, to solicit additional proxies if there are not sufficient votes for the foregoing proposal; and


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  •  transact any other business that may properly be brought before the Illumina special meeting or any adjournments or postponements thereof.
 
You may vote at the Illumina special meeting if you owned shares of Illumina common stock at the close of business on December 15, 2006. On that date, there were 46,843,512 shares of Illumina common stock outstanding, approximately 4.8% of which were owned and entitled to be voted by Illumina directors and executive officers and their affiliates. We currently expect that Illumina’s directors and executive officers will vote their shares in favor of the merger, although none of them has entered into any agreements obligating them to do so.
 
You can cast one vote for each share of Illumina common stock you own. The proposals require different percentages of votes in order to approve them:
 
  •  The issuance of shares of Illumina common stock to Solexa stockholders requires approval by an affirmative vote of holders of a majority of the Illumina common stock present or represented and entitled to vote on the proposal at the Illumina special meeting.
 
  •  Approval of the proposal to adjourn the Illumina special meeting, if necessary, for the purpose of soliciting additional proxies requires that the votes cast favoring the proposal exceed the votes cast opposing the proposal.
 
The Solexa Special Meeting (See page 66)
 
The Solexa special meeting will be held at 25861 Industrial Boulevard, Hayward, California, 94545, at 9:00 a.m., local time, on January 26, 2007. At the Solexa special meeting, Solexa stockholders will be asked to:
 
  •  approve and adopt the merger agreement;
 
  •  vote upon an adjournment of the Solexa special meeting, if necessary, to solicit additional proxies if there are not sufficient votes for the foregoing proposal; and
 
  •  transact any other business that may properly be brought before the Solexa special meeting or any adjournments or postponements thereof.
 
You may vote at the Solexa special meeting if you owned shares of Solexa common stock at the close of business on December 15, 2006. On that date, there were 42,717,093 shares of Solexa common stock outstanding, less than 15.8% of which were owned and entitled to be voted by Solexa directors and executive officers and their affiliates. We currently expect that Solexa’s directors and executive officers will vote their shares in favor of the merger, although none of them has entered into any agreements obligating them to do so.
 
You can cast one vote for each share of Solexa common stock you own. The proposals require different percentages of votes in order to approve them:
 
  •  Approval and adoption of the merger agreement requires the affirmative vote of holders of a majority of the outstanding shares of Solexa common stock entitled to vote on the proposal.
 
  •  Approval of the proposal to adjourn the Solexa special meeting, if necessary, for the purpose of soliciting additional proxies requires that the votes cast favoring the proposal exceed the votes cast opposing the proposal.


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Selected Historical Financial Data of Illumina
 
The following table sets forth selected historical financial data of Illumina. The selected statement of operations data and the selected balance sheet data for the fiscal years ended January 1, 2006, January 2, 2005, December 28, 2003, December 29, 2002 and December 30, 2001 are derived from Illumina’s audited consolidated financial statements. The selected statement of operations data for the nine months ended October 1, 2006 and October 2, 2005 and the selected balance sheet data as of October 1, 2006 have been derived from Illumina’s unaudited consolidated financial statements incorporated by reference into this document. The interim consolidated financial data, in the opinion of management, reflect all adjustments of a normal recurring nature necessary for a fair statement of Illumina’s financial position and results of operations at the dates and for the periods indicated. The results of operations for the nine months ended October 1, 2006 may not be indicative of the results to be expected for the year ending December 31, 2006 or any other interim period.
 
Illumina’s historical financial data may not be indicative of the results of operations or financial position to be expected in the future.
 
The selected consolidated financial data should be read together with Illumina’s consolidated financial statements and the related notes to those financial statements and the “Management’s Discussion and Analysis of Financial Condition and Results of Operations” section included in Illumina’s Annual Report on Form 10-K for the year ended January 1, 2006 and its Quarterly Report on Form 10-Q for the quarter ended October 1, 2006, which have been filed with the SEC and are incorporated by reference into this document.
 
                                                         
    Nine Months Ended     Fiscal Year Ended  
    October 1,
    October 2,
    January 1,
    January 2,
    December 28,
    December 29,
    December 30,
 
    2006     2005     2006     2005     2003     2002     2001  
    (In thousands, except per share amounts)  
 
Statement of Operations Data
                                                       
Revenue
  $ 124,151     $ 50,488     $ 73,501     $ 50,583     $ 28,035     $ 10,040     $ 2,486  
Income (Loss) from Operations
    21,236       (21,463 )     (21,447 )     (5,513 )     (26,622 )     (41,855 )     (30,319 )
Net Income (Loss)
    22,826       (21,200 )     (20,874 )     (6,225 )     (27,063 )     (40,331 )     (24,823 )
Net Income (Loss) per Share:
                                                       
Basic
    0.52       (0.53 )     (0.52 )     (0.17 )     (0.85 )     (1.31 )     (0.83 )
Diluted
    0.48       (0.53 )     (0.52 )     (0.17 )     (0.85 )     (1.31 )     (0.83 )
Balance Sheet Data (at end of period)
                                                       
Working Capital
  $ 187,447             $ 57,992     $ 64,643     $ 32,229     $ 58,522     $ 91,452  
Total Assets
    256,477               100,610       94,907       99,234       121,906       122,465  
Long-term Debt, Including Amounts Due Within One Year
    94               172             25,618       26,297       887  
Stockholders’ Equity
    211,074               72,497       72,262       47,388       71,744       106,791  


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Selected Historical Financial Data of Solexa
 
The following table sets forth selected summary historical financial data of Solexa. The information presented below was derived from Solexa’s audited financial statements as of December 31, 2005, 2004, 2003 and 2002 and for the years then ended and the unaudited financial statements as of September 30, 2006 and for the nine months ended September 30, 2006 and 2005 and as of December 31, 2001 and for the year then ended. This information is only a summary. You should read it together with Solexa’s historical financial statements and accompanying notes incorporated by reference into this joint proxy statement/ prospectus.
 
On March 4, 2005, Solexa Limited, a privately-held company registered in England and Wales, and Lynx completed a business combination. Solexa Limited became a wholly-owned subsidiary of Lynx as a result of the transaction. However, because immediately following the business combination transaction, the former Solexa Limited shareholders owned approximately 80% of the shares of the common stock of Lynx, Solexa Limited’s designees to the combined company’s board of directors represented a majority of the combined company’s directors and Solexa Limited’s senior management represented a majority of the senior management of the combined company, Solexa Limited was deemed to be the acquiring company for accounting purposes.
 
Accordingly, the assets and liabilities of Lynx were recorded, as of the date of the business combination, at their respective fair values and added to those of Solexa Limited. The results of operations of the combined company for 2005 reflect those of Solexa Limited, to which the results of operations of Lynx were added from the date of the consummation of the business combination. The results of operations of the combined company reflect purchase accounting adjustments, including increased amortization and depreciation expense for acquired assets. In connection with this business combination transaction, Lynx changed its name to Solexa, Inc. and its trading symbol to “SLXA.”
 
Solexa’s historical financial data may not be indicative of the results of operations or financial position to be expected in the future.
 
                                                         
    Nine Months Ended
       
    September 30,     Year Ended December 31,  
    2006     2005     2005     2004     2003     2002     2001  
    (In thousands, except per share amounts)  
 
Statement of Operations Data
                                                       
Revenue
  $ 2,434     $ 2,848     $ 4,150     $ 96     $ 7     $     $  
Loss from Operations
    (32,366 )     (25,244 )     (32,573 )     (9,958 )     (6,718 )     (5,316 )     (2,613 )
Net Loss
    (29,002 )     (25,447 )     (29,160 )     (8,804 )     (5,649 )     (4,468 )     (2,509 )
Net Loss Attributable to Common Stockholders
    (29,002 )     (25,969 )     (29,682 )     (10,033 )     (5,649 )     (4,468 )     (2,509 )
Basic and Diluted Net Loss per Common Share
    (0.80 )     (1.53 )     (1.51 )     (9.68 )     (5.45 )     (4.31 )     (3.31 )
Balance Sheet Data (at end of period)
                                                       
Working Capital
  $ 47,592             $ 33,204     $ 13,402     $ 8,418     $ 13,073     $ 16,279  
Total Assets
    87,535               73,017       17,815       10,401       15,013       17,913  
Long-term Debt, Including Amounts Due Within One Year
    55               75       27       43              
Stockholders’ Equity
    74,955               59,773       431       9,606       14,207       17,136  


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Summary Unaudited Pro Forma Combined Condensed Financial Statements
 
The merger will be accounted for under the purchase method of accounting, which means the assets and liabilities of Solexa will be recorded, upon completion of the merger, at their respective fair values and added to those of Illumina.
 
The summary unaudited pro forma combined condensed financial information presented below reflects the purchase method of accounting and is for illustrative purposes only. The summary pro forma combined condensed financial information may have been different had the companies actually combined. The summary pro forma combined condensed financial information does not reflect the effect of asset dispositions, if any, or revenue, cost or other operating synergies that may result from the merger, nor does it reflect the effects of any financing, liquidity or other balance sheet repositioning that may be undertaken in connection with or subsequent to the merger. You should not rely on the summary pro forma combined condensed financial information as being indicative of the historical results that would have occurred had the companies been combined or the future results that may be achieved after the merger. The following summary pro forma combined condensed financial information has been derived from, and should be read in conjunction with, the Unaudited Pro Forma Combined Condensed Financial Statements and related notes presented elsewhere in this document.
 
                 
    Nine Months Ended
    Year Ended
 
    October 1, 2006     January 1, 2006  
    (In thousands, except per share data)  
 
Statement of Operations Data
               
Revenue
  $ 126,585     $ 77,651  
Loss from operations
    (16,221 )     (65,626 )
Net loss
    (10,457 )     (61,652 )
Net loss attributable to common stockholders
    (10,457 )     (62,174 )
Net loss per share, basic and diluted
    (0.19 )     (1.18 )
Weighted average shares outstanding, basic and diluted
    56,215       52,596  
 
             
    October 1, 2006      
 
Balance Sheet Data
           
Current assets
  $ 267,666      
Working capital
    225,489      
Property and equipment, net
    30,343      
Total assets
    620,875      
Current liabilities
    42,177      
Long-term debt, including amounts due within one year
    149      
Stockholders’ equity
    562,892      


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RISK FACTORS
 
In addition to the other information included and incorporated by reference into this document, including the matters addressed in the section entitled “Cautionary Statement Regarding Forward-Looking Statements,” you should carefully consider the following risks before deciding whether to vote for adoption and approval of the merger agreement, in the case of Solexa stockholders, or for the issuance of shares of Illumina common stock in the merger, in the case of Illumina stockholders. In addition, you should read and consider the risks associated with each of the businesses of Illumina and Solexa because these risks will also affect the combined company. These risks can be found in Illumina’s Quarterly Report on Form 10-Q for the quarterly period ended October 1, 2006 and in Solexa’s Quarterly Report on Form 10-Q for the quarterly period ended September 30, 2006, each of which are filed with the SEC and incorporated by reference into this document. You should also read and consider the other information in this document and the other documents incorporated by reference into this document. See the section entitled “Where You Can Find More Information” beginning on page 81.
 
The value of the shares of Illumina common stock to be received by Solexa stockholders in the proposed merger could be higher or lower than $14.00 per share of Solexa common stock.
 
In the proposed merger, Solexa stockholders will receive a fraction of a share of Illumina common stock for each share of Solexa common stock equal to an exchange ratio, which will be determined as follows:
 
  •  if the Illumina Average Price is greater than $40.70 and less than $47.30, then the exchange ratio will be determined by dividing $14.00 by the Illumina Average Price;
 
  •  if the Illumina Average Price is equal to or less than $40.70, then the exchange ratio will be 0.344; and
 
  •  if the Illumina Average Price is equal to or greater than $47.30, then the exchange ratio will be 0.296.
 
In this joint proxy statement/ prospectus, we refer to the volume weighted average (rounded to four decimal places) of the daily sale prices for shares of Illumina common stock, as reported by NASDAQ, for ten trading days randomly selected from the 20 consecutive trading days ending five trading days prior to the closing date of the merger as the “Illumina Average Price.”
 
As a result of the collar mechanism described above, if the Illumina Average Price is less than $40.70, then the market value of the shares of Illumina common stock to be issued to Solexa stockholders would have a value of less than $14.00 per share of Solexa common stock. Conversely, if the Illumina Average Price is greater than $47.30, then the market value of the shares of Illumina common stock to be issued to Solexa stockholders would have a value of greater than $14.00 per share of Solexa common stock.
 
Moreover, because the date that the merger is completed may be later than the date of the stockholder meetings, at the time of your stockholder meeting, you will not know the exact market value of the Illumina common stock that Solexa stockholders will receive upon completion of the merger.
 
Illumina may be unable to integrate successfully the businesses of Solexa and realize the anticipated benefits of the merger.
 
The success of the merger will depend, in part, on Illumina’s ability to realize the anticipated synergies, growth opportunities and cost savings from integrating Solexa’s businesses with Illumina’s businesses. Illumina’s success in realizing these benefits and the timing of this realization depend upon the successful integration of the operations of Solexa. The integration of two independent companies is a complex, costly and time-consuming process. The difficulties of combining the operations of the companies include, among other factors:
 
  •  lost sales and customers as a result of certain customers of either of the two companies deciding not to do business with the combined company;
 
  •  complexities associated with managing the combined businesses;
 
  •  integrating personnel from diverse corporate cultures while maintaining focus on providing consistent, high quality products and customer service;
 
  •  coordinating geographically separated organizations, systems and facilities;


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  •  potential unknown liabilities and unforeseen increased expenses or delays associated with the merger; and
 
  •  performance shortfalls at one or both of the companies as a result of the diversion of management’s attention to the merger.
 
If we are unable to successfully combine the businesses of Illumina and Solexa in a manner that permits the combined company to achieve the cost savings and operating synergies anticipated to result from the merger, such anticipated benefits of the merger may not be realized fully or at all or may take longer to realize than expected. In addition, Illumina and Solexa have operated and, until the completion of the merger, will continue to operate, independently. It is possible that the integration process could result in the loss of key employees, diversion of each company’s management’s attention, the disruption or interruption of, or the loss of momentum in, each company’s ongoing businesses or inconsistencies in standards, controls, procedures and policies, any of which could adversely affect our ability to maintain relationships with customers and employees or our ability to achieve the anticipated benefits of the merger, or could reduce our earnings or otherwise adversely affect the business and financial results of the combined company.
 
     Failure to complete the merger could negatively impact the stock prices and the future business and financial results of Solexa and Illumina.
 
If the merger is not completed, the ongoing businesses of Solexa or Illumina may be adversely affected and Solexa and Illumina will be subject to several risks, including the following:
 
  •  being required, under certain circumstances under the merger agreement, to pay a termination fee of $18 million;
 
  •  having to pay certain costs relating to the merger, such as legal, accounting, financial advisor and printing fees;
 
  •  failure to pursue other beneficial opportunities as a result of the focus of management of each of the companies on the merger, without realizing any of the benefits of having the merger completed; and
 
  •  the price of the common stock of Illumina and/or Solexa may decline to the extent that the current market price of their respective common stock reflects an assumption that the merger will be completed.
 
If the merger is not completed, Solexa and Illumina cannot ensure their stockholders that these risks will not materialize and will not materially affect the business, financial results and stock prices of Solexa or Illumina. Moreover, if the merger is not completed, Illumina’s registration and resale rights related to the shares of Solexa common stock that it holds may make it more difficult for Solexa to successfully access the capital markets.
 
     Solexa stockholders will have a reduced ownership and voting interest after the merger.
 
After the merger’s completion, Solexa stockholders will own a significantly smaller percentage of Illumina than they currently own of Solexa. Consequently, Solexa stockholders may have less influence over the management and policies of Illumina than they currently exercise over the management and policies of Solexa.
 
     The combined company may fail to realize the anticipated benefits of the merger as a result of Solexa’s failure to achieve anticipated revenue growth following the merger.
 
Solexa’s business faces significant risks. These risks include those described in the section entitled “Risk Factors” of Solexa’s Quarterly Report on Form 10-Q for the quarterly period ended September 30, 2006, which report is incorporated by reference into this document, and may include additional risks of which Illumina and Solexa are not currently aware or which Illumina and Solexa currently do not believe are material. If any of the events or circumstances underlying these risks actually occur, Solexa’s business, financial condition or results of operations could be harmed and, as a result, Solexa may, among other things, fail to achieve the anticipated revenue growth following the merger.


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The merger will cause dilution of Illumina’s earnings per share.
 
The merger and the transactions contemplated by the merger agreement are expected to have a dilutive effect on Illumina’s earnings per share at least through 2007 due to losses of Solexa, the additional shares of Illumina common stock that will be issued in the merger, the transaction and integration-related costs and other factors such as the failure to realize any benefit from synergies anticipated in the merger. These factors could adversely affect the market price of Illumina common stock.
 
     Obtaining required approvals and satisfying closing conditions may delay or prevent completion of the proposed transaction.
 
Completion of the proposed merger is conditioned upon, among other things, the receipt of all consents and approvals of all governmental authorities required for consummation of the proposed transaction. The requirement for these approvals could delay or prevent the completion of the proposed transaction. In addition, antitrust authorities may impose conditions in connection with the proposed transaction that may adversely affect Illumina’s operations after consummation of the merger. Moreover, the FTC, the DOJ, a state, a private person or an entity could seek, under federal or state antitrust laws, among other things, to enjoin or rescind the proposed transaction. Please see the section entitled “The Merger Agreement — Conditions to Completion of the Merger” for a discussion of the conditions to the completion of the merger and the section entitled “The Merger — Regulatory Approvals Required for the Merger” for a description of the regulatory approvals necessary in connection with the proposed merger. It cannot be assumed that these consents and approvals will be obtained, or that their terms, conditions and timing will not be detrimental to Illumina or Solexa.
 
     Illumina will depend significantly on key personnel, and the loss of one or more of Illumina’s or Solexa’s key management personnel could limit Illumina’s ability to execute its business strategy.
 
Illumina has depended on, and after the proposed merger will continue to depend on, the services and management experience of Mr. Flatley and Illumina’s other current executive officers. If Mr. Flatley or any other executive officers resign or otherwise are unable to serve following the consummation of the proposed merger, Illumina’s management expertise and efficiency could be weakened.
 
Additionally, Illumina’s obligation to complete the proposed merger is conditioned upon, among other things, each of Mr. West, Solexa’s Chief Executive Officer, and Dr. Smith, Solexa’s Vice President and Chief Scientific Officer, being actively employed by Solexa on the closing date of the merger, unless such officer is not actively employed due to death or disability. Loss of either Mr. West or Dr. Smith, other than for death or disability, may cause Illumina to decide not to complete the proposed merger and may result in the loss of value of shares of Solexa common stock.
 
Additionally, Mr. West, in particular, has been a key member of the Solexa management team, and Solexa has also been highly dependent on the principal members of Solexa’s scientific and commercial staff. The loss of any of these persons’ services following the merger could adversely impact the achievement of Illumina’s commercial objectives.
 
Certain directors and executive officers of Solexa may have potential conflicts of interests.
 
Certain directors and executive officers may have interests that differ from stockholders. Following completion of the merger, Mr. West will be Senior Vice President and General Manager of the Sequencing Business Unit of Illumina. In addition, the merger agreement requires as a condition to closing the active employment of each of Mr. West and Dr. Smith, Solexa’s Vice President and Chief Scientific Officer, by Solexa on the closing date of the merger, unless the failure to be actively employed is the result of death or disability. Solexa stockholders should be aware that certain members of the board of directors and executive officers of Solexa have interests in the merger that are different from, or in addition to, their interests as Solexa stockholders. These interests may create a conflict of interest or the appearance of a conflict of interest. See “The Merger — Interests of Solexa’s Directors and Officers in the Merger; Relationship between Illumina and Solexa” and “The Merger Agreement — Conditions to Completion of the Merger” for more information.


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CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING STATEMENTS
 
This document, including the documents incorporated by reference in this document, includes forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, which we refer to as the Securities Act, and Section 21E of the Securities Exchange Act of 1934, as amended, which we refer to as the Exchange Act. We have based these forward-looking statements on our current expectations and projections about future events. Our actual results could differ materially from those discussed in, or implied by, these forward-looking statements. Words such as “expect,” “estimate,” “project,” “budget,” “forecast,” “anticipate,” “intend,” “plan,” “may,” “will,” “could,” “should,” “believes,” “predicts,” “potential,” “continue” and similar expressions are intended to identify such forward-looking statements. In addition, any statements that refer to expectations, projections or other characterizations of future events or circumstances are forward-looking statements. Forward-looking statements include, but are not necessarily limited to, those relating to:
 
  •  the introduction and development of new products, product improvements and new services;
 
  •  the applicability and usefulness of our technologies in various markets and industries;
 
  •  the success of our technologies;
 
  •  emerging markets in functional genetic analysis, namely SNP genotyping, gene expression profiling and proteomics, and the future growth of these markets;
 
  •  demand for increased throughput in genetic analysis;
 
  •  continued advances in genomics;
 
  •  the potential to derive medically valuable information from raw genetic data and the further potential to use this information to improve drugs and therapies, to customize diagnosis and treatment, and cure disease;
 
  •  potential future partnerships, collaborations and acquisitions; and
 
  •  growth in our research and development and general and administrative expenses.
 
These statements are only predictions. In evaluating these statements, you should consider various factors, including the risks outlined under the section entitled “Risk Factors.” These factors may cause actual events or our results to differ materially from those expressed or implied by any forward-looking statement. These factors include risks and uncertainties relating to:
 
  •  Solexa’s failure to achieve the anticipated revenue growth;
 
  •  the ability to obtain regulatory approvals of the transaction on the proposed terms and schedule;
 
  •  the failure of Illumina or Solexa stockholders to approve the transaction;
 
  •  the risk that the businesses will not be integrated successfully;
 
  •  the risk that the anticipated synergies and benefits from the transaction may not be fully realized or may take longer to realize than expected;
 
  •  disruption from the transaction making it more difficult to maintain relationships with customers, employees or suppliers; and
 
  •  competition and its effect on pricing, spending, third-party relationships and revenues.
 
Although we believe that the expectations reflected in the forward-looking statements are reasonable, we cannot guarantee future results, levels of activity, performance or achievements. Moreover, neither we nor any other person assumes responsibility for the accuracy and completeness of these forward-looking statements. We are under no duty and do not intend to update any of the forward-looking statements after the date of this prospectus or to conform our prior statements to actual results.


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THE MERGER
 
The following is a discussion of the proposed merger and the merger agreement. This is a summary only and may not contain all of the information that is important to you. A copy of the merger agreement is attached to this document as Annex A and is incorporated by reference herein. Illumina and Solexa stockholders are urged to read this entire document, including the merger agreement, for a more complete understanding of the merger.
 
Effect of the Merger; Consideration to be Received in the Merger; Treatment of Solexa Stock Options and Warrants
 
Under the merger agreement, Callisto Acquisition Corp., a direct, wholly-owned subsidiary of Illumina, will merge with and into Solexa, with Solexa continuing as the surviving corporation. As a result of the merger, Solexa will become a direct, wholly-owned subsidiary of Illumina.
 
At the effective time of the merger, each share of Solexa common stock issued and outstanding immediately prior to the effective time of the merger, excluding shares of Solexa common stock owned by Solexa, Illumina or Callisto Acquisition Corp., will be converted into the right to receive shares of Illumina common stock based on the exchange ratio provided in the merger agreement. This exchange ratio will be determined by dividing $14.00 by the volume weighted average trading price of Illumina common stock as reported by NASDAQ for ten randomly selected days during the 20-day trading period ending five trading days prior to closing of the merger. The ten randomly selected days will be selected by one representative of Illumina and one representative of Solexa, who will, by blind draw, select one date at a time alternately until all ten days have been selected. This volume weighted average price of Illumina common stock is referred to as the Illumina Average Price. However, if the Illumina Average Price is equal to or greater than $47.30, then the exchange ratio will be fixed at 0.296 of a share of Illumina common stock for each share of Solexa common stock, and if the Illumina Average Price is equal to or less than $40.70, then the exchange ratio will be fixed at 0.344 of a share of Illumina common stock for each share of Solexa common stock.
 
In addition, at the effective time of the merger, each option and warrant to purchase Solexa common stock that is outstanding immediately prior to the effective time of the merger will be converted into the right to receive an option or warrant, as applicable, to purchase Illumina common stock based upon the exchange ratio. The exercise price per share of each converted option and the purchase price per share of each converted warrant shall also be adjusted based upon the exchange ratio.
 
Illumina and Solexa currently estimate that Illumina will issue approximately 12,921,484 shares of Illumina common stock to Solexa stockholders at the effective time of the merger based on the number of outstanding shares of Solexa common stock on December 15, 2006. If the closing price for a share of Illumina common stock on December 15, 2006 of $39.95 were used to determine the exchange ratio, then each holder of shares of Solexa common stock would receive 0.344 of a share of Illumina common stock for each share of Solexa common stock. Based upon the number of outstanding shares of Solexa common stock and Illumina common stock on December 15, 2006, immediately following the completion of the merger, holders of Solexa common stock immediately prior to the consummation of the merger would own approximately 21.6% of the combined company and Illumina stockholders immediately prior to the consummation of the merger would own approximately 78.4% of the combined company. This ownership percentage is subject to change based on the actual exchange ratio as of the closing of the merger.
 
Background of the Merger
 
Solexa has reviewed, from time to time, various business opportunities to further develop and commercialize its genetic analysis technologies, including scientific and product-focused collaborations.
 
Illumina also has been reviewing, from time to time, opportunities for growth and expansion, including potential business collaboration and acquisition opportunities.
 
Between February 2006 and June 2006, Illumina’s and Solexa’s senior management and scientists met on a few occasions to discuss potential opportunities for collaboration, including the joint development of new


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products based jointly on Illumina’s and Solexa’s technology. In July 2006, members of Illumina’s senior management visited Solexa’s headquarters in Hayward, California, to discuss further collaborative opportunities, as well as a possible business combination of the two companies.
 
On July 28, 2006, John West, Chief Executive Officer of Solexa, discussed with the Solexa board of directors the potential merger with Illumina at a meeting of the Solexa board of directors. At this meeting, the Solexa board of directors authorized Solexa management to pursue further discussions with Illumina regarding a potential business combination.
 
On August 9, 2006, Illumina and Solexa entered into a mutual confidentiality agreement to permit additional discussions and exchange of information concerning a possible transaction between the two companies.
 
On September 9, 2006, Jay T. Flatley, President and Chief Executive Officer of Illumina, and other members of Illumina’s senior management met with Mr. West and other members of Solexa’s senior management to discuss a potential strategic combination and other potential business opportunities for the two companies and exchanged certain financial and other information regarding their respective companies. On September 14, 2006, Messrs. Flatley and West met again to further explore the possibility of a business combination between the two companies. These discussions included, among other matters, deal rationale considerations and potential benefits that could result from a combination of the two companies.
 
On September 19, 2006, at a meeting of the Solexa board of directors, the members of the Solexa board of directors, together with members of Solexa’s senior management and a representative of Cooley Godward Kronish LLP, Solexa’s legal advisor, reviewed the status of discussions with Illumina concerning a potential business combination and various other considerations, including whether any other strategic partner would enable the same extent of product and technology synergies.
 
On September 20, 2006, Illumina, together with its financial advisor Merrill Lynch, and Solexa, together with its financial advisor, Lazard, met in San Diego, California, and engaged in due diligence discussions and reviews of each company’s financial information, technology, intellectual property and other matters. During the week of September 24, 2006, Illumina, Solexa and their respective advisors met on several occasions to exchange information and to discuss key due diligence matters in connection with the proposed merger.
 
Throughout the month of October 2006 and part of November 2006, Illumina and its financial advisor and legal advisor, Dewey Ballantine LLP, and Solexa and its financial and legal advisors, continued their due diligence reviews and discussions through in-person meetings, telephone conferences and exchange and review of various documents and information relating to the two companies. These due diligence reviews and discussions included, among others, visits by representatives of Illumina to Solexa’s operations in Cambridge, England and Hayward, California and a telephone conference among Illumina, Solexa and their respective independent auditors in which the companies discussed and reviewed accounting due diligence matters of the other company.
 
On October 5, 2006, Illumina and Solexa executed an amendment to the mutual confidentiality agreement to provide for, among other obligations, mutual standstill and employee non-solicitation obligations.
 
On October 8, 2006, at a meeting of the Illumina board of directors held via telephone conference, members of Illumina’s senior management reviewed with the Illumina board of directors preliminary information regarding Solexa and its business and the possible acquisition of Solexa by way of a merger. Illumina’s financial and legal advisors also participated in the meeting. At this meeting, the Illumina board of directors resolved to authorize members of Illumina’s senior management to engage in preliminary negotiations with Solexa regarding a possible merger of Illumina and Solexa on the terms discussed with the board.
 
On October 9, 2006, Illumina verbally communicated to Solexa an offer to acquire Solexa through a merger for $11.66 per share, which consideration would be payable in shares of Illumina common stock.
 
On October 13, 2006, at a meeting of the Solexa board of directors, Lazard reviewed for the members of the Solexa board of directors Lazard’s preliminary financial analyses of Solexa and the potential merger


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between Illumina and Solexa, and Cooley Godward Kronish LLP advised the Solexa board of directors regarding the board’s fiduciary duties in connection with its consideration of the proposed transaction. At this meeting, members of the Solexa board of directors also discussed the proposed terms of the merger with members of Solexa’s senior management and legal advisors. Later that day, Mr. West communicated to Illumina Solexa’s counterproposal of $16.00 per share as the proposed merger consideration, payable in shares of Illumina common stock.
 
On October 14, 2006, at a meeting of the Illumina board of directors held via telephone conference, members of Illumina’s senior management discussed with the Illumina board of directors the status of ongoing negotiations with Solexa, including the terms of Solexa’s counterproposal to Illumina’s proposed terms for the merger. At this meeting, the Illumina board of directors resolved to authorize members of Illumina’s senior management to continue negotiations with Solexa regarding the terms of the proposed merger. In addition, the Illumina board of directors resolved to create a subcommittee of the Illumina board of directors for the purpose of providing guidance to members of Illumina’s senior management in their negotiations with Solexa.
 
On October 19, 2006, Mr. Flatley communicated to Mr. West Illumina’s revised proposal of $13.00 per share as the merger consideration, payable in shares of Illumina common stock.
 
On October 20, 2006, at a meeting of the Solexa board of directors, Lazard reviewed for the members of the Solexa board of directors Lazard’s preliminary financial analyses of Solexa and the potential merger between Illumina and Solexa. At this meeting, members of the Solexa board of directors also discussed the proposed terms of the merger with members of Solexa’s senior management and legal advisors. Also on this day, Solexa communicated to Illumina a counterproposal of $14.70 per share with a 15% symmetrical fixed price collar as the merger consideration, payable in shares of Illumina common stock.
 
On October 21, 2006, Illumina and Solexa, together with their respective financial and legal advisors, met in Palo Alto, California to discuss the terms of the proposed merger. At this meeting, Illumina and Solexa negotiated, among other terms, the merger consideration. The terms of the merger consideration discussed between the parties included Illumina’s revised offer of either $13.50 per share with a 5% symmetrical fixed price collar or $13.85 per share without a collar mechanism, and Solexa’s counter proposal of $14.00 per share with a 10% symmetrical fixed price collar. In all cases, the contemplated merger consideration consisted of shares of Illumina common stock. After extensive negotiations, the parties agreed, subject to the approval of their respective board of directors, to the terms of the merger consideration of $14.00 per share, payable in shares of Illumina common stock and subject to a symmetrical fixed price collar of plus and minus 7.5% of the average Illumina stock price that would be used to determine the exchange ratio. The parties also discussed other key terms of the proposed transaction, including, in particular, the terms of a securities purchase agreement, which would provide for a $50 million cash investment in Solexa by Illumina. Solexa indicated that it had contemplated an equity financing within the next few months to fund its capital requirements and that further discussion with Illumina concerning a potential merger would be predicated on Illumina’s commitment to make a cash investment in Solexa to fund Solexa’s working capital requirements in the event that the proposed merger was not consummated for any reason.
 
On October 25, 2006, Lazard reviewed with the Solexa board of directors financial analyses of the potential merger between Illumina and Solexa at a meeting of the Solexa board of directors. Members of Solexa senior management, together with its financial and legal advisors, also updated the Solexa board of directors with the status of discussions with Illumina on the proposed terms of the merger.
 
On the same day, at a meeting of the Illumina board of directors, members of Illumina’s senior management provided an update on their negotiations with Solexa to the Illumina board of directors and reviewed with the Illumina board of directors the preliminary understanding between Illumina and Solexa on certain terms of the proposed transactions. Members of Illumina’s senior management also updated the Illumina board of directors on the due diligence reviews conducted in connection with the proposed transactions.


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On October 30, 2006, at a meeting of a committee of the Solexa board of directors, those directors present discussed the proposed terms of the merger with members of Solexa’s senior management and legal advisors.
 
On November 3, 2006, the Solexa board of directors, together with members of Solexa’s senior management and its financial and legal advisors, convened at a meeting of the Solexa board of directors to receive an update on the discussions with Illumina on the terms and conditions of the transaction documents relating to the merger.
 
During the first week and into the second week of November 2006, Illumina and Solexa, together with their respective financial and legal advisors, continued to negotiate and finalize the terms of the merger agreement, securities purchase agreement and related transaction documents, while finalizing their mutual financial, legal and other customary due diligence reviews and discussions.
 
On November 10, 2006, at a meeting of the Solexa board of directors, Lazard reviewed its preliminary financial analyses, and members of Solexa’s senior management and legal advisor reviewed the status of the negotiations of the merger agreement, the securities purchase agreement and related transaction documents, as well as the terms of the transaction documents in their draft form for the Solexa board of directors. In addition, Solexa’s legal advisor discussed with the Solexa board of directors the board’s fiduciary duties in reviewing the proposed transactions and their terms. The Solexa board of directors engaged in an extensive discussion regarding the terms of the merger agreement, the securities purchase agreement and related transaction documents with members of Solexa’s senior management and its financial and legal advisors, including the rationale, prospects, benefits and risks associated with the proposed transactions and the matters discussed in the section entitled “The Merger — Solexa’s Reasons for the Merger; Recommendation of the Merger by the Solexa Board of Directors.”
 
On the same day, at a meeting of the Illumina board of directors held via telephone conference, members of Illumina’s senior management discussed with the Illumina board of directors the terms of the proposed transactions and Dewey Ballantine LLP reviewed with the Illumina board of directors the principal terms of the transaction documents and the legal issues relevant to its consideration of the proposed transactions, including a review of the fiduciary duties of the board of directors and the legal standards applicable to the board of directors’ review of the proposed transactions. Members of Illumina’s senior management also updated the Illumina board of directors on the due diligence reviews conducted in connection with the proposed transaction. At this meeting, Merrill Lynch reviewed with the Illumina board of directors its financial analyses of the terms of the proposed merger and rendered its oral opinion, which opinion was subsequently confirmed by delivery of a written opinion dated November 12, 2006, to the effect that, as of the date of such opinion and based upon the assumptions made, matters considered and limits of review set forth in such written opinion, the exchange ratio provided for in the merger agreement was fair, from a financial point of view, to Illumina. See “The Merger — Opinions of Financial Advisors — Opinion of Illumina’s Financial Advisor” for further information regarding Merrill Lynch’s opinion.
 
Following these discussions, and further review and discussion among members of the Illumina board of directors, including consideration of the matters discussed in the section entitled “The Merger — Illumina’s Reasons for the Merger; Recommendation of the Stock Issuance by the Illumina Board of Directors,” the Illumina board of directors unanimously voted to approve the merger agreement, the securities purchase agreement and the transactions contemplated thereby and resolved to recommend that the Illumina stockholders vote to approve the issuance of shares of Illumina common stock in the merger.
 
On November 11 and November 12, 2006, representatives of the senior management of Illumina and Solexa, and their respective financial and legal advisors, finalized the terms of the merger and its related transaction documents.
 
On November 12, 2006, at a meeting of the Solexa board of directors held via telephone conference, Solexa’s legal advisor reviewed with the members of Solexa’s board of directors and senior management the final terms of the transaction documents. The Solexa board of directors discussed the terms of the merger agreement, the securities purchase agreement and related transaction documents with members of Solexa’s


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senior management and financial and legal advisors. At this meeting, Lazard stated that its financial analyses of the terms of the proposed merger had not changed since the analyses reviewed with the Solexa board of directors at the November 10, 2006 meeting, and delivered its oral opinion, which opinion was subsequently confirmed by delivery of a written opinion of the same date, to the effect that, as of the date of its opinion and based upon and subject to the factors, assumptions and limitations stated therein, the exchange ratio, as defined in the merger agreement, was fair, from a financial point of view, to the holders of Solexa common stock. See “The Merger — Opinions of Financial Advisors — Opinion of Solexa’s Financial Advisor” for further information regarding Lazard’s opinion. Also at this meeting, Cooley Godward Kronish LLP reviewed with the Solexa board of directors and members of Solexa’s senior management the finalized terms of the transaction documents. In addition, Cooley Godward Kronish LLP discussed with the Solexa board of directors its fiduciary duties in reviewing the proposed transactions and their terms.
 
In light of the Solexa board of directors’ extensive discussions at the November 10, 2006 meeting, including the consideration of the matters discussed in the section entitled “The Merger — Solexa’s Reasons for the Merger; Recommendation of the Merger by the Solexa Board of Directors,” the board’s evaluation and discussion of the final terms of the transaction documents, the delivery by Lazard of its opinion described in the preceding paragraph and the Solexa board of directors’ prior meetings on these matters, the Solexa board of directors unanimously determined that the proposed transactions are advisable and fair and in the best interests of Solexa and its stockholders, and the Solexa board of directors voted unanimously to approve the merger agreement and to recommend the Solexa stockholders to vote to approve and adopt the merger agreement.
 
Thereafter, Illumina, Callisto Acquisition Corp., a wholly-owned subsidiary of Illumina, and Solexa executed the merger agreement, and Illumina and Solexa executed the securities purchase agreement. These transactions were announced on the morning of November 13, 2006 in a press release issued jointly by Illumina and Solexa. Later in the day on November 13, 2006, Illumina acquired 5,154,639 shares of Solexa common stock for an aggregate purchase price of approximately $50 million pursuant to the securities purchase agreement.
 
Illumina’s Reasons for the Merger; Recommendation of the Stock Issuance by the Illumina Board of Directors
 
In reaching its decision to adopt and approve the merger agreement and recommend approval to the Illumina stockholders the stock issuance, the Illumina board of directors consulted with Illumina’s management, as well as with its legal and financial advisors, and considered a number of factors, including the following factors which the Illumina board viewed as generally supporting its decision to approve the merger and the merger agreement and recommend the Illumina stockholders vote “FOR” approval of the issuance of Illumina common stock in connection with the merger.
 
Strategic Considerations.  The Illumina board of directors believes the merger will provide a number of significant strategic opportunities and benefits, including the following:
 
  •  expand Illumina’s genetic analysis product offering to include Solexa’s next generation sequencing platform, the 1G Genome Analyzer;
 
  •  create the only company to offer both analog and digital gene expression, enhancing Illumina’s rapidly emerging gene expression franchise;
 
  •  add to Illumina’s emerging opportunity in molecular diagnostics and content discovery;
 
  •  increase Illumina’s addressable markets;
 
  •  drive Solexa’s manufacturing and commercialization;
 
  •  leverage Illumina’s global sales and support infrastructure;
 
  •  accelerate development of future products; and
 
  •  leverage the combination of each company’s core technologies.


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Other Factors Considered by the Illumina Board of Directors.  In addition to considering the strategic factors described above, the Illumina board of directors considered the following additional factors, all of which it viewed as supporting its decision to approve the merger and the stock issuance:
 
  •  its knowledge of Illumina’s business, operations, financial condition, earnings and prospects and of Solexa’s business, operations, financial condition, earnings and prospects, taking into account the results of Illumina’s due diligence review of Solexa;
 
  •  the current and prospective competitive climate in the industries in which Illumina and Solexa operate, and the alternatives reasonably available to Illumina if it did not pursue the merger;
 
  •  the limited availability of alternative next generation sequencing technologies that are currently on the market;
 
  •  Merrill Lynch’s opinion to the Illumina board of directors, to the effect that, as of the date of its opinion and based upon the assumptions made, matters considered and limits of review set forth in its subsequent written opinion, the exchange ratio provided in the merger agreement was fair from a financial point of view to Illumina (see “The Merger — Opinions of Financial Advisors — Opinion of Illumina’s Financial Advisor”);
 
  •  the terms and conditions of the merger agreement and the likelihood of completing the merger on the anticipated schedule; and
 
  •  corporate governance matters with respect to the combined company post-merger, as described under “The Merger — Board of Directors and Management Following the Merger,” including the fact that Mr. Flatley will serve as President and Chief Executive Officer of the combined company, Mr. West will serve as Senior Vice President and General Manager of the Sequencing Business Unit of the combined company and the combined company’s board of directors will consist of the current directors of the Illumina board of directors, with the addition of two new independent directors selected by the Illumina board of directors and agreed to by Solexa.
 
The Illumina board of directors weighed these advantages and opportunities against a number of other factors identified in its deliberations weighing negatively against the merger, including:
 
  •  the dilutive effect of the proposed merger on Illumina’s estimated earnings per share, which is expected to continue at least through fiscal year 2007;
 
  •  the risk of not capturing all the anticipated cost savings and operational synergies between Illumina and Solexa and the risk that other anticipated benefits might not be realized;
 
  •  the risk that under certain circumstances where the merger is not consummated, Illumina will be required to pay a termination fee to Solexa (see the section entitled “The Merger Agreement — Termination Fee”);
 
  •  the risk that regulatory agencies may not approve the merger or may impose terms and conditions on their approvals that adversely affect the projected financial results of the combined company (see the section entitled “The Merger — Regulatory Approvals Required for the Merger”); and
 
  •  the risks of the type and nature described under the section entitled “Risk Factors,” and the matters described under “Cautionary Statement Regarding Forward-Looking Statements.”
 
In view of the wide variety of factors considered in connection with its evaluation of the merger and the complexity of these matters, the Illumina board of directors did not find it useful and did not attempt to quantify or assign any relative or specific weights to the various factors that it considered in reaching its determination to approve the merger and the merger agreement and to recommend that Illumina stockholders vote “FOR” the issuance of Illumina common stock in connection with the merger. In addition, individual members of the Illumina board of directors may have given differing weights to different factors. The Illumina board of directors conducted an overall analysis of the factors described above, including thorough discussions with, and questioning of, Illumina’s management and outside legal and financial advisors.


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The Illumina board of directors unanimously determined that the merger, the merger agreement and the transactions contemplated by the merger agreement, including the stock issuance, are advisable and in the best interests of Illumina and its stockholders and unanimously approved the merger agreement. The Illumina board unanimously recommends that Illumina stockholders vote “FOR” the issuance of Illumina common stock in connection with the merger.
 
Solexa’s Reasons For the Merger; Recommendation of the Merger by the Solexa Board of Directors
 
In reaching its decision to adopt and approve the merger agreement and recommend approval and adoption of the merger agreement to the Solexa stockholders, the Solexa board of directors consulted with Solexa’s management, as well as with its legal and financial advisors, and considered a number of factors, including the following factors which the Solexa board of directors viewed as generally supporting its decision to approve the merger and the merger agreement and recommend the Solexa stockholders vote “FOR” approval and adoption of the merger agreement.
 
The Solexa board of directors considered the following factors, all of which it viewed as supporting its decision to approve the merger agreement and the merger:
 
  •  the form, value and liquidity of the consideration to be issued in the merger;
 
  •  the relationship between that consideration and current and historical market prices of Solexa common stock;
 
  •  the prospects of the combined company following the merger;
 
  •  the technological advantages, broader product offerings and strategic opportunities of the combined company following the merger;
 
  •  Solexa’s prospects as a stand-alone entity;
 
  •  the terms of the merger agreement and the likelihood of completing the merger on the anticipated schedule;
 
  •  the opinion of Lazard, financial advisor to the Solexa board of directors, as to the fairness, from a financial point of view, of the exchange ratio, as defined in the merger agreement, to the holders of Solexa common stock, as of the date of the opinion and subject to the factors, assumptions and limitations set forth therein, and the financial analysis underlying such opinion (see the section entitled “The Merger — Opinions of Financial Advisors — Opinion of Solexa’s Financial Advisor”); and
 
  •  Solexa’s need for additional funding.
 
The Solexa board of directors weighed these advantages and opportunities against a number of other factors identified in its deliberations weighing negatively against the merger, including:
 
  •  the risk that under certain circumstances where the merger is not consummated, Solexa will be required to pay a termination fee to Illumina (see the section entitled “The Merger Agreement — Termination Fee”);
 
  •  the risk that regulatory agencies may not approve the merger or may impose terms and conditions on their approvals that adversely affect the projected financial results of the combined company (see the section entitled “The Merger — Regulatory Approvals Required for the Merger”);
 
  •  the risks of the type and nature described under the section entitled “Risk Factors,” and the matters described under the section entitled “Cautionary Statement Regarding Forward-Looking Statements”; and
 
  •  the risk that the anticipated benefits of the merger might not be realized.
 
The above discussion of the material factors considered by the Solexa board of directors is not intended to be exhaustive, but does set forth the principal factors considered by the Solexa board of directors. The Solexa board of directors unanimously reached the conclusion to approve and adopt the merger agreement and


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the other transactions contemplated by the merger agreement and to recommend the merger agreement to the Solexa stockholders for approval and adoption in light of the various factors described above and other factors that each member of the Solexa board of directors felt were appropriate. In view of the wide variety of factors considered by the Solexa board of directors in connection with its evaluation of the merger and the complexity of these matters, the Solexa board of directors did not consider it practical, and did not attempt, to quantify, rank or otherwise assign relative weights to the specific factors it considered in reaching its decision. Rather, the Solexa board of directors made its recommendation based on the totality of information presented to, and the investigation conducted by, it. In considering the factors discussed above, individual directors may have given different weights to different factors.
 
The Solexa board of directors unanimously approved and adopted the merger agreement and the other transactions contemplated by the merger agreement and recommends that the Solexa stockholders vote “FOR” the approval and adoption of the merger agreement.
 
Opinions of Financial Advisors
 
Opinion of Illumina’s Financial Advisor
 
The Illumina board of directors engaged Merrill Lynch to act as its financial advisor in connection with the proposed merger, and to render an opinion as to whether the exchange ratio pursuant to the merger agreement was fair from a financial point of view to Illumina.
 
On November 10, 2006, Merrill Lynch delivered to the Illumina board of directors its oral opinion, which opinion was subsequently confirmed by delivery of a written opinion, dated November 12, 2006, to the effect that, as of that date and based upon the assumptions made, matters considered and limits of review set forth in its written opinion, the exchange ratio provided in the merger agreement was fair, from a financial point of view, to Illumina. A copy of Merrill Lynch’s written opinion is attached to this joint proxy statement/prospectus as Annex C.
 
Merrill Lynch’s written opinion sets forth the assumptions made, matters considered and limits on the scope of review undertaken by Merrill Lynch. Each holder of Illumina common stock is encouraged to read Merrill Lynch’s opinion in its entirety. Merrill Lynch’s opinion was intended for the use and benefit of the Illumina board of directors, does not address the merits of the underlying decision by Illumina to enter into the merger agreement or any of the transactions contemplated thereby, including the merger, and does not constitute a recommendation to any Illumina stockholder as to how that stockholder should vote on, or take any action with respect to, the merger or any related matter. Merrill Lynch was not asked to address nor does its opinion address the fairness to, or any other consideration of, the holders of any class of securities, creditors or other constituencies of Illumina. Additionally, Merrill Lynch expresses no opinion as to the prices at which the shares of common stock of either Illumina or Solexa will trade following the announcement or consummation of the merger. This summary of Merrill Lynch’s opinion is qualified in its entirety by reference to the full text of the opinion attached to this joint proxy statement/ prospectus as Annex C.
 
In preparing its opinion to the Illumina board of directors, Merrill Lynch performed various financial and comparative analyses, including those described below. The summary set forth below does not purport to be a complete description of the analyses underlying Merrill Lynch’s opinion or the presentation made by Merrill Lynch to the Illumina board of directors. The preparation of a fairness opinion is a complex analytical process involving various determinations as to the most appropriate and relevant methods of financial analysis and the application of those methods to the particular circumstances and, therefore, a fairness opinion is not readily susceptible to partial analysis or summary description. In arriving at its opinion, Merrill Lynch did not attribute any particular weight to any analysis or factor considered by it, but rather made its determination as to fairness on the basis of its experience and professional judgment after considering the results of all of its analyses. Accordingly, Merrill Lynch believes that its analyses must be considered as a whole and that selecting portions of its analyses and factors, or focusing on information presented in tabular format, without considering all of the analyses and factors or the narrative description of the analyses, would create a misleading or incomplete view of the process underlying its opinion.


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In arriving at its opinion, Merrill Lynch, among other things:
 
  •  reviewed certain publicly available business and financial information relating to Illumina and Solexa that it deemed to be relevant;
 
  •  reviewed certain information, including financial forecasts, relating to the business, earnings, cash flow, assets, liabilities and prospects of Illumina and Solexa as furnished to it by Illumina and Solexa, respectively, as well as the amount and timing of the cost savings and related expenses and synergies expected to result from the merger, which are referred to as the “expected synergies,” furnished to it by Illumina;
 
  •  conducted discussions with members of senior management and representatives of Illumina and Solexa concerning the matters described in the preceding two bullet points, as well as their respective businesses and prospects before and after giving effect to the transaction and the expected synergies;
 
  •  reviewed the market prices and valuation multiples for Illumina common stock and Solexa common stock and compared them with those of certain publicly-traded companies that it deemed to be relevant;
 
  •  reviewed the results of operations of Illumina and Solexa;
 
  •  participated in certain discussions and negotiations among representatives of Illumina and Solexa and their financial and legal advisors;
 
  •  reviewed the potential pro forma impact of the merger;
 
  •  reviewed drafts of the merger agreement; and
 
  •  reviewed such other financial studies and analyses and took into account such other matters as were deemed necessary, including an assessment of general economic, market and monetary conditions.
 
In preparing its opinion, Merrill Lynch assumed and relied on the accuracy and completeness of all information supplied or otherwise made available to it, discussed with or reviewed by or for it, or publicly available, and Merrill Lynch did not assume any responsibility for independently verifying such information or undertake an independent evaluation or appraisal of any of the assets or liabilities of Illumina or Solexa and was not furnished with any such evaluation or appraisal, nor did it evaluate the solvency or fair value of Illumina or Solexa, under any state or federal laws relating to bankruptcy, insolvency or similar matters. In addition, Merrill Lynch did not assume any obligation to conduct any physical inspection of the properties or facilities of Illumina or Solexa. With respect to the financial forecast information and the expected synergies furnished to or discussed with Merrill Lynch by Illumina or Solexa, Merrill Lynch assumed that such forecasts were reasonably prepared and reflected the best currently available estimates and judgment of Illumina or Solexa’s management as to the expected future financial performance of Illumina or Solexa, as the case may be, and the expected synergies. Merrill Lynch further assumed that the merger would qualify as a tax-free reorganization for United States federal income tax purposes. Merrill Lynch also assumed that the final form of the merger agreement would be substantially similar to the last draft reviewed by it.
 
Merrill Lynch’s opinion was necessarily based upon market, economic and other conditions as they existed and could be evaluated on, and on the information made available to it as of, the date thereof. Merrill Lynch assumed that in the course of obtaining the necessary regulatory or other consents or approvals (contractual or otherwise) for the merger, no restrictions, including any divestiture requirements or amendments or modifications, would be imposed that would have a material adverse effect on the contemplated benefits of the merger. Merrill Lynch expressed no opinion with respect to the transactions contemplated by the securities purchase agreement, dated as of November 12, 2006, by and between Illumina and Solexa.
 
The following is a summary of the material financial analyses that Merrill Lynch performed in connection with its oral opinion to the Illumina board of directors on November 10, 2006. The financial analyses summarized below include information presented in tabular format. In order to understand fully the financial analyses performed by Merrill Lynch, the tables must be read together with the accompanying text of each summary. The tables alone do not constitute a complete description of the financial analyses, and if viewed in isolation could create a misleading or incomplete view of the financial analyses


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performed by Merrill Lynch. To the extent the following quantitative information reflects market data, except as otherwise indicated, Merrill Lynch based this information on market data as they existed prior to November 10, 2006. This information, therefore, does not necessarily reflect current or future market conditions.
 
Calculation of Transaction Value
 
Merrill Lynch reviewed the financial terms of the merger agreement. The merger consideration had a total offer value, subject to certain collar provisions, of $14.00 per share of Solexa common stock. Merrill Lynch noted that Solexa stockholders will receive, subject to certain collar provisions, between 0.296 and 0.344 of a share of Illumina common stock for each share of Solexa common stock.
 
Historical Trading Performance — Solexa
 
Merrill Lynch reviewed the historical trading prices for the Solexa common stock as background information. This review indicated that during the 52-week period ending November 9, 2006, the Solexa common stock traded as low as $7.20 per share and as high as $12.03 per share, and during the three-month period ending November 9, 2006, the Solexa common stock traded as low as $7.87 per share and as high as $10.47 per share. These trading prices were compared to the closing price of Solexa common stock on November 9, 2006 of $9.44 per share.
 
Comparable Companies Analysis
 
Merrill Lynch reviewed and compared selected financial information and trading statistics of Solexa and Illumina to the publicly available corresponding data for the following companies in the life sciences tools sector:
 
  •  Thermo Fisher Scientific Inc.
 
  •  Applied Biosystems, Inc.
 
  •  Waters Corporation
 
  •  Sigma-Aldrich Corporation
 
  •  Millipore Corporation
 
  •  Charles River Laboratories, Inc.
 
  •  Invitrogen Corporation
 
  •  Techne Corporation
 
  •  Affymetrix, Inc.
 
  •  Bio-Rad Laboratories, Inc.
 
Merrill Lynch reviewed enterprise values, calculated as equity market value, plus total debt, preferred stock and minority investments, less cash and cash equivalents, of the selected companies as multiples of estimated 2008 revenues and estimated 2008 earnings before interest and taxes, which is referred to as EBIT. All multiples were based on closing stock prices on November 9, 2006. Estimated financial data for the selected companies were based on Wall Street research analyst reports. Estimated financial data for Solexa were based on Solexa’s management projections, as adjusted by Illumina’s management, and estimated financial data for Illumina were based on Illumina’s management projections. Merrill Lynch then applied a range of selected revenue multiples for the selected companies to corresponding data of Solexa, and selected revenue multiples and EBIT multiples for the selected companies to the corresponding data of Illumina, to derive implied equity reference ranges for Solexa and Illumina. This analysis indicated an implied equity reference range for Solexa of $13.44 to $15.95 per share, as compared to the closing price of Solexa common stock on November 9, 2006 of $9.44 per share and the implied value of the merger consideration, subject to certain collar provisions, of $14.00 per share. This analysis also indicated implied equity reference ranges for


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Illumina of $27.84 to $37.98 per share, based on the selected revenue multiples, and $33.98 to $41.45 per share, based on the selected EBIT multiples, as compared to the closing price of Illumina common stock on November 9, 2006 of $43.42 per share.
 
No company used in the comparable companies analyses described above is identical to Solexa, Illumina, or the pro forma combined company, as the case may be. Accordingly, an analysis of the results of the foregoing necessarily involves complex considerations and judgments concerning financial and operating characteristics and other factors that could affect the merger, public trading or other values of the companies to which they are being compared. Mathematical analyses, such as determining the mean or median, are not of themselves meaningful methods of using comparable companies data.
 
Discounted Cash Flow Analysis — Solexa
 
Merrill Lynch performed a discounted cash flow analysis to derive an implied equity reference range for Solexa. Using Solexa’s management projections, as adjusted by Illumina’s management, Merrill Lynch performed this analysis on a stand-alone basis. The reference range was determined by adding (i) the present value of Solexa’s free cash flows through December 31, 2010 and (ii) the present value of the “terminal value” of Solexa common stock. In calculating the terminal value of Solexa common stock, Merrill Lynch applied multiples ranging from 14.0x to 18.0x to year 2010 forecasted earnings before interest and taxes.
 
The free cash flow stream and terminal value were then discounted back to the present time period using discount rates ranging from 14.0% to 16.0%, which are rates Merrill Lynch viewed as the appropriate range for a company with Solexa’s risk characteristics.
 
This analysis indicated an implied equity reference range for Solexa of $20.73 to $27.57 per share, excluding the expected synergies, and $21.69 to $28.57 per share, including the expected synergies.
 
Discounted Cash Flow Analysis — Illumina
 
Merrill Lynch performed a discounted cash flow analysis to derive an implied equity reference range for Illumina. Using Illumina’s management projections, Merrill Lynch performed this analysis on a stand-alone basis. The reference range was determined by adding (i) the present value of Illumina’s free cash flows through December 31, 2010 and (ii) the present value of the “terminal value” of Illumina common stock. In calculating the terminal value of Illumina common stock, Merrill Lynch applied multiples ranging from 14.0x to 18.0x to year 2010 forecasted earnings before interest and taxes. The free cash flow stream and terminal value were then discounted back to the present time period using discount rates ranging from 11.0% to 13.0%, which are rates Merrill Lynch viewed as the appropriate range for a company with Illumina’s risk characteristics.
 
This analysis indicated an implied equity reference range for Illumina of $37.76 to $49.66 per share.
 
Research Analyst Price Targets
 
Merrill Lynch reviewed the most recent Wall Street research equity analyst per share target prices for Solexa common stock, which ranged from $13.00 to $15.00, as compared to the closing price of Solexa common stock on November 9, 2006 of $9.44 per share and the implied value of the merger consideration, subject to certain collar provisions, of $14.00 per share.
 
Contribution Analysis
 
Merrill Lynch also reviewed the relative contributions of Illumina and Solexa to the pro forma combined company with respect to certain financial and operating measurements. This analysis was based on Illumina’s management projections and Solexa’s management projections, as adjusted by Illumina’s management. Merrill Lynch then compared these contributions to the estimated pro forma implied stock ownership interests of Illumina and Solexa resulting from the merger, based on the exchange ratio and on fully-diluted shares based on stated shares outstanding and options and warrants accounted for under the treasury stock method based on the market price as of November 9, 2006.


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The following table indicates what Illumina’s and Solexa’s percentage contributions would have been on a pro forma basis to the combined company in the categories listed.
 
                 
    Contribution
    Contribution
 
    of Illumina     of Solexa  
 
2009 Revenue
    67.4 %     32.6 %
2010 Revenue
    67.1 %     32.9 %
2009 EBIT
    61.1 %     38.9 %
2010 EBIT
    62.5 %     37.5 %
 
Pro Forma Financial Impact
 
Based on an estimated exchange ratio of 0.296 to 0.344 of a share of Illumina common stock for each share of Solexa common stock, Merrill Lynch analyzed the pro forma per share financial impact of the merger on Illumina’s cash earnings per share. This analysis was based on Illumina’s management projections and Solexa’s management projections, as adjusted by Illumina’s management. The analysis assumed pre-tax cost synergies equal to one-third of Solexa’s operating expenses per year, of which 50% were projected to be realized in 2007 and 100% in 2008 and thereafter. This analysis indicated that the proposed merger could be dilutive to Illumina’s stockholders on a cash earnings per share basis in fiscal year 2007 and accretive to Illumina’s stockholders on a cash earnings per share basis in each of the fiscal years 2008, 2009 and 2010.
 
Historical Implied Exchange Ratio Trading Analysis
 
Merrill Lynch reviewed the per share daily closing trading prices for the Illumina common stock and the Solexa common stock for the one-year period ending November 9, 2006. For perspective on the related prices at which Illumina and Solexa common stock have historically traded, Merrill Lynch calculated the historical implied exchange ratios by dividing the daily closing prices of Solexa common stock by those of Illumina common stock. This analysis showed the following implied exchange ratios, compared in each case to the exchange ratio range pursuant to the merger of 0.296 to 0.344 of a share of Illumina common stock for each share of Solexa common stock.
 
                         
    Implied Exchange Ratio  
    Low     Mean     High  
 
Current (11/09/06)
    0.217 x     0.217 x     0.217x  
One Month
    0.217 x     0.240 x     0.282x  
Three Months
    0.217 x     0.249 x     0.282x  
One Year
    0.217 x     0.366 x     0.741x  
 
Relative Contribution Analysis
 
Merrill Lynch calculated the relative contributions of Illumina and Solexa to the combined company of projected revenue and EBIT for fiscal years 2009 and 2010, respectively, in each case before giving effect to the expected synergies based upon the following two combinations of cases:
 
  •  Illumina’s management projections and Solexa’s management projections; and
 
  •  Illumina’s management projections and Solexa’s management projections, as adjusted by Illumina’s management.


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This analysis yielded the following implied exchange ratios, in each case compared to the exchange ratio range pursuant to the merger of 0.296 to 0.344 of a share of Illumina common stock for each share of Solexa common stock:
 
                 
    Implied Exchange Ratio  
Analysis Based on:
  Low     High  
 
2009 Revenue
    0.559 x     0.920x  
2010 Revenue
    0.552 x     0.937x  
2009 EBIT
    0.527 x     0.711x  
2010 EBIT
    0.516 x     0.674x  
 
Relative Discounted Cash Flow Analysis
 
Based upon the per share implied equity reference ranges for Solexa and Illumina that were derived from the discounted cash flow analyses described above, Merrill Lynch calculated a range of implied exchange ratios of a share of Solexa common stock to a share of Illumina common stock, based upon:
 
  •  Illumina’s management projections and Solexa’s management projections, which are referred to as the Management Cases, and
 
  •  Wall Street analyst projections for Illumina, and Solexa’s management projections, as adjusted by Illumina’s management, which are referred to as the Street Case / Illumina Adjusted Case.
 
This analysis yielded the following implied exchange ratios, in each case compared to the exchange ratio range pursuant to the merger of 0.296 to 0.344 of a share of Illumina common stock for each share of Solexa common stock:
 
                 
    Implied Exchange Ratio  
Analysis Based on:
  Low     High  
 
Management Cases
    0.317 x     0.552x  
Street Case / Illumina Adjusted Case
    0.494 x     0.860x  
 
General
 
In conducting its analyses and arriving at its opinion, Merrill Lynch utilized a variety of generally accepted valuation methods. The analyses were prepared for the purpose of enabling Merrill Lynch to provide its opinion to the Illumina board of directors as to the fairness, from a financial point view, to Illumina of the exchange ratio pursuant to the merger agreement and do not purport to be appraisals or necessarily to reflect the prices at which businesses or securities actually may be sold, which are inherently subject to uncertainty. In connection with its analyses, Merrill Lynch made, and was provided by the management of each of Solexa and Illumina with, numerous assumptions with respect to industry performance, general business and economic conditions and other matters, many of which are beyond the control of Merrill Lynch, Illumina or Solexa. Analyses based on estimates or forecasts of future results are not necessarily indicative of actual past or future values or results, which may be significantly more or less favorable than suggested by such analyses. Additionally, estimates of the value of businesses or securities do not purport to be appraisals or to reflect the prices at which such businesses or securities might actually be sold. Because such analyses are inherently subject to substantial uncertainty, being based upon numerous factors or events beyond the control of Solexa, Illumina and their respective advisors, neither Illumina nor Merrill Lynch nor any other person assumes responsibility if future results or actual values are materially different from these forecasts or assumptions.
 
In addition, as described above, the Merrill Lynch opinion was among several factors taken into consideration by the Illumina board of directors in making its determination to approve the merger agreement and the merger. Consequently, Merrill Lynch’s analyses should not be viewed as determinative of the decision of the Illumina board of directors with respect to the fairness to Illumina of the exchange ratio pursuant to the merger.


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The Illumina board of directors selected Merrill Lynch to render a fairness opinion because Merrill Lynch is an internationally recognized investment banking firm with substantial experience in transactions similar to the merger. As part of its investment banking business, Merrill Lynch is continually engaged in the valuation of businesses and their securities in connection with mergers and acquisitions, leveraged buyouts, negotiated underwritings, secondary distributions of listed and unlisted securities, private placements and valuations for corporate and other purposes.
 
Merrill Lynch acted as financial advisor to Illumina in connection with the merger and will receive a fee from Illumina for its services pursuant to a letter agreement dated as of October 3, 2006. Pursuant to this letter agreement, Illumina has paid Merrill Lynch for its services a fee upon delivery of its opinion, which will be credited against the fee for financial advisory services. This opinion fee is not contingent upon the consummation of the merger. In addition, Illumina has agreed to indemnify Merrill Lynch for certain liabilities arising out of its engagement. Illumina has also agreed to reimburse Merrill Lynch for its reasonable expenses, including attorneys’ fees and disbursements. Merrill Lynch has, in the past, provided financial advisory and financing services to Illumina and/or its affiliates and may continue to do so and has received, and may continue to receive, fees for the rendering of such services including acting as an underwriter in the May 2006 follow-on public offering of Illumina’s common stock.
 
In addition, Merrill Lynch may actively trade the Illumina common stock and other securities of Illumina, as well as the Solexa common stock and other securities of Solexa, for its own account and for the accounts of its customers and, accordingly, Merrill Lynch may at any time hold a long or short position in such securities.
 
Opinion of Solexa’s Financial Advisor
 
Pursuant to a letter agreement, dated October 24, 2006, Solexa retained Lazard to, among other things, render an opinion to the Solexa board of directors as to whether the consideration to be issued to the holders of Solexa common stock in the merger was fair from a financial point of view to the holders of Solexa common stock. On November 12, 2006, Lazard delivered to the Solexa board its oral opinion that, as of that date, the exchange ratio to be determined pursuant to the merger agreement was fair from a financial point of view to the holders of Solexa common stock. Lazard subsequently confirmed its oral opinion by delivering a written opinion, dated November 12, 2006.
 
The full text of the written opinion of Lazard is attached as Annex D to this joint proxy statement/ prospectus and is incorporated herein by reference. You are urged to read the Lazard opinion in its entirety for a description of the procedures followed, assumptions made, matters considered and qualifications and limitations on the review undertaken by Lazard in connection with its opinion. Lazard’s written opinion is directed to the Solexa board and only addresses the fairness of the exchange ratio to the holders of Solexa common stock from a financial point of view as of the date of the opinion. Lazard’s opinion does not address the merits of the underlying decision by Solexa to engage in the merger and does not constitute a recommendation to any stockholder of Solexa as to how the stockholder should vote with respect to the transaction. The following is only a summary of the Lazard opinion and is qualified in its entirety by reference to the full text of the Lazard opinion set forth in Annex D.
 
In connection with its opinion, Lazard, among other things:
 
  •  Reviewed the financial terms and conditions of the merger agreement and the securities purchase agreement;
 
  •  Analyzed certain historical publicly available business and financial information relating to Solexa and Illumina;
 
  •  Reviewed various financial forecasts and other data provided to us by the management of Solexa relating to the business of Solexa, which included three sets of forecasts, one of which is not probability weighted, one of which is probability weighted at 75%, referred to as the Solexa 75% Case, and one of which is probability weighted at 90%, referred to as the Solexa 90% Case;


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  •  Reviewed various financial forecasts and other data provided to us by the management of Illumina relating to the business of Illumina, which included two alternative sets of forecasts, which Lazard referred to as Illumina Case A and Illumina Case B, which differ in that Illumina Case A includes forecasts of growth in market share and revenue for certain products that are not included in Illumina Case B;
 
  •  Held discussions with members of the senior management of Solexa and Illumina with respect to the business, prospects and strategic objectives of Solexa and Illumina, respectively, and held discussions with the senior management of Solexa and Illumina with respect to the possible benefits that might be realized following the Merger as projected by Solexa and Illumina;
 
  •  Reviewed the synergistic savings and benefits and the timing of their occurrence as projected by Solexa to be realized by Solexa as part of the combined entity in connection with the Merger and by Illumina to be realized by Illumina as part of the combined entity in connection with the Merger;
 
  •  Reviewed public information with respect to certain other companies in lines of business Lazard believed to be generally comparable to the business of Solexa and Illumina;
 
  •  Reviewed the financial terms of certain business combinations involving companies in lines of businesses Lazard believed to be generally comparable to those of Solexa and Illumina;
 
  •  Reviewed the historical trading prices and trading volumes of Solexa common stock and Illumina common stock; and
 
  •  Conducted such other financial studies, analyses and investigations as Lazard deemed appropriate.
 
Lazard relied upon the accuracy and completeness of the foregoing information. Lazard did not assume any responsibility for any independent verification of such information or any independent valuation or appraisal of any of the assets or liabilities of Solexa or Illumina, or concerning the solvency or fair value of Solexa or Illumina. With respect to financial forecasts, including the synergistic savings and benefits projected by Illumina and Solexa to be realized following the merger and the timing thereof, Lazard assumed that they were reasonably prepared on bases reflecting the best currently available estimates and judgments of management of each of Solexa and Illumina as to the future financial performance of each respective company and as to the performance of the combined company following the merger. Based on direction from the management of Solexa, and with the approval of the Solexa board of directors, in rendering its opinion: (i) for purposes of its analyses of Solexa on a stand-alone basis, Lazard used the Solexa 75% Case and (ii) for purposes of its analyses of Solexa and Illumina as a combined company on a pro forma basis, Lazard used the Solexa 90% Case, based on guidance from Solexa management that their projections were more likely to be achieved if the merger was consummated. Based on direction from the management of Solexa and guidance of management of Illumina, and with the approval of the Solexa board of directors, in rendering its opinion, Lazard relied on financial forecasts for Illumina which are the average of the Illumina Case A forecasts and Illumina Case B forecasts prepared by management of Illumina, referred to as the Illumina Midpoint Case. Lazard assumed no responsibility for and expressed no view as to any such forecasts or the assumptions on which they are based. Lazard noted that the financial forecasts of Illumina’s management do not take into account the possible impact of certain intellectual property litigation between Illumina and Affymetrix, Inc. currently scheduled to go to trial in March 2007, and Lazard did not express any opinion on the impact such litigation may have on the financial results, financial condition or share price of Illumina, or of the combined company after the merger. Lazard further noted that its opinion was not based on any comparable precedent transaction or comparable company analyses, because Lazard did not believe that such analyses are meaningful with respect to Solexa, Illumina or the merger because Solexa has nominal revenues and negative net income, and is projected by its management to grow in the future at a significantly higher rate than other companies in its industry and because Illumina is currently growing and is projected by its management to continue to grow at a significantly higher rate than other companies in its industry.
 
Further, Lazard’s opinion was necessarily based on economic, monetary, market and other conditions as in effect on, and the information made available to Lazard as of, the date of the opinion. Lazard assumed no responsibility for updating or revising its opinion based on circumstances or events occurring after its date.


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Lazard did not express any opinion as to the price at which Solexa common stock or the Illumina common stock may trade at any time subsequent to the announcement of the merger, nor did Lazard opine on any aspect of the securities purchase agreement or the transactions contemplated thereby. Lazard did not express any opinion as to any tax or other consequences that might result from the merger, nor did its opinion address any legal, tax, regulatory or accounting matters, as to which Lazard understood that Solexa obtained such advice as it deemed necessary from qualified professionals. In rendering its opinion, Lazard was not authorized to solicit, and did not solicit, third parties regarding alternatives to the merger.
 
In rendering its opinion, Lazard assumed that the merger would be consummated on the terms described in the merger agreement, without any waiver of any material terms or conditions by Solexa. In addition, Lazard assumed that obtaining the necessary regulatory approvals for the merger will not have an adverse effect on Solexa, Illumina or the merger and that the synergistic savings and benefits of the merger will be substantially realized both in scope and timing. In addition, Lazard assumed that (i) the merger will be accounted for as a tax-free “reorganization” within the meaning of Section 368(a) of the Code, (ii) the number of outstanding shares of Solexa common stock and Illumina common stock will not be materially different than as represented in the merger agreement and (iii) the other representations and warranties of Solexa contained in the merger agreement are true and complete.
 
The following is a summary of the material financial and comparative analyses that Lazard deemed to be appropriate for this type of transaction and that were performed by Lazard in connection with providing its opinion to the Solexa board of directors. The summary of Lazard’s analyses described below is not a complete description of the analyses underlying Lazard’s opinion. The preparation of a fairness opinion is a complex analytical process involving various determinations as to the most appropriate and relevant methods of financial analyses and the application of those methods to the particular circumstances and, therefore, is not readily susceptible to summary description. In arriving at its opinion, Lazard considered the results of all the analyses and did not attribute any particular weight to any factor or analysis considered by it; rather, Lazard made its determination as to fairness on the basis of its experience and professional judgment after considering the results of all of the analyses.
 
The evaluation of the results of Lazard’s analyses is not entirely mathematical. Rather, the analyses involve complex considerations and judgments concerning financial and operating characteristics and other factors that could affect the acquisition, public trading or other values of the companies, business segments or transactions analyzed. The estimates contained in Lazard’s analyses and the ranges of valuations resulting from any particular analysis are not necessarily indicative of actual values or predictive of future results or values, which may be significantly more or less favorable than those suggested by the analyses. In addition, analyses relating to the value of businesses or securities do not purport to be appraisals or to reflect the prices at which businesses or securities actually may be sold. Accordingly, the estimates used in, and the results derived from, Lazard’s analyses are inherently subject to substantial uncertainty.
 
The financial analyses summarized below include information presented in tabular format. In order to understand fully Lazard’s financial analyses, the tables must be read together with the text of each summary. The tables alone are not a complete description of the financial analyses. Considering the tables alone without considering the full narrative description of the financial analyses, including the methodology and assumptions underlying the analyses, could create a misleading or incomplete view of Lazard’s financial analyses.
 
Transaction Overview
 
Lazard reviewed with the Solexa board of directors the basic structure of the transaction as described to Lazard by Solexa management, including the following:
 
  •  consideration in the form of 100% Illumina common stock;
 
  •  implied merger consideration of $14.00 per share of Solexa common stock (based on the closing price of Illumina common stock on November 10, 2006), representing a 44.3% premium to the closing price of Solexa common stock on November 10, 2006;


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  •  implied exchange ratio of 0.3182 (based on the average of Illumina’s closing stock price for the five day period ending on November 10, 2006 of $44.00, referred to as the Illumina 5-day average price);
 
  •  an implied equity value of Solexa of $600 million and an implied enterprise value of Solexa of $553 million (calculated as the implied equity value of $600 million less Solexa’s net cash of $47 million); and
 
  •  consideration subject to a collar such that Solexa stockholders will receive total consideration of $14.00 if Illumina’s share price increases or decreases by less than 7.5% between November 12, 2006 and closing of the merger.
 
Historical Stock Trading Analysis and Relative Trading
 
Lazard reviewed the historical trading prices for shares of Solexa common stock and Illumina common stock for the one year period from November 10, 2005 to November 10, 2006. Lazard also analyzed the historical trading ratio of the respective common stock of Solexa and Illumina for various periods during the period from November 10, 2005 to November 10, 2006 as set forth in the table below, and compared it to the implied exchange ratio of 0.3182 of a share of Illumina common stock for each share of Solexa common stock to be paid pursuant to the merger agreement:
 
         
    Ratio  
 
Current (as of November 10, 2006)
    0.2202x  
3 month average
    0.2484x  
12 month average
    0.3641x  
Merger Agreement
    0.3182x  
 
Description of Analyses of Solexa
 
Discounted Cash Flow Analysis.  Using the Solexa 75% Case, Lazard performed an analysis of the net present value of (i) projected operating free cash flows for 2006 to 2010 plus (ii) the terminal value of Solexa at the end of such period. The terminal value of Solexa was calculated based on projected net income for 2010 and a range of multiples of 20.0x to 30.0x. The cash flows and terminal value were then discounted using discount rates ranging from 13% to 17%. This calculation is referred to as the Solexa DCF. The assumed discount rate range was derived from the weighted average cost of capital analysis that Lazard calculated for Solexa. Based on this analysis, Lazard arrived at an implied value per share range for Solexa of $8.42 to $13.13 per share. Lazard noted that this range is below the implied per share merger consideration of $14.00.
 
Premia Paid Analysis.  Lazard also performed a premia paid analysis, which is designed to provide a valuation of Solexa based on the premia paid in selected precedent life sciences tools transactions for which the trading price of the target company was available. Lazard’s analysis was based on the one-day, one-week and one-month implied premia of such transactions. The implied premia in this analysis were calculated comparing the transaction price prior to the announcement of the transaction to the target company’s stock price one day, one week and one month prior to the announcement of the transaction. The results of these calculations are as follows:
 
             
    Range   Median  
 
One-Day
  10.4% - 60.3%     30.2 %
One-Week
  17.5 - 91.3     34.3  
One-Month
  12.0 - 47.5     36.2  
 
From these premia, Lazard, based on its experience with merger and acquisitions transactions, derived a reference range for Solexa common stock as of November 10, 2006 of $11.40 to $18.55 and for Solexa common stock for the three month period ending on November 10, 2006 of $10.67 to $17.37. Lazard noted that the current market price of $9.70 per Solexa share was below this range and the implied Solexa per share merger consideration of $14.00 was within the range.


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Description of Analysis of Illumina
 
Discounted Cash Flow Analysis.  Using the Illumina Midpoint Case, Lazard performed an analysis of the net present value of (i) projected operating free cash flows for 2006 to 2010 plus (ii) the terminal value of Illumina at the end of such period. The terminal value of Illumina was calculated based on projected net income for 2010 and a range of multiples of 20.0x to 30.0x. The cash flows and terminal value were then discounted using discount ranging from 10% to 12%. This calculation is referred to as the Illumina DCF. The assumed discount rate range was derived from the weighted average cost of capital analysis that Lazard calculated for Illumina. Based on this analysis, Lazard arrived at an implied value per share range for Illumina of $27.84 to $39.99 per share. Lazard noted that this range is below the Illumina 5-day average price.
 
Description of Exchange Ratio and Contribution Analyses
 
Exchange Ratio Analysis.  In order to provide background information and perspective on the relationship between Solexa and Illumina common stock, Lazard reviewed:
 
  •  the Solexa DCF versus the Illumina 5-day average price, which indicated a range of exchange ratios from 0.1914x to 0.2985x; and
 
  •  the Solexa DCF versus the Illumina DCF, which indicated a range of exchange ratios from 0.2106x to 0.4718x.
 
The review indicated a range of exchange ratios from 0.1914x to 0.4718x, compared to the implied exchange ratio in the merger of 0.3812x.
 
Pro Forma “Has-Gets” Analysis.  Lazard compared Solexa’s earnings before interest and taxes, referred to as EBIT, as estimated in the Solexa 75% Case for the calendar years 2009 and 2010 to Illumina’s EBIT as estimated in the Illumina Midpoint Case for the calendar years 2009 and 2010. Based on this analysis, in 2009, Illumina would contribute 78% of the projected EBIT, compared to 22% contributed by Solexa. In 2010, Illumina would contribute 75% of the projected EBIT, compared to 25% contributed by Solexa. The implied exchange ratio between Illumina and Solexa would be 0.3516 in 2009 and 0.4073 in 2010, in each case based on the Illumina 5-day average price. Lazard noted that in 2007 and 2008, Solexa would contribute 0% of the EBIT of the combined company in all cases, so a calculation of an implied exchange ratio for those periods would not be meaningful. The actual results achieved by the combined company may vary from projected results and the variations may be material.
 
Description of Pro Forma Financial Analysis
 
Pro Forma Discounted Cash Flow Analysis.  Lazard performed a discounted cash flow analysis on the combined company in order to derive implied per share equity values for Solexa’s share of the combined company. For Solexa, Lazard used the Solexa 90% Case for fiscal years 2006 through 2010. For Illumina, Lazard used the Illumina Midpoint Case for fiscal years 2006 through 2010. Lazard analyzed this information using revenue and cost synergies provided by Solexa’s management with respect to Solexa as part of the combined company and revenue synergies provided by Illumina’s management with respect to Illumina as part of the combined company, referred to as Full Synergies. Lazard also analyzed this information using cost, but not revenue, synergies provided by Solexa’s management with respect to Solexa as part of the combined company and revenue synergies provided by Illumina’s management with respect to Illumina as part of the combined company, referred to as Partial Synergies. Using this information, Lazard performed an analysis of the net present value of (i) projected operating free cash flows for 2006 to 2010 plus (ii) the terminal value of the combined company at the end of such period. The terminal value of the combined company was calculated based on pro forma projected net income for 2010 and a range of multiples of 20.0x to 30.0x. The cash flows and terminal value were then discounted at rates ranging from 10.0% to 12.0%. This analysis indicated implied equity values per Solexa share of the combined company (based on the implied exchange ratio in the merger agreement of 0.3182x) ranging from $12.94 to $17.99 when using Full Synergies and ranging from $10.87 to $15.42 when using Partial Synergies. Lazard compared these ranges to the implied equity value derived from the standalone Solexa DCF analysis ranging from $8.42 to $13.13.


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Miscellaneous
 
Lazard’s opinion and financial analyses were not the only factors considered by the Solexa board of directors in its evaluation of the merger and should not be viewed as determinative of the views of the Solexa board of directors or management. For a description of the other factors considered by the Solexa board of directors, see the section entitled “The Merger — Solexa’s Reasons for the Merger; Recommendation of the Merger by the Solexa Board of Directors.” Lazard has consented to the inclusion of and references to its opinion in this document.
 
Under the terms of the engagement letter, Solexa has agreed to pay Lazard a customary transaction fee, a majority of which is payable upon completion of the merger. In addition, in the ordinary course of their respective businesses, affiliates of Lazard and LFCM Holdings LLC (an entity indirectly owned in large part by managing directors of Lazard) may actively trade securities of Solexa or Illumina for their own accounts and for the accounts of their customers and, accordingly, may at any time hold a long or short position in such securities.
 
Lazard is an internationally recognized investment banking firm and is continually engaged in the valuation of businesses and their securities in connection with mergers and acquisitions, negotiated underwritings, secondary distributions of listed and unlisted securities, private placements, leveraged buyouts, and valuations for real estate, corporate and other purposes. Lazard was selected to act as investment banker to Solexa because of its expertise and its reputation in investment banking and mergers and acquisitions.
 
Interests of Solexa’s Directors and Officers in the Merger; Relationship between Illumina and Solexa
 
In considering the recommendation of the Solexa board of directors with respect to adopting the merger agreement, Solexa stockholders should be aware that certain members of the board of directors and executive officers of Solexa have interests in the merger that are different from, or in addition to, their interests as Solexa stockholders. These interests may create a conflict of interest or the appearance of a conflict of interest. The Solexa board of directors was aware of these potential conflicts of interest during its deliberations on the merits of the merger and in making its decision in approving the merger, the merger agreement and the related transactions.
 
Combined Company Board of Directors
 
The merger agreement provides that the Illumina board of directors shall be increased from eight to ten members and two individuals selected by the Illumina board of directors and agreed to by Solexa shall be appointed as independent directors of Illumina.
 
Combined Company Management
 
Following the merger, Mr. West, Chief Executive Officer of Solexa, will serve as Senior Vice President and General Manager of the Sequencing Business Unit of the combined company.
 
Employment and Other Agreements
 
Solexa has entered into the following employment and other agreements with executive officers of Solexa:
 
John West Executive Employment Agreement, as Amended
 
Solexa entered into an executive employment agreement with Mr. West in June 2005. Under the terms of his employment agreement, if (i) Mr. West’s employment is terminated without cause by Solexa or (ii) Mr. West resigns with good reason, he will be entitled to receive a lump sum severance payment equal to 12 months of his final base salary, reimbursement of the cost of continued health insurance coverage for himself and his eligible dependents for 12 months, and one year acceleration of the vesting and exercisability of any outstanding stock options granted to him (except to the extent such options are accelerated in connection with a change in control). If Mr. West’s employment is terminated without cause or he resigns for good reason


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within six months prior to, or 12 months following, a change in control, he will be entitled to receive a lump sum severance payment equal to 12 months of his final base salary, reimbursement of the cost of continued health insurance coverage for himself and his eligible dependents for 12 months and two years acceleration of the vesting and exercisability of any outstanding stock options granted to him. As of December 15, 2006, Mr. West holds options covering 909,253 shares of Solexa common stock, of which 530,397 are vested. The merger will constitute a change in control for purposes of the employment agreement. The estimated cash severance payment payable to Mr. West if he is terminated without cause or resigns for good reason within six months prior to or 12 months following the merger (assuming his current base salary and healthcare coverage remain the same) would be approximately $382,651.
 
Mr. West’s Change in Control Bonus.  On May 19, 2006, Solexa entered into an amendment agreement amending Section (d) of Exhibit B to Mr. West’s employment agreement, to provide that he is eligible to receive one of two alternative one-time bonuses in the event of a market capitalization achievement by Solexa or change in control of Solexa, subject to the terms and conditions described therein, in lieu of the potential change in control bonus previously set forth in that section.
 
In the event of a change in control of Solexa, Mr. West shall be eligible to receive a bonus equivalent to 1% of the amount by which the consideration received by Solexa stockholders as a direct result of the change in control exceeds the sum of $150,000,000 plus the aggregate gross proceeds received by Solexa through sales of equity securities after the effective date of Mr. West’s employment amendment. The merger will constitute a change in control for this purpose. The change in control bonus will be provided to Mr. West in the same form as the consideration received by Solexa stockholders as a direct result of the change in control, provided that, Solexa may in its sole discretion elect to substitute cash for all or any portion of the securities or other non-cash consideration that would otherwise be payable based on the value thereof established in the change in control.
 
Peter Lundberg Letter Agreement
 
On May 19, 2006, Solexa entered into a letter agreement with Peter Lundberg, Solexa’s Vice President and Chief Technical Officer providing that he is entitled to receive a one-time alternative bonus on substantially the same terms and conditions as the market capitalization bonus and change in control bonus provided to Mr. West as described above, provided that Mr. Lundberg would be entitled to receive 0.25% of the amount by which the consideration received by Solexa’s stockholders as a direct result of the change in control exceeds the sum of $150,000,000 plus the aggregate gross proceeds received by Solexa through sales of equity securities after the effective date of the letter agreements under the change in control bonus. The merger will constitute a change in control for this purpose.
 
Linda Rubinstein Employment Agreement and Letter Agreement
 
On March 23, 2005, Solexa entered into an employment agreement with Linda Rubinstein, Solexa’s Vice President, Secretary and Chief Financial Officer. Under the agreement, if (i) Ms. Rubinstein’s employment is terminated without cause by Solexa, (ii) Ms. Rubinstein resigns with good reason, (iii) Ms. Rubinstein’s employment is terminated without cause by Solexa or any successor to or acquiring entity of Solexa within 30 days prior to, upon or within 12 months after an asset sale, merger, consolidation, or reverse merger or (iv) Ms. Rubinstein resigns for good reason within 30 days prior to, upon or within 12 months after an asset sale, merger, consolidation or reverse merger of Solexa, she will be eligible to receive severance compensation of between four and a half to six months of her final base salary, 100% of her target bonus, prorated to the percent of the year completed, and two years acceleration of the vesting and exercisability of any outstanding stock options granted to her. As of December 15, 2006, Ms. Rubinstein holds options covering 158,813 shares of Solexa common stock, none of which are vested. The merger will constitute a change in control for purposes of the employment agreement. The estimated cash severance payment payable to Ms. Rubinstein if she is terminated without cause or resigns for good reason within 30 days prior to, upon or within 12 months following the merger (assuming her current base salary and target bonus remain the same) would be between approximately $176,647 and $209,360, depending on how many months of her final base salary she is ultimately granted in connection with the termination of her employment.


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On May 19, 2006, Solexa entered into a letter agreement with Linda Rubinstein providing substantially the same change in control bonus terms to Ms. Rubinstein as were provided to Mr. Lundberg under Mr. Lundberg’s letter agreement described above.
 
Tony Smith, Ph.D., Letter Agreement
 
On May 22, 2006, Solexa Limited entered into a letter agreement with Dr. Smith, Solexa’s Vice President and Chief Scientific Officer, providing substantially the same change in control bonus terms to him as were provided to Mr. Lundberg under Mr. Lundberg’s letter agreement described above.
 
Omead Ostadan Letter Agreement
 
On May 19, 2006, Solexa entered into a letter agreement with Omead Ostadan, Solexa’s Vice President of Marketing, providing substantially the same change in control bonus terms to him as were provided to Mr. Lundberg under Mr. Lundberg’s letter agreement described above.
 
Summary of Change in Control Bonuses
 
The following is an estimate of the above summarized change in control bonuses payable to certain executive officers in connection with the proposed merger, assuming for illustrative purposes only, among other things, that the value of the merger consideration will be $14.00 on a per share basis and that the merger consideration subject to the change in control bonuses will be approximately $426,632,587. The merger consideration subject to the change in control bonuses represents that portion of the total transaction value, assumed to be $618,072,952, that exceeds the $150,000,000 threshold, net of assumed warrant proceeds of approximately $41,440,365 which are not subject to the change in control bonuses. The assumed transaction value is further based upon approximately 44,148,068 shares of Solexa common stock expected to be outstanding at the closing of the merger. This number of shares outstanding represents 37,562,454 shares of Solexa common stock outstanding as of December 15, 2006 (excluding 5,154,639 shares held by Illumina), plus the assumed exercise of in-the-money warrants covering an additional 6,585,614 shares of Solexa common stock.
 
             
        Estimated
 
        Change in Control
 
Name   Title   Bonus Amount  
 
John West
  Chief Executive Officer     $4,266,326  
Peter Lundberg
  Vice President & Chief Technical Officer     1,066,581  
Omead Ostadan
  Vice President of Marketing     1,066,581  
Linda Rubinstein
  Vice President & Chief Financial Officer     1,066,581  
Tony Smith, Ph.D. 
  Vice President & Chief Scientific Officer     1,066,581  
             
          Total:         $8,532,650  
 
Outstanding Options, Warrants and Other Awards
 
Outstanding options and warrants covering shares of Solexa common stock will be converted into options and warrants, respectively, covering shares of Illumina common stock. See the section entitled “The Merger — Treatment of Solexa Stock Options and Warrants” for more information on the treatment of Solexa options and warrants. Furthermore, pursuant to an offer of employment letter from Solexa, dated June 8, 2006, Brock Siegel, Ph.D., was awarded a restricted stock unit award covering 156,000 shares of Solexa common stock. This restricted stock unit award will vest over time and shares covered by the award will be issued to Mr. Siegel as they vest. This restricted stock unit award will be converted into a restricted stock unit award representing the right to receive shares of Illumina common stock, as adjusted based on the exchange ratio upon consummation of the merger.


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Lock-Up Agreement
 
Shares of Illumina common stock issued in connection with the merger to Mr. West will be subject to a lock-up agreement to be entered into by Mr. West in accordance with the provisions of the merger agreement for a period of six months following the closing date of the merger and subject to certain exceptions. Under the terms of the lock-up agreement, for a six-month period beginning on the closing of the merger, Mr. West will not offer, pledge, sell, contract to sell and option or contract to purchase, purchase any option or contract to sell, grant any option, right or warrant for the sale of, make any short sale or otherwise dispose of or transfer any shares of Illumina common stock, or enter into any swap or any other agreement or transaction that transfers the economic consequences of ownership of Illumina common stock held by Mr. West. The lock-up agreement will permit Mr. West to exercise options, sell or otherwise dispose of up to 25% of Illumina common stock held by Mr. West during each three month period of the lock-up agreement, and make other dispositions pursuant to a gift, by will or intestacy or to a trust, the beneficiaries of which are Mr. West or members of his family.
 
Director Affiliations with Certain Stockholders
 
G. Mason Morfit, a member of the Solexa board of directors, is a non-managing member of VA Partners, LLC, which is the general partner of ValueAct Capital Master Fund, L.P., a stockholder of Solexa. Hermann Hauser, a member of the Solexa board of directors, is a director of Amadeus Capital Partners Limited and shares the power to vote and control the disposition of shares held by Amadeus II A LP, Amadeus II B LP, Amadeus II C LP, Amadeus II D GmbH & Co KG and Amadeus II Affiliates Fund LP, each of which holds Solexa common stock and warrants to purchase shares of Solexa common stock.
 
Indemnification and Insurance
 
The merger agreement provides that Solexa shall indemnify, defend and hold harmless, and advance expenses to the individuals who at or prior to the effective time of the merger were directors or officers of Solexa or any of its subsidiaries, for all acts and omissions by them in their capacities as such any time prior to the effective time of the merger, to the fullest extent required by: (i) the certificate of incorporation or bylaws (or comparable charter or organizational documents) of Solexa or any of its subsidiaries as in effect on November 12, 2006; and (ii) indemnification agreements between Solexa and its officers and directors disclosed to Illumina or, with respect to persons who become directors or officers of Solexa or any of its subsidiaries after November 12, 2006 and prior to the closing of the merger, which is entered into and disclosed to Illumina after November 12, 2006 and which is in the form and substance of the agreements that have been disclosed to Illumina at or prior to November 12, 2006. In addition, the merger agreement provides that for a period of six years after the merger, Illumina shall provide directors’ and officers’ liability insurance covering acts or omissions occurring prior to the effective time of the merger with respect to those indemnitees who are covered by Solexa’s directors’ and officers’ liability insurance policies as of the closing of the merger on terms with respect to such coverage and amount no less favorable in the aggregate than Solexa’s current directors’ and officers’ liability insurance policies. If the aggregate annual premiums for such insurance at any time during such period shall exceed 200% of the per annum rate of premium paid by Solexa as of November 12, 2006, then Illumina shall provide only such coverage as shall then be available at an annual premium equal to 200% of such rate.
 
Compensation of Member of the Solexa Strategic Committee
 
Blaine Bowman, a member of the Solexa board of directors, has been paid an aggregate of $10,000 in connection with additional work performed by him as a member of the Solexa Strategic Committee, which is a special committee of the Solexa board of directors formed for the purpose of monitoring and advising on the proposed merger.


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Proposed Collaboration Agreement between Solexa and Illumina
 
Solexa and Illumina are contemplating certain collaborations or other arrangements under which Illumina, on a limited basis, may assist in the marketing of Solexa products or provide field support to Solexa customers in certain locations, or both. Solexa and Illumina also have formalized other collaboration arrangements to investigate the feasibility of new products that the companies may develop once combined, and such arrangements involve, among other things, an agreement relating to the transfer of certain research materials, the allocation of intellectual property rights and related obligations and confidentiality obligations between the companies.
 
Securities Purchase Agreement
 
On November 13, 2006, Illumina purchased 5,154,639 newly issued shares of Solexa common stock for a purchase price of $9.70 per share pursuant to the securities purchase agreement, dated November 12, 2006, between Solexa and Illumina. The shares of Solexa common stock acquired by Illumina represent approximately 12.3% of the issued and outstanding shares of Solexa common stock as of November 13, 2006, after giving effect to the issuance. Illumina entered into the securities purchase agreement with Solexa as part of the transactions contemplated by the merger agreement and to provide Solexa with financing sufficient to meet Solexa’s expected working capital requirements if, for any reason, the merger is not consummated.
 
The securities purchase agreement contains customary representations, warranties and covenants. In addition, the securities purchase agreement provides Illumina with certain registration rights and put rights, and restricts Illumina’s ability to vote or transfer its shares of Solexa common stock under specified circumstances. The securities purchase agreement is attached as Annex B to this document and is incorporated by reference herein.
 
Registration Rights
 
In the event that the merger agreement is terminated, Solexa has agreed to, among other things:
 
  •  use its best efforts to file a registration statement on Form S-3 with the SEC within ten days after the date of termination of the merger agreement to register for resale the shares of Solexa common stock held by Illumina. Solexa also has agreed to use its best efforts to cause the registration statement to become effective under the Securities Act as promptly as practicable following the filing date and in any event no later than 30 days following the filing date or, if the registration statement is reviewed by the SEC, no later than 90 days following the filing date;
 
  •  use its best efforts to cause the registered shares of Solexa common stock to be listed on each securities exchange on which Solexa common stock is then listed; and
 
  •  indemnify Illumina and its related persons from losses, claims, damages or liabilities arising out of, or based on, any untrue statement or alleged untrue statement of a material fact contained in, or any omission or alleged omission of a material fact in, the registration statement or related prospectus or any failure by Solexa to fulfill any undertaking in any registration statement.
 
In the event that Solexa elects to file a registration statement under the Securities Act pertaining to an underwritten public offering of Solexa common stock, then Solexa is obligated to notify Illumina ten days prior to the filing and afford Illumina the opportunity to include its shares of Solexa common stock in that offering. If, in the course of the offering, Solexa’s underwriter determines in good faith that the market conditions require a limitation on the number of shares to be underwritten, then the number of shares to be underwritten will be first allocated to Solexa and then to Illumina and lastly to any other Solexa stockholders participating in the underwriting; provided that, in any event, Illumina will be entitled to include in such offering an amount of its Solexa common stock equal to no less than 25% of the total number of shares of Solexa common stock constituting such offering. This piggyback registration right will terminate on the earlier of (i) the date that Illumina’s shares of Solexa common stock constitute less than 2.5% of the outstanding shares of Solexa common stock and (ii) two years from the date that the registration statement registering Illumina’s shares of Solexa common stock is declared effective.


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Transfer Restrictions
 
The securities purchase agreement contains restrictions on Illumina’s ability to transfer and vote the shares of Solexa common stock acquired pursuant to the agreement.
 
In the event the merger agreement is terminated, Illumina may not effect a Disposition, meaning Illumina cannot sell, offer to sell, solicit offers to buy, loan, pledge or dispose of any of its shares of Solexa common stock acquired under the securities purchase agreement, or effect any Short Sale, meaning Illumina cannot effect any hedging, short sale or other transaction that is designed or would reasonably be expected to lead to or result in a Disposition, in each case, for a period of six months following termination of the merger agreement. This six-month period is referred as the Primary Lock-Up Period.
 
Further, Illumina may not effect Dispositions or Short Sales of more than one-third of the aggregate number of its shares of Solexa common stock, in each of the three-month periods during the period beginning six months following termination of the merger agreement and ending 15 months following termination of the merger agreement. This nine-month period is referred to as the Secondary Lock-Up Period. However, the securities purchase agreement permits Illumina to effect one block sale of all or a portion of its shares of Solexa common stock in a single trade at any time beginning with the date that the registration statement covering Illumina’s shares of Solexa common stock becomes effective and ending with the later of (i) three months after the termination of the merger agreement, (ii) ten days after the date the registration statement filed by Solexa on behalf of Illumina becomes effective and (iii) seven months after November 13, 2006, which, in the case of clause (iii), results in a one-month extension of the Primary Lock-Up Period and the Secondary Lock-Up Period.
 
Voting Restrictions
 
Illumina is obligated to cause its shares of Solexa common stock to be voted proportionally with the balance of votes cast during any meeting to approve the proposed merger and all related transactions and matters. Also, starting with the first stockholder vote or written consent after termination of the merger agreement, Illumina is required to cause its shares of Solexa common stock to be voted, at Illumina’s option, either in accordance with the recommendation of the Solexa board of directors or proportionally with the balance of the votes cast at any such meeting. This voting requirement will continue until the earlier of (i) the fifth anniversary of the termination of the merger agreement or (ii) Illumina being a beneficial holder of less than 5% of the then outstanding Solexa common stock.
 
Illumina’s Put Right
 
In the event of a termination of the merger agreement and the consummation of a takeover transaction with a third party by Solexa under certain circumstances that require Solexa to pay a termination fee, as described below, Illumina will have the right to cause Solexa to repurchase Illumina’s shares of Solexa common stock at a purchase price of $9.70 per share, subject to the consummation of the takeover transaction.
 
A takeover transaction, as used in the securities purchase agreement, generally means any of the transactions described below which is either consummated or with respect to which a definitive agreement is entered into within the nine-month period following the termination of the merger agreement:
 
  •  any direct or indirect acquisition of the assets of Solexa or its subsidiaries having a fair market value equal to 50% or more of the fair market value of the assets of Solexa and its subsidiaries, taken as a whole, or 50% or more of the voting power of Solexa or any of its subsidiaries;
 
  •  any tender offer or exchange offer that, if consummated, would result in any person beneficially owning at least 50% of the voting power of Solexa; or
 
  •  any merger, consolidation, business combination, recapitalization or similar transaction involving Solexa, subject to specified exceptions.


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Board of Directors and Management Following the Merger
 
Following the merger, the board of directors of the combined company will consist of ten members, including two new independent directors to be selected by the Illumina board of directors and agreed to by Solexa, consistent with the policies of Illumina’s nominating/ corporate governance committee. The board will include Daniel M. Bradbury, Karin Eastham, Paul Grint, William H. Rastetter, Ph.D., Jack Goldstein, Ph.D., Mr. Flatley, David R. Walt, Ph.D., John R. Stuelpnagel, D.V.M., and two additional independent directors as selected by the Illumina board of directors and agreed to by Solexa.
 
Following the merger, Mr. Flatley will serve as President and Chief Executive Officer, and Mr. West will serve as Senior Vice President and General Manager of the Sequencing Business Unit of the combined company.
 
Material United States Federal Income Tax Consequences of the Merger
 
The following is a summary of the material United States federal income tax consequences of the merger that are expected to apply generally to Solexa stockholders that exchange their shares of Solexa common stock for shares of Illumina common stock in the merger. This discussion addresses only Solexa stockholders that are “U.S. Holders” (as defined below) and hold their shares of Solexa common stock as capital assets for United States federal income tax purposes (generally, assets held for investment). This summary is for the general information of the Solexa stockholders only and does not purport to be a complete analysis of all potential tax effects of the merger, nor does it constitute tax advice to any particular stockholder. For example, it does not consider the effect of any applicable state, local or foreign tax laws, or of any non-income tax laws. In addition, this discussion does not address the tax consequences of transactions effectuated prior to or after the merger (whether or not such transactions occur in connection with the merger), including, without limitations, any exercise of a Solexa option or the acquisition or disposition of Solexa shares other than in exchange for Illumina common stock pursuant to the merger. This discussion does not address all of the United States federal income tax consequences that may be relevant to a particular Solexa stockholder in light of individual circumstances or to Solexa stockholders that are subject to special treatment under United States federal income tax laws, including, without limitation:
 
  •  financial institutions, regulated investment companies, real estate investment trusts and insurance companies;
 
  •  tax-exempt organizations;
 
  •  stockholders that are not U.S. Holders;
 
  •  partnerships, limited liability companies that are not treated as corporations for United States federal income tax purposes, subchapter S corporations and other pass-through entities and investors in such entities;
 
  •  stockholders that hold Solexa common stock that constitutes qualified small business stock for purposes of Section 1202 of the Code;
 
  •  dealers, brokers and traders in securities or foreign currencies;
 
  •  stockholders that hold Solexa common stock as part of a hedge, appreciated financial position, straddle, constructive sale or conversion transaction or other integrated investment; and
 
  •  stockholders that acquired their shares of Solexa common stock pursuant to the exercise of employee stock options, in connection with employee stock purchase plans or otherwise as compensation.
 
For purposes of this discussion, “U.S. Holder” refers to a beneficial holder of Solexa common stock that is, for United States federal income tax purposes, (i) an individual citizen or resident of the United States, (ii) a corporation or other entity taxable as a corporation for United States federal income tax purposes, created or organized in or under the laws of the United States, any state thereof or the District of Columbia, (iii) an estate the income of which is subject to United States federal income taxation regardless of its source or (iv) a trust (x) the administration of which is subject to the primary supervision of a court within the United States


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and as to which one or more United States persons, as defined in Section 7701(a)(30) of the Code, have the authority to control all substantial decisions or (y) that has a valid election in effect under applicable United States Treasury regulations to be treated as a United States person under the Code.
 
If an entity treated as a partnership for United States federal income tax purposes holds Solexa common stock, the tax treatment of a person holding interests in such entity generally will depend upon the status of that person and the activities of that entity. Such entities and persons holding interests in such entities should consult a tax advisor regarding the tax consequences of the merger.
 
The following discussion is based on the Code, applicable Treasury regulations, administrative interpretations and court decisions, each as in effect as of the date of this document and all of which are subject to change, possibly with retroactive effect. Any such change could materially alter the tax consequences described herein. This discussion does not purport to be a comprehensive analysis or description of all potential United States federal income tax consequences of the proposed transaction. It is not binding on the Internal Revenue Service, which we refer to as the IRS, and there can be no assurance that the IRS (or a court, in the event of an IRS challenge) will agree with the conclusions stated herein.
 
Solexa stockholders are urged to consult their tax advisors as to the specific tax consequences to them of the merger in light of their particular circumstances, including the applicability and effect of United States federal, state, local and foreign income and other tax laws.
 
Illumina’s obligation to complete the merger is conditioned upon its receipt from Dewey Ballantine LLP of a tax opinion, dated as of the effective date of the merger, in form and substance reasonably satisfactory to Illumina, to the effect that the merger will qualify as a “reorganization” within the meaning of Section 368(a) of the Code; provided that if Illumina has not received such an opinion from Dewey Ballantine LLP, but Cooley Godward Kronish LLP is willing to provide such an opinion to Illumina, this condition will be deemed satisfied by the receipt of the Cooley Godward Kronish LLP opinion. Solexa’s obligation to complete the merger is conditioned upon its receipt from Cooley Godward Kronish LLP, of a tax opinion, dated as of the effective date of the merger, in form and substance reasonably satisfactory to Solexa, to the effect that the merger will qualify as a “reorganization” within the meaning of Section 368(a) of the Code; provided that if Solexa has not received such an opinion from Cooley Godward Kronish LLP, but Dewey Ballantine LLP is willing to provide such an opinion to Solexa, this condition will be deemed satisfied by the receipt of the Dewey Ballantine LLP opinion. Neither Illumina nor Solexa intends to waive this closing condition. However, in the event that either Illumina or Solexa does so, Illumina and Solexa will resolicit the approval of their stockholders after providing appropriate disclosure.
 
The opinions to be provided by Dewey Ballantine LLP and Cooley Godward Kronish LLP will be based on factual representations and covenants made by Illumina and Solexa (including those contained in tax representation letters to be provided by Illumina and Solexa) and on certain facts and customary assumptions set forth in the opinions. These tax opinions will not be binding on the IRS or any court and will not preclude the IRS from asserting, or a court from sustaining, a contrary conclusion. No rulings have been or will be obtained from the IRS with respect to any of the matters discussed herein.
 
Assuming the merger qualifies as a “reorganization” within the meaning of Section 368(a) of the Code:
 
  •  except for cash received in lieu of a fractional share of Illumina common stock, Solexa stockholders will not recognize any gain or loss upon the receipt of Illumina common stock in exchange for Solexa common stock in connection with the merger;
 
  •  a Solexa stockholder will have an aggregate tax basis in the Illumina common stock received in the merger equal to the stockholder’s aggregate tax basis in its shares surrendered pursuant to the merger, reduced by the portion of the stockholder’s tax basis in its shares surrendered in the merger that is allocable to a fractional share of Illumina common stock. If a Solexa stockholder acquired any of its shares of Solexa common stock at different prices or at different times, United States Treasury Regulations provide guidance on how such stockholder may allocate its tax basis to shares of Illumina common stock received in the merger. Solexa stockholders that hold multiple blocks of Solexa common


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  stock are urged to consult their tax advisors regarding the proper allocation of their basis among shares of Illumina common stock received under such Treasury Regulations;
 
  •  the holding period of the Illumina common stock received by a Solexa stockholder in the merger will include the holding period of the Solexa common stock surrendered in the merger;
 
  •  cash received by a Solexa stockholder in lieu of a fractional share of Illumina common stock in the merger will be treated as if such fractional share had been issued in connection with the merger and then sold by the Solexa stockholder to Illumina for such cash payment, and Solexa stockholders generally will recognize capital gain or loss with respect to such cash payment, measured by the difference, if any, between the amount of cash received and the tax basis in such fractional share; and
 
  •  Solexa stockholders will be required to attach a statement to their tax returns for the year in which the merger is consummated that contains the information listed in Treasury Regulation Section 1.368-3T(b), and such statement must include the stockholder’s tax basis in the stockholder’s Solexa common stock and a description of the Illumina common stock received.
 
Accounting Treatment
 
Illumina prepares its financial statements in accordance with generally accepted accounting principles in the United States, or U.S. GAAP. The merger will be accounted for using the purchase method of accounting. This means that Illumina will allocate the purchase price to the fair value of Solexa’s assets and liabilities at the acquisition date, with the excess purchase price being recorded as goodwill. Under the purchase method of accounting, goodwill is not amortized but is tested for impairment at least annually.
 
Regulatory Approvals Required for the Merger
 
Illumina and Solexa have each agreed to use reasonable efforts in order to obtain all regulatory approvals required in order to consummate the merger.
 
Under the HSR Act, the merger cannot be completed until the expiration of a waiting period that follows the filing of notification forms by both parties to the transaction with the FTC and the DOJ. Illumina and Solexa have both filed notification and report forms under the HSR Act with the FTC and the DOJ on November 20, 2006. The initial waiting period is 30 calendar days after both parties have filed the notification forms, but this period may be extended if the reviewing agency issues a formal request for additional information and documentary material, which we refer to as a second request. If the reviewing agency issues a second request, the parties may not complete the merger until 30 calendar days after both parties substantially comply with the second request, unless the waiting period is terminated earlier with the parties consent not to close the transaction pending additional government review.
 
At any time before or after completion of the merger, the DOJ or the FTC or any state could take such action under the antitrust laws as it deems necessary or desirable in the public interest, including seeking to enjoin the completion of the merger, to rescind the merger or to seek divestiture of particular assets of Illumina or Solexa. Private parties also may seek to take legal action under the antitrust laws under certain circumstances. As in every transaction, a challenge to the merger on antitrust grounds may be made, and, if such a challenge is made, it is possible that Illumina and Solexa will not prevail.
 
Illumina and Solexa conduct operations in a number of jurisdictions where other regulatory filings or approvals may be required or advisable in connection with the completion of the merger. Illumina and Solexa are currently reviewing whether filings or approvals may be required or advisable in those jurisdictions that may be material to Illumina and Solexa. It is possible that any of the regulatory authorities with which filings are made may seek regulatory concessions as conditions for granting approval of the merger.
 
Prior to completing the merger, the applicable waiting period under the HSR Act must expire or be terminated. In addition, Illumina and Solexa must obtain requisite approvals from any other regulatory authorities if the failure to obtain approvals of those regulatory authorities would have a material adverse


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effect on Illumina and its subsidiaries taken as a whole, or Solexa and its subsidiaries taken as a whole, respectively, in each case after giving effect to the merger.
 
Although we do not expect regulatory authorities to raise any significant objections in connection with their review of the merger, we cannot assure you that we will obtain all required regulatory approvals or that these regulatory approvals will not contain terms, conditions or restrictions that would be detrimental to the combined company after the completion of the merger.
 
Exchange of Certificates in the Merger
 
At or prior to the effective time of the merger, an exchange agent will be appointed to handle the exchange of Solexa stock certificates for certificates representing shares of Illumina common stock. Promptly after the effective time of the merger, the exchange agent will send a letter of transmittal and instructions to each former Solexa stockholder explaining the procedure for surrendering Solexa stock certificates in exchange for certificates representing the number of shares of Illumina common stock into which the shares of Solexa common stock will be converted in the merger.
 
After the effective time of the merger, each certificate that previously represented shares of Solexa common stock will represent only the right to receive a certificate representing the shares of Illumina common stock into which the shares of Solexa common stock have been converted. In addition, after the effective time of the merger, Solexa will not register any transfers of the shares of Solexa common stock. Illumina stockholders need not exchange their stock certificates.
 
Treatment of Solexa Stock Options and Warrants
 
At the effective time of the merger, each outstanding option and warrant to acquire Solexa common stock, whether or not exercisable, will cease to represent a right to acquire Solexa common stock and will be automatically converted into an option or warrant, as applicable, to acquire that number of whole shares of Illumina common stock equal to the product of the number of shares of Solexa common stock that were subject to the original Solexa stock option or warrant multiplied by the exchange ratio (rounded down to the nearest whole share). The per share exercise price of each converted option and the per share purchase price of each converted warrant shall be equal to the per share exercise price or purchase price of the original Solexa stock option or warrant, respectively, divided by the exchange ratio (rounded up to the nearest whole cent). Each converted Solexa stock option and warrant will otherwise have substantially the same terms and conditions as were in effect immediately prior to the completion of the merger, including vesting and terms of exercise, as applicable. The conversion of options shall be made in a manner so as to preserve as nearly as possible any exemption from Section 409A of the Code a Solexa stock option may have, and/or any status as an “incentive stock option” a Solexa stock option may have, immediately prior to the effective time of the merger.
 
Restrictions on Sales of Shares of Illumina Common Stock Received in the Merger
 
Shares of Illumina common stock issued in connection with the merger to Mr. West will be subject to a lock-up agreement to be entered into by Mr. West in accordance with the provisions of the merger agreement for a period of six months following the closing date of the merger and subject to certain exceptions. For a summary of the lock-up agreement to be entered into between Mr. West and Illumina, see the section entitled “Interests of Solexa’s Directors and Officers in the Merger; Relationship between Illumina and Solexa.”
 
In addition, shares of Illumina common stock issued to any Solexa stockholder who may be deemed to be an “affiliate” of Illumina or Solexa for purposes of Rule 145 under the Securities Act may be subject to the following restrictions.
 
Under Rule 145, former Solexa stockholders who were affiliates of Solexa at the time of the Solexa special meeting and who are not affiliates of Illumina after the completion of the merger, may sell their Illumina common stock received in the merger at any time subject to the volume and sale limitations of Rule 144 under the Securities Act. Further, so long as such former Solexa affiliates are not considered


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affiliates of Illumina following the completion of the merger, and a period of at least one year has elapsed from the completion of the merger, such former affiliates may sell their Illumina common stock received in the merger without regard to the volume and sale limitations of Rule 144 under the Securities Act so long as there is adequate current public information available about Illumina in accordance with Rule 144. After a period of two years has elapsed from the completion of the merger, and so long as such former affiliates are not affiliates of Illumina and have not been for at least three months prior to such sale, such former affiliates may freely sell their Illumina common stock. Former Solexa stockholders who become affiliates of Illumina after completion of the merger will still be subject to the volume and sale limitations of Rule 144 under the Securities Act, until each such stockholder is no longer an affiliate of Illumina. This document does not cover resales of Illumina common stock received by any person upon completion of the merger, and no person is authorized to make any use of this document in connection with any resale.
 
Listing of Illumina Common Stock
 
It is a condition to the completion of the merger that the Illumina common stock issuable in the merger or upon exercise of options to purchase Illumina common stock issued in substitution for Solexa options be approved for listing on NASDAQ, subject to official notice of issuance.
 
Appraisal Rights
 
Under the General Corporation Law of the State of Delaware, which we refer to as the DGCL, holders of Solexa common stock are not entitled to appraisal rights in connection with the merger. See the section entitled “Appraisal Rights.”


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THE MERGER AGREEMENT
 
The following summarizes material provisions of the merger agreement which is attached as Annex A to this document and is incorporated by reference herein. The rights and obligations of the parties are governed by the express terms and conditions of the merger agreement and not by this summary or any other information contained in this document. Illumina and Solexa stockholders are urged to read the merger agreement carefully and in its entirety as well as this document before making any decisions regarding the merger. The merger agreement has been attached to this document to provide Illumina and Solexa stockholders with information regarding its terms. It is not intended to provide any other factual information about Illumina or Solexa. In particular, the assertions embodied in the representations and warranties contained in the merger agreement (and summarized below) are qualified by information in confidential disclosure schedules provided by Illumina and Solexa to each other in connection with the signing of the merger agreement. These disclosure schedules contain information that modifies, qualifies and creates exceptions to the representations and warranties set forth in the merger agreement. Moreover, certain representations and warranties in the merger agreement were used for the purpose of allocating risk between Illumina and Solexa rather than establishing matters as facts. Accordingly, you should not rely on the representations and warranties in the merger agreement (or the summaries contained herein) as characterizations of the actual state of facts about Illumina or Solexa.
 
Completion of the Merger
 
Unless the parties agree otherwise, the closing of the merger will take place on a date specified by the parties, but no later than the third business day after all closing conditions have been satisfied or waived, at the offices of Dewey Ballantine LLP, 1950 University Avenue, Suite 500, East Palo Alto, California, 94303. The merger will be completed when we file a certificate of merger with the Delaware Secretary of State, unless we agree to a later time for the completion of the merger and specify that time in the certificate of merger.
 
We currently expect to complete the merger by the end of the first quarter of 2007, subject to receipt of required stockholder and regulatory approvals and satisfaction of the other conditions to completion of the merger.
 
Conditions to Completion of the Merger
 
Conditions to Each Party’s Obligation to Effect the Merger.  The respective obligations of Solexa and Illumina to effect the merger are subject to the satisfaction or waiver of the following conditions:
 
  •  the adoption of the merger agreement by Solexa stockholders;
 
  •  the approval of the issuance of Illumina common stock in the merger by Illumina stockholders;
 
  •  no law, order or other legal prohibition of any court or other governmental entity shall be in effect that prohibits the completion of the merger provided that the terminating party has used reasonable efforts to prevent the entry of, and to appeal, the judgment or legal prohibition;
 
  •  the termination or expiration of the applicable waiting periods under the HSR Act;
 
  •  the receipt of other requisite approvals or consents of any governmental entity required to consummate the transactions contemplated by the merger agreement;
 
  •  the authorization for listing by NASDAQ of the shares of Illumina common stock issuable to Solexa stockholders in the merger and such other shares to be reserved for issuance in connection with the merger;
 
  •  the SEC having declared effective the registration statement of which this document forms a part;
 
  •  the representations and warranties of the other party being true and correct, subject to the material adverse effect standard provided in the merger agreement;


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  •  the other party having complied with, in all material respects, all agreements, obligations, covenants and conditions required by it under the merger agreement prior to the closing date;
 
  •  the receipt of an officer’s certificate of an executive officer stating that the two preceding conditions have been satisfied;
 
  •  the other party and its subsidiaries, taken as a whole, not having suffered any material adverse effect, as defined in the merger agreement; and
 
  •  the receipt of tax opinions of legal counsel to the effect that the merger will qualify as a “reorganization” within the meaning of Section 368(a) of the Code.
 
Conditions to Illumina’s Obligation to Effect the Merger.  The obligation of Illumina to effect the merger is subject to the satisfaction of the following additional conditions, any one or more of which may be waived, in writing, by Illumina:
 
  •  the receipt of all consents, approvals, authorizations, qualifications and orders of third parties required in connection with the transactions contemplated by the merger agreement, other than those previously disclosed to Illumina and those the absence of which would not reasonably be expected to have a material adverse effect on Solexa and its subsidiaries, taken as a whole;
 
  •  the absence of pending suits, actions or proceedings by any governmental entity that relate to the merger, are reasonably likely to succeed and:
 
  —  challenge Illumina’s acquisition of shares of Solexa common stock;
 
  —  seek to restrain or prohibit the proposed merger;
 
  —  seek to prevent or materially limit the ownership or operation by Illumina, Solexa or their respective subsidiaries of their respective businesses or assets;
 
  —  compel any of Illumina, Solexa or their respective subsidiaries to divest or hold separate any material portion of their businesses or assets; or
 
  —  seek to prohibit Illumina or any of its subsidiaries from effectively controlling in any material respect the businesses or operations of Solexa or any of its subsidiaries.
 
  •  Mr. West, Chief Executive Officer of Solexa, and Dr. Smith, Vice President and Chief Scientific Officer of Solexa, shall be actively employed by Solexa on the closing date (unless unemployed by reason of death or disability);
 
  •  receipt of a FIRPTA certificate from Solexa certifying that an interest in Solexa is not a real property interest; and
 
  •  there being no bonus plans or other arrangements of Solexa other than those previously disclosed to Illumina.
 
No Solicitation
 
The merger agreement provides that Solexa will cause its and its subsidiaries’ officers, directors and non-employee advisors, agents and other representatives to, and will use commercially reasonable efforts to cause their respective employees to immediately cease and cause to be terminated any discussions or negotiations with any parties that could reasonably be expected to lead to a “takeover proposal” (as defined below).
 
Solexa also has agreed that it will not, and will not permit any of its officers, directors, non-employee advisors, agents or other representatives to, and will use commercially reasonable efforts to ensure its and its subsidiaries’ employees do not:
 
  •  solicit, initiate, or knowingly encourage or facilitate any “takeover proposal” (as defined below);
 
  •  enter into any agreement, arrangement or understanding with respect to any takeover proposal;


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  •  enter into any agreement, arrangement, or understanding requiring it to abandon, terminate or fail to consummate the merger or any other transaction contemplated in the merger;
 
  •  initiate or participate in any negotiations or discussions, or furnish or disclose any non-public information that could reasonably be expected to lead to any takeover proposal; or
 
  •  grant any waiver or release under any standstill or any similar agreement with respect to any class of Solexa’s equity securities.
 
However, Solexa may, at any time prior to the time Solexa stockholders adopt the merger agreement, furnish information with respect to Solexa and its subsidiaries pursuant to a confidentiality agreement, that is no less restrictive than the one with Illumina, to participate in discussions and negotiations with, any person making a bona fide, unsolicited, written takeover proposal if:
 
  •  the takeover proposal was not solicited after the date of the merger agreement in violation of the restrictions described in this section, was made after the date of the merger agreement, and did not otherwise result in a breach of any of the restrictions described under the section entitled “The Merger Agreement — No Solicitation”;
 
  •  the Solexa board of directors determines in good faith judgment (after consultation with outside legal counsel and a financial advisor of nationally recognized reputation) that the takeover proposal constitutes or would reasonably be expected to lead to a “superior proposal” (as defined below);
 
  •  the Solexa board of directors concludes in good faith, after consultation with its outside legal counsel, that the failure to take the above described actions would be inconsistent with the board’s fiduciary duties to Solexa stockholders under applicable law; and
 
  •  all information has been previously provided to Illumina or is provided to Illumina substantially concurrent with the time it is provided to such person.
 
In addition, Solexa is obligated to provide Illumina with 48 hours prior written notice (or such shorter notice as is given to Solexa’s board of directors) of any meeting of its board of directors at which its board of directors is reasonably expected to consider any takeover proposal.
 
Neither the Solexa board of directors nor any committee thereof shall:
 
  •  effect an adverse recommendation change, meaning the board of directors may not:
 
  —  withdraw (or modify in a manner adverse to Illumina) or propose to withdraw (or modify in a manner adverse to Illumina) the approval, recommendation or declaration of advisability of the merger agreement, the proposed merger or the transactions contemplated by the merger agreement; or
 
  —  recommend, adopt, approve, or publicly propose to recommend, adopt or approve any takeover proposal; or
 
  •  approve or recommend, or publicly propose to approve or recommend or allow Solexa or any of its subsidiaries to enter into any letter of intent, memorandum of understanding, agreement in principle, merger agreement, acquisition agreement, option agreement, joint venture agreement, partnership agreement or other similar agreement constituting or related to any takeover proposal.
 
However, Solexa may make an adverse recommendation change after the second business day following Illumina’s receipt of written notice from Solexa advising Illumina that the Solexa board of directors intends to take such action in response to a superior proposal or a material change in circumstances after the date of the merger agreement, if the Solexa board of directors (or a committee thereof) determines that it is required to do so in order to comply with its fiduciary duties to the Solexa stockholders. During such two business days, Solexa is obligated to negotiate in good faith with Illumina to make adjustments to the terms and conditions of the merger agreement as would enable Solexa to proceed with its recommendation of the proposed merger and not make an adverse recommendation change.


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A “takeover proposal” is defined in the merger agreement as any inquiry, proposal or offer from any person or group relating to:
 
  •  any direct or indirect acquisition or purchase of the assets of Solexa or its subsidiaries having a fair market value equal to 20% or more of the fair market value of the assets of Solexa and its subsidiaries, taken as a whole, or 20% or more of the voting power of Solexa or any of its subsidiaries;
 
  •  any tender offer or exchange offer that, if consummated, would result in any person beneficially owning at least 20% of the voting power of Solexa; or
 
  •  any merger, consolidation, business combination, recapitalization or similar transaction involving Solexa other than (i) the merger, (ii) mergers, consolidations, business combinations, recapitalizations or similar transactions involving solely Solexa and/or one or more subsidiaries of Solexa or (iii) mergers, consolidations, business combinations, recapitalizations or similar transactions that if consummated would result in a person beneficially owning not more than 20% of the voting power of Solexa or any of its subsidiaries.
 
A “superior proposal” is defined in the merger agreement as a bona fide written takeover proposal, provided that all references to 20% in the definition of “takeover proposal” are deemed to be references to 50% instead, made by a third party which is:
 
  •  on terms which the Solexa board of directors, or any committee thereof comprised of independent directors, determines in good faith (after consultation with its financial advisors) to be more favorable to the stockholders of Solexa (in their capacity as stockholders) from a financial point of view than the merger and any alternative proposed by Illumina in accordance with the merger agreement; and
 
  •  in the good faith judgment of the Solexa board of directors, or any committee thereof, reasonably likely to be consummated, taking into account, among other things, all legal, financial, regulatory and other aspects of the proposal and identity of the offeror, including, to the extent financing is required, whether financing is then committed and on terms and conditions that the Solexa board of directors determines in good faith, after consultation with its financial advisors and legal counsel, are reasonably likely to result in disbursement of funds sufficient for the consummation of the transactions contemplated by such proposal.
 
Termination of the Merger Agreement
 
Right to Terminate.  The merger agreement may be terminated at any time prior to the effective time of the merger, whether before or after receipt of Illumina or Solexa stockholders’ approval sought in this joint proxy statement/ prospectus, under the following circumstances:
 
  •  by mutual written consent of Solexa and Illumina, if the board of directors of each company so determines;
 
  •  by either Solexa or Illumina:
 
  —  if Illumina’s stockholder approval is not obtained at Illumina’s stockholder meeting;
 
  —  if Solexa’s stockholder approval is not obtained at Solexa’s stockholder meeting;
 
  —  if the merger is not consummated by May 11, 2007; or
 
  —  if law or a final and nonappealable order, decree or ruling by a governmental entity becomes effective that permanently restrains, enjoins or otherwise prohibits the merger;
 
  •  by Solexa upon a breach of any covenants or agreements on the part of Illumina or Callisto, or if any representation or warranty of Illumina or Callisto is breached, in either case, such that the conditions to Solexa’s obligations to complete the merger would not then be satisfied and the breach is incapable of being cured or is not cured in all material respects within 30 business days after written notice of such breach is received by Illumina;


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  •  by Solexa if, prior to the obtaining of Illumina’s stockholder approval:
 
  —  the Illumina board of directors (or a committee thereof) effects an adverse recommendation change, meaning if the Illumina board of directors (or a committee thereof) withdraws (or modifies in a manner adverse to Solexa) or proposes to withdraw (or modify in a manner adverse to Solexa) the approval, recommendation or declaration of advisability of the merger agreement, the proposed merger or the transactions contemplated by the merger agreement;
 
  —  Illumina fails to include in the joint proxy statement/ prospectus the recommendation of the Illumina board of directors that its stockholders vote in favor of the issuance of Illumina shares in connection with the merger; or
 
  —  the Illumina board of directors fails to publicly reaffirm its recommendation of the merger or other transactions contemplated by the merger after being requested to do so by Solexa;
 
  •  by Illumina upon a breach of covenants or agreements on the part of Solexa, or if any representation or warranty of Solexa is breached, in either case such that the conditions to Illumina’s obligations to complete the merger would not then be satisfied and the breach is incapable of being cured or is not cured in all material respects within 30 business days after written notice of such breach is received by Solexa;
 
  •  by Illumina if, prior to the obtaining of Solexa’s stockholder approval:
 
  —  The Solexa board of directors effects an adverse recommendation change;
 
  —  Solexa fails to include in the joint proxy statement/ prospectus the recommendation of the Solexa board of directors that its stockholders vote in favor of the merger and the transactions contemplated by the merger;
 
  —  the Solexa board of directors fails publicly to reaffirm its recommendation of the merger or other transactions contemplated by the merger after being requested to do so by Illumina;
 
  —  if a tender or exchange offer constituting a takeover proposal has commenced and Solexa has not sent to its security holders, within ten days of the receipt of a written request from Illumina, a recommendation against such tender or exchange; or
 
  •  by Illumina if Solexa breaches, in any material respect, any of the provisions under the no solicitation covenant of the merger agreement.
 
Termination Fee
 
If the merger agreement is validly terminated, the agreement will become void without any liability on the part of any party unless the party is in willful or intentional breach of any representation, warranty, covenant or agreement contained in the merger agreement. The provisions of the merger agreement relating to the effects of termination, fees and expenses, termination fee payments, governing law, jurisdiction, waiver of jury trial and specific performance and certain other provisions will continue in effect notwithstanding termination of the merger agreement. Also, the termination of the merger agreement will not relieve a party from liability or damages resulting from any willful or material breach of the merger agreement. Upon a termination, a party may become obligated to pay to the other party a termination fee (which will, in any case, only be payable once), as described below:
 
Solexa will be obligated to pay a termination fee of $18 million if the merger agreement is terminated by either party because Solexa fails to obtain stockholder approval for the adoption of the merger agreement at the Solexa special meeting and:
 
  •  prior to the Solexa stockholder meeting a bona fide takeover proposal has been publicly announced and not withdrawn (excluding any withdrawals that are not publicly communicated at least five business days prior to the date of the meeting); and


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  •  within nine months of the termination of the merger agreement, Solexa enters into a definitive agreement for a transaction within the definition of takeover proposal (provided that references in such definition to “20%” shall be deemed to be references to “50%”).
 
Solexa will also be obligated to pay a termination fee of $18 million if the merger agreement is terminated by either party because the merger is not consummated by May 11, 2007 or by Illumina because Solexa breaches the no solicitation provision of the merger agreement and:
 
  •  prior to the Solexa stockholder meeting a bona fide takeover proposal has been publicly announced or otherwise communicated to the Solexa board of directors and not withdrawn; and
 
  •  within nine months of the termination of the merger agreement, Solexa enters a definitive agreement for a transaction within the definition of the takeover proposal (provided that references in such definition to “20%” shall be deemed to be references to “50%”).
 
Additionally, Solexa will be obligated to pay a termination fee of $18 million if the merger agreement is terminated by Illumina (and there has not been a material adverse effect on Illumina) because:
 
  •  the Solexa board of directors effected an adverse recommendation change;
 
  •  Solexa failed to include in the joint proxy statement/ prospectus the recommendation of the board of directors;
 
  •  the Solexa board failed to publicly reaffirm its recommendation of the merger following the public announcement of a takeover proposal after being requested to do so by Illumina; or
 
  •  a tender or exchange offer constituting a takeover proposal has commenced and Solexa has not sent to its security holders, within ten days after a written request from Illumina, a statement disclosing that Solexa recommends against acceptance of such tender or exchange.
 
Illumina will be obligated to pay a termination fee of $18 million if the merger agreement is terminated by Solexa (and there has not been a material adverse effect on Solexa) because:
 
  •  the Illumina board of directors effected an adverse recommendation change;
 
  •  Illumina failed to include in the joint proxy statement/ prospectus the recommendation of the Illumina board of directors in connection with the merger; or
 
  •  the Illumina board of directors failed to publicly reaffirm its recommendation of the issuance of shares in connection with the merger after being requested to do so by Solexa.
 
Conduct of Business
 
Each of Illumina and Solexa have undertaken certain covenants in the merger agreement restricting the conduct of their respective businesses between the date of the merger agreement and the effective time of the merger. In general, each of Illumina and Solexa has agreed to (1) conduct its business in the ordinary course, and (2) use its reasonable efforts to preserve its business organization and relationships with third parties and to keep available the services of its present officers and employees and preserve its relationship with customers, suppliers and others having business dealings with Solexa and its subsidiaries. Solexa also has agreed to use its reasonable efforts to preserve its intellectual property.
 
Between the date of the merger agreement and the effective time of the merger, each of Solexa and Illumina, has agreed to various specific restrictions relating to the conduct of its business, including the following (subject in each case to exceptions specified in the merger agreement or previously disclosed in writing as provided in the merger agreement):
 
  •  the issuance or sale of capital stock, voting debt or other equity interests;
 
  •  amendments or changes to its certificate of incorporation or bylaws or equivalent organizational documents;


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  •  the declaration or payment of dividends or other distributions;
 
  •  the reclassification, combination, or split of any of its capital stock or the issuance of any other securities in substitution for shares of its capital stock;
 
  •  changes in the method of accounting in effect at December 31, 2005; and
 
  •  taking of any action that would reasonably be expected to prevent, materially delay or impede the consummation of the proposed merger or other transactions contemplated by the merger agreement.
 
In addition, Solexa has agreed to various specific restrictions relating to its conduct of business, including the following (subject in each case to exceptions specified in the merger agreement or previously disclosed in writing as provided in the merger agreement):
 
  •  the acquisition or disposition of material assets, operations, business or securities;
 
  •  the authorization of any loan, advance, capital contribution to, or investment in, any person (other than a wholly-owned subsidiary);
 
  •  the incurrence or guarantee of indebtedness for borrowed money or the issuance of any debt securities;
 
  •  capital expenditures in excess of $1,000,000 in the aggregate;
 
  •  the payment, discharge, settlement or satisfaction of any material claims, liabilities or obligations;
 
  •  the termination of or any material change to material contracts or the execution of any material contract;
 
  •  dispositions, assignment, license or encumbrance of material intellectual property and failure to maintain such intellectual property;
 
  •  changes in employee benefit plans and compensation of directors, officers, employees or consultants;
 
  •  establishment of any compensation, severance, retention or change in control arrangements with employees or other service providers; and
 
  •  transactions with any affiliates or associates of Solexa.
 
Reasonable Efforts to Obtain Required Stockholder Votes
 
Each company has agreed to give notice of, convene and hold a meeting of its stockholders as promptly as practicable for the purpose of obtaining the required stockholder vote to approve the transactions contemplated by the merger agreement. In addition, each party has agreed to use its reasonable efforts to take all actions that are necessary, proper or advisable to consummate and make effective, in the most expeditious manner, the transactions contemplated in the merger agreement.
 
Other Covenants and Agreements
 
Expenses.  Each company has agreed to pay its own fees and expenses incurred in connection with the merger and the merger agreement.
 
Other Covenants and Agreements.  The merger agreement contains certain other covenants and agreements, including covenants relating to:
 
  •  cooperation between Illumina and Solexa in the preparation and filing of all forms, registrations and notices;
 
  •  timeliness in holding stockholders’ meetings to propose and approve the merger, the issuance of Illumina common stock in the merger and the recommendation of the parties’ boards of directors that stockholders vote in favor of the proposals;
 
  •  access by each party to certain information about the other party during the period prior to the effective time of the merger;


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  •  cooperation between Illumina and Solexa to obtain (and to keep each other apprised of the status of) all governmental approvals and consents required to complete the merger;
 
  •  waiver by Solexa of state takeover statutes applicable to the merger;
 
  •  employee plans and benefits provided after the merger, as described in the section entitled “The Merger Agreement — Employee Benefits Matters”;
 
  •  indemnification, exculpation and insurance;
 
  •  certain tax matters;
 
  •  the Solexa board of directors following the completion of the proposed merger; and
 
  •  the lock-up arrangement with Mr. West to be entered into at the closing of the merger, as described in the section entitled “The Merger — Restrictions on Sales of Shares of Illumina Common Stock Received in the Merger.”
 
Representations and Warranties
 
The merger agreement contains reciprocal representations and warranties, many of which are qualified by materiality, made by each party to the other. The representations and warranties relate to, among other topics, the following:
 
  •  organization, standing and corporate power, charter documents and ownership of subsidiaries;
 
  •  capital structure;
 
  •  corporate authority to enter into and perform the merger agreement, enforceability of the merger agreement, approval of the merger agreement by the parties’ boards of directors and voting requirements to consummate the merger;
 
  •  consents and approvals;
 
  •  filings with the SEC and other governmental entities;
 
  •  absence of certain changes or events;
 
  •  no undisclosed liabilities;
 
  •  contracts;
 
  •  absence of pending or threatened litigation;
 
  •  compliance with applicable laws and validity of permits;
 
  •  intellectual property matters;
 
  •  opinions of financial advisors;
 
  •  board approvals;
 
  •  voting requirements;
 
  •  brokers used in connection with the merger agreement; and
 
  •  accuracy of information supplied or to be supplied in the registration statement to be filed in connection with the merger.
 
In addition, Solexa has made representations and warranties related to, among other topics, the following:
 
  •  books and records;
 
  •  employment matters, including benefit plans;
 
  •  insurance;


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  •  tax matters;
 
  •  environmental matters;
 
  •  state takeover statutes;
 
  •  absence of undisclosed related party transactions; and
 
  •  real property, title and valid leasehold interests.
 
The representations described above and included in the merger agreement were made for purposes of the merger agreement and are subject to qualifications and limitations agreed by the respective parties in connection with negotiating the terms of the merger agreement. In addition, certain representations and warranties were made as of a specific date, may be subject to a contractual standard of materiality different from what might be viewed as material to stockholders, or may have been used for purposes of allocating risk between the respective parties rather than establishing matters as facts. This description of the representations and warranties, and their reproduction in the copy of the merger agreement attached to this document as Annex A, are included solely to provide investors with information regarding the terms of the merger agreement. Accordingly, the representations and warranties and other provisions of the merger agreement should not be read alone, but instead should be read together with the information provided elsewhere in this document and in the documents incorporated by reference into this document. See the section entitled “Where You Can Find More Information.”
 
Employee Benefits Matters
 
Illumina has agreed to provide employees of Solexa and its subsidiaries, for a period of at least one year following the effective time of the merger, with benefits which are comparable in the aggregate to those provided to similarly situated employees of Illumina. Notwithstanding the foregoing, the participation of the employees of Solexa or its subsidiaries in any of Illumina’s option or similar equity grant or purchase programs or plans shall be subject to the eligibility requirements of such programs or plans. In connection with any employee benefit plans or arrangements maintained by Illumina, Solexa employees will be given credit for service with Solexa and its subsidiaries, to the same extent such service was credited for such purposes by Solexa and its subsidiaries, under: (i) all employee benefit plans, programs, policies and fringe benefits to be provided to Solexa employees for purposes of eligibility and vesting (but not benefit accrual); (ii) severance plans, programs and policies to be provided to such employees for purposes of calculating severance benefits; and (iii) vacation and sick leave plans, programs and policies for purposes of calculating vacation and sick leave.
 
In connection with the merger, Illumina will waive all limitations on preexisting conditions or eligibility limitations with respect to participation and coverage requirements applicable to the Solexa employees under any welfare benefit plans, programs or policies maintained by Illumina in which the employees may be eligible to participate. Illumina has also agreed to provide each Solexa employee with credit for any co-payments and deductibles paid under any Solexa benefit plan that provides healthcare benefits in the plan year in effect as of the effective time of the merger in satisfying any applicable deductible or out-of-pocket expenses under any healthcare plans of Illumina.
 
No provision in the employee benefits covenant of the agreement shall impede Solexa or Illumina from terminating any employee at any time for any reason, subject to applicable laws and contracts. Furthermore, no third party beneficiary rights in any Solexa employee are created.
 
Amendments, Extensions and Waivers
 
Amendment.  No supplement, modification or amendment to the merger will be binding unless made in a written instrument that is signed by all the parties to the agreement.
 
Extension; Waiver.  At any time prior to the effective time of the merger, with certain exceptions, any party may (a) extend the time for performance of any obligations or other acts of the other party, (b) waive any inaccuracies in the representations and warranties of the other party contained in the merger agreement or in any document delivered pursuant to the merger agreement or (c) waive compliance by another party with any of the agreements or conditions contained in the merger agreement. Any agreement by a party to an extension or waiver must be in writing.


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THE COMPANIES
 
Illumina, Inc.
 
Illumina, Inc. develops and markets next generation tools for the large-scale analysis of genetic variation and function. Illumina has developed a comprehensive line of products designed to provide the performance, throughput, cost effectiveness and flexibility necessary to enable researchers in the life sciences and pharmaceutical industries to perform the billions of tests necessary to extract medically valuable information from advances in genomics. This information is expected to correlate genetic variation and gene function with particular disease states, enhancing drug discovery, allowing diseases to be detected earlier and more specifically, and permitting better choices of drugs for individual patients.
 
Illumina, a Delaware corporation, was founded in 1998 in San Diego, California. The company completed its initial public offering and was listed on NASDAQ under the symbol “ILMN” in July 2000.
 
Additional information about Illumina and its subsidiaries is included in documents incorporated by reference into this document. See the section entitled “Where You Can Find More Information.”
 
The principal executive office of Illumina is located at 9885 Towne Centre Drive, San Diego, California, 92121-1975.
 
Callisto Acquisition Corp.
 
Callisto Acquisition Corp., is a direct, wholly-owned subsidiary of Illumina that was incorporated in the State of Delaware on November 3, 2006. Callisto Acquisition Corp. does not engage in any operations and exists solely to facilitate the merger.
 
Solexa, Inc.
 
Solexa, Inc. develops and commercializes genetic analysis technologies. Solexa’s platform is expected to support many types of genetic analyses, including whole genome resequencing, gene expression analysis and small RNA analysis. Solexa believes that this technology, which can potentially generate over a billion bases of DNA sequence from a single experiment with a single sample preparation, will dramatically reduce the cost, and improve the practicality, of human resequencing relative to conventional technologies. Solexa commenced commercial shipment of its first-generation genetic analysis system, which includes the 1G Genome Analyzer, in the second quarter of 2006. Solexa’s longer-term goal is to further reduce the cost of human resequencing to a few thousand dollars for use in a wide range of applications from basic research through clinical diagnostics.
 
Solexa, a Delaware corporation, was founded in 1992 in Hayward, California, as Lynx Therapeutics, Inc. The name of the company was changed from Lynx Therapeutics, Inc. to Solexa, Inc. on March 7, 2005 following the business combination of Lynx Therapeutics, Inc. and Solexa Limited, a privately held company registered in England and Wales. Solexa Limited became a wholly-owned subsidiary of Lynx as a result of the transaction and Lynx Therapeutics, Inc. changed its name to “Solexa, Inc.” Solexa began trading on the Nasdaq SmallCap Market under the symbol “SLXA” in March 2005 and was listed under the symbol “LYNX” prior to that time. In February 2006, Solexa’s listing was transferred to NASDAQ.
 
Additional information about Solexa and its subsidiaries is included in documents incorporated by reference into this document. See the section entitled “Where You Can Find More Information.”
 
The principal executive office of Solexa is located at 25861 Industrial Boulevard, Hayward, California, 94545.


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UNAUDITED PRO FORMA COMBINED
CONDENSED FINANCIAL STATEMENTS
 
The unaudited pro forma combined condensed statements of operations for the nine months ended October 1, 2006 and the year ended January 1, 2006, and the unaudited pro forma combined condensed balance sheet as of October 1, 2006, are presented herein. Illumina’s fiscal year consists of 52 or 53 weeks ending the Sunday closest to December 31, with quarters of 13 or 14 weeks ending the Sunday closest to March 31, June 30, and September 30. The unaudited pro forma combined condensed statements of operations for the nine months ended October 1, 2006 and the year ended January 1, 2006 combine the historical results of Illumina and Solexa and give effect to the merger as if it had occurred on January 3, 2005. The unaudited pro forma combined condensed statement of operations for the year ended January 1, 2006 also gives effect to Illumina’s April 2005 acquisition of CyVera Corporation, which we refer to as CyVera, as if it had occurred on January 3, 2005. The unaudited pro forma combined condensed balance sheet combines the unaudited condensed balance sheets of Illumina and Solexa and gives effect to the merger as if it had been completed on October 1, 2006.
 
The unaudited pro forma combined condensed financial statements presented are based on the assumptions and adjustments described in the accompanying notes. The unaudited pro forma combined condensed financial statements are presented for illustrative purposes and do not purport to represent what the financial position or results of operations would actually have been if the merger occurred as of the dates indicated or what such financial position or results would be for any future periods. The unaudited pro forma combined condensed financial statements are based upon the respective historical consolidated financial statements of Illumina and Solexa, and should be read in conjunction with:
 
  •  the accompanying notes to the unaudited pro forma combined condensed financial statements;
 
  •  the separate historical financial statements of Illumina as of and for the three and nine months ended October 1, 2006 included in Illumina’s Quarterly Report on Form 10-Q for the three and nine months ended October 1, 2006, which is incorporated by reference into this document;
 
  •  the separate historical financial statements of Illumina as of and for the year ended January 1, 2006 included in Illumina’s Annual Report on Form 10-K for the year ended January 1, 2006, which is incorporated by reference into this document;
 
  •  the separate historical financial statements of Solexa as of and for the three and nine months ended September 30, 2006 included in Solexa’s Quarterly Report on Form 10-Q for the three and nine months ended September 30, 2006, which is incorporated by reference into this document; and
 
  •  the separate historical financial statements of Solexa as of and for the year ended December 31, 2005 included in Solexa’s Annual Report on Form 10-K for the year ended December 31, 2005, which is incorporated by reference into this document.
 
The unaudited pro forma combined condensed financial information was prepared using the purchase method of accounting. Based upon the terms of the merger and other factors, such as the composition of the combined company’s board and senior management, Illumina is treated as the acquiror of Solexa for both legal and accounting purposes. Accordingly, we have adjusted the historical consolidated financial information to give effect to the impact of the consideration issued in connection with the merger.
 
The unaudited pro forma combined condensed statements of operations include certain purchase accounting adjustments, including items expected to have a continuing impact on the combined results. The unaudited pro forma combined condensed statements of operations do not include the impact of any revenue, cost or other operating synergies that may result from the merger or any related restructuring costs. Cost savings, if achieved, could result from elimination of redundant spending such as public company costs, headcount and consolidated material sourcing.
 
In the unaudited pro forma combined condensed balance sheet, Illumina’s cost to acquire Solexa has been allocated to the assets acquired and liabilities assumed based upon management’s preliminary estimate of their respective fair values as of the date of the merger. Any differences between fair value of the consideration


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issued and the fair value of the assets and liabilities acquired will be recorded as goodwill. The amounts allocated to acquired assets and liabilities in the unaudited pro forma combined condensed financial statements are based on management’s preliminary internal valuation estimates. Definitive allocations will be performed and finalized after the closing of the merger. Accordingly, the preliminary purchase price allocation adjustments reflected in the following unaudited pro forma combined condensed financial statements are preliminary, have been made solely for the purpose of preparing these statements and are subject to revision based on a final determination of fair values after the closing of the merger.
 
The unaudited pro forma combined condensed financial statements do not reflect the impact of financing, liquidity or other balance sheet repositioning that may be undertaken in connection with or subsequent to the merger. For example, on November 12, 2006, Illumina entered into a definitive securities purchase agreement with Solexa in which Illumina agreed to invest approximately $50 million in Solexa in exchange for newly issued shares of Solexa common stock. The purchase by Illumina of shares of Solexa common stock as contemplated by the securities purchase agreement was completed on November 13, 2006. Pursuant to the terms of the securities purchase agreement, Illumina agreed to purchase 5,154,639 newly issued shares of Solexa common stock for $9.70 per share, representing aggregate cash consideration of approximately $50 million. The effect of this investment has not been included in the accompanying pro forma combined condensed financial statements and notes thereto.
 
The unaudited pro forma combined condensed financial statements do not reflect certain amounts resulting from the merger because we consider them to be of a non-recurring nature. Such amounts may be comprised of restructuring and other exit and non-recurring costs related to the integration of the Illumina and Solexa businesses. To the extent the exit costs relate to the Solexa business and meet certain criteria, they will be recognized in the opening balance sheet in accordance with Emerging Issues Task Force (EITF) Issue No 95-3, Recognition of Liabilities in Connection with a Purchase Business Combination. To the extent that such costs relate to the Illumina business, they will not meet the criteria in EITF Issue No 95-3, and will be recorded as expenses pursuant to Statement of Financial Accounting Standards (SFAS) No. 146, Accounting for Costs Associated with Exit or Disposal Activities. Illumina and Solexa have just recently begun collecting information in order to formulate detailed integration plans to deliver planned synergies. However, at this time, the status of the integration plans and the related merger-related costs are too uncertain to include in the pro forma financial information.
 
Based on Illumina’s preliminary review of Solexa’s summary of significant accounting policies disclosed in Solexa’s financial statements, the nature and amount of any adjustments to the historical financial statements of Solexa to conform their accounting policies to those of Illumina are not expected to be significant. Upon consummation of the merger, further review of Solexa’s accounting policies and financial statements may result in required revisions to Solexa’s policies and classifications to conform to such policies and classifications of Illumina.


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COMBINED PRO FORMA FINANCIAL DATA
UNAUDITED PRO FORMA COMBINED CONDENSED STATEMENT OF OPERATIONS
 
                                         
    For the Nine Months Ended                    
    October 1,
    September 30,
                   
    2006     2006     Pro Forma
          Pro Forma
 
    Illumina     Solexa     Adjustments     Notes     Combined  
    (In thousands, except per share data)  
 
Revenue
  $ 124,151     $ 2,434     $             $ 126,585  
Costs and expenses:
                                       
Cost of revenue
    39,225       2,167       2,110       (a )     43,634  
                      132       (c )        
Manufacturing startup and excess capacity costs
          2,110       (2,110 )     (a )      
Research and development expenses
    24,547       17,621       1,463       (c )     43,631  
Selling, general and administrative expenses
    39,143       12,902       (385 )     (b )     53,831  
                      2,171       (c )        
Amortization of acquired identifiable intangible assets
                1,710       (b )     1,710  
                                         
Income (loss) from operations
    21,236       (32,366 )     (5,091 )             (16,221 )
Interest and other income, net
    3,420       2,072                     5,492  
                                         
Income (loss) before income taxes
    24,656       (30,294 )     (5,091 )             (10,729 )
Provision for income taxes (income tax benefit)
    1,830       (1,292 )     (810 )     (d )     (272 )
                                         
Net income (loss)
    22,826       (29,002 )     (4,281 )             (10,457 )
Dividends
                               
                                         
Net loss attributable to common stockholders
  $ 22,826     $ (29,002 )   $ (4,281 )           $ (10,457 )
                                         
Net income (loss) per share, basic
  $ 0.52                             $ (0.19 )
                                         
Net income (loss) per share, diluted
  $ 0.48                             $ (0.19 )
                                         
Shares used in calculating net income (loss)
per share, basic
    43,766               12,449       (e )     56,215  
                                         
Shares used in calculating net income (loss)
per share, diluted
    48,004               8,211       (e )     56,215  
                                         
 
See accompanying Notes to Unaudited Pro Forma Combined Condensed Financial Statements


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UNAUDITED PRO FORMA COMBINED CONDENSED STATEMENT OF OPERATIONS
 
                                                         
          For the Year
                   
    For the Year Ended
    Ended
                   
    January 1, 2006     December 31,
                   
                Illumina
    2005     Pro Forma
          Pro Forma
 
    Illumina     CyVera(1)     Combined     Solexa     Adjustments     Notes     Combined  
    (In thousands, except per share data)  
 
Revenue
  $ 73,501     $     $ 73,501     $ 4,150     $             $ 77,651  
Costs and expenses:
                                                       
Cost of revenue
    23,181             23,181       7,066       306       (c )     30,553  
Research and development expenses
    27,809       785       28,594       17,294       3,381       (c )     49,269  
Selling, general and administrative expenses
    28,158       299       28,457       12,030       (464 )     (b )     45,042  
                                      5,019       (c )        
Amortization of acquired identifiable intangible assets
                            2,280       (b )     2,280  
Acquired in-process research and development
    15,800             15,800                           15,800  
Restructuring charge
                      333                     333  
                                                         
Loss from operations
    (21,447 )     (1,084 )     (22,531 )     (32,573 )     (10,522 )             (65,626 )
Interest and other income, net
    573       (12 )     561       414                     975  
                                                         
Loss before income taxes
    (20,874 )     (1,096 )     (21,970 )     (32,159 )     (10,522 )             (64,651 )
Income tax benefit related to research and development costs
                      (2,999 )                   (2,999 )
                                                         
Net loss
    (20,874 )     (1,096 )     (21,970 )     (29,160 )     (10,522 )             (61,652 )
Dividends
                      (522 )                   (522 )
                                                         
Net loss attributable to common stockholders
  $ (20,874 )   $ (1,096 )   $ (21,970 )   $ (29,682 )   $ (10,522 )           $ (62,174 )
                                                         
Net loss per share, basic and diluted
  $ (0.52 )           $ (0.55 )                           $ (1.18 )
                                                         
Shares used in calculating net loss per share, basic and diluted
    40,147               40,147               12,449       (e )     52,596  
                                                         
 
 
(1) Reflects the results of CyVera’s operations from January 3, 2005 until Illumina’s acquisition of CyVera on April 8, 2005.
 
See accompanying Notes to Unaudited Pro Forma Combined Condensed Financial Statements


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UNAUDITED PRO FORMA COMBINED CONDENSED CONSOLIDATED BALANCE SHEET

                                         
    As of
    As of
                   
    October 1,
    September 30,
                   
    2006     2006     Pro Forma
          Pro Forma
 
    Illumina     Solexa     Adjustments     Notes     Combined  
    (In thousands)  
ASSETS
Current assets:
                                       
Cash and cash equivalents
  $ 44,166     $ 47,051     $ (9,550 )     (g )   $ 81,667  
Short-term investments
    125,776                           125,776  
Accounts receivable, net
    29,045       399                     29,444  
Inventory, net
    19,397       3,669                     23,066  
Prepaid expenses and other current assets
    2,519       5,194                     7,713  
                                         
Total current assets
    220,903       56,313       (9,550 )             267,666  
Property and equipment, net
    25,388       4,955                     30,343  
Goodwill
    2,125       22,529       266,896       (h )     291,550  
Intangible and other assets, net
    8,061       3,738       19,517       (i )     31,316  
Acquired in-process research and development
                254,600       (f )      
                      (254,600 )     (f )        
                                         
Total assets
  $ 256,477     $ 87,535     $ 276,863             $ 620,875  
                                         
 
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
                                       
Accounts payable and accrued liabilities
  $ 33,362     $ 8,689     $             $ 42,051  
Current portion of long-term debt
    94       32                     126  
                                         
Total current liabilities
    33,456       8,721                     42,177  
Long-term debt, net of current portion
          23                     23  
Deferred rent and lease obligations
    1,052       1,612                     2,664  
Deferred gain on sale of land and building
    2,562                           2,562  
Other long-term liabilities
    8,333       2,224                     10,557  
                                         
Total liabilities
    45,403       12,580                     57,983  
                                         
Stockholders’ equity:
                                       
Preferred stock
                               
Common stock
    465       366       (366 )     (j )     589  
                      124       (k )        
Additional paid-in capital
    331,900       152,087       (152,087 )     (j )     938,194  
                      521,432       (k )        
                      84,862       (k )        
Accumulated other comprehensive income
    470       3,344       (3,344 )     (j )     470  
Accumulated deficit
    (121,761 )     (80,842 )     80,842       (j )     (376,361 )
                      (254,600 )     (f )        
                                         
Total stockholders’ equity
    211,074       74,955       276,863               562,892  
                                         
Total liabilities and stockholders’ equity
  $ 256,477     $ 87,535     $ 276,863             $ 620,875  
                                         
Pro forma common shares outstanding(l)
                                    58,955  
                                         
 
See accompanying Notes to Unaudited Pro Forma Combined Condensed Financial Statements


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Notes to Unaudited Pro Forma Combined Condensed Financial Statements
 
1.   Basis of Presentation
 
On November 12, 2006, Illumina entered into a definitive merger agreement with Solexa for a stock-for-stock merger transaction. Under the terms of the merger agreement, which has been unanimously approved by the board of directors of each company, Solexa stockholders will receive shares of Illumina common stock in exchange for the shares of Solexa common stock they hold. The exchange ratio will be determined by dividing $14.00 by the volume weighted average trading price of Illumina common stock as reported by NASDAQ for ten randomly selected trading days during the 20-day trading period ending five trading days prior to the closing of the merger, which we refer to as the Illumina Average Price, which represents total consideration of approximately $616 million. If the Illumina Average Price is equal to or greater than $47.30, then the exchange ratio will be fixed at 0.296 of a share of Illumina common stock for each share of Solexa common stock, and if the Illumina Average Price is equal to or less than $40.70, then the exchange ratio will be fixed at 0.344 of a share of Illumina common stock for each share of Solexa common stock.
 
As of November 12, 2006, there were approximately 36.6 million shares of Solexa common stock outstanding. Based on these amounts and the terms outlined above, Solexa stockholders will receive a total of approximately 12.2 million shares of Illumina common stock. The exact number of shares to be issued will depend on the number of related Solexa shares outstanding at the closing of the merger. In addition, certain executives at Solexa will receive change in control bonuses totaling approximately $9.0 million upon consummation of the merger. These bonuses will be paid in shares of Illumina common stock and are based on a percentage of the amount by which the consideration received by Solexa stockholders as a direct result of the change in control exceeds the sum of $150 million plus the aggregate gross proceeds received by Solexa through sales of equity securities after the effective date of such bonus arrangement. Assuming a market price of $41.8950 per share of Illumina common stock at closing, total equity consideration received in the merger of approximately $600 million, which includes the fair market value of vested stock options, warrants and restricted stock assumed, and that executive bonuses will equal an aggregate of 2% of consideration in excess of $150 million, the total shares issuable in connection with such change in control bonuses will be approximately 0.2 million shares of Illumina common stock.
 
As of November 12, 2006, there were approximately 12.4 million Solexa shares estimated to be issuable upon exercise of outstanding options, warrants and restricted stock. These shares will be converted to Illumina shares at the closing date of the merger. Total estimated merger consideration also includes approximately $84.9 million representing the fair market value of the vested options, warrants and restricted stock assumed. Illumina also expects to recognize approximately $17.4 million of non-cash stock-based compensation expense related to unvested stock options at the time the acquisition is consummated. This expense is expected to be recognized beginning from the time the acquisition is consummated over a weighted-average period of approximately two years. These unvested awards were valued using the following assumptions:
 
         
Interest rate
    4.70 – 5.10 %
Volatility
    58.50 – 59.85 %
Expected life
    0.4 – 4.18 yea rs
Expected dividend yield
    0 %
 
The purchase price of the acquisition is approximately $616 million estimated as follows (in thousands):
 
         
Fair market value of securities issued
  $ 512,556  
Transaction costs
    9,550  
Fair market value of securities issued for change in control bonuses
    9,000  
Fair market value of vested stock options, warrants and restricted stock assumed
    84,862  
         
Total purchase price
  $ 615,968  
         


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Notes to Unaudited Pro Forma Combined Condensed Financial Statements — (Continued)

The allocation of the preliminary purchase price is summarized below (in thousands):
 
         
Current assets
  $ 56,313   
Property, plant and equipment, net
    4,955   
Other assets
    455   
Current liabilities
    (8,721)  
Other long-term liabilities
    (3,859)  
         
         
Net tangible assets acquired
    49,143   
         
Identifiable intangible assets (core technology)
    22,800   
In-process research and development
    254,600   
Goodwill
    289,425   
         
         
Total net assets acquired
  $ 615,968   
         
 
The value of the Illumina shares used in determining the purchase price was $41.8950 per share based on the average of the closing price of Illumina common stock for a range of four trading days, including two days prior to and two days subsequent to the announcement of the offer on November 13, 2006.
 
The allocation of the purchase price is preliminary. The final determination of the purchase price allocation will be based on the fair values of the assets acquired, including fair values of acquired in-process research and development (IPR&D) and other identifiable intangibles, and the fair value of liabilities assumed as of the date that the acquisition is consummated. The excess of the purchase price over the fair value of assets and liabilities acquired is allocated to goodwill. The purchase price allocation will remain preliminary until Illumina completes its valuation of significant identifiable intangible assets acquired (including IPR&D), evaluates integration plans to be undertaken following the consummation of the merger and determines the fair values of other assets and liabilities acquired. The final determination of the purchase price allocation is expected to be completed as soon as practicable after the consummation of the merger. The final amounts allocated to assets and liabilities acquired could cause material differences in the information presented in the unaudited pro forma combined condensed financial statements.
 
The amount allocated to acquired IPR&D represents an estimate of the fair value of acquired, to-be-completed research projects. The values of the research projects will be determined by estimating the costs to develop the acquired technology into commercially viable products, estimating the resulting net cash flows from the projects, and discounting the net cash flows to their present value. These cash flows will be estimated by forecasting total revenues expected from these products and then deducting appropriate operating expenses, cash flow adjustments and contributory asset returns to establish a forecast of net cash flows arising from the in-process technology. These cash flows will be substantially reduced to take into account the time value of money and the risks associated with the inherent difficulties and uncertainties given the projected stage of development of these projects at closing. For purposes of the unaudited pro forma combined condensed balance sheet as of October 1, 2006, $254.6 million of the total purchase price has been allocated to acquired IPR&D which relates to products that are not expected to have reached technological feasibility as of the closing date and have no alternative future use. At the announcement date, Solexa’s ongoing research and development initiatives were primarily involved with the development of its genetic analysis platform for sequencing and expression profiling. These projects were approximately 80% to 90% complete at the announcement date. As of the date of expected closing of the merger, these projects are not expected to have reached technological feasibility and will have no alternative future use. Accordingly, the amounts allocated to IPR&D are expected to be charged to the statement of operations in the period the acquisition is consummated.


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Notes to Unaudited Pro Forma Combined Condensed Financial Statements — (Continued)

2.   Pro Forma Adjustments
 
Pro Forma Statement of Operations Adjustments
 
(a) To reclassify Solexa manufacturing start-up and excess capacity costs of $2.1 million for the nine months ended September 30, 2006 to cost of revenue to conform to Illumina’s presentation.
 
(b) Reflects amortization of $1.7 million and $2.3 million for the nine months ended October 1, 2006 and the year ended January 1, 2006, respectively, for an identifiable intangible asset related to core technology based on the estimated fair value assigned to this asset at the date of acquisition, assuming an estimated useful life of ten years, as well as the elimination of historical Solexa intangible amortization of $0.4 million and $0.5 million for the nine months ended September 30, 2006 and the year ended December 31, 2005, respectively.
 
(c) Reflects non-cash stock compensation expense of $6.6 million and $8.7 million for the nine months ended October 1, 2006 and the year ended January 1, 2006, respectively, related to the amortization of the fair value of the stock options unvested at the time the acquisition is consummated, as well as the elimination of historical Solexa non-cash stock compensation expense of $2.8 million for the nine months ended October 1, 2006.
 
(d) Reflects the income tax impact of Solexa’s net loss into the combined condensed consolidated pro forma statement of operations for the nine months ended October 1, 2006, which resulted in lower United States and California taxable income and alternative minimum tax expense for the period presented.
 
(e) The pro forma adjustment to shares used to calculate basic net income (loss) per share is comprised as follows (in thousands, except assumed exchange ratio):
 
         
Solexa common shares outstanding as of November 12, 2006
    36,611  
Assumed exchange ratio
    0.334  
         
         
Estimated Illumina shares to be issued in exchange for Solexa shares
    12,234  
Estimated Illumina shares issued as change in control bonuses
    215  
         
         
Total estimated Illumina shares to be issued in connection with the acquisition of Solexa
    12,449  
         
 
The pro forma adjustment to shares used for diluted net loss per share is comprised as follows (in thousands):
 
                 
    Nine Months Ended
    Year Ended
 
    October 1,
    January 1,
 
    2006     2006  
 
Shares to be issued in connection with the acquisition of Solexa
    12,449       12,449  
Less: Illumina anti-dilutive shares
    (4,238 )      
                 
Shares used to calculate pro forma diluted net income (loss) per share
    8,211       12,449  
                 
 
Pro Forma Balance Sheet Adjustments
 
(f) Reflects the portion of the purchase price allocated to acquired IPR&D projects that, as of the closing date of the merger, will not have reached technological feasibility and have no future alternative use. The preliminary estimate of fair value of acquired IPR&D is $254.6 million. The amount of acquired IPR&D is subject to change and will be finalized upon consummation of the transaction and completion of a valuation analysis of Solexa’s assets and liabilities. Because this expense is directly attributable to the acquisition and will not have a continuing impact in excess of one year, the impact of the acquired IPR&D is not reflected in


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Notes to Unaudited Pro Forma Combined Condensed Financial Statements — (Continued)

the unaudited pro forma combined condensed statements of operations. However, this item will be recorded as an expense in the period that the acquisition is completed. For every $10.0 million increase to the amount allocated to acquired IPR&D, there will be a $10.0 million increase to net loss in the period in which the transaction occurs. Additionally, goodwill will also decrease by $10.0 million.
 
(g) Reflects estimated transaction costs consisting primarily of investment banker fees, legal and professional fees of approximately $9.6 million.
 
(h) Reflects the elimination of historical Solexa goodwill of $22.5 million and the addition of goodwill from the preliminary purchase price allocation of $289.4 million.
 
(i) Reflects the portion of the purchase price allocated to an acquired intangible asset representing core technology of $22.8 million, less Solexa’s historical net intangible assets of $3.3 million. The amount of this intangible asset is subject to change and will be finalized upon consummation of the merger and completion of a valuation analysis.
 
(j) Reflects the elimination of historical Solexa stockholders’ equity.
 
(k) Reflects the issuance of Illumina common stock, including common stock issued related to change in control bonuses, and the fair value of Solexa’s vested stock options.
 
(l) Reflects the pro forma shares outstanding as of October 1, 2006 calculated as follows (in thousands):
 
         
Historical Illumina common shares outstanding as of October 1, 2006
    46,506  
Shares assumed issued in connection with the acquisition of Solexa
    12,449  
         
Pro forma common shares outstanding as of October 1, 2006
    58,955  
         


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THE ILLUMINA SPECIAL MEETING
 
Date, Time and Place
 
The special meeting of Illumina stockholders will be held at 9885 Towne Centre Drive, San Diego, California, 92121-1975, on January 26, 2007 at 9:00 a.m., local time.
 
Purpose of the Illumina Special Meeting
 
At the Illumina special meeting, stockholders will be asked to:
 
  •  consider and vote on a proposal to approve the issuance of Illumina common stock in connection with the merger;
 
  •  vote upon an adjournment of the Illumina special meeting, if necessary, to solicit additional proxies if there are not sufficient votes for the foregoing proposal; and
 
  •  transact any other business that may properly be brought before the Illumina special meeting or any adjournments or postponements thereof.
 
Illumina Record Date; Stock Entitled to Vote
 
Only Illumina stockholders of record at the close of business on December 15, 2006, the Illumina record date for the Illumina special meeting, will be entitled to notice of, and to vote at, the Illumina special meeting or any adjournments or postponements thereof.
 
On the Illumina record date, there were a total of 46,843,512 shares of Illumina common stock outstanding and entitled to vote at the Illumina special meeting. Illumina stockholders will have one vote for each share of Illumina common stock that they owned on the Illumina record date, exercisable in person or through the Internet or by telephone or by a properly executed and delivered proxy with respect to the Illumina special meeting.
 
On the record date, directors and executive officers of Illumina and their affiliates owned and were entitled to vote 2,266,360 shares of Illumina common stock, or approximately 4.8% of the shares of Illumina common stock outstanding on that date. We currently expect that Illumina’s directors and executive officers will vote their shares in favor of the issuance of Illumina common stock in connection with the merger, although none of them has entered into any agreements obligating them to do so.
 
Quorum
 
The holders of shares having a majority of the voting power of the common stock of Illumina issued and outstanding and entitled to vote thereat must be present or represented by proxy to constitute a quorum for the transaction of business at the special meeting. All shares of Illumina common stock represented at the Illumina special meeting, including abstentions and broker non-votes, will be treated as present for purposes of determining the presence or absence of a quorum for all matters for consideration at the Illumina special meeting.
 
Required Vote
 
The proposals require different percentages of votes in order to approve them:
 
  •  The issuance of Illumina common stock to Solexa stockholders, approval of which is necessary to complete the merger, requires approval by an affirmative vote of holders of a majority of the Illumina common stock present or represented and entitled to vote on the proposal.
 
  •  Approval of the proposal to adjourn the Illumina special meeting, if necessary, for the purpose of soliciting additional proxies requires that the votes cast favoring the proposal exceed the votes cast opposing the proposal.


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Abstentions
 
Abstentions will be counted toward the tabulations of votes cast on proposals presented to Illumina stockholders and will have the same effect as negative votes, whereas broker non-votes will not be counted for purposes of determining whether a proposal has been approved.
 
Voting of Proxies
 
A proxy card is enclosed for your use. Illumina requests that you sign the accompanying proxy and return it promptly in the enclosed postage-paid envelope. When the accompanying proxy is returned properly executed, the shares of Illumina common stock represented by it will be voted at the Illumina special meeting or any adjournment thereof in accordance with the instructions contained in the proxy.
 
If a proxy is returned without an indication as to how the shares of Illumina common stock represented are to be voted with regard to a particular proposal, the Illumina common stock represented by the proxy will be voted in favor of each such proposal. At the date hereof, management has no knowledge of any business that will be presented for consideration at the special meeting and which would be required to be set forth in this joint proxy statement or the related proxy card other than the matters set forth in the Notice of Special Meeting of Stockholders. If any other matter is properly presented at the special meeting for consideration, it is intended that the persons named in the enclosed form of proxy and acting thereunder will vote in accordance with their best judgment on such matter.
 
Your vote is important. Accordingly, please sign and return the enclosed proxy card whether or not you plan to attend the Illumina special meeting in person.
 
Shares Held in Street Name
 
If you hold your shares in a stock brokerage account or if your shares are held by a bank or nominee (that is, in street name), you must provide the record holder of your shares with instructions on how to vote your shares. Please follow the voting instructions provided by your bank or broker. Please note that you may not vote shares held in street name by returning a proxy card directly to Illumina or by voting in person at your stockholders’ meeting unless you provide a “legal proxy,” which you must obtain from your bank or broker. Further, brokers who hold shares of Illumina common stock on behalf of their customers may not give a proxy to Illumina to vote those shares without specific instructions from their customers.
 
If you are an Illumina stockholder and you do not instruct your broker on how to vote your shares, your broker may not vote your shares on the proposal to approve the issuance of shares of Illumina common stock in the merger, which will have no effect on the vote on this proposal.
 
Revocability of Proxies
 
You have the power to revoke your proxy at any time before your proxy is voted at the Illumina special meeting. You can revoke your proxy in one of three ways:
 
  •  send a signed notice of revocation;
 
  •  grant a new, valid proxy bearing a later date; or
 
  •  if you are a holder of record, you can attend the Illumina special meeting and vote in person, which will automatically cancel any proxy previously given, or you can revoke your proxy in person, but your attendance alone will not revoke any proxy that you have previously given.
 
If you choose either of the first two methods, you must submit your notice of revocation or your new proxy to Illumina’s Secretary at 9885 Towne Centre Drive, San Diego, California, 92121-1975, no later than the beginning of the Illumina special meeting.


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Solicitation of Proxies
 
In accordance with the merger agreement, generally the cost of proxy solicitation and other expenses incurred in connection with the filing of the registration statement, of which this document forms a part, with the SEC and the printing and mailing of this document will be paid by the party actually incurring such cost and other expenses. In addition to the use of the mail, proxies may be solicited by officers and directors and regular employees of Illumina, without additional remuneration, by personal interview, telephone, facsimile or otherwise. Illumina will also request brokerage firms, nominees, custodians and fiduciaries to forward proxy materials to the beneficial owners of shares held of record on the record date and will provide customary reimbursement to such firms for the cost of forwarding these materials. Illumina has retained InvestorCom, Inc. to assist in its solicitation of proxies and has agreed to pay InvestorCom, Inc. approximately $5,500, plus reasonable expenses, for these services.


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THE SOLEXA SPECIAL MEETING
 
Date, Time and Place
 
The special meeting of Solexa stockholders will be held at 25861 Industrial Boulevard, Hayward, California, 94545, on January 26, 2007 at 9:00 a.m., local time.
 
Purpose of the Solexa Special Meeting
 
At the Solexa special meeting, stockholders will be asked to:
 
  •  consider and vote on a proposal to approve and adopt the merger agreement;
 
  •  vote upon an adjournment of the Solexa special meeting, if necessary, to solicit additional proxies if there are not sufficient votes for the foregoing proposal; and
 
  •  transact any other business that may properly be brought before the Solexa special meeting or any adjournments or postponements thereof.
 
Solexa Record Date; Stock Entitled to Vote
 
Only Solexa stockholders of record at the close of business on December 15, 2006, the Solexa record date for the Solexa special meeting, will be entitled to notice of, and to vote at, the Solexa special meeting or any adjournments or postponements thereof.
 
On the Solexa record date, there were a total of 42,717,093 shares of Solexa common stock outstanding and entitled to vote at the Solexa special meeting. Solexa stockholders will have one vote for each share of Solexa common stock that they owned on the Solexa record date, exercisable in person or by telephone or by a properly executed and delivered proxy with respect to the Solexa special meeting.
 
On the record date, directors and executive officers of Solexa and their affiliates owned and were entitled to vote 6,754,974 shares of Solexa common stock, or approximately 15.8% of the shares of Solexa common stock outstanding on that date. We currently expect that Solexa’s directors and executive officers will vote their shares in favor of the merger, although none of them has entered into any agreements obligating them to do so.
 
Quorum
 
A majority of the votes entitled to be cast by the shares entitled to vote must be present or represented by proxy to constitute a quorum for action on the matters to be voted upon at the special meeting. All shares of Solexa common stock represented at the Solexa special meeting, including abstentions and broker non-votes, will be treated as present for purposes of determining the presence or absence of a quorum for all matters voted on at the Solexa special meeting.
 
Required Vote
 
The proposals require different percentages of votes in order to approve them:
 
  •  Approval and adoption of the merger agreement requires the affirmative vote of holders of a majority of the outstanding shares of Solexa common stock entitled to vote on the proposal.
 
  •  Approval of the proposal to adjourn the Solexa special meeting, if necessary, for the purpose of soliciting additional proxies requires that the votes cast favoring the proposal exceed the votes cast opposing the proposal.


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Abstentions
 
Abstentions will be counted toward the tabulations of votes cast on proposals presented to Solexa stockholders and will have the same effect as votes against the proposal to approve and adopt the merger agreement.
 
Voting of Proxies
 
A proxy card is enclosed for your use. Solexa requests that you sign the accompanying proxy and return it promptly in the enclosed postage-paid envelope. When the accompanying proxy is returned properly executed, the shares of Solexa common stock represented by it will be voted at the Solexa special meeting or any adjournment thereof in accordance with the instructions contained in the proxy.
 
If a proxy is returned without an indication as to how the shares of Solexa common stock represented are to be voted with regard to a particular proposal, the Solexa common stock represented by the proxy will be voted in favor of each such proposal. A proxy may confer discretionary authority to vote with respect to any matter presented at the Solexa special meeting, except as set forth in the proxy and except for matters proposed by a stockholder who notifies Solexa not later than the close of business on the tenth day following the day on which the Notice of Special Meeting of Stockholders was mailed. At the date hereof, management has no knowledge of any business that will be presented for consideration at the special meeting and which would be required to be set forth in this joint proxy statement or the related proxy card other than the matters set forth in the Notice of Special Meeting of Stockholders. If any other matter is properly presented at the special meeting for consideration, it is intended that the persons named in the enclosed form of proxy and acting thereunder will vote in accordance with their best judgment on such matter.
 
Your vote is important. Accordingly, please sign and return the enclosed proxy card whether or not you plan to attend the Solexa special meeting in person.
 
Shares Held in Street Name
 
If you hold your shares in a stock brokerage account or if your shares are held by a bank or nominee (that is, in street name), you must provide the record holder of your shares with instructions on how to vote your shares. Please follow the voting instructions provided by your bank or broker. Please note that you may not vote shares held in street name by returning a proxy card directly to Solexa or by voting in person at your stockholders’ meeting unless you provide a “legal proxy,” which you must obtain from your bank or broker. Further, brokers who hold shares of Solexa common stock on behalf of their customers may not give a proxy to Solexa to vote those shares without specific instructions from their customers.
 
If you are a Solexa stockholder and you do not instruct your broker on how to vote your shares, your broker may not vote your shares, which will have the same effect as a vote against the proposal to approve and adopt the merger agreement.
 
Revocability of Proxies
 
You have the power to revoke your proxy at any time before your proxy is voted at the Solexa special meeting. You can revoke your proxy in one of three ways:
 
  •  send a signed notice of revocation;
 
  •  grant a new, valid proxy bearing a later date; or
 
  •  if you are a holder of record, you can attend the Solexa special meeting and vote in person, which will automatically cancel any proxy previously given, or you can revoke your proxy in person, but your attendance alone will not revoke any proxy that you have previously given.
 
If you choose either of the first two methods, you must submit your notice of revocation or your new proxy to Solexa’s Secretary at 25861 Industrial Boulevard, Hayward, California, 94545, no later than the beginning of the Solexa special meeting.


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Solicitation of Proxies
 
In accordance with the merger agreement, generally the cost of proxy solicitation and other expenses incurred in connection with the filing of the registration statement, of which this document forms a part, with the SEC and the printing and mailing of this document will be paid by the party actually incurring such cost and other expenses. In addition to the use of the mail, proxies may be solicited by officers and directors and regular employees of Solexa, without additional remuneration, by personal interview, telephone, facsimile or otherwise. Solexa will also request brokerage firms, nominees, custodians and fiduciaries to forward proxy materials to the beneficial owners of shares held of record on the record date and will provide customary reimbursement to such firms for the cost of forwarding these materials. Solexa has retained The Altman Group to assist in its solicitation of proxies and has agreed to pay The Altman Group approximately $9,000, plus reasonable expenses, for these services.


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COMPARATIVE STOCK PRICES AND DIVIDENDS
 
For current price information, Solexa stockholders are urged to consult publicly available sources. The table below presents the NASDAQ closing market price for Illumina common stock and the NASDAQ closing market price for Solexa common stock on the two dates set forth below. The table also presents the equivalent value of the merger consideration per share of Solexa common stock on those dates, calculated by multiplying the closing price of Illumina common stock on those dates by the applicable exchange ratio as provided in the merger agreement (for a description of the exchange ratio, see “The Merger — Effect of the Merger; Consideration to be Received in the Merger; Treatment of Solexa Stock Options and Warrants”).
 
  •  November 10, 2006, the last trading day before the public announcement of the signing of the merger agreement; and
 
  •  December 15, 2006, the latest practicable date before the date of this document.
 
                         
    Illumina Closing
    Solexa
    Equivalent per
 
Date
  Price     Closing Price     Share Value  
 
November 10, 2006
  $ 44.05     $ 9.70     $ 14.00  
December 15, 2006
  $ 39.95     $ 12.62     $ 13.74  
 
Market Prices and Dividend Data
 
Illumina common stock and Solexa common stock are both traded on NASDAQ under the symbols “ILMN” and “SLXA,” respectively. The following tables set forth the high and low intra-day trading prices of each company’s common stock as reported in the consolidated transaction reporting system, and the quarterly cash dividends declared per share, for the calendar quarters indicated.
 
Illumina
 
                         
                Dividend
 
    High     Low     Declared  
 
2004
                       
First Quarter
  $ 10.24     $ 6.50     $ 0.00  
Second Quarter
  $ 8.88     $ 6.07     $ 0.00  
Third Quarter
  $ 7.72     $ 4.23     $ 0.00  
Fourth Quarter
  $ 9.65     $ 6.16     $ 0.00  
2005
                       
First Quarter
  $ 11.35     $ 6.80     $ 0.00  
Second Quarter
  $ 12.95     $ 7.90     $ 0.00  
Third Quarter
  $ 14.83     $ 10.82     $ 0.00  
Fourth Quarter
  $ 16.80     $ 12.76     $ 0.00  
2006
                       
First Quarter
  $ 27.98     $ 13.75     $ 0.00  
Second Quarter
  $ 32.00     $ 21.60     $ 0.00  
Third Quarter
  $ 40.00     $ 27.02     $ 0.00  
Fourth Quarter (through December 15, 2006)
  $ 45.87     $ 32.20     $ 0.00  


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Solexa
 
                         
2004
                       
First Quarter
  $ 15.10     $ 8.14     $ 0.00  
Second Quarter
  $ 10.96     $ 3.84     $ 0.00  
Third Quarter
  $ 5.40     $ 2.56     $ 0.00  
Fourth Quarter
  $ 8.20     $ 4.40     $ 0.00  
2005
                       
First Quarter
  $ 19.99     $ 6.20     $ 0.00  
Second Quarter(a)
  $ 8.89     $ 4.48     $ 0.00  
Third Quarter
  $ 8.00     $ 4.65     $ 0.00  
Fourth Quarter
  $ 10.99     $ 5.38     $ 0.00  
2006
                       
First Quarter
  $ 12.03     $ 7.20     $ 0.00  
Second Quarter
  $ 10.10     $ 7.84     $ 0.00  
Third Quarter
  $ 9.36     $ 7.87     $ 0.00  
Fourth Quarter (through December 15, 2006)
  $ 13.27     $ 8.74     $ 0.00  
 
 
(a) On March 4, 2005, Lynx completed a business combination with Solexa Limited. Solexa Limited became a wholly-owned subsidiary of Lynx as a result of the transaction and Lynx changed its name to Solexa, Inc.


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COMPARISON OF RIGHTS OF ILLUMINA STOCKHOLDERS
AND SOLEXA STOCKHOLDERS
 
Illumina and Solexa are both organized under the laws of the State of Delaware. Any differences, therefore, in the rights of holders of Illumina capital stock and Solexa capital stock arise primarily from differences in their respective certificates of incorporation and bylaws. Upon completion of the merger, the holders of Solexa capital stock will become holders of Illumina capital stock. Consequently, after the effective time of the merger, the rights of the former stockholders of Solexa will be determined by reference to Illumina’s certificate of incorporation and bylaws, each as amended.
 
The following is a summary of the material differences between the rights of Solexa stockholders and the rights of Illumina stockholders. This summary may not contain all of the information that is important to you and is not intended to be a complete discussion of the respective rights of Solexa stockholders and Illumina stockholders. This summary is qualified in its entirety by reference to Delaware law, including the DGCL, and the various documents of Solexa and Illumina referenced in this summary. You should carefully read this entire joint proxy statement/ prospectus and the other documents referenced in this joint proxy statement/ prospectus for a more complete understanding of the differences between being a stockholder of Solexa and being a stockholder of Illumina. Solexa and Illumina have filed with the SEC certain documents referred to herein and will send copies of these documents to you upon your request. See the section entitled “Where You Can Find More Information.”
 
         
   
Rights of Solexa Stockholders
 
Rights of Illumina Stockholders
 
       
Corporate Governance   The rights of Solexa stockholders are currently governed by Delaware law and Solexa’s certificate of incorporation and bylaws. Upon completion of the merger, the rights of former Solexa stockholders will continue to be governed by Delaware law but will be governed by Illumina’s certificate of incorporation and bylaws.   Upon completion of the merger, the rights of Illumina stockholders will be governed by Delaware law and Illumina’s certificate of incorporation and bylaws.
Outstanding Capital Stock   Solexa has only one class of common stock outstanding. Holders of Solexa common stock are entitled to all of the rights and obligations provided to common stockholders under Delaware law and Solexa’s certificate of incorporation and bylaws.   Illumina has only one class of common stock outstanding. Holders of Illumina common stock are entitled to all of the rights and obligations provided to common stockholders under Delaware law and Illumina’s certificate of incorporation and bylaws.
Authorized Capital Stock   The authorized capital stock of Solexa consists of 200,000,000   shares of common stock, par value $0.01   per share, and 2,000,000   shares of preferred stock, par value $0.01   per share. No shares of preferred stock are outstanding.   The authorized capital stock of Illumina consists of 120,000,000   shares of common stock, par value $0.01   per share, and 10,000,000   shares of preferred stock, par value $0.01   per share. No shares of preferred stock are outstanding. Following the merger, the authorized capital stock of Illumina will remain unchanged.
Special Meetings of Stockholders   Under the DGCL, a special meeting of the stockholders may be called for any purpose by the board of directors or by any other person authorized to do so in the   Illumina’s bylaws provide that a special meeting of stockholders may be called at any time for any purpose by the board of directors.


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Rights of Solexa Stockholders
 
Rights of Illumina Stockholders
 
    certificate of incorporation or bylaws.    
    Solexa’s bylaws provide that a special meeting of stockholders may only be called by the board of directors pursuant to a resolution adopted by a majority of the total number of authorized directors.    
Stockholder Action by Written Consent   Solexa’s bylaws provide that any action required or permitted to be taken by stockholders at any annual or special meeting may be taken without a meeting, without prior notice and without a vote, if a consent or consents in writing, setting forth the action taken, is signed by the minimum number of votes required for the action.

If action is taken by less than unanimous written consent of stockholders, prompt notice of the taking of such action without a meeting must be given to those stockholders who have not consented in writing.
  As permitted under the DGCL, Illumina’s certificate of incorporation prohibits action by the written consent of stockholders. Any stockholder action must be taken at a duly called annual or special meeting of the stockholders.
Stockholder Proposals and Nominations of Candidates for Election to the Board of Directors   Solexa’s bylaws allow stockholders to propose business to be brought before an annual meeting. In addition, Solexa’s bylaws allow stockholders who are entitled to vote in the election of directors to nominate candidates for election to the Solexa board of directors.

However, such proposals with respect to an annual meeting and such nominations may only be brought by a stockholder who has given timely notice in proper written form to Solexa’s Secretary prior to the meeting.

To be timely, the notice must be delivered to or mailed and received at Solexa’s principal executive offices not less than 120   days prior to the date of the previous year’s proxy statement, unless no annual meeting was held in the previous year or the date of the annual meeting has been changed by more than 30   days
  Illumina’s certificate of incorporation provides that action may be taken by the stockholders only at an annual meeting or a special meeting called with the approval of the board of directors.

Any notice of meeting of stockholders must be in writing and must be sent to each stockholder entitled to vote at the meeting not less than ten nor more than 60   days before the date of the meeting. The notice must specify the place, date and hour of the meeting and, in the case of a special meeting, the purpose or purposes for which such special meeting is called.

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Rights of Solexa Stockholders
 
Rights of Illumina Stockholders
 
    from the date contemplated at the time of the previous year’s proxy statement, then such notice must be so received by a reasonable time before the proxy solicitation is made.    
    To be in proper written form, notice of a stockholder proposal must provide:    
   
•   a brief description of the business desired to be brought before the annual meeting and the reasons for conducting such business at the annual meeting;
   
   
•   the name and address, as they appear on Solexa’s books, of the stockholder proposing such business;
   
   
•   the class and number of shares of Solexa stock which are beneficially owned by the stockholder;
   
   
•   any material interest of the stockholder in the business to be brought before the meeting; and
   
   
•   any other information that is required to be provided by the stockholder pursuant to Regulation 14A under the Exchange Act in his or her capacity as a proponent to a stockholder proposal.
   
    To be in proper written form, notice of a stockholder nomination to the Solexa board of directors must provide:    
   
•   the name, age, business address and residence address of such nominee;
   
   
•   the principle occupation or employment of such nominee;
   
   
•   the class and number of shares of Solexa which are beneficially owned by such nominee;
   
   
•   a description of all arrangements or understandings between such stockholder and each nominee and any other person or persons pursuant to which the nominations are to be made by such stockholder; and
   

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Rights of Solexa Stockholders
 
Rights of Illumina Stockholders
 
   
•   any other information relating to the person to be nominated that is required to be disclosed in solicitations of proxies for the election of directors pursuant to Regulation 14A under the Exchange Act, including such person’s written consent to being named in the proxy statement as a nominee and to serving as a director if elected.
   
Number of Directors   The DGCL provides that the board of directors of a Delaware corporation must consist of one or more directors as fixed by the corporation’s certificate of incorporation or bylaws.

Solexa’s bylaws provide that the Solexa board of directors may consist of no less than six and no more than nine directors. The number of authorized directors can be changed from time to time as discussed in “Amendments to Bylaws” below.
  Following the merger, the size of the Illumina board of directors will be increased from eight to ten, and two individuals selected by Illumina and agreed to by Solexa will be appointed as independent directors of Illumina.

The number of directors may be changed by an amendment to Illumina’s bylaws adopted by the board of directors or the stockholders, or by an amendment to Illumina’s certificate of incorporation.
Classification of Board of Directors   The DGCL permits a Delaware corporation to provide in its certificate of incorporation or bylaws that the board of directors shall be divided into as many as three classes of directors with staggered terms of office, with only one class of directors being elected each year for a maximum term of three years.

Solexa’s bylaws provide for only one class of directors who are to be elected at each annual meeting for a one-year term.
  Illumina’s certificate of incorporation and bylaws provide that the board of directors is divided into three separate classes with staggered three-year terms. At each annual meeting of stockholders, directors elected to succeed those directors whose terms have expired are elected for three- year terms.
Removal of Directors   Under the DGCL, stockholders holding a majority of shares entitled to vote at an election of directors may remove any director or the entire board of directors, except that, unless the certificate of incorporation provides otherwise, in the case of a corporation whose board of directors is classified, stockholders may only remove a director for cause.   Illumina’s bylaws provide that any director or the entire board of directors may be removed, with or without cause, by the holders of a majority of the shares then entitled to vote at an election of directors.

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Rights of Solexa Stockholders
 
Rights of Illumina Stockholders
 
    Solexa’s bylaws provide that a director or the entire board of directors may be removed from office by stockholders at a special meeting called for such purpose, with or without cause, by an affirmative vote of the stockholders holding a majority of the outstanding shares entitled to vote at an election of directors.    
Filling Director Vacancies   Under the DGCL, unless a Delaware corporation’s certificate of incorporation and bylaws provide otherwise, vacancies and newly created directorships resulting from a resignation, an increase in the authorized number of directors or otherwise may be filled by a vote of a majority of the directors remaining in office, even if such majority is less than a quorum, or by the sole remaining director.

Solexa’s certificate of incorporation and bylaws do not provide otherwise. In addition, they specify that any director elected in accordance with the above shall hold office for the unexpired portion of the applicable term of office and until his or her successor shall have been duly elected and qualified.
  Illumina’s bylaws provide that any vacancy in the board of directors or any newly created directorship resulting from any increase in the authorized number of directors may be filled by a majority of the directors then in office, even if less than a quorum, or by the sole remaining director. A director elected to fill a vacancy will be elected for the unexpired term of such director’s predecessor in office.

If at any time, Illumina should have no directors in office, then any officer or any stockholder may call a special meeting of stockholders or may apply to the Court of Chancery for a decree summarily ordering an election as provided in Section   211 of the DGCL.

If, at the time of filling any vacancy or newly created directorship, the directors then in office constitute less than a majority of the whole board, the Court of Chancery may, upon application of any stockholder or stockholders holding at least 10% of the total number of shares outstanding having the right to vote for such directors, summarily order an election to fill such vacancy, as governed by the provisions of Section   211 of the DGCL.
Indemnification of Directors and Officers   Under the DGCL, a Delaware corporation must indemnify its present or former directors and officers against expenses (including attorneys’ fees) actually and reasonably incurred to the extent   Illumina’s certificate of incorporation and bylaws provide that Illumina shall indemnify each of its directors and officers against expenses (including attorneys’ fees), judgments, fines, settlements

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Rights of Solexa Stockholders
 
Rights of Illumina Stockholders
 
    that the officer or director has been successful on the merits or otherwise in defense of any action, suit or proceeding brought against him or her by reason of the fact that he or she is or was a director or officer of the corporation.

The DGCL generally permits a Delaware corporation to indemnify any person who was or is a party or is threatened to be made a party to any threatened, pending or completed action, suit or proceeding, whether civil, criminal, administrative or investigative, by reason of the fact that such person is or was a director or officer of the corporation or is or was serving at the request of the corporation as a director or officer of another corporation or entity, against expenses (including attorneys’ fees), judgments, fines and amounts paid in settlement actually or reasonably incurred by such person in connection with such action, suit or proceeding if the person acted in good faith and in a manner reasonably believed to be in or not opposed to the best interests of the corporation and, with respect to any criminal action or proceeding, had no reasonable cause to believe the conduct was unlawful.

Solexa’s bylaws provide that it shall indemnify its directors and executive officers to the fullest extent permitted by the DGCL. In addition, Solexa’s bylaws require it to advance all expenses incurred by any director or executive officer in connection with any proceeding, provided that Solexa receives in writing an undertaking by such director or executive officer to repay such amounts if it is ultimately determined that such person is not entitled to be indemnified, and provided further that no determination is made that such director or executive officer acted in bad faith or in a manner not in the best interests of Solexa.
  and other amounts actually and reasonably incurred in connection with any proceeding, arising by reason of the fact that such person is or was an agent of Illumina, to the maximum extent and in the manner permitted by the DGCL.

Illumina’s certificate of incorporation and bylaws also provide that Illumina has the power to indemnify each of its employees and agents (other than directors and officers) against expenses (including attorneys’ fees), judgments, fines, settlements and other amounts actually and reasonably incurred in connection with any proceeding, arising by reason of the fact that such person is or was an agent of Illumina, to the extent and in the manner permitted by the DGCL.

Under the DGCL, Illumina may purc hase director’s and officer’s insurance to protect itself and any director, officer, employee or agent of Illumina.
         

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Rights of Solexa Stockholders
 
Rights of Illumina Stockholders
 
    Solexa’s bylaws also provide that it may limit the extent of its indemnification by contract and shall not be required to indemnify any director or executive officer in connection with any proceeding initiated by such person against Solexa, unless (i)   indemnity is expressly required by law, (ii) the proceeding was authorized by the board of directors, or (iii)   indemnification is provided by Solexa, in its sole discretion, pursuant to the DGCL. In addition, Solexa may provide indemnification to other officers, employees and agents of Solexa to the same extent as is provided to its directors and executive officers.    
    Solexa’s bylaws permit it to purchase and maintain insurance to the fullest extent permitted under the DGCL, upon approval by the board of directors, on behalf of any person required or permitted to be indemnified by the bylaws.    
Amendments to Certificate of Incorporation   Under the DGCL, a Delaware corporation’s certificate of incorporation may be amended only if the proposed amendment is approved by the board of directors and the holders of a majority of the outstanding stock entitled to vote.

Solexa’s certificate of incorporation reserves the right to amend, alter, change or repeal any provision contained in the certificate of incorporation in the manner prescribed by the DGCL.
  Illumina’s certificate of incorporation reserves the right to amend, alter, change or repeal any provision contained in the certificate of incorporation in the manner prescribed by the DGCL, except that the affirmative vote of 662/3% of the outstanding stock is required to amend, repeal or modify the certificate of incorporation with respect to cumulative voting, number of directors, election of directors, directors’ ability to amend the bylaws or location of meetings of stockholders.
Amendments to Bylaws   Solexa’s certificate of incorporation and bylaws provide that its bylaws may be amended, supplemented or repealed, or new bylaws may be adopted, by the board of directors or by the stockholders entitled to vote.   Illumina’s certificate of incorporation and bylaws provide that Illumina’s bylaws may be altered, amended or repealed, or new bylaws may be adopted, by the board of directors or by the stockholders entitled to vote, except that the affirmative vote of 662/3% of the outstanding stock is required to amend, repeal or modify the bylaws with respect to special meetings of stockholders,

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Rights of Solexa Stockholders
 
Rights of Illumina Stockholders
 
      notice of stockholders’ meetings, stockholder voting, stockholder action by written consent and number of directors.
Business Combination Statute   Section   203 of the DGCL prohibits a Delaware corporation from engaging in a “business combination” with a person owning 15% or more of the corporation’s voting stock for three years following the time that person becomes a 15% stockholder, with certain exceptions.   Illumina has not opted out of Section   203 of the DGCL and is therefore governed by the terms of this provision of the DGCL.
    Solexa has not opted out of Section   203 and is therefore governed by the terms of this provision of the DGCL.    
Stockholder Rights Plan   Solexa does not have a stockholder rights plan.   Illumina’s rights plan entitles the registered holder to a “right” to purchase from Illumina a unit consisting of one one- thousandth of a share of Series   A Junior Participating Preferred Stock, at a purchase price of $100   per unit, subject to adjustment. The description and terms of these rights are set forth in a Rights Agreement dated as of May   3, 2001 between Illumina and EquiServe Trust Company, N.A., as rights agent.
      Under the agreement, if any person becomes the beneficial owner of, or commences a tender or exchange offer the consummation of which would result in such person becoming the beneficial owner of, 15% or more of the outstanding shares of Illumina common stock, or thereafter Illumina is involved in a merger or other business combination in which 50% or more of Illumina’s assets or earning power is sold, each right entitles its holder to receive, upon exercise, Illumina preferred stock (or, in the case of a merger or other business combination, stock of the acquiring company) having a value equal to two times the exercise price of the right. Upon exercise, each share of preferred stock will be entitled to an

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Rights of Solexa Stockholders
 
Rights of Illumina Stockholders
 
      aggregate dividend of 1,000 times the dividend declared per share of common stock. In the event of liquidation, the holders of the preferred stock will be entitled to an aggregate payment of 1,000 times the payment made per share of common stock. Each share of preferred stock will have 1,000 votes, voting together with the common stock. Finally, in the event of any merger, consolidation or other transaction in which common stock is changed or exchanged, each share of preferred stock will be entitled to receive 1,000 times the amount received per share of common stock. These rights are protected by customary anti-dilution provisions.
      Because of the nature of the preferred stock’s dividend, liquidation and voting rights, the value of one one-thousandth of a share of preferred stock purchasable upon exercise of each right should approximate the value of one share of common stock.

The rights have certain anti-takeover effects. The rights will cause substantial dilution to a person or group that attempts to acquire Illumina without conditioning the offer on a substantial number of rights being acquired.
         
      The rights, however, should not affect any prospective offeror willing to make a permitted offer. The rights should not interfere with any merger or other business combination approved by the Illumina board of directors because the Illumina board of directors may, at its option, redeem all but not less than all of the then outstanding rights for a nominal redemption price ($0.01   per right).
      The rights will expire at the close of business on May   14, 2011, unless earlier redeemed or exchanged by Illumina.

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APPRAISAL RIGHTS
 
 
Holders of Solexa common stock who dissent to the merger will not have rights to an appraisal of the fair value of their shares. Under Delaware law, appraisal rights are not available for the shares of any class or series if the shares of the class or series are registered on a national securities exchange or quoted on the National Association of Securities Dealers, Inc. automated quotation system on the record date. Solexa’s common stock is listed on NASDAQ.
 
LEGAL MATTERS
 
The validity of the shares of Illumina common stock to be issued in the merger will be passed upon by Christian G. Cabou, Senior Vice President, General Counsel and Secretary of Illumina. As of December 15, 2006, Mr. Cabou had unvested options to acquire 150,000 shares of Illumina common stock. Certain United States federal income tax consequences relating to the merger will also be passed upon for Illumina by Dewey Ballantine LLP, and for Solexa by Cooley Godward Kronish LLP.
 
EXPERTS
 
Illumina
 
The consolidated financial statements of Illumina at January 1, 2006 and January 2, 2005 and for each of the three years in the period ended January 1, 2006 and Illumina’s management’s assessment of the effectiveness of internal control over financial reporting, included in Illumina’s Annual Report on Form 10-K for the year ended January 1, 2006, which is referred to and made a part of this joint proxy statement/ prospectus and registration statement, have been audited by Ernst & Young LLP, independent registered public accounting firm, as set forth in their reports incorporated by reference herein, and are included in reliance upon such reports given on the authority of such firm as experts in accounting and auditing.
 
Solexa
 
The consolidated financial statements of Solexa, Inc. at December 31, 2005, and for the year then ended, included in Solexa’s Annual Report on Form 10-K for the year ended December 31, 2005, have been audited by Ernst & Young LLP — Palo Alto, California, independent registered public accounting firm, as set forth in their report thereon, included therein and incorporated herein by reference. Such consolidated financial statements are incorporated herein by reference in reliance upon such report given on the authority of such firm as experts in accounting and auditing.
 
The consolidated financial statements of Solexa, Inc. at December 31, 2004, and for each of the two years in the period ended December 31, 2004, appearing in Solexa’s Annual Report on Form 10-K for the year ended December 31, 2005, have been audited by Ernst & Young LLP — Cambridge, England, independent registered public accounting firm, as set forth in their report thereon, included therein and incorporated by reference herein. Such financial statements have been incorporated by reference herein in reliance upon such report given on the authority of such firm as experts in accounting and auditing.
 
STOCKHOLDER PROPOSALS
 
Illumina
 
Proposals of stockholders intended to be included in the proxy statement and proxy card relating to the 2007 Annual Meeting of Stockholders of Illumina and to be presented at such meeting must be received by Illumina for inclusion in the proxy statement and proxy card no later than December 27, 2006. In addition, the proxy solicited by the Illumina board of directors for Illumina’s 2007 annual meeting will confer discretionary authority to vote on any stockholder proposal presented at that meeting, unless Illumina receives notice of


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such proposal not later than March 24, 2007. Proposals should be directed to the attention of the Secretary, Illumina, Inc., 9885 Towne Centre Drive, San Diego, California, 92121-1975.
 
Solexa
 
The deadline for submitting a stockholder proposal for inclusion in Solexa’s proxy statement and form of proxy for its 2007 annual meeting of stockholders pursuant to Rule 14a-8 of the SEC is a reasonable time before Solexa begins to print and mails its proxy materials for its 2007 annual meeting of stockholders. Solexa stockholders wishing to submit a proposal or director nomination at Solexa’s 2007 annual meeting must notify Solexa of such proposals or nominations in writing to the Secretary of Solexa within a reasonable time before Solexa begins to print and mails its proxy materials for its 2007 annual meeting of stockholders. Unless a Solexa stockholder at Solexa’s 2007 annual meeting of stockholders notifies Solexa of such proposals or nominations prior to the meeting and in accordance with Solexa’s bylaws, the chairman of the meeting will have discretionary authority to declare at the meeting that such matters cannot be transacted. Solexa stockholders are also advised to review Solexa’s bylaws, which contain additional requirements with respect to advance notice of stockholder proposals and director nominations. Proposals should be directed to the attention of the Secretary, Solexa, Inc., 25861 Industrial Boulevard, Hayward, California, 94545.
 
OTHER MATTERS
 
As of the date of this document, neither the Illumina board of directors nor the Solexa board of directors knows of any matters that will be presented for consideration at either the Illumina special meeting or the Solexa special meeting other than as described in this document. If any other matters come before either of the meetings or any adjournments or postponements of the meetings and are voted upon, the enclosed proxies will confer discretionary authority on the individuals named as proxies to vote the shares represented by the proxies as to any other matters. The individuals named as proxies intend to vote in accordance with their best judgment as to any other matters.
 
WHERE YOU CAN FIND MORE INFORMATION
 
Illumina and Solexa file annual, quarterly and special reports, proxy statements and other information with the SEC under the Exchange Act. You may read and copy any of this information at the SEC’s Public Reference Room at 100 F Street, N.E., Room 1580, Washington, D.C. 20549. Please call the SEC at 1-800-SEC-0330 for further information on the Public Reference Room. The SEC also maintains an Internet website that contains reports, proxy and information statements, and other information regarding issuers, including Illumina and Solexa, who file electronically with the SEC. The address of that site is www.sec.gov.  
 
The information contained on the SEC’s website is expressly not incorporated by reference into this document.
 
Illumina has filed with the SEC a registration statement of which this document forms a part. The registration statement registers the shares of Illumina common stock to be issued to Solexa stockholders in connection with the merger. The registration statement, including the attached exhibits and schedules, contains additional relevant information about Illumina common stock. The rules and regulations of the SEC allow Illumina and Solexa to omit certain information included in the registration statement from this document.
 
In addition, the SEC allows Illumina and Solexa to disclose important information to you by referring you to other documents filed separately with the SEC. This information is considered to be a part of this document, except for any information that is superseded by information included directly in this document.
 
This document incorporates by reference the documents listed below that Illumina has previously filed or will file with the SEC. They contain important information about Illumina, its financial condition or other matters.
 
  •  Annual Report on Form 10-K for the fiscal year ended January 1, 2006.


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  •  Proxy Statement dated April 26, 2006.
 
  •  Quarterly Reports on Form 10-Q for the quarterly periods ended April 2, 2006, July 2, 2006 and October 1, 2006.
 
  •  Current Reports on Form 8-K, dated October 17, 2006, October 31, 2006 and November 13, 2006 (other than the portions of those documents not deemed to be filed).
 
  •  The description of Illumina’s common stock contained in Illumina’s Form 8-A filed on April 14, 2006 and any amendment or report filed with the SEC for the purpose of updating such description.
 
  •  The description of Illumina’s preferred stock contained in Illumina’s Form 8-A filed on May 14, 2001 and any other amendment or report filed with the SEC for the purpose of updating such description.
 
In addition, Illumina incorporates by reference any future filings it makes with the SEC under Section 13(a), 13(c), 14 or 15(d) of the Exchange Act after the date of this document and prior to the date of the Illumina special meeting. Such documents are considered to be a part of this document, effective as of the date such documents are filed. In the event of conflicting information in these documents, the information in the latest filed document should be considered correct.
 
You can obtain any of the documents listed above from the SEC, through the SEC’s website at the address described above or from Illumina by requesting them in writing or by telephone at the following address:
 
Illumina, Inc.
9885 Towne Centre Drive
San Diego, California 92121-1975
(858) 202-4500
 
These documents are available from Illumina without charge, excluding any exhibits to them unless the exhibit is specifically listed as an exhibit to the registration statement of which this document forms a part.
 
This document also incorporates by reference the documents listed below that Solexa has previously filed or will file with the SEC. They contain important information about Solexa, its financial condition or other matters.
 
  •  Annual Report on Form 10-K for the fiscal year ended December 31, 2005.
 
  •  Proxy Statement dated September 1, 2006.
 
  •  Quarterly Reports on Form 10-Q for the quarterly periods ended March 31, 2006, June 30, 2006 and September 30, 2006.
 
  •  Current Reports on Form 8-K, dated May 22, 2006, October 5, 2006 and November 13, 2006 (other than the portions of these documents not deemed to be filed) and Exhibit 10.49 to the Current Report on Form 8-K, dated July 5, 2006.
 
In addition, Solexa incorporates by reference any future filings it makes with the SEC under Section 13(a), 13(c), 14 or 15(d) of the Exchange Act after the date of this document and prior to the date of the Solexa special meeting. Such documents are considered to be a part of this document, effective as of the date such documents are filed. In the event of conflicting information in these documents, the information in the latest filed document should be considered correct.
 
You can obtain any of these documents from the SEC, through the SEC’s website at the address described above, or Solexa will provide you with copies of these documents, without charge, upon written or oral request to:
 
Solexa, Inc.
25861 Industrial Boulevard
Hayward, California 94545
(510) 670-9300


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If you are a stockholder of Illumina or Solexa and would like to request documents, please do so by January 19, 2007 to receive them before the Illumina special meeting and the Solexa special meeting. If you request any documents from Illumina or Solexa, Illumina or Solexa will mail them to you by first class mail, or another equally prompt means, within one business day after Illumina or Solexa receives your request.
 
This document is a prospectus of Illumina and is a joint proxy statement of Illumina and Solexa for the Illumina special meeting and the Solexa special meeting. Neither Illumina nor Solexa has authorized anyone to give any information or make any representation about the merger or Illumina or Solexa that is different from, or in addition to, that contained in this document or in any of the materials that Illumina has incorporated by reference into this document. Therefore, if anyone does give you information of this sort, you should not rely on it. The information contained in this document speaks only as of the date of this document unless the information specifically indicates that another date applies.
 
This document contains a description of the representations and warranties that each of Illumina and Solexa made to the other in the merger agreement. Representations and warranties made by Illumina, Solexa and other applicable parties are also set forth in contracts and other documents (including the merger agreement) that are attached or filed as exhibits to this document or are incorporated by reference into this document. These representations and warranties were made as of specific dates, may be subject to important qualifications and limitations agreed to between the parties in connection with negotiating the terms of the agreement, and may have been included in the agreement for the purpose of allocating risk between the parties rather than to establish matters as facts. These materials are included or incorporated by reference only to provide you with information regarding the terms of the agreements. Accordingly, the representations and warranties and other provisions of the agreements (including the merger agreement) should not be read alone, but instead should be read only in conjunction with the other information provided elsewhere in this document or incorporated by reference into this document.


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ANNEX A
 
EXECUTION COPY
 
 
AGREEMENT AND PLAN OF MERGER
by and among
ILLUMINA, INC.,
CALLISTO ACQUISITION CORP.
and
SOLEXA, INC.
Dated as of
November 12, 2006
 


Table of Contents

Table of Contents
 
             
ARTICLE I DEFINITIONS   A-1
ARTICLE II THE MERGER   A-7
Section 2.1
  The Merger   A-7
Section 2.2
  Closing   A-7
Section 2.3
  Effective Time   A-7
Section 2.4
  Certificate of Incorporation and Bylaws   A-7
Section 2.5
  Directors and Officers   A-7
Section 2.6
  Tax Consequences   A-7
       
ARTICLE III MERGER CONSIDERATION; CONVERSION OR CANCELLATION OF SHARES IN THE MERGER   A-8
Section 3.1
  Effect on Capital Stock   A-8
Section 3.2
  Exchange of Company Certificates   A-8
Section 3.3
  Company Stock Options/Warrants   A-10
       
ARTICLE IV REPRESENTATIONS AND WARRANTIES OF THE COMPANY   A-11
Section 4.1
  Organization   A-11
Section 4.2
  Capitalization   A-11
Section 4.3
  Subsidiaries   A-11
Section 4.4
  Authority   A-12
Section 4.5
  Consents and Approvals; No Violations   A-12
Section 4.6
  Books and Records   A-13
Section 4.7
  SEC Reports and Financial Statements   A-13
Section 4.8
  Absence of Certain Changes or Events   A-13
Section 4.9
  No Undisclosed Liabilities   A-13
Section 4.10
  Benefit Plans; Employees and Employment Practices   A-14
Section 4.11
  Contracts   A-16
Section 4.12
  Insurance   A-17
Section 4.13
  Litigation   A-17
Section 4.14
  Compliance with Applicable Law   A-17
Section 4.15
  Taxes and Tax Returns   A-18
Section 4.16
  Environmental Laws and Regulations   A-20
Section 4.17
  State Takeover Statutes   A-20
Section 4.18
  Intellectual Property   A-21
Section 4.19
  Related Party Transactions   A-23
Section 4.20
  Opinion of Financial Advisor   A-23
Section 4.21
  Board Approval   A-23
Section 4.22
  Voting Requirements   A-23
Section 4.23
  Brokers and Finders; Third Party Expenses   A-23
Section 4.24
  Information Supplied   A-23
Section 4.25
  Real Property; Title; Valid Leasehold Interests   A-24
       
ARTICLE V REPRESENTATIONS AND WARRANTIES OF PARENT AND MERGER SUB   A-24
Section 5.1
  Organization   A-24
Section 5.2
  Capitalization   A-24
Section 5.3
  Authority   A-25


A-i


Table of Contents

             
Section 5.4
  Consents and Approvals; No Violations   A-25
Section 5.5
  SEC Reports and Financial Statements   A-26
Section 5.6
  Absence of Certain Changes or Events   A-26
Section 5.7
  No Undisclosed Liabilities   A-26
Section 5.8
  Contracts   A-26
Section 5.9
  Litigation   A-27
Section 5.10
  Compliance with Applicable Law   A-27
Section 5.11
  Intellectual Property   A-27
Section 5.12
  Merger Sub   A-27
Section 5.13
  Opinion of Financial Advisor   A-27
Section 5.14
  Board Approval   A-27
Section 5.15
  Voting Requirements   A-28
Section 5.16
  Brokers and Finders   A-28
Section 5.17
  Information Supplied   A-28
       
ARTICLE VI COVENANTS   A-28
Section 6.1
  Interim Operations   A-28
Section 6.2
  No Solicitation   A-31
Section 6.3
  Parent Recommendation   A-33
Section 6.4
  Stockholder Meetings; Preparation of Form S-4 Joint Proxy Statement/Prospectus   A-33
Section 6.5
  Access to Information   A-35
Section 6.6
  Notification of Certain Matters   A-35
Section 6.7
  Reasonable Efforts   A-35
Section 6.8
  State Takeover Statutes   A-36
Section 6.9
  Indemnification, Exculpation and Insurance   A-36
Section 6.10
  Certain Litigation   A-36
Section 6.11
  NASDAQ Listing   A-36
Section 6.12
  Affiliates   A-36
Section 6.13
  Employee Benefits; Options   A-37
Section 6.14
  Tax Covenants   A-37
Section 6.15
  Parent Board of Directors   A-38
Section 6.16
  Lock-up Agreements   A-38
       
ARTICLE VII CONDITIONS   A-38
Section 7.1
  Conditions to Each Party’s Obligation to Effect the Merger   A-38
Section 7.2
  Conditions to Parent and Merger Sub’s Obligation to Effect the Merger   A-39
Section 7.3
  Conditions to the Company’s Obligation to Effect the Merger   A-40
       
ARTICLE VIII TERMINATION AND AMENDMENT   A-41
Section 8.1
  Termination   A-41
Section 8.2
  Effect of Termination   A-42
Section 8.3
  Fees and Expenses   A-43
Section 8.4
  Termination Fee   A-43
Section 8.5
  Extension; Waiver   A-43


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Table of Contents

             
ARTICLE IX MISCELLANEOUS
  A-44
Section 9.1
  Nonsurvival of Representations and Warranties   A-44
Section 9.2
  Notices   A-44
Section 9.3
  Interpretation   A-45
Section 9.4
  Counterparts   A-45
Section 9.5
  Entire Agreement; No Third Party Beneficiaries   A-45
Section 9.6
  Governing Law   A-45
Section 9.7
  Publicity   A-45
Section 9.8
  Assignment   A-45
Section 9.9
  Enforcement   A-45
Section 9.10
  Jurisdiction   A-45
Section 9.11
  Waiver of Jury Trial   A-46
Section 9.12
  Severability   A-46
Section 9.13
  Modification   A-46


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Table of Contents

AGREEMENT AND PLAN OF MERGER (this “Agreement”), dated as of November 12, 2006, by and among Illumina, Inc., a Delaware corporation (“Parent”), Callisto Acquisition Corp., a Delaware corporation and a wholly owned subsidiary of Parent (“Merger Sub”), and Solexa, Inc., a Delaware corporation (the “Company”).
 
WHEREAS, the Boards of Directors of Parent, Merger Sub and the Company each have determined that a business combination among Parent, Merger Sub and the Company is advisable and in the best interests of their respective companies and stockholders in order to advance each of their long-term business interests and accordingly have agreed to effect the Merger provided for herein upon the terms and subject to the conditions set forth herein;
 
WHEREAS, concurrently with the execution and delivery of this Agreement and in order to induce the Company to enter into this Agreement, Parent and the Company are entering into a Securities Purchase Agreement, pursuant to which Parent will make an equity investment in the Company subject to the terms and conditions of such agreement;
 
WHEREAS, for United States federal income tax purposes it is intended that the Merger qualify as a reorganization within the meaning of Section 368(a) of the Code and that this Agreement will be, and is hereby, adopted as a Plan of Reorganization for the purposes of Section 368(a) of the Code;