S-4/A
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)
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Delaware
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3826
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33-0804655
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(State or other jurisdiction
of
incorporation or organization)
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(Primary Standard Industrial
Classification Code Number)
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(I.R.S. Employer
Identification No.)
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9885 Towne Centre
Drive
San Diego, California
92121-1975
(858) 202-4500
(Address, including zip code,
and telephone number, including area code, of Registrants
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:
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Frederick W. Kanner,
Esq.
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James Kitch, Esq.
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Michael J. Aiello,
Esq.
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Jennifer Fonner
Dinucci, Esq.
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Dewey Ballantine LLP
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Cooley Godward Kronish
LLP
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1301 Avenue of the
Americas
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Five Palo Alto Square
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New York, New York
10019
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3000 El Camino Real
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(212) 259-8000
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Palo Alto, California 94306
(650) 843-5000
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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.
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.
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Sincerely,
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Sincerely,
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Jay T. Flatley
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John West
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President and Chief Executive
Officer
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Chief Executive Officer
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Illumina, Inc.
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Solexa, Inc.
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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.
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:
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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;
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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
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to transact any other business that may properly be brought
before the Illumina special meeting or any adjournments or
postponements thereof.
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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 Illuminas 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,
Christian G. Cabou
Senior Vice President, General Counsel and Secretary
San Diego, California
December 19, 2006
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:
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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;
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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
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to transact any other business that may properly be brought
before the Solexa special meeting or any adjournments or
postponements thereof.
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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 Solexas 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,
Linda M. Rubinstein
Secretary
Hayward, California
December 19, 2006
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:
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Illumina,
Inc.
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Solexa, Inc.
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9885 Towne Centre Drive
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25861 Industrial Boulevard
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San Diego, California
92121-1975
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Hayward, California 94545
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(858)
202-4500
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(510) 670-9300
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Attn: Investor Relations
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Attn: Investor Relations
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Or
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Or
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InvestorCom, Inc.
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The Altman Group
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110 Wall Street
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1275 Valley Brook Avenue
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New York, New York 10005
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Lyndhurst, New Jersey 07071
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(800)
503-3375
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(201) 460-1200
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Investors may also consult Illuminas or Solexas
website for more information concerning the merger described in
this document. Illuminas website is
www.illumina.com. Solexas 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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iii
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.
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Q: |
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Why am I receiving this document? |
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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. |
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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. |
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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. |
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Your vote is important. We encourage you to vote as soon as
possible. |
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When and where will the stockholders meetings be
held? |
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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. |
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Q: |
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How do I vote? |
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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: |
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accessing the Internet website specified on
your proxy card (applicable only to Illumina stockholders);
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calling the toll-free number specified on your
proxy card; or
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signing and returning the enclosed proxy card
in the postage-paid envelope provided.
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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. |
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What will happen if I fail to vote or I abstain from
voting? |
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If you are an Illumina stockholder and fail to vote: |
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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.
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If you are an Illumina stockholder and vote to abstain: |
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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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iv
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If you are a Solexa stockholder and fail to vote or vote to
abstain: |
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it will have the same effect as a vote against
the proposal to approve and adopt the merger agreement.
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Q: |
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If my shares are held in street name by my broker, will my
broker vote my shares for me? |
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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. |
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If you are an Illumina stockholder and you do not instruct your
broker on how to vote your shares: |
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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.
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If you are a Solexa stockholder and you do not instruct your
broker on how to vote your shares: |
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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.
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Q: |
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What will happen if I return my proxy card without indicating
how to vote? |
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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. |
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Can I change my vote after I have returned a proxy or voting
instruction card? |
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Yes. You can change your vote at any time before your proxy is
voted at your stockholders meeting. |
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You can do this in one of three ways: |
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you can send a signed notice of revocation;
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you can grant a new, valid proxy bearing a
later date; or
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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.
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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. |
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What do I need to do now? |
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Carefully read and consider the information contained in and
incorporated by reference into this document, including its
annexes. |
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In order for your shares to be represented at your
stockholders meeting: |
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you can attend your stockholders meeting
in person;
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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.
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Q: |
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Should I send in my Solexa stock certificates now? |
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No. Solexa stockholders should not send in any stock
certificates now. After the merger is completed, Illuminas
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. |
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If you are an Illumina stockholder, you are not required to take
any action with respect to your Illumina stock certificates. |
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Where will my shares of Illumina common stock be listed? |
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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. |
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Is the merger taxable? |
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A: |
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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. |
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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 stockholders 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. |
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Q: |
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When do you expect the proposed merger to be complete? |
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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. |
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Who can help answer my questions? |
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A: |
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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: |
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If you are an Illumina
stockholder:
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If you are a Solexa
stockholder:
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InvestorCom, Inc.
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The Altman Group
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110 Wall Street
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1275 Valley Brook Avenue
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New York, New York 10005
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Lyndhurst, New Jersey 07071
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(800)
503-3375
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(201) 460-1200
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vi
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. Solexas 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.
Solexas 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, Solexas listing was transferred to
NASDAQ.
1
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.
2
Tax matters are very complicated, and the tax consequences of
the merger to a particular stockholder will depend in part on
such stockholders 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
Illuminas 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 Solexas 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 Illuminas Financial Advisor (See
page 22)
On November 10, 2006, Illuminas 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 Lynchs 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 Illuminas Financial
Advisor beginning on page 22 and Merrill Lynchs
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 Lynchs 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 Solexas Financial Advisor (See
page 28)
Solexas 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
Lazards written opinion is attached to this joint proxy
statement/ prospectus as Annex D.
3
Solexa encourages you to read carefully both the section
entitled The Merger Opinions of Financial
Advisors Opinion of Solexas Financial
Advisor beginning on page 28 and Lazards
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. Lazards 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 Solexas 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 Solexas
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 Solexas 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 Solexas
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 Illuminas 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
Solexas 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 Illuminas 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
4
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:
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the adoption of the merger agreement by Solexa stockholders;
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the approval of the issuance of shares of Illumina common stock
in the merger by Illumina stockholders;
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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;
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the termination or expiration of the applicable waiting periods
under the HSR Act;
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the receipt of other requisite governmental approvals or
consents required to consummate the transactions contemplated by
the merger agreement;
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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;
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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;
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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 performed or complied with, in all
material respects, all obligations required to be performed or
complied with by it under the merger agreement;
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the receipt of an officers certificate of an executive
officer stating that the two preceding conditions have been
satisfied;
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the other party and its subsidiaries, taken as a whole, not
having suffered any material adverse effect, as defined in the
merger agreement; and
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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.
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In addition, Illuminas obligation to complete the merger
is subject to the satisfaction or waiver of the following
additional conditions:
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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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5
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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:
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challenge Illuminas acquisition of shares of Solexa common
stock;
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seek to restrain or prohibit the proposed merger;
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seek to prevent or materially limit the ownership or operation
by Illumina, Solexa or their respective subsidiaries of their
respective businesses or assets;
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compel any of Illumina, Solexa or their respective subsidiaries
to divest or hold separate any material portion of their
businesses or assets; or
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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.
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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);
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receipt of a FIRPTA certificate from Solexa certifying that an
interest in Solexa is not a real property interest; and
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there being no bonus plans or other arrangements of Solexa other
than those previously disclosed to Illumina.
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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
Illuminas and Solexas 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:
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approve the issuance of Illumina common stock in the merger;
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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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6
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transact any other business that may properly be brought before
the Illumina special meeting or any adjournments or
postponements thereof.
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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 Illuminas 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:
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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.
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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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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:
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approve and adopt the merger agreement;
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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
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transact any other business that may properly be brought before
the Solexa special meeting or any adjournments or postponements
thereof.
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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
Solexas 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:
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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.
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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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7
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 Illuminas 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 Illuminas 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
Illuminas 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.
Illuminas 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 Illuminas consolidated financial statements and the
related notes to those financial statements and the
Managements Discussion and Analysis of Financial
Condition and Results of Operations section included in
Illuminas 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.
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Nine Months Ended
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Fiscal Year Ended
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October 1,
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October 2,
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January 1,
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January 2,
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December 28,
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December 29,
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December 30,
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2006
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2005
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2006
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2005
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2003
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2002
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2001
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(In thousands, except per share amounts)
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Statement of Operations
Data
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Revenue
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$
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124,151
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$
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50,488
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$
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73,501
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$
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50,583
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$
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28,035
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$
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10,040
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$
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2,486
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Income (Loss) from Operations
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21,236
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(21,463
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)
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(21,447
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)
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(5,513
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)
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(26,622
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)
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(41,855
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)
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(30,319
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)
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Net Income (Loss)
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22,826
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(21,200
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)
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(20,874
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)
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(6,225
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)
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(27,063
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)
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(40,331
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)
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(24,823
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)
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Net Income (Loss) per Share:
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Basic
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0.52
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|
(0.53
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)
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|
(0.52
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)
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|
(0.17
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)
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|
(0.85
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)
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|
(1.31
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)
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|
(0.83
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)
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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
|
|
8
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 Solexas 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 Solexas
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 Limiteds
designees to the combined companys board of directors
represented a majority of the combined companys directors
and Solexa Limiteds 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.
Solexas 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
|
|
9
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
|
|
|
|
10
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 Illuminas Quarterly
Report on
Form 10-Q
for the quarterly period ended October 1, 2006 and in
Solexas 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
Illuminas ability to realize the anticipated synergies,
growth opportunities and cost savings from integrating
Solexas businesses with Illuminas businesses.
Illuminas 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;
|
11
|
|
|
|
|
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 managements 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 companys managements attention,
the disruption or interruption of, or the loss of momentum in,
each companys 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, Illuminas 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 mergers 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 Solexas failure to achieve
anticipated revenue growth following the merger.
Solexas business faces significant risks. These risks
include those described in the section entitled Risk
Factors of Solexas 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, Solexas 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.
12
The
merger will cause dilution of Illuminas earnings per
share.
The merger and the transactions contemplated by the merger
agreement are expected to have a dilutive effect on
Illuminas 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 Illuminas 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 Illuminas or Solexas key management
personnel could limit Illuminas 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 Illuminas 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, Illuminas management
expertise and efficiency could be weakened.
Additionally, Illuminas obligation to complete the
proposed merger is conditioned upon, among other things, each of
Mr. West, Solexas Chief Executive Officer, and
Dr. Smith, Solexas 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 Solexas
scientific and commercial staff. The loss of any of these
persons services following the merger could adversely
impact the achievement of Illuminas 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,
Solexas 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
Solexas Directors and Officers in the Merger; Relationship
between Illumina and Solexa and The Merger
Agreement Conditions to Completion of the
Merger for more information.
13
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:
|
|
|
|
|
Solexas 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.
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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.
14
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, Illuminas and
Solexas senior management and scientists met on a few
occasions to discuss potential opportunities for collaboration,
including the joint development of new
15
products based jointly on Illuminas and Solexas
technology. In July 2006, members of Illuminas senior
management visited Solexas 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
Illuminas senior management met with Mr. West and
other members of Solexas 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 Solexas senior management and a
representative of Cooley Godward Kronish LLP, Solexas
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
companys 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
Solexas 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
Illuminas 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. Illuminas financial and legal advisors also
participated in the meeting. At this meeting, the Illumina board
of directors resolved to authorize members of Illuminas
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 Lazards preliminary financial analyses of
Solexa and the potential merger
16
between Illumina and Solexa, and Cooley Godward Kronish LLP
advised the Solexa board of directors regarding the boards
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 Solexas senior management and legal
advisors. Later that day, Mr. West communicated to Illumina
Solexas 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
Illuminas senior management discussed with the Illumina
board of directors the status of ongoing negotiations with
Solexa, including the terms of Solexas counterproposal to
Illuminas proposed terms for the merger. At this meeting,
the Illumina board of directors resolved to authorize members of
Illuminas 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 Illuminas senior
management in their negotiations with Solexa.
On October 19, 2006, Mr. Flatley communicated to
Mr. West Illuminas 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 Lazards 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
Solexas 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 Illuminas 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 Solexas 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
Illuminas commitment to make a cash investment in Solexa
to fund Solexas 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 Illuminas 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
Illuminas senior management also updated the Illumina
board of directors on the due diligence reviews conducted in
connection with the proposed transactions.
17
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 Solexas
senior management and legal advisors.
On November 3, 2006, the Solexa board of directors,
together with members of Solexas 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 Solexas 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,
Solexas legal advisor discussed with the Solexa board of
directors the boards 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 Solexas
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
Solexas 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 Illuminas 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 Illuminas
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 Illuminas
Financial Advisor for further information regarding
Merrill Lynchs 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 Illuminas 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, Solexas legal
advisor reviewed with the members of Solexas 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
Solexas
18
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 Solexas Financial
Advisor for further information regarding Lazards
opinion. Also at this meeting, Cooley Godward Kronish LLP
reviewed with the Solexa board of directors and members of
Solexas 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 Solexas Reasons for the
Merger; Recommendation of the Merger by the Solexa Board of
Directors, the boards 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.
Illuminas
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 Illuminas 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:
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expand Illuminas genetic analysis product offering to
include Solexas next generation sequencing platform, the
1G Genome Analyzer;
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create the only company to offer both analog and digital gene
expression, enhancing Illuminas rapidly emerging gene
expression franchise;
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add to Illuminas emerging opportunity in molecular
diagnostics and content discovery;
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increase Illuminas addressable markets;
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drive Solexas manufacturing and commercialization;
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leverage Illuminas global sales and support infrastructure;
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accelerate development of future products; and
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leverage the combination of each companys core
technologies.
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19
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:
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its knowledge of Illuminas business, operations, financial
condition, earnings and prospects and of Solexas business,
operations, financial condition, earnings and prospects, taking
into account the results of Illuminas due diligence review
of Solexa;
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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;
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the limited availability of alternative next generation
sequencing technologies that are currently on the market;
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Merrill Lynchs 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 Illuminas
Financial Advisor);
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the terms and conditions of the merger agreement and the
likelihood of completing the merger on the anticipated
schedule; and
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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 companys 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.
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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:
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the dilutive effect of the proposed merger on Illuminas
estimated earnings per share, which is expected to continue at
least through fiscal year 2007;
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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;
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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);
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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
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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.
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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, Illuminas
management and outside legal and financial advisors.
20
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.
Solexas
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 Solexas 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:
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the form, value and liquidity of the consideration to be issued
in the merger;
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the relationship between that consideration and current and
historical market prices of Solexa common stock;
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the prospects of the combined company following the merger;
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the technological advantages, broader product offerings and
strategic opportunities of the combined company following the
merger;
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Solexas prospects as a stand-alone entity;
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the terms of the merger agreement and the likelihood of
completing the merger on the anticipated schedule;
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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
Solexas Financial Advisor); and
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Solexas need for additional funding.
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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:
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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);
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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);
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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
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the risk that the anticipated benefits of the merger might not
be realized.
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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
21
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 Illuminas 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 Lynchs
written opinion is attached to this joint proxy
statement/prospectus as Annex C.
Merrill Lynchs 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 Lynchs opinion in its
entirety. Merrill Lynchs 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 Lynchs 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 Lynchs 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.
22
In arriving at its opinion, Merrill Lynch, among other things:
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reviewed certain publicly available business and financial
information relating to Illumina and Solexa that it deemed to be
relevant;
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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;
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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;
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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;
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reviewed the results of operations of Illumina and Solexa;
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participated in certain discussions and negotiations among
representatives of Illumina and Solexa and their financial and
legal advisors;
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reviewed the potential pro forma impact of the merger;
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reviewed drafts of the merger agreement; and
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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.
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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 Solexas 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 Lynchs 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
23
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:
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Thermo Fisher Scientific Inc.
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Applied Biosystems, Inc.
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Waters Corporation
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Sigma-Aldrich Corporation
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Millipore Corporation
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Charles River Laboratories, Inc.
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Invitrogen Corporation
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Techne Corporation
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Affymetrix, Inc.
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Bio-Rad Laboratories, Inc.
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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 Solexas
management projections, as adjusted by Illuminas
management, and estimated financial data for Illumina were based
on Illuminas 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
24
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
Solexas management projections, as adjusted by
Illuminas management, Merrill Lynch performed this
analysis on a stand-alone basis. The reference range was
determined by adding (i) the present value of Solexas
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 Solexas
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
Illuminas management projections, Merrill Lynch performed
this analysis on a stand-alone basis. The reference range was
determined by adding (i) the present value of
Illuminas 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 Illuminas 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 Illuminas management projections and
Solexas management projections, as adjusted by
Illuminas 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.
25
The following table indicates what Illuminas and
Solexas percentage contributions would have been on a pro
forma basis to the combined company in the categories listed.
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Contribution
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Contribution
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of Illumina
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of Solexa
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2009 Revenue
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67.4
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%
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32.6
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%
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2010 Revenue
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67.1
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%
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32.9
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%
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2009 EBIT
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61.1
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%
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38.9
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%
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2010 EBIT
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62.5
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%
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37.5
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%
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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 Illuminas cash earnings per share.
This analysis was based on Illuminas management
projections and Solexas management projections, as
adjusted by Illuminas management. The analysis assumed
pre-tax cost synergies equal to one-third of Solexas
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
Illuminas stockholders on a cash earnings per share basis
in fiscal year 2007 and accretive to Illuminas
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.
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Implied Exchange Ratio
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Low
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Mean
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High
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Current (11/09/06)
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0.217
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x
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0.217
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x
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0.217x
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One Month
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0.217
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x
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0.240
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x
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0.282x
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Three Months
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0.217
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x
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0.249
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x
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0.282x
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One Year
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0.217
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x
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0.366
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x
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0.741x
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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:
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Illuminas management projections and Solexas
management projections; and
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Illuminas management projections and Solexas
management projections, as adjusted by Illuminas
management.
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26
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:
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Implied Exchange Ratio
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Analysis Based on:
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Low
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High
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2009 Revenue
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0.559
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x
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0.920x
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2010 Revenue
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0.552
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x
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0.937x
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2009 EBIT
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0.527
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x
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0.711x
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2010 EBIT
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0.516
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x
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0.674x
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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:
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Illuminas management projections and Solexas
management projections, which are referred to as the Management
Cases, and
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Wall Street analyst projections for Illumina, and Solexas
management projections, as adjusted by Illuminas
management, which are referred to as the Street Case / Illumina
Adjusted Case.
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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:
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Implied Exchange Ratio
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Analysis Based on:
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Low
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High
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Management Cases
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0.317
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x
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0.552x
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Street Case / Illumina Adjusted
Case
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0.494
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x
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0.860x
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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
Lynchs 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.
27
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 Illuminas 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 Solexas 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. Lazards 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. Lazards 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:
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Reviewed the financial terms and conditions of the merger
agreement and the securities purchase agreement;
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Analyzed certain historical publicly available business and
financial information relating to Solexa and Illumina;
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|
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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28
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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;
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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;
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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;
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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;
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|
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;
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|
Reviewed the historical trading prices and trading volumes of
Solexa common stock and Illumina common stock; and
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|
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
Illuminas 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, Lazards 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.
29
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 Lazards analyses described below
is not a complete description of the analyses underlying
Lazards 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 Lazards 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 Lazards 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, Lazards analyses are
inherently subject to substantial uncertainty.
The financial analyses summarized below include information
presented in tabular format. In order to understand fully
Lazards 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 Lazards 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:
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consideration in the form of 100% Illumina common stock;
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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
Illuminas 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);
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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 Solexas net cash of $47 million); and
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consideration subject to a collar such that Solexa stockholders
will receive total consideration of $14.00 if Illuminas
share price increases or decreases by less than 7.5% between
November 12, 2006 and closing of the merger.
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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:
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Ratio
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Current (as of November 10,
2006)
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0.2202x
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3 month average
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0.2484x
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12 month average
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0.3641x
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Merger Agreement
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0.3182x
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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. Lazards 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 companys stock price one day, one week and
one month prior to the announcement of the transaction. The
results of these calculations are as follows:
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Range
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Median
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One-Day
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10.4% - 60.3%
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30.2
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%
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One-Week
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17.5 - 91.3
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34.3
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One-Month
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12.0 - 47.5
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36.2
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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.
31
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:
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the Solexa DCF versus the Illumina
5-day
average price, which indicated a range of exchange ratios from
0.1914x to 0.2985x; and
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the Solexa DCF versus the Illumina DCF, which indicated a range
of exchange ratios from 0.2106x to 0.4718x.
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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 Solexas earnings
before interest and taxes, referred to as EBIT, as estimated in
the Solexa 75% Case for the calendar years 2009 and 2010 to
Illuminas 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 Solexas 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 Solexas management with respect to Solexa as
part of the combined company and revenue synergies provided by
Illuminas 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 Solexas management with respect to Solexa as
part of the combined company and revenue synergies provided by
Illuminas 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.
32
Miscellaneous
Lazards 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 Solexas 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 Solexas 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. Wests 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. Wests employment is
terminated without cause or he resigns for good reason
33
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. Wests Change in Control
Bonus. On May 19, 2006, Solexa entered into
an amendment agreement amending Section (d) of
Exhibit B to Mr. Wests 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. Wests 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, Solexas 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
Solexas 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, Solexas Vice President,
Secretary and Chief Financial Officer. Under the agreement, if
(i) Ms. Rubinsteins employment is terminated
without cause by Solexa, (ii) Ms. Rubinstein resigns
with good reason, (iii) Ms. Rubinsteins
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.
34
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. Lundbergs letter
agreement described above.
Tony
Smith, Ph.D., Letter Agreement
On May 22, 2006, Solexa Limited entered into a letter
agreement with Dr. Smith, Solexas 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. Lundbergs letter
agreement described above.
Omead
Ostadan Letter Agreement
On May 19, 2006, Solexa entered into a letter agreement
with Omead Ostadan, Solexas Vice President of Marketing,
providing substantially the same change in control bonus terms
to him as were provided to Mr. Lundberg under
Mr. Lundbergs 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.
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Estimated
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Change in Control
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Name
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Title
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Bonus Amount
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John West
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Chief Executive Officer
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$4,266,326
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Peter Lundberg
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Vice President & Chief
Technical Officer
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1,066,581
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Omead Ostadan
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Vice President of Marketing
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1,066,581
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Linda Rubinstein
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Vice President & Chief
Financial Officer
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1,066,581
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Tony Smith, Ph.D.
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Vice President & Chief
Scientific Officer
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1,066,581
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Total: $8,532,650
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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.
35
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 Solexas 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 Solexas 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.
36
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 Solexas 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
Illuminas 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:
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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;
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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
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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.
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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, Solexas
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
Illuminas 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 Illuminas shares of Solexa common
stock is declared effective.
37
Transfer
Restrictions
The securities purchase agreement contains restrictions on
Illuminas 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
Illuminas 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 Illuminas 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.
Illuminas
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 Illuminas 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:
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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;
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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
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any merger, consolidation, business combination,
recapitalization or similar transaction involving Solexa,
subject to specified exceptions.
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38
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 Illuminas 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:
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financial institutions, regulated investment companies, real
estate investment trusts and insurance companies;
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tax-exempt organizations;
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stockholders that are not U.S. Holders;
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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;
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stockholders that hold Solexa common stock that constitutes
qualified small business stock for purposes of Section 1202
of the Code;
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dealers, brokers and traders in securities or foreign currencies;
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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
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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.
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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
39
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.
Illuminas 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. Solexas 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:
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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;
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a Solexa stockholder will have an aggregate tax basis in the
Illumina common stock received in the merger equal to the
stockholders aggregate tax basis in its shares surrendered
pursuant to the merger, reduced by the portion of the
stockholders 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;
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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;
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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
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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 stockholders tax basis in the
stockholders Solexa common stock and a description of the
Illumina common stock received.
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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 Solexas
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
41
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 Solexas
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
42
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.
43
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 Partys 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:
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the adoption of the merger agreement by Solexa stockholders;
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the approval of the issuance of Illumina common stock in the
merger by Illumina stockholders;
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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;
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the termination or expiration of the applicable waiting periods
under the HSR Act;
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the receipt of other requisite approvals or consents of any
governmental entity required to consummate the transactions
contemplated by the merger agreement;
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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;
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the SEC having declared effective the registration statement of
which this document forms a part;
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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;
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the receipt of an officers certificate of an executive
officer stating that the two preceding conditions have been
satisfied;
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the other party and its subsidiaries, taken as a whole, not
having suffered any material adverse effect, as defined in the
merger agreement; and
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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.
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Conditions to Illuminas 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:
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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:
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challenge Illuminas acquisition of shares of Solexa common
stock;
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seek to restrain or prohibit the proposed merger;
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seek to prevent or materially limit the ownership or operation
by Illumina, Solexa or their respective subsidiaries of their
respective businesses or assets;
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compel any of Illumina, Solexa or their respective subsidiaries
to divest or hold separate any material portion of their
businesses or assets; or
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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.
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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);
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receipt of a FIRPTA certificate from Solexa certifying that an
interest in Solexa is not a real property interest; and
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there being no bonus plans or other arrangements of Solexa other
than those previously disclosed to Illumina.
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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:
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solicit, initiate, or knowingly encourage or facilitate any
takeover proposal (as defined below);
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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;
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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
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grant any waiver or release under any standstill or any similar
agreement with respect to any class of Solexas equity
securities.
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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:
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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;
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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);
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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
boards fiduciary duties to Solexa stockholders under
applicable law; and
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all information has been previously provided to Illumina or is
provided to Illumina substantially concurrent with the time it
is provided to such person.
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In addition, Solexa is obligated to provide Illumina with
48 hours prior written notice (or such shorter notice as is
given to Solexas 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:
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effect an adverse recommendation change, meaning the board of
directors may not:
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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
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recommend, adopt, approve, or publicly propose to recommend,
adopt or approve any takeover proposal; or
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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.
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However, Solexa may make an adverse recommendation change after
the second business day following Illuminas 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.
46
A takeover proposal is defined in the merger
agreement as any inquiry, proposal or offer from any person or
group relating to:
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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;
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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
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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.
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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:
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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
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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.
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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:
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by mutual written consent of Solexa and Illumina, if the board
of directors of each company so determines;
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by either Solexa or Illumina:
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if Illuminas stockholder approval is not obtained at
Illuminas stockholder meeting;
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if Solexas stockholder approval is not obtained at
Solexas stockholder meeting;
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if the merger is not consummated by May 11, 2007; or
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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;
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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 Solexas 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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47
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by Solexa if, prior to the obtaining of Illuminas
stockholder approval:
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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;
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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
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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;
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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
Illuminas 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;
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by Illumina if, prior to the obtaining of Solexas
stockholder approval:
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The Solexa board of directors effects an adverse recommendation
change;
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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;
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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;
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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
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by Illumina if Solexa breaches, in any material respect, any of
the provisions under the no solicitation covenant of the merger
agreement.
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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:
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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%).
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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:
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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
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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%).
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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:
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the Solexa board of directors effected an adverse recommendation
change;
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Solexa failed to include in the joint proxy statement/
prospectus the recommendation of the board of directors;
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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
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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.
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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:
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the Illumina board of directors effected an adverse
recommendation change;
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Illumina failed to include in the joint proxy statement/
prospectus the recommendation of the Illumina board of directors
in connection with the merger; or
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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.
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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):
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the issuance or sale of capital stock, voting debt or other
equity interests;
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amendments or changes to its certificate of incorporation or
bylaws or equivalent organizational documents;
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49
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the declaration or payment of dividends or other distributions;
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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;
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changes in the method of accounting in effect at
December 31, 2005; and
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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.
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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):
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the acquisition or disposition of material assets, operations,
business or securities;
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the authorization of any loan, advance, capital contribution to,
or investment in, any person (other than a wholly-owned
subsidiary);
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the incurrence or guarantee of indebtedness for borrowed money
or the issuance of any debt securities;
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capital expenditures in excess of $1,000,000 in the aggregate;
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the payment, discharge, settlement or satisfaction of any
material claims, liabilities or obligations;
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the termination of or any material change to material contracts
or the execution of any material contract;
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dispositions, assignment, license or encumbrance of material
intellectual property and failure to maintain such intellectual
property;
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changes in employee benefit plans and compensation of directors,
officers, employees or consultants;
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establishment of any compensation, severance, retention or
change in control arrangements with employees or other service
providers; and
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transactions with any affiliates or associates of Solexa.
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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:
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cooperation between Illumina and Solexa in the preparation and
filing of all forms, registrations and notices;
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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;
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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;
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waiver by Solexa of state takeover statutes applicable to the
merger;
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employee plans and benefits provided after the merger, as
described in the section entitled The Merger
Agreement Employee Benefits Matters;
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indemnification, exculpation and insurance;
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certain tax matters;
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the Solexa board of directors following the completion of the
proposed merger; and
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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.
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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:
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organization, standing and corporate power, charter documents
and ownership of subsidiaries;
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capital structure;
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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;
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consents and approvals;
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filings with the SEC and other governmental entities;
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absence of certain changes or events;
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no undisclosed liabilities;
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contracts;
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absence of pending or threatened litigation;
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compliance with applicable laws and validity of permits;
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intellectual property matters;
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opinions of financial advisors;
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board approvals;
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voting requirements;
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brokers used in connection with the merger agreement; and
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accuracy of information supplied or to be supplied in the
registration statement to be filed in connection with the merger.
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In addition, Solexa has made representations and warranties
related to, among other topics, the following:
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books and records;
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employment matters, including benefit plans;
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insurance;
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tax matters;
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environmental matters;
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state takeover statutes;
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absence of undisclosed related party transactions; and
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real property, title and valid leasehold interests.
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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 Illuminas 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.
52
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. Solexas 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.
Solexas 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, Solexas 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.
53
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. Illuminas 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 Illuminas 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 Illuminas 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
Illuminas 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 Solexas 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
Solexas 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 companys 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,
Illuminas cost to acquire Solexa has been allocated to the
assets acquired and liabilities assumed based upon
managements preliminary estimate of their respective fair
values as of the date of the merger. Any differences between
fair value of the consideration
54
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 managements
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 Illuminas preliminary review of Solexas
summary of significant accounting policies disclosed in
Solexas 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 Solexas accounting policies and
financial statements may result in required revisions to
Solexas policies and classifications to conform to such
policies and classifications of Illumina.
55
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
56
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 CyVeras operations from
January 3, 2005 until Illuminas acquisition of CyVera
on April 8, 2005. |
See accompanying Notes to Unaudited Pro Forma Combined Condensed
Financial Statements
57
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
58
Notes to
Unaudited Pro Forma Combined Condensed Financial
Statements
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
|
|
|
|
|
|
|
59
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, Solexas 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.
60
Notes to
Unaudited Pro Forma Combined Condensed Financial
Statements (Continued)
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
Illuminas 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 Solexas 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 Solexas 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
61
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 Solexas 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 Solexas 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
|
|
|
|
|
|
|
62
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 Illuminas 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.
|
63
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 Illuminas
Secretary at 9885 Towne Centre Drive, San Diego,
California,
92121-1975,
no later than the beginning of the Illumina special meeting.
64
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.
65
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 Solexas 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.
|
66
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 Solexas
Secretary at 25861 Industrial Boulevard, Hayward, California,
94545, no later than the beginning of the Solexa special meeting.
67
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.
68
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 companys 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
|
|
69
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. |
70
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 Illuminas 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 Solexas
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
Illuminas certificate of incorporation and bylaws.
|
|
Upon completion of the merger, the
rights of Illumina stockholders will be governed by Delaware law
and Illuminas 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 Solexas 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 Illuminas 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
|
|
Illuminas bylaws provide
that a special meeting of stockholders may be called at any time
for any purpose by the board of directors.
|
71
|
|
|
|
|
|
|
Rights of Solexa
Stockholders
|
|
Rights of Illumina
Stockholders
|
|
|
|
certificate of incorporation or
bylaws.
|
|
|
|
|
Solexas 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
|
|
Solexas 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.
|
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As permitted under the DGCL,
Illuminas 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.
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Stockholder Proposals and
Nominations of Candidates for Election to the Board of
Directors
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Solexas bylaws allow
stockholders to propose business to be brought before an annual
meeting. In addition, Solexas 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 Solexas
Secretary prior to the meeting.
To be timely, the notice must be delivered to or mailed and
received at Solexas principal executive offices not less
than 120 days prior to the date of the previous
years 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
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Illuminas 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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Stockholders
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Stockholders
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from the date contemplated at the
time of the previous years proxy statement, then such
notice must be so received by a reasonable time before the proxy
solicitation is made.
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To be in proper written form,
notice of a stockholder proposal must provide:
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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;
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the name and
address, as they appear on Solexas books, of the
stockholder proposing such business;
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the class and number
of shares of Solexa stock which are beneficially owned by the
stockholder;
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any material
interest of the stockholder in the business to be brought before
the meeting; and
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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.
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To be in proper written form,
notice of a stockholder nomination to the Solexa board of
directors must provide:
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the name, age,
business address and residence address of such nominee;
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the principle
occupation or employment of such nominee;
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the class and number
of shares of Solexa which are beneficially owned by such
nominee;
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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
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Rights of Illumina
Stockholders
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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 persons written consent to
being named in the proxy statement as a nominee and to serving
as a director if elected.
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Number of
Directors
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The DGCL provides that the board
of directors of a Delaware corporation must consist of one or
more directors as fixed by the corporations certificate of
incorporation or bylaws.
Solexas 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.
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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
Illuminas bylaws adopted by the board of directors or the
stockholders, or by an amendment to Illuminas certificate
of incorporation.
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Classification of Board of
Directors
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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.
Solexas bylaws provide for only one class of directors
who are to be elected at each annual meeting for a one-year
term.
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Illuminas 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.
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Removal of
Directors
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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.
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Illuminas 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
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Rights of Illumina
Stockholders
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Solexas 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.
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Filling Director
Vacancies
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Under the DGCL, unless a Delaware
corporations 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.
Solexas 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.
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Illuminas 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 directors
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.
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Indemnification of Directors
and Officers
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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
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Illuminas 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
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Rights of Illumina
Stockholders
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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.
Solexas bylaws provide that it shall indemnify its
directors and executive officers to the fullest extent permitted
by the DGCL. In addition, Solexas 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.
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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.
Illuminas 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 directors and
officers insurance to protect itself and any director,
officer, employee or agent of Illumina.
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Rights of Solexa
Stockholders
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Rights of Illumina
Stockholders
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Solexas 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.
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Solexas 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.
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Amendments to Certificate of
Incorporation
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Under the DGCL, a Delaware
corporations 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.
Solexas 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.
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Illuminas 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.
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Amendments to
Bylaws
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Solexas 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.
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Illuminas certificate of
incorporation and bylaws provide that Illuminas 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
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Rights of Illumina
Stockholders
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notice of stockholders
meetings, stockholder voting, stockholder action by written
consent and number of directors.
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Business Combination
Statute
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Section 203 of the DGCL
prohibits a Delaware corporation from engaging in a
business combination with a person owning 15% or
more of the corporations voting stock for three years
following the time that person becomes a 15% stockholder, with
certain exceptions.
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Illumina has not opted out of
Section 203 of the DGCL and is therefore governed by the
terms of this provision of the DGCL.
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Solexa has not opted out of
Section 203 and is therefore governed by the terms of
this provision of the DGCL.
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Stockholder Rights
Plan
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Solexa does not have a stockholder
rights plan.
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Illuminas 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.
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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 Illuminas 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
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Rights of Illumina
Stockholders
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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.
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Because of the nature of the
preferred stocks 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.
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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).
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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. Solexas
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
Illuminas managements assessment of the
effectiveness of internal control over financial reporting,
included in Illuminas 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
Solexas 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 Solexas
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 Illuminas 2007 annual meeting will confer
discretionary authority to vote on any stockholder proposal
presented at that meeting, unless Illumina receives notice of
80
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 Solexas 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 Solexas 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
Solexas 2007 annual meeting of stockholders notifies
Solexa of such proposals or nominations prior to the meeting and
in accordance with Solexas 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 Solexas 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 SECs 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 SECs 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.
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Annual Report on
Form 10-K
for the fiscal year ended January 1, 2006.
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Proxy Statement dated April 26, 2006.
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Quarterly Reports on
Form 10-Q
for the quarterly periods ended April 2, 2006, July 2,
2006 and October 1, 2006.
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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).
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The description of Illuminas common stock contained in
Illuminas
Form 8-A
filed on April 14, 2006 and any amendment or report filed
with the SEC for the purpose of updating such description.
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The description of Illuminas preferred stock contained in
Illuminas
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.
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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 SECs 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.
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Annual Report on
Form 10-K
for the fiscal year ended December 31, 2005.
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Proxy Statement dated September 1, 2006.
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Quarterly Reports on
Form 10-Q
for the quarterly periods ended March 31, 2006,
June 30, 2006 and September 30, 2006.
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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.
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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
SECs 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
82
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.
83
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
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ARTICLE
I DEFINITIONS
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A-1
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ARTICLE
II THE MERGER
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A-7
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Section
2.1
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The Merger
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A-7
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Section
2.2
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Closing
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A-7
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Section
2.3
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Effective Time
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A-7
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Section
2.4
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Certificate of Incorporation and
Bylaws
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A-7
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Section
2.5
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Directors and Officers
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A-7
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Section
2.6
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Tax Consequences
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A-7
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ARTICLE
III MERGER CONSIDERATION; CONVERSION OR CANCELLATION OF
SHARES IN THE MERGER
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A-8
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Section
3.1
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Effect on Capital Stock
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A-8
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Section
3.2
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Exchange of Company Certificates
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A-8
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Section
3.3
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Company Stock Options/Warrants
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A-10
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ARTICLE
IV REPRESENTATIONS AND WARRANTIES OF THE COMPANY
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A-11
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Section
4.1
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Organization
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A-11
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Section
4.2
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Capitalization
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A-11
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Section
4.3
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Subsidiaries
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A-11
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Section
4.4
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Authority
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A-12
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Section
4.5
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Consents and Approvals; No
Violations
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A-12
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Section
4.6
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Books and Records
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A-13
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Section
4.7
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SEC Reports and Financial
Statements
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A-13
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Section
4.8
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Absence of Certain Changes or
Events
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A-13
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Section
4.9
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No Undisclosed Liabilities
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A-13
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Section
4.10
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Benefit Plans; Employees and
Employment Practices
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A-14
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Section
4.11
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Contracts
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A-16
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Section
4.12
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Insurance
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A-17
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Section
4.13
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Litigation
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A-17
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Section
4.14
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Compliance with Applicable Law
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A-17
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Section
4.15
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Taxes and Tax Returns
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A-18
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Section
4.16
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Environmental Laws and Regulations
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A-20
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Section
4.17
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State Takeover Statutes
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A-20
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Section
4.18
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Intellectual Property
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A-21
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Section
4.19
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Related Party Transactions
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A-23
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Section
4.20
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Opinion of Financial Advisor
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A-23
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Section
4.21
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Board Approval
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A-23
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Section
4.22
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Voting Requirements
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A-23
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Section
4.23
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Brokers and Finders; Third Party
Expenses
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A-23
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Section
4.24
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Information Supplied
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A-23
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Section
4.25
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Real Property; Title; Valid
Leasehold Interests
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A-24
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ARTICLE
V REPRESENTATIONS AND WARRANTIES OF PARENT AND MERGER SUB
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A-24
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Section
5.1
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Organization
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A-24
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Section
5.2
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Capitalization
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A-24
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Section
5.3
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Authority
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A-25
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A-i
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Section
5.4
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Consents and Approvals; No
Violations
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A-25
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Section
5.5
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SEC Reports and Financial
Statements
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A-26
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Section
5.6
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Absence of Certain Changes or
Events
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A-26
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Section
5.7
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No Undisclosed Liabilities
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A-26
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Section
5.8
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Contracts
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A-26
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Section
5.9
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Litigation
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A-27
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Section
5.10
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Compliance with Applicable Law
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A-27
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Section
5.11
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Intellectual Property
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A-27
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Section
5.12
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Merger Sub
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A-27
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Section
5.13
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Opinion of Financial Advisor
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A-27
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Section
5.14
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Board Approval
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A-27
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Section
5.15
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Voting Requirements
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A-28
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Section
5.16
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Brokers and Finders
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A-28
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Section
5.17
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Information Supplied
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A-28
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ARTICLE
VI COVENANTS
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A-28
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Section
6.1
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Interim Operations
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A-28
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Section
6.2
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No Solicitation
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A-31
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Section
6.3
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Parent Recommendation
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A-33
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Section
6.4
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Stockholder Meetings; Preparation
of
Form S-4
Joint Proxy Statement/Prospectus
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A-33
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Section
6.5
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Access to Information
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A-35
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Section
6.6
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Notification of Certain Matters
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A-35
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Section
6.7
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Reasonable Efforts
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A-35
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Section
6.8
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State Takeover Statutes
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A-36
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Section
6.9
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Indemnification, Exculpation and
Insurance
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A-36
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Section
6.10
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Certain Litigation
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A-36
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Section
6.11
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NASDAQ Listing
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A-36
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Section
6.12
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Affiliates
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A-36
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Section
6.13
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Employee Benefits; Options
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A-37
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Section
6.14
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Tax Covenants
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A-37
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Section
6.15
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Parent Board of Directors
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A-38
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Section
6.16
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Lock-up Agreements
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A-38
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ARTICLE
VII CONDITIONS
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A-38
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Section
7.1
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Conditions to Each Partys
Obligation to Effect the Merger
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A-38
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Section
7.2
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Conditions to Parent and Merger
Subs Obligation to Effect the Merger
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A-39
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Section
7.3
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Conditions to the Companys
Obligation to Effect the Merger
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A-40
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ARTICLE
VIII TERMINATION AND AMENDMENT
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A-41
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Section
8.1
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Termination
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A-41
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Section
8.2
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Effect of Termination
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A-42
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Section
8.3
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Fees and Expenses
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A-43
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Section
8.4
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Termination Fee
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A-43
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Section
8.5
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Extension; Waiver
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A-43
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A-ii
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ARTICLE
IX MISCELLANEOUS
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A-44
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Section
9.1
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Nonsurvival of Representations and
Warranties
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A-44
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Section
9.2
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Notices
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A-44
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Section
9.3
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Interpretation
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A-45
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Section
9.4
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Counterparts
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A-45
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Section
9.5
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Entire Agreement; No Third Party
Beneficiaries
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A-45
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Section
9.6
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Governing Law
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A-45
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Section
9.7
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Publicity
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A-45
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Section
9.8
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Assignment
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A-45
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Section
9.9
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Enforcement
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A-45
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Section
9.10
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Jurisdiction
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A-45
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Section
9.11
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Waiver of Jury Trial
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A-46
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Section
9.12
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Severability
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A-46
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Section
9.13
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Modification
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A-46
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A-iii
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;