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)

 

 

 

 

 

9885 Towne Centre Drive

San Diego, California 92121-1975

(858) 202-4500

(Address, including zip code, and telephone number, including area code, of Registrant’s principal executive offices)

 

Christian G. Cabou

Senior Vice President, General Counsel and Secretary

Illumina, Inc.

9885 Towne Centre Drive

San Diego, California 92121-1975

(858) 202-4500

(Name, address, including zip code, and telephone number, including area code, of agent for service)

 

 

 

 

COPIES TO:

 

 

 

 

 

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.

 

 

 

 

 

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:

 

 

Please refer to the attached joint proxy statement/ prospectus for further information with respect to the business to be transacted at the Illumina special meeting.

 

The close of business on December 15, 2006 has been fixed as the record date for the determination of stockholders entitled to notice of, and to vote at, the Illumina special meeting or any adjournments or postponements thereof. Only holders of record of Illumina common stock at the close of business on the record date are entitled to notice of, and to vote at, the Illumina special meeting.

 

The issuance of shares of Illumina common stock to Solexa stockholders requires the affirmative vote of holders of a majority of the Illumina common stock present or represented and entitled to vote on the proposal at the Illumina special meeting.

 

Your vote is important. Whether or not you expect to attend in person, we urge you to vote your shares as promptly as possible by (1) accessing the Internet website specified on your proxy card; (2) calling the toll-free number specified on your proxy card; or (3) signing and returning the enclosed proxy card in the postage-paid envelope provided, so that your shares may be represented and voted at the Illumina special meeting. If your shares are held in the name of a bank, broker or other fiduciary, please follow the instructions on the voting instruction card furnished by the record holder.

 

A list of the holders of Illumina common stock entitled to vote at the Illumina special meeting will be available for examination by any Illumina stockholder, for any purpose germane to the Illumina special meeting, at Illumina’s principal executive offices at 9885 Towne Centre Drive, San Diego, California, 92121-1975, for ten days prior to the Illumina special meeting, between the hours of 9:00 a.m. and 3:00 p.m., local time, and at the Illumina special meeting during the entire time thereof.

 

By Order of the Board of Directors,

 

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:

 

 

Please refer to the attached joint proxy statement/ prospectus for further information with respect to the business to be transacted at the Solexa special meeting.

 

The close of business on December 15, 2006 has been fixed as the record date for the determination of stockholders entitled to notice of, and to vote at, the Solexa special meeting or any adjournments or postponements thereof. Only holders of record of Solexa common stock at the close of business on the record date are entitled to notice of, and to vote at, the Solexa special meeting.

 

Approval and adoption of the Agreement and Plan of Merger requires the affirmative vote of holders of a majority of the outstanding shares of Solexa common stock entitled to vote on the proposal at the Solexa special meeting.

 

Your vote is important. Whether or not you expect to attend in person, we urge you to vote your shares as promptly as possible by (1) calling the toll-free number specified on your proxy card or (2) signing and returning the enclosed proxy card in the postage-paid envelope provided, so that your shares may be represented and voted at the Solexa special meeting. If your shares are held in the name of a bank, broker or other fiduciary, please follow the instructions on the voting instruction card furnished by the record holder.

 

A list of the holders of Solexa common stock entitled to vote at the Solexa special meeting will be available for examination by any Solexa stockholder, for any purpose germane to the Solexa special meeting, at Solexa’s principal executive offices at 25861 Industrial Boulevard, Hayward, California, 94545, for ten days prior to the Solexa special meeting, between the hours of 9:00 a.m. and 3:00 p.m., local time, and at the Solexa special meeting during the entire time thereof.

 

By Order of the Board of Directors,

 

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:

 

 

Investors may also consult Illumina’s or Solexa’s website for more information concerning the merger described in this document. Illumina’s website is www.illumina.com. Solexa’s website is www.solexa.com.   Information included on either website is not incorporated by reference into this document.

 

If you would like to request any documents relating to the merger, please do so by January 19, 2007 in order to receive them before the meetings.

 

For more information, see “Where You Can Find More Information” beginning on page 81.

 

You should rely only on the information contained in, or incorporated by reference into, this document. No one has been authorized to provide you with information that is different from that contained in, or incorporated by reference into, this document. This document is dated December 19, 2006. You should not assume that the information contained in, or incorporated by reference into, this document is accurate as of any date other than that date. Neither our mailing of this document to Illumina stockholders or Solexa stockholders nor the issuance by Illumina of common stock in connection with the merger will create any implication to the contrary.

 

This document does not constitute an offer to sell, or a solicitation of an offer to buy, any securities, or the solicitation of a proxy, in any jurisdiction to or from any person to whom it is unlawful to make any such offer or solicitation in such jurisdiction. Information contained in this document regarding Illumina has been provided by Illumina and information contained in this document regarding Solexa has been provided by Solexa.

TABLE OF CONTENTS

 

 

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.

 

 

 

 

 

 

 

 

 

 

SUMMARY

 

The Companies

 

Illumina (See page 53)

 

Solexa (See page 53)

 

The Merger and the Merger Agreement

 

The Merger (See page 15)

 

Form of Merger (See page 15)

 

Effect of the Merger; Consideration to be Received in the Merger; Treatment of Solexa Stock Options and Warrants (See page 15)

 

Material United States Federal Income Tax Consequences of the Merger (See page 39)

 

Recommendations of the Boards of Directors

 

Opinions of Financial Advisors

 

Interests of Solexa’s Directors and Officers in the Merger; Relationship between Illumina and Solexa (See page 33)

 

Directors and Management Following the Merger (See page 39)

 

Regulatory Approvals Required for the Merger (See page 41)

 

Expected Timing of the Merger (See page 44)

 

Conditions to Completion of the Merger (See page 44)

	•	the adoption of the merger agreement by Solexa stockholders;
	•	the approval of the issuance of shares of Illumina common stock in the merger by Illumina stockholders;
	•	no law, order or other legal prohibition of any court or other governmental entity shall be in effect that prohibits the completion of the merger;
	•	the termination or expiration of the applicable waiting periods under the HSR Act;
	•	the receipt of other requisite governmental approvals or consents required to consummate the transactions contemplated by the merger agreement;
	•	the authorization for listing by NASDAQ of the Illumina common stock issuable to Solexa stockholders in the merger and such other shares to be reserved for issuance in connection with the merger;
	•	the Securities and Exchange Commission, which we refer to as the SEC, having declared effective the registration statement of which this document forms a part;
	•	the representations and warranties of the other party being true and correct, subject to the material adverse effect standard provided in the merger agreement;
	•	the other party having performed or complied with, in all material respects, all obligations required to be performed or complied with by it under the merger agreement;
	•	the receipt of an officer’s certificate of an executive officer stating that the two preceding conditions have been satisfied;
	•	the other party and its subsidiaries, taken as a whole, not having suffered any material adverse effect, as defined in the merger agreement; and
	•	the receipt of tax opinions of legal counsel to the effect that the merger will qualify as a “reorganization” within the meaning of Section 368(a) of the Code.

	•	the receipt of all consents, approvals, authorizations, qualifications and orders of third parties required in connection with the transactions contemplated by the merger agreement, other than those previously disclosed to Illumina and those the absence of which would not reasonably be expected to have a material adverse effect on Solexa and its subsidiaries, taken as a whole;

	•	the absence of pending suits, actions or proceedings by any governmental entity that relate to the merger, are reasonably likely to succeed and:

	—	challenge Illumina’s acquisition of shares of Solexa common stock;
	—	seek to restrain or prohibit the proposed merger;
	—	seek to prevent or materially limit the ownership or operation by Illumina, Solexa or their respective subsidiaries of their respective businesses or assets;
	—	compel any of Illumina, Solexa or their respective subsidiaries to divest or hold separate any material portion of their businesses or assets; or
	—	seek to prohibit Illumina or any of its subsidiaries from effectively controlling in any material respect the businesses or operations of Solexa or any of its subsidiaries.

	•	Mr. West, Chief Executive Officer of Solexa, and Tony Smith, Ph.D., Vice President and Chief Scientific Officer of Solexa, shall be actively employed by Solexa on the closing date (unless not employed by reason of death or disability);
	•	receipt of a FIRPTA certificate from Solexa certifying that an interest in Solexa is not a real property interest; and
	•	there being no bonus plans or other arrangements of Solexa other than those previously disclosed to Illumina.

 

Termination of the Merger Agreement (See page 47)

 

Expenses and Termination Fees (See pages 48 and 50)

 

Appraisal Rights (See page 80)

 

The Special Meetings

 

The Illumina Special Meeting (See page 63)

	•	approve the issuance of Illumina common stock in the merger;
	•	vote upon an adjournment of the Illumina special meeting, if necessary, to solicit additional proxies if there are not sufficient votes for the foregoing proposal; and

	•	transact any other business that may properly be brought before the Illumina special meeting or any adjournments or postponements thereof.

	•	The issuance of shares of Illumina common stock to Solexa stockholders requires approval by an affirmative vote of holders of a majority of the Illumina common stock present or represented and entitled to vote on the proposal at the Illumina special meeting.
	•	Approval of the proposal to adjourn the Illumina special meeting, if necessary, for the purpose of soliciting additional proxies requires that the votes cast favoring the proposal exceed the votes cast opposing the proposal.

 

The Solexa Special Meeting (See page 66)

	•	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.

	•	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.

 

Selected Historical Financial Data of Illumina

		Nine Months Ended								Fiscal Year Ended
		October 1,				October 2,				January 1,				January 2,				December 28,				December 29,				December 30,
		2006				2005				2006				2005				2003				2002				2001
		(In thousands, except per share amounts)
Statement of Operations Data
Revenue		$	124,151			$	50,488			$	73,501			$	50,583			$	28,035			$	10,040			$	2,486
Income (Loss) from Operations			21,236				(21,463	)			(21,447	)			(5,513	)			(26,622	)			(41,855	)			(30,319	)
Net Income (Loss)			22,826				(21,200	)			(20,874	)			(6,225	)			(27,063	)			(40,331	)			(24,823	)
Net Income (Loss) per Share:
Basic			0.52				(0.53	)			(0.52	)			(0.17	)			(0.85	)			(1.31	)			(0.83	)
Diluted			0.48				(0.53	)			(0.52	)			(0.17	)			(0.85	)			(1.31	)			(0.83	)
Balance Sheet Data (at end of period)
Working Capital		$	187,447							$	57,992			$	64,643			$	32,229			$	58,522			$	91,452
Total Assets			256,477								100,610				94,907				99,234				121,906				122,465
Long-term Debt, Including Amounts Due Within One Year			94								172				—				25,618				26,297				887
Stockholders’ Equity			211,074								72,497				72,262				47,388				71,744				106,791

 

Selected Historical Financial Data of Solexa

		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

 

Summary Unaudited Pro Forma Combined Condensed Financial Statements

		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

 

In addition to the other information included and incorporated by reference into this document, including the matters addressed in the section entitled “Cautionary Statement Regarding Forward-Looking Statements,” you should carefully consider the following risks before deciding whether to vote for adoption and approval of the merger agreement, in the case of Solexa stockholders, or for the issuance of shares of Illumina common stock in the merger, in the case of Illumina stockholders. In addition, you should read and consider the risks associated with each of the businesses of Illumina and Solexa because these risks will also affect the combined company. These risks can be found in Illumina’s Quarterly Report on Form 10-Q for the quarterly period ended October 1, 2006 and in Solexa’s Quarterly Report on Form 10-Q for the quarterly period ended September 30, 2006, each of which are filed with the SEC and incorporated by reference into this document. You should also read and consider the other information in this document and the other documents incorporated by reference into this document. See the section entitled “Where You Can Find More Information” beginning on page 81.

 

The value of the shares of Illumina common stock to be received by Solexa stockholders in the proposed merger could be higher or lower than $14.00 per share of Solexa common stock.

 

In the proposed merger, Solexa stockholders will receive a fraction of a share of Illumina common stock for each share of Solexa common stock equal to an exchange ratio, which will be determined as follows:

 

 

In this joint proxy statement/ prospectus, we refer to the volume weighted average (rounded to four decimal places) of the daily sale prices for shares of Illumina common stock, as reported by NASDAQ, for ten trading days randomly selected from the 20 consecutive trading days ending five trading days prior to the closing date of the merger as the “Illumina Average Price.”

 

As a result of the collar mechanism described above, if the Illumina Average Price is less than $40.70, then the market value of the shares of Illumina common stock to be issued to Solexa stockholders would have a value of less than $14.00 per share of Solexa common stock. Conversely, if the Illumina Average Price is greater than $47.30, then the market value of the shares of Illumina common stock to be issued to Solexa stockholders would have a value of greater than $14.00 per share of Solexa common stock.

 

Moreover, because the date that the merger is completed may be later than the date of the stockholder meetings, at the time of your stockholder meeting, you will not know the exact market value of the Illumina common stock that Solexa stockholders will receive upon completion of the merger.

 

Illumina may be unable to integrate successfully the businesses of Solexa and realize the anticipated benefits of the merger.

 

The success of the merger will depend, in part, on Illumina’s ability to realize the anticipated synergies, growth opportunities and cost savings from integrating Solexa’s businesses with Illumina’s businesses. Illumina’s success in realizing these benefits and the timing of this realization depend upon the successful integration of the operations of Solexa. The integration of two independent companies is a complex, costly and time-consuming process. The difficulties of combining the operations of the companies include, among other factors:

 

 

 

If we are unable to successfully combine the businesses of Illumina and Solexa in a manner that permits the combined company to achieve the cost savings and operating synergies anticipated to result from the merger, such anticipated benefits of the merger may not be realized fully or at all or may take longer to realize than expected. In addition, Illumina and Solexa have operated and, until the completion of the merger, will continue to operate, independently. It is possible that the integration process could result in the loss of key employees, diversion of each company’s management’s attention, the disruption or interruption of, or the loss of momentum in, each company’s ongoing businesses or inconsistencies in standards, controls, procedures and policies, any of which could adversely affect our ability to maintain relationships with customers and employees or our ability to achieve the anticipated benefits of the merger, or could reduce our earnings or otherwise adversely affect the business and financial results of the combined company.

 

     Failure to complete the merger could negatively impact the stock prices and the future business and financial results of Solexa and Illumina.

 

If the merger is not completed, the ongoing businesses of Solexa or Illumina may be adversely affected and Solexa and Illumina will be subject to several risks, including the following:

 

 

If the merger is not completed, Solexa and Illumina cannot ensure their stockholders that these risks will not materialize and will not materially affect the business, financial results and stock prices of Solexa or Illumina. Moreover, if the merger is not completed, Illumina’s registration and resale rights related to the shares of Solexa common stock that it holds may make it more difficult for Solexa to successfully access the capital markets.

 

     Solexa stockholders will have a reduced ownership and voting interest after the merger.

 

After the merger’s completion, Solexa stockholders will own a significantly smaller percentage of Illumina than they currently own of Solexa. Consequently, Solexa stockholders may have less influence over the management and policies of Illumina than they currently exercise over the management and policies of Solexa.

 

     The combined company may fail to realize the anticipated benefits of the merger as a result of Solexa’s failure to achieve anticipated revenue growth following the merger.

 

Solexa’s business faces significant risks. These risks include those described in the section entitled “Risk Factors” of Solexa’s Quarterly Report on Form 10-Q for the quarterly period ended September 30, 2006, which report is incorporated by reference into this document, and may include additional risks of which Illumina and Solexa are not currently aware or which Illumina and Solexa currently do not believe are material. If any of the events or circumstances underlying these risks actually occur, Solexa’s business, financial condition or results of operations could be harmed and, as a result, Solexa may, among other things, fail to achieve the anticipated revenue growth following the merger.

The merger will cause dilution of Illumina’s earnings per share.

 

The merger and the transactions contemplated by the merger agreement are expected to have a dilutive effect on Illumina’s earnings per share at least through 2007 due to losses of Solexa, the additional shares of Illumina common stock that will be issued in the merger, the transaction and integration-related costs and other factors such as the failure to realize any benefit from synergies anticipated in the merger. These factors could adversely affect the market price of Illumina common stock.

 

     Obtaining required approvals and satisfying closing conditions may delay or prevent completion of the proposed transaction.

 

Completion of the proposed merger is conditioned upon, among other things, the receipt of all consents and approvals of all governmental authorities required for consummation of the proposed transaction. The requirement for these approvals could delay or prevent the completion of the proposed transaction. In addition, antitrust authorities may impose conditions in connection with the proposed transaction that may adversely affect Illumina’s operations after consummation of the merger. Moreover, the FTC, the DOJ, a state, a private person or an entity could seek, under federal or state antitrust laws, among other things, to enjoin or rescind the proposed transaction. Please see the section entitled “The Merger Agreement — Conditions to Completion of the Merger” for a discussion of the conditions to the completion of the merger and the section entitled “The Merger — Regulatory Approvals Required for the Merger” for a description of the regulatory approvals necessary in connection with the proposed merger. It cannot be assumed that these consents and approvals will be obtained, or that their terms, conditions and timing will not be detrimental to Illumina or Solexa.

 

     Illumina will depend significantly on key personnel, and the loss of one or more of Illumina’s or Solexa’s key management personnel could limit Illumina’s ability to execute its business strategy.

 

Illumina has depended on, and after the proposed merger will continue to depend on, the services and management experience of Mr. Flatley and Illumina’s other current executive officers. If Mr. Flatley or any other executive officers resign or otherwise are unable to serve following the consummation of the proposed merger, Illumina’s management expertise and efficiency could be weakened.

 

Additionally, Illumina’s obligation to complete the proposed merger is conditioned upon, among other things, each of Mr. West, Solexa’s Chief Executive Officer, and Dr. Smith, Solexa’s Vice President and Chief Scientific Officer, being actively employed by Solexa on the closing date of the merger, unless such officer is not actively employed due to death or disability. Loss of either Mr. West or Dr. Smith, other than for death or disability, may cause Illumina to decide not to complete the proposed merger and may result in the loss of value of shares of Solexa common stock.

 

Additionally, Mr. West, in particular, has been a key member of the Solexa management team, and Solexa has also been highly dependent on the principal members of Solexa’s scientific and commercial staff. The loss of any of these persons’ services following the merger could adversely impact the achievement of Illumina’s commercial objectives.

 

Certain directors and executive officers of Solexa may have potential conflicts of interests.

 

Certain directors and executive officers may have interests that differ from stockholders. Following completion of the merger, Mr. West will be Senior Vice President and General Manager of the Sequencing Business Unit of Illumina. In addition, the merger agreement requires as a condition to closing the active employment of each of Mr. West and Dr. Smith, Solexa’s Vice President and Chief Scientific Officer, by Solexa on the closing date of the merger, unless the failure to be actively employed is the result of death or disability. Solexa stockholders should be aware that certain members of the board of directors and executive officers of Solexa have interests in the merger that are different from, or in addition to, their interests as Solexa stockholders. These interests may create a conflict of interest or the appearance of a conflict of interest. See “The Merger — Interests of Solexa’s Directors and Officers in the Merger; Relationship between Illumina and Solexa” and “The Merger Agreement — Conditions to Completion of the Merger” for more information.

 

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:

 

 

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:

 

 

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.

 

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.

 

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.

 

Solexa has reviewed, from time to time, various business opportunities to further develop and commercialize its genetic analysis technologies, including scientific and product-focused collaborations.

 

Illumina also has been reviewing, from time to time, opportunities for growth and expansion, including potential business collaboration and acquisition opportunities.

 

Between February 2006 and June 2006, Illumina’s and Solexa’s senior management and scientists met on a few occasions to discuss potential opportunities for collaboration, including the joint development of new

products based jointly on Illumina’s and Solexa’s technology. In July 2006, members of Illumina’s senior management visited Solexa’s headquarters in Hayward, California, to discuss further collaborative opportunities, as well as a possible business combination of the two companies.

 

On July 28, 2006, John West, Chief Executive Officer of Solexa, discussed with the Solexa board of directors the potential merger with Illumina at a meeting of the Solexa board of directors. At this meeting, the Solexa board of directors authorized Solexa management to pursue further discussions with Illumina regarding a potential business combination.

 

On August 9, 2006, Illumina and Solexa entered into a mutual confidentiality agreement to permit additional discussions and exchange of information concerning a possible transaction between the two companies.

 

On September 9, 2006, Jay T. Flatley, President and Chief Executive Officer of Illumina, and other members of Illumina’s senior management met with Mr. West and other members of Solexa’s senior management to discuss a potential strategic combination and other potential business opportunities for the two companies and exchanged certain financial and other information regarding their respective companies. On September 14, 2006, Messrs. Flatley and West met again to further explore the possibility of a business combination between the two companies. These discussions included, among other matters, deal rationale considerations and potential benefits that could result from a combination of the two companies.

 

On September 19, 2006, at a meeting of the Solexa board of directors, the members of the Solexa board of directors, together with members of Solexa’s senior management and a representative of Cooley Godward Kronish LLP, Solexa’s legal advisor, reviewed the status of discussions with Illumina concerning a potential business combination and various other considerations, including whether any other strategic partner would enable the same extent of product and technology synergies.

 

On September 20, 2006, Illumina, together with its financial advisor Merrill Lynch, and Solexa, together with its financial advisor, Lazard, met in San Diego, California, and engaged in due diligence discussions and reviews of each company’s financial information, technology, intellectual property and other matters. During the week of September 24, 2006, Illumina, Solexa and their respective advisors met on several occasions to exchange information and to discuss key due diligence matters in connection with the proposed merger.

 

Throughout the month of October 2006 and part of November 2006, Illumina and its financial advisor and legal advisor, Dewey Ballantine LLP, and Solexa and its financial and legal advisors, continued their due diligence reviews and discussions through in-person meetings, telephone conferences and exchange and review of various documents and information relating to the two companies. These due diligence reviews and discussions included, among others, visits by representatives of Illumina to Solexa’s operations in Cambridge, England and Hayward, California and a telephone conference among Illumina, Solexa and their respective independent auditors in which the companies discussed and reviewed accounting due diligence matters of the other company.

 

On October 5, 2006, Illumina and Solexa executed an amendment to the mutual confidentiality agreement to provide for, among other obligations, mutual standstill and employee non-solicitation obligations.

 

On October 8, 2006, at a meeting of the Illumina board of directors held via telephone conference, members of Illumina’s senior management reviewed with the Illumina board of directors preliminary information regarding Solexa and its business and the possible acquisition of Solexa by way of a merger. Illumina’s financial and legal advisors also participated in the meeting. At this meeting, the Illumina board of directors resolved to authorize members of Illumina’s senior management to engage in preliminary negotiations with Solexa regarding a possible merger of Illumina and Solexa on the terms discussed with the board.

 

On October 9, 2006, Illumina verbally communicated to Solexa an offer to acquire Solexa through a merger for $11.66 per share, which consideration would be payable in shares of Illumina common stock.

 

On October 13, 2006, at a meeting of the Solexa board of directors, Lazard reviewed for the members of the Solexa board of directors Lazard’s preliminary financial analyses of Solexa and the potential merger

between Illumina and Solexa, and Cooley Godward Kronish LLP advised the Solexa board of directors regarding the board’s fiduciary duties in connection with its consideration of the proposed transaction. At this meeting, members of the Solexa board of directors also discussed the proposed terms of the merger with members of Solexa’s senior management and legal advisors. Later that day, Mr. West communicated to Illumina Solexa’s counterproposal of $16.00 per share as the proposed merger consideration, payable in shares of Illumina common stock.

 

On October 14, 2006, at a meeting of the Illumina board of directors held via telephone conference, members of Illumina’s senior management discussed with the Illumina board of directors the status of ongoing negotiations with Solexa, including the terms of Solexa’s counterproposal to Illumina’s proposed terms for the merger. At this meeting, the Illumina board of directors resolved to authorize members of Illumina’s senior management to continue negotiations with Solexa regarding the terms of the proposed merger. In addition, the Illumina board of directors resolved to create a subcommittee of the Illumina board of directors for the purpose of providing guidance to members of Illumina’s senior management in their negotiations with Solexa.

 

On October 19, 2006, Mr. Flatley communicated to Mr. West Illumina’s revised proposal of $13.00 per share as the merger consideration, payable in shares of Illumina common stock.

 

On October 20, 2006, at a meeting of the Solexa board of directors, Lazard reviewed for the members of the Solexa board of directors Lazard’s preliminary financial analyses of Solexa and the potential merger between Illumina and Solexa. At this meeting, members of the Solexa board of directors also discussed the proposed terms of the merger with members of Solexa’s senior management and legal advisors. Also on this day, Solexa communicated to Illumina a counterproposal of $14.70 per share with a 15% symmetrical fixed price collar as the merger consideration, payable in shares of Illumina common stock.

 

On October 21, 2006, Illumina and Solexa, together with their respective financial and legal advisors, met in Palo Alto, California to discuss the terms of the proposed merger. At this meeting, Illumina and Solexa negotiated, among other terms, the merger consideration. The terms of the merger consideration discussed between the parties included Illumina’s revised offer of either $13.50 per share with a 5% symmetrical fixed price collar or $13.85 per share without a collar mechanism, and Solexa’s counter proposal of $14.00 per share with a 10% symmetrical fixed price collar. In all cases, the contemplated merger consideration consisted of shares of Illumina common stock. After extensive negotiations, the parties agreed, subject to the approval of their respective board of directors, to the terms of the merger consideration of $14.00 per share, payable in shares of Illumina common stock and subject to a symmetrical fixed price collar of plus and minus 7.5% of the average Illumina stock price that would be used to determine the exchange ratio. The parties also discussed other key terms of the proposed transaction, including, in particular, the terms of a securities purchase agreement, which would provide for a $50 million cash investment in Solexa by Illumina. Solexa indicated that it had contemplated an equity financing within the next few months to fund its capital requirements and that further discussion with Illumina concerning a potential merger would be predicated on Illumina’s commitment to make a cash investment in Solexa to fund Solexa’s working capital requirements in the event that the proposed merger was not consummated for any reason.

 

On October 25, 2006, Lazard reviewed with the Solexa board of directors financial analyses of the potential merger between Illumina and Solexa at a meeting of the Solexa board of directors. Members of Solexa senior management, together with its financial and legal advisors, also updated the Solexa board of directors with the status of discussions with Illumina on the proposed terms of the merger.

 

On the same day, at a meeting of the Illumina board of directors, members of Illumina’s senior management provided an update on their negotiations with Solexa to the Illumina board of directors and reviewed with the Illumina board of directors the preliminary understanding between Illumina and Solexa on certain terms of the proposed transactions. Members of Illumina’s senior management also updated the Illumina board of directors on the due diligence reviews conducted in connection with the proposed transactions.

On October 30, 2006, at a meeting of a committee of the Solexa board of directors, those directors present discussed the proposed terms of the merger with members of Solexa’s senior management and legal advisors.

 

On November 3, 2006, the Solexa board of directors, together with members of Solexa’s senior management and its financial and legal advisors, convened at a meeting of the Solexa board of directors to receive an update on the discussions with Illumina on the terms and conditions of the transaction documents relating to the merger.

 

During the first week and into the second week of November 2006, Illumina and Solexa, together with their respective financial and legal advisors, continued to negotiate and finalize the terms of the merger agreement, securities purchase agreement and related transaction documents, while finalizing their mutual financial, legal and other customary due diligence reviews and discussions.

 

On November 10, 2006, at a meeting of the Solexa board of directors, Lazard reviewed its preliminary financial analyses, and members of Solexa’s senior management and legal advisor reviewed the status of the negotiations of the merger agreement, the securities purchase agreement and related transaction documents, as well as the terms of the transaction documents in their draft form for the Solexa board of directors. In addition, Solexa’s legal advisor discussed with the Solexa board of directors the board’s fiduciary duties in reviewing the proposed transactions and their terms. The Solexa board of directors engaged in an extensive discussion regarding the terms of the merger agreement, the securities purchase agreement and related transaction documents with members of Solexa’s senior management and its financial and legal advisors, including the rationale, prospects, benefits and risks associated with the proposed transactions and the matters discussed in the section entitled “The Merger — Solexa’s Reasons for the Merger; Recommendation of the Merger by the Solexa Board of Directors.”

 

On the same day, at a meeting of the Illumina board of directors held via telephone conference, members of Illumina’s senior management discussed with the Illumina board of directors the terms of the proposed transactions and Dewey Ballantine LLP reviewed with the Illumina board of directors the principal terms of the transaction documents and the legal issues relevant to its consideration of the proposed transactions, including a review of the fiduciary duties of the board of directors and the legal standards applicable to the board of directors’ review of the proposed transactions. Members of Illumina’s senior management also updated the Illumina board of directors on the due diligence reviews conducted in connection with the proposed transaction. At this meeting, Merrill Lynch reviewed with the Illumina board of directors its financial analyses of the terms of the proposed merger and rendered its oral opinion, which opinion was subsequently confirmed by delivery of a written opinion dated November 12, 2006, to the effect that, as of the date of such opinion and based upon the assumptions made, matters considered and limits of review set forth in such written opinion, the exchange ratio provided for in the merger agreement was fair, from a financial point of view, to Illumina. See “The Merger — Opinions of Financial Advisors — Opinion of Illumina’s Financial Advisor” for further information regarding Merrill Lynch’s opinion.

 

Following these discussions, and further review and discussion among members of the Illumina board of directors, including consideration of the matters discussed in the section entitled “The Merger — Illumina’s Reasons for the Merger; Recommendation of the Stock Issuance by the Illumina Board of Directors,” the Illumina board of directors unanimously voted to approve the merger agreement, the securities purchase agreement and the transactions contemplated thereby and resolved to recommend that the Illumina stockholders vote to approve the issuance of shares of Illumina common stock in the merger.

 

On November 11 and November 12, 2006, representatives of the senior management of Illumina and Solexa, and their respective financial and legal advisors, finalized the terms of the merger and its related transaction documents.

 

On November 12, 2006, at a meeting of the Solexa board of directors held via telephone conference, Solexa’s legal advisor reviewed with the members of Solexa’s board of directors and senior management the final terms of the transaction documents. The Solexa board of directors discussed the terms of the merger agreement, the securities purchase agreement and related transaction documents with members of Solexa’s

senior management and financial and legal advisors. At this meeting, Lazard stated that its financial analyses of the terms of the proposed merger had not changed since the analyses reviewed with the Solexa board of directors at the November 10, 2006 meeting, and delivered its oral opinion, which opinion was subsequently confirmed by delivery of a written opinion of the same date, to the effect that, as of the date of its opinion and based upon and subject to the factors, assumptions and limitations stated therein, the exchange ratio, as defined in the merger agreement, was fair, from a financial point of view, to the holders of Solexa common stock. See “The Merger — Opinions of Financial Advisors — Opinion of Solexa’s Financial Advisor” for further information regarding Lazard’s opinion. Also at this meeting, Cooley Godward Kronish LLP reviewed with the Solexa board of directors and members of Solexa’s senior management the finalized terms of the transaction documents. In addition, Cooley Godward Kronish LLP discussed with the Solexa board of directors its fiduciary duties in reviewing the proposed transactions and their terms.

 

In light of the Solexa board of directors’ extensive discussions at the November 10, 2006 meeting, including the consideration of the matters discussed in the section entitled “The Merger — Solexa’s Reasons for the Merger; Recommendation of the Merger by the Solexa Board of Directors,” the board’s evaluation and discussion of the final terms of the transaction documents, the delivery by Lazard of its opinion described in the preceding paragraph and the Solexa board of directors’ prior meetings on these matters, the Solexa board of directors unanimously determined that the proposed transactions are advisable and fair and in the best interests of Solexa and its stockholders, and the Solexa board of directors voted unanimously to approve the merger agreement and to recommend the Solexa stockholders to vote to approve and adopt the merger agreement.

 

Thereafter, Illumina, Callisto Acquisition Corp., a wholly-owned subsidiary of Illumina, and Solexa executed the merger agreement, and Illumina and Solexa executed the securities purchase agreement. These transactions were announced on the morning of November 13, 2006 in a press release issued jointly by Illumina and Solexa. Later in the day on November 13, 2006, Illumina acquired 5,154,639 shares of Solexa common stock for an aggregate purchase price of approximately $50 million pursuant to the securities purchase agreement.

 

In reaching its decision to adopt and approve the merger agreement and recommend approval to the Illumina stockholders the stock issuance, the Illumina board of directors consulted with Illumina’s management, as well as with its legal and financial advisors, and considered a number of factors, including the following factors which the Illumina board viewed as generally supporting its decision to approve the merger and the merger agreement and recommend the Illumina stockholders vote “FOR” approval of the issuance of Illumina common stock in connection with the merger.

 

Strategic Considerations.  The Illumina board of directors believes the merger will provide a number of significant strategic opportunities and benefits, including the following:

 

 

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:

 

 

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:

 

 

In view of the wide variety of factors considered in connection with its evaluation of the merger and the complexity of these matters, the Illumina board of directors did not find it useful and did not attempt to quantify or assign any relative or specific weights to the various factors that it considered in reaching its determination to approve the merger and the merger agreement and to recommend that Illumina stockholders vote “FOR” the issuance of Illumina common stock in connection with the merger. In addition, individual members of the Illumina board of directors may have given differing weights to different factors. The Illumina board of directors conducted an overall analysis of the factors described above, including thorough discussions with, and questioning of, Illumina’s management and outside legal and financial advisors.

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.

 

In reaching its decision to adopt and approve the merger agreement and recommend approval and adoption of the merger agreement to the Solexa stockholders, the Solexa board of directors consulted with Solexa’s management, as well as with its legal and financial advisors, and considered a number of factors, including the following factors which the Solexa board of directors viewed as generally supporting its decision to approve the merger and the merger agreement and recommend the Solexa stockholders vote “FOR” approval and adoption of the merger agreement.

 

The Solexa board of directors considered the following factors, all of which it viewed as supporting its decision to approve the merger agreement and the merger:

 

 

The Solexa board of directors weighed these advantages and opportunities against a number of other factors identified in its deliberations weighing negatively against the merger, including:

 

 

The 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

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.

 

The Illumina board of directors engaged Merrill Lynch to act as its financial advisor in connection with the proposed merger, and to render an opinion as to whether the exchange ratio pursuant to the merger agreement was fair from a financial point of view to Illumina.

 

On November 10, 2006, Merrill Lynch delivered to the Illumina board of directors its oral opinion, which opinion was subsequently confirmed by delivery of a written opinion, dated November 12, 2006, to the effect that, as of that date and based upon the assumptions made, matters considered and limits of review set forth in its written opinion, the exchange ratio provided in the merger agreement was fair, from a financial point of view, to Illumina. A copy of Merrill Lynch’s written opinion is attached to this joint proxy statement/prospectus as Annex C.

 

Merrill Lynch’s written opinion sets forth the assumptions made, matters considered and limits on the scope of review undertaken by Merrill Lynch. Each holder of Illumina common stock is encouraged to read Merrill Lynch’s opinion in its entirety. Merrill Lynch’s opinion was intended for the use and benefit of the Illumina board of directors, does not address the merits of the underlying decision by Illumina to enter into the merger agreement or any of the transactions contemplated thereby, including the merger, and does not constitute a recommendation to any Illumina stockholder as to how that stockholder should vote on, or take any action with respect to, the merger or any related matter. Merrill Lynch was not asked to address nor does its opinion address the fairness to, or any other consideration of, the holders of any class of securities, creditors or other constituencies of Illumina. Additionally, Merrill Lynch expresses no opinion as to the prices at which the shares of common stock of either Illumina or Solexa will trade following the announcement or consummation of the merger. This summary of Merrill Lynch’s opinion is qualified in its entirety by reference to the full text of the opinion attached to this joint proxy statement/ prospectus as Annex C.

 

In preparing its opinion to the Illumina board of directors, Merrill Lynch performed various financial and comparative analyses, including those described below. The summary set forth below does not purport to be a complete description of the analyses underlying Merrill Lynch’s opinion or the presentation made by Merrill Lynch to the Illumina board of directors. The preparation of a fairness opinion is a complex analytical process involving various determinations as to the most appropriate and relevant methods of financial analysis and the application of those methods to the particular circumstances and, therefore, a fairness opinion is not readily susceptible to partial analysis or summary description. In arriving at its opinion, Merrill Lynch did not attribute any particular weight to any analysis or factor considered by it, but rather made its determination as to fairness on the basis of its experience and professional judgment after considering the results of all of its analyses. Accordingly, Merrill Lynch believes that its analyses must be considered as a whole and that selecting portions of its analyses and factors, or focusing on information presented in tabular format, without considering all of the analyses and factors or the narrative description of the analyses, would create a misleading or incomplete view of the process underlying its opinion.

In arriving at its opinion, Merrill Lynch, among other things:

 

 

In preparing its opinion, Merrill Lynch assumed and relied on the accuracy and completeness of all information supplied or otherwise made available to it, discussed with or reviewed by or for it, or publicly available, and Merrill Lynch did not assume any responsibility for independently verifying such information or undertake an independent evaluation or appraisal of any of the assets or liabilities of Illumina or Solexa and was not furnished with any such evaluation or appraisal, nor did it evaluate the solvency or fair value of Illumina or Solexa, under any state or federal laws relating to bankruptcy, insolvency or similar matters. In addition, Merrill Lynch did not assume any obligation to conduct any physical inspection of the properties or facilities of Illumina or Solexa. With respect to the financial forecast information and the expected synergies furnished to or discussed with Merrill Lynch by Illumina or Solexa, Merrill Lynch assumed that such forecasts were reasonably prepared and reflected the best currently available estimates and judgment of Illumina or Solexa’s management as to the expected future financial performance of Illumina or Solexa, as the case may be, and the expected synergies. Merrill Lynch further assumed that the merger would qualify as a tax-free reorganization for United States federal income tax purposes. Merrill Lynch also assumed that the final form of the merger agreement would be substantially similar to the last draft reviewed by it.

 

Merrill Lynch’s opinion was necessarily based upon market, economic and other conditions as they existed and could be evaluated on, and on the information made available to it as of, the date thereof. Merrill Lynch assumed that in the course of obtaining the necessary regulatory or other consents or approvals (contractual or otherwise) for the merger, no restrictions, including any divestiture requirements or amendments or modifications, would be imposed that would have a material adverse effect on the contemplated benefits of the merger. Merrill Lynch expressed no opinion with respect to the transactions contemplated by the securities purchase agreement, dated as of November 12, 2006, by and between Illumina and Solexa.

 

The following is a summary of the material financial analyses that Merrill Lynch performed in connection with its oral opinion to the Illumina board of directors on November 10, 2006. The financial analyses summarized below include information presented in tabular format. In order to understand fully the financial analyses performed by Merrill Lynch, the tables must be read together with the accompanying text of each summary. The tables alone do not constitute a complete description of the financial analyses, and if viewed in isolation could create a misleading or incomplete view of the financial analyses

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:

 

 

Merrill Lynch reviewed enterprise values, calculated as equity market value, plus total debt, preferred stock and minority investments, less cash and cash equivalents, of the selected companies as multiples of estimated 2008 revenues and estimated 2008 earnings before interest and taxes, which is referred to as EBIT. All multiples were based on closing stock prices on November 9, 2006. Estimated financial data for the selected companies were based on Wall Street research analyst reports. Estimated financial data for Solexa were based on Solexa’s management projections, as adjusted by Illumina’s management, and estimated financial data for Illumina were based on Illumina’s management projections. Merrill Lynch then applied a range of selected revenue multiples for the selected companies to corresponding data of Solexa, and selected revenue multiples and EBIT multiples for the selected companies to the corresponding data of Illumina, to derive implied equity reference ranges for Solexa and Illumina. This analysis indicated an implied equity reference range for Solexa of $13.44 to $15.95 per share, as compared to the closing price of Solexa common stock on November 9, 2006 of $9.44 per share and the implied value of the merger consideration, subject to certain collar provisions, of $14.00 per share. This analysis also indicated implied equity reference ranges for

Illumina of $27.84 to $37.98 per share, based on the selected revenue multiples, and $33.98 to $41.45 per share, based on the selected EBIT multiples, as compared to the closing price of Illumina common stock on November 9, 2006 of $43.42 per share.

 

No company used in the comparable companies analyses described above is identical to Solexa, Illumina, or the pro forma combined company, as the case may be. Accordingly, an analysis of the results of the foregoing necessarily involves complex considerations and judgments concerning financial and operating characteristics and other factors that could affect the merger, public trading or other values of the companies to which they are being compared. Mathematical analyses, such as determining the mean or median, are not of themselves meaningful methods of using comparable companies data.

 

Discounted Cash Flow Analysis — Solexa

 

Merrill Lynch performed a discounted cash flow analysis to derive an implied equity reference range for Solexa. Using Solexa’s management projections, as adjusted by Illumina’s management, Merrill Lynch performed this analysis on a stand-alone basis. The reference range was determined by adding (i) the present value of Solexa’s free cash flows through December 31, 2010 and (ii) the present value of the “terminal value” of Solexa common stock. In calculating the terminal value of Solexa common stock, Merrill Lynch applied multiples ranging from 14.0x to 18.0x to year 2010 forecasted earnings before interest and taxes.

 

The free cash flow stream and terminal value were then discounted back to the present time period using discount rates ranging from 14.0% to 16.0%, which are rates Merrill Lynch viewed as the appropriate range for a company with Solexa’s risk characteristics.

 

This analysis indicated an implied equity reference range for Solexa of $20.73 to $27.57 per share, excluding the expected synergies, and $21.69 to $28.57 per share, including the expected synergies.

 

Discounted Cash Flow Analysis — Illumina

 

Merrill Lynch performed a discounted cash flow analysis to derive an implied equity reference range for Illumina. Using Illumina’s management projections, Merrill Lynch performed this analysis on a stand-alone basis. The reference range was determined by adding (i) the present value of Illumina’s free cash flows through December 31, 2010 and (ii) the present value of the “terminal value” of Illumina common stock. In calculating the terminal value of Illumina common stock, Merrill Lynch applied multiples ranging from 14.0x to 18.0x to year 2010 forecasted earnings before interest and taxes. The free cash flow stream and terminal value were then discounted back to the present time period using discount rates ranging from 11.0% to 13.0%, which are rates Merrill Lynch viewed as the appropriate range for a company with Illumina’s risk characteristics.

 

This analysis indicated an implied equity reference range for Illumina of $37.76 to $49.66 per share.

 

Research Analyst Price Targets

 

Merrill Lynch reviewed the most recent Wall Street research equity analyst per share target prices for Solexa common stock, which ranged from $13.00 to $15.00, as compared to the closing price of Solexa common stock on November 9, 2006 of $9.44 per share and the implied value of the merger consideration, subject to certain collar provisions, of $14.00 per share.

 

Contribution Analysis

 

Merrill Lynch also reviewed the relative contributions of Illumina and Solexa to the pro forma combined company with respect to certain financial and operating measurements. This analysis was based on Illumina’s management projections and Solexa’s management projections, as adjusted by Illumina’s management. Merrill Lynch then compared these contributions to the estimated pro forma implied stock ownership interests of Illumina and Solexa resulting from the merger, based on the exchange ratio and on fully-diluted shares based on stated shares outstanding and options and warrants accounted for under the treasury stock method based on the market price as of November 9, 2006.

The following table indicates what Illumina’s and Solexa’s percentage contributions would have been on a pro forma basis to the combined company in the categories listed.

 

 

Pro Forma Financial Impact

 

Based on an estimated exchange ratio of 0.296 to 0.344 of a share of Illumina common stock for each share of Solexa common stock, Merrill Lynch analyzed the pro forma per share financial impact of the merger on Illumina’s cash earnings per share. This analysis was based on Illumina’s management projections and Solexa’s management projections, as adjusted by Illumina’s management. The analysis assumed pre-tax cost synergies equal to one-third of Solexa’s operating expenses per year, of which 50% were projected to be realized in 2007 and 100% in 2008 and thereafter. This analysis indicated that the proposed merger could be dilutive to Illumina’s stockholders on a cash earnings per share basis in fiscal year 2007 and accretive to Illumina’s stockholders on a cash earnings per share basis in each of the fiscal years 2008, 2009 and 2010.

 

Historical Implied Exchange Ratio Trading Analysis

 

Merrill Lynch reviewed the per share daily closing trading prices for the Illumina common stock and the Solexa common stock for the one-year period ending November 9, 2006. For perspective on the related prices at which Illumina and Solexa common stock have historically traded, Merrill Lynch calculated the historical implied exchange ratios by dividing the daily closing prices of Solexa common stock by those of Illumina common stock. This analysis showed the following implied exchange ratios, compared in each case to the exchange ratio range pursuant to the merger of 0.296 to 0.344 of a share of Illumina common stock for each share of Solexa common stock.

 

 

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:

 

 

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:

 

 

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:

 

 

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:

 

 

General

 

In conducting its analyses and arriving at its opinion, Merrill Lynch utilized a variety of generally accepted valuation methods. The analyses were prepared for the purpose of enabling Merrill Lynch to provide its opinion to the Illumina board of directors as to the fairness, from a financial point view, to Illumina of the exchange ratio pursuant to the merger agreement and do not purport to be appraisals or necessarily to reflect the prices at which businesses or securities actually may be sold, which are inherently subject to uncertainty. In connection with its analyses, Merrill Lynch made, and was provided by the management of each of Solexa and Illumina with, numerous assumptions with respect to industry performance, general business and economic conditions and other matters, many of which are beyond the control of Merrill Lynch, Illumina or Solexa. Analyses based on estimates or forecasts of future results are not necessarily indicative of actual past or future values or results, which may be significantly more or less favorable than suggested by such analyses. Additionally, estimates of the value of businesses or securities do not purport to be appraisals or to reflect the prices at which such businesses or securities might actually be sold. Because such analyses are inherently subject to substantial uncertainty, being based upon numerous factors or events beyond the control of Solexa, Illumina and their respective advisors, neither Illumina nor Merrill Lynch nor any other person assumes responsibility if future results or actual values are materially different from these forecasts or assumptions.

 

In addition, as described above, the Merrill Lynch opinion was among several factors taken into consideration by the Illumina board of directors in making its determination to approve the merger agreement and the merger. Consequently, Merrill Lynch’s analyses should not be viewed as determinative of the decision of the Illumina board of directors with respect to the fairness to Illumina of the exchange ratio pursuant to the merger.

The Illumina board of directors selected Merrill Lynch to render a fairness opinion because Merrill Lynch is an internationally recognized investment banking firm with substantial experience in transactions similar to the merger. As part of its investment banking business, Merrill Lynch is continually engaged in the valuation of businesses and their securities in connection with mergers and acquisitions, leveraged buyouts, negotiated underwritings, secondary distributions of listed and unlisted securities, private placements and valuations for corporate and other purposes.

 

Merrill Lynch acted as financial advisor to Illumina in connection with the merger and will receive a fee from Illumina for its services pursuant to a letter agreement dated as of October 3, 2006. Pursuant to this letter agreement, Illumina has paid Merrill Lynch for its services a fee upon delivery of its opinion, which will be credited against the fee for financial advisory services. This opinion fee is not contingent upon the consummation of the merger. In addition, Illumina has agreed to indemnify Merrill Lynch for certain liabilities arising out of its engagement. Illumina has also agreed to reimburse Merrill Lynch for its reasonable expenses, including attorneys’ fees and disbursements. Merrill Lynch has, in the past, provided financial advisory and financing services to Illumina and/or its affiliates and may continue to do so and has received, and may continue to receive, fees for the rendering of such services including acting as an underwriter in the May 2006 follow-on public offering of Illumina’s common stock.

 

In addition, Merrill Lynch may actively trade the Illumina common stock and other securities of Illumina, as well as the Solexa common stock and other securities of Solexa, for its own account and for the accounts of its customers and, accordingly, Merrill Lynch may at any time hold a long or short position in such securities.

 

Pursuant to a letter agreement, dated October 24, 2006, Solexa retained Lazard to, among other things, render an opinion to the Solexa board of directors as to whether the consideration to be issued to the holders of Solexa common stock in the merger was fair from a financial point of view to the holders of Solexa common stock. On November 12, 2006, Lazard delivered to the Solexa board its oral opinion that, as of that date, the exchange ratio to be determined pursuant to the merger agreement was fair from a financial point of view to the holders of Solexa common stock. Lazard subsequently confirmed its oral opinion by delivering a written opinion, dated November 12, 2006.

 

The full text of the written opinion of Lazard is attached as Annex D to this joint proxy statement/ prospectus and is incorporated herein by reference. You are urged to read the Lazard opinion in its entirety for a description of the procedures followed, assumptions made, matters considered and qualifications and limitations on the review undertaken by Lazard in connection with its opinion. Lazard’s written opinion is directed to the Solexa board and only addresses the fairness of the exchange ratio to the holders of Solexa common stock from a financial point of view as of the date of the opinion. Lazard’s opinion does not address the merits of the underlying decision by Solexa to engage in the merger and does not constitute a recommendation to any stockholder of Solexa as to how the stockholder should vote with respect to the transaction. The following is only a summary of the Lazard opinion and is qualified in its entirety by reference to the full text of the Lazard opinion set forth in Annex D.

 

In connection with its opinion, Lazard, among other things:

 

 

 

Lazard relied upon the accuracy and completeness of the foregoing information. Lazard did not assume any responsibility for any independent verification of such information or any independent valuation or appraisal of any of the assets or liabilities of Solexa or Illumina, or concerning the solvency or fair value of Solexa or Illumina. With respect to financial forecasts, including the synergistic savings and benefits projected by Illumina and Solexa to be realized following the merger and the timing thereof, Lazard assumed that they were reasonably prepared on bases reflecting the best currently available estimates and judgments of management of each of Solexa and Illumina as to the future financial performance of each respective company and as to the performance of the combined company following the merger. Based on direction from the management of Solexa, and with the approval of the Solexa board of directors, in rendering its opinion: (i) for purposes of its analyses of Solexa on a stand-alone basis, Lazard used the Solexa 75% Case and (ii) for purposes of its analyses of Solexa and Illumina as a combined company on a pro forma basis, Lazard used the Solexa 90% Case, based on guidance from Solexa management that their projections were more likely to be achieved if the merger was consummated. Based on direction from the management of Solexa and guidance of management of Illumina, and with the approval of the Solexa board of directors, in rendering its opinion, Lazard relied on financial forecasts for Illumina which are the average of the Illumina Case A forecasts and Illumina Case B forecasts prepared by management of Illumina, referred to as the Illumina Midpoint Case. Lazard assumed no responsibility for and expressed no view as to any such forecasts or the assumptions on which they are based. Lazard noted that the financial forecasts of Illumina’s management do not take into account the possible impact of certain intellectual property litigation between Illumina and Affymetrix, Inc. currently scheduled to go to trial in March 2007, and Lazard did not express any opinion on the impact such litigation may have on the financial results, financial condition or share price of Illumina, or of the combined company after the merger. Lazard further noted that its opinion was not based on any comparable precedent transaction or comparable company analyses, because Lazard did not believe that such analyses are meaningful with respect to Solexa, Illumina or the merger because Solexa has nominal revenues and negative net income, and is projected by its management to grow in the future at a significantly higher rate than other companies in its industry and because Illumina is currently growing and is projected by its management to continue to grow at a significantly higher rate than other companies in its industry.

 

Further, Lazard’s opinion was necessarily based on economic, monetary, market and other conditions as in effect on, and the information made available to Lazard as of, the date of the opinion. Lazard assumed no responsibility for updating or revising its opinion based on circumstances or events occurring after its date.

Lazard did not express any opinion as to the price at which Solexa common stock or the Illumina common stock may trade at any time subsequent to the announcement of the merger, nor did Lazard opine on any aspect of the securities purchase agreement or the transactions contemplated thereby. Lazard did not express any opinion as to any tax or other consequences that might result from the merger, nor did its opinion address any legal, tax, regulatory or accounting matters, as to which Lazard understood that Solexa obtained such advice as it deemed necessary from qualified professionals. In rendering its opinion, Lazard was not authorized to solicit, and did not solicit, third parties regarding alternatives to the merger.

 

In rendering its opinion, Lazard assumed that the merger would be consummated on the terms described in the merger agreement, without any waiver of any material terms or conditions by Solexa. In addition, Lazard assumed that obtaining the necessary regulatory approvals for the merger will not have an adverse effect on Solexa, Illumina or the merger and that the synergistic savings and benefits of the merger will be substantially realized both in scope and timing. In addition, Lazard assumed that (i) the merger will be accounted for as a tax-free “reorganization” within the meaning of Section 368(a) of the Code, (ii) the number of outstanding shares of Solexa common stock and Illumina common stock will not be materially different than as represented in the merger agreement and (iii) the other representations and warranties of Solexa contained in the merger agreement are true and complete.

 

The following is a summary of the material financial and comparative analyses that Lazard deemed to be appropriate for this type of transaction and that were performed by Lazard in connection with providing its opinion to the Solexa board of directors. The summary of Lazard’s analyses described below is not a complete description of the analyses underlying Lazard’s opinion. The preparation of a fairness opinion is a complex analytical process involving various determinations as to the most appropriate and relevant methods of financial analyses and the application of those methods to the particular circumstances and, therefore, is not readily susceptible to summary description. In arriving at its opinion, Lazard considered the results of all the analyses and did not attribute any particular weight to any factor or analysis considered by it; rather, Lazard made its determination as to fairness on the basis of its experience and professional judgment after considering the results of all of the analyses.

 

The evaluation of the results of Lazard’s analyses is not entirely mathematical. Rather, the analyses involve complex considerations and judgments concerning financial and operating characteristics and other factors that could affect the acquisition, public trading or other values of the companies, business segments or transactions analyzed. The estimates contained in Lazard’s analyses and the ranges of valuations resulting from any particular analysis are not necessarily indicative of actual values or predictive of future results or values, which may be significantly more or less favorable than those suggested by the analyses. In addition, analyses relating to the value of businesses or securities do not purport to be appraisals or to reflect the prices at which businesses or securities actually may be sold. Accordingly, the estimates used in, and the results derived from, Lazard’s analyses are inherently subject to substantial uncertainty.

 

The financial analyses summarized below include information presented in tabular format. In order to understand fully Lazard’s financial analyses, the tables must be read together with the text of each summary. The tables alone are not a complete description of the financial analyses. Considering the tables alone without considering the full narrative description of the financial analyses, including the methodology and assumptions underlying the analyses, could create a misleading or incomplete view of Lazard’s financial analyses.

 

Transaction Overview

 

Lazard reviewed with the Solexa board of directors the basic structure of the transaction as described to Lazard by Solexa management, including the following:

 

 

 

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:

 

 

Description of Analyses of Solexa

 

Discounted Cash Flow Analysis.  Using the Solexa 75% Case, Lazard performed an analysis of the net present value of (i) projected operating free cash flows for 2006 to 2010 plus (ii) the terminal value of Solexa at the end of such period. The terminal value of Solexa was calculated based on projected net income for 2010 and a range of multiples of 20.0x to 30.0x. The cash flows and terminal value were then discounted using discount rates ranging from 13% to 17%. This calculation is referred to as the Solexa DCF. The assumed discount rate range was derived from the weighted average cost of capital analysis that Lazard calculated for Solexa. Based on this analysis, Lazard arrived at an implied value per share range for Solexa of $8.42 to $13.13 per share. Lazard noted that this range is below the implied per share merger consideration of $14.00.

 

Premia Paid Analysis.  Lazard also performed a premia paid analysis, which is designed to provide a valuation of Solexa based on the premia paid in selected precedent life sciences tools transactions for which the trading price of the target company was available. Lazard’s analysis was based on the one-day, one-week and one-month implied premia of such transactions. The implied premia in this analysis were calculated comparing the transaction price prior to the announcement of the transaction to the target company’s stock price one day, one week and one month prior to the announcement of the transaction. The results of these calculations are as follows:

 

 

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.

Description of Analysis of Illumina

 

Discounted Cash Flow Analysis.  Using the Illumina Midpoint Case, Lazard performed an analysis of the net present value of (i) projected operating free cash flows for 2006 to 2010 plus (ii) the terminal value of Illumina at the end of such period. The terminal value of Illumina was calculated based on projected net income for 2010 and a range of multiples of 20.0x to 30.0x. The cash flows and terminal value were then discounted using discount ranging from 10% to 12%. This calculation is referred to as the Illumina DCF. The assumed discount rate range was derived from the weighted average cost of capital analysis that Lazard calculated for Illumina. Based on this analysis, Lazard arrived at an implied value per share range for Illumina of $27.84 to $39.99 per share. Lazard noted that this range is below the Illumina 5-day average price.

 

Description of Exchange Ratio and Contribution Analyses

 

Exchange Ratio Analysis.  In order to provide background information and perspective on the relationship between Solexa and Illumina common stock, Lazard reviewed:

 

 

The review indicated a range of exchange ratios from 0.1914x to 0.4718x, compared to the implied exchange ratio in the merger of 0.3812x.

 

Pro Forma “Has-Gets” Analysis.  Lazard compared Solexa’s earnings before interest and taxes, referred to as EBIT, as estimated in the Solexa 75% Case for the calendar years 2009 and 2010 to Illumina’s EBIT as estimated in the Illumina Midpoint Case for the calendar years 2009 and 2010. Based on this analysis, in 2009, Illumina would contribute 78% of the projected EBIT, compared to 22% contributed by Solexa. In 2010, Illumina would contribute 75% of the projected EBIT, compared to 25% contributed by Solexa. The implied exchange ratio between Illumina and Solexa would be 0.3516 in 2009 and 0.4073 in 2010, in each case based on the Illumina 5-day average price. Lazard noted that in 2007 and 2008, Solexa would contribute 0% of the EBIT of the combined company in all cases, so a calculation of an implied exchange ratio for those periods would not be meaningful. The actual results achieved by the combined company may vary from projected results and the variations may be material.

 

Description of Pro Forma Financial Analysis

 

Pro Forma Discounted Cash Flow Analysis.  Lazard performed a discounted cash flow analysis on the combined company in order to derive implied per share equity values for Solexa’s share of the combined company. For Solexa, Lazard used the Solexa 90% Case for fiscal years 2006 through 2010. For Illumina, Lazard used the Illumina Midpoint Case for fiscal years 2006 through 2010. Lazard analyzed this information using revenue and cost synergies provided by Solexa’s management with respect to Solexa as part of the combined company and revenue synergies provided by Illumina’s management with respect to Illumina as part of the combined company, referred to as Full Synergies. Lazard also analyzed this information using cost, but not revenue, synergies provided by Solexa’s management with respect to Solexa as part of the combined company and revenue synergies provided by Illumina’s management with respect to Illumina as part of the combined company, referred to as Partial Synergies. Using this information, Lazard performed an analysis of the net present value of (i) projected operating free cash flows for 2006 to 2010 plus (ii) the terminal value of the combined company at the end of such period. The terminal value of the combined company was calculated based on pro forma projected net income for 2010 and a range of multiples of 20.0x to 30.0x. The cash flows and terminal value were then discounted at rates ranging from 10.0% to 12.0%. This analysis indicated implied equity values per Solexa share of the combined company (based on the implied exchange ratio in the merger agreement of 0.3182x) ranging from $12.94 to $17.99 when using Full Synergies and ranging from $10.87 to $15.42 when using Partial Synergies. Lazard compared these ranges to the implied equity value derived from the standalone Solexa DCF analysis ranging from $8.42 to $13.13.

Miscellaneous

 

Lazard’s opinion and financial analyses were not the only factors considered by the Solexa board of directors in its evaluation of the merger and should not be viewed as determinative of the views of the Solexa board of directors or management. For a description of the other factors considered by the Solexa board of directors, see the section entitled “The Merger — Solexa’s Reasons for the Merger; Recommendation of the Merger by the Solexa Board of Directors.” Lazard has consented to the inclusion of and references to its opinion in this document.

 

Under the terms of the engagement letter, Solexa has agreed to pay Lazard a customary transaction fee, a majority of which is payable upon completion of the merger. In addition, in the ordinary course of their respective businesses, affiliates of Lazard and LFCM Holdings LLC (an entity indirectly owned in large part by managing directors of Lazard) may actively trade securities of Solexa or Illumina for their own accounts and for the accounts of their customers and, accordingly, may at any time hold a long or short position in such securities.

 

Lazard is an internationally recognized investment banking firm and is continually engaged in the valuation of businesses and their securities in connection with mergers and acquisitions, negotiated underwritings, secondary distributions of listed and unlisted securities, private placements, leveraged buyouts, and valuations for real estate, corporate and other purposes. Lazard was selected to act as investment banker to Solexa because of its expertise and its reputation in investment banking and mergers and acquisitions.

 

In considering the recommendation of the Solexa board of directors with respect to adopting the merger agreement, Solexa stockholders should be aware that certain members of the board of directors and executive officers of Solexa have interests in the merger that are different from, or in addition to, their interests as Solexa stockholders. These interests may create a conflict of interest or the appearance of a conflict of interest. The Solexa board of directors was aware of these potential conflicts of interest during its deliberations on the merits of the merger and in making its decision in approving the merger, the merger agreement and the related transactions.

 

Combined Company Board of Directors

 

The merger agreement provides that the Illumina board of directors shall be increased from eight to ten members and two individuals selected by the Illumina board of directors and agreed to by Solexa shall be appointed as independent directors of Illumina.

 

Combined Company Management

 

Following the merger, Mr. West, Chief Executive Officer of Solexa, will serve as Senior Vice President and General Manager of the Sequencing Business Unit of the combined company.

 

Employment and Other Agreements

 

Solexa has entered into the following employment and other agreements with executive officers of Solexa:

 

John West Executive Employment Agreement, as Amended

 

Solexa entered into an executive employment agreement with Mr. West in June 2005. Under the terms of his employment agreement, if (i) Mr. West’s employment is terminated without cause by Solexa or (ii) Mr. West resigns with good reason, he will be entitled to receive a lump sum severance payment equal to 12 months of his final base salary, reimbursement of the cost of continued health insurance coverage for himself and his eligible dependents for 12 months, and one year acceleration of the vesting and exercisability of any outstanding stock options granted to him (except to the extent such options are accelerated in connection with a change in control). If Mr. West’s employment is terminated without cause or he resigns for good reason

within six months prior to, or 12 months following, a change in control, he will be entitled to receive a lump sum severance payment equal to 12 months of his final base salary, reimbursement of the cost of continued health insurance coverage for himself and his eligible dependents for 12 months and two years acceleration of the vesting and exercisability of any outstanding stock options granted to him. As of December 15, 2006, Mr. West holds options covering 909,253 shares of Solexa common stock, of which 530,397 are vested. The merger will constitute a change in control for purposes of the employment agreement. The estimated cash severance payment payable to Mr. West if he is terminated without cause or resigns for good reason within six months prior to or 12 months following the merger (assuming his current base salary and healthcare coverage remain the same) would be approximately $382,651.

 

Mr. West’s Change in Control Bonus.  On May 19, 2006, Solexa entered into an amendment agreement amending Section (d) of Exhibit B to Mr. West’s employment agreement, to provide that he is eligible to receive one of two alternative one-time bonuses in the event of a market capitalization achievement by Solexa or change in control of Solexa, subject to the terms and conditions described therein, in lieu of the potential change in control bonus previously set forth in that section.

 

In the event of a change in control of Solexa, Mr. West shall be eligible to receive a bonus equivalent to 1% of the amount by which the consideration received by Solexa stockholders as a direct result of the change in control exceeds the sum of $150,000,000 plus the aggregate gross proceeds received by Solexa through sales of equity securities after the effective date of Mr. West’s employment amendment. The merger will constitute a change in control for this purpose. The change in control bonus will be provided to Mr. West in the same form as the consideration received by Solexa stockholders as a direct result of the change in control, provided that, Solexa may in its sole discretion elect to substitute cash for all or any portion of the securities or other non-cash consideration that would otherwise be payable based on the value thereof established in the change in control.

 

Peter Lundberg Letter Agreement

 

On May 19, 2006, Solexa entered into a letter agreement with Peter Lundberg, Solexa’s Vice President and Chief Technical Officer providing that he is entitled to receive a one-time alternative bonus on substantially the same terms and conditions as the market capitalization bonus and change in control bonus provided to Mr. West as described above, provided that Mr. Lundberg would be entitled to receive 0.25% of the amount by which the consideration received by Solexa’s stockholders as a direct result of the change in control exceeds the sum of $150,000,000 plus the aggregate gross proceeds received by Solexa through sales of equity securities after the effective date of the letter agreements under the change in control bonus. The merger will constitute a change in control for this purpose.

 

Linda Rubinstein Employment Agreement and Letter Agreement

 

On March 23, 2005, Solexa entered into an employment agreement with Linda Rubinstein, Solexa’s Vice President, Secretary and Chief Financial Officer. Under the agreement, if (i) Ms. Rubinstein’s employment is terminated without cause by Solexa, (ii) Ms. Rubinstein resigns with good reason, (iii) Ms. Rubinstein’s employment is terminated without cause by Solexa or any successor to or acquiring entity of Solexa within 30 days prior to, upon or within 12 months after an asset sale, merger, consolidation, or reverse merger or (iv) Ms. Rubinstein resigns for good reason within 30 days prior to, upon or within 12 months after an asset sale, merger, consolidation or reverse merger of Solexa, she will be eligible to receive severance compensation of between four and a half to six months of her final base salary, 100% of her target bonus, prorated to the percent of the year completed, and two years acceleration of the vesting and exercisability of any outstanding stock options granted to her. As of December 15, 2006, Ms. Rubinstein holds options covering 158,813 shares of Solexa common stock, none of which are vested. The merger will constitute a change in control for purposes of the employment agreement. The estimated cash severance payment payable to Ms. Rubinstein if she is terminated without cause or resigns for good reason within 30 days prior to, upon or within 12 months following the merger (assuming her current base salary and target bonus remain the same) would be between approximately $176,647 and $209,360, depending on how many months of her final base salary she is ultimately granted in connection with the termination of her employment.

On May 19, 2006, Solexa entered into a letter agreement with Linda Rubinstein providing substantially the same change in control bonus terms to Ms. Rubinstein as were provided to Mr. Lundberg under Mr. Lundberg’s letter agreement described above.

 

Tony Smith, Ph.D., Letter Agreement

 

On May 22, 2006, Solexa Limited entered into a letter agreement with Dr. Smith, Solexa’s Vice President and Chief Scientific Officer, providing substantially the same change in control bonus terms to him as were provided to Mr. Lundberg under Mr. Lundberg’s letter agreement described above.

 

Omead Ostadan Letter Agreement

 

On May 19, 2006, Solexa entered into a letter agreement with Omead Ostadan, Solexa’s Vice President of Marketing, providing substantially the same change in control bonus terms to him as were provided to Mr. Lundberg under Mr. Lundberg’s letter agreement described above.

 

Summary of Change in Control Bonuses

 

The following is an estimate of the above summarized change in control bonuses payable to certain executive officers in connection with the proposed merger, assuming for illustrative purposes only, among other things, that the value of the merger consideration will be $14.00 on a per share basis and that the merger consideration subject to the change in control bonuses will be approximately $426,632,587. The merger consideration subject to the change in control bonuses represents that portion of the total transaction value, assumed to be $618,072,952, that exceeds the $150,000,000 threshold, net of assumed warrant proceeds of approximately $41,440,365 which are not subject to the change in control bonuses. The assumed transaction value is further based upon approximately 44,148,068 shares of Solexa common stock expected to be outstanding at the closing of the merger. This number of shares outstanding represents 37,562,454 shares of Solexa common stock outstanding as of December 15, 2006 (excluding 5,154,639 shares held by Illumina), plus the assumed exercise of in-the-money warrants covering an additional 6,585,614 shares of Solexa common stock.

 

 

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.

Lock-Up Agreement

 

Shares of Illumina common stock issued in connection with the merger to Mr. West will be subject to a lock-up agreement to be entered into by Mr. West in accordance with the provisions of the merger agreement for a period of six months following the closing date of the merger and subject to certain exceptions. Under the terms of the lock-up agreement, for a six-month period beginning on the closing of the merger, Mr. West will not offer, pledge, sell, contract to sell and option or contract to purchase, purchase any option or contract to sell, grant any option, right or warrant for the sale of, make any short sale or otherwise dispose of or transfer any shares of Illumina common stock, or enter into any swap or any other agreement or transaction that transfers the economic consequences of ownership of Illumina common stock held by Mr. West. The lock-up agreement will permit Mr. West to exercise options, sell or otherwise dispose of up to 25% of Illumina common stock held by Mr. West during each three month period of the lock-up agreement, and make other dispositions pursuant to a gift, by will or intestacy or to a trust, the beneficiaries of which are Mr. West or members of his family.

 

Director Affiliations with Certain Stockholders

 

G. Mason Morfit, a member of the Solexa board of directors, is a non-managing member of VA Partners, LLC, which is the general partner of ValueAct Capital Master Fund, L.P., a stockholder of Solexa. Hermann Hauser, a member of the Solexa board of directors, is a director of Amadeus Capital Partners Limited and shares the power to vote and control the disposition of shares held by Amadeus II A LP, Amadeus II B LP, Amadeus II C LP, Amadeus II D GmbH & Co KG and Amadeus II Affiliates Fund LP, each of which holds Solexa common stock and warrants to purchase shares of Solexa common stock.

 

Indemnification and Insurance

 

The merger agreement provides that Solexa shall indemnify, defend and hold harmless, and advance expenses to the individuals who at or prior to the effective time of the merger were directors or officers of Solexa or any of its subsidiaries, for all acts and omissions by them in their capacities as such any time prior to the effective time of the merger, to the fullest extent required by: (i) the certificate of incorporation or bylaws (or comparable charter or organizational documents) of Solexa or any of its subsidiaries as in effect on November 12, 2006; and (ii) indemnification agreements between Solexa and its officers and directors disclosed to Illumina or, with respect to persons who become directors or officers of Solexa or any of its subsidiaries after November 12, 2006 and prior to the closing of the merger, which is entered into and disclosed to Illumina after November 12, 2006 and which is in the form and substance of the agreements that have been disclosed to Illumina at or prior to November 12, 2006. In addition, the merger agreement provides that for a period of six years after the merger, Illumina shall provide directors’ and officers’ liability insurance covering acts or omissions occurring prior to the effective time of the merger with respect to those indemnitees who are covered by Solexa’s directors’ and officers’ liability insurance policies as of the closing of the merger on terms with respect to such coverage and amount no less favorable in the aggregate than Solexa’s current directors’ and officers’ liability insurance policies. If the aggregate annual premiums for such insurance at any time during such period shall exceed 200% of the per annum rate of premium paid by Solexa as of November 12, 2006, then Illumina shall provide only such coverage as shall then be available at an annual premium equal to 200% of such rate.

 

Compensation of Member of the Solexa Strategic Committee

 

Blaine Bowman, a member of the Solexa board of directors, has been paid an aggregate of $10,000 in connection with additional work performed by him as a member of the Solexa Strategic Committee, which is a special committee of the Solexa board of directors formed for the purpose of monitoring and advising on the proposed merger.

Proposed Collaboration Agreement between Solexa and Illumina

 

Solexa and Illumina are contemplating certain collaborations or other arrangements under which Illumina, on a limited basis, may assist in the marketing of Solexa products or provide field support to Solexa customers in certain locations, or both. Solexa and Illumina also have formalized other collaboration arrangements to investigate the feasibility of new products that the companies may develop once combined, and such arrangements involve, among other things, an agreement relating to the transfer of certain research materials, the allocation of intellectual property rights and related obligations and confidentiality obligations between the companies.

 

Securities Purchase Agreement

 

On November 13, 2006, Illumina purchased 5,154,639 newly issued shares of Solexa common stock for a purchase price of $9.70 per share pursuant to the securities purchase agreement, dated November 12, 2006, between Solexa and Illumina. The shares of Solexa common stock acquired by Illumina represent approximately 12.3% of the issued and outstanding shares of Solexa common stock as of November 13, 2006, after giving effect to the issuance. Illumina entered into the securities purchase agreement with Solexa as part of the transactions contemplated by the merger agreement and to provide Solexa with financing sufficient to meet Solexa’s expected working capital requirements if, for any reason, the merger is not consummated.

 

The securities purchase agreement contains customary representations, warranties and covenants. In addition, the securities purchase agreement provides Illumina with certain registration rights and put rights, and restricts Illumina’s ability to vote or transfer its shares of Solexa common stock under specified circumstances. The securities purchase agreement is attached as Annex B to this document and is incorporated by reference herein.

 

Registration Rights

 

In the event that the merger agreement is terminated, Solexa has agreed to, among other things:

 

 

In the event that Solexa elects to file a registration statement under the Securities Act pertaining to an underwritten public offering of Solexa common stock, then Solexa is obligated to notify Illumina ten days prior to the filing and afford Illumina the opportunity to include its shares of Solexa common stock in that offering. If, in the course of the offering, Solexa’s underwriter determines in good faith that the market conditions require a limitation on the number of shares to be underwritten, then the number of shares to be underwritten will be first allocated to Solexa and then to Illumina and lastly to any other Solexa stockholders participating in the underwriting; provided that, in any event, Illumina will be entitled to include in such offering an amount of its Solexa common stock equal to no less than 25% of the total number of shares of Solexa common stock constituting such offering. This piggyback registration right will terminate on the earlier of (i) the date that Illumina’s shares of Solexa common stock constitute less than 2.5% of the outstanding shares of Solexa common stock and (ii) two years from the date that the registration statement registering Illumina’s shares of Solexa common stock is declared effective.

Transfer Restrictions

 

The securities purchase agreement contains restrictions on Illumina’s ability to transfer and vote the shares of Solexa common stock acquired pursuant to the agreement.

 

In the event the merger agreement is terminated, Illumina may not effect a Disposition, meaning Illumina cannot sell, offer to sell, solicit offers to buy, loan, pledge or dispose of any of its shares of Solexa common stock acquired under the securities purchase agreement, or effect any Short Sale, meaning Illumina cannot effect any hedging, short sale or other transaction that is designed or would reasonably be expected to lead to or result in a Disposition, in each case, for a period of six months following termination of the merger agreement. This six-month period is referred as the Primary Lock-Up Period.

 

Further, Illumina may not effect Dispositions or Short Sales of more than one-third of the aggregate number of its shares of Solexa common stock, in each of the three-month periods during the period beginning six months following termination of the merger agreement and ending 15 months following termination of the merger agreement. This nine-month period is referred to as the Secondary Lock-Up Period. However, the securities purchase agreement permits Illumina to effect one block sale of all or a portion of its shares of Solexa common stock in a single trade at any time beginning with the date that the registration statement covering Illumina’s shares of Solexa common stock becomes effective and ending with the later of (i) three months after the termination of the merger agreement, (ii) ten days after the date the registration statement filed by Solexa on behalf of Illumina becomes effective and (iii) seven months after November 13, 2006, which, in the case of clause (iii), results in a one-month extension of the Primary Lock-Up Period and the Secondary Lock-Up Period.

 

Voting Restrictions

 

Illumina is obligated to cause its shares of Solexa common stock to be voted proportionally with the balance of votes cast during any meeting to approve the proposed merger and all related transactions and matters. Also, starting with the first stockholder vote or written consent after termination of the merger agreement, Illumina is required to cause its shares of Solexa common stock to be voted, at Illumina’s option, either in accordance with the recommendation of the Solexa board of directors or proportionally with the balance of the votes cast at any such meeting. This voting requirement will continue until the earlier of (i) the fifth anniversary of the termination of the merger agreement or (ii) Illumina being a beneficial holder of less than 5% of the then outstanding Solexa common stock.

 

Illumina’s Put Right

 

In the event of a termination of the merger agreement and the consummation of a takeover transaction with a third party by Solexa under certain circumstances that require Solexa to pay a termination fee, as described below, Illumina will have the right to cause Solexa to repurchase Illumina’s shares of Solexa common stock at a purchase price of $9.70 per share, subject to the consummation of the takeover transaction.

 

A takeover transaction, as used in the securities purchase agreement, generally means any of the transactions described below which is either consummated or with respect to which a definitive agreement is entered into within the nine-month period following the termination of the merger agreement:

 

 

Following the merger, the board of directors of the combined company will consist of ten members, including two new independent directors to be selected by the Illumina board of directors and agreed to by Solexa, consistent with the policies of Illumina’s nominating/ corporate governance committee. The board will include Daniel M. Bradbury, Karin Eastham, Paul Grint, William H. Rastetter, Ph.D., Jack Goldstein, Ph.D., Mr. Flatley, David R. Walt, Ph.D., John R. Stuelpnagel, D.V.M., and two additional independent directors as selected by the Illumina board of directors and agreed to by Solexa.

 

Following the merger, Mr. Flatley will serve as President and Chief Executive Officer, and Mr. West will serve as Senior Vice President and General Manager of the Sequencing Business Unit of the combined company.

 

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:

 

 

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

and as to which one or more United States persons, as defined in Section 7701(a)(30) of the Code, have the authority to control all substantial decisions or (y) that has a valid election in effect under applicable United States Treasury regulations to be treated as a United States person under the Code.

 

If an entity treated as a partnership for United States federal income tax purposes holds Solexa common stock, the tax treatment of a person holding interests in such entity generally will depend upon the status of that person and the activities of that entity. Such entities and persons holding interests in such entities should consult a tax advisor regarding the tax consequences of the merger.

 

The following discussion is based on the Code, applicable Treasury regulations, administrative interpretations and court decisions, each as in effect as of the date of this document and all of which are subject to change, possibly with retroactive effect. Any such change could materially alter the tax consequences described herein. This discussion does not purport to be a comprehensive analysis or description of all potential United States federal income tax consequences of the proposed transaction. It is not binding on the Internal Revenue Service, which we refer to as the IRS, and there can be no assurance that the IRS (or a court, in the event of an IRS challenge) will agree with the conclusions stated herein.

 

Solexa stockholders are urged to consult their tax advisors as to the specific tax consequences to them of the merger in light of their particular circumstances, including the applicability and effect of United States federal, state, local and foreign income and other tax laws.

 

Illumina’s obligation to complete the merger is conditioned upon its receipt from Dewey Ballantine LLP of a tax opinion, dated as of the effective date of the merger, in form and substance reasonably satisfactory to Illumina, to the effect that the merger will qualify as a “reorganization” within the meaning of Section 368(a) of the Code; provided that if Illumina has not received such an opinion from Dewey Ballantine LLP, but Cooley Godward Kronish LLP is willing to provide such an opinion to Illumina, this condition will be deemed satisfied by the receipt of the Cooley Godward Kronish LLP opinion. Solexa’s obligation to complete the merger is conditioned upon its receipt from Cooley Godward Kronish LLP, of a tax opinion, dated as of the effective date of the merger, in form and substance reasonably satisfactory to Solexa, to the effect that the merger will qualify as a “reorganization” within the meaning of Section 368(a) of the Code; provided that if Solexa has not received such an opinion from Cooley Godward Kronish LLP, but Dewey Ballantine LLP is willing to provide such an opinion to Solexa, this condition will be deemed satisfied by the receipt of the Dewey Ballantine LLP opinion. Neither Illumina nor Solexa intends to waive this closing condition. However, in the event that either Illumina or Solexa does so, Illumina and Solexa will resolicit the approval of their stockholders after providing appropriate disclosure.

 

The opinions to be provided by Dewey Ballantine LLP and Cooley Godward Kronish LLP will be based on factual representations and covenants made by Illumina and Solexa (including those contained in tax representation letters to be provided by Illumina and Solexa) and on certain facts and customary assumptions set forth in the opinions. These tax opinions will not be binding on the IRS or any court and will not preclude the IRS from asserting, or a court from sustaining, a contrary conclusion. No rulings have been or will be obtained from the IRS with respect to any of the matters discussed herein.

 

Assuming the merger qualifies as a “reorganization” within the meaning of Section 368(a) of the Code:

 

 

 

Illumina prepares its financial statements in accordance with generally accepted accounting principles in the United States, or U.S. GAAP. The merger will be accounted for using the purchase method of accounting. This means that Illumina will allocate the purchase price to the fair value of Solexa’s assets and liabilities at the acquisition date, with the excess purchase price being recorded as goodwill. Under the purchase method of accounting, goodwill is not amortized but is tested for impairment at least annually.

 

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

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.

 

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.

 

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.

 

Shares of Illumina common stock issued in connection with the merger to Mr. West will be subject to a lock-up agreement to be entered into by Mr. West in accordance with the provisions of the merger agreement for a period of six months following the closing date of the merger and subject to certain exceptions. For a summary of the lock-up agreement to be entered into between Mr. West and Illumina, see the section entitled “Interests of Solexa’s Directors and Officers in the Merger; Relationship between Illumina and Solexa.”

 

In addition, shares of Illumina common stock issued to any Solexa stockholder who may be deemed to be an “affiliate” of Illumina or Solexa for purposes of Rule 145 under the Securities Act may be subject to the following restrictions.

 

Under Rule 145, former Solexa stockholders who were affiliates of Solexa at the time of the Solexa special meeting and who are not affiliates of Illumina after the completion of the merger, may sell their Illumina common stock received in the merger at any time subject to the volume and sale limitations of Rule 144 under the Securities Act. Further, so long as such former Solexa affiliates are not considered

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.

 

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.

 

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.”

 

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.

 

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 Each Party’s Obligation to Effect the Merger.  The respective obligations of Solexa and Illumina to effect the merger are subject to the satisfaction or waiver of the following conditions:

 

 

 

Conditions to Illumina’s Obligation to Effect the Merger.  The obligation of Illumina to effect the merger is subject to the satisfaction of the following additional conditions, any one or more of which may be waived, in writing, by Illumina:

 

 

 

 

The 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:

 

 

 

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:

 

 

In addition, Solexa is obligated to provide Illumina with 48 hours prior written notice (or such shorter notice as is given to Solexa’s board of directors) of any meeting of its board of directors at which its board of directors is reasonably expected to consider any takeover proposal.

 

Neither the Solexa board of directors nor any committee thereof shall:

 

 

 

 

However, Solexa may make an adverse recommendation change after the second business day following Illumina’s receipt of written notice from Solexa advising Illumina that the Solexa board of directors intends to take such action in response to a superior proposal or a material change in circumstances after the date of the merger agreement, if the Solexa board of directors (or a committee thereof) determines that it is required to do so in order to comply with its fiduciary duties to the Solexa stockholders. During such two business days, Solexa is obligated to negotiate in good faith with Illumina to make adjustments to the terms and conditions of the merger agreement as would enable Solexa to proceed with its recommendation of the proposed merger and not make an adverse recommendation change.

A “takeover proposal” is defined in the merger agreement as any inquiry, proposal or offer from any person or group relating to:

 

 

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:

 

 

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:

 

 

 

 

 

 

 

 

 

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:

 

 

 

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:

 

 

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:

 

 

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:

 

 

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):

 

 

 

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):

 

 

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.

 

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:

 

 

 

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:

 

 

In addition, Solexa has made representations and warranties related to, among other topics, the following:

 

 

 

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.”

 

Illumina has agreed to provide employees of Solexa and its subsidiaries, for a period of at least one year following the effective time of the merger, with benefits which are comparable in the aggregate to those provided to similarly situated employees of Illumina. Notwithstanding the foregoing, the participation of the employees of Solexa or its subsidiaries in any of Illumina’s option or similar equity grant or purchase programs or plans shall be subject to the eligibility requirements of such programs or plans. In connection with any employee benefit plans or arrangements maintained by Illumina, Solexa employees will be given credit for service with Solexa and its subsidiaries, to the same extent such service was credited for such purposes by Solexa and its subsidiaries, under: (i) all employee benefit plans, programs, policies and fringe benefits to be provided to Solexa employees for purposes of eligibility and vesting (but not benefit accrual); (ii) severance plans, programs and policies to be provided to such employees for purposes of calculating severance benefits; and (iii) vacation and sick leave plans, programs and policies for purposes of calculating vacation and sick leave.

 

In connection with the merger, Illumina will waive all limitations on preexisting conditions or eligibility limitations with respect to participation and coverage requirements applicable to the Solexa employees under any welfare benefit plans, programs or policies maintained by Illumina in which the employees may be eligible to participate. Illumina has also agreed to provide each Solexa employee with credit for any co-payments and deductibles paid under any Solexa benefit plan that provides healthcare benefits in the plan year in effect as of the effective time of the merger in satisfying any applicable deductible or out-of-pocket expenses under any healthcare plans of Illumina.

 

No provision in the employee benefits covenant of the agreement shall impede Solexa or Illumina from terminating any employee at any time for any reason, subject to applicable laws and contracts. Furthermore, no third party beneficiary rights in any Solexa employee are created.

 

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.

 

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. develops and commercializes genetic analysis technologies. Solexa’s platform is expected to support many types of genetic analyses, including whole genome resequencing, gene expression analysis and small RNA analysis. Solexa believes that this technology, which can potentially generate over a billion bases of DNA sequence from a single experiment with a single sample preparation, will dramatically reduce the cost, and improve the practicality, of human resequencing relative to conventional technologies. Solexa commenced commercial shipment of its first-generation genetic analysis system, which includes the 1G Genome Analyzer, in the second quarter of 2006. Solexa’s longer-term goal is to further reduce the cost of human resequencing to a few thousand dollars for use in a wide range of applications from basic research through clinical diagnostics.

 

Solexa, a Delaware corporation, was founded in 1992 in Hayward, California, as Lynx Therapeutics, Inc. The name of the company was changed from Lynx Therapeutics, Inc. to Solexa, Inc. on March 7, 2005 following the business combination of Lynx Therapeutics, Inc. and Solexa Limited, a privately held company registered in England and Wales. Solexa Limited became a wholly-owned subsidiary of Lynx as a result of the transaction and Lynx Therapeutics, Inc. changed its name to “Solexa, Inc.” Solexa began trading on the Nasdaq SmallCap Market under the symbol “SLXA” in March 2005 and was listed under the symbol “LYNX” prior to that time. In February 2006, Solexa’s listing was transferred to NASDAQ.

 

Additional information about Solexa and its subsidiaries is included in documents incorporated by reference into this document. See the section entitled “Where You Can Find More Information.”

 

The principal executive office of Solexa is located at 25861 Industrial Boulevard, Hayward, California, 94545.

 

The unaudited pro forma combined condensed statements of operations for the nine months ended October 1, 2006 and the year ended January 1, 2006, and the unaudited pro forma combined condensed balance sheet as of October 1, 2006, are presented herein. Illumina’s fiscal year consists of 52 or 53 weeks ending the Sunday closest to December 31, with quarters of 13 or 14 weeks ending the Sunday closest to March 31, June 30, and September 30. The unaudited pro forma combined condensed statements of operations for the nine months ended October 1, 2006 and the year ended January 1, 2006 combine the historical results of Illumina and Solexa and give effect to the merger as if it had occurred on January 3, 2005. The unaudited pro forma combined condensed statement of operations for the year ended January 1, 2006 also gives effect to Illumina’s April 2005 acquisition of CyVera Corporation, which we refer to as CyVera, as if it had occurred on January 3, 2005. The unaudited pro forma combined condensed balance sheet combines the unaudited condensed balance sheets of Illumina and Solexa and gives effect to the merger as if it had been completed on October 1, 2006.

 

The unaudited pro forma combined condensed financial statements presented are based on the assumptions and adjustments described in the accompanying notes. The unaudited pro forma combined condensed financial statements are presented for illustrative purposes and do not purport to represent what the financial position or results of operations would actually have been if the merger occurred as of the dates indicated or what such financial position or results would be for any future periods. The unaudited pro forma combined condensed financial statements are based upon the respective historical consolidated financial statements of Illumina and Solexa, and should be read in conjunction with:

 

 

The unaudited pro forma combined condensed financial information was prepared using the purchase method of accounting. Based upon the terms of the merger and other factors, such as the composition of the combined company’s board and senior management, Illumina is treated as the acquiror of Solexa for both legal and accounting purposes. Accordingly, we have adjusted the historical consolidated financial information to give effect to the impact of the consideration issued in connection with the merger.

 

The unaudited pro forma combined condensed statements of operations include certain purchase accounting adjustments, including items expected to have a continuing impact on the combined results. The unaudited pro forma combined condensed statements of operations do not include the impact of any revenue, cost or other operating synergies that may result from the merger or any related restructuring costs. Cost savings, if achieved, could result from elimination of redundant spending such as public company costs, headcount and consolidated material sourcing.

 

In the unaudited pro forma combined condensed balance sheet, Illumina’s cost to acquire Solexa has been allocated to the assets acquired and liabilities assumed based upon management’s preliminary estimate of their respective fair values as of the date of the merger. Any differences between fair value of the consideration

issued and the fair value of the assets and liabilities acquired will be recorded as goodwill. The amounts allocated to acquired assets and liabilities in the unaudited pro forma combined condensed financial statements are based on management’s preliminary internal valuation estimates. Definitive allocations will be performed and finalized after the closing of the merger. Accordingly, the preliminary purchase price allocation adjustments reflected in the following unaudited pro forma combined condensed financial statements are preliminary, have been made solely for the purpose of preparing these statements and are subject to revision based on a final determination of fair values after the closing of the merger.

 

The unaudited pro forma combined condensed financial statements do not reflect the impact of financing, liquidity or other balance sheet repositioning that may be undertaken in connection with or subsequent to the merger. For example, on November 12, 2006, Illumina entered into a definitive securities purchase agreement with Solexa in which Illumina agreed to invest approximately $50 million in Solexa in exchange for newly issued shares of Solexa common stock. The purchase by Illumina of shares of Solexa common stock as contemplated by the securities purchase agreement was completed on November 13, 2006. Pursuant to the terms of the securities purchase agreement, Illumina agreed to purchase 5,154,639 newly issued shares of Solexa common stock for $9.70 per share, representing aggregate cash consideration of approximately $50 million. The effect of this investment has not been included in the accompanying pro forma combined condensed financial statements and notes thereto.

 

The unaudited pro forma combined condensed financial statements do not reflect certain amounts resulting from the merger because we consider them to be of a non-recurring nature. Such amounts may be comprised of restructuring and other exit and non-recurring costs related to the integration of the Illumina and Solexa businesses. To the extent the exit costs relate to the Solexa business and meet certain criteria, they will be recognized in the opening balance sheet in accordance with Emerging Issues Task Force (EITF) Issue No 95-3, Recognition of Liabilities in Connection with a Purchase Business Combination. To the extent that such costs relate to the Illumina business, they will not meet the criteria in EITF Issue No 95-3, and will be recorded as expenses pursuant to Statement of Financial Accounting Standards (SFAS) No. 146, Accounting for Costs Associated with Exit or Disposal Activities. Illumina and Solexa have just recently begun collecting information in order to formulate detailed integration plans to deliver planned synergies. However, at this time, the status of the integration plans and the related merger-related costs are too uncertain to include in the pro forma financial information.

 

Based on Illumina’s preliminary review of Solexa’s summary of significant accounting policies disclosed in Solexa’s financial statements, the nature and amount of any adjustments to the historical financial statements of Solexa to conform their accounting policies to those of Illumina are not expected to be significant. Upon consummation of the merger, further review of Solexa’s accounting policies and financial statements may result in required revisions to Solexa’s policies and classifications to conform to such policies and classifications of Illumina.

COMBINED PRO FORMA FINANCIAL DATA
UNAUDITED PRO FORMA COMBINED CONDENSED STATEMENT OF OPERATIONS