UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Form S-4
Lynx Therapeutics, Inc.
Delaware | 2833 | 94-3161073 | ||
(State or other jurisdiction of incorporation or organization) |
(Primary Standard Industrial Classification Code Number) |
(I.R.S. Employer Identification No.) |
25861 Industrial Blvd.
Kevin P. Corcoran
Copies to:
James C. Kitch Cooley Godward LLP Five Palo Alto Square 3000 El Camino Real Palo Alto, CA 94306-2155 (650) 843-5000 |
Steven J. Tonsfeldt Heller Ehrman White & McAuliffe LLP 275 Middlefield Road Menlo Park, CA 94025 (650) 324-7000 |
Approximate date of commencement of proposed sale to the public: As soon as practicable after the effectiveness of this registration statement and the satisfaction or waiver of all other conditions under the acquisition agreement described therein.
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
CALCULATION OF REGISTRATION FEE
Proposed Maximum | Proposed Maximum | Amount of | ||||||
Title of Each Class of | Amount to be | Offering Price | Aggregate | Registration | ||||
Securities to be Registered | Registered(1) | Per Share | Offering Price(2) | Fee(3) | ||||
Common Stock, par value $0.01 per share
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29,500,000 shares | N/A | $16,706,520 | $2,116.72 | ||||
(1) | Represents the maximum number of shares of common stock, par value $0.01 per share, of the Registrant, Lynx Therapeutics, Inc., to be issued in connection with the transaction described within this registration statement. |
(2) | Estimated solely for purposes of calculating the amount of the filing fee in accordance with Rule 457(f) under the Securities Act of 1933, as amended, based upon the aggregate book value of outstanding Solexa share capital as of August 31, 2004, the latest practicable date prior to the date of filing of this registration statement. Solexa is a privately held corporation with no market for its securities. |
(3) | Computed in accordance with Rule 457(f) under the Securities Act to be $2,116.72, which is equal to 0.00012670 multiplied by the Proposed Maximum Aggregate Offering Price. |
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 United States Securities and Exchange Commission, acting pursuant to said Section 8(a), may determine.
The information in the
accompanying proxy statement/ prospectus is not complete and may
be changed. Lynx may not complete the offer and sell its
securities until the registration statement filed with the
United States Securities and Exchange Commission is effective.
The accompanying proxy statement/ prospectus is not an offer to
sell these securities and it is not soliciting an offer to buy
these securities in any jurisdiction where the offer or sale is
not permitted. |
SUBJECT TO COMPLETION, DATED OCTOBER 29, 2004
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PROXY STATEMENT/PROSPECTUS
To the stockholders of Lynx Therapeutics, Inc. and the shareholders of Solexa Limited:
Lynx Therapeutics, Inc. and Solexa Limited have agreed to combine under the terms of an acquisition agreement. In the transaction, Lynx will make an offer to acquire all of the outstanding shares in the share capital of Solexa and an option offer for each outstanding Solexa option, the terms of which are described in the section entitled Option Offer on page 59 of the accompanying proxy statement/ prospectus, in exchange for 29.5 million shares of Lynx common stock. If the offer is accepted and the other conditions to the offer are completed or waived, each holder of Solexa B preferred shares will be entitled to receive 2.61560 shares of Lynx common stock for each Solexa B preferred share held; each holder of Solexa A ordinary shares will be entitled to receive 2.75326 shares of Lynx common stock for each Solexa A ordinary share held; and each holder of Solexa ordinary shares will be entitled to receive 0.88637 of a share of Lynx common stock for each Solexa ordinary share held. Lynx stockholders will continue to own their existing Lynx shares.
Lynx common stock is traded on the NASDAQ SmallCap Market under the ticker symbol LYNX. Solexa is a private company registered in England and Wales with approximately 86% of the holders of its share capital located outside of the U.S.
The transaction cannot be completed unless Lynxs stockholders approve the issuance of shares of Lynx common stock in the transaction and the resulting change of control of Lynx. In addition, the transaction cannot be completed unless Solexa shareholders holding at least 90% in nominal value of each class of the outstanding Solexa B preferred shares, the outstanding Solexa A ordinary shares and the outstanding Solexa ordinary shares to which the offer relates accept the offer. Solexa shareholders collectively owning 100% of the outstanding Solexa B preferred shares, 100% of the outstanding Solexa A ordinary shares, and approximately 85.2% of the outstanding Solexa ordinary shares have agreed to accept the offer.
Before voting, if you are a Lynx stockholder, or accepting the offer, if you are a Solexa shareholder, you should carefully review all the information contained in the attached proxy statement/ prospectus. IN PARTICULAR, YOU SHOULD CAREFULLY CONSIDER THE MATTERS DISCUSSED UNDER RISK FACTORS BEGINNING ON PAGE 22 AND THE RISK FACTORS LISTED IN THE QUARTERLY REPORT OF LYNX FOR THE QUARTER ENDED JUNE 30, 2004 ON FORM 10-Q, WHICH IS INCORPORATED HEREIN BY REFERENCE.
If you are a Lynx stockholder, your vote is very important. Whether or not you expect to attend the Lynx annual meeting, the details of which are described on the following page, please complete, date, sign and promptly return the accompanying proxy in the enclosed envelope.
If you are a Solexa shareholder, your acceptance of Lynxs offer is very important. To accept the offer, you must complete the appropriate acceptance procedure by no later than , London time, on , 200 . The procedure for acceptance of the offer is described in the section entitled Procedure for Acceptance beginning on page 158 of the proxy statement/ prospectus and in the form of acceptance accompanying the offer.
We strongly support the combination of Lynx and Solexa and join our respective boards of directors in recommending that Lynxs stockholders vote FOR the proposals presented for their approval at the Lynx annual meeting and that Solexas shareholders accept Lynxs offer.
LYNX THERAPEUTICS, INC. | SOLEXA LIMITED | |
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Kevin P. Corcoran Chief Executive Officer |
John West Chief Executive Officer |
Neither the Securities and Exchange Commission nor any state securities commission has approved or disapproved of the shares of Lynx common stock to be issued in connection with the transaction described in this proxy statement/ prospectus or determined whether this proxy statement/ prospectus is truthful or complete. Any representation to the contrary is a criminal offense.
This proxy statement/ prospectus is dated , 2004 and is first being mailed to stockholders of Lynx on or about , 2004.
LYNX THERAPEUTICS, INC.
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
To the stockholders of Lynx Therapeutics, Inc.:
You are cordially invited to attend the Annual Meeting of Stockholders of Lynx Therapeutics, Inc., a Delaware corporation (Lynx). The meeting will be held on , 200 at , local time, at Lynxs principal executive offices, located at 25861 Industrial Blvd., Hayward, California 94545, for the following purposes:
1. To consider and vote upon a proposal to approve the issuance of Lynx common stock pursuant to the Acquisition Agreement, dated September 28, 2004, by and between Lynx and Solexa Limited, a company registered in England and Wales, and the resulting change of control of Lynx. | |
2. To approve (i) the sale, issuance or potential issuance of up to 10,000,000 shares of Lynx common stock (including shares issuable upon conversion or exercise of convertible debt or warrants convertible into or exercisable for shares of Lynx common stock) at a price that may be less than the greater of book or market value of the Lynx common stock, to investors who will likely include affiliates of certain director nominees who will be appointed to Lynxs board of directors on the first closing date, and (ii) the change of control, if any, of Lynx which may occur as a result of such sale, issuance or potential issuance, in all cases to comply with NASDAQ Marketplace Rule 4350. | |
3. To elect seven directors to serve for the ensuing year and until their successors are duly elected or appointed. | |
4. To approve an amendment to Lynxs Amended and Restated Certificate of Incorporation, as amended, to effect a reverse stock split of Lynxs common stock pursuant to which any whole number of outstanding shares between and including two and four would be combined into one share of Lynx common stock and to authorize Lynxs board of directors to select such number and file such amendment. | |
5. To approve an amendment to Lynxs 1992 Stock Option Plan, as amended, to increase the aggregate number of shares of Lynx common stock authorized for issuance under such plan by 2,000,000 shares. | |
6. To ratify the selection by the Audit Committee of Lynxs Board of Directors of Ernst & Young LLP as the independent registered public accounting firm of Lynx for its fiscal year ending December 31, 2004. | |
7. To conduct any other business properly brought before the meeting. |
These items of business are more fully described in the proxy statement/ prospectus accompanying this notice. Lynx encourages you to read the proxy statement/ prospectus in its entirety before voting.
The record date for the Lynx Annual Meeting is , 2004. Only Lynx stockholders of record at the close of business on that date may vote at the Lynx annual meeting or any adjournments thereof.
Your vote is important regardless of the number of shares you own. Lynx and Solexa cannot complete the transaction unless holders of a majority of the shares of Lynx common stock entitled to vote as of the record date for the Lynx annual meeting are present, either in person or by proxy, and proposal 1 is approved by the majority of the total votes cast at the Lynx annual meeting, either in person or by proxy.
By Order of the Board of Directors, | |
Kevin P. Corcoran | |
President and Chief Executive Officer |
Hayward, California
All Lynx stockholders are cordially invited to attend the meeting in person. Whether or not you expect to attend the meeting, please complete, date, sign and return the enclosed proxy card as promptly as possible in order to ensure your representation at the meeting. A return envelope (which is postage prepaid if mailed in the United States) is enclosed for your convenience. Even if you have voted by proxy, you may still vote in person if you attend the meeting. Please note, however, that if your shares are held of record by a broker, bank or other nominee and you wish to vote at the meeting, you must obtain a proxy issued in your name from that record holder.
REFERENCES TO ADDITIONAL INFORMATION
This proxy statement/ prospectus incorporates by reference important business and financial information about Lynx Therapeutics, Inc. from documents that are not included in or delivered with this proxy statement/ prospectus. This proxy statement/ prospectus incorporates by reference the annual report on Form 10-K, as amended, of Lynx. A copy of the Lynx annual report for the fiscal year ended December 31, 2003 is delivered with this proxy statement/ prospectus. You may obtain documents incorporated by reference in this proxy statement/ prospectus without charge by requesting them in writing or by telephone from Lynx at the following address and telephone number:
Lynx Therapeutics, Inc. | ||
25861 Industrial Blvd. | ||
Hayward, CA 94545 | ||
Attention: Investor Relations | ||
Telephone: (510) 670-9300 |
If you would like to request any documents related to Lynx, please do so by , 200 in order to receive them before the Lynx annual meeting.
For a more detailed description of the information incorporated by reference into this proxy statement/ prospectus and how you may obtain it, see the section entitled Where You Can Find More Information on page 174.
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EXHIBIT 99.7 |
iii
CHAPTER ONE OVERVIEW
QUESTIONS AND ANSWERS ABOUT THE TRANSACTION
Throughout this proxy statement/ prospectus, when we use the term Lynx, we are referring to Lynx Therapeutics, Inc.; when we use the term Solexa, we are referring to Solexa Limited; when we use the term acquisition agreement, we are referring to the Acquisition Agreement, dated September 28, 2004, by and between Solexa and Lynx, which is attached to this proxy statement/ prospectus as Annex A and incorporated by reference into this proxy statement/ prospectus. All of the numbers of shares of Lynx common stock referred to in this proxy statement/ prospectus are calculated without giving effect to any adjustments that will result from the reverse stock split if it is approved by Lynxs stockholders. For details of the reverse stock split proposal, see the section entitled Proposal 4 for the Annual Meeting of Lynx Stockholders Amendment to Lynxs Certificate of Incorporation to Effect a Reverse Stock Split of Lynx Common Stock on page 129. In addition, all of the numbers of Lynx common stock and share ownership numbers of Lynx common stock referred to in this proxy statement/ prospectus are calculated without giving effect to any issuance of Lynx common stock (including shares issuable upon conversion or exercise of convertible debt or warrants) in connection with the proposed financing if such proposed financing is approved by Lynxs stockholders or upon the exercise and conversion of any outstanding options and warrants. For details of the proposed financing, see the section entitled Chapter Three Proposal 2 for the Annual Meeting of Stockholders Approval of Isssuance of Lynx Common Stock in Connection with the Proposed Financing on page 118.
Additionally, when we use the terms transaction or the transactions contemplated by the acquisition agreement, we are referring to:
| the offer to acquire all of the outstanding shares in the share capital of Solexa in exchange for shares of Lynx common stock, which we refer to as the offer; | |
| the offer for each outstanding option to acquire Solexa ordinary shares under the Solexa Share Option Plan for Consultants, the Solexa Unapproved Share Option Plan and the Solexa Limited Enterprise Management Incentive Plan, pursuant to the terms described in the section entitled Option Offer on page 59, which we refer to as the option offer. We refer to such options to acquire Solexa ordinary shares as the Solexa options and these Solexa share option plans as the Solexa plans; and | |
| the subsequent compulsory acquisition of all the remaining outstanding ordinary shares in the share capital of Solexa pursuant to the Companies Act 1985 of England and Wales, as amended, which we refer to as the Companies Act. |
Q: Why am I receiving this proxy statement/ prospectus?
A: Lynx and Solexa have agreed to a combination of Solexa with Lynx under the terms of the acquisition agreement. In connection with the transaction, Lynx has agreed to make an offer to acquire all of the outstanding shares in the share capital of Solexa and an option offer for all of the outstanding Solexa options on the conditions and terms set forth in the acquisition agreement, which conditions and terms are described in this proxy statement/ prospectus and in the accompanying form of acceptance.
In order to complete the transaction, Lynx stockholders must vote to approve the issuance of shares of Lynx common stock in the transaction and the resulting change of control of Lynx. Lynx is sending this proxy statement/ prospectus and the enclosed proxy card to its stockholders because Lynxs board of directors is soliciting their proxy to vote on this matter and various other matters set forth in this proxy statement/ prospectus at the 2004 annual meeting of Lynxs stockholders, which we refer to as the Lynx annual meeting.
In order to complete the transaction, Solexa shareholders holding at least 90% in nominal value of each class of the outstanding Solexa B preferred shares, the outstanding Solexa A ordinary shares and the outstanding Solexa ordinary shares to which the offer relates, which we refer to collectively as the Solexa shares, must accept the offer in accordance with the instructions set forth in this proxy statement/ prospectus and the accompanying form of acceptance. For details of acceptance instructions, Solexa shareholders should read the
1
In addition to the proposed combination of Solexa and Lynx, Lynx proposes to raise additional capital in order to satisfy its projected capital needs through the issuance of up to 10,000,000 shares of Lynx common stock (including shares issuable upon conversion or exercise of convertible debt or warrants convertible into or exercisable for Lynx common stock) for an aggregate consideration of not more than $10,000,000 (excluding amounts receivable by Lynx upon the exercise of any warrants issued pursuant to any such capital raising transaction). Although Lynx has not entered into any agreement and is not party to any binding commitment to finance Lynx, Lynx expects that, because of its cash needs, it may need to consummate a financing on substantially the terms described in this proxy statement/ prospectus on or prior to the first closing date. Throughout this proxy statement/ prospectus when we use the term proposed financing or capital raising transaction, we are referring to this proposed issuance of Lynx common stock (including shares issuable upon conversion or exercise of convertible debt or warrants convertible into or exercisable for Lynx common stock). There can be no assurance that Lynx will complete the proposed financing. Whether or not Lynx does complete the proposed financing, Lynx may raise additional capital in a transaction or series of transactions following the first closing date. Any such additional transaction or series of transactions may require the further approval of Lynxs stockholders.
This proxy statement/ prospectus contains important information about the transaction and the other proposals to be presented at the Lynx annual meeting, including the proposed financing, a reverse stock split and a share increase under Lynxs 1992 Stock Option Plan, as amended, which we refer to as the Lynx 1992 plan. You should read it carefully.
Q: Why are Lynx and Solexa proposing the transaction?
A: Lynx and Solexa believe that the proposed transaction will provide substantial strategic and financial benefits to both companies. For the past five years, both Lynx and Solexa have been focusing on the development and commercialization of technology to reduce the costs and time for organizations to conduct DNA sequencing. Lynx brings to the combined group an experienced commercial instrument development team, an instrument design in its third generation, and a service capability to enable in-house testing of instruments. Solexa has developed leading-edge nucleic acid chemistry, engineered enzymes and surface chemistry. By combining the complementary strengths of these two companies, management of both companies expects to significantly accelerate the development and commercialization of their technology. In addition, Lynx and Solexa believe their prospects of raising additional capital in the future will improve as a combined group. For details of the reasons for the transaction, see the sections entitled Lynxs Reasons for the Transaction and Solexas Reasons for the Transaction on pages 38 and 40, respectively.
Q: What will happen in the transaction?
A: Lynx will issue, or otherwise allocate for issuance under options to acquire Lynx common stock, a total of 29.5 million shares of Lynx common stock pursuant to the terms of the offer and the option offer. Following the completion of the transaction, Solexa shareholders will become holders of Lynx common stock, and Solexa will become a wholly-owned subsidiary of Lynx. Based on the number of shares of Lynx common stock outstanding as of October 5, 2004 and the shares of Lynx common stock to be issued or otherwise allocated for issuance, following the completion of the transaction, the current shareholders and optionholders of Solexa will, upon such issuance, own approximately 80% of the outstanding Lynx common stock in the aggregate and the current Lynx stockholders will own approximately 20% of the outstanding Lynx common stock in the aggregate.
Q: What will Solexa shareholders receive in the transaction?
A: If the transaction is completed, each holder of Solexa B preferred shares will receive 2.61560 shares of Lynx common stock for each Solexa B preferred share held; each holder of Solexa A ordinary shares will
2
In the event that the total number of shares of Lynx common stock issued or allocated for issuance pursuant to the offer and the option offer shall be less than 29.5 million, then an additional number of shares of Lynx common stock shall be issued or allocated on a pro rata basis to the holders of Solexa shares and Solexa options so that the total number of shares issued or allocated for issuance shall be equal to 29.5 million.
Q: How will Solexa share options be affected by the transaction?
A: Lynx will commence an option offer for each outstanding Solexa option either concurrently with the commencement of the offer or as soon as reasonably practicable after, but in no event later than four weeks following the commencement of the offer. In connection with the transaction, all outstanding Solexa options will, in the event of a compulsory acquisition, become fully vested and exercisable pursuant to the terms of the applicable Solexa plans. Under the option offer, a Solexa optionholder may elect: (x) to exercise his or her Solexa options and exchange the Solexa ordinary shares received upon such exercise for shares of Lynx common stock; or (y) to exchange his or her Solexa options for options to acquire shares of Lynx common stock, which options will remain subject to the original vesting schedule and other applicable terms and conditions. In the event that a Solexa optionholder does not elect either to exercise or exchange his or her options, and following the implementation of the compulsory acquisition procedure by Lynx to acquire any remaining Solexa ordinary shares, the options will terminate and cease to be outstanding within one month following notification to Solexa optionholders of such compulsory acquisition procedure. For details of the compulsory acquisition, see the section entitled Compulsory Acquisition on page 159.
Q: Will the offer be followed by a compulsory acquisition?
A: Yes, if all the conditions to the offer are either satisfied, fulfilled or, where permitted, waived and Lynx receives valid acceptances of the offer in respect of not less than 90% in nominal value of each class of the outstanding Solexa shares, Lynx will be entitled to and intends to acquire all the remaining Solexa ordinary shares through a compulsory acquisition pursuant to the Companies Act. Holders of Solexa ordinary shares subject to the compulsory acquisition would receive the same consideration for their Solexa ordinary shares as those Solexa ordinary shareholders who accept the offer. Lynx has received irrevocable undertakings to accept the offer from certain Solexa shareholders collectively holding 100% of Solexa B preferred shares and 100% of Solexa A ordinary shares. Therefore, the compulsory acquisition procedure will not be relevant to such Solexa shares. See the section entitled Compulsory Acquisition on page 159.
Q: Does Lynxs board of directors recommend voting in favor of the issuance of Lynx common stock in the transaction and the resulting change of control of Lynx?
A: Yes. After careful consideration, Lynxs board of directors determined that the transaction is fair to, and in the best interests of, Lynx and its stockholders. Lynxs board of directors recommends that Lynx stockholders vote FOR the issuance of Lynx common stock in the transaction and the resulting change of control of Lynx.
For a description of the factors considered by Lynxs board of directors in making its determination, Lynx stockholders should read the section entitled Lynxs Reasons for the Transaction on page 38.
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Q: Does Solexas board of directors recommend the acceptance of the offer?
A: Yes. After careful consideration, Solexas board of directors determined that the acquisition agreement and the transactions contemplated by the acquisition agreement are in the best interests of Solexa. Solexas board of directors recommends that Solexas shareholders accept the offer.
For a description of the factors considered by Solexas board of directors in making its determination, see the section entitled Solexas Reasons for the Transaction on page 40.
Q: Have any Solexa shareholders committed to accept the offer?
A: Lynx has received irrevocable undertakings from certain Solexa directors and shareholders collectively holding 100% of Solexa B preferred shares, 100% of Solexa A ordinary shares and approximately 85.2% of Solexa ordinary shares agreeing to accept the offer within ten business days of the offer being made by Lynx.
Q: When do you expect to complete the transaction?
A: Lynx and Solexa are working to complete the transaction as quickly as possible. Lynx and Solexa hope to complete the transaction shortly after obtaining the requisite stockholder approval at the Lynx annual meeting and receiving valid acceptance of the offer by Solexa shareholders holding not less than 90% in nominal value of each class of the outstanding Solexa shares. However, Lynx and Solexa cannot predict the exact timing of the completion of the transaction because the transaction is subject to several conditions. There may be a substantial period of time between the Lynx stockholder approval and/or the acceptance by Solexa shareholders and the completion of the transaction. For a description of the conditions to the offer, see the section entitled Conditions to the Offer on page 65.
Q: Why is Lynx proposing the issuance of shares of Lynx common stock (including shares issuable upon conversion or exercise of convertible debt or warrants convertible into or exercisable for Lynx common stock) in the proposed financing?
A: Lynx believes that the proposed issuance of shares of Lynx common stock (including shares issuable upon conversion or exercise of convertible debt or warrants convertible into or exercisable for Lynx common stock) in the proposed financing will provide additional capital of up to $10 million to satisfy its near-term capital needs for the first quarter of 2005. Lynx intends to pursue financing in the future to meet its capital needs, which are currently estimated to be up to a total of $35 million over the next twenty-four months, inclusive of the proposed financing.
Q: What do I need to do now?
A: You should carefully read and consider the information contained in this proxy statement/ prospectus, including the annexes, and consider how the transaction will affect you as a stockholder of Lynx or as a shareholder of Solexa. You also may want to review the documents referenced under the section entitled Where You Can Find More Information on page 174.
If you are Lynx stockholder, you should complete and return the enclosed proxy card as soon as possible in accordance with the instructions provided in this proxy statement/ prospectus and on the enclosed proxy card.
If you are a Solexa shareholder, you should complete and return the enclosed form of acceptance as soon as possible and before the offer expires, in accordance with the instructions in the letter from the Chairman of Lynx on page 157 and the accompanying form of acceptance.
Q: As a Lynx stockholder, how do I vote?
A: If you are a Lynx stockholder of record, you may vote in person at the Lynx annual meeting or by submitting a proxy for the meeting. You can submit your proxy by completing, signing, dating and returning the enclosed proxy card in the accompanying pre-addressed postage paid envelope. If you are a Lynx stockholder and you hold your shares in street name, which means your shares are held of record by a
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Q: As a Lynx stockholder, what happens if I do not vote on the issuance of Lynx common stock and the resulting change of control of Lynx?
A: If you are a Lynx stockholder and you do not submit a proxy card or vote at the Lynx annual meeting, it will make it difficult for Lynx to establish a quorum necessary to transact business at the Lynx annual meeting. If a quorum is established, but you do not vote in person or by proxy, it will have no effect on the approval of the issuance of Lynx common stock in the transaction and the resulting change of control of Lynx.
Broker non-votes will have no effect on the approval of the issuance of Lynx common stock in the transaction and the resulting change of control of Lynx. If you are a Lynx stockholder and you submit a proxy card and affirmatively elect to abstain from voting, your proxy will be counted as present for the purpose of determining the presence of a quorum but will not be voted on the issuance of Lynx common stock in the transaction and the resulting change of control of Lynx.
Q: As a Lynx stockholder, if my shares are held in street name, will my broker, bank, or nominee vote my shares on the issuance of Lynx common stock and the resulting change of control of Lynx?
A: No. With regard to the issuance of Lynx common stock and the resulting change of control of Lynx, your broker, bank, or nominee cannot vote your shares unless you provide instructions on how to vote in accordance with the information and procedures provided to you by your broker, bank, or nominee. For a more complete description of voting shares held in street name, see the sections entitled Annual Meeting of Lynx Stockholders on page 31.
Q: As a Lynx stockholder, am I being asked to vote on any matter other than the issuance of Lynx common stock and the resulting change of control of Lynx?
A: Yes. Lynx stockholders are also being asked to vote on additional matters, including the issuance of shares of Lynx common stock in connection with the proposed financing, a reverse stock split of Lynx common stock, a 2 million share increase in the number of shares of Lynx common stock authorized for issuance under the Lynx 1992 plan, the election of directors and the ratification of the selection of Lynxs independent registered public accounting firm for the fiscal year ended December 31, 2004. For details of the proposals to be acted on at the Lynx annual meeting and the recommendations of Lynxs board of directors on these proposals, see the section entitled Annual Meeting of Lynx Stockholders on page 31.
Q: As a Solexa shareholder, how do I accept the offer?
A: To accept the offer, Solexa shareholders must deliver a completed form of acceptance for the Solexa shares held by them to Leigh Palmer at Solexa Limited, Chesterford Research Park, Little Chesterford, Nr Saffron Walden, Essex CB10 1XL, Great Britain, not later than the time the offer expires. See the section entitled Procedure for Acceptance beginning on page 158.
Q: As a Solexa shareholder, how long do I have to decide whether to accept the offer?
A: Solexa shareholders have until , London time on , 200 , to accept the offer, unless the offer is extended. See the section entitled Procedure for Acceptance beginning on page 158.
Q: As a Solexa shareholder, shall I send in my Solexa share certificates now?
A: Share certificate(s) and/or other documents of title should accompany the form(s) of acceptance sent by Solexa shareholders to Leigh Palmer at Solexa Limited as described in the letter from the Chairman of Lynx on page 154. If a Solexa shareholders share certificate(s) and/or other documents(s) of title are not readily available or are lost, a completed form of acceptance for the Solexa shares held by them should nevertheless be completed and delivered as described above, together with any share certificates or other documents of title
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Q: Whom should I call with questions?
A: If you have any questions about the transaction or if you need additional copies of this proxy statement/ prospectus, the enclosed proxy card or the enclosed form of acceptance, you should contact:
Lynx stockholders:
|
Solexa shareholders: | |
Lynx Therapeutics, Inc. 25861 Industrial Blvd. Hayward, CA 94545 (510) 670-9300 Attention: Investor Relations |
Solexa Limited Chesterford Research Park Little Chesterford Nr Saffron Walden Essex CB10 1XL Great Britain 44 (0) 1799 532300 Attention: Leigh Palmer |
You may also obtain additional information about Lynx from documents filed with the United States Securities and Exchange Commission, which we refer to as the SEC, by following the instructions in the section entitled Where You Can Find More Information on page 174.
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SUMMARY OF THE PROXY STATEMENT/ PROSPECTUS
Lynx is sending this proxy statement/ prospectus to Lynx stockholders and Solexa shareholders. This summary highlights selected information from this proxy statement/ prospectus and does not contain all of the information that is important to you. To better understand the transaction, you should read this entire document carefully, including the acquisition agreement attached as Annex A and incorporated by reference into this proxy statement/ prospectus, the opinion of Seven Hills Partners LLC attached as Annex B and the other documents to which Lynx refers. In addition, Lynx incorporates by reference into this proxy statement/ prospectus important business and financial information about Lynx. You may obtain the information incorporated by reference into this proxy statement/ prospectus without charge by following the instructions in the section entitled Where You Can Find More Information on page 174. Lynx has included page references parenthetically to direct you to a more complete description of the topics presented in this summary.
The Companies
Lynx Therapeutics, Inc. | |
25861 Industrial Blvd. | |
Hayward, CA 94545 | |
(510) 670-9300 |
Lynx is a leader in the development and application of novel genomic analysis solutions. Lynxs Massively Parallel Sequencing System (MPSS) instruments analyze millions of DNA molecules in parallel, enabling genome structure characterization at an unprecedented level of resolution. As applied to gene expression analysis, MPSS provides comprehensive and quantitative digital information important to modern systems biology research in the pharmaceutical, biotechnology and agricultural industries. Lynx currently has approximately 76 employees. For more information, visit Lynxs website at www.lynxgen.com; however, information on Lynxs website is not a part of this proxy statement/ prospectus.
Solexa Limited | |
Chesterford Research Park | |
Little Chesterford | |
Nr. Saffron Walden | |
Essex CB10 1XL | |
Great Britain | |
44 (0) 1799 532300 |
Solexa Limited, a private company registered in England and Wales, with its registered office outside Cambridge, U.K., is developing systems for the comprehensive and economical analysis of individual genomes. Solexa anticipates that these systems will be used by its future customers in a wide range of applications from basic research through development and implementation and across various industries including, among others, personalized medicine, agriculture, food manufacturing, fermentation and biodefence. Solexa currently has approximately 52 employees. For more information, visit Solexas website at www.solexa.com; however, information on Solexas website is not a part of this proxy statement/ prospectus.
Summary of the Transaction (see Page 36)
Lynx has agreed to make an offer to each Solexa shareholder to acquire all of their shares in the share capital of Solexa. Each Solexa shareholder who accepts the offer will receive Lynx common stock in exchange for their Solexa shares based on an exchange ratio described in more detail in the section entitled The Transaction Consideration and Exchange of Securities on page 60. Further terms and conditions of the offer are described in the section entitled The Transaction on page 36. If Lynx receives valid acceptances of the offer in respect of not less than 90% in nominal value of the outstanding Solexa ordinary shares, Lynx is entitled to and intends to invoke a compulsory acquisition process under the Companies Act in order to acquire 100% of the Solexa ordinary shares. Lynx has received irrevocable undertakings to accept the offer from certain Solexa directors and shareholders collectively holding 100% of Solexa B preferred shares and
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Lynx has also agreed to make an option offer for each outstanding Solexa option either concurrently with the commencement of the offer or as soon as reasonably practicable after, but in no event later than four weeks following the commencement of the offer. In connection with the transaction, all outstanding Solexa options will in the event of a compulsory acquisition procedure become fully vested and exercisable pursuant to the terms of the applicable Solexa plans. For details of the compulsory acquisition, see the section entitled Compulsory Acquisition on page 159. Under the option offer, a Solexa optionholder may elect: (x) to exercise his or her Solexa options and exchange the Solexa ordinary shares received upon exercise for shares of Lynx common stock; or (y) to exchange his or her Solexa options for options to acquire shares of Lynx common stock, which options will remain subject to the original vesting schedule and other applicable terms and conditions. In the event that a Solexa optionholder does not elect either to exercise or exchange his or her options, and following the implementation of the compulsory acquisition procedure by Lynx to acquire any remaining Solexa ordinary shares, the options will terminate and cease to be outstanding within one month following notification to Solexa optionholders of such compulsory acquisition procedure. See the section entitled Option Offer on page 59.
If the transaction is completed, Lynx will issue, or otherwise allocate for issuance under options to acquire Lynx common stock, a total of 29.5 million shares of Lynx common stock pursuant to the terms of the offer and the option offer. Following the completion of the transaction, Solexa shareholders will become holders of Lynx common stock, and Solexa will become a wholly-owned subsidiary of Lynx.
Overview of the Acquisition Agreement (see Page 59)
Conditions to the Offer (see page 65) |
The first closing will not take place until the holders of at least 90% in nominal value of each class of the outstanding Solexa shares shall have accepted the offer.
The first closing is also subject to the fulfillment, or waiver by Lynx, of several customary closing conditions, including, but not limited to, the following:
| Lynxs registration statement, of which this proxy statement/ prospectus is a part, shall have become effective under the Securities Act and shall not be the subject of any stop order or proceeding seeking a stop order; | |
| the shares of Lynx common stock to be issued in the offer shall have been approved for listing on the NASDAQ, subject to official notice of issuance; | |
| Lynx shall have obtained the approval of Lynxs stockholders of (1) the issuance of shares of Lynx common stock in connection with the transaction, (2) the change-of-control of Lynx in connection with the transactions contemplated by the acquisition agreement, and (3) an amendment to Lynxs 1992 plan to increase the number of shares reserved for issuance thereunder by 2 million shares; | |
| Solexas board of directors shall not have and shall not have resolved to change its recommendation to Solexas shareholders to accept the offer; | |
| Solexa shall have had cash and cash equivalent balances of at least £5,000,000 on December 1, 2004, which include specified advances and payments made by Solexa to Lynx and fees and expenses incurred and paid by Solexa in connection with the transaction; and | |
| there shall not have occurred an event having a material adverse effect with respect to Solexa. |
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In addition, the first closing is subject to the fulfillment or waiver by Solexa of several customary closing conditions, including, but not limited to, the following:
| Seven Hills shall not have withdrawn or modified its fairness opinion delivered to Lynxs board of directors in a manner adverse to Lynx or Solexa; | |
| Lynx shall have obtained the approval of Lynxs stockholders of (1) the issuance of shares of Lynx common stock in connection with the transaction, (2) the change-of-control of Lynx in connection with the transactions contemplated by acquisition agreement, and (3) an amendment to Lynxs 1992 plan to increase the number of shares reserved for issuance thereunder by 2 million shares; | |
| Lynxs board of directors shall not have and shall not have resolved to change its recommendation to Lynxs stockholders to approve the matters set forth in the immediately preceding bullet point and each of the other proposals that Lynx and Solexa shall deem reasonably necessary for the purpose of effecting the transaction; | |
| Solexa shall have received confirmation from the U.K. Inland Revenue that the sale of the Solexa shares in exchange for shares of Lynx common stock will qualify for roll-over relief from capital gains tax under applicable English law; | |
| Lynx shall be eligible to register the shares of Lynx common stock for resale using Form S-3; | |
| there shall not have occurred a dissolution, liquidation or termination of existence of Lynx or the failure of Lynx to pay its debts as they mature on a reasonably timely basis or any similar occurrence; | |
| there shall not have occurred an event having a material adverse effect with respect to Lynx; and | |
| Solexa shall have received an opinion of Solexas corporate counsel and Lynx shall have received an opinion of Lynxs corporate counsel, each to the effect that the offer will qualify as a reorganization for United States federal income tax purposes. |
Termination of the Acquisition Agreement (see page 59) |
The acquisition agreement may be terminated and the offer may be abandoned at any time before the second business day following the satisfaction or waiver of the conditions to the offer, which we refer to as the first closing date, under several circumstances, including:
| by mutual written consent of Lynx and Solexa; | |
| by either Lynx or Solexa if the offer shall have expired, terminated or been withdrawn in accordance with the terms of the acquisition agreement without Lynx having exchanged any Solexa shares pursuant to the offer, unless a principal cause of such expiration, termination or withdrawal is a breach by the party seeking to terminate the acquisition agreement; | |
| by either Lynx or Solexa if the first closing has not taken place on or before March 31, 2005, unless a principal cause of the first closing not having taken place is a breach by the party seeking to terminate the acquisition agreement; | |
| by either Lynx or Solexa if there shall be any law or regulation that makes completion of the transaction illegal or otherwise prohibited or if any judgment, injunction, order or decree enjoining Lynx or Solexa from completing the offer is entered and such judgment, injunction, order or decree shall become final and non-appealable; | |
| by Lynx if Solexas board of directors shall have changed, or shall have resolved to change, its recommendation to Solexas shareholders that they accept the offer; | |
| by Solexa if Lynxs board of directors shall have changed, or shall have resolved to change, its recommendation to Lynxs stockholders that they approve (i) the issuance of shares of Lynx common stock in connection with the transaction, (ii) the change-of-control of Lynx in connection with the transactions contemplated by acquisition agreement, (iii) an amendment to the Lynx 1992 plan to |
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increase the number of shares authorized for issuance by 2 million shares, and (iv) each of the other proposals that Lynx and Solexa shall deem reasonably necessary for the purposes of effecting the transaction; | ||
| by either Lynx or Solexa if the Lynx annual meeting shall have been duly convened and the Lynx stockholder approval of the matters set forth in (i)-(iii) of the preceding bullet point shall not have been obtained; | |
| by Solexa if an event or circumstance shall have occurred that makes it impossible for Lynxs representations and warranties to be true and correct in all material respects, or for Lynx to perform its obligations and comply with its agreements and covenants in all material respects under the acquisition agreement, or if there shall have been a breach by Lynx causing the above and such breach is not cured within 30 days following receipt of written notice from Solexa; | |
| by Lynx if an event or circumstance shall have occurred that makes it impossible for Solexas representations and warranties to be true and correct in all material respects, for Solexa to perform its obligations and comply with its agreements and covenants in all material respects under the acquisition agreement, or for Lynx to obtain the requisite stockholder approval, or if there shall have been a breach by Solexa causing the above and such breach is not cured within 30 days following receipt of written notice from Lynx; | |
| by either Lynx or Solexa if a material adverse effect with respect to the other party shall have occurred and such material adverse effect is not cured within 45 days following receipt of notice of such material adverse effect; | |
| by Solexa upon the withdrawal or modification of the fairness opinion of Lynxs financial advisor in a manner adverse to Lynx or Solexa; and | |
| by Solexa upon the dissolution, liquidation or termination of existence of Lynx, the failure of Lynx to pay its debts as they mature on a reasonably timely basis, the appointment of a custodian or receiver of any material part of Lynxs property, the institution by or against Lynx or any indorser or guarantor of any note of any proceedings under the United States Bankruptcy Code or any other federal or state bankruptcy, reorganization, receivership, insolvency or other similar law affecting the rights of creditors generally or the making by Lynx or any indorser or guarantor of any note of an assignment or trust mortgage for the benefit of creditors, or a declaration of intent by Lynx to effect any of the foregoing, unless the above is the direct result of Solexas failure to perform its obligations under certain agreements with Lynx. |
No Solicitation (see page 64) |
The acquisition agreement contains detailed provisions prohibiting Lynx and Solexa, as well as their respective officers, directors, employees, agents and representatives from taking any action to solicit a competing acquisition proposal. Notwithstanding these restrictions, the acquisition agreement provides that under limited circumstances prior to the first closing date, Lynx or Solexa, upon receipt of an acquisition proposal from a third party, may furnish nonpublic information to that third party and/or enter into discussions or negotiations with that third party. The circumstances under which Lynx or Solexa may furnish information to or negotiate with a third party is limited to acquisition proposals that the applicable partys board of directors, after consultation with its outside legal counsel and financial advisor, if any, taking into account, among other things, all legal, financial, regulatory and other aspects of the proposal, the third party making the proposal and the strategic and other benefits of the current transaction, determines is reasonably capable of being completed on its terms and if completed on such terms would result in a transaction financially more favorable to that partys stockholders.
If either Lynx or Solexa receives an acquisition proposal from a third party that the board of directors or a committee of the board of the receiving party believes in good faith is reasonably capable of being completed and that would result in a more favorable transaction from a financial point of view to such partys stockholders than the currently proposed transaction, then the board of directors of the receiving party may
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A change in Lynxs board of directors recommendation shall not affect Lynxs obligation to continue the offer and to convene the Lynx annual meeting. Lynx shall not submit to a vote of its stockholders any transaction contemplated by a competing acquisition proposal, or propose to do so, prior to or at the Lynx annual meeting.
Vote of Stockholders Required (see page 34)
In order to transact business at the Lynx annual meeting, holders of a majority of the shares of Lynx common stock entitled to vote as of the record date for the Lynx annual meeting must be present, either in person or by proxy. The approval of the issuance of Lynx common stock in the transaction and the resulting change of control of Lynx require the majority of the total votes cast at the Lynx annual meeting, either in person or by proxy. As of the close of business on the record date, directors and executive officers and their affiliates beneficially owned and were entitled to vote shares of Lynx common stock, which represented % of the shares of Lynx common stock outstanding and entitled to vote on that date.
The transaction is not subject to a vote by the Solexa shareholders.
Directors and Management of Lynx Following the Transaction (see Page 56)
The acquisition agreement provides that, on the first closing date, Lynxs board of directors shall consist of Craig C. Taylor, Genghis Lloyd-Harris, Tom Daniel, Hermann Hauser, Mark Carthy and John West. In addition, one or more other directors who shall be mutually acceptable to Lynxs board of directors and Solexas board of directors shall be appointed to Lynxs board of directors on the first closing date. The acquisition agreement further provides that Lynx and Solexa will ensure that the composition of Lynxs board of directors upon such appointment comply with the rules and regulation of the NASDAQ and the SEC. Lynx and Solexa have agreed to appoint Steve Allen to Lynxs board of directors on the first closing date.
Effective as of the first closing date, John West will serve as the chief executive officer of Lynx.
Restrictions on Ability to Sell Lynx Common Stock (see Page 54)
Several Lynx stockholders entered into parent support agreements under which they have agreed not to, directly or indirectly, for a period ending on the earlier to occur of 180 days following the first closing date and the termination of the acquisition agreement, sell or transfer any shares of Lynx common stock held by them and to be acquired during that period. Several Solexa shareholders and optionholders entered into company support agreements under which they have agreed not to, directly or indirectly, for a period ending on the earlier to occur of 180 days following the first closing date and the termination of the acquisition agreement, sell or transfer any Solexa shares held by them or any shares of Lynx common stock or Solexa shares acquired by them during that time. For a description of the Lynx stockholders and the Solexa shareholders and optionholders that entered into the support agreements, see the section entitled Reciprocal Support Agreements on page 70. In addition, by accepting the offer and/or the option offer, Solexa shareholders and optionholders will be deemed to have agreed not to, for a period ending 180 days following the first closing date, sell or transfer any Lynx common stock acquired by them in the offer and/or the option offer.
In addition, shares of Lynx common stock received by affiliates of Solexa may only be sold pursuant to Rule 145 of the Securities Act (which restricts the volume of securities that can be sold) or pursuant to a registration statement or exemption from the registration requirements of the Securities Act.
Lynx has agreed to file a resale registration statement covering the resale of shares of Lynx common stock received by the Solexa shareholders who have entered into the company support agreements and who may be
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Opinion of Lynxs Financial Advisor (see Page 41)
In connection with the transaction, Lynxs financial advisor, Seven Hills Partners LLC, which we refer to as Seven Hills, rendered its oral opinion, which was subsequently confirmed in writing, to Lynxs board of directors that, as of September 27, 2004, the consideration to be paid by Lynx pursuant to the acquisition agreement was fair from a financial point of view to Lynx. The full text of the written opinion of Seven Hills, which sets forth the assumptions made, matters considered and limits of review in connection with the opinion, is attached as Annex B. Seven Hills provided its opinion for the information and assistance of Lynxs board of directors. The opinion does not constitute a recommendation as to how holders of Lynx common stock should vote with respect to the transaction or any other matter. Seven Hills has consented to the inclusion of and references to its opinion in this proxy statement/ prospectus.
Interests of Directors, Officers and Affiliates (see Page 54)
In considering the recommendation of Lynxs board of directors that Lynx stockholders vote in favor of the issuance of Lynx common stock and the resulting change of control of Lynx, Lynx stockholders should be aware that some Lynx executive officers and directors have interests in the transaction that may be different from, or in addition to, their interests as stockholders of Lynx. These interests include that Lynx will maintain an extension of coverage of Lynxs director and officer insurance with effect from the first closing date, for the benefit of those Lynx directors and officers who are covered by such policies at the first closing date, with respect to matters occurring prior to the first closing date for six years after the first closing date. Lynxs board of directors was aware of these interests and considered them, among other matters, in making its recommendation.
In considering the recommendation of Solexas board of directors to Solexas shareholders that they accept the offer, Solexa shareholders should be aware that some executive officers and directors of Solexa have interests in the transaction that are different from, or in addition to, the other Solexa shareholders. These interests include:
| John West, chief executive officer of Solexa, Steve Allen, Mark Carthy, Tom Daniel, Hermann Hauser and Genghis Lloyd-Harris, each a director of Solexa, will be appointed to Lynxs board of directors on the first closing date; | |
| the above directors may receive option grants to purchase Lynx common stock under the Lynx 1992 plan following the completion of the transaction as determined by Lynxs board of directors; | |
| Lynx and Mr. West have reached an understanding regarding Mr. Wests employment as the chief executive officer of Lynx following the first closing date, on terms that are substantially similar to those in his employment agreement with Solexa, including, among other things, cash compensation, special bonuses and option grants, including additional option grants upon the completion of the transaction; | |
| Solexa entered into a service agreement on June 24, 2004 with Nick McCooke, the former chief executive officer of Solexa, pursuant to which Solexa will become obliged to pay Mr. McCooke the sum of £125,000 in two tranches starting from the first closing date; | |
| in connection with the transaction, all outstanding Solexa options held by Solexas directors and officers and their affiliated entities, in the event of a compulsory acquisition, will become fully vested and exercisable pursuant to the terms of the applicable Solexa plans; | |
| Lynx has agreed to indemnify the present and former officers, directors, employees and agents of Solexa in respect of acts or omissions occurring on or prior to the first closing date or arising out of the transaction, and to maintain an extension of coverage of Solexas director and officer insurance with effect from the first closing date, for the benefit of those Solexa directors and officers who are covered |
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by such policies at the first closing date, with respect to matters occurring prior to the first closing date for six years after the first closing date, subject to certain limitations; | ||
| Lynx has agreed to file a resale registration statement covering the resale of shares of Lynx common stock received by a number of Solexa shareholders, including Tim Rink, Shankar Balasubramanian, Mr. McCooke and Mr. West, as well as their affiliated entities, who may be deemed to be affiliates of Solexa in the transaction until such time as less than 25% of Lynx common stock received by these Solexa shareholders is held by them; and | |
| it is anticipated that the trading volume of Lynx common stock will increase following the transaction, which may facilitate the sale of an increased number of shares under Rule 144 of the Securities Act for affiliates of Solexa following the transaction. |
Solexas board of directors was aware of these interests and considered them, among other matters, in making its recommendation to Solexas shareholders that they accept the offer.
Material U.S. Federal Income Tax Consequences of the Transaction (see Page 48)
It is expected that the transaction will qualify as a reorganization within the meaning of Section 368(a) of the Internal Revenue Code of 1986, as amended, which we refer to as the Code, for federal income tax purposes. The offer is conditioned upon the receipt by each of Lynx and Solexa of opinions from their respective counsels that the transaction will qualify as a reorganization. Assuming such qualification, a U.S. holder of Solexa shares will not recognize any gain or loss in the exchange of Solexa shares for Lynx shares except with respect to fractional shares. A non-U.S. holder of Solexa shares generally will not recognize gain or loss upon the receipt of Lynx shares in exchange for Solexa shares, subject to several exceptions. However, tax matters can be complex and the tax consequences of the transaction to you will depend on your particular tax situation. HOLDERS OF SOLEXA SHARES ARE URGED TO CONSULT THEIR OWN TAX ADVISORS WITH RESPECT TO THE PARTICULAR UNITED STATES FEDERAL INCOME TAX AND ESTATE TAX CONSEQUENCES TO THEM OF THE OFFER AND OF THE OWNERSHIP AND DISPOSAL OF THE LYNX SHARES, AND THE TAX CONSEQUENCES UNDER STATE, LOCAL AND FOREIGN TAX LAWS AND THE POSSIBLE EFFECTS OF CHANGES IN TAX LAWS. For a more complete description of the U.S. federal income tax consequences of the transaction, see the section entitled Material U.S. Federal Income Tax Consequences of the Transaction on page 48.
Material U.K. Tax Consequences of the Transaction (see Page 170)
The transaction is structured as a reorganization within the meaning of Section 135 of the Taxation of Chargeable Gains Act 1992. A U.K. resident holder of Solexa shares will not be treated as having disposed of its shares to the extent that it receives shares of Lynx common stock in exchange and will therefore not recognize a gain on the disposal. HOLDERS OF SOLEXA SHARES ARE URGED TO CONSULT THEIR OWN TAX ADVISORS WITH RESPECT TO THE U.K. TAX CONSEQUENCES OF ACCEPTING THE OFFER. For a more complete description of the U.K. tax consequences of the transaction, see section entitled Material U.K. Tax Consequences of the Transaction on page 170.
Risk Factors (see Page 22)
In evaluating the acquisition agreement, the principal terms of the transaction or the issuance of Lynx common stock in the transaction, you should carefully read this proxy statement/ prospectus and especially consider the factors discussed in the section entitled Risk Factors beginning on page 22 as well as the risk factors listed in the annual report of Lynx for the year ended December 31, 2003, as amended, and the quarterly report of Lynx for the quarter ended June 30, 2004.
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Listing of Lynx Common Stock on the NASDAQ SmallCap Market (see Page 56)
It is a condition to the offer that the shares of Lynx common stock to be issued in the transaction be approved for listing on the NASDAQ SmallCap Market, subject to official notice of issuance.
The NASDAQ staff has indicated to Lynx that it will view the transaction as constituting a Reverse Merger under the NASDAQ Marketplace Rule 4330(f). As a result, Lynx will be required to satisfy the requirements for initial inclusion on the NASDAQ Stock Market, including a $4.00 per share minimum bid price for the 90 trading days preceding the completion of the transaction, in order for Lynx common stock to remain listed on the NASDAQ SmallCap Market following the completion of transaction. Lynx does not currently satisfy the minimum bid price requirement and intends to effect a reverse split of the outstanding shares of Lynx common stock in order to effect a plan to meet these requirements. No assurance can be given that a listing will be obtained on the NASDAQ. If Lynx does not meet the initial listing requirements for Lynx common stock to be listed on the NASDAQ SmallCap Market, the shares of Lynx common stock may be delisted from the NASDAQ SmallCap Market. See the section entitled Risk Factors Risks Relating to the Combined Group Following the Transactionon page 25.
Market Price Information (see Page 20)
Lynx common stock is listed on the NASDAQ SmallCap Market under the trading symbol LYNX. On September 27, 2004, the last full trading day prior to the public announcement of the acquisition agreement, Lynx common stock closed at $1.86 per share. On October 26, 2004, Lynx common stock closed at $3.00 per share.
Currently there is no public trading market for Solexa shares.
Regulatory Approval (see page 53)
The transaction is subject to antitrust laws. For the reasons described in greater detail in the section entitled Regulatory Matters; Hart-Scott-Rodino Act and Antitrust on page 53, the transaction between the parties is not presently believed to be subject to the reporting and waiting provisions of the Hart-Scott-Rodino Antitrust Improvements Act of 1976, or the HSR Act. Thus, no filings have been made or are presently contemplated with the U.S. Department of Justice, or the DOJ, and the U.S. Federal Trade Commission, or the FTC. Nevertheless, either the DOJ or the FTC as well as a foreign regulatory agency or government, state or private person, may challenge the transaction at any time before or after completion.
Appraisal Rights (see page 133)
Under the Delaware General Corporation Law, which we refer to as the DGCL, the stockholders of Lynx do not have appraisal rights in connection with the issuance of Lynx common stock in the transaction and the resulting change of control of Lynx. Solexa shareholders generally do not have appraisal rights under English law.
Comparison of Stockholder Rights (see Page 86)
The rights of Solexa shareholders as stockholders of Lynx after the transaction will be governed by the DGCL, Lynxs certificate of incorporation and Lynxs bylaws. Those rights differ from the rights of Solexa shareholders under English law, Solexas articles of association and the shareholders agreement between Solexa and its shareholders. See the section entitled Comparison of Rights of Holders of Lynx Common Stock and Solexa Shares on page 86.
Reciprocal Support Agreements (see Page 70)
Solexa has entered into parent support agreements with several executive officers, directors and stockholders of Lynx, which we refer to as the parent support agreements. Under the parent support agreements, these Lynx executive officers, directors and stockholders have agreed to vote the Lynx shares of common stock they hold in favor of the approval of the issuance of common stock in connection with the
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Lynx has entered into company support agreements and irrevocable undertakings with a number of shareholders of Solexa. We refer to such company support agreements as the company support agreements, and together with such irrevocable undertakings, as the company support documents. Under the company support documents, each such Solexa shareholder has agreed to accept or procure acceptance of the offer and/or make an election under the option offer in accordance with their respective terms within 10 business days of the offer being made by Lynx. Such Solexa shareholders have also agreed to vote their Solexa shares in favor of the delivery of a selling notice to invoke a compulsory transfer to Lynx of the remaining share capital of Solexa, if necessary, and the approval of any other matters that could reasonably be expected to facilitate the transaction. As of October 18, 2004, these Solexa shareholders owned 100% of the outstanding Solexa B preferred shares, 100% of the outstanding Solexa A ordinary shares and approximately 85.2% of the outstanding Solexa ordinary shares.
In addition, the institutional Solexa shareholders who entered into the company support agreements have agreed not to convert any Solexa B preferred shares and Solexa A ordinary shares they hold into Solexa ordinary shares and have waived their pre-emption and rights of first refusal under Solexas articles of association with respect to the transaction. The irrevocable undertaking by Nick McCooke, the former chief executive officer and a shareholder of Solexa, provides that, if acceptances in respect of 100% of the then outstanding share capital of Solexa have been received by Lynx on or before the first closing date, Mr. McCooke shall be entitled to withdraw consent in respect of one Solexa ordinary share to enable Lynx to invoke the compulsory acquisition procedure described in the section entitled Compulsory Acquisition on page 159.
We refer to the parent support agreements and the company support documents collectively as the support agreements.
Summary of the Proposed Financing (see Page 118)
On October 26, 2004, Lynxs board of directors unanimously found it to be advisable and in the best interests of Lynx to seek stockholder approval for (i) the sale, issuance or potential issuance, in connection with one or more capital raising transactions, of up to 10,000,000 shares of Lynx common stock (including shares issuable upon conversion or exercise of convertible debt or warrants convertible into or exercisable for Lynx common stock) to investors who will likely include affiliates of certain director nominees who will be appointed to Lynxs board of directors on the first closing date, upon such terms as Lynxs board of directors, or a committee hereof, may deem to be in the best interests of Lynx and its stockholders, for an aggregate consideration of not more than $10,000,000 (excluding amounts receivable by Lynx upon exercise of any warrants issued pursuant to any such capital raising transaction) and at an effective price of not less than 80% of the last closing price of the Lynx common stock as reported on the NASDAQ SmallCap Market prior to the pricing of the securities to be issued pursuant to any such capital raising transaction and (ii) the change of control, if any, of Lynx which may occur as a result of such sale, issuance or potential issuance. Any such capital raising transaction would occur, if at all, prior to the first closing date. There can be no assurance that Lynx will complete the proposed financing. Whether or not Lynx does complete the proposed financing, Lynx may raise additional capital in a transaction or series of transactions following the first closing date. Any such additional transaction or series of transactions may require the further approval of the Lynx stockholders.
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SELECTED SUMMARY HISTORICAL AND PRO FORMA COMBINED FINANCIAL DATA
The following tables present summary historical financial data, summary unaudited pro forma combined financial data, comparative per share data as well as market price, exchange rate and dividend data of Lynx and Solexa.
Selected Summary Historical Financial Data of Lynx
The following table sets forth selected summary historical financial data of Lynx. The information presented below was derived from Lynxs audited financial statements as of December 31, 1999, 2000, 2001, 2002 and 2003 and for the years then ended and the unaudited financial statements as of June 30, 2004 and for the six months ended June 30, 2003 and 2004. This information is only a summary. You should read it together with Lynxs historical financial statements and accompanying notes incorporated by reference in this proxy statement/ prospectus. Historical results are not necessarily indicative of future results.
Six Months Ended | ||||||||||||||||||||||||||||||
Year Ended December 31, | June 30, | |||||||||||||||||||||||||||||
1999 | 2000 | 2001 | 2002 | 2003 | 2003 | 2004 | ||||||||||||||||||||||||
(In thousands except per share data) | ||||||||||||||||||||||||||||||
Consolidated Statements of Operations
Data:
|
||||||||||||||||||||||||||||||
Revenue:
|
||||||||||||||||||||||||||||||
Technology access and services fees
|
$ | 7,833 | $ | 12,389 | $ | 18,372 | $ | 13,026 | $ | 15,840 | $ | 7,187 | $ | 2,626 | ||||||||||||||||
License fee from related party
|
| | 453 | 759 | 760 | 380 | 380 | |||||||||||||||||||||||
Collaborative research and other
|
5,042 | 235 | 429 | 3,621 | 1,501 | 282 | 78 | |||||||||||||||||||||||
Total revenues
|
12,875 | 12,624 | 19,254 | 17,406 | 18,101 | 7,849 | 3,084 | |||||||||||||||||||||||
Operating costs and expenses:
|
||||||||||||||||||||||||||||||
Cost of services fees and other
|
828 | 3,652 | 4,118 | 3,499 | 4,362 | 2,101 | 2,670 | |||||||||||||||||||||||
Research and development
|
15,510 | 19,761 | 24,660 | 20,813 | 12,178 | 6,761 | 5,064 | |||||||||||||||||||||||
General and administrative
|
4,175 | 6,170 | 7,503 | 6,271 | 6,773 | 3,678 | 3,087 | |||||||||||||||||||||||
Restructuring charge for workforce reduction
|
| | | 530 | 292 | 292 | 118 | |||||||||||||||||||||||
Total operating costs and expenses
|
20,513 | 29,583 | 36,281 | 31,113 | 23,605 | 12,832 | 10,939 | |||||||||||||||||||||||
Loss from operations
|
(7,638 | ) | (16,959 | ) | (17,027 | ) | (13,707 | ) | (5,504 | ) | (4,983 | ) | (7,855 | ) | ||||||||||||||||
Interest and other income (expense), net
|
1,232 | 4,158 | 378 | (1,922 | ) | (3,054 | ) | (1,844 | ) | 23 | ||||||||||||||||||||
Loss before income tax provision (benefit)
|
(6,406 | ) | (12,801 | ) | (16,649 | ) | (15,629 | ) | (8,558 | ) | (6,827 | ) | (7,832 | ) | ||||||||||||||||
Income tax provision (benefit)
|
258 | 500 | 81 | (98 | ) | 202 | 2 | 1 | ||||||||||||||||||||||
Net loss
|
$ | (6,664 | ) | $ | (13,301 | ) | $ | (16,730 | ) | $ | (15,331 | ) | $ | (8,760 | ) | $ | (6,829 | ) | $ | (7,833 | ) | |||||||||
Basic and diluted net loss per share
|
$ | (4.19 | ) | $ | (8.18 | ) | $ | (9.18 | ) | $ | (4.50 | ) | $ | (1.80 | ) | $ | (1.47 | ) | $ | (1.13 | ) | |||||||||
Shares used in per share computation
|
1,589 | 1,626 | 1,822 | 3,455 | 4,854 | 4,653 | 6,924 |
December 31, | ||||||||||||||||||||||||
June 30, | ||||||||||||||||||||||||
1999 | 2000 | 2001 | 2002 | 2003 | 2004 | |||||||||||||||||||
(In thousands) | ||||||||||||||||||||||||
Consolidated Balance Sheet Data:
|
||||||||||||||||||||||||
Cash, cash equivalents and short-term investments
|
$ | 30,786 | $ | 18,798 | $ | 5,509 | $ | 11,735 | $ | 5,609 | $ | 2,385 | ||||||||||||
Total assets
|
51,638 | 39,215 | 32,502 | 31,987 | 18,796 | 16,078 | ||||||||||||||||||
Equipment loans noncurrent portion
|
3,471 | 3,077 | 1,806 | 1,093 | | | ||||||||||||||||||
Stockholders equity
|
19,646 | 6,222 | 4,714 | 12,056 | 10,066 | 8,607 |
16
Selected Summary Historical Financial Data of Solexa
The following table sets forth summary historical financial data of Solexa. The information presented below as of December 31, 1999, 2000 and 2001, and for the years ended December 31, 1999 and 2000 is derived from unaudited financial statements of Solexa. The information as of December 31, 2002 and 2003 and for each of the three years in the period ended December 31, 2003 is derived from Solexas audited financial statements included elsewhere in this proxy statement/ prospectus. The information as of June 30, 2004 and for the six months ended June 30, 2003 and 2004 is derived from Solexas unaudited financial statements included elsewhere in this proxy statement/ prospectus. In the opinion of Solexas management, these unaudited financial statements have been prepared on a basis consistent with that of Solexas audited financial statements and reflect all adjustments (consisting only of normal recurring adjustments) necessary for a fair presentation. This information is only a summary. You should read it together with Solexas historical financial statements and accompanying notes included in this proxy statement/ prospectus. Historical results are not necessarily indicative of future results.
Six Months Ended | |||||||||||||||||||||||||||||
Year Ended December 31, | June 30, | ||||||||||||||||||||||||||||
1999 | 2000 | 2001 | 2002 | 2003 | 2003 | 2004 | |||||||||||||||||||||||
(In thousands except per share data) | |||||||||||||||||||||||||||||
Statements of Operations Data:
|
|||||||||||||||||||||||||||||
Revenue:
|
|||||||||||||||||||||||||||||
Service income
|
$ | | $ | | $ | | $ | | $ | 7 | $ | | $ | 41 | |||||||||||||||
Operating costs and expenses:
|
|||||||||||||||||||||||||||||
Research and development
|
302 | 483 | 1,918 | 4,308 | 5,639 | 2,661 | 3,035 | ||||||||||||||||||||||
General and administrative
|
73 | 299 | 695 | 1,008 | 1,087 | 664 | 1,335 | ||||||||||||||||||||||
Total operating costs and expenses
|
375 | 782 | 2,613 | 5,316 | 6,726 | 3,325 | 4,370 | ||||||||||||||||||||||
Loss from operations
|
(375 | ) | (782 | ) | (2,613 | ) | (5,316 | ) | (6,719 | ) | (3,325 | ) | (4,329 | ) | |||||||||||||||
Interest and other income (expense), net
|
9 | (4 | ) | 104 | 555 | 363 | 209 | 113 | |||||||||||||||||||||
Loss before income tax benefit
|
(366 | ) | (786 | ) | (2,509 | ) | (4,761 | ) | (6,356 | ) | (3,116 | ) | (4,216 | ) | |||||||||||||||
Income tax benefit
|
| | | (293 | ) | (707 | ) | | | ||||||||||||||||||||
Net loss
|
$ | (366 | ) | $ | (786 | ) | $ | (2,509 | ) | $ | (4,468 | ) | $ | (5,649 | ) | $ | (3,116 | ) | $ | (4,216 | ) | ||||||||
Basic and diluted net loss per share
|
$ | (0.32 | ) | $ | (0.56 | ) | $ | (0.88 | ) | $ | (0.70 | ) | $ | (0.89 | ) | $ | (0.49 | ) | $ | (0.67 | ) | ||||||||
Shares used in per share computation
|
1,129 | 1,407 | 2,837 | 6,338 | 6,338 | 6,338 | 6,338 |
December 31, | ||||||||||||||||||||||||
June 30, | ||||||||||||||||||||||||
1999 | 2000 | 2001 | 2002 | 2003 | 2004 | |||||||||||||||||||
(In thousands) | ||||||||||||||||||||||||
Balance Sheet Data:
|
||||||||||||||||||||||||
Cash, cash equivalents and short-term investments
|
$ | 478 | $ | 1,853 | $ | 16,853 | $ | 13,295 | $ | 8,907 | $ | 2,802 | ||||||||||||
Total assets
|
594 | 2,383 | 17,913 | 15,013 | 10,401 | 6,297 | ||||||||||||||||||
Shareholders equity (deficit)
|
511 | (212 | ) | 17,136 | 14,207 | 9,606 | 5,580 |
On July 30, 2004, Solexa completed the issuance and sale of its B preferred shares, raising net proceeds of approximately $13.5 million. On October 18, 2004, Solexa completed a subsequent issue and sale of additional B preferred shares, raising approximately $0.9 million. The above selected summary historical financial data of Solexa do not reflect the issuance of B preferred shares and related changes to cash balances and shareholders equity.
17
Selected Unaudited Pro Forma Condensed Combined
The following selected unaudited pro forma condensed combined financial data was prepared using the purchase method of accounting. For accounting purposes, Solexa is considered to be acquiring Lynx in this transaction. The unaudited pro forma condensed combined statements of operations data combines the historical statements of operations of Lynx and Solexa for the year ended December 31, 2003 and for the six months ended June 30, 2004, giving effect to the proposed transaction as if it had occurred on January 1, 2003. The unaudited pro forma condensed combined balance sheet data combines the historical balance sheets of Lynx and Solexa as of June 30, 2004, giving effect to the proposed transaction as if it had occurred as of June 30, 2004.
The selected unaudited pro forma condensed combined financial data is based on estimates and assumptions that are preliminary. The data is presented for informational purposes only and is not intended to represent or be indicative of the consolidated results of operations or financial condition of Lynx that would have been reported had the proposed transaction been completed as of the dates presented, and should not be taken as representative of future consolidated results of operations or financial condition of Lynx. Please also read the section in this proxy statement/ prospectus entitled Forward Looking Statements on page 30 for more information on the statements made in this section.
This selected unaudited pro forma condensed combined financial data should be read in conjunction with the summary selected historical financial data, the unaudited pro forma condensed combined financial statements and accompanying notes contained elsewhere in this proxy statement/ prospectus, Solexas historical financial statements and accompanying notes contained elsewhere in this proxy statement/ prospectus and Lynxs historical consolidated financial statements and accompanying notes incorporated by reference into this proxy statement/ prospectus. See the section entitled Where You Can Find More Information on page 174 of this proxy statement/ prospectus.
Year Ended | ||||||||
December 31, | Six Months Ended | |||||||
Pro Forma Condensed Combined Statements of Operations Data | 2003 | June 30, 2004 | ||||||
(In thousands, except per share data) | ||||||||
Revenues
|
$ | 17,348 | $ | 2,745 | ||||
Loss from operations
|
(13,909 | ) | (12,990 | ) | ||||
Net loss
|
(16,095 | ) | (12,855 | ) | ||||
Basic and diluted net loss per share
|
$ | (0.50 | ) | $ | (0.37 | ) | ||
Shares used in computation of basic and diluted
net loss per share(1)
|
32,501 | 34,571 |
As of June 30, | ||||
Pro Forma Condensed Combined Balance Sheet Data | 2004 | |||
(In thousands) | ||||
Cash, cash equivalents and short-term investments
|
$ | 19,535 | ||
Total assets
|
87,322 | |||
Equipment loans noncurrent portion
|
16 | |||
Total stockholders equity
|
80,692 |
(1) | Assumes 27,647,200 new Lynx common shares issued to Solexa. |
18
Comparative Per Share Data
The following table presents historical per share data regarding the net loss and book value of each of Lynx and Solexa and unaudited combined pro forma per share data after giving effect to the transaction as a purchase of Lynx by Solexa. The pro forma net loss per share information gives effect to the proposed transaction for the year ended December 31, 2003 and for the six months ended June 30, 2004 as if it had occurred on January 1, 2003. The pro forma book value per share information gives effect to the proposed transaction as if it had occurred on December 31, 2003 and June 30, 2004, respectively. The pro forma combined shares consist of 27,647,200 new Lynx common shares to be issued to Solexa shareholders (excluding the 1,852,846 Lynx share equivalents to be issued to Solexa optionholders) added to the shares used in computation of Lynxs historical basic and diluted net loss per share or historical book value for the applicable period. The Solexa equivalent shares assume 12,960,362 as-converted Solexa ordinary shares (as a result of converting the Solexa B preferred and Solexa A ordinary into Solexa ordinary shares) and an exchange ratio of 2.1332 new Lynx common shares to be issued in the transaction for each Solexa as-converted ordinary share. Neither Lynx nor Solexa has paid any cash dividends during the periods presented.
The data has been derived from and should be read in conjunction with the summary selected historical financial data, Solexas historical financial statements and accompanying notes contained elsewhere in this proxy statement/ prospectus, the unaudited pro forma condensed combined financial statements contained elsewhere in this proxy statement/ prospectus and Lynxs historical consolidated financial statements and the accompanying notes incorporated by reference into this proxy statement/ prospectus. The unaudited pro forma per share data is presented for informational purposes only and is not intended to represent or be indicative of the consolidated results of operations or financial condition of Lynx that would have been reported had the transaction been completed as of the dates presented, and should not be taken as representative of future consolidated results of operations or financial condition of the combined company.
The Solexa equivalent pro forma per share data is calculated by multiplying the pro forma combined per share amounts by the as-converted exchange ratio of 2.1332 shares of Lynx common stock for each share in Solexas share capital.
Pro Forma | |||||||||||||||||
Historical | Lynx and | ||||||||||||||||
Solexa | Solexa | ||||||||||||||||
Lynx | Solexa | Combined | Equivalent | ||||||||||||||
(Shares in thousands) | |||||||||||||||||
Basic and diluted net loss per common share:
|
|||||||||||||||||
Year ended December 31, 2003
|
$ | (1.80 | ) | $ | (0.89 | ) | $ | (0.50 | ) | $ | (1.07 | ) | |||||
Six months ended June 30, 2004
|
$ | (1.13 | ) | $ | (0.67 | ) | $ | (0.37 | ) | $ | (0.79 | ) | |||||
Shares used in computation of basic and diluted
net loss per share:
|
|||||||||||||||||
Year ended December 31, 2003
|
4,854 | 6,338 | 32,501 | ||||||||||||||
Six months ended June 30, 2004
|
6,924 | 6,338 | 34,571 | ||||||||||||||
Book value per share as of:
|
|||||||||||||||||
December 31, 2003
|
$ | 1.62 | $ | 1.52 | $ | 2.50 | $ | 5.33 | |||||||||
June 30, 2004
|
$ | 1.14 | $ | 0.88 | $ | 2.29 | $ | 4.89 | |||||||||
Shares used in computation of book value per
share:
|
|||||||||||||||||
December 31, 2003
|
6,199 | 6,338 | 33,846 | ||||||||||||||
June 30, 2004
|
7,528 | 6,338 | 35,175 |
19
Market Price, Exchange Rate and Dividend Data
Market Price Data
Lynx common stock is quoted on the NASDAQ SmallCap Market and traded under the symbol LYNX. The table below sets forth for the periods indicated the high and low bid prices per share of Lynx common stock. For current price information with respect to Lynx common stock, you are urged to consult publicly available sources. No assurance can be given as to future prices of, or markets for, shares of Lynx common stock.
Lynx | ||||||||
Common Stock | ||||||||
High | Low | |||||||
Fiscal year ending December 31,
2004
|
||||||||
Fourth Quarter (through October 26, 2004)
|
$ | 3.00 | $ | 2.81 | ||||
Third Quarter
|
2.51 | 1.48 | ||||||
Second Quarter
|
5.30 | 1.99 | ||||||
First Quarter
|
6.86 | 4.49 | ||||||
Fiscal year ended December 31,
2003
|
||||||||
Fourth Quarter
|
$ | 6.59 | $ | 4.02 | ||||
Third Quarter
|
7.94 | 2.80 | ||||||
Second Quarter
|
4.95 | 1.73 | ||||||
First Quarter
|
2.59 | 1.61 | ||||||
Fiscal year ended December 31,
2002
|
||||||||
Fourth Quarter
|
$ | 5.95 | $ | 2.73 | ||||
Third Quarter
|
8.61 | 2.94 | ||||||
Second Quarter
|
14.77 | 7.84 | ||||||
First Quarter
|
32.89 | 14.14 |
There is no established trading market for Solexa shares.
Recent Share Price Data
On September 27, 2004, the last completed trading day prior to the announcement of the acquisition agreement, the closing sales price of Lynx common stock on the NASDAQ SmallCap Market was $1.86 per share. On October 26, 2004, the closing sales price of Lynx common stock on the NASDAQ SmallCap Market was $3.00 per share. The table below sets forth the implied equivalent value of one share in Solexas share capital on the dates indicated, based on the exchange ratios. Changes in the market price of Lynx common stock will not affect the number of shares of Lynx common stock to be received by Solexas shareholders.
Per Share | Per Share | |||||||||||
Equivalent Value on | Equivalent Value on | |||||||||||
Solexa Shares | Exchange Ratio | September 27, 2004 | October 26, 2004 | |||||||||
B preferred share
|
2.61560 | $ | 4.87 | $ | 7.85 | |||||||
A ordinary share
|
2.75326 | $ | 5.12 | $ | 8.26 | |||||||
Ordinary share
|
0.88637 | $ | 1.65 | $ | 2.66 |
Exchange Rate Data
Lynx common stock is quoted and trades on the NASDAQ SmallCap Market in U.S. dollars. Fluctuations in the currency exchange rate between the United States dollar and pounds sterling will cause the value of Lynx common stock received by a Solexa shareholder to change. The following table sets forth, for
20
Exchange Rates | ||||||||||||||||
High | Low | Period End | Average | |||||||||||||
Fiscal year ending December 31,
2004
|
||||||||||||||||
Fourth Quarter (through October 25, 2004)
|
0.56350 | 0.54580 | 0.54710 | 0.55520 | ||||||||||||
Third Quarter
|
0.56460 | 0.53260 | 0.55590 | 0.54977 | ||||||||||||
Second Quarter
|
0.57200 | 0.53730 | 0.55340 | 0.55323 | ||||||||||||
First Quarter
|
0.56270 | 0.52230 | 0.54770 | 0.54485 | ||||||||||||
Fiscal year ended December 31,
2003
|
||||||||||||||||
Fourth Quarter
|
0.60480 | 0.56070 | 0.56250 | 0.58629 | ||||||||||||
Third Quarter
|
0.64060 | 0.59700 | 0.60010 | 0.62084 | ||||||||||||
Second Quarter
|
0.64670 | 0.59130 | 0.60650 | 0.61845 | ||||||||||||
First Quarter
|
0.64350 | 0.60310 | 0.63540 | 0.62388 | ||||||||||||
Fiscal year ended December 31,
2002
|
||||||||||||||||
Fourth Quarter
|
0.64870 | 0.62230 | 0.62350 | 0.63614 | ||||||||||||
Third Quarter
|
0.65990 | 0.63010 | 0.64060 | 0.64542 | ||||||||||||
Second Quarter
|
0.70180 | 0.64990 | 0.65260 | 0.68424 | ||||||||||||
First Quarter
|
0.71200 | 0.68640 | 0.70150 | 0.70078 | ||||||||||||
Fiscal year ended December 31,
2001
|
||||||||||||||||
Fourth Quarter
|
0.71030 | 0.67340 | 0.68920 | 0.69298 | ||||||||||||
Third Quarter
|
0.71780 | 0.67640 | 0.67820 | 0.69554 | ||||||||||||
Second Quarter
|
0.73080 | 0.68930 | 0.70700 | 0.70331 | ||||||||||||
First Quarter
|
0.70650 | 0.66190 | 0.70610 | 0.68546 | ||||||||||||
Fiscal year ended December 31,
2000
|
||||||||||||||||
Fourth Quarter
|
0.71630 | 0.66710 | 0.66990 | 0.69092 | ||||||||||||
Third Quarter
|
0.71670 | 0.65660 | 0.68360 | 0.67675 | ||||||||||||
Second Quarter
|
0.68190 | 0.62190 | 0.65860 | 0.65257 | ||||||||||||
First Quarter
|
0.64030 | 0.60320 | 0.62660 | 0.62272 |
On September 27, 2004, the last trading day prior to the announcement of the acquisition agreement, the exchange rate for one United States dollar expressed in pounds sterling was 0.6030. On October 25, 2004, the exchange rate for one United States dollar expressed in pounds sterling was 0.54710.
Lynx stockholders and Solexa shareholders are advised to obtain current market quotations for Lynx common stock and current currency exchange rates between the United States dollar and pounds sterling. No assurance can be given as to the market price of Lynx common stock or the currency exchange rate at any time before or after the completion of the transaction. The exchange ratios will not be adjusted to compensate Solexas shareholders for decreases in the market price of Lynx common stock or the currency exchange rate, whether they occur before or after the completion of the transaction. Similarly, the exchange ratios will not be adjusted to compensate Lynx for any increases in the market price of Lynx common stock.
Dividends
To date, Lynx has not paid cash dividends on its common stock and does not intend to pay any cash dividends in the foreseeable future.
To date, Solexa has not paid cash dividends on its outstanding share capital and does not intend to pay cash dividends in the foreseeable future.
21
RISK FACTORS
Lynx stockholders should carefully consider the following factors in evaluating whether to approve the proposals to be voted on at the Lynx annual meeting. Solexa shareholders should carefully consider the following factors in evaluating whether to accept Lynxs offer. These factors should be considered in conjunction with the other information included in or incorporated by reference into this proxy statement/ prospectus, including the risks discussed in Lynxs Form 10-Q for the quarter ended June 30, 2004 in Item 2 under Additional Business Risks and Item 3 under Quantitative and Qualitative Disclosures About Market Risk and Lynxs Form 10-K for the year ended December 31, 2003, as amended, in Item 1 under Business Risks and Item 7A under Quantitative and Qualitative Disclosures About Market Risk.
Risks Relating to the Transaction
The exchange ratios are fixed and will not be adjusted based on fluctuations in Lynxs stock price. As a result, the specific dollar value of Lynx common stock that Solexa shareholders will receive upon completion of the transaction will depend on the market value of Lynx common stock at that time.
Lynxs stock price has been volatile in the past and may continue to be volatile in the future. If the transaction is completed, Lynx will issue, or otherwise allocate for issuance under options to acquire Lynx common stock, a total of 29.5 million shares of Lynx common stock pursuant to the terms of the offer and the option offer. If the offer is accepted and the transaction is completed, each holder of Solexa B preferred shares will be entitled to receive 2.61560 shares of Lynx common stock for each Solexa B preferred share; each holder of Solexa A ordinary shares will be entitled to receive 2.75326 shares of Lynx common stock for each Solexa A ordinary share; and each holder of Solexa ordinary shares will be entitled to receive 0.88637 of a share of Lynx common stock for each Solexa ordinary share. The exchange ratios will not change based on the fluctuations in the market price of Lynx common stock. As a result, the specific dollar value of Lynx common stock that Solexa shareholders will receive upon completion of the transaction will depend on the market value of Lynx common stock at that time. The market price of Lynx common stock upon the completion of the transaction will likely vary from the market price as of the date of this proxy statement/ prospectus and as of the date of the Lynx annual meeting and the date that the offer is made to Solexas shareholders. Any reduction in Lynxs stock price will result in Solexa shareholders receiving less value at the time of the first closing in the transaction from shares of Lynx common stock received. Conversely, any increase in Lynxs stock price will result in Solexa shareholders receiving greater value at the time of the first closing in the transaction from shares of Lynx common stock received.
Variations in the market price of Lynx common stock may be caused by a number of factors, including, among others, ability to obtain financing, changes in the businesses, operations or prospects of Lynx and/or Solexa, the timing of the transaction, regulatory considerations and general market, biotechnology industry and economic conditions. Lynx stockholders and Solexa shareholders are urged to obtain recent market quotations for Lynx common stock.
Lynx and Solexa may not realize the benefits they expect from the transaction.
The integration of Lynx and Solexa will be complex, time consuming and expensive, and may disrupt Lynxs and Solexas businesses. The combined group will need to overcome significant challenges in order to realize any benefits or synergies from the transaction. These challenges include the timely, efficient and successful execution of a number of post-transaction events, including:
| obtaining sufficient additional financing in order to execute the combined groups business plan; | |
| integrating the operations and technologies of the two companies; | |
| retaining and assimilating personnel of each company; | |
| retaining existing customers and attracting additional service customers of Lynx; |
22
| attracting new customers for future equipment sales by the combined group; and | |
| creating and implementing financial controls, procedures, policies, standards and information systems. |
The execution of these post-transaction events will involve considerable risks and may not be successful. These risks include:
| the inability to obtain sufficient additional financing; | |
| the potential disruption of the combined groups ongoing business and distraction of its management; | |
| the potential strain on the combined groups financial and managerial controls and reporting systems and procedures; | |
| unanticipated expenses and potential delays related to integration of the operations, technology and other resources of the two companies; | |
| the impairment of relationships with employees, suppliers and customers as a result of any integration of new management personnel; | |
| greater than anticipated costs and expenses related to the integration; and | |
| potential unknown liabilities and costs associated with the transaction and the combined operations. |
Lynx and Solexa may not succeed in addressing these risks or any other problems encountered in connection with the transaction. The inability to successfully integrate the operations, technology and personnel of Lynx and Solexa, or any significant delay in achieving integration, could have a material adverse effect on the combined group after the transaction and, as a result, on the market price of Lynx common stock.
The issuance of shares of Lynx common stock to Solexa shareholders in the transaction will substantially reduce the percentage interests of Lynx stockholders.
If the transaction is completed, Lynx will issue, or otherwise allocate for issuance under options to acquire Lynx common stock, a total of 29.5 million shares of Lynx common stock pursuant to the terms of the offer and the option offer. Following the completion of the transaction, current Solexa shareholders will, upon issuance, own approximately 80% of the outstanding Lynx common stock, and current Lynx stockholders will own approximately 20% of the outstanding Lynx common stock. The issuance of 29.5 million shares of Lynx common stock will cause a significant reduction in the relative percentage interests of current Lynx stockholders in the earnings, voting, liquidation value, and book and market value of Lynx.
The issuance of shares of Lynx common stock in the proposed financing will substantially reduce the percentage interests of Lynx stockholders and will substantially reduce the interests of Solexa stockholders in the combined group following the completion of the transaction.
If the transaction is completed and the proposed financing is also completed, Lynx will issue up to 10,000,000 shares of Lynx common stock (including shares issuable upon conversion or exercise of convertible debt or warrants convertible into or exercisable for Lynx common stock) pursuant to the terms of the proposed financing. The issuance of up to 10,000,000 shares of Lynx common stock (including shares issuable upon conversion or exercise of convertible debt or warrants convertible into or exercisable for Lynx common stock), if any, will cause a significant reduction in the relative percentage interests of current Lynx stockholders and Solexa shareholders in the earnings, voting, liquidation and book and market value of the combined group.
The transaction will not be completed if Lynx fails to acquire at least 90% of each class of the outstanding shares in the share capital of Solexa.
The offer is subject to a condition that, before the end of the offer period, valid acceptances have been received and not properly withdrawn in respect of at least 90% in nominal value of each class of the outstanding Solexa shares. Lynx has received irrevocable undertakings to accept the offer from certain Solexa
23
Some of Lynxs and Solexas officers and directors have conflicts of interest that may influence them to support or approve the transaction.
Certain officers and directors of Lynx and Solexa will participate in arrangements that provide them with interests in the transaction that are different from those of the stockholders of Lynx and the shareholders of Solexa, including, among others, liability insurance coverage, employment and indemnification arrangements with Lynx. These interests, among others, may influence the officers and directors of Lynx and Solexa to support or approve the transaction. For a more detailed discussion see the section entitled Interests of Officers, Directors and Affiliates on page 54.
Following the completion of the transaction, the combined groups officers and directors will have substantial control over the combined group.
The combined groups executive officers, directors and entities affiliated with them, in the aggregate, will beneficially own approximately 78% of the combined group after the transaction. These stockholders, if acting together, would be able to influence significantly all matters requiring approval by its stockholders, including the election of directors and the approval of mergers or other changes in corporate control.
Upon the receipt of Lynx shares in the offer, Solexas shareholders will become stockholders in a Delaware corporation, which will change certain shareholder rights and privileges that they hold as shareholders of an English company.
Lynx is governed by the laws of the U.S., the State of Delaware and by its certificate of incorporation and by-laws. The DGCL extends to stockholders certain rights and privileges that may not exist under English law and, conversely, does not extend certain rights and privileges that Solexa shareholders may have as a member of a company governed by English law. The directors of a Delaware corporation may elect to adopt certain provisions that have the effect of discouraging a third party from acquiring control of Lynx. Such provisions could limit the price that some investors might be willing to pay in the future for Lynx shares. These Delaware provisions may also have the effect of discouraging or preventing certain types of transactions involving an actual or a threatened change in control of Lynx, including unsolicited takeover attempts, even though such a transaction may offer Lynx stockholders the opportunity to sell their Lynx shares at a price above the prevailing market price. Some of the rights of various classes of Solexa shares will not survive the completion of the transaction and will not be replicated in the rights of Lynx common stock. For a detailed discussion of the rights of Lynx stockholders versus the rights of holders of Solexa share capital, see the section entitled Comparison of Rights of Holders of Lynx Common Stock and Solexa Shares on page 86.
Charges to earnings resulting from the application of the purchase method of accounting may adversely affect the market value of Lynx common stock following the transaction.
In accordance with United States generally accepted accounting principles, the combined group will account for the transaction using the purchase method of accounting. Also, under United States generally accepted accounting principles, Solexa will be considered the acquiror for the purposes of purchase accounting. The total purchase price will be allocated among Lynxs net tangible assets and amortizable intangible assets based on their fair values as of the date of completion of the transaction, and any remaining purchase price over those cumulative fair values will be recorded as goodwill. The combined group will incur additional amortization expense over the estimated useful lives of certain of the intangible assets acquired in connection with the transaction, which is expected to be approximately US$0.4 million on an annual basis. In addition, to the extent the value of goodwill or intangible assets with indefinite lives becomes impaired, the combined group may be required to incur material charges relating to the impairment of those assets.
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Lynx and Solexa will incur substantial costs whether or not the transaction is completed.
Lynx and Solexa will incur substantial costs related to the transaction whether or not the transaction is completed. These costs include fees for financial advisors, attorneys and accountants, filing fees, stamp duty and financial printing costs.
Lynx currently expects to incur approximately $2.8 million in costs, approximately $1.2 million of which are not contingent on the completion of the transaction. Solexa currently expects to incur approximately $1.1 million in costs, approximately $0.9 million of which are not contingent on the completion of the transaction.
Depending on the date the transaction is completed, Lynx and/or Solexa may require additional financing prior to the completion of the transaction.
Depending on the date the transaction is completed, Lynx and/or Solexa may require additional financing in order to fund operations until the transaction is completed. There is no guarantee that sufficient additional financing will be available from either existing Solexa investors or new investors. At present, several of the Solexa institutional investors have expressed preliminary interest in providing additional financing to the combined group. However, their commitment to any such financing, the likely amount raised and the timing of the financing are uncertain.
Risks Relating to the Combined Group Following the Transaction
The combined group will need to raise additional funding, which may not be available on favorable terms, if at all.
The combined group will need to raise additional capital through public or private equity or debt financings in order to satisfy its projected capital needs, which is estimated to be approximately $35 million over the next twenty-four months. The amount of additional capital the combined group would need to raise would depend on many factors, including:
| the progress and scope of research and development programs; | |
| the ability and willingness of Solexas existing venture investors to provide additional capital to the combined group; | |
| payments received under its customer, license and collaborative agreements; | |
| its ability to establish and maintain customer, license and collaborative agreements; | |
| the progress of its commercialization efforts with respect to its current commercial services and products it plans to develop and commercialize; | |
| the costs associated with obtaining access to biological samples and related information; and | |
| the costs involved in preparing, filing, prosecuting, maintaining and enforcing patent claims and other intellectual property rights. |
The combined group cannot be certain that in the future these sources of liquidity will be available when needed and that its actual cash requirements will not be greater than anticipated. If the combined group is unable to obtain this financing on terms favorable to the combined group, it may be required to cease or reduce further development or commercialization of its product, to sell some of all of its technology or assets or to merge with another entity. In appropriate strategic situations, the combined group may seek financial assistance from other sources, including contributions by others to joint ventures and other collaborative or licensing arrangements for the development and testing of products under development.
If the combined group raises additional capital by issuing equity securities, the issuance of such securities would dilute the then current stockholders ownership in the combined group. If the combined group raises additional funds through collaborations and licensing arrangements, it may be required to relinquish rights to certain of its technologies or product candidates, or to grant licenses on unfavorable terms. The relinquishing
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Lynx and Solexa each have a history of net losses, expect to continue to incur net losses and may not achieve or maintain profitability.
Lynx has incurred net losses each year since its inception in 1992, with an accumulated deficit of approximately $115.5 million as of June 30, 2004. Solexa has incurred net losses each year since its inception in 1998, with an accumulated deficit of approximately $18.1 million as of June 30, 2004. Net losses may continue for the next several years as the combined group proceeds with the development and commercialization of its technologies. The presence and size of these potential net losses will depend, in part, on the rate of growth, if any, in revenues and on the level of expenses. Research and development expenditures and general and administrative costs have exceeded revenues to date, and may increase in the future. The combined group will need to generate significant revenues to achieve profitability, and even if it is successful and achieves profitability, there is no assurance it will be able to sustain profitability.
As a result of the transaction, Lynx will be a substantially larger organization, and if management is unable to sufficiently manage the company, the combined groups operating results will suffer.
As a result of the transaction, Lynx will add Solexas 52 employees based outside of Cambridge, U.K. to its existing 76 employees based in Hayward, California. The combined group will face challenges inherent in efficiently managing an increased number of employees over large geographic distances, including the need to implement appropriate systems, policies, benefits and compliance programs. The inability to successfully manage the substantially larger and internationally diverse organization, or any significant delay in achieving successful management, could have a material adverse effect on the combined group after the transaction.
Lynx will have a new management team after the transaction which may not be able to define or execute on Lynxs business plan.
Lynx will have a new chief executive officer, John West, who has been the chief executive officer of Solexa since August 2004, and anticipates also hiring a chief financial officer. Solexas prior chief executive officer has agreed to continue to work for Solexa through February 2005, but has not committed to provide services after that point. While Mr. West has experience managing private genomics companies and large genomics teams within public U.S. companies, he has not previously been chief executive of a public company in the U.S. Mr. West anticipates dividing his time between Lynxs operations in California and Solexas operations in the United Kingdom for the foreseeable future. There is no assurance that Lynx will be able to successfully recruit an experienced chief financial officer in the near future, and operating results may suffer as a result.
The transaction could cause the combined group to lose key personnel, which could materially affect the combined groups business and require the combined group to incur substantial costs to recruit replacements for lost personnel.
As a result of the transaction, current and prospective Solexa and Lynx employees could experience uncertainty about their future roles within the combined group. Any of the combined groups key personnel could terminate their employment, sometimes without notice, at any time. Lynx does not maintain key person life insurance on any of its key employees, and Solexa maintains such insurance coverage on only three key employees. The uncertainty related to employees future roles may adversely affect the ability of the combined group to attract and retain key management, sales, marketing and technical personnel. Any failure to attract
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The combined groups technologies are new and unproven for market acceptance.
While some of Lynxs gene expression technology has been commercialized and is currently in use, the combined group anticipates developing additional technologies which assume that information about gene expression and genomic sequences may enable scientists to better understand complex biological processes. The combined groups technologies also depend on the successful integration of Lynxs and Solexas technologies, each of which has its own development risks.
In addition, the cluster technology acquired from Manteia SA is new and the combined group may not be able to successfully integrate it with its existing technologies. The sequence data generated with clusters may not be of the same quality as Lynx currently generates using beads, or the combined group may not be able to achieve the necessary yields to be cost competitive. The combined group may have difficulty integrating the cluster technology into a commercially available instrument. The timelines associated with the development of the cluster technology contain elements of risk and uncertainty and may therefore be extended. Any prolonged delay with the development effort could allow competing technologies to capture significant market share ahead of the combined group.
The combined group intends to implement a new business model after the transaction which is different from Lynxs existing services business model.
The combined group plans to implement a business model based primarily on sales of genomic sequencing equipment and future sales of reagents and services to support customers in their use of that equipment. Lynxs current business model is based on providing sequencing services to customers by using its MPSS equipment. There is no assurance that the combined group will be successful in changing the emphasis of its business model from providing sequencing services to selling equipment, reagents and support services to new or existing customers.
Because the combined group will be changing its business strategy, it is uncertain whether the combined group will be able to commercialize its products or to what extent it will increase its revenues or become profitable.
It is uncertain whether the combined group can implement its business strategy successfully because the combined group is in the early stages of development. Lynx has set out to develop new genomics sequencing technologies and is now using those technologies to develop new equipment, reagents and services. This strategy is largely untested. If the combined groups strategy does not result in the development of products that it can commercialize, it will be unable to generate revenue. Although Lynx has developed genomics sequencing machines and both sold machines and provided gene expression services to other companies with its machines, these were based on technology that Lynx previously developed rather than the anticipated new technologies under development. The combined group cannot be certain that any future products will receive commercial acceptance. If the combined group is unable to commercialize products, it may not be able to recover its investment in the product development efforts.
Lynx will need to develop manufacturing capacity by itself or with a partner.
If Lynx is successful in achieving commercialization and market acceptance for Lynxs machines, Lynx will need to either build internal manufacturing capacity or contract it to a manufacturing partner. There is no assurance that Lynx will be able to build the capacity internally, nor find a manufacturing partner, to meet both the volume and quality requirements to execute its business plan. Any delay or inability to expand Lynxs manufacturing capacity, including obtaining the commitment of necessary capital resources, could materially adversely affect its manufacturing ability.
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The Lynx and Solexa technology platform is in development and the early stages of commercialization.
The Lynx and Solexa technology platform is still in development, and the combined group may not be able to continue to successfully develop or commercialize the technology platform. The success of commercialization of the technology platform depends on many factors, including:
| technical performance of the platform in relation to existing technologies; | |
| the acceptance of the technology in the market place; | |
| the ability to build instrument manufacture capability, or to obtain instruments from a manufacturer; and | |
| the ability to manufacture reagents, or obtain licenses to resell reagents. |
Lynx currently utilizes a single supplier to purchase PacI, an enzyme used with the MegaClone bead technology.
PacI is a restriction enzyme used to digest the PCR product that is loaded onto 5-micron beads prior to MPSS sequencing. While Lynx believes that alternative suppliers for PacI could be identified, the intellectual property rights to PacI belong to Lynxs current supplier New England BioLabs. If Lynx is successful in replacing its MegaClone bead loading process with DNA Clusters, the need for PacI will be removed. Lynxs reliance on outside vendors involves several risks, including:
| the inability to obtain an adequate supply due to manufacturing capacity constraints, a discontinuance of a product by a third-party manufacturer or other supply constraints; | |
| reduced control over quality and pricing of components; and | |
| delays and long lead times in receiving materials from vendors. |
If Lynx fails to adequately protect its proprietary technologies, third parties may be able to use Lynxs technologies, which could prevent Lynx from competing in the market.
Lynxs success depends in part on its ability to obtain patents and maintain adequate protection of the intellectual property related to Lynxs technologies and products. The patent positions of biotechnology companies, including Lynx, are generally uncertain and involve complex legal and factual questions. Lynx will be able to protect its proprietary rights from unauthorized use by third parties only to the extent that Lynxs proprietary technologies are covered by valid and enforceable patents or are effectively maintained as trade secrets. The laws of some foreign countries do not protect proprietary rights to the same extent as the laws of the U.S., and many companies have encountered significant problems in protecting and defending their proprietary rights in foreign jurisdictions. Lynx and Solexa have applied and will continue to apply for patents covering their respective technologies, processes and products, as and when Lynx deems appropriate. However, third parties may challenge these applications, or these applications may fail to result in issued patents. Lynxs existing patents and any future patents Lynx obtains may not be sufficiently broad to prevent others from practicing its technologies or from developing competing products. Furthermore, others may independently develop similar or alternative technologies or design around Lynxs patents. In addition, Lynxs patents may be challenged or invalidated or fail to provide Lynx with any competitive advantage.
Lynx also relies on trade secret protection for Lynxs confidential and proprietary information. However, trade secrets are difficult to protect. Lynx protects its proprietary information and processes, in part, with confidentiality agreements with employees, collaborators and consultants. However, third parties may breach these agreements, Lynx may not have adequate remedies for any such breach or Lynxs trade secrets may still otherwise become known by Lynxs competitors. In addition, Lynxs competitors may independently develop substantially equivalent proprietary information.
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Litigation or third-party claims of intellectual property infringement could require Lynx to spend substantial time and money and adversely affect Lynxs ability to develop and commercialize Lynxs technologies and products.
Lynxs commercial success depends in part on Lynxs ability to avoid infringing patents and proprietary rights of third parties and not breaching any licenses that Lynx has entered into with regard to Lynxs technologies. Other parties have filed, and in the future are likely to file, patent applications covering genes, gene fragments, proteins, the analysis of gene expression and protein expression and the manufacture and use of DNA chips or microarrays, which are tiny glass or silicon wafers on which tens of thousands of DNA molecules can be arrayed on the surface for subsequent analysis. Lynx intends to continue to apply for patent protection for methods relating to gene expression and protein expression and for the individual disease genes and proteins and drug discovery targets Lynx discovers. If patents covering technologies required by Lynxs operations are issued to others, Lynx may have to rely on licenses from third parties, which may not be available on commercially reasonable terms, or at all.
Third parties may accuse Lynx of employing their proprietary technology without authorization. In addition, third parties may obtain patents that relate to Lynxs technologies and claim that use of such technologies infringes these patents. Regardless of their merit, such claims could require Lynx to incur substantial costs, including the diversion of management and technical personnel, in defending ourselves against any such claims or enforcing Lynxs patents. In the event that a successful claim of infringement is brought against Lynx, Lynx may need to pay damages and obtain one or more licenses from third parties. Lynx may not be able to obtain these licenses at a reasonable cost, or at all. Defense of any lawsuit or failure to obtain any of these licenses could adversely affect Lynxs ability to develop and commercialize Lynxs technologies and products and thus prevent Lynx from achieving profitability.
Since NASDAQ has indicated to Lynx that it will view the transaction as a reverse merger, if Lynx does not satisfy the initial listing requirements for Lynx common stock on the NASDAQ SmallCap Market, the shares of Lynx common stock may be de-listed from trading on the NASDAQ SmallCap Market.
As a result of the change in control of Lynx in connection with the transaction, the NASDAQ staff has indicated to Lynx that it will view the transaction as constituting a reverse merger under the NASDAQ Marketplace Rule 4330(f). As a result, Lynx would be required to satisfy the requirements for initial inclusion on the NASDAQ Stock Market, including the $4.00 per share minimum bid price for the 90 trading days preceding the completion of the transaction, in order for Lynx common stock to remain listed on the NASDAQ SmallCap Market following the completion of the transaction. Lynx does not currently satisfy the minimum bid price requirement and intends to effect a reverse split of its outstanding shares of common stock in order to effect a plan to satisfy these requirements. If Lynx is unable to meet the initial listing requirements of the NASDAQ SmallCap Market, the NASDAQ staff would notify Lynx that Lynx common stock would be delisted from the NASDAQ SmallCap Market upon the completion of the transaction. Lynx would have an opportunity to appeal this determination and a hearing on the appeal would be required to take place before an independent appeal panel within 45 days after Lynx files an appeal.
If Lynx common stock is delisted from the NASDAQ SmallCap Market, it would likely trade on the over-the-counter bulletin board, commonly referred to as the pink sheets. This is generally considered to be a less efficient market and would seriously impair the liquidity of Lynx common stock and limit Lynxs potential to raise future capital through the sale of Lynx common stock, which could materially harm Lynxs business.
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FORWARD LOOKING STATEMENTS
This proxy statement/ prospectus and the documents incorporated by reference into this proxy statement/ prospectus contain forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995 with respect to Lynxs and Solexas financial condition, results of operations and businesses and the expected impact of the proposed transaction with Solexa on Lynxs financial performance. Words such as anticipates, expects, intends, plans, predicts, believes, seeks, estimates, could, would, will, may, can, continue, potential, should, and the negative of these terms or other comparable terminology often identify forward-looking statements. Statements in this proxy statement/ prospectus and the other documents incorporated by reference that are not historical facts are hereby identified as forward-looking statements for the purpose of the safe harbor provided by Section 21E of the Securities Exchange Act of 1934, as amended, which we refer to as the Exchange Act, and Section 27A of the Securities Act. These forward-looking statements are not guarantees of future performance and are subject to risks and uncertainties that could cause actual results to differ materially from the results contemplated by the forward-looking statements, including the risks discussed in this proxy statement/ prospectus, in Lynxs Annual Report on Form 10-K for the fiscal year ended December 31, 2003, as amended, in Item 1 under Business Risks as well as in Item 7A Qualitative and Quantitative Disclosures about Market Risk, its Quarterly Report on Form 10-Q for the period ended June 30, 2004 in Item 2 under Additional Business Risks as well as in Item 3 Qualitative and Quantitative Disclosures about Market Risk and the risks detailed from time to time in Lynxs future SEC reports. Many of the important factors that will determine these results are beyond Lynxs and Solexas ability to control or predict. Lynx stockholders and Solexa shareholders are cautioned not to put undue reliance on any forward-looking statements, which speak only as of the date of the proxy statement/ prospectus or, in the case of documents incorporated by reference, as of the date of such documents. Except as otherwise required by law, Lynx and Solexa do not assume any obligation to publicly update or release any revisions to these forward-looking statements to reflect events or circumstances after the date of this proxy statement/ prospectus or to reflect the occurrence of unanticipated events.
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ANNUAL MEETING OF LYNX STOCKHOLDERS
When and where is the Lynx annual meeting?
The Lynx annual meeting will be held on , at , local time, at . Lynx is sending this proxy statement/ prospectus and the enclosed proxy card to its stockholders because Lynxs board of directors is soliciting their proxy to vote at the Lynx annual meeting.
What are Lynx stockholders voting on at the Lynx annual meeting?
There are six matters scheduled for a vote at the Lynx annual meeting:
1. to consider and vote upon a proposal to approve the issuance of Lynx common stock pursuant to the acquisition agreement and the resulting change of control of Lynx; | |
2. to approve (i) the sale, issuance or potential issuance of up to 10,000,000 shares of Lynx common stock (including shares issuable upon conversion or exercise of convertible debt or warrants convertible into or exercisable for Lynx common stock) at a price that may be less than the greater of book or market value of the Lynx common stock, to investors who will likely include affiliates of certain director nominees who will be appointed to Lynxs board of directors on the first closing date, and (ii) the change of control, if any, of Lynx which may occur as a result of such sale, issuance or potential issuance, in all cases to comply with NASDAQ Marketplace Rule 4350. | |
3. to elect seven directors to serve for the ensuing year and until their successors are duly elected or appointed; | |
4. to approve an amendment to Lynxs certificate of incorporation to effect a reverse stock split of Lynxs common stock pursuant to which any whole number of outstanding shares between and including two and four would be combined into one share of Lynx common stock and to authorize Lynxs board of directors to select such number and file such amendment; | |
5. to approve an amendment to the Lynx 1992 plan to increase the aggregate number of shares of Lynx common stock authorized for issuance under such plan by 2,000,000 shares; and | |
6. to ratify the selection by the Audit Committee of Lynxs Board of Directors of Ernst & Young LLP as the independent registered public accounting firm of Lynx for its fiscal year ending December 31, 2004. |
At the Lynx annual meeting, Lynx shareholders will be asked to conduct any other business properly bought before the meeting.
Who can vote at the Lynx annual meeting?
Only Lynxs stockholders of record at the close of business on , 2004 will be entitled to vote at the Lynx annual meeting. On this record date, there were shares of Lynx common stock outstanding and entitled to vote.
Stockholder of Record: Shares Registered in Lynx Stockholders Name |
If on the record date, the shares of a Lynx stockholder were registered directly in such stockholders name with Lynxs transfer agent, EquiServe Trust Company N.A., then such Lynx stockholder is a stockholder of record. As a stockholder of record, the Lynx stockholder may vote in person at the meeting or vote by proxy. Whether or not a Lynx stockholder plans to attend the meeting, Lynx urges such stockholders to fill out and return the enclosed proxy card to ensure his or vote is counted.
Beneficial Owner: Shares Registered in the Name of a Broker or Bank |
If on the record date, the shares of a Lynx stockholder were held, not in such stockholders name, but rather in an account at a brokerage firm, bank, dealer, or other similar organization, then such Lynx
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How do Lynx stockholders vote?
Lynx stockholders may either vote For all the nominees to Lynxs Board of Directors or may abstain from voting for any nominees such Lynx stockholder specifies. For each of the other matters to be voted on, Lynx stockholders may vote For or Against or abstain from voting. The procedures for voting are as follows:
Stockholder of Record: Shares Registered in Lynx Stockholder Name |
If a Lynx stockholder is a stockholder of record, such stockholder may vote in person at the Lynx annual meeting or vote by proxy using the enclosed proxy card. Whether or not such Lynx stockholder plans to attend the meeting, Lynx urges such stockholder to vote by proxy to ensure such stockholders vote is counted. A Lynx stockholder may still attend the meeting and vote in person if such stockholder has already voted by proxy.
| To vote in person, a Lynx stockholder must come to the annual meeting and Lynx will give each stockholder a ballot when he or she arrives. | |
| To vote using the proxy card, a Lynx stockholder must complete, sign and date the enclosed proxy card and return it promptly in the envelope provided. If a Lynx stockholder returns such stockholders signed proxy card to Lynx before the annual meeting, Lynx will vote such stockholders shares as he or she directs. |
Beneficial Owner: Shares Registered in the Name of a Broker or Bank |
If a Lynx stockholder is a beneficial owner of shares registered in the name of a broker, bank, or other agent, such stockholder should have received a proxy card and voting instructions with these proxy materials from that organization rather than from Lynx. A Lynx stockholder shall simply complete and mail the proxy card to ensure that such stockholders vote is counted.
To vote in person at the Lynx annual meeting, a Lynx stockholder must obtain a valid proxy from such stockholders broker, bank, or other agent. A Lynx stockholder shall follow the instructions from such stockholders broker or bank included with these proxy materials, or contact such stockholders broker or bank to request a proxy form.
How many votes does a Lynx stockholder have?
On each matter to be voted upon, a Lynx stockholder has one vote for each share of common stock he or she owns as of the record date.
What if a Lynx stockholder returns a proxy card but does not make specific choices?
If a Lynx stockholder returns a signed and dated proxy card without marking any voting selections, such stockholders shares will be voted: (i) For the approval of the issuance of Lynxs common stock in the transaction and the resulting change of control of Lynx; (ii) For the approval of the issuance of shares of Lynx common stock (including shares issuable upon conversion or exercise of convertible debt or warrants convertible into or exercisable for Lynx common stock) in connection with the proposed financing; (iii) For the election of all seven nominees for directors; (iv) For the approval of the amendment to Lynxs certificate of incorporation to effect a reverse stock split; (v) For the approval of the 2 million share increase
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Who is paying for this proxy solicitation?
Lynx will pay for the entire cost of soliciting proxies. In addition to these mailed proxy materials, Lynxs directors and employees and The Altman Group may also solicit proxies in person, by telephone or by other means of communication. Directors and employees will not be paid any additional compensation for soliciting proxies, but The Altman Group will be paid its customary fee of approximately $6,000 plus out-of-pocket expenses if it solicits proxies. Lynx will also reimburse brokerage firms, banks and other agents for the cost of forwarding proxy materials to beneficial owners.
What does it mean if a Lynx stockholder receives more than one proxy card?
If a Lynx stockholder receives more than one proxy card, such stockholders shares are registered in more than one name or are registered in different accounts. Such Lynx stockholder must complete, sign and return each proxy card to ensure that all of the shares are voted.
Can a Lynx stockholder change the Lynx stockholders vote after submitting the proxy?
Yes. A Lynx stockholder can revoke such stockholders proxy at any time before the final vote at the meeting. A Lynx stockholder who is the record holder of the Lynx shares may revoke such stockholders proxy by any one of three ways:
| submitting another properly completed proxy card with a later date; | |
| sending a written notice that such stockholder is revoking the proxy to Lynxs Secretary at 25861 Industrial Blvd., Hayward, California 94545; or | |
| attending the annual meeting and voting in person. Simply attending the meeting will not, by itself, revoke a Lynx stockholders proxy. |
If a Lynx stockholders shares are held by a broker or bank as a nominee or agent, such stockholder should follow the instructions provided by the Lynx stockholders broker or bank.
When are stockholder proposals due for next years Lynx annual meeting?
To be considered for inclusion in the proxy statement for the 2005 annual meeting of Lynx stockholders, a Lynx stockholders proposal must be submitted in writing by , 2005 to Lynxs Secretary at 25861 Industrial Blvd., Hayward, California 94545. In addition, under the Lynx bylaws, if a Lynx stockholder wishes to submit a proposal that is not to be included in Lynxs 2005 proxy materials or nominate a director, he or she must do so by , 2005. Unless a Lynx stockholder at Lynxs 2005 annual meeting of stockholders notifies Lynx of such proposals or nominations prior to the meeting and in accordance with Lynxs bylaws, the chairman of the Lynx annual meeting will have discretionary authority to declare at the Lynx annual meeting that such matters cannot be transacted. Lynx stockholders are also advised to review Lynxs bylaws, which contain additional requirements with respect to advance notice of stockholder proposals and director nominations.
How are votes counted?
Votes will be counted by the inspector of election appointed for the meeting, who will separately count For and, with respect to proposals other than the election of directors, Against votes, abstentions and broker non-votes. Abstentions will be counted towards the vote total for each proposal except for proposals 1 and 2, and will have the same effect as Against votes. For proposals 1 and 2, abstentions will have no effect.
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If a Lynx stockholders shares are held by such stockholders broker as such stockholders nominee, that is, in street name, such stockholder will need to obtain a proxy form from the institution that holds the stockholders shares and follow the instructions included on that form regarding how to instruct the stockholders broker to vote the shares. If a Lynx stockholder does not give instructions to such stockholders broker, the broker can vote such shares with respect to discretionary items, but not with respect to non-discretionary items. On non-discretionary items for which a Lynx stockholder does not give such stockholders broker instructions, the shares will be treated as broker non-votes.
How many votes are needed to approve each proposal?
To be approved, proposal 1, the issuance of Lynx common stock and the resulting change of control of Lynx, must receive a For vote from the majority of the total votes cast at the Lynx annual meeting, either in person or by proxy. Abstentions and broker non-votes will have no effect.
To be approved, proposal 2, the issuance of Lynx common stock (including shares issuable upon conversion or exercise of convertible debt or warrants convertible into or exercisable for Lynx common stock) in connection with the proposed financing, must receive a For vote from the majority of the total votes cast at the Lynx annual meeting, either in person or by proxy. Abstentions and broker non-votes will have no effect. For the election of directors under proposal 3, the seven nominees receiving the most For votes (among votes properly cast in person or by proxy) will be elected. Only votes For or Withheld will affect the outcome.
To be approved, proposal 4, the amendment to Lynxs certificate of incorporation to effect the reverse stock split, must receive a For vote from the majority of shares of Lynx common stock outstanding on the record date. If a Lynx stockholder Abstains from voting, it will have the same effect as an Against vote. Broker non-votes will have the same effect as an Against vote. As of the record date, there were shares of Lynx common stock outstanding. Therefore, stockholders holding at least shares of Lynx common stock must vote For the amendment to Lynxs certificate of incorporation.
To be approved, proposal 5, the 2 million share increase in the number of shares of Lynx common stock authorized for issuance under the Lynx 1992 plan, must receive a For vote from the majority of shares of Lynx common stock present at the Lynx annual meeting, either in person or by proxy. If a Lynx stockholder Abstains from voting, it will have the same effect as an Against vote. Broker non-votes will have no effect.
To be approved, proposal 6, the ratification of Ernst & Young LLP as the independent registered public accounting firm of Lynx for its fiscal year ending December 31, 2004, must receive a For vote from the majority of shares of Lynx common stock present at the Lynx annual meeting, either in person or by proxy. If a Lynx stockholder Abstains from voting, it will have the same effect as an Against vote.
What is the quorum requirement?
A quorum of stockholders is necessary to hold a valid meeting. A quorum will be present if the holders of a majority of the outstanding shares of Lynx common stock entitled to vote are present at the Lynx annual meeting, either in person or by proxy duly authorized. On the record date, there were shares of Lynx common stock outstanding and entitled to vote. Thus, shares of Lynx common stock must be represented by stockholders present at the meeting either in person or by proxy to have a quorum.
The shares a Lynx stockholder holds will be counted towards the quorum only if he or she submits a valid proxy (or one is submitted on such stockholders behalf by such stockholders broker, bank or other nominee) or if he or she votes at the meeting. Abstentions and broker non-votes will be counted towards the quorum requirement. If there is no quorum, the meeting may be adjourned either by the chairman of the meeting or by vote of the holders of a majority of the shares represented at the meeting.
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How can Lynx stockholders find out the results of the voting at the Lynx annual meeting?
Preliminary voting results will be announced at the Lynx annual meeting. Final voting results will be published in Lynxs quarterly report on Form 10-Q for the quarter during which the Lynx annual meeting occurs.
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CHAPTER TWO PROPOSAL 1 FOR
APPROVAL OF ISSUANCE OF LYNX COMMON STOCK AND
Background to the Transaction
As part of its ongoing business, Lynx has from time to time evaluated opportunities for increasing stockholder value, including strengthening its technology, research and development capabilities, business combinations, investments, licensing and development agreements and joint ventures. Lynx has relied on obtaining external financing since the fall of 2001 to continue funding its business, and has had periodic discussions with both financing sources as well as potential acquirors over that period of time.
In March 2002, as Lynx was experiencing financial difficulties, Craig Taylor, chairman of Lynxs board of directors, contacted Tom Daniel, a Solexa board member, to consider exploring a strategic combination of the businesses. Representatives of Solexa visited Lynxs offices in Hayward, California to review Lynxs technology, business and financial position but decided at the time not to proceed with negotiations.
In January 2003, Mr. Daniel and Mark Carthy, both Solexa board members, visited the Lynx offices to receive an update on Lynxs technology development and financial condition, but decided at the time not to proceed with negotiations.
In October 2003, Kevin Corcoran, chief executive officer of Lynx, and Nick McCooke, former chief executive officer of Solexa, began discussing the opportunity of a joint purchase of the DNA cluster technology and associated assets of Manteia SA, or the cluster technology, in a bankruptcy auction.
In December 2003, Mr. Corcoran and Edward Albini, Lynxs former chief financial officer, visited Solexas offices outside of Cambridge, U.K. to review the potential technology and financial impacts of a strategic combination of the companies.
On December 9, 2003, the Solexa board of directors held a meeting at which Mr. McCooke reported that Manteia SA was effectively in the process of administration and that Manteia SA was selling its assets with bids due on such sale by the end of January 2004. Mr. McCooke also reported that discussions had taken place with Lynx relating to the accelerated development of a sequencing system. The Solexa board of directors appointed a sub-committee consisting of Tim Rink, chairman of Solexas board of directors, Mr. McCooke and any two investor directors to consider these issues and to act on behalf of Solexas board of directors until the following board meeting.
In January 2004, Dr. Rink visited the Lynx offices to receive an update on Lynxs technology development and financial condition.
Between January and March 2004, Lynx and Solexa focused on the terms of their joint bid for the cluster technology, as well as the associated technology sharing agreement.
On January 27, 2004, Solexas board of directors held a meeting at which Mr. McCooke provided an update of the position regarding the potential purchase of Manteia technology assets. Following analysis of various options, Solexas board of directors approved a joint bid agreement between Solexa and Lynx for submission by January 30, 2004.
On February 26, 2004, the Solexa board of directors held a meeting via conference call at which a resolution was passed to proceed with the acquisition of the cluster technology assets of Manteia for a purchase price of $4 million to be satisfied by payment of $2 million in cash by Solexa and issuance of $2 million worth of Lynx common stock.
On March 22, 2004, Lynx and Solexa closed their acquisition of the cluster technology and entered into a technology sharing agreement. A significant element of the technology sharing agreement was a standstill
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At the meeting of Solexas board of directors on April 27, 2004, Mr. McCooke reported that he and Michelle Doig, Solexas strategic consultant, had visited Mr. Corcoran at Lynx the previous week. Mr. McCooke presented some draft joint financials to Solexas board of directors. After some discussion it was concluded that the figures should be further refined for presentation at the next meeting.
It was confirmed that the sub-committee involved in the Manteia negotiations appointed on December 9, 2003 had continued authority to negotiate on behalf of Solexas board of directors with regard to a possible transaction with Lynx.
On April 30, 2004, Hermann Hauser, a representative of Amadeus Capital Partners Ltd., an investor of Solexa, visited the Lynx offices to receive an update from Mr. Corcoran on Lynxs technology development and financial condition.
In May 2004, Genghis Lloyd-Harris and Steve Allen, both board members of Solexa, visited the Lynx offices to receive an update on Lynxs technology development and financial condition.
On June 4, 2004, Mr. Carthy, with the approval of Solexas board of directors, provided a preliminary term sheet to Mr. Taylor, outlining the proposed terms of a transaction between Solexa and Lynx. Mr. Taylor communicated the proposed term sheet to Lynxs board of directors and the board resolved to continue negotiations with Solexa in parallel with discussions regarding additional external financing for Lynx.
On July 10, 2004, Mr. Taylor informed Dr. Rink that, while Lynx continued to be interested in a transaction with Solexa, it intended to conduct a round of external financing to meet its immediate needs for working capital, based on several term sheets received from interested parties in early July.
On July 14, 2004, Mr. Corcoran informed Lynxs board members that no discussions with potential external financing sources had been successful. The board authorized Mr. Corcoran to engage an investment bank to assist in negotiations with Solexa, and on July 15, 2004, Lynx engaged Seven Hills to assist in its negotiations with Solexa.
During the period of July 19 to August 12, 2004, Lynx and Solexa and their representatives continued to negotiate the proposed terms of a transaction. During the period, Solexa closed its B preferred financing, raising approximately $14 million.
On August 2, 2004, Mr. Taylor met with representatives of Solexa in London to continue negotiation of the transaction terms.
From August 9 to 12, 2004, Mr. Corcoran and a representative from Seven Hills traveled to Solexas headquarters to negotiate the final terms of the agreement with representatives from Solexa and their investors.
On August 12, 2004, the respective boards of directors of Lynx and Solexa approved a final term sheet regarding the transaction. In connection with the term sheet, the companies executed a secured bridge loan agreement whereby Solexa would provide up to $2.5 million to Lynx over the next several months during negotiations of the final acquisition agreement. In addition, the companies entered into mutual confidentiality and exclusivity agreements.
During the period from August 16 to September 24, 2004, both companies and their legal, accounting and financial advisors conducted due diligence on each other and exchanged technology, business and financial information.
From August 23 to 26, 2004, Solexa representatives traveled to Lynxs headquarters in Hayward, California to conduct technology and business due diligence on Lynx.
On August 27, 2004, Solexa announced the hiring of a new chief executive officer, John West.
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From September 6 to 9, 2004, Mr. Corcoran and representatives from Seven Hills traveled to Solexas headquarters to conduct business and financial due diligence on Solexa.
On September 10, 2004, Solexa held a regularly scheduled board meeting at which Mr. West reviewed Solexas diligence findings and rationale for the transaction, and provided an update on the negotiations with Lynx. The board authorized a subcommittee of Dr. Lloyd-Harris, Messrs. West, Carthy, Daniel and Dr. Hauser to continue negotiations with Lynx.
On September 14, 2004, Lynxs board of directors held a special telephonic meeting where Cooley Godward LLP, Lynxs U.S. legal counsel, discussed the terms of the proposed transaction. In addition, representatives from Seven Hills reviewed with Lynxs board of directors a preliminary financial analysis of the transaction.
From September 21 to 23, 2004, Lynx and Solexa representatives met at the office of Heller Ehrman White & McAuliffe LLP, Solexas U.S. legal counsel, in Menlo Park, California to continue negotiations on the definitive agreement.
On September 23, 2004, Solexas board of directors held a special meeting via conference call to consider the acquisition agreement and the related transactions. At this meeting, Solexas management gave the board an overview of the proposed transaction. Following this presentation, the board members discussed the proposed transaction and Solexas alternatives and voted to approve the acquisition agreement and the transactions contemplated thereby.
On September 27, 2004, Lynxs board of directors held a special meeting via conference call to consider the acquisition agreement and the related transactions. At this meeting, Cooley Godward LLP gave the board an overview of the terms of the proposed transaction, which had been included in a board package circulated to the board members prior to the meeting. In the meeting, Seven Hills provided an update on its financial analysis of the transaction and rendered its oral opinion, which was subsequently confirmed in writing, that, as of September 27, 2004 and based upon and subject to assumptions made, matters considered and limits of review set forth in Seven Hills written opinion, the consideration to be paid by Lynx pursuant to the acquisition agreement was fair from a financial point of view to Lynx. Following receipt of the fairness opinion, the board members discussed the transaction and Lynxs alternatives, and voted to approve the acquisition agreement and the transactions contemplated thereby. Sydney Brenner, a director of Lynx, did not attend the special meeting.
On September 28, 2004, Lynx and Solexa each executed the acquisition agreement, and issued a joint press release after the NASDAQ SmallCap Market closed announcing the signing of the acquisition agreement. In addition, certain officers, directors and shareholders of Solexa entered into company support agreements with Lynx and certain officers, directors and stockholders of Lynx entered into parent support agreements with Solexa.
Lynxs Reasons for the Transaction
In reaching its decision to approve the acquisition agreement and proceed with the transaction with Solexa, Lynxs board of directors consulted with Lynxs management, financial and legal advisors regarding the strategic, operational and financial aspects of the transaction. In the course of reaching its decision to approve the acquisition agreement, Lynxs board of directors considered a variety of factors, including:
| its analysis of the technology, business, financial performance and condition, prospects and products of each of Lynx and Solexa, as separate entities and on a combined basis; | |
| the strategic nature of the business combination, the complementary nature of Lynxs and Solexas technologies, products and product pipelines, and the conviction that the combined group will be better able to develop and commercialize its products; | |
| the improved prospect as a combined group of raising additional capital in the future from both existing and new investors; |
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| Lynxs continued difficulties in raising sufficient external capital to fund further operations and continued research and development activities; | |
| Solexas existing cash balance and ability to provide Lynx with bridge financing in the near-term; | |
| the lack of reasonably available alternatives for Lynx to enhance stockholder value, including any potential business combination with another third party; | |
| the low likelihood that shareholders would receive any value in a bankruptcy situation for Lynx; | |
| the opportunity for Lynx stockholders to participate in a company that would bring planned products to market more rapidly and would have a broader product line; | |
| the results of Lynxs technology due diligence review of Solexa; | |
| the oral opinion of Seven Hills, subsequently confirmed in writing that, as of September 27, 2004, and based upon and subject to assumptions made, matters considered and limits of review set forth in the opinion, the consideration to be paid by Lynx pursuant to the acquisition agreement was fair from a financial point of view to Lynx; | |
| the fact that Lynxs stockholders would have the opportunity to vote in respect of the acquisition agreement; | |
| the terms of the acquisition agreement, including: |
| the restrictions on the ability of Solexa to solicit offers for alternative business transactions; | |
| the ability of a party to terminate the acquisition agreement if the other party alters its recommendation in favor of the transaction; | |
| the representations and warranties of Lynx and Solexa; and | |
| the covenants of Lynx and Solexa and the effect of such covenants on the operations of each company prior to completion of the transaction. |
In its review of the proposed transaction, Lynxs board of directors considered the potential adverse impact of other factors, including:
| the possibility that the parties fail to complete the transaction; | |
| the need for substantial near-term and future external financing of the combined group in order to reach commercialization of their products; | |
| the limitations imposed on the conduct of Lynx, including restrictions on alternative business transactions prior to the completion of the proposed transaction; | |
| the risks described under the section of this proxy statement/ prospectus entitled Risks Factors on page 22, including the challenges of combining the technologies and employees of the two companies; | |
| the risks associated with the diversion of management resources and the impact of the transaction on employees, collaboration partners and customers; | |
| the risk that the potential benefits sought in the transaction might not be realized; | |
| the substantial expenses to be incurred in connection with the transaction, including costs of integrating the businesses and transaction expenses arising from the transaction and the impact of those expenses if the transaction is not completed; and | |
| the risk that key management and technical personnel might not remain employed by the combined group and key customers might terminate their relationships with the combined group. |
The above discussion of the material factors is not intended to be exhaustive, but does set forth the principal factors considered by Lynxs board of directors. After due consideration, Lynxs board of directors
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This summary of the reasoning of Lynxs board of directors, as well as certain information presented in this section, is forward-looking in nature. This information should be read in light of the factors discussed under the section entitled Forward Looking Statements on page 30.
Recommendation of Lynxs Board of Directors
After careful consideration, Lynxs board of directors determined that the proposed transaction is fair to, and in the best interests of, Lynx and its stockholders. Lynxs board of directors recommends that Lynx stockholders vote FOR the issuance of Lynx common stock in the transaction and the resulting change of control of Lynx.
In considering the recommendation of Lynxs board of directors with respect to the issuance of shares pursuant to the transaction and the change of control resulting from such issuance, Lynx stockholders should be aware that certain directors and officers of Lynx have interests in the offer that are different from, or are in addition to, the interests of Lynxs stockholders generally. See the section entitled Interests of Directors, Officers and Affiliates on page 54.
Solexas Reasons for the Transaction
In reaching its decision to approve the acquisition agreement, Solexas board of directors consulted with Solexas management and legal advisors regarding the strategic, operational and financial aspects of the transaction. The management team of Solexa performed analyses of the technology, products, business, financial performance and condition, competitive environment, and prospects of each Lynx and Solexa as separate entities and on a combined basis for Solexas board of directors.
In the course of reaching its decision to approve the acquisition agreement, Solexas board of directors considered a variety of factors, including but not limited to, the following:
| the strategic value of unifying the businesses based on the complementary nature of Lynxs and Solexas product pipelines, and the conviction that the combined group will be more able to develop and commercialize an enhanced product line in a more competitive timeframe; | |
| the advantages of the strength of the combined intellectual property portfolio, coupled with the ability to collaborate fully on the development of the jointly owned cluster technology; | |
| the benefits of integrating the skilled technical teams of both companies and pooling collaborative and customer relationships; | |
| access to Lynxs production laboratory and instrumentation hardware and software; | |
| the acquisition of an established domestic base for production and marketing in the U.S.; | |
| the strategic alternatives available to Solexa of continuing as a standalone entity, seeking to acquire another company, seeking to engage in one or more joint ventures, seeking to engage in a combination with a company other than Lynx or seeking to complete an initial public offering or private placement of Solexa shares; | |
| the likely impact of the transaction on Solexas employees; | |
| the amount and form of consideration to be received by Solexas shareholders in the transaction; |
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| the ability of Solexas shareholders to continue to participate in the growth of the business conducted by Lynx and Solexa after the completion of the offer and to benefit from the potential appreciation in value of Lynx common stock; | |
| the interests that certain executive officers and directors of Solexa may have with respect to the transaction in addition to their interests as stockholders of Solexa generally as described in the section entitled Interests of Directors, Officers and Affiliates on page 54; and | |
| the qualification of the offer as a tax-free transaction for United States federal income tax purposes (except for tax resulting from any cash received for fractional shares by the holders of shares in the capital of Solexa). |
The foregoing discussion of the information and factors considered by Solexas board of directors is not intended to be exhaustive. In view of the wide variety of the material factors considered in connection with the evaluation of the offer and the complexity of these matters, Solexas board of directors did not find it practicable to, and did not, quantify or otherwise attempt to assign any relative weight to the various factors considered. In addition, Solexas board of directors did not undertake to make any specific determination as to whether any particular factor, or any aspect of any particular factor, was favorable or unfavorable to the ultimate determination of Solexas board of directors, but rather Solexas board of directors conducted an overall analysis of the factors described above, including discussions with and questioning of Solexas senior management and legal advisor. In considering the factors described above, individual members of Solexas board of directors may have given different weight to different factors.
There can be no assurance that the potential synergies or opportunities considered by Solexas board of directors will be achieved through completion of the transaction. See the section entitled Risk Factors beginning on page 22.
Recommendation of Solexas Board of Directors
After careful consideration, Solexas board of directors determined that the acquisition agreement and the transactions contemplated thereby, including the offer, are in the best interests of Solexa. Solexas board of directors recommends that Solexa shareholders accept the offer.
In considering the recommendation of Solexas board of directors with respect to the offer, Solexa shareholders should be aware that certain directors and officers of Solexa have interests in the offer that are different from, or are in addition to, the interests of Solexas shareholders generally. See the section entitled Interests of Directors, Officers and Affiliates on page 54.
Opinion of Lynxs Financial Advisor
Lynxs board of directors engaged Seven Hills to act as Lynxs financial advisor and to render a fairness opinion in connection with the proposed combination of Lynx and Solexa. On September 27, 2004, Seven Hills delivered its opinion to Lynxs board of directors, which was subsequently confirmed in writing, that, based upon and subject to the assumptions made, matters considered and limits of review set forth in Seven Hills written opinion, the consideration to be paid by Lynx pursuant to the acquisition agreement was fair from a financial point of view to Lynx.
The full text of Seven Hills written opinion is included as Annex B to this proxy statement/ prospectus. Lynx stockholders should read the opinion carefully and in its entirety. The following description of Seven Hills opinion is only a summary of the written opinion and is qualified in its entirety by the written opinion.
Seven Hills provided its opinion for the information and assistance of Lynxs board of directors in connection with its consideration of the transaction. The opinion does not constitute a recommendation as to how any holder of Lynx common stock should vote with respect to the transaction or any other matter. The opinion addresses only the fairness to Lynx from a financial point of view of the consideration to be paid by Lynx pursuant to the acquisition agreement. It does not address the relative merits of the transaction as compared to any alternative business transaction that might be available to Lynx. Further, it does not
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In connection with rendering its opinion, Seven Hills, among other things:
| reviewed certain publicly available financial statements and other information of Lynx; | |
| reviewed Lynxs internal cash flow information and projections, prepared by Lynx management; | |
| reviewed certain internal financial statements and other financial and operating data concerning Lynx and Solexa, prepared by the managements of Lynx and Solexa, respectively; | |
| reviewed certain financial projections concerning Lynx, Solexa and the combined group, including the impact of the transaction on projected revenues and profitability, prepared by the managements of Lynx and Solexa; | |
| discussed the past and current operations and financial condition and the prospects of Lynx, Solexa and the combined group with the managements of Lynx and Solexa; | |
| reviewed and discussed with the managements of Lynx and Solexa their strategic and financial rationales for the transaction; | |
| participated in discussions and negotiations among the managements and representatives of Lynx and Solexa; | |
| reviewed the reported historical prices and trading activity for Lynx common stock; | |
| reviewed certain financial information of selected comparable publicly-traded genomic systems companies; | |
| reviewed certain financial information of selected public early-stage genomics companies; | |
| reviewed certain financial information of selected recent acquisitions of genomic and medical systems companies; | |
| compared relative contributions of Lynx, Solexa and the combined group regarding certain financial and other operating information; | |
| reviewed the valuations, to the extent publicly available, of recent financings for comparable private companies; | |
| reviewed the acquisition agreement, the loan agreement dated August 12, 2004 between Lynx and Solexa and certain other related documents; and | |
| performed such other analyses and considered such other factors as Seven Hills deemed appropriate. |
Seven Hills relied upon the accuracy and completeness of all of the financial, accounting and other information discussed with or reviewed by Seven Hills and assumed such accuracy and completeness for purposes of rendering its opinion, and did not assume any responsibility for independent verification of such information. Seven Hills relied upon the assurances of management of Lynx that management was not aware of any facts that would have made such information inaccurate or misleading. With respect to the projections and information relating to the strategic, financial and operational costs and benefits resulting from the transaction, Seven Hills assumed that such projections and information were reasonably prepared on bases reflecting the best currently available estimates and judgments of the future financial performance of Lynx, Solexa and the combined group, and that Lynx, Solexa and the combined group would perform substantially in accordance with such projections. With respect to financial projections reviewed by Seven Hills concerning Solexa on a standalone basis, Seven Hills noted that such projections were prepared by prior management of Solexa and that current management of Solexa had informed Seven Hills that such projections did not necessarily reflect managements current estimates with respect to the future financial performance of Solexa on a standalone basis.
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Seven Hills did not obtain or make, or assume responsibility for obtaining or making, any independent evaluation or appraisal of the properties or assets or liabilities (contingent or otherwise) of Lynx or Solexa, nor was Seven Hills furnished with any such evaluations or appraisals. Seven Hills did not evaluate the solvency or fair value of Lynx or Solexa under any state or federal laws relating to bankruptcy, insolvency or similar matters. Seven Hills noted, however, that Lynxs internal cash flow information indicates that it would have exhausted its available cash reserves in September 2004 but for loans from Solexa pursuant to the loan agreement and that in the absence of the transaction and continued financing from Solexa, a bankruptcy or similar reorganization of Lynx was a significant possibility.
Seven Hills assumed that all material governmental, regulatory or other consents and approvals necessary for the completion of the transaction will be obtained or that the absence of such consents and approvals will not have a material adverse effect on Lynx, Solexa or the contemplated benefits of the transaction. Seven Hills relied, without verification, on the description of the pro forma capitalization of the combined group as of the effective time of the transaction provided to Seven Hills by the managements of Lynx and Solexa. Seven Hills also assumed the transaction will qualify as a tax-free reorganization for U.S. federal income tax purposes. Seven Hills further assumed that the transaction will be completed in accordance with the terms described in the acquisition agreement and other documents furnished to Seven Hills, without waiver, modification or amendment of any material term, condition or agreement therein, and that all of the outstanding preferred shares, ordinary shares and options to acquire ordinary shares of Solexa will be acquired by Lynx pursuant to the acquisition agreement. Seven Hills opinion does not address the proposed reverse stock split or dilution resulting from any future financing, including the proposed issuance of up to $10 million in Lynx common stock and warrants. Seven Hills noted that it is not a legal, tax or regulatory expert and that it relied upon, without assuming any responsibility for independent verification or liability therefor, the assessment of Lynxs legal, tax and regulatory advisors with respect to the legal, tax and regulatory matters related to the transaction.
Seven Hills opinion only addresses the fairness to Lynx from a financial point of view of the consideration to be paid by Lynx pursuant to the acquisition agreement. Seven Hills opinion does not address the relative merits of the transaction as compared to any alternative business transaction that might be available to the Company. Seven Hills was not requested to, and Seven Hills did not, solicit alternative offers for Lynx or its assets nor did it investigate any alternative transaction that may have been available to Lynx. Seven Hills opinion does not address the terms of any contemplated financing, whether or not associated with the transaction. Further, Seven Hills did not express any opinion on the ability of Lynx, Solexa or the combined group to attract financing in the future, including significant financing which the management of Solexa has indicated may be required in the first quarter of 2005.
The following represents a brief summary of the material financial analyses performed by Seven Hills in connection with rendering its opinion to Lynxs board of directors. This summary, however, does not purport to be a complete description of the financial analyses performed by Seven Hills, nor does the order of analyses described represent the relative importance or weight given to those analyses by Seven Hills. Some of the summaries of financial analyses performed by Seven Hills include information presented in tabular format. In order to fully understand the financial analyses performed by Seven Hills, you should read the tables together with the text of each summary. The tables alone do not constitute a complete description of the financial analyses. Considering the data set forth in the tables without considering the full narrative description of the financial analyses, including the methodologies and assumptions underlying the analyses, could create a misleading or incomplete view of the financial analyses performed by Seven Hills. With respect to the analyses of selected public companies and selected transactions described below, none of the companies or transactions reviewed is identical or directly comparable with Lynx or the transaction.
Discounted Cash Flow Analysis Solexa Standalone. Using a discounted cash flow analysis, Seven Hills calculated implied equity values for a Solexa Management Case and a Solexa Adjusted Case based on financial forecasts for calendar years 2005 through 2009. The Solexa Management Case was prepared by prior management of Solexa during Solexas B preferred financing round in July 2004. Seven Hills derived the Solexa Adjusted Case from the Solexa Management Case assuming projected revenues
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Seven Hills used multiples of 2.0x-4.0x 2009 revenues and 20.0x-30.0x 2009 net income (tax-affected at 38%), based on comparable public companies, to derive terminal values for the Solexa Management Case and the Solexa Adjusted Case and discounted these and the projected annual cash flows at rates reflecting venture return hurdle rates of 30%-50%.
The Solexa Management Case resulted in values ranging from $39 million to $164 million based on 2009 revenues, and $95 million to $298 million based on 2009 net income. The Solexa Adjusted Case resulted in values ranging from $10 million to $76 million based on 2009 revenues, and $11 million to $56 million based on 2009 net income.
Discounted Cash Flow Analysis Incremental Business. Using a discounted cash flow analysis, Seven Hills calculated implied equity values for an Incremental Business Management Case and an Incremental Business Adjusted Case based on financial forecasts for calendar years 2005 through 2009. Seven Hills derived the Incremental Business Management Case by subtracting a Lynx Management Case prepared by management of Lynx from a Combined Company Management Case prepared by current management of Solexa. Seven Hills derived the Incremental Business Adjusted Case by subtracting a Lynx Adjusted Case based on the Lynx Management Case from a Combined Company Adjusted Case based on the Combined Company Management Case, in each case assuming projected revenues were delayed by one year and operating margins were limited to the average of selected comparable companies.
Seven Hills used multiples of 2.0x-4.0x 2009 revenues and 20.0x-30.0x 2009 net income (tax-affected at 38%), based on comparable public companies, to derive terminal values for the Incremental Business Management Case and the Incremental Business Adjusted Case and discounted these and the projected cash flows at rates reflecting venture return hurdle rates of 30%-50%.
The Incremental Business Management Case resulted in values ranging from $36 million to $139 million based on 2009 revenues, and $68 million to $205 million based on 2009 net income. The Incremental Business Adjusted Case resulted in values ranging from $13 million to $77 million based on 2009 revenues, and $32 million to $114 million based on 2009 net income.
Discounted Future Value Analysis. Using a discounted future value analysis, Seven Hills calculated implied equity values for a Solexa Adjusted Case based on financial forecasts for calendar years 2005 through 2009. Seven Hills derived the Solexa Adjusted Case from the Solexa Management Case prepared by prior management of Solexa during Solexas B preferred financing round in July 2004, assuming projected revenues were delayed by one year and operating margins were limited to the average of selected comparable companies.
Seven Hills used multiples of 2.0x-4.0x 2009 revenues and 20.0x-30.0x 2009 net income (tax-affected at 38%), based on comparable public companies, to derive terminal values for the Solexa Adjusted Case and discounted these at the projected cash flows at rates reflecting venture return hurdle rates of 30%-50%.
The Solexa Adjusted Case resulted in values ranging from $24 million to $90 million based on 2009 revenues, and $24 million to $71 million based on 2009 net income.
Contribution Analysis. Using a contribution analysis, Seven Hills calculated the relative contributions to the combined group of Lynx on a standalone basis and Solexa on a standalone basis. Using publicly available information for Lynx as well as financial information provided by the management of each of Lynx and Solexa, Seven Hills compared the relative contribution of each of Lynx and Solexa to the pro forma revenues of the combined group for calendar years 2007, 2008 and 2009 and to the pro forma net income of the combined group for calendar year 2009. Seven Hills also reviewed the relative contribution of each of Lynx and Solexa to the pro forma total cash of the combined group, projected at the completion of the transaction, and total assets of the combined group as of June 30, 2004. In its contribution analysis, Seven Hills used
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Valuation Metric | Lynx | Solexa | ||||||
2007 Revenues
|
25 | % | 75 | % | ||||
2008 Revenues
|
25 | % | 75 | % | ||||
2009 Revenues
|
25 | % | 75 | % | ||||
2009 Net Income
|
13 | % | 87 | % | ||||
Cash at Completion of the Transaction
|
0 | % | 100 | % | ||||
Total Assets at June 30, 2004
|
48 | % | 52 | % |
Seven Hills also calculated the relative contributions to the combined group of Lynx on a standalone basis and the incremental business. Using publicly available information for Lynx as well as financial information provided by the management of each of Lynx and Solexa, Seven Hills compared the relative contribution of each of Lynx and the incremental business to the pro forma revenues of the combined group for calendar years 2005, 2006, 2007, 2008 and 2009 and to the pro forma net income of the combined group for calendar year 2009. In its contribution analysis, Seven Hills used Management Case projections prepared by prior management of Solexa during Solexas B preferred financing round in July 2004. The following table sets forth the results of Seven Hills analysis.
Incremental | ||||||||
Valuation Metric | Lynx | Business | ||||||
2005 Revenues
|
100 | % | 0 | % | ||||
2006 Revenues
|
29 | % | 71 | % | ||||
2007 Revenues
|
27 | % | 73 | % | ||||
2008 Revenues
|
25 | % | 75 | % | ||||
2009 Revenues
|
29 | % | 71 | % | ||||
2009 Net Income
|
18 | % | 82 | % |
Comparable Company Financing Analysis. Seven Hills performed a comparable company financing analysis to review recent private financing valuations of Solexa and three other comparable genomic sequencing equipment companies: 454 Life Sciences Corporation, Helicos BioSciences Corporation and NimbleGen Systems, Inc. The comparable company financing valuation ranged from $37 million to $81 million.
Technology Values of Publicly Traded Companies. Seven Hills reviewed implied technology values of publicly traded genomics companies with under $10 million in annual revenues by calculating the equity market capitalization, subtracting two years of projected cash needs from the cash balance, and adding remaining net debt. The companies analyzed were:
| Aclara Biosciences, Inc. | |
| Curagen Corporation | |
| Human Genome Sciences, Inc. | |
| Inspire Pharmaceuticals, Inc. | |
| Medarex, Inc. | |
| Nuvelo, Inc. |
The technology valuations of these publicly traded companies ranged from $81 million to $1.75 billion.
Seven Hills believes that the six genomic systems and equipment companies listed above have operations similar to Lynx and Solexa but noted that none have the same management, composition, size or combination of businesses as Lynx and Solexa. Further, Seven Hills did not include every company that could be a participant in this industry or in any specific sectors of this industry.
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Technology Values in Precedent Transactions. Seven Hills reviewed implied technology values in precedent transactions involving acquisitions of genomic and medical systems companies with under $5 million of annual revenues prior to the transaction.
Target | Acquiror | |
Cryogen Inc.
|
American Medical Systems Holdings, Inc. | |
Dendron GmbH
|
Micro Therapeutics, Inc. | |
Cobra Therapeutics
|
M.L. Laboratories plc | |
Oncormed, Inc.
|
Gene Logic Inc. | |
InControl. Inc.
|
Guidant Corporation | |
Seragen, Inc.
|
Ligand Pharmaceuticals Incorporated | |
EndoVascular Technologies, Inc.
|
Guidant Corporation |
The technology values in these precedent transactions ranged from $32 million to $160 million.
No company or transaction listed above is identical to Lynx or Solexa or the transaction. Accordingly, an analysis of the results of the foregoing is not mathematical; rather, it involves complex considerations and judgments concerning differences in financial and operating characteristics of the companies and other factors that could affect the public trading value of the companies to which Lynx, Solexa and the transaction are being compared.
Comparable Public Companies. Based on information for nine publicly traded genomic systems and equipment companies Seven Hills calculated multiples of enterprise value (defined as market capitalization plus debt and minority interest less cash and cash equivalents) to the last twelve month (LTM) revenues, and the stock price to LTM net income. Seven Hills then used these multiples to generate the projected 2009 revenue and net income multiples for its discounted cash flow and discounted future value analyses. The nine companies were:
| Applied Biosystems, Inc. | |
| Affymetrix, Inc. | |
| Caliper Life Sciences, Inc. | |
| Ciphergen Biosystems, Inc. | |
| Illumina, Inc. | |
| Luminex Corporation | |
| Molecular Devices Corporation | |
| Nanogen, Inc. | |
| Third Wave Technologies, Inc. |
Seven Hills believes that the nine genomic systems and equipment companies listed above have operations similar to Lynx and Solexa but noted that none have the same management, composition, size or combination of businesses as Lynx and Solexa. Further, Seven Hills did not include every company that could be a participant in this industry or in any specific sectors of this industry.
The preparation of a fairness opinion is a complex process, involving various determinations as to the most appropriate and relevant quantitative and qualitative methods of financial analyses and the application of those methods to the particular circumstances, and is not necessarily susceptible to partial analysis. Seven Hills believes that its analysis must be considered as a whole and that selecting portions of its analyses and of the factors considered, without considering all analyses and factors, would create an incomplete view of the process underlying Seven Hills opinion. In arriving at its fairness determination, Seven Hills considered the results of all of its analyses and did not attribute any particular weight to any factor or analysis considered by
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In performing its analyses, Seven Hills made numerous assumptions with respect to industry performance, general business and economic conditions and other matters, many of which are beyond the control of Lynx and Solexa. The analyses performed by Seven Hills are not necessarily indicative of actual values or actual future results, which may be significantly more or less favorable. Further, these analyses and estimates are inherently subject to substantial uncertainty and do not purport to be appraisals or to reflect the prices at which a company might actually be sold or the prices at which any securities may trade at any time in the future. Seven Hills did not express an opinion as to the price at which the common stock of Lynx will trade at any time in the future, including upon completion of the transaction. Seven Hills opinion was necessarily based on economic, market and other conditions in effect on, and the information made available to Seven Hills as of, the date of the opinion, and subsequent developments may affect Seven Hills opinion, although Seven Hills does not have any obligation to update, revise or reaffirm its opinion.
As described above, Seven Hills opinion was only one of the factors that Lynxs board of directors took into consideration in making its determination to approve the acquisition agreement and the transaction.
Seven Hills is a nationally recognized investment banking firm. As part of its investment banking services, Seven Hills is frequently engaged in the evaluation of businesses and their securities in connection with mergers and acquisitions, private placements and other purposes. Seven Hills was retained by Lynxs board of directors based on Seven Hills experience as a financial advisor in mergers and acquisitions as well as Seven Hills familiarity with life sciences companies.
In connection with the financial advisory services rendered by Seven Hills, Lynx has agreed to pay Seven Hills a retainer fee of $50,000 and a transaction fee of $500,000 plus one percent of the consideration to be paid by Lynx upon completion of the transaction. Lynx also agreed to pay Seven Hills a fee of $250,000 in connection with its opinion, which fee will be credited against the transaction fee. Lynx has agreed to reimburse Seven Hills for its reasonable out-of-pocket expenses and to indemnify Seven Hills and related persons against specified liabilities relating to or arising out of services performed by Seven Hills. Seven Hills may provide investment banking services to Lynx, Solexa or the combined group in the future, for which services Seven Hills may receive compensation.
Contracts, Arrangements, Understandings or Relationships between Lynx and Solexa
On March 22, 2004, Lynx and Solexa entered into an asset purchase agreement pursuant to which they jointly acquired from Manteia SA the rights to the cluster technology. In addition, Lynx and Solexa entered into a colony technology sharing agreement for the purpose of managing the ownership and development of the cluster technology. A significant element of the colony technology sharing agreement is a standstill provision whereby neither Lynx or Solexa would independently develop the technology without consent of the other party prior to September 22, 2004. Furthermore if either party was acquired by a third party prior to March 22, 2005, the other party to the technology sharing agreement would have the right to sole ownership of the Manteia DNA cluster assets.
On October 25, 2004, Lynx and Solexa entered into a deed to amend the colony technology sharing agreement between Lynx and Solexa dated March 22, 2004. Under the terms of the deed and pursuant to the terms of a loan agreement dated August 12, 2004, in the event that the first closing does not take place and the transaction is, therefore, not completed, Lynx shall transfer all such right, title and interest as it has in the cluster technology to Solexa in consideration for the grant of a worldwide, perpetual and non-exclusive license of the cluster technology. Any intellectual property created as a development to the cluster technology is expressed to be owned by Solexa, except developments or modifications of the cluster technology created by Lynx that can be exploited without infringing the intellectual property rights in the cluster technology. Lynx grants to Solexa a worldwide, perpetual and non-exclusive license for the use, commercialization and sale of such severable developments. In the event that Lynx or its licensees sells any products, Lynx is obliged under the deed to pay Solexa royalties at a rate of 11.5%. In the event that Solexa or its licensees sells any products, Solexa is obliged under the deed to pay Lynx royalties at a rate of 3%.
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On October 28, 2004, Lynx and Solexa entered into a master development agreement pursuant to which Lynx will provide certain product design and development services to Solexa in connection with the development and commercialization of Solexas products. Under the master development agreement, Solexa will pay to Lynx up to an aggregate amount of $500,000 in consideration for Lynxs product design and development services. The master development agreement will remain in effect until the earlier of the closing of the transaction or December 31, 2004; provided, however, that the agreement may be terminated prior to December 31, 2004 with or without cause by either party upon 10 days prior written notice.
On August 12, 2004, Lynx and Solexa entered into a loan agreement pursuant to which Lynx has received from Solexa loan advances totaling $2.5 million upon completion of certain milestones, the last $500,000 of which was received on October 15, 2004. On September 28, 2004, as part of the transaction, Lynx and Solexa entered into a side letter regarding the loan agreement primarily to continue a number of terms from the original loan agreement that would have expired upon execution of the acquisition agreement.
On August 12, 2004, in connection with execution of the term sheet relating to the transaction, Lynx and Solexa entered into a mutual confidentiality agreement, which survives until August 12, 2006.
Under the terms of the acquisition agreement, Lynx and Solexa have agreed to negotiate in good faith and use their respective reasonable best efforts to enter into a proposed arrangement whereby Solexa would compensate Lynx in return for undertaking certain research activities connected with the development of the Manteia DNA cluster assets.
Material U.S. Federal Income Tax Consequences
The following is a summary of certain material United States federal income tax consequences of the offer and ownership and disposition of Lynx shares following the transaction that are generally applicable to Solexa shareholders. It is based on current provisions of the Code, existing and proposed Treasury regulations promulgated thereunder and administrative and judicial interpretations thereof, all as at the date hereof and all of which are subject to change, possibly on a retroactive basis. This summary does not address all of the tax consequences that may be relevant to particular persons in light of their personal circumstances, or to certain types of persons that may be subject to special tax treatment, including but not limited to:
| banks and other financial institutions; | |
| partnerships or other pass-through entities as determined for United States federal income tax purposes; | |
| real estate investment trusts and regulated investment companies; | |
| certain former citizens or residents of the United States; | |
| controlled foreign corporations or passive foreign investment companies, as those terms are defined in the Code; | |
| corporations that accumulate earnings to avoid United States federal income tax; | |
| insurance companies; | |
| tax-exempt organizations, plans or accounts; | |
| brokers, dealers in securities, traders in securities that elect to use a mark-to-market method of accounting for their securities holdings and persons who do not hold their Solexa shares as capital assets; | |
| U.S. holders (as defined below) whose functional currency is not the U.S. dollar; | |
| persons subject to the alternative minimum tax; | |
| persons who hold or will hold their Solexa shares or Lynx shares received, as part of a straddle, hedge, integrated or conversion transaction; |
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| persons subject to the wash sale rules in the Code; | |
| persons that own or have owned (or who are deemed to have owned) 10% or more (by voting power or value) of the shares of Solexa or Lynx; and | |
| persons who acquired their Solexa shares upon the exercise of employee share options, employee share purchase rights or otherwise in connection with their provision of services. |
In addition, this summary does not include any description of the tax laws of any state, local or foreign government that may be applicable to a particular person and does not consider any aspects of United States federal tax law other than income taxation.
For purposes of this discussion, a non-U.S. holder is a beneficial owner of Solexa shares or Lynx shares, as the case may be, that is not, for United States federal income tax purposes:
| a citizen or resident of the United States; | |
| a corporation created or organized in or under the laws of the United States or any state thereof (including the District of Columbia); | |
| an estate the income of which is subject to United States federal income tax regardless of its source; or | |
| a trust, if a court within the United States can exercise primary supervision over its administration, and one or more United States persons have the authority to control all of the substantial decisions of that trust (or the trust was in existence on August 20, 1996, was treated as a United States trust on August 19, 1996 and validly elected to continue to be treated as a United States trust). |
For purposes of this discussion, a U.S. holder is, for United States income tax purposes, an individual, trust, or corporation that is a beneficial owner of Solexa shares or Lynx shares, as the case may be, who is not a non-U.S. Holder.
The United States federal income tax treatment of a partner in a partnership (or other entity classified as a partnership for United States federal income tax purposes) that holds the Solexa shares or Lynx shares generally will depend on such partners particular circumstances and on the activities of the partnership. Partners in such partnerships should consult their own tax advisors.
HOLDERS OF SOLEXA SHARES ARE URGED TO CONSULT THEIR OWN TAX ADVISORS WITH RESPECT TO THE PARTICULAR UNITED STATES FEDERAL INCOME TAX AND ESTATE TAX CONSEQUENCES TO THEM OF THE OFFER AND OF THE OWNERSHIP AND DISPOSAL OF THE LYNX SHARES, AND THE TAX CONSEQUENCES UNDER STATE, LOCAL AND FOREIGN TAX LAWS AND THE POSSIBLE EFFECTS OF CHANGES IN TAX LAWS.
(A) Consequences to U.S. Holders |
Consequences of the Transaction. Based on the representations of Lynx and Solexa, Cooley Godward LLP, counsel to Lynx, and Heller Ehrman White & McAuliffe LLP, counsel to Solexa, will provide opinions as a condition to the first closing of the transaction that the transaction will be treated for federal income tax purposes as a reorganization within the meaning of Section 368(a) of the Code. These opinions will be based upon representations and covenants made by Lynx and Solexa, including representations in certificates of officers of Lynx and Solexa to be delivered to tax counsel before completion of the offer, and upon certain assumptions, including that no consideration other than Lynx shares is paid to holders of Solexa shares in exchange for their Solexa shares in connection with the offer. If any of those representations, covenants or assumptions is inaccurate, the tax consequences of the transaction could differ materially from those summarized below. The opinions represent only the best judgment of counsel concerning the tax consequences of the transaction. Such opinions neither bind the Internal Revenue Service nor preclude the Internal Revenue Service or the courts from adopting a contrary position. No ruling has been or will be requested from the Internal Revenue Service in connection with the transaction. Accordingly, it is possible that the transaction may not qualify as a reorganization, in which case the tax consequences of the transaction could differ materially from those summarized below.
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Assuming the transaction qualifies as a reorganization, for United States federal income tax purposes:
| Except as discussed below with respect to fractional shares, a U.S. holder of shares of Solexa shares will not recognize any gain or loss in the exchange of Solexa shares for Lynx shares. | |
| If a U.S. holder of Solexa shares receives cash instead of fractional Lynx shares, such U.S. holder will be required to recognize capital gain or loss, measured by the difference between the amount of cash received instead of that fraction of a share and the portion of the tax basis of that holders Solexa shares allocable to that fraction of a Lynx share. This gain or loss will be long-term capital gain or loss if the holder has held the Solexa shares exchanged for that fraction of a Lynx share for more than one year at the time the Solexa shares are accepted in the offer. The deductibility of capital losses is subject to limitations for both individuals and corporations. | |
| A U.S. holder of Solexa shares will have a tax basis in the Lynx shares received in the offer equal to (1) the tax basis in the Solexa shares surrendered by that holder in the offer, reduced by (2) any tax basis in the Solexa shares that is allocable to a fraction of a Lynx share for which cash is received. | |
| A U.S. holders holding period for Lynx shares received in the offer will include the holding period for Solexa shares surrendered in the offer. |
In the event that the exchange of Solexa shares for Lynx shares in the offer fails to qualify as a reorganization, then such exchange would be taxable to U.S. holders. Subject to the discussion below regarding passive foreign investment companies, if the offer is taxable:
| Each U.S. holder of Solexa shares participating in the offer or the transaction, as applicable, will recognize capital gain or loss, equal to the fair market value of the Lynx shares (together with any cash instead of fractional Lynx shares) received by the U.S. holder less the U.S. holders tax basis in the Solexa shares surrendered. This gain or loss will be long-term capital gain or loss if the holder held the Solexa shares for more than one year at the completion of the offer. | |
| A U.S. holder of Solexa shares will have a tax basis in the Lynx shares received in the offer equal to the fair market value of the shares received as of the date the offer is completed. | |
| A U.S. holders holding period for Lynx shares received in the offer will begin the day after the offer is completed. |
If Solexa were a passive foreign investment company, or a PFIC, and if the transaction were a taxable transaction, then materially different federal income tax consequences could arise for a U.S. holder than described above, including, without limitation, treatment of gain recognized in the transaction as ordinary income rather than capital gain and imposition of an interest charge on the taxes due in respect of gain attributable to the years that Solexa was treated as a PFIC with respect to such U.S. holder. A foreign corporation generally is a PFIC if in any taxable year either (a) 75% or more of its gross income consists of passive income, or (b) 50% or more of the value of its assets is attributable to assets that produce, or are held for the production of, passive income. Subject to certain limited exceptions, if a foreign corporation is a PFIC under either of these tests in a particular year, shares of the corporation held by a U.S. holder in that year are treated as PFIC shares for that year and all subsequent years in the U.S. holders holding period even if the corporation fails to meet either test in a subsequent year. Certain exceptions apply, including if the U.S. holder makes a timely election to treat the foreign corporation as a qualified electing fund.
Solexa believes it is or has been a PFIC, so no assurance can be provided that a U.S. holder would not be subject to the special tax treatment described above if the transaction is taxable and the U.S. holder did not make an election to treat Solexa as a qualified electing fund. The PFIC rules are very complex and, as noted, could have significant adverse effects on the taxation of gain recognized by a U.S. holder. U.S. holders are strongly urged to consult their own tax advisers concerning the application of these rules under their particular circumstances.
Ownership of Lynx Shares. The gross amount of any distribution with respect to Lynx shares generally will be included in a U.S. holders ordinary income as dividends to the extent that Lynx has current or
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Disposal of Lynx Shares. Generally, upon the sale or exchange of Lynx shares, a U.S. holder will recognize gain or loss equal to the difference between the amount realized on the sale or exchange and the holders adjusted tax basis in such Lynx shares. For non-corporate U.S. holders, the maximum U.S. federal income tax rate applicable to such gain if such U.S. holders holding period for such Lynx shares exceeds one year and therefore qualifies as long-term capital gain is 15%. The deductibility of capital losses is subject to limitations.
(B) Consequences to Non-U.S. Holders of the Transaction |
Consequences of Exchange. Subject to the discussion below under Backup Withholding Tax and Information Reporting Requirements, a non-U.S. holder generally will not recognize gain or loss for U.S. federal income tax purposes upon the receipt of Lynx shares in exchange for such holders Solexa shares and cash in exchange for a fractional share of Lynx common stock pursuant to the offer unless:
| the non-U.S. holder is an individual who is present in the United States for 183 days or more during the taxable year in which the offer is completed (but is not treated as a United States resident, and therefore a U.S. holder, under U.S. tax residency rules), and certain other conditions are met; or | |
| the gain is effectively connected with the conduct of a United States trade or business of the non-U.S. holder (and, in some circumstances, the gain is attributable to a fixed base (in the case of an individual) or a permanent establishment in the United States of the non-U.S. holder under an applicable income tax treaty). |
If the transaction qualifies as a reorganization, then gain or loss recognized by a non-U.S. holder referred to in either of the foregoing two exceptions would be limited to the gain or loss arising in respect of cash received in lieu of fractional shares as if the shareholder were a U.S. holder, as described above. If the transaction does not qualify as a reorganization, then gain or loss recognized by a non-U.S. holder described in either of the exceptions would be the entire amount of gain or loss realized in the transaction as if the shareholder were a U.S. holder, as described above.
If the first exception applies, the non-U.S. holder generally will be subject to United States federal income tax at a rate of 30% on the amount by which his or her United States-source capital gains exceed his or her United States-source capital losses. If the second exception applies, the non-U.S. holder will generally be subject to United States federal income tax on the net gain in the same manner as a U.S. holder. In addition, a non-U.S. holder that is treated as a corporation for United States federal income tax purposes may be subject to a branch profits tax equal to 30% (or lower applicable treaty rate) of its earnings and profits for the taxable year, subject to adjustments, that are effectively connected with its conduct of a trade or business in the United States. If a non-U.S. holder is eligible for the benefits of an income tax treaty between the United States and its country of residence, the United States federal income tax treatment of any such gain may be modified in the manner specified by the treaty.
Ownership of Lynx Shares. Dividends, if any, paid to a non-U.S. holder generally will be subject to withholding of U.S. federal tax at a rate of 30% unless either: (a) an applicable income tax treaty reduces or eliminates such tax, and the non-U.S. holder claims the benefit of that treaty by timely providing Lynx with a
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Disposal of Lynx Shares. Subject to the discussion below under Backup Withholding Tax and Information Reporting Requirements, a non-U.S. holder generally will not be subject to federal income tax (or any withholding thereof) on any gain realized by such holder upon a sale, exchange, redemption or other disposal of Lynx shares, unless:
| the non-U.S. holder is an individual who is present in the United States for 183 days or more during the taxable year (but not treated as a United States resident, and therefore a U.S. holder, under U.S. tax residency rules), and certain other conditions are met; | |
| the gain is effectively connected with the conduct of a United States trade or business of the non-U.S. holder (and, in some circumstances, the gain is attributable to a fixed base (in the case of an individual)) or a permanent establishment in the United States of the non-U.S. holder under an applicable income tax treaty; or | |
| Lynx is or has been a United States real property holding corporation for U.S. federal income tax purposes and, in the event that the Lynx shares are considered to be regularly traded, the non-U.S. holder held, directly or indirectly, at any time during the five-year period ending on the date of such sale or exchange more than five percent of the Lynx shares. |
If the first exception applies, the non-U.S. holder generally will be subject to United States federal income tax at a rate of 30% on the amount by which his or her United States-source capital gains exceed his or her United States-source capital losses. If the second exception applies, the non-U.S. holder will generally be subject to United States federal income tax on the net gain derived from the sale, exchange or other disposal of the Lynx shares in the same manner as a U.S. holder. In addition, a non-U.S. holder that is treated as a corporation for United States federal income tax purposes may be subject to a 30% branch profits tax on effectively connected income as discussed above. If a non-U.S. holder is eligible for the benefits of an income tax treaty between the United States and its country of residence, the United States federal income tax treatment of any such gain may be modified in the manner specified by the treaty. Lynx believes that it is not currently (and is not likely to become) a United States real property holding corporation.
(C) Backup Withholding Tax and Information Reporting Requirements |
When required, Lynx or its paying agent will report to the U.S. Internal Revenue Service the amount of proceeds paid for the Solexa shares and any dividends paid on Lynx shares in each calendar year, and the amount of United States federal income tax withheld, if any, with respect to these payments.
U.S. holders who are subject to information reporting and who do not provide appropriate information when requested may be subject to backup withholding at a rate of 28% on the gross amount of any proceeds or dividends received.
Non-U.S. holders who have provided certification as to their non-United States status or who have otherwise established an exemption will generally not be subject to backup withholding tax or information reporting if neither Lynx nor its agent has actual knowledge or reason to know that such certification is unreliable or that the conditions of the exemption are in fact not satisfied.
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Backup withholding is not an additional tax. The amount of any backup withholding will be allowed as a credit against the holders United States federal income tax liability and may entitle the holder to a refund, provided the required information is timely furnished to the Internal Revenue Service.
Regulatory Approval; Hart-Scott-Rodino Act and Antitrust
The transaction is not presently believed to be subject to the requirements of the HSR Act, which prevents transactions meeting certain size tests, and not otherwise exempt, from being completed until required information and materials are furnished to the Antitrust Division of the DOJ and the FTC and the related waiting period expires or is terminated early. Among other grounds for rendering the transaction non-reportable, Solexas status as a foreign issuer, without either substantial U.S. assets or sales, should enable the parties to establish that the transaction is presently exempt from HSR filing requirements.
Although it is not anticipated that circumstances will change in such a way that prior to closing HSR filings would be required, it is possible that a change could occur and thereby trigger filing requirements. If that were to occur, the parties would, at that time, be required to file notifications with the DOJ and the FTC and wait for the termination or expiration of the waiting period before closing the transaction. The initial waiting period under the HSR Act is 30 days, beginning on the date that both parties complete their filings. The waiting period can be terminated early by action of both the Antitrust Division of the DOJ and by the FTC. Either agency can extend the waiting period by issuing a Request for Additional Information or second request. Such a request extends the waiting period until 30 days after each of the parties has substantially complied with the second request.
Whether or not the parties are subject to the notice and waiting period requirements of the HSR Act, and if so, even if the waiting period has been terminated or expired, the DOJ or the FTC, as well as a foreign regulatory agency or government, state or private person, may challenge the transaction at any time before or after its completion. The parties cannot assure you that the DOJ or the FTC will not try to prevent the transaction or seek to impose restrictions or conditions on Lynx as a condition of not challenging the transaction. Depending on the nature of any restrictions or conditions, these restrictions or conditions may jeopardize or delay completion of the transaction, or lessen the anticipated benefits of the transaction.
Accounting Treatment
The transaction will be accounted for as a purchase transaction in accordance with United States generally accepted accounting principles. Under United States generally accepted accounting principles, Solexa is deemed to be the acquiror for accounting and financial reporting purposes. Accordingly, the assets and liabilities of Lynx will be recorded, as of the completion of the transaction, at their respective fair values and added to those of Solexa. Reported results of operations of the combined group issued after completion of the transaction will reflect those of Solexa, to which the operations of Lynx will be added from the date of the completion of the transaction. The operating results of the combined group will reflect purchase accounting adjustments, including increased amortization and depreciation expense for acquired assets. Additionally, historical financial condition and results of operations shown for comparative purposes in periodic filings subsequent to the completion of the transaction will reflect those of Solexa. Furthermore, pursuant to Statements of Financial Accounting Standards No. 141, Business Combinations, and No. 142, Goodwill and other Intangible Assets, goodwill arising from the transaction will be subject to at least an annual assessment for impairment. Identified intangible assets with finite lives will be amortized over those lives. A final determination of the intangible asset values and required purchase accounting adjustments, including the allocation of the purchase price to the assets acquired and liabilities assumed based on their respective fair values, has not been made. However, for purposes of disclosing unaudited pro forma information in this proxy statement/ prospectus, a preliminary determination has been made of the purchase price allocation, based upon current estimates and assumptions, which is subject to revision upon completion of the transaction.
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Restrictions on Ability to Sell Lynx Common Stock
Several Lynx stockholders entered into parent support agreements under which they have agreed not to, directly or indirectly, for a period ending on the earlier to occur of 180 days following the first closing date and the termination of the acquisition agreement, sell or transfer any shares of Lynx common stock held by them and to be acquired during that period. Several Solexa shareholders and optionholders entered into company support agreements under which they have agreed not to, directly or indirectly, for a period ending on the earlier to occur of 180 days following the first closing date and the termination of the acquisition agreement, sell or transfer any Solexa shares held by them or any shares of Lynx common stock or Solexa shares acquired by them during that time. For a description of the Lynx stockholders and the Solexa shareholders and optionholders that entered into the support agreements, see the section entitled Reciprocal Support Agreements on page 70. In addition, by accepting the offer and/or the option offer, Solexa shareholders and optionholders will be deemed to have agreed not to, for a period ending 180 days following the first closing date, sell or transfer any Lynx common stock acquired by them in the offer and/or the option offer.
The shares of Lynx common stock to be issued to Solexa shareholders and holders of Solexa options in connection with the transaction will be registered under the Securities Act. Subject to the restrictions described above, these shares will be freely transferable under the Securities Act, except for shares of Lynx common stock issued to any person who is deemed to be an affiliate of Solexa. Persons who may be deemed to be affiliates include individuals or entities that control, are controlled by, or are under common control of Solexa, and may include some of the officers and directors, as well as its principal shareholders. Solexa affiliates may not sell their shares of Lynx common stock acquired in connection with the transaction except pursuant to (1) an effective registration statement under the Securities Act covering the resale of those shares, (2) an exemption under paragraph (d) of Rule 145 under the Securities Act, which principally limits the volume of securities that can be sold in a three month period or (3) any other applicable exemption under the Securities Act. Lynxs registration statement on Form S-4, of which this proxy statement/ prospectus is a part, does not cover the resale of shares of Lynx common stock to be received by affiliates of Solexa in the transaction.
Lynx has agreed to file a resale registration statement covering the resale of shares of Lynx common stock received by the Solexa shareholders who have entered into the company support documents and who may be deemed to be affiliates of Solexa in the transaction until such time as less than 25% of Lynx common stock received by these Solexa shareholders is held by them.
Interests of Directors, Officers and Affiliates
In considering the recommendation of Lynxs board of directors that Lynx stockholders vote in favor of the issuance of Lynx common stock and the resulting change of control of Lynx, Lynx stockholders should be aware that some Lynx executive officers and directors may have interests in the transaction that may be different from, or in addition to, their interests as stockholders of Lynx. These interests include that Lynx will maintain an extension of coverage of Lynxs director and officer insurance with effect from the first closing date, for the benefit of those Lynx directors and officers who are covered by such policies at the first closing date, with respect to matters occurring prior to the first closing date for six years after the first closing date. However, Lynx will not be required to maintain such liability insurance policy to the extent that the annual cost of maintaining such a policy exceeds 125% of the premium paid by Lynx for such insurance for the year ended December 31, 2003. Lynxs board of directors was aware of these interests and considered them, among other matters, in making its recommendation.
In considering the recommendation of Solexas board of directors that Solexa shareholders accept the offer, Solexa shareholders should be aware that some executive officers and directors of Solexa may have interest in the transaction that may be different from, or in addition to, the other Solexa shareholders. These interests include the following:
| Board Seats. John West, chief executive officer of Solexa, Steve Allen, Mark Carthy, Tom Daniel, Hermann Hauser and Genghis Lloyd-Harris, each a director of Solexa, will be appointed to Lynxs board of directors on the first closing date. |
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| Option Grants to New Directors. Under the Lynx 1992 plan, directors are eligible to receive nonstatutory stock options. The above directors may receive option grants to purchase Lynx common stock under the Lynx 1992 plan following the completion of the transaction as determined by Lynxs board of directors pursuant to the provisions of the Lynx 1992 plan. | |
| Employment Arrangement with John West. Lynx and Mr. West have reached an understanding regarding Mr. Wests employment and compensation following the first closing date under terms substantially similar to those in Mr. Wests employment agreement with Solexa. Lynx has agreed to employ Mr. West as the chief executive officer of Lynx effective as of the first closing date. Mr. West will receive an annual salary of $275,000, a fee of $25,000 for serving on Solexas board of directors and an additional $2,700 per month to compensate him for his housing expenses. Mr. West will also be entitled to receive annual bonuses in the amount of $50,000 for the period ending December 31, 2004 and $100,000 for the period ending December 31, 2005, each bonus contingent upon the achievement of specified performance milestones. In addition, Mr. West will be entitled to receive special bonuses upon the completion of certain financing or change of control transactions with respect to Lynx. Finally, Lynx has agreed to indemnify Mr. West for any losses incurred by Mr. West in connection with Mr. Wests prior employment. | |
| Option Grants to John West. Lynx has also agreed that, following the first closing date, Mr. West will be granted an option to purchase shares of Lynx common stock to bring his total as-converted ownership to four percent of Lynx common stock (on an as-converted basis). These options will vest over a period not to exceed five years, at an exercise price to be determined by Lynxs board of directors. If Lynx closes a financing prior to August 29, 2005, and such financing causes the aggregate amount of shares underlying Mr. Wests options to fall below four percent of the total outstanding capital stock of Lynx, then Lynx will immediately grant to Mr. West an option that will bring the aggregate amount of shares underlying all options held by Mr. West to equal to four percent of the outstanding capital stock of Lynx. Any such option will have an exercise price to be determined by Lynxs board of directors and will vest over a period not to exceed five years. | |
| Service Arrangement with Nick McCooke. Solexa entered into a service agreement on June 24, 2004 with Nick McCooke, the former chief executive officer of Solexa, pursuant to which Solexa will become obliged to pay Mr. McCooke the sum of £125,000 in two tranches. Half of this amount will be paid to Mr. McCooke on the first closing date and the other half of this amount will be paid to Mr. McCooke on the earlier to occur of the termination of his employment with Solexa or the date that is six months following the first closing date. In addition, Solexa has agreed that, upon Mr. McCookes termination of employment on February 28, 2005, Mr. McCooke will be entitled to (1) six months salary and (2) £12,500 or six months continuation of his benefits. In addition, Solexa will pay up to £2,000 of Mr. McCookes legal fees in connection with the preparation of his service and compromise agreements. | |
| Option Offer. Under the option offer, directors and officers of Solexa who hold Solexa options may elect: (x) to exercise their Solexa options and exchange the Solexa ordinary shares received upon the exercise into shares of Lynx common stock or (y) to exchange such Solexa options for options to acquire shares of Lynx common stock, which options will remain subject to the original vesting schedule and other applicable terms and conditions. If an exchange of options is elected, the number of shares subject to the option and the option exercise price will be adjusted according to the ordinary share exchange ratio of 0.88637 of a share of Lynx common stock for each Solexa ordinary share. In connection with the transaction, all outstanding Solexa options will in the event of a compulsory acquisition become fully vested and exercisable pursuant to the terms of the applicable Solexa plans. | |
| Director and Officer Indemnification and Insurance. Lynx has agreed to, or to cause Solexa to, indemnify and hold harmless the present and former officers, directors and employees and agents of Solexa in respect of acts or omissions occurring on or prior to the first closing date or arising out of the transactions contemplated by the acquisition agreement to the extent permitted under Solexas articles of association and indemnification agreements in effect on the date of the acquisition agreement. In |
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addition, for a period of six years after the first closing date, Lynx will use its reasonable best efforts to cause to be maintained an extension of coverage of Solexas policies of directors and officers insurance with effect from the first closing date, for the benefit of those Solexa directors and officers who are covered by such policies at the first closing date, with respect to matters occurring prior to the first closing date. However, Lynx will not be required to maintain such liability insurance policy to the extent that the annual cost of maintaining such a policy exceeds 125% of the premium paid by Solexa for such insurance for the year ended December 31, 2003. | ||
| Resale Registration Rights. Lynx has agreed to file a resale registration statement covering the resale of shares of Lynx common stock received by a number of Solexa shareholders who may be deemed to be affiliates of Solexa in the transaction until such time as less than 25% of Lynx common stock received by these Solexa shareholders is held by them. These Solexa shareholders include Tim Rink, Shankar Balasubramanian, Mr. McCooke and Mr. West, each a director of Solexa, and several entities that are affiliated with Messers. Carthy, Lloyd-Harris, Daniel and Hauser, each a director of Solexa. | |
| Affiliate Sales. It is anticipated that the trading volume of Lynx common stock will increase following the transaction, which may facilitate the sale of an increased number of shares under Rule 144 of the Securities Act for affiliates of Solexa following the transaction. |
Solexas board of directors was aware of these interests and considered them, among other matters, in making its recommendation to Solexas shareholders that they accept the offer.
Listing of Lynx Common Stock on the NASDAQ SmallCap Market
It is a condition to the offer that the shares of Lynx common stock to be issued in the transaction be approved for listing on the NASDAQ SmallCap Market, subject to official notice of issuance. This condition can be waived, in writing, by mutual agreement of Lynx and Solexa.
The NASDAQ staff has indicated to Lynx that it will view the transaction as constituting a Reverse Merger under the NASDAQ Marketplace Rule 4330(f). As a result, Lynx will need to file an application with the NASDAQ for initial inclusion of Lynx common stock for listing on the NASDAQ Stock Market following the completion of the transaction. Lynx will be required to satisfy all the requirements for initial inclusion on the NASDAQ Stock Market, including a $4.00 per share minimum bid price for the 90 trading days preceding the completion of the transaction. Lynx does not currently satisfy the minimum bid price requirement and intends to effect a reverse split of its outstanding shares of common stock in order to effect a plan to meet the minimum bid price requirement. The proposed amendment to Lynxs certificate of incorporation will be voted by Lynxs stockholders at the Lynx annual meeting. For a description of the reverse stock split proposal, see the section entitled Proposal 4 for the Annual Meeting of Lynx Stockholder Approval of Amendment to Lynxs Certificate of Incorporation to Effect a Reverse Stock Split of Lynx Common Stock on page 129. No assurance can be given that a listing of Lynx common stock will be obtained on the NASDAQ.
Directors and Management of Lynx Following the Transaction
Directors |
The acquisition agreement provides that, on the first closing date, Lynxs board of directors shall consist of Craig C. Taylor, Genghis Lloyd-Harris, Tom Daniel, Hermann Hauser, Mark Carthy and John West. In addition, one or more other directors who shall be mutually acceptable to Lynxs board of directors and Solexas board of directors shall be appointed to Lynxs board of directors on the first closing date. The acquisition agreement further provides that Lynx and Solexa will ensure that the composition of Lynxs board of directors upon such appointment comply with the rules and regulation of the NASDAQ and the SEC. Lynx and Solexa have agreed to appoint Steve Allen to Lynxs board of directors on the first closing date.
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The following is a brief biography of each person who is expected to serve as directors of Lynx upon the first closing date:
Principal Occupation/ | ||||
Name | Age | Position to be Held with Lynx | ||
Craig C. Taylor
|
54 | Director | ||
John West
|
47 | Chief Executive Officer, Director | ||
Steve Allen
|
46 | Director | ||
Mark Carthy
|
44 | Director | ||
Genghis Lloyd-Harris
|
47 | Director | ||
Tom Daniel
|
39 | Director | ||
Hermann Hauser
|
55 | Director |
Craig C. Taylor was elected Chairman of the board of directors of Lynx in December 2000, has served as a director of Lynx since March 1994 and served as Acting Chief Financial Officer of Lynx from July 1994 to April 1997. He has been active in venture capital since 1977, when he joined Asset Management Company, a venture capital firm. He is a general partner of AMC Partners 89 L.P., which serves as the general partner of Asset Management Associates 1989 L.P., a private venture capital partnership. He currently serves as a director of Pharmacyclics, Inc., a biotechnology company, and several private companies.
John West has served as a director of Solexa since August 2004. In August 2004, Mr. West was appointed Chief Executive Officer of Solexa. From January 2001 to July 2004, Mr. West was Vice President at Applied Biosystems, Inc. where he was last responsible for the companys instrument and reagent products for DNA sequencing, gene expression, genotyping, PCR and DNA synthesis. From January 1999 to January 2001, Mr. West was the Marketing Director for Microfluidics at Coventor, Inc. (fka Microcosm Technologies, Inc.). From 1996 to June 1998, Mr. West was the President of Princeton Instruments, Inc. and from June 1990 to 1996 he was a General Manager at Princeton Instruments, Inc. Prior to Princeton Instruments, Inc., Mr. West was the President and founder of BioAutomation, Inc. Mr. West received BS and MS degrees in engineering from MIT and an MBA in Finance from the Wharton School at the University of Pennsylvania.
Steve Allen has served as a director of Solexa since January 2004. Dr. Allen joined Mettler-Toledo Intl. Inc. in 2000 as Head of Automated Chemistry, in which role he has been responsible for the acquisition and integration of a series of companies focused on drug discovery tools. From 1999 to 2000, Dr. Allen was Vice President of European Operations for Perkin-Elmer Instruments and from 1983 to 1999, Dr. Allen held a series of senior management positions in the United Kingdom and United States for PE Corporation (now Applera Corp), including General Manager of a spectroscopy business and Vice President of Product Development, Dr. Allen received his BSc and PhD in Chemistry from Nottingham University.
Mark Carthy has served as a director of Solexa since 2001. In October 2000, Mr. Carthy joined Oxford Bioscience Partners, a venture capital investment firm. From 1998 to 2000, Mr. Carthy was an advisor to Kummell Investments Limited, an investment firm affiliated with Morningside Group. Prior to Morningside, Mr. Carthy was Chief Business Officer of Cubist Pharmaceuticals, Inc., where he was responsible for finance, business development and business operations and Senior Director of Business Development at Vertex Pharmaceuticals Incorporated. Mr. Carthy received his BE in chemical engineering from University College Dublin, Ireland, an MS in chemical engineering from University of Missouri and an MBA from Harvard Business School. Mr. Carthy currently serves as a director of a number of biotechnology companies including Astex Technology, ImpactRx, Scion Pharmaceuticals, and Cyberkinetics Neurotechnology Systems, Inc.
Tom Daniel has served as a director of Solexa since September 2001. In 1998, Mr. Daniel joined Schroder Ventures Life Sciences, a venture capital firm, in London. From 1995 to 1998, Mr. Daniel was with Domain Associates, a U.S. venture capital group focused on life sciences. From 1994 to 1995, Mr. Daniel worked for Charles River Ventures, a U.S. venture capital group, where he focused on biotechnology investments. Mr. Daniel received an MBA (with Honors) from Harvard Business School, was a member of a genetics research team at UNC, Chapel Hill from 1983 to 1984, and received a degree in Biological Sciences from Oxford University. Mr. Daniel serves or has served as a director of Oxagen, PowderMed, Solexa and
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Hermann Hauser, PhD, has founded, co-founded and backed over 20 information technology companies, including Acorn Computer Group and Virata (now GlobespanVirata). While working at Olivetti as Vice President, Research, he established Olivettis global network of research laboratories. In 1997, he co-founded Amadeus Capital Partners Ltd., a venture capital company specializing in high-technology investments. He has served as a Director of Amadeus since that time. Dr. Hauser received an MA in Physics from Vienna University and a PhD in Physics from the University of Cambridge. He is a Fellow of the Institute of Physics and of the Royal Academy of Engineering, an honorary Fellow of Kings College, Cambridge and in 2001 was awarded an honorary CBE for innovative service to the UK enterprise sector.
Genghis Lloyd-Harris, MD, PhD, MBA has served as a director of Solexa since June 2004. In April 2004, Dr. Lloyd-Harris joined Abingworth Management, a venture capital firm in the U.K. From 1996 to 2004, Dr. Lloyd-Harris was a biotechnology equity research analyst at Credit Suisse First Boston in the European Equity Research Group, based in London. From 1989 to 1996, Dr. Lloyd-Harris worked for Credit Suisse First Bostons Health Care Group in the Investment Banking Division in New York and London. From 1981 to 1987, Dr Lloyd-Harris was a pediatrician in Melbourne, Australia. Dr. Lloyd-Harris received a Medical Degree from the University of Liverpool in the U.K., a Ph.D in Clinical Pharmacology from the University of Melbourne, Australia, and an MBA from Harvard Business School.
Management |
Effective as of the first closing date, Mr. West will serve as the chief executive officer of Lynx. As described in the section entitled Interests of Directors, Officers and Affiliates on page 54, Lynx has reached an agreement with Mr. West regarding Mr. Wests employment and compensation following the first closing date.
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THE ACQUISITION AGREEMENT
The following is a description of the material aspects of the acquisition agreement. While we believe that the following description covers the material terms of the acquisition agreement, the description may not contain all of the information that is important to you. We encourage you to read carefully this entire document, including the acquisition agreement attached to this proxy statement/ prospectus as Annex A, for a more complete understanding of the transaction. The following description is subject to, and is qualified in its entirety by reference to, the acquisition agreement.
Structure of the Transaction
The Offer |
Lynx will issue, or otherwise allocate for issuance under options to acquire Lynx common stock, a total of 29.5 million shares of Lynx common stock pursuant to the terms of the offer and the option offer as set forth in the acquisition agreement. If the offer is accepted and the transaction is completed, each holder of Solexa B preferred shares will be entitled to receive 2.61560 shares of Lynx common stock for each Solexa B preferred share held; each holder of Solexa A ordinary shares will be entitled to receive 2.75326 shares of Lynx common stock for each Solexa A ordinary share held; and each holder of Solexa ordinary shares will be entitled to receive 0.88637 of a share of Lynx common stock for each Solexa ordinary share held. Lynx stockholders will continue to own their existing Lynx shares.
Option Offer |
Lynx will commence an option offer to each holder of the Solexa options either concurrently with the commencement of the offer or as soon as reasonably practicable after, but in no event later than four weeks following, the commencement of the offer. In connection with the transaction, all outstanding Solexa options will, in the event of a compulsory acquisition, become fully vested and exercisable pursuant to the terms of the applicable Solexa plans. For details of the compulsory acquisition, see the section entitled Compulsory Acquisition on page 169.
Under the option offer, each outstanding Solexa option under the Solexa plans shall, at the election of the holder of each Solexa option either, (x) be exercised in accordance with rules of the relevant Solexa plans and such Solexa ordinary shares received upon the exercise be exchanged for shares of Lynx common stock on the same terms as those contained in the offer; or (y) be exchanged for an option to acquire, on the same terms and conditions as were applicable under the relevant Solexa plans in effect immediately prior to the first closing date, including the same vesting schedule and other applicable terms and conditions, a number of shares of Lynx common stock equal to the number of Solexa ordinary shares issuable upon the exercise of each such Solexa option prior to the first closing date multiplied by the Solexa ordinary share exchange ratio. In the event that a Solexa optionholder does not elect either to exercise or exchange his or her options, and following the implementation of the compulsory acquisition procedure by Lynx to acquire any remaining Solexa ordinary shares, the options will terminate and cease to be outstanding within one month following notification to Solexa optionholders of such compulsory acquisition procedure. Upon the option exchange, the exercise price for each such share of Lynx common stock shall (i) be converted into U.S. dollars based on the exchange rate on the business day immediately prior to the relevant date of exchange and, (ii) shall equal the per share exercise price of the applicable Solexa option divided by the Solexa ordinary share exchange ratio of 0.88637. The number of shares of Lynx common stock upon the exercise of any Solexa option after the first closing date shall be rounded down to the nearest whole share. Any election by a holder of Solexa options pursuant to the option offer will be conditional upon the exchange by Lynx of Solexa shares pursuant to the offer on the first closing date.
Effective Time of the Transaction
The obligation of Lynx to first issue shares of Lynx common stock in exchange for the outstanding Solexa share capital pursuant to the offer shall be subject only to (i) the valid acceptances of the offer (and not,
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The Transaction Consideration and Exchange of Securities
General |
In the transaction, the consideration to be offered by Lynx to the holders of Solexa shares in the offer shall be as follows:
| each holder of Solexa B preferred share(s) shall be entitled to receive 2.61560 shares of Lynx common stock for each B preferred share held; | |
| each holder of Solexa A ordinary share(s) shall be entitled to receive 2.75326 shares of Lynx common stock for each Solexa A ordinary share held; and | |
| each holder of Solexa ordinary share(s) shall be entitled to receive 0.88637 of a share of Lynx common stock for each Solexa ordinary share held; |
provided, however, that the maximum number of shares of Lynx common stock to be issued by Lynx (x) pursuant to the offers, (y) in connection with the compulsory acquisition, to the extent applicable, and (z) upon exercise (whenever exercised) of options to acquire Lynx common stock received in exchange for Solexa options pursuant to the option offer, is 29.5 million.
In the event that the total number of shares of Lynx common stock issued or allocated for issuance pursuant to (x), (y) and (z) above shall be less than 29.5 million, then an additional number of shares of Lynx common stock shall be issued on a pro rata basis to the holders of Solexa shares and Solexa options so that the total number of shares issued or allocated for issuance shall be equal to 29.5 million.
No Fractional Shares |
No fraction of a share of Lynx common stock will be issued upon completion of the offer, but in lieu thereof each accepting shareholder or optionholder, in the case of optionholders exercising Solexa options pursuant to the option offer, and who would otherwise be entitled to receive a fraction of a share of Lynx common stock in the offer or option offer, as appropriate, shall receive from Lynx an amount of cash (rounded to the nearest whole cent), without interest, equal to the product obtained by multiplying such fraction by the closing price of one (1) share of Lynx common stock, as reported on the NASDAQ SmallCap Market, for the last trading day immediately prior to the first closing date.
Representations and Warranties
The acquisition agreement contains customary representations and warranties of Solexa relating to, among other things:
| corporate capital structure, executives, organization and qualification; | |
| financial statements; | |
| absence of material changes or events; | |
| tax matters; | |
| litigation matters; | |
| property and environmental matters; | |
| intellectual property rights and agreements; | |
| assets, debts and inventory; | |
| contracts with connected persons; |
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| employment arrangements and employee benefits; | |
| statutory and legal requirements; | |
| records and registers and memorandum of association and articles of association; | |
| insurance matters; | |
| group structure; | |
| agreements and capital commitments; | |
| borrowings and facilities; | |
| government grants; | |
| internal accounting controls; and | |
| authority and enforceability and no conflicts. |
The acquisition agreement contains customary representations and warranties of Lynx relating to, among other things:
| subsidiaries; | |
| corporate organization and qualifications; | |
| authorization and enforcement; | |
| no conflicts; | |
| capitalization; | |
| SEC reports and financial statements; | |
| absence of material changes or events; | |
| litigation matters; | |
| compliance with laws; | |
| title to assets; | |
| Form S-3 eligibility; | |
| listing and maintenance requirements; | |
| registration rights; | |
| disclosure matters; | |
| intellectual property matters; | |
| insurance matters; | |
| regulatory permits; | |
| transactions with affiliates and employees; | |
| internal accounting controls; | |
| employee benefit plans and employee benefits; | |
| tax matters; | |
| material contracts; | |
| financial advisor and opinion of financial advisor; and | |
| absence of restrictions on the offer and takeover statutes. |
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The representations and warranties made by the parties to the acquisition agreement will not survive the effective date of the transaction, but their accuracy forms the basis of certain conditions to the offer as well as the right of either Lynx or Solexa to terminate the acquisition agreement.
Conduct of Business Prior to Completion of the Transaction
Both Lynx and Solexa have agreed that they will conduct their businesses in the ordinary course, in substantially the same manner as heretofore conducted and in compliance with all applicable laws, rules and regulations.
Both Lynx and Solexa have also agreed that, prior to the earlier of the first closing date or the termination of the acquisition agreement without the prior written consent of the other, they will refrain from doing, among other things, any of the following:
| declare, set aside or pay any dividends on, or make any other distributions in respect of, any of their capital stock, (ii) adjust, split, combine or reclassify any of their capital stock or (iii) purchase, redeem or otherwise acquire any shares of capital stock, subject to limited exceptions; | |
| issue, deliver, sell, pledge, grant options over or otherwise encumber any of their share capital, any other voting securities or any securities convertible into, or any rights, warrants or options, subject to certain limited exceptions; | |
| amend their charter or organizational documents; | |
| mortgage or otherwise encumber or subject to any material lien or, except in the ordinary course of business, sell, lease, license, transfer or otherwise dispose of any material properties or assets; | |
| incur, assume, guarantee or become obligated with respect to any indebtedness, or incur, assume, guarantee or become obligated with respect to any other material obligations; | |
| make any material tax election or take any material tax position or change their fiscal year or accounting methods, policies or practices or settle or compromise any material income tax liability, subject to limited exceptions; | |
| make any loan, advance or capital contributions to or investment in any person or entity; | |
| pay, discharge or satisfy any claims, liabilities or obligations, other than in the ordinary course of business; | |
| grant to any current or former director, officer or employee any increase in compensation or benefits, severance or termination or adopt any new severance plan or amend or modify in any respect any severance plan, agreement or arrangement, subject to limited exceptions; | |
| adopt or amend any plan or enter into any employment, deferred compensation, severance or termination agreement or arrangement with or for the benefit of any current or former director, officer, or employee; | |
| waive any stock repurchase right, accelerate, amend or change the period of exercisability of options or restricted stock, or reprice options granted under any stock plan; | |
| hire or offer to hire any employee or independent contractors subject to limited exceptions; | |
| transfer or license or otherwise extend, amend or modify any rights to intellectual property, subject to limited exceptions; | |
| enter into any contract or commitment with aggregate commitments in excess of $50,000; | |
| take or agree or commit to take any action that would make any representation or warranty inaccurate in any material respect; |
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| commence or settle any litigation, other than to enforce their rights under the acquisition agreement; or | |
| authorize any of, or commit or agree to take any of, the foregoing actions. |
Lynx has also agreed that it will refrain from making or agreeing to make any new capital expenditure or acquisition of assets or property or other acquisitions or commitments in excess of $15,000 individually or $50,000 in the aggregate in any one calendar month or otherwise agree to acquire any material assets or property other than in the ordinary course of business consistent with past practice, without the prior written consent of Solexa.
Lynxs Board of Directors Following the Transaction
Lynx will take all actions necessary such that, on the first closing date, Lynxs board of directors shall consist of Craig C. Taylor, Genghis Lloyd-Harris, Tom Daniel, Hermann Hauser, Mark Carthy and John West. In addition, one or more other directors who shall be mutually acceptable to Lynxs board of directors and Solexas board of directors shall be appointed to Lynxs board of directors on the first closing date. The acquisition agreement further provides that Lynx and Solexa will ensure that the composition of Lynxs board of directors upon such appointment comply with the rules and regulation of the NASDAQ and the SEC. Lynx and Solexa have agreed to appoint Steve Allen to Lynxs board of directors on the first closing date.
Other Agreements
Lynx and Solexa have each agreed:
| that Lynx will use its reasonable best efforts to, within 20 business days after execution of the acquisition agreement, file a registration statement with the SEC in which this proxy statement/ prospectus is to be included, to cooperate with each other, and each others counsel and independent registered public accounting firms in the preparation and filing of this proxy statement/ prospectus, and to promptly notify one another upon the receipt of any comments from the SEC with respect to this proxy statement/ prospectus; | |
| that Lynx will promptly take all steps necessary to hold and convene a stockholders meeting, and use its reasonable best efforts to solicit from its stockholders proxies in favor of the share issuance, the change-of-control of Lynx in connection with the transaction and the amendment to the Lynx 1992 plan; | |
| that Lynx will promptly engage a person authorized by the Financial Services Authority for the purposes approving the offer documents; | |
| that Lynx will use its commercially reasonable efforts to file a post-effective amendment to the registration statement on Form S-3 registering the resale by those Solexa shareholders who have executed the company support agreements and may be deemed to be affiliates of Solexa under the Securities Act; | |
| to negotiate in good faith and use their respective reasonable best efforts to modify the Colony Technology Sharing Agreement dated March 22, 2004 and enter into a proposed OEM arrangement between Lynx and Solexa; | |
| to appoint a joint remuneration planning committee consisting of Craig Taylor and the members of Solexas existing remuneration committee to negotiate and execute an employment agreement with John West; | |
| to provide access to its books and records to the other party and its directors, officers, employees and other representatives, and comply with its obligations under the existing confidentiality agreement between the parties; | |
| to consult with each other and agree on any press release or public statements about the transaction; |
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| to use reasonable best efforts to comply with all legal requirements with respect to the transaction, to make all filings reasonably determined by the parties to be required by any governmental entity in connection with the transaction, and to fully cooperate with one other to identify the detailed steps and procedures necessary or desirable to effect the transactions contemplated by the acquisition agreement; | |
| up until the time the transaction becomes effective, provide prompt notice to the other party when it becomes aware that any of its representations or warranties have become untrue or inaccurate, or that it has failed to comply with or satisfy any covenant, condition or agreement to be complied with or satisfied by it under the acquisition agreement; | |
| that Lynx will use reasonable efforts to cause Lynx common stock issued in the transaction or issuable upon the exercise of converted Solexas stock options to be approved for listing on the NASDAQ SmallCap Market; | |
| that Lynx, so far as it is eligible to do so, delivers a notice promptly following the first closing date to those holders of Solexa shares who did not accept the offer that Lynx intends to acquire the remaining Solexa shares in accordance with Sections 428 through 430F of the Companies Act; | |
| that Lynxs board of directors shall adopt a resolution so that the acquisition of Lynx securities by Solexa insiders shall be exempt transactions for the purposes of Section 16 of the Exchange Act; | |
| that Lynx and Solexa shall use their respective reasonable best efforts to obtain the waiver of any change of control or acceleration benefits that would otherwise be triggered by the completion of the transactions contemplated by the acquisition agreement; | |
| to use commercially reasonable efforts to take or cause to be taken any action necessary for the transaction to qualify as a reorganization within the meaning of Section 368(a) of the Code, report the transaction as a reorganization within the meaning of such section, and cooperate and use commercially reasonable efforts in order for each party to obtain tax opinions from their respective counsel; | |
| that Lynx will take all actions necessary such that on the first closing date, Lynxs board of directors shall consist of Craig C. Taylor, Genghis Lloyd-Harris, Tom Daniel, Hermann Hauser, Mark Carthy and John West. In addition, on the first closing date, one or more other directors who shall be mutually acceptable to Lynxs board of directors and Solexas board of directors will be appointed to Lynxs board of directors. Lynx and Solexa have agreed to appoint Steve Allen to Lynxs board of directors on the first closing date. |
No Solicitation
In the acquisition agreement, each party agrees that, except in circumstances described below, it shall not, and shall not permit or authorize any of its subsidiaries or any of its or its subsidiaries respective officers, directors, employees or agents, to:
| initiate, continue, solicit or encourage, directly or indirectly, any inquiries or the making of any proposal or offer with respect to a merger, consolidation or similar transaction involving, or any purchase of all or any significant portion of the assets or equity securities of, either party involving any person other than the other party, which we refer to as the acquisition proposal; or | |
| engage in any negotiations concerning, or provide any confidential information or data to, or have any discussions with, any person relating to an acquisition proposal, or otherwise facilitate any effort or attempt to make or implement acquisition proposal or enter into any agreement or understanding with any other person or entity with the intent to effect any acquisition proposal. |
If Lynx or Solexa (or their respective officers or directors) receives or becomes aware of the receipt of any acquisition proposal, or any request for nonpublic information or inquiry which the party reasonably believes could lead to an acquisition proposal that is superior to the transactions contemplated by the acquisition agreement, the recipient party shall notify the other party promptly, orally and in writing, of the material terms and conditions of the acquisition proposal, and the identity of the person or group making the
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If either Lynx or Solexa receives an acquisition proposal that its board of directors determines in good faith (after consultation with outside counsel and, in the case of Lynx, its financial advisor) constitutes or is reasonably likely to lead to a superior offer, it may then take the following actions, but only if (a) such party has not otherwise breached its obligations with respect to that acquisition proposal, and (b) its board of directors believes in good faith, following consultation with outside legal counsel, that the failure to take such action would lead to a breach of the board of directors fiduciary duty:
| furnish nonpublic information to the third party making the acquisition proposal, provided that it receives from the third party a confidentiality agreement, with terms no less favorable to those terms contained in the confidentiality agreement between Lynx and Solexa; and | |
| engage in discussions or negotiations with the third party with respect to the acquisition proposal. |
In response to the receipt of a superior offer, the board of directors of a party may change its recommendation in favor of the transaction if all of the following conditions are met:
| the first closing shall not have occurred; | |
| it shall have, at least four business days prior to changing its recommendation, provided to the other party written notice stating that it intends to change its recommendation; and | |
| its board of directors believes in good faith, after consultation with its outside legal counsel, that, in light of the superior offer, failure to change its recommendation in favor of the transaction would result in a breach of the board of directors fiduciary obligations to its stockholders. |
A superior offer with respect to a party, means any bona fide acquisition proposal (1) to acquire, directly or indirectly, at least a majority of the shares of either party then outstanding, or all or substantially all of the assets of either party, (2) that contains terms and conditions that either board of directors reasonably determines in good faith (after consultation with its financial advisor in the case of Lynx) to be more favorable from a financial point of view to such partys stockholders than the transactions contemplated by the acquisition agreement, (3) that either board of directors reasonably determines in its good faith judgment (after consultation with its financial advisor, in the case of Lynx, and its legal counsel) to be reasonably capable of being completed (taking into account all legal, financial, regulatory and other aspects of the proposal and the person making the proposal), and (4) that does not contain any due diligence condition and for which any financing upon which it is conditioned is committed.
A change in the recommendation of Lynxs board of directors shall not affect Lynxs obligation to continue the offer and to convene the Lynx annual meeting. Lynx shall not submit to a vote to its stockholders any transaction contemplated by an acquisition proposal, or propose to do so, prior to or at the Lynx annual meeting.
Conditions to the Offer
The first closing will not take place until the holders of at least 90% in nominal value of each class of the outstanding Solexa shares shall have accepted the offer.
The first closing is also subject to the fulfillment, or waiver by Lynx, of several conditions, including the following:
| Solexa shall have received each of the consents, waivers and approvals designated as required consents under the acquisition agreement; | |
| all representations and warranties of Solexa set forth in the acquisition agreement shall have been true and correct in all material respects as of the date of the acquisition agreement and shall be true and correct as of the first closing date, except where the failure to be true and correct would not reasonably be expected to have a material adverse effect on Solexa; |
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| Solexa shall have performed in all material respects its obligations and complied in all material respects with its agreements and covenants to be performed or complied with under the acquisition agreement prior to the expiration of the offer; | |
| Lynxs registration statement, of which this proxy statement/ prospectus is a part, shall have become effective under the Securities Act and shall not be the subject of any stop order or proceeding seeking a stop order; | |
| the shares of Lynx common stock to be issued in the offer shall have been approved for listing on the NASDAQ, subject to official notice of issuance; | |
| Lynx shall have obtained the approval of Lynxs stockholders of (1) the issuance of shares of Lynx common stock in connection with the transaction, (2) the change-of-control of Lynx in connection with the transactions contemplated by the acquisition agreement, and (3) an amendment to Lynxs 1992 plan to increase the number of shares reserved for issuance thereunder by 2 million shares; | |
| there shall not have been pending or overtly threatened in writing, any suit or action by a governmental entity against Lynx or Solexa (1) seeking to prohibit or impose any material limitations on Lynxs ownership or operation of all or a material portion of Lynxs or Solexas businesses or assets, or to compel Lynx or its subsidiaries and affiliates to dispose of or hold separate any material portion of the business or assets of Solexa or Lynx and its subsidiaries, in each case taken as a whole, (2) challenging the acquisition by Lynx of any Solexa shares under the offer, seeking to restrain or prohibit the making or completion of the transaction or the performance of any of the other transactions contemplated by the acquisition agreement, the support agreements, or seeking to obtain from the Solexa or Lynx any damages that are material in relation to Lynx and Solexa, taken as a whole, (3) seeking to impose material limitations on the ability of Lynx, or render Lynx unable, to exchange, pay for or purchase some or all of the Solexa shares pursuant to the offer, (4) seeking to impose material limitations on the ability of Lynx to effectively exercise full rights of ownership of the Solexa shares, including, without limitation, the right to vote the Solexa shares purchased by it on all matters properly presented to Solexas shareholders, (5) seeking to oblige Solexa, Lynx or any of Lynxs subsidiaries to pay material damages in connection with the transaction, or (6) which otherwise is reasonably likely to have a material adverse effect on Solexa and Lynx, taken together as a whole; | |
| there shall not be any law, statute, rule, regulation, ordinance, judgment, order, decree or injunction enacted, entered, enforced, promulgated, or deemed applicable, pursuant to an authoritative interpretation by or on behalf of a governmental entity, to the offer, or any other action taken by any governmental entity, that could reasonably be expected to result, directly or indirectly, in any of the consequences referred to in (1)-(6) in the immediately preceding bullet point; | |
| Solexas board of directors shall not have and shall not have resolved to change its recommendation to Solexas shareholders to accept the offer; | |
| Solexa shall have had cash and cash equivalent balances of at least £5,000,000 on December 1, 2004, which include specified advances and payments made by Solexa to Lynx and fees and expenses incurred and paid by Solexa in connection with the transaction; | |
| there shall not have occurred an event having a material adverse effect with respect to Solexa; and | |
| the acquisition agreement shall not have been terminated. |
In addition, the first closing is subject to the fulfillment or waiver by Solexa of several conditions, including the following:
| Lynx shall have received each of the consents, waivers and approvals designated as required consents under the acquisition agreement; | |
| all representations and warranties of Lynx set forth in the acquisition agreement shall have been true and correct in all material respects as of the date of the acquisition agreement and shall be true and |
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correct as of the first closing date, except where the failure to be true and correct would not reasonably be expected to have a material adverse effect on Lynx; | ||
| Lynx shall have performed in all material respects its obligations and complied in all material respects with its agreements and covenants to be performed or complied with under the acquisition agreement prior to the expiration of the offer; | |
| Seven Hills shall not have withdrawn or modified its fairness opinion delivered to Lynxs board of directors in a manner adverse to Lynx or Solexa; | |
| Lynx shall have obtained the approval of Lynxs stockholders of (1) the issuance of shares of Lynx common stock in connection with the transaction, (2) the change-of-control of Lynx in connection with the transactions contemplated by acquisition agreement, and (3) an amendment to Lynxs 1992 plan to increase the number of shares reserved for issuance thereunder by 2 million shares; | |
| there shall not have been pending or overtly threatened in writing, any suit or action by a governmental entity against Lynx or Solexa (1) seeking to prohibit or impose any material limitations on Lynxs ownership or operation of all or a material portion of Lynxs or Solexas businesses or assets, or to compel Lynx or its subsidiaries and affiliates to dispose of or hold separate any material portion of the business or assets of Solexa or Lynx and its subsidiaries, in each case taken as a whole, (2) challenging the acquisition by Lynx of any Solexa shares under the offer, seeking to restrain or prohibit the making or completion of the transaction or the performance of any of the other transactions contemplated by the acquisition agreement, the support agreements, or seeking to obtain from the Solexa or Lynx any damages that are material in relation to Lynx and Solexa, taken as a whole, (3) seeking to impose material limitations on the ability of Lynx, or render Lynx unable, to exchange, pay for or purchase some or all of the Solexa shares pursuant to the offer, (4) seeking to impose material limitations on the ability of Lynx to effectively exercise full rights of ownership of the Solexa shares, including, without limitation, the right to vote the Solexa shares purchased by it on all matters properly presented to Solexas shareholders, (5) seeking to oblige Solexa, Lynx or any of Lynxs subsidiaries to pay material damages in connection with the transaction, or (6) which otherwise is reasonably likely to have a material adverse effect on Solexa and Lynx, taken together as a whole; | |
| there shall not be any law, statute, rule, regulation, ordinance, judgment, order, decree or injunction enacted, entered, enforced, promulgated, or deemed applicable, pursuant to an authoritative interpretation by or on behalf of a governmental entity, to the offer, or any other action taken by any governmental entity, that could reasonably be expected to result, directly or indirectly, in any of the consequences referred to in (1)-(6) in the immediately preceding bullet point; | |
| Lynxs board of directors shall not have and shall not have resolved to change its recommendation to Lynxs stockholders to approve the matters set forth in the fifth bullet point above and each of the other proposals that Lynx and Solexa shall deem reasonably necessary for the purpose of effecting the transaction; | |
| Solexa shall have received confirmation from the U.K. Inland Revenue that the sale of the Solexa shares in exchange for shares of Lynx common stock will qualify for roll-over relief from capital gains tax under applicable English law; | |
| Lynx shall be eligible to register the shares of Lynx common stock for resale using Form S-3; | |
| there shall not have occurred a dissolution, liquidation or termination of existence of Lynx or the failure of Lynx to pay its debts as they mature on a reasonably timely basis or any similar occurrence; | |
| there shall not have occurred an event having a material adverse effect with respect to Lynx; | |
| Solexa shall have received an opinion of Solexas corporate counsel and Lynx shall have received an opinion of Lynxs corporate counsel, each to the effect that the offer will qualify as a reorganization for United States federal income tax purposes; and | |
| the acquisition agreement shall not have been terminated. |
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A material adverse effect with respect to Lynx or Solexa, as the case may be, means any change, effect, event, occurrence, state of facts or development (i) that is, or is reasonably likely to be, materially adverse to the value, condition (financial or otherwise), business or results of operations of Solexa or Lynx (and in the case of Lynx, taken together with the Subsidiaries of Lynx), as the case may be, or (ii) that will, or is reasonably likely to, impair the ability of any party hereto to perform its obligations under the acquisition agreement or prevent or materially delay consummation of any of the transactions contemplated by this acquisition agreement. However, no adverse change, effect, event, occurrence, state of facts or development attributable to conditions affecting the United States or the United Kingdom economy as a whole that is not unique to Lynx or Solexa, as the case may be, and that does not disproportionately affect Lynx or Solexa, as the case may be, shall be deemed in itself to constitute, or shall be taken into account in determining, whether there has been or will be a material adverse effect.
Termination of the Acquisition Agreement
The acquisition agreement may be terminated and the offer may be abandoned at any time before the first closing date under several circumstances, including:
| by mutual written consent of Lynx and Solexa; | |
| by either Lynx or Solexa if the offer shall have expired, terminated or been withdrawn in accordance with the terms of the acquisition agreement without Lynx having exchanged any Solexa shares pursuant to the offer, unless a principal cause of such expiration, termination or withdrawal is a breach by the party seeking to terminate the acquisition agreement; | |
| by either Lynx or Solexa if the first closing has not taken place on or before March 31, 2005, unless a principal cause of the first closing not having taken place is a breach by the party seeking to terminate the acquisition agreement; | |
| by either Lynx or Solexa if there shall be any law or regulation that makes completion of the transaction illegal or otherwise prohibited or if any judgment, injunction, order or decree enjoining Lynx or Solexa from consummating the offer is entered and such judgment, injunction, order or decree shall become final and non-appealable; | |
| by Lynx if Solexas board of directors shall have changed, or shall have resolved to change, its recommendation to Solexas shareholders that they accept the offer; | |
| by Solexa if Lynxs board of directors shall have changed, or shall have resolved to change, its recommendation to Lynxs stockholders that they approve (i) the issuance of shares of Lynx common stock in connection with the transaction, (ii) the change-of-control of Lynx in connection with the transactions contemplated by acquisition agreement, (iii) an amendment to the Lynx 1992 plan to increase the number of shares authorized for issuance by 2 million shares, and (iv) each of the other proposals that Lynx and Solexa shall deem reasonably necessary for the purposes of effecting the transaction; | |
| by either Lynx or Solexa if the Lynx annual meeting shall have been duly convened and the Lynx stockholder approval of the matters set forth in (i)-(iii) of the preceding bullet point shall not have been obtained; | |
| by Lynx if an event or circumstance shall have occurred that makes it impossible for Solexas representations and warranties to be true and correct in all material respects, or for Solexa to perform its obligations and comply with its agreements and covenants in all material respects under the acquisition agreement, or if there shall have been a breach by Solexa causing the above and such breach is not cured within 30 days following receipt of written notice from Lynx; | |
| by Solexa if an event or circumstance shall have occurred that makes it impossible for Lynxs representations and warranties to be true and correct in all material respects, for Lynx to perform its obligations and comply with its agreements and covenants in all material respects under the acquisition agreement, or for Lynx to obtain the requisite stockholder approval, or if there shall have been a breach |
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by Lynx causing the above and such breach is not cured within 30 days following receipt of written notice from Solexa; | ||
| by either Lynx or Solexa if a material adverse effect with respect to the other party shall have occurred and such material adverse effect is not cured within 45 days following receipt of notice of such material adverse effect; | |
| by Solexa upon the withdrawal or modification of the fairness opinion of Lynxs financial advisor in a manner adverse to Lynx or Solexa; and | |
| by Solexa upon the dissolution, liquidation or termination of existence of Lynx, the failure of Lynx to pay its debts as they mature on a reasonably timely basis, the appointment of a custodian or receiver of any material part of Lynxs property, the institution by or against Lynx or any indorser or guarantor of any note of any proceedings under the United States Bankruptcy Code or any other federal or state bankruptcy, reorganization, receivership, insolvency or other similar law affecting the rights of creditors generally or the making by Lynx or any indorser or guarantor of any note of an assignment or trust mortgage for the benefit of creditors, or a declaration of intent by Lynx to effect any of the foregoing, unless the above is the direct result of Solexas failure to perform its obligations under certain agreements with Lynx. |
Transaction Expenses
Whether or not the transaction is completed, all fees and expenses incurred in connection with the acquisition agreement and the transactions contemplated thereby will be paid by the party incurring the fees or expenses.
Indemnification and Insurance
For six years after the first closing date, Lynx has agreed to indemnify and hold harmless the present and former officers, directors, employees and agents of Solexa in respect of acts or omissions occurring on or prior to the first closing date or arising out of or pertaining to the transactions contemplated by the acquisition agreement to the extent provided under Solexas articles of association in effect on the date hereof and indemnification agreements existing on the date hereof; and shall pay any expenses of such parties, as incurred, in advance of the final disposition of any such action or proceeding, provided that such indemnification shall not be provided in violation of applicable laws. Lynx has agreed not to amend the indemnification provisions in Solexas articles of association in a manner inconsistent with the above provisions for the six-year period referred to above.
For six years after the first closing date, Lynx will use its reasonable best efforts to cause to be maintained an extension of coverage of each of Lynxs and Solexas policies of directors and officers liability insurance maintained by Lynx and Solexa, respectively, at the first closing date, for the benefit of those persons who are covered by such policies at the first closing date, with respect to matters occurring prior to the first closing date. However, Lynx shall not be required to cause to be maintained such liability insurance policies to the extent that the annual cost of maintaining such policies exceeds 125% of the premium paid by each of Lynx and Solexa in respect of such insurance for the year ended December 31, 2003.
Amendment and Waiver
Subject to applicable law, any provision of the acquisition agreement may be amended or waived prior to the first closing date if, and only if, such amendment or waiver is in writing and signed, in the case of an amendment, by Lynx and Solexa, or in the case of a waiver, by the party against whom the waiver is to be effective.
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AGREEMENTS RELATED TO THE TRANSACTION
Reciprocal Support Agreements
Parent Support Agreements |
On September 28, 2004, Solexa entered into parent support agreements with several executive officers and directors of Lynx and their affiliated entity, namely, Kevin P. Corcoran, Kathy A. San Roman, Thomas J. Vasicek, Craig C. Taylor, Asset Management Associates 1989 L.P., Leroy Hood, James C. Kitch, James V. Mitchell, David C. UPrichard and Richard P. Woychik. We refer to these Lynx stockholders as the Lynx supporting stockholders. Under the parent support agreements, the Lynx supporting stockholder has agreed to vote all of the outstanding shares of Lynx common stock they hold in favor of the approval of the issuance of common stock in connection with the offer, the change of control of Lynx in connection with the transaction, each of the other proposals to be acted at the Lynx annual meeting in accordance with the acquisition agreement and any other matters that could reasonably be expected to facilitate the transaction.
In addition, the Lynx supporting stockholders agree not to, directly or indirectly, transfer (except as may be specifically required by court order), sell, transfer, pledge, hypothecate or otherwise dispose of or encumber, for a period ending on the earlier to occur of 180 days following the first closing date and the termination of the acquisition agreement, any shares of Lynx common stock they then hold and to be acquired during that period. This restriction is subject to limited exceptions, such as transfers to family members and affiliates of the Lynx supporting stockholders.
As of October 22, 2004, the Lynx supporting shareholders collectively owned approximately 3% of the outstanding shares of Lynx common stock on that date.
Company Support Documents |
On September 28, 2004, Lynx entered into company support agreements with a number of Solexa shareholders and optionholders, namely, (i) entities affiliated with Abingworth Bioventures, which are Abingworth Bioventures II SICAV, Abingworth Bioventures II A LP, Abingworth Bioventures III A LP, Abingworth Bioventures III B LP, Abingworth Bioventures III C LP and Abingworth Bioventures III Executives LP, (ii) entities affiliated with Amadeus Capital Partners, which are Amadeus II A, Amadeus II B, Amadeus II C, Amadeus II D GmbH & Co KG and Amadeus II Affiliates Fund LP, (iii) entities affiliated with Oxford Bioscience Partners, which are Oxford Bioscience Partners IV L.P. and mRNA Fund II LP, (iv) entities affiliated with Schroder Venture Partners, which are Schroder Ventures International Life Sciences Fund II Strategic Partners L.P., Schroder Ventures International Life Sciences Fund II L.P.1, Schroder Ventures International Life Sciences Fund II L.P.2, Schroder Ventures International Life Sciences II L.P.3, Schroder Ventures International Life Sciences Fund II Group Co-Investment Scheme and SV (Nominee) Limited as Nominee to Schroder Ventures Investments Limited, and (iv) four individuals, namely, Tim Rink, Shankar Balasubramanian, Nick McCooke and John West. We refer to these Solexa shareholders as the Solexa supporting shareholders. On October 28, 2004, Abingworth Bioventures II SICAV, Tim Rink, Shankar Balasubramanian and Nick McCooke each executed an irrevocable undertaking subject to English law replacing the irrevocable undertaking given by each of them in their company support agreements.
Under the company support documents, each Solexa supporting shareholder has agreed to accept or procure acceptance of the offer and/or make an election under the option offer in accordance with their respective terms within ten business days of the offer being made by Lynx. Each Solexa supporting shareholder has also agreed to vote all the shares in Solexas share capital held by him or it in favor of, to the extent necessary, the delivery of a selling notice to invoke the compulsory transfer to Lynx the remaining share capital of Solexa, and any other matters that could reasonably be expected to facilitate the transaction.
In addition, the institutional Solexa supporting shareholders who entered into the company support agreements have agreed not to convert any Solexa B preferred shares and Solexa A ordinary shares they hold into Solexa ordinary and have waived their pre-emption and rights of first refusal under Solexas articles of
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Under the company support documents, the Solexa supporting shareholders agree not to, directly or indirectly, transfer (except as may be specifically required by court order), sell, transfer, pledge, hypothecate or otherwise dispose of or encumber, for a period ending on the earlier to occur of 180 days following the first closing date and the termination of the acquisition agreement, any Solexa shares they then hold and any Solexa shares and shares of Lynx common stock to be acquired during that period. This restriction is subject to limited exceptions, such as transfers to the family members or affiliates of the Solexa supporting shareholders.
Lynx has agreed to file a resale registration statement covering the resale of shares of Lynx common stock received by the Solexa supporting shareholders who may be deemed to be affiliates of Solexa in the transaction until such time as less than 25% of Lynx common stock received by the Solexa supporting shareholders is held by them.
As of October 18, 2004, the Solexa supporting shareholders collectively owned 11,439,709 outstanding shares in Solexas share capital representing 100% of Solexa B preferred shares, 100% of Solexa A ordinary shares and approximately 85.2% of Solexa ordinary shares on that date.
Other Agreements
Employment Arrangement with John West |
Lynx and Mr. West have reached an understanding regarding Mr. Wests employment as Lynxs chief executive officer effective as of the first closing date under economic terms substantially similar to those in Mr. Wests employment agreement with Solexa. For details of the proposed employment terms of Mr. West, see the section entitled Interests of Directors, Officers and Affiliates on page 54.
Amendment to Colony Technology Sharing Agreement |
On October 25, 2004, Lynx and Solexa entered into a deed to amend the technology sharing agreement between Lynx and Solexa dated March 22, 2004. Under the terms of the Deed and pursuant to the terms of a loan agreement dated August 12, 2004, in the event that the first closing does not take place and the transaction is, therefore, not completed, Lynx shall transfer all such right, title and interest as it has in the cluster technology to Solexa in consideration for the grant of a worldwide, perpetual and non-exclusive license of the cluster technology. Any intellectual property created as a development to the cluster technology is expressed to be owned by Solexa, except developments or modifications of the cluster technology created by Lynx that can be exploited without infringing the intellectual property rights in the cluster technology. Lynx grants to Solexa a worldwide, perpetual and non-exclusive license for the use, commercialization and sale of such severable developments. In the event that Lynx or its licensees sells any products, Lynx is obliged under the deed to pay Solexa royalties at a rate of 11.5%. In the event that Solexa or its licensees sells any products, Solexa is obliged under the deed to pay Lynx royalties at a rate of 3%.
Loan Agreement and Side Letter |
On August 12, 2004, Lynx and Solexa entered into a loan agreement pursuant to which Lynx issued Solexa four promissory notes each bearing an interest rate of 10% in the aggregate principal amount of $2,500,000. Under the loan agreement and as a result of the issuance of the promissory notes, certain royalty rates contained in the technology sharing agreement were reduced and Lynx was obligated to make certain instruments available to Solexa.
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On September 28, 2004, Lynx and Solexa entered into a side letter regarding the loan agreement pursuant to which they agreed that, should the acquisition agreement be terminated prior to consummation of the offer, among other things, the royalty rates in the technology sharing agreement shall be reduced or eliminated depending on the cause of the termination of the acquisition agreement.
The entire outstanding principal and accrued interest thereon will be payable on the earlier of (i) an event of default under the promissory notes, (ii) the first anniversary of the expiration of the exclusivity period provided for in the letter agreement between Lynx and Solexa, (iii) the first anniversary of the date on which the acquisition agreement shall have been terminated prior to the consummation of the offer, or (iv) December 31, 2005.
Master Development Agreement |
On October 28, 2004, Lynx and Solexa entered into a master development agreement pursuant to which Lynx will provide certain product design and development services to Solexa in connection with the development and commercialization of Solexas products. Under the master development agreement, Solexa will pay to Lynx up to an aggregate amount of $500,000 in consideration for Lynxs product design and development services. The master development agreement will remain in effect until the earlier of the closing of the transaction or December 31, 2004; provided, however, that the agreement may be terminated prior to December 31, 2004 with or without cause by either party upon 10 days prior written notice.
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INFORMATION ABOUT SOLEXA
Solexas Business
Solexa Limited, a company organized under the laws of England and Wales, maintains its corporate headquarters at Chesterford Research Park, Little Chesterford, Nr. Saffron Walden, Essex CB10 1XL, Great Britain. Solexa is developing systems for the comprehensive and economical analysis of individual genomes. Solexa anticipates that these systems will be used by its future customers in a wide range of applications from basic research through development and implementation and across various industries including, among others, personalized medicine, agriculture, food manufacturing, fermentation and biodefence.
Present methods of genome analysis generally provide insufficient information for the intended purpose at too great a cost. This has been a constraint in achieving progress in understanding the genetic components of common human diseases and the variable response of individuals to drugs intended to treat these diseases. Solexas systems are designed to generate very large amounts of information about individual genomes, including virtually the entire genomic sequence, at an economical price.
In contrast to existing technologies, Solexas systems are based on several major technological breakthroughs that allow genomic DNA to be read directly at a very high speed and with minimal sample preparation. Both of these elements add significantly to reducing costs.
Solexa maintains a website at www.solexa.com; however, information on Solexas website is not a part of this proxy statement/ prospectus.
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Selected Historical Financial Data of Solexa
The following table sets forth historical financial data of Solexa. The information presented below as of December 31, 1999, 2000 and 2001, and for the years ended December 31, 1999 and 2000 is derived from unaudited financial statements of Solexa. The information as of December 31, 2002 and 2003 and for each of the three years in the period ended December 31, 2003 is derived from Solexas audited financial statements included elsewhere in this proxy statement/ prospectus. The information as of June 30, 2004 and for the six months ended June 30, 2003 and 2004 is derived from Solexas unaudited financial statements included elsewhere in this proxy statement/ prospectus. In the opinion of Solexas management, these unaudited financial statements have been prepared on a basis consistent with that of Solexas audited financial statements and reflect all adjustments (consisting only of normal recurring adjustments) necessary for a fair presentation. This information is only a summary. You should read it together with Solexas historical financial statements and accompanying notes included in this proxy statement/ prospectus. Historical results are not necessarily indicative of future results.
Six Months Ended | |||||||||||||||||||||||||||||
Year Ended December 31, | June 30, | ||||||||||||||||||||||||||||
1999 | 2000 | 2001 | 2002 | 2003 | 2003 | 2004 | |||||||||||||||||||||||
(In thousands except per share data) | |||||||||||||||||||||||||||||
Statements of Operations Data:
|
|||||||||||||||||||||||||||||
Revenue:
|
|||||||||||||||||||||||||||||
Service income
|
$ | | $ | | $ | | $ | | $ | 7 | $ | | $ | 41 | |||||||||||||||
Operating costs and expenses:
|
|||||||||||||||||||||||||||||
Research and development
|
302 | 483 | 1,918 | 4,308 | 5,639 | 2,661 | 3,035 | ||||||||||||||||||||||
General and administrative
|
73 | 299 | 695 | 1,008 | 1,087 | 664 | 1,335 | ||||||||||||||||||||||
Total operating costs and expenses
|
375 | 782 | 2,613 | 5,316 | 6,726 | 3,325 | 4,370 | ||||||||||||||||||||||
Loss from operations
|
(375 | ) | (782 | ) | (2,613 | ) | (5,316 | ) | (6,719 | ) | (3,325 | ) | (4,329 | ) | |||||||||||||||
Interest and other income (expense), net
|
9 | (4 | ) | 104 | 555 | 363 | 209 | 113 | |||||||||||||||||||||
Loss before income tax benefit
|
(366 | ) | (786 | ) | (2,509 | ) | (4,761 | ) | (6,356 | ) | (3,116 | ) | (4,216 | ) | |||||||||||||||
Income tax benefit
|
| | | (293 | ) | (707 | ) | | | ||||||||||||||||||||
Net loss
|
$ | (366 | ) | $ | (786 | ) | $ | (2,509 | ) | $ | (4,468 | ) | $ | (5,649 | ) | $ | (3,116 | ) | $ | (4,216 | ) | ||||||||
Basic and diluted net loss per share
|
$ | (0.32 | ) | $ | (0.56 | ) | $ | (0.88 | ) | $ | (0.70 | ) | $ | (0.89 | ) | $ | (0.49 | ) | $ | (0.67 | ) | ||||||||
Shares used in per share computation
|
1,129 | 1,407 | 2,837 | 6,338 | 6,338 | 6,338 | 6,338 |
December 31, | ||||||||||||||||||||||||
June 30, | ||||||||||||||||||||||||
1999 | 2000 | 2001 | 2002 | 2003 | 2004 | |||||||||||||||||||
(In thousands) | ||||||||||||||||||||||||
Balance Sheet Data:
|
||||||||||||||||||||||||
Cash, cash equivalents and short-term investments
|
$ | 478 | $ | 1,853 | $ | 16,853 | $ | 13,295 | $ | 8,907 | 2,802 | |||||||||||||
Total assets
|
594 | 2,383 | 17,913 | 15,013 | 10,401 | 6,297 | ||||||||||||||||||
Shareholders equity (deficit)
|
$ | 511 | $ | (212 | ) | $ | 17,136 | $ | 14,207 | $ | 9,606 | $ | 5,580 |
On July 30, 2004, Solexa completed the issuance and sale of its B preferred shares, raising net proceeds of approximately $13.5 million. On October 18, 2004, Solexa completed a subsequent issue and sale of additional B preferred shares, raising approximately $0.9 million.
Managements Discussion and Analysis of Financial Condition and Results of Operations
Overview |
Solexa is developing systems, including hardware, software and consumables, for the comprehensive and economical analysis of individual genomes. These systems are intended to provide improved insight into genetic contribution to disease and individual response to pharmaceutical interventions than existing technologies. It is expected that these systems will initially be sold to the genomics research community and later used directly in healthcare applications.
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Solexa was founded in September 1998 to build on technology and ideas created by its two founders based in the Department of Chemistry at the University of Cambridge, U.K. From 1998 2000, Solexa sponsored research conducted in the laboratories of its founders. Solexa owns intellectual property developed by the founders as a consequence of agreements with them and also with the University of Cambridge. This first phase of development was supported by seed funding totaling $1.0 million. Towards the end of 2000, Solexa established its own operations in a science park south of Cambridge, U.K. and began to build a technology development team.
In September 2001, Solexa raised $17.6 million in a Series A financing from a consortium of U.K. and U.S. based venture capital firms to develop a demonstration version of the technology.
In March 2004, Solexa and Lynx Therapeutics jointly acquired technology from Manteia SA. Solexa paid $2 million in cash for its share of the purchase price.
To date Solexa has not generated any revenues from commercial product sales and it expects to incur operating losses over the next two years. Research and development expenses are expected to increase in the near term as Solexa ramps up its effort to develop a commercial product for launch, targeted for the end of calendar 2005.
As of June 2004, Solexa had $2.8 million in cash and cash equivalents. Solexa raised a further $13.5 million in a B preferred financing in July 2004 and $0.9 million in October 2004.
Accounting Treatment |
As an English company, Solexa normally reports its results according to accounting principles generally accepted in the U.K. and in pounds sterling. For the purposes of this proxy statement/ prospectus, its financial statements have been converted to U.S. generally accepted accounting principles and reported in U.S. dollars. Some of the differences reported between periods will reflect differences in the currency translation rates applied in each period.
Results of Operations |
Comparison of Six Months Ended June 30, 2004 with Six Months Ended June 30, 2003 |
There were no revenues from product sales in either period. Service revenue increased by $41,000 from $nil to $41,000. It was generated from the provision of scientific analyses. Research and development expenses increased by $374,000, or 14%, from $2,661,000 to $3,035,000, largely as a result of an increased number of scientists working in research and development. General and administrative expenses increased by $671,000, or 101%, from $664,000 to $1,335,000. This increase was largely due to increase in fees paid to external professional advisors in the amount of $226,000. There was a decrease in interest earned on balances of cash and cash equivalents of $96,000, or 46%, from $209,000 to $113,000, largely due to a decreased average cash balance.
Comparison of Year Ended December 31, 2003 with Year Ended December 31, 2002 |
There were no revenues from product sales in either period. Service revenue increased by $7,000 from $nil to $7,000. It was generated from the provision of scientific analyses. Research and development expenses increased by $1,331,000, or 31%, from $4,308,000 to $5,639,000. This increase was largely as a result of an increased number of scientists working in R&D as the project expanded. General and administrative expenses increased by $79,000, or 8%, from $1,008,000 to $1,087,000. R&D tax credits of $293,000 were received in 2002 and $707,000 in 2003. There was a decrease in interest earned on balances of cash and cash equivalents of $187,000, or 34%, from $555,000 to $368,000. This decrease was largely due to a decreased average cash balance.
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Comparison of Year Ended December 31, 2002 with Year Ended December 31, 2001 |
There were no revenues from product sales in either period. Research and development expenses increased by $2,390,000, or 125%, from $1,918,000 to $4,308,000. This increase was largely as a result of a significant increase in the number of scientists working in R&D as the project expanded. General and administrative expenses increased by $313,000, or 45%, from $695,000 to $1,008,000. No R&D tax credit was received in 2001 as the company did not qualify. An R&D tax credit of $293,000 was received in 2002. There was a increase in interest earned on balances of cash and cash equivalents of $333,000, or 150%, from $222,000 to $555,000. This increase was largely due to a increased average cash balance arising from the Series A fundraising that closed in September 2001. In 2001 there was an interest expense of $116,000 arising upon the conversion of a convertible loan at the time of the Series A closing.
Liquidity and Capital Resources |
Since its inception, Solexa has not generated any significant revenues and has incurred significant losses. Solexa has relied primarily on the proceeds from sales of equity securities to finance its operations and internal growth with additional funding from interest on cash balances and research and development tax credits. As of June 30, 2004, Solexa had an accumulated deficit of $18.1 million.
At June 30, 2004, Solexa had cash and cash equivalents of $2.8 million as compared to $10.7 million at June 30, 2003. This overall decrease was due to cash consumed in the normal course of business. On July 30, 2004, Solexa completed the issuance and sale of its B preferred shares, raising net proceeds of approximately $13.5 million. On October 18, 2004, Solexa completed a subsequent issue and sale of additional B preferred shares, raising approximately $0.9 million. With the funds raised in July 2004, Solexas management believes that its current cash and cash equivalents will be sufficient to enable it to meet its projected operating and capital requirements through at least the end of October 2005. Solexa will require further funding to complete the development and commercialization of its technology before it is able to generate profits. The terms on which such funding may be available, if at all, will be dependent upon the results of ongoing research and development activities.
Net cash used in operating activities increased $1.8 million from $2.4 million in the six months ended June 30, 2003 to $4.2 million in the six months ended June 30, 2004. This increase was due to increased operating losses. Net cash used in operating activities increased by $0.5 million from $4.4 million in the year ended December 31, 2002 to $4.9 million in the year ended December 31, 2003. This increase was due to increased research and development expenditure. Net cash used in operating activities increased by $2.6 million from $1.8 million in the year ended December 31, 2001 to $4.4 million in the year ended December 31, 2002. This increase was due to increased research and development expenditure.
Net cash used in investing activities increased $1.7 million from $0.4 million in the six months ended June 30, 2003 to $2.1 million in the six months ended June 30, 2004. This increase is largely attributed to the joint purchase with Lynx of technology from Manteia SA. Solexas contribution to the purchase price was $2 million in cash. Net cash used in investing activities decreased by $127,000 from $571,000 in the year ended December 31, 2002 to $444,000 in the year ended December 31, 2003. This reduction is as a result of lower capital expenditure on plant and equipment. Net cash used in investing activities decreased by $20,000 from $591,000 in the year ended December 31, 2001 to $571,000 in the year ended December 31, 2002. This reduction is as a result of lower capital expenditure on plant and equipment.
Net cash used in financing activities increased by $9,000 from $nil in the six months ended June 30, 2003 to $9,000 in the six months ended June 30, 2004. This increase was a result of finance lease payments. Net cash used in financing activities increased by $15,000 from $nil in the year ended December 31, 2002 to $15,000 in the year ended December 31, 2003. This increase was a result of finance lease payments. $17.7 million was received from financing activities in the year ended December 31, 2001 due to the issue and sale of Series A preference shares.
76
As of June 30, 2004, Solexa had no long-term debt instruments. As of June 30, 2004, Solexa had contractual obligations relating to its facilities and equipment leases as follows:
Payments Due by Period in Thousands
Less than | ||||||||||||||||
Contractual Obligations | Total | 1 Year | 1-3 Years | After 3 Years | ||||||||||||
Capital lease obligations
|
$ | 43 | $ | 24 | $ | 19 | None | |||||||||
Operating lease obligations
|
$ | 375 | $ | 250 | $ | 125 | None |
Disclosure about Market Risk
Solexas exposure to market risk is limited to interest income sensitivity, which is affected by changes in the general level of U.K. interest rates, particularly because Solexa places monies on short-term deposits with Barclays Bank PLC and currency translation risks. The primary objective of Solexas investment activities is to preserve principal while at the same time maximizing the income Solexa receives without increasing risk. Solexas short-term deposits are for periods up to a month and the interest rate is fixed in advance and will reflect the market rates prevailing at the time the deposit is made. Solexa believes an immediate 10% change in interest rates would not be material to its financial condition or results of operations. Solexa does not have any foreign currency or derivative financial instruments. Solexas financial statements as expressed in U.S. dollars are subject to fluctuations because of movements in the rate of exchange between the pounds sterling, Solexas functional currency, and the U.S. dollar, the currency in which Solexas financial statements are presented. When Solexa converts the presentation of its financial statements from pounds sterling to U.S. dollars, Solexa uses pounds sterling to United States dollars currency exchange rate quoted on www.oanda.com on the date of such financial statements.
Security Ownership of Certain Beneficial Owners and Management of Solexa
Security Ownership of Certain Beneficial Owners and Management of Solexa Prior to the Transaction |
The following table sets forth certain information regarding beneficial ownership of the shares in Solexas share capital as of October 18, 2004 by: (i) each shareholder who is known by Solexa to own beneficially more than five percent of the capital stock of Solexa; (ii) each executive officer named below; (iii) each director of Solexa; and (iv) all of Solexas current directors and executive officers as a group. Unless otherwise indicated, the address of each shareholder who is known by Solexa to own beneficially more than five percent of the capital stock of Solexa is: c/o Solexa Limited, Chesterford Research Park, Little Chesterford, Nr Saffron Walden, Essex CB10 1XL, Great Britain.
Beneficial Ownership | |||||||||||||||||||||||||
Number of Shares Owned of Each Class | % Ownership of Each Class(1) | ||||||||||||||||||||||||
B | A | B | A | ||||||||||||||||||||||
Preferred | Ordinary | Ordinary | Preferred | Ordinary | Ordinary | ||||||||||||||||||||
Name of Beneficial Owner | Shares | Shares | Shares | Shares | Shares | Shares | |||||||||||||||||||
Entities affiliates with Abingworth Management Limited(2) | 1,092,061 | 1,688,889 | 1,656,096 | 24.57 | % | 33.33 | % | 70.83 | % | ||||||||||||||||
38 Jermyn Street | |||||||||||||||||||||||||
London SW1Y 6DN | |||||||||||||||||||||||||
Great Britain | |||||||||||||||||||||||||
Entities affiliated with Amadeus Capital Partners Limited(3) | 2,222,222 | 422,224 | 50.00 | % | 8.33 | % | |||||||||||||||||||
Mount Pleasant House, 2 | |||||||||||||||||||||||||
Mount Pleasant | |||||||||||||||||||||||||
Huntingdon Road | |||||||||||||||||||||||||
Cambridge CB3 ORN | |||||||||||||||||||||||||
Great Britain |
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Beneficial Ownership | |||||||||||||||||||||||||
Number of Shares Owned of Each Class | % Ownership of Each Class(1) | ||||||||||||||||||||||||
B | A | B | A | ||||||||||||||||||||||
Preferred | Ordinary | Ordinary | Preferred | Ordinary | Ordinary | ||||||||||||||||||||
Name of Beneficial Owner | Shares | Shares | Shares | Shares | Shares | Shares | |||||||||||||||||||
Entities affiliated with OBPManagement IV L.P.(4) | 573,502 | 1,266,667 | 12.90 | % | 25.00 | % | |||||||||||||||||||
222 Berkeley St., Suite 1650 | |||||||||||||||||||||||||
Boston, Massachusetts 02116 | |||||||||||||||||||||||||
Entities affiliate with Schroder Venture Managers Inc.(5) | 556,659 | 1,688,889 | 12.52 | % | 33.33 | % | |||||||||||||||||||
Church Street | |||||||||||||||||||||||||
Hamilton HM 11 | |||||||||||||||||||||||||
Bermuda | |||||||||||||||||||||||||
Nick McCooke(6)
|
240,000 | 9.38 | % | ||||||||||||||||||||||
Simon Bennett(7)
|
50,000 | 2.09 | % | ||||||||||||||||||||||
John Milton(8)
|
69,300 | 2.88 | % | ||||||||||||||||||||||
Harold Swerdlow(9)
|
66,350 | 2.76 | % | ||||||||||||||||||||||
Leigh Palmer(10)
|
40,650 | 1.71 | % | ||||||||||||||||||||||
John West(11)
|
696,981 | 22.96 | % | ||||||||||||||||||||||
Tim Rink(12)
|
90,000 | 3.7 | % | ||||||||||||||||||||||
Tony Smith(13)
|
200,000 | 7.88 | % | ||||||||||||||||||||||
Shankar Balasubramanian
|
212,500 | 9.09 | % | ||||||||||||||||||||||
Hermann Hauser(14)
|
2,222,222 | 422,224 | 50.00 | % | 8.33 | % | |||||||||||||||||||
c/o Amadeus Capital | |||||||||||||||||||||||||
Partners Limited | |||||||||||||||||||||||||
Mount Pleasant House, 2 | |||||||||||||||||||||||||
Mount Pleasant | |||||||||||||||||||||||||
Huntington Road, Cambridge | |||||||||||||||||||||||||
CB3 ORN | |||||||||||||||||||||||||
Great Britain | |||||||||||||||||||||||||
Mark Carthy(15)
|
537,502 | 1,266,667 | 12.90 | % | 25.00 | % | |||||||||||||||||||
c/o OBP Management IV L.P. | |||||||||||||||||||||||||
222 Berkeley St., Suite 1650 | |||||||||||||||||||||||||
Boston, Massachusetts 02116 | |||||||||||||||||||||||||
Tom Daniel(16)
|
556,659 | 1,688,889 | 12.52 | % | 33.33 | % | |||||||||||||||||||
c/o Schroder Venture Managers Inc. | |||||||||||||||||||||||||
c/o Church Street | |||||||||||||||||||||||||
Hamilton HM 11 | |||||||||||||||||||||||||
Bermuda | |||||||||||||||||||||||||
Genghis Lloyd-Harris
|
* | ||||||||||||||||||||||||
Steve Allen(17)
|
20,000 | * | |||||||||||||||||||||||
Clive Brown(18)
|
48,050 | 2.01 | % | ||||||||||||||||||||||
All directors and officers as a group
(15 persons)(19)
|
4,444,444 | 5,066,669 | 3,389,927 | 100 | % | 100 | % | 83.42 | % |
* | Less than one percent. |
(1) | Percentage of beneficial ownership is based on 4,444,444 Solexa B preferred shares, 5,066,669 Solexa A ordinary shares and 2,338,138 Solexa ordinary shares outstanding as of October 18, 2004. Beneficial ownership is determined in accordance with the rules of the SEC and generally includes voting or investment power with respect to securities. Shares in the share capital of Solexa subject to options |
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currently exercisable or exercisable within 60 days of October 18, 2004, are deemed outstanding for computing the percentage of the person holding such options but are not deemed outstanding for computing the percentage of beneficial ownership of any other person. | ||
(2) | Includes 277,778 Solexa B preferred shares, 844,444 Solexa A ordinary shares and 1,656,096 Solexa ordinary shares held by Abingworth Bioventures II SICAV, 277,778 Solexa B preferred shares held by Abingworth Bioventures IIA LP, 269,325 Solexa B preferred shares and 423,911 Solexa A ordinary shares held by Abingworth Bioventures III A LP, 164,407 Solexa B preferred shares and 258,772 Solexa A ordinary shares held by Abingworth Bioventures III B LP, 98,481 Solexa B preferred shares and 155,006 Solexa A ordinary shares held by Abingworth Bioventures III C LP, and 4,292 Solexa B preferred shares and 6,756 Solexa A ordinary shares held by Abingworth Bioventures III Executives LP. | |
(3) | Includes 1,000,000 Solexa B preferred shares and 190,000 Solexa A ordinary shares held by Amadeus II A LP, 666,667 Solexa B preferred shares and 126,667 Solexa A ordinary shares held by Amadeus II B LP, 466,667 Solexa B preferred shares and 88,667 Solexa A ordinary shares held by Amadeus II CLP, 22,222 Solexa B preferred shares and 4,223 Solexa A ordinary shares held by Amadeus II D GmbH & Co KG, and 66,666 Solexa B preferred shares and 12,667 Solexa A ordinary shares held by Amadeus II Affiliates LP. | |
(4) | Includes 567,805 Solexa B preferred shares and 1,254,085 Solexa A ordinary shares held by Oxford Bioscience Partners IV L.P. and 5,697 Solexa B preferred shares and 12,582 Solexa A ordinary shares held by mRNA Fund II L.P. | |
(5) | Includes 326,152 Solexa B preferred shares and 989,535 Solexa A ordinary shares held by Schroder Ventures International Life Sciences Fund II L.P.1, 138,906 Solexa B preferred shares and 421,439 Solexa A ordinary shares held by Schroder Ventures International Life Sciences Fund II L.P.2, 37,018 Solexa B preferred shares and 112,311 Solexa A ordinary shares held by Schroder Ventures International Life Sciences Fund II L.P.3, 5,032 Solexa B preferred shares and 15,266 Solexa A ordinary shares held by Schroder Ventures International Life Sciences Fund II Strategic Partners L.P., 9,379 Solexa B preferred shares and 28,458 Solexa A ordinary shares held by Schroder Ventures International Life Sciences Fund II Group Co-Investment Scheme, and 40,172 Solexa B preferred shares and 121,880 Solexa A ordinary shares held by SV (nominees) Limited as Nominee to Schroder Ventures Investments Limited. | |
(6) | Includes 220,000 Solexa ordinary shares issuable upon exercise of stock options held by Mr. McCooke that are exercisable within 60 days of October 18, 2004 provided that the offer is completed and that a compulsory acquisition right in favor of Lynx has arisen pursuant to the Companies Act 1985 within 60 days of October 18, 2004. Mr. McCooke resigned his position as Chief Executive Officer of Solexa on August 9, 2004. | |
(7) | Includes 50,000 Solexa ordinary shares issuable upon exercise of stock options held by Dr. Bennett that are exercisable within 60 days of October 18, 2004 provided that the offer is completed and that a compulsory acquisition right in favor of Lynx has arisen pursuant to the Companies Act 1985 within 60 days of October 18, 2004. | |
(8) | Includes 69,300 Solexa ordinary shares issuable upon exercise of stock options held by Dr. Milton that are exercisable within 60 days of October 18, 2004 provided that the offer is completed and that a compulsory acquisition right in favor of Lynx has arisen pursuant to the Companies Act 1985 within 60 days of October 18, 2004. | |
(9) | Includes 66,350 Solexa ordinary shares issuable upon exercise of stock options held by Dr. Swerdlow that are exercisable within 60 days of October 18, 2004 provided that the offer is completed and that a compulsory acquisition right in favor of Lynx has arisen pursuant to the Companies Act 1985 within 60 days of October 18, 2004. |
(10) | Includes 40,650 Solexa ordinary shares issuable upon exercise of stock options held by Mr. Palmer that are exercisable within 60 days of October 18, 2004 provided that the offer is completed and that a compulsory acquisition right in favor of Lynx has arisen pursuant to the Companies Act 1985 within 60 days of October 18, 2004. |
79
(11) | Includes 696,981 Solexa ordinary shares issuable upon exercise of stock options held by Mr. West that are exercisable within 60 days of October 18, 2004 provided that the offer is completed and that a compulsory acquisition right in favor of Lynx has arisen pursuant to the Companies Act 1985 within 60 days of October 18, 2004. |
(12) | Includes 50,000 Solexa ordinary shares issuable upon exercise of stock options held by Dr. Rink that are exercisable within 60 days of October 18, 2004 provided that the offer is completed and that a compulsory acquisition right in favor of Lynx has arisen pursuant to the Companies Act 1985 within 60 days of October 18, 2004. |
(13) | Includes 200,000 Solexa ordinary shares issuable upon exercise of stock options held by Dr. Smith that are exercisable within 60 days of October 18, 2004 provided that the offer is completed and that a compulsory acquisition right in favor of Lynx has arisen pursuant to the Companies Act 1985 within 60 days of October 18, 2004. |
(14) | Includes 1,000,000 Solexa B preferred shares and 190,000 Solexa A ordinary shares held by Amadeus II A LP, 666,667 Solexa B preferred shares and 126,667 Solexa A ordinary shares held by Amadeus II B LP, 466,667 Solexa B preferred shares and 88,667 Solexa A ordinary shares held by Amadeus II CLP, 22,222 Solexa B preferred shares and 4,223 Solexa A ordinary shares held by Amadeus II D GmbH & Co KG, and 66,666 Solexa B preferred shares and 12,667 Solexa A ordinary shares held by Amadeus II Affiliates LP. Dr. Hauser 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 LP. Dr. Hauser disclaims beneficial ownership of such shares, except to the extent of his pro-rata interest therein. |
(15) | Includes 567,805 Solexa B preferred shares and 1,254,085 Solexa A ordinary shares held by Oxford Bioscience Partners IV L.P. and 5,697 Solexa B preferred shares and 12,582 Solexa A ordinary shares held by mRNA Fund II L.P. Mr. Carthy is a General Partner of OBP Management IV L.P., which is the general partner of Oxford Bioscience Partners IV L.P. and mRNA Fund II L.P. Mr. Carthy may be deemed to share voting and investment power of the shares held by Oxford Bioscience Partners IV L.P. and mRNA Fund II L.P. Mr. Carthy disclaims beneficial ownership of such shares, except to the extent of his pro-rata interest therein. |
(16) | Includes 326,152 Solexa B preferred shares and 989,535 Solexa A ordinary shares held by Schroder Ventures International Life Sciences Fund II L.P.1, 138,906 Solexa B preferred shares and 421,439 Solexa A ordinary shares held by Schroder Ventures International Life Sciences Fund II L.P.2, 37,018 Solexa B preferred shares and 112,311 Solexa A ordinary shares held by Schroder Ventures International Life Sciences Fund II L.P.3, 5,032 Solexa B preferred shares and 15,266 Solexa A ordinary shares held by Schroder Ventures International Life Sciences Fund II Strategic Partners L.P., 9,379 Solexa B preferred shares and 28,458 Solexa A ordinary shares held by Schroder Ventures International Life Sciences Fund II Group Co-Investment Scheme, and 40,172 Solexa B preferred shares and 121,880 Solexa A ordinary shares held by SV (nominees) Limited as Nominee to Schroder Ventures Investments Limited. Mr. Daniel, a director of Solexa, is a Venture Partner of Schroder Ventures Life Sciences Advisers (UK) Limited which is an advisor to Schroder Venture Managers, Inc., the General Partner of the entities known collectively as Schroder Ventures International Life Sciences Fund II. Mr. Daniel has no beneficial ownership of the shares owned by Schroder Ventures International Life Sciences Fund II, except to the extent of his pro-rata interest therein. |
(17) | Includes 20,000 Solexa ordinary shares issuable upon exercise of stock options held by Mr. Allen that are exercisable within 60 days of October 18, 2004 provided that the offer is completed and that a compulsory acquisition right in favor of Lynx has arisen pursuant to the Companies Act 1985 within 60 days of October 18, 2004. |
(18) | Includes 48,050 Solexa ordinary shares issuable upon exercise of stock options held by Mr. Brown that are exercisable within 60 days of October 18, 2004 provided that the offer is completed and that a compulsory acquisition right in favor of Lynx has arisen pursuant to the Companies Act 1985 within 60 days of October 18, 2004. |
80
(19) | Includes 4,444,444 Solexa B preferred shares (including Solexa B preferred shares held by entities affiliated with certain directors), 5,066,669 Solexa A ordinary shares (including Solexa A ordinary shares held by entities affiliated with certain directors), 1,928,596 Solexa ordinary shares (including Solexa ordinary shares held by entities affiliated with certain directors) and 1,461,331 Solexa ordinary shares issuable upon exercise of stock options that are exercisable within 60 days of October 18, 2004 provided that the offer is completed and that a compulsory acquisition right in favor of Lynx has arisen pursuant to the Companies Act 1985 within 60 days of October 18, 2004. |
Security Ownership of Certain Beneficial Owners and Management of Solexa and Director Nominees of Lynx Following the Completion of the Transaction |
The following table sets forth certain information regarding the amount and percentage of the beneficial ownership of Lynxs common stock, giving effect to the transaction, by: (i) each Solexa shareholder who is known by Solexa to own beneficially more than five percent of the capital stock of Solexa as of October 18, 2004; (ii) each director of Solexa and each director of Solexa who is a nominee for director of Lynx to be appointed on the first closing date; and (iii) all of Solexas current directors and executive officers as a group.
Beneficial Ownership | |||||||||
Number and Class of | |||||||||
Name of Beneficial Owner | Shares | Percent of Class(1) | |||||||
Entities affiliated with Abingworth Management
Limited
|
6,013,200 | 17.10 | % | ||||||
38 Jermyn Street | |||||||||
London SW1Y 6DN | |||||||||
Great Britain | |||||||||
Entities affiliated with Amadeus Capital Partners
Limited(3)
|
6,974,936 | 19.83 | % | ||||||
Mount Pleasant House, 2 Mount Pleasant | |||||||||
Huntingdon Road | |||||||||
Cambridge CB3 ORN | |||||||||
Great Britain | |||||||||
Entities affiliated with OBP Management IV L.P.(4)
|
4,987,515 | 14.18 | % | ||||||
222 Berkeley St., St. 1650 | |||||||||
Boston, Massachusetts 02116 | |||||||||
Entities affiliate with Schroder Venture Managers
Inc.(5)
|
6,105,948 | 17.36 | % | ||||||
c/o Church Street | |||||||||
Hamilton HM 11 | |||||||||
Bermuda | |||||||||
Nick McCooke(6)
|
212,729 | * | |||||||
John West(7)
|
617,783 | 1.73 | % | ||||||
Tim Rink(8)
|
79,773 | * | |||||||
Tony Smith(9)
|
177,274 | * | |||||||
Shankar Balasubramanian
|
188,354 | * | |||||||
Hermann Hauser(10)
|
6,974,936 | 19.83 | % | ||||||
c/o Amadeus Capital Partners Limited | |||||||||
Mount Pleasant House, 2 Mount Pleasant | |||||||||
Huntington Road, Cambridge CB3 ORN | |||||||||
Great Britain |
81
Beneficial Ownership | |||||||||
Number and Class of | |||||||||
Name of Beneficial Owner | Shares | Percent of Class(1) | |||||||
Mark Carthy(11)
|
4,987,515 | 14.18 | % | ||||||
c/o OBP Management IV L.P. | |||||||||
222 Berkeley St., Suite 1650 | |||||||||
Boston, Massachusetts 02116 | |||||||||
Tom Daniel(12)
|
6,105,948 | 17.36 | % | ||||||
c/o Schroder Venture Managers Inc. | |||||||||
c/o Church Street | |||||||||
Hamilton HM 11 | |||||||||
Bermuda | |||||||||
Genghis Lloyd-Harris
|
* | ||||||||
Steve Allen(13)
|
17,727 | * | |||||||
All directors and officers as a group
(13 persons)(14)
|
28,336,299 | 78.22 | % |
* | Less than one percent. |
(1) | Percentage of beneficial ownership is based on 4,444,444 Solexa B preferred shares, 5,066,669 Solexa A ordinary shares and 2,338,138 Solexa ordinary shares outstanding as of October 18, 2004. Beneficial ownership is determined in accordance with the rules of the SEC and generally includes voting or investment power with respect to securities. Shares in the share capital of Solexa subject to options currently exercisable or exercisable within 60 days of October 18, 2004, are deemed outstanding for computing the percentage of the person holding such options but are not deemed outstanding for computing the percentage of beneficial ownership of any other person. Based on 7,527,538 shares of Lynx common stock outstanding on October 5, 2004. | |
(2) | Includes 277,778 Solexa B preferred shares, 844,444 Solexa A ordinary shares and 1,656,096 Solexa ordinary shares held by Abingworth Bioventures II SICAV, 277,778 Solexa B preferred shares held by Abingworth Bioventures IIA LP, 269,325 Solexa B preferred shares and 423,911 Solexa A ordinary shares held by Abingworth Bioventures III A LP, 164,407 Solexa B preferred shares and 258,772 Solexa A ordinary shares held by Abingworth Bioventures III B LP, 98,481 Solexa B preferred shares and 155,006 Solexa A ordinary shares held by Abingworth Bioventures III C LP, and 4,292 Solexa B preferred shares and 6,756 Solexa A ordinary shares held by Abingworth Bioventures III Executives LP. | |
(3) | Includes 1,000,000 Solexa B preferred shares and 190,000 Solexa A ordinary shares held by Amadeus II A LP, 666,667 Solexa B preferred shares and 126,667 Solexa A ordinary shares held by Amadeus II B LP, 466,667 Solexa B preferred shares and 88,667 Solexa A ordinary shares held by Amadeus II CLP, 22,222 Solexa B preferred shares and 4,223 Solexa A ordinary shares held by Amadeus II D GmbH & Co KG, and 66,666 Solexa B preferred shares and 12,667 Solexa A ordinary shares held by Amadeus II Affiliates LP. | |
(4) | Includes 567,805 Solexa B preferred shares and 1,254,085 Solexa A ordinary shares held by Oxford Bioscience Partners IV L.P. and 5,697 Solexa B preferred shares and 12,582 Solexa A ordinary shares held by mRNA Fund II L.P. | |
(5) | Includes 326,152 Solexa B preferred shares and 989,535 Solexa A ordinary shares held by Schroder Ventures International Life Sciences Fund II L.P.1, 138,906 Solexa B preferred shares and 421,439 Solexa A ordinary shares held by Schroder Ventures International Life Sciences Fund II L.P.2, 37,018 Solexa B preferred shares and 112,311 Solexa A ordinary shares held by Schroder Ventures International Life Sciences Fund II L.P.3, 5,032 Solexa B preferred shares and 15,266 Solexa A ordinary shares held by Schroder Ventures International Life Sciences Fund II Strategic Partners L.P., 9,379 Solexa B preferred shares and 28,458 Solexa A ordinary shares held by Schroder Ventures International Life Sciences Fund II Group Co-Investment Scheme, and 40,172 Solexa B preferred shares and 121,880 Solexa A ordinary shares held by SV (nominees) Limited as Nominee to Schroder Ventures Investments Limited. |
82
(6) | Includes 220,000 Solexa ordinary shares issuable upon exercise of stock options held by Mr. McCooke that are exercisable within 60 days of October 18, 2004 provided that the offer is completed and that a compulsory acquisition right in favor of Lynx has arisen pursuant to the Companies Act 1985 within 60 days of October 18, 2004. Mr. McCooke resigned his position as Chief Executive Officer of Solexa on August 9, 2004. | |
(7) | Includes 696,981 Solexa ordinary shares issuable upon exercise of stock options held by Mr. West that are exercisable within 60 days of October 18, 2004 provided that the offer is completed and that a compulsory acquisition right in favor of Lynx has arisen pursuant to the Companies Act 1985 within 60 days of October 18, 2004. | |
(8) | Includes 50,000 Solexa ordinary shares issuable upon exercise of stock options held by Dr. Rink that are exercisable within 60 days of October 18, 2004 provided that the offer is completed and that a compulsory acquisition right in favor of Lynx has arisen pursuant to the Companies Act 1985 within 60 days of October 18, 2004. | |
(9) | Includes 200,000 Solexa ordinary shares issuable upon exercise of stock options held by Dr. Smith that are exercisable within 60 days of October 18, 2004 provided that the offer is completed and that a compulsory acquisition right in favor of Lynx has arisen pursuant to the Companies Act 1985 within 60 days of October 18, 2004. |
(10) | Includes 1,000,000 Solexa B preferred shares and 190,000 Solexa A ordinary shares held by Amadeus II A LP, 666,667 Solexa B preferred shares and 126,667 Solexa A ordinary shares held by Amadeus II B LP, 466,667 Solexa B preferred shares and 88,667 Solexa A ordinary shares held by Amadeus II CLP, 22,222 Solexa B preferred shares and 4,223 Solexa A ordinary shares held by Amadeus II D GmbH & Co KG, and 66,666 Solexa B preferred shares and 12,667 Solexa A ordinary shares held by Amadeus II Affiliates LP. Dr. Hauser 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 LP. Dr. Hauser disclaims beneficial ownership of such shares, except to the extent of his pro-rata interest therein. |
(11) | Includes 567,805 Solexa B preferred shares and 1,254,085 Solexa A ordinary shares held by Oxford Bioscience Partners IV L.P. and 5,697 Solexa B preferred shares and 12,582 Solexa A ordinary shares held by mRNA Fund II L.P. Mr. Carthy is a General Partner of OBP Management IV L.P., which is the general partner of Oxford Bioscience Partners IV L.P. and mRNA Fund II L.P. Mr. Carthy may be deemed to share voting and investment power of the shares held by Oxford Bioscience Partners IV L.P. and mRNA Fund II L.P. Mr. Carthy disclaims beneficial ownership of such shares, except to the extent of his pro-rata interest therein. |
(12) | Includes 326,152 Solexa B preferred shares and 989,535 Solexa A ordinary shares held by Schroder Ventures International Life Sciences Fund II L.P.1, 138,906 Solexa B preferred shares and 421,439 Solexa A ordinary shares held by Schroder Ventures International Life Sciences Fund II L.P.2, 37,018 Solexa B preferred shares and 112,311 Solexa A ordinary shares held by Schroder Ventures International Life Sciences Fund II L.P.3, 5,032 Solexa B preferred shares and 15,266 Solexa A ordinary shares held by Schroder Ventures International Life Sciences Fund II Strategic Partners L.P., 9,379 Solexa B preferred shares and 28,458 Solexa A ordinary shares held by Schroder Ventures International Life Sciences Fund II Group Co-Investment Scheme, and 40,172 Solexa B preferred shares and 121,880 Solexa A ordinary shares held by SV (nominees) Limited as Nominee to Schroder Ventures Investments Limited. Mr. Daniel, a director of Solexa, is a Venture Partner of Schroder Ventures Life Sciences Advisers (UK) Limited which is an advisor to Schroder Venture Managers, Inc., the General Partner of the entities known collectively as Schroder Ventures International Life Sciences Fund II. Mr. Daniel has no beneficial ownership of the shares owned by Schroder Ventures International Life Sciences Fund II, except to the extent of his pro-rata interest therein. |
(13) | Includes 20,000 Solexa ordinary shares issuable upon exercise of stock options held by Mr. Allen that are exercisable within 60 days of October 18, 2004 provided that the offer is completed and that a compulsory acquisition right in favor of Lynx has arisen pursuant to the Companies Act 1985 within 60 days of October 18, 2004. |
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(14) | Includes 4,444,444 Solexa B preferred shares (including Solexa B preferred shares held by entities affiliated with certain directors), 5,066,669 Solexa A ordinary shares (including Solexa A ordinary shares held by entities affiliated with certain directors), 1,928,596 Solexa ordinary shares (including Solexa ordinary shares held by entities affiliated with certain directors) and 1,461,331 Solexa ordinary shares issuable upon exercise of stock options that are exercisable within 60 days of October 18, 2004 provided that the offer is completed and that a compulsory acquisition right in favor of Lynx has arisen pursuant to the Companies Act 1985 within 60 days of October 18, 2004. |
Solexa and John West have entered into an executive employment agreement. Pursuant to this agreement, if Solexa closes a financing prior to August 29, 2005, and such financing causes the aggregate amount of shares underlying Mr. Wests options to fall below five percent of the total outstanding capital stock of Solexa, then Solexa will immediately grant to Mr. West an option that will bring the aggregate amount of shares underling all options held by Mr. West to equal five percent of the outstanding share capital of Solexa. In addition, if Solexa and Lynx complete the transactions contemplated by the acquisition agreement prior to August 29, 2005, and the transaction causes the aggregate amount of shares underlying Mr. Wests options to fall below four percent of the total outstanding capital stock of the combined group, Mr. West is entitled to receive an option that will bring the aggregate amount of shares underlying all options held by Mr. West to equal four percent of the outstanding capital stock of Lynx. This agreement between Solexa and Mr. West is expected to be superceded by an employment agreement to be entered into between Lynx and Mr. West prior to, and effective upon, the first closing date. See the section entitled Interests of Directors, Officers and Affiliates on page 54.
Solexa Equity Compensation Plan Information
The following table provides certain information with respect to all of Solexas equity compensation plans in effect as of December 31, 2003:
(a) | (b) | (c) | |||||||||||
Number of Solexa | |||||||||||||
Number of | Ordinary Shares | ||||||||||||
Solexa Ordinary | Remaining Available for | ||||||||||||
Shares to be | Weighted- | Future Issuance under | |||||||||||
Issued Upon | average Exercise | Equity Compensation | |||||||||||
Exercise of | Price of | Plans (excluding shares | |||||||||||
Outstanding | Outstanding | reflected in column | |||||||||||
Plan Category(1) | Options | Options | (a)(2)) | ||||||||||
Equity compensation plans approved by security
holders:
|
|||||||||||||
Solexa Share Option Plan for Consultants
|
224,875 | $ | 1.390 | N/A | |||||||||
Solexa Limited Enterprise Management Incentive
Plan
|
641,083 | $ | 1.428 | N/A | |||||||||
Solexa Unapproved Company Share Option Scheme
|
186,825 | $ | 1.543 | N/A | |||||||||
Total
|
1,052,783 | 257,592 | |||||||||||
(1) | All equity compensation plans of Solexa, namely, Solexa Share Option Plan for Consultants, the Solexa Limited Enterprise Management Incentive Plan and the Solexa Unapproved Company Share Option Scheme, were adopted with the approval of Solexas security holders. |
(2) | The Solexa ordinary shares remaining available for future issuance are held in a general pool and are designated as granted under any one of the Solexa plans by Solexas board of directors on the date of grant. As a result, it is not possible at this time to determine or indicate the number of Solexa ordinary shares remaining available for future issuance under each individual Solexa plan. |
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DESCRIPTION OF LYNX CAPITAL STOCK
The authorized capital stock of Lynx currently consists of 62,000,000 shares, 60,000,000 of which shall be common stock, par value $0.01 per share and 2,000,000 of which shall be preferred stock, par value $0.01. As of October 22, 2004, 7,527,538 shares of Lynx common stock were outstanding. Lynx currently has no preferred stock outstanding.
Common Stock
The holders of shares of Lynx common stock are entitled to one vote per share on all matters to be voted on by Lynx stockholders. Except as otherwise provided by law, all action taken by the holders of a majority of the voting power represented at any meeting at which a quorum is present shall be valid and binding upon Lynx. Directors shall be elected by a plurality of the votes of the shares present in person or represented by proxy at the meeting and entitled to vote on the election of directors.
The holders of shares of Lynx common stock are entitled to receive, if, as and when declared by Lynxs board of directors, dividends at the rate determined by Lynxs board of directors at any regular or special meeting, subject to payment of dividends on outstanding shares of Lynx preferred stock, if any. In the event of dissolution, liquidation or winding up of Lynx, after distribution to the holders of Lynx preferred stock of amounts to which they may be preferentially entitled, if any, the holders of Lynx common stock are entitled to share ratably in the assets of Lynx legally available for distribution to Lynxs stockholders. The holders of Lynx common stock have no preemptive, subscription, conversion or redemption rights, and Lynx common stock is not subject to any sinking fund provisions or liability to further calls or to assessments by Lynx.
Preferred Stock
Lynxs board of directors currently has authority by resolution to issue up to 2,000,000 shares of preferred stock in one or more series, and to fix the number of shares and to determine or alter for each such series, such voting powers, full or limited, or no voting powers, and such designations, preferences, and relative, participating, optional, or other rights and such qualifications, limitations or restrictions thereof, without any further vote or action by the stockholders. Thus, any series may, if so determined by Lynxs board of directors, have disproportionately high voting rights or class voting rights, be convertible into or exchangeable for Lynx common stock or another security of Lynx, be redeemable, carry the right to specified participating dividends (which may be fixed or adjustable and which may be cumulative) and have such other relative rights, preferences and limitations as Lynxs board of directors shall determine. Issuance of authorized but unissued shares of Lynx common stock or Lynx preferred stock (including issuance upon conversion of any convertible preferred stock) could cause a dilution of the book value of Lynx common stock and (in the case of Lynx common stock and Lynx preferred stock with voting rights) would dilute the voting power of the then-current voting stockholders of Lynx. In addition, the issuance of Lynx preferred stock, while providing desired flexibility in connection with possible financings, acquisitions and other corporate purposes, could have the effect of making it more difficult for a third party to acquire a majority of the outstanding voting stock of Lynx, thereby delaying, deferring or preventing a change in control of Lynx.
Transfer Agent and Registrar
The transfer agent and registrar for Lynx common stock is EquiServe Trust Company, N.A.
Listing
Lynx common stock is currently listed on the NASDAQ SmallCap Market under the symbol LYNX. For a description of the application for initial listing of Lynx common stock upon the completion of the transaction, see the section entitled Listing of Lynx Common Stock on the NASDAQ SmallCap Market on page 56.
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COMPARISON OF RIGHTS OF HOLDERS OF LYNX COMMON STOCK AND SOLEXA SHARES
Lynx is incorporated in the State of Delaware, United States and the rights of Lynx stockholders are currently governed by the DGCL and by Lynxs certificate of incorporation and Lynxs bylaws. Solexa is registered in England and Wales and the rights of Solexa shareholders are currently governed by English law, Solexas articles of association and the shareholders agreement between Solexa and its shareholders. After the completion of the transaction, shareholders of Solexa will become stockholders of Lynx, and will become subject to the certificate of incorporation and the bylaws of Lynx.
The following is a summary of the material differences between the rights of Lynx stockholders and the rights of Solexa shareholders. While Lynx and Solexa believe that this summary covers the material differences between the two, this summary may not contain all of the information that is important to you. This summary is not intended to be a complete discussion of the respective rights of Lynx stockholders and Solexa shareholders and it is qualified in its entirety by reference to Delaware law, English law, and the various documents of Lynx and Solexa referenced in this summary. You should carefully read this entire proxy statement/ prospectus and the other documents referenced in this proxy statement/ prospectus for a more complete understanding of the differences between being a stockholder of Lynx and being a shareholder of Solexa. Lynx has filed with the SEC certain documents referred to herein and will send copies of these documents to you upon your request. See the section entitled Where You Can Find More Information on page 174.
Lynx | Solexa | |||
Capitalization
|
The authorized capital stock of Lynx consists of
60,000,000 shares of common stock, par value of
$0.01 per share, and 2,000,000 shares of preferred
stock, par value of $0.01 per share. As of October 22, 2004, there were approximately 7,527,538 shares of Lynx common stock outstanding held of record by approximately 1,600 persons. Lynx currently has no preferred stock outstanding. Lynxs shares of common stock are listed on the NASDAQ SmallCap Market under the symbol LYNX. |
The authorized share capital of Solexa consists
of £34,849.07 divided into 4,444,444 B preferred
shares, 5,066,669 A ordinary shares and 4,428,513 ordinary
shares each with a nominal value of £0.0025 each. As of October 18, 2004, the issued share capital of Solexa was 4,444,444 B preferred shares, 5,066,669 A ordinary shares and 2,338,138 ordinary shares. As of October 18, 2004, there were 19 holders of Solexa B preferred shares, 18 holders of Solexa A ordinary shares, and 10 holders of Solexa ordinary shares. |
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Number of Directors | Delaware law provides that a corporation must have at least one director and that the number of directors shall be fixed by or in the manner provided in the bylaws. Lynxs bylaws provide that the authorized number of directors shall consist of not less than six and no more than nine directors. The current number of directors of Lynx is fixed at nine. |
Under the Companies Act, a private English
company must have at least one director. Subject to this, a
companys articles of association may specify a minimum or
maximum number of directors. Solexas articles of association provide that, unless determined otherwise by ordinary resolution of Solexas shareholders in a general meeting, the number of directors (other than alternate directors) shall be not more than nine. Solexa currently has nine directors. |
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Lynx | Solexa | |||
Election and Term of Directors | Lynxs bylaws provide that, except in the event of vacancies, directors are elected at each annual meeting for a term of one year. |
Under Solexas articles of association,
Solexas board of directors can appoint further directors,
subject to the maximum of nine. Shareholders are able to requisition a general meeting and can propose the election of a new director by ordinary resolution. Under the terms of the shareholders agreement between Solexas shareholders and Solexa, certain investor and founder shareholders have additional rights to appoint directors to the Solexa board. Pursuant to the shareholders agreement, each Solexa shareholder undertakes to procure that without the prior written consent of the holders of at least 66% of the B preferred and A ordinary shares taken together, Solexa shall not, inter alia, permit the appointment of directors, other than an investor appointed director. |
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Removal of Directors | Under Delaware law, directors may be removed from office, with or without cause, by a majority stockholder vote, though in the case of the corporation whose board is classified, stockholders may effect such removal only for cause, unless otherwise provided in the certificate of incorporation. Lynxs bylaws provide that any director may be removed with or without cause at a special meeting of stockholders called for that purpose. |
Under the Companies Act, shareholders may remove
a director without cause by ordinary resolution, irrespective of
any provisions of the companys articles of association or
service contract the director has with the company, provided
that 28 clear days notice of the resolution is given
to the company and certain procedural requirements under the
Companies Act are followed. Solexas articles of association provide that Solexa, by a majority of the remaining directors by notice in writing, may remove a director before the expiration of the directors term and may appoint another director instead (subject to a maximum number of nine directors). Solexas articles of association also provide that the office of a director shall be vacated if: (a) the director becomes prohibited by law from being a director; (b) the director becomes bankrupt or makes any general arrangement with the directors creditors; (c) by a court order; (d) the director resigns; (e) the director has been absent from meetings of the board of directors |
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Lynx | Solexa | |||
held during a 6 months period without
permission of the other directors and the directors
alternate director (if any) has not attended such meetings and
the directors resolve that the directors office be
vacated; or (f) if the director is removed from office by
written notice signed by a majority of the directors
co-directors. Under the terms of the shareholders agreement the shareholders who have additional rights to appoint directors to Solexas board, also have the right to remove and replace those directors by written notice to Solexa which takes effect on delivery of the notice to the registered office or at any board meeting. |
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Vacancies on the Board of Directors | Delaware law and Lynxs bylaws provide that vacancies on a corporations board of directors, including those caused by an increase in the number of directors, may be filled by a majority of the remaining directors, though less than a quorum. |
Under English law, shareholders may by ordinary
resolution and by giving notice of not less than 14 and not more
than 35 clear days before the meeting to the company of
their intention, appoint a person to be a director: to fill a vacancy; or to become an additional director, subject to any maximum provided in the companys articles of association. Solexas board of directors has the power to appoint a director by a majority of the remaining directors subject to a maximum of nine directors. |
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Stockholder Action by Written Consent | Delaware law and Lynxs bylaws provide that any action required or permitted to be taken at a meeting of stockholders may be taken without a meeting if a written consent to the action is signed by stockholders holding at least a majority of the voting power. If a different proportion of voting power is required for an action at a meeting, then that proportion of written consents is also required. | Under English law, the consent in writing of all shareholders of a private company is required in order to approve, without a meeting, a matter requiring shareholder approval. |
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Lynx | Solexa | |||
Amendment to Organizational Documents |
Under Delaware law and Lynxs certificate of
incorporation, the certificate of incorporation may be amended
by the affirmative vote of the holders of a majority of the
outstanding stock entitled to vote and a majority of the
outstanding stock of each class entitled to vote as a class. Lynxs bylaws provide that Lynx reserves the right to amend, alter, change or repeal any provision contained in the certificate of incorporation in the manner prescribed by statute, and all rights conferred upon the stockholders in the certificate of incorporation are granted subject to this right. Delaware law provides that a corporations stockholders entitled to vote have the power to amend bylaws, although the corporations certificate of incorporation may give the board of directors the power to amend bylaws as well. Lynxs certificate of incorporation provides that the board of directors may amend, supplement or repeal the bylaws. Lynxs bylaws provide that any repeal or modification of the bylaws shall be prospective and shall not affect the right under the bylaws in effect at the time of the alleged occurrence of any action or omission to act that is the cause of any proceeding against any agent of Lynx. Other than provisions relating to the prospective effect of any amendment, the bylaws may be amended or appealed and new bylaws be adopted by the stockholders entitled to vote. |
Under English law, shareholders have the power to
amend: the objects, or purpose, clause in a companys memorandum of association; and subject to any specific conditions contained in the memorandum, any provisions of the companys articles of association, by special resolution, subject to, in the case of amendments to the objects clause of the memorandum of association, the right of dissenting shareholders to apply to the court to cancel the amendments within 21 days of the passing of the resolution. The shareholders agreement governs part of the relationship between Solexa and its shareholders and can only be amended by unanimous consent. In the event of any conflict between the shareholders agreement and Solexas articles of association, the shareholders agreement shall prevail as between the shareholders and the shareholders shall procure such amendment to the memorandum or articles of association as is reasonably necessary to remove such conflict. In addition to the above, pursuant to the shareholders agreement each of Solexas shareholders undertakes to procure that without the prior written consent of the holders of at least 66% of the B preferred and A ordinary shares (taken together) Solexa shall not, inter alia, propose to amend nor effect amendments to the memorandum and articles of association. Under English law, the board of directors is not authorized to change the memorandum or articles of association. Amendments affecting the rights of the holders of any class of shares may, depending on the rights attached to the class and the nature of the amendments, also require approval by extraordinary |
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Lynx | Solexa | |||
resolution of the classes affected in separate class meetings. | ||||
General Meeting of Stockholders | Delaware law and Lynxs bylaws provide that the annual meeting of stockholders shall be held at such place, on such date and at such time as may be designated from time to time by the board of directors. |
The Companies Act requires an annual general
meeting to be held in each year and not more than 15 months
to elapse between the date of one annual general meeting and
that of the next. The Companies Act allows a private company to opt to elect to dispense with the holding of annual general meetings. Solexa has not done so. |
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Special Meeting of Stockholders |
Under Delaware law, special meetings of the
stockholders may be called by the board of directors or by such
person or persons as may be authorized by the certificate of
incorporation or by the bylaws. Lynxs bylaws provide that special meetings of the stockholders may only be called by the board of directors pursuant to a resolution adopted by the majority of the total number of authorized directors. |
Under English law, an extraordinary general
meeting of shareholders may be called by: the board of directors; if there are not sufficient directors within the U.K. to call a general meeting, any director or member of the company; or shareholders holding at least one-tenth of the paid-up capital of the company carrying voting rights at general meetings. Extraordinary resolutions are relatively unusual and are confined to matters out of the ordinary course of business, such as the variation of rights attached to any class of shares in a company. Special resolutions generally involve proposals to change the name of the company or amend its memorandum or articles of association. All other proposals relating to the ordinary course of the companys business, such as the election of directors, increasing the authorized share capital, granting directors authority to allot shares and, if required, transactions such as mergers, acquisitions and disposals, are the subject of an ordinary resolution. |
90
Lynx | Solexa | |||
Notice of Stockholder Meetings | Under Delaware law and Lynxs bylaws, written notice of any meeting of the stockholders must be given to each stockholder entitled to vote at the meeting not less than 10 nor more than 60 days before the date of the meeting and shall specify the place, date, hour, and purpose or purposes of the meeting. |
The notice requirements for an ordinary
resolution, an extraordinary resolution and a special resolution
are as follows: ordinary resolution 14 clear days notice; extraordinary resolution 14 clear days notice; and special resolution 21 clear days notice. (Clear days does not include the date of service of the notice nor the date of the general meeting.) Notwithstanding the foregoing notice requirements, 21 clear days notice must be given for an annual general meeting and any resolutions to be proposed at the meeting. In addition, certain matters (such as the removal of directors) require special notice, which is 28 clear days notice. In addition, general meetings may be called upon shorter notice if: in the case of an annual general meeting, all the shareholders who are permitted to attend and vote agree to the shorter notice period; or in the case of an extraordinary general meeting, a majority in number of the shareholders and shareholders holding at least 95% by nominal value of the shares which can be voted at the meeting so agree. (See also Special Meeting of Stockholders above). |
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Delivery and Notice Requirements of Stockholder Nominations and Proposals | Lynxs bylaws provide that for a stockholder proposal to be brought properly before an annual meeting, the stockholder must notify the corporate secretary of Lynx not less than 120 in advance of the date of Lynxs proxy statement released to stockholders in connection with the previous years annual meeting of stockholders. However, in the event that no annual meeting was held in the previous | (See Special Meetings of Stockholder and Notice of Stockholder Meetings above) |
91
Lynx | Solexa | |||
year or the date of the annual meeting has been
changed by more than 30 days from the date contemplated at
the time of the previous years proxy statement, then
notice must be received a reasonable time fore the solicitation
is made. Notwithstanding the foregoing, in order to include
information with respect to a stockholder proposal in the proxy
statement and form of proxy for a stockholders meeting,
stockholders must provide notice as required by the regulations
promulgated under the Exchange Act. The notice must specify
certain information as set forth in Lynxs bylaws. Lynxs bylaws further provide that nomination of persons for election to Lynxs board of directors may be made at a meeting of stockholders by or at the direction of the board of directors or by any stockholder of Lynx entitled to vote in the election of directors at the meeting who complies with the notice procedures set forth in the preceding paragraph and specifies certain information as set forth in Lynxs bylaws. |
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Proxy | Under Delaware law and pursuant to Lynxs bylaws, at any meeting of the stockholders of Lynx, a stockholder may designate another person to act for such stockholder by proxy, but no such proxy shall be voted or acted upon after three years from its date, unless the proxy provides for a longer period. |
Under Solexas articles of association, an
instrument appointing a proxy must be in writing and must be
signed by the appointer, or his attorney or, if a corporation,
by an officer or attorney duly authorized. The proxy instrument
must be deposited at the companys registered office not
less than 48 hours before a poll. Under Solexas articles of association, a proxy can vote both on a poll and on a show of hands. |
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Preemptive rights |
Under Delaware law, absent express provision in a
corporations certificate of incorporation, a stockholder
does not, by operation of law, possess preemptive rights to
subscribe to additional issuances of the corporations
stock. Lynxs certificate of incorporation does not provide that stockholders possess any preemptive right to subscribe to additional issuances of its capital stock. |
Under English law the directors of a company can
only allot shares with the prior authorization of the
shareholders. This authorization can only be granted for up to a
maximum of five years at a time. The directors can only be
authorized to allot shares up to the maximum authorized share
capital of the company. Under the Companies Act, the issue for cash of: |
92
Lynx | Solexa | |||
equity securities, being those which, with respect to dividends or capital, carry a right to participate beyond a specified amount; or rights to subscribe for, or convert, into equity securities; must be offered first to the existing equity shareholders in proportion to the respective nominal value of their holdings, unless a special resolution to the contrary has been passed by shareholders in a general meeting, or the articles of association provide otherwise. Solexas articles of association provide, in addition, that except in the case of a transfer permitted by the articles of association, any person proposing to transfer any shares in the company shall be required, before effecting such transfer, to give notice to the company. All such shares shall by notice in writing be offered by the company to all existing members (other than the holder of the shares) to be sold to the acceptors of the offer in proportion to their existing holdings of shares. Pursuant to the shareholders agreement, each Solexa shareholder undertakes to procure that without the prior written consent of the holders of at least 66% of the B preferred and A ordinary shares taken together, Solexa shall not, inter alia, allot or issue any share capital. |
||||
Dividends |
Under Delaware law, a corporation may pay
dividends out of surplus or net profits for the current or
preceding fiscal year, provided that the capital of the
corporation is not less than the aggregate amount of the capital
represented by the corporations outstanding stock of all
classes having a preference upon distribution of assets. Lynx has never paid cash dividends on its common stock. |
An English company may pay dividends on its ordinary shares, subject to the prior rights of holders of preferred shares, only out of its distributable profits, broadly defined as accumulated, realized profits less accumulated, realized losses, and not out of share capital, which includes share premiums, which are equal to the excess of the consideration for the issue of shares over the aggregate nominal amount of such shares. Amounts credited to the share premium account, however, may be used to pay up unissued shares which may then |
93
Lynx | Solexa | |||
be distributed to shareholders in proportion to
their holdings as bonus shares. Solexas articles of association provides for B preferred shareholders to be paid a fixed dividend in priority to A ordinary shareholders and ordinary shareholders at a rate of eight percent per annum and for any unpaid B preferred dividend to accrue. After provision has been made for the B preferred shareholder dividends to be paid in each financial year, Solexas articles of association provide for A ordinary shareholders to be paid a dividend of eight percent per annum in priority to the ordinary shareholders and for any unpaid A ordinary shareholder dividend to accrue. Solexas articles of association provide for the ordinary shareholders to be paid a dividend after the necessary provisions have been made for the B preferred and A ordinary shareholders if the directors resolve to do so. In addition to the above, pursuant to the shareholders agreement each of Solexas shareholders undertakes to procure that without the prior written consent of the holders of at least 66% of the B preferred and A ordinary shares (taken together) Solexa shall not, inter alia, propose or make any dividend. To date, Solexa has not paid cash dividends on its outstanding share capital and does not intend to pay cash dividends in the foreseeable future. |
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Liability of Director and Officer |
Delaware law permits a corporations
certificate of incorporation to include a provision eliminating
or limiting the personal liability of a director to the
corporation and its stockholders for damages arising from a
breach of fiduciary duty as a director. However, no provision
can limit the liability of a director for: any breach of the directors duty of loyalty to the corporation or its stockholders; |
English law does not permit a company to exempt any director, officer of the company or any person employed by the company as an auditor, from any liability arising from negligence, default, breach of duty or breach of trust against the company. |
94
Lynx | Solexa | |||
acts or omissions not in good faith
or that involve intentional misconduct or a knowing violation of
law; intentional or negligent payment of unlawful dividends or stock purchases or redemptions; or any transaction from which the director derives an improper personal benefit. Lynxs certificate of incorporation provides a director shall not be liable to Lynx or its stockholders for monetary damages for breach of fiduciary duty as a director to the fullest extent permitted by Delaware law. |
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Indemnification of Directors and Officers |
Lynxs bylaws provide that Lynx shall
indemnify its directors and executive officers to the fullest
extent not prohibited by Delaware law or other applicable law,
though the extent of indemnification may be modified through
individual contracts. Lynx shall not be required to indemnify
any director or executive officer in connection with any
proceeding initiated by such person unless (i) such
indemnification is expressly required to be made by law, (ii)
the proceeding was authorized by the board of directors, or
(iii) such indemnification is provided by Lynx, in its sole
discretion, pursuant to Delaware law. Lynxs bylaws provide that Lynx may indemnify its other officers, employees and agents as set forth in Delaware law. Expenses incurred by directors and executive officers in connection with proceedings shall be paid by Lynx as incurred and before final disposition of the proceedings upon receipt of an undertaking by or on behalf of such person to repay the amount if it is determined ultimately that such person is not entitled to be indemnified by Lynx. No advance of expenses shall be made to an executive officer if the board of directors reasonably and promptly determines that such person acted in bad faith or in a manner that such |
English law does not permit a company to
indemnify: a director or officer of the company; or any person employed by the company as an auditor; against any liability arising from negligence, default, breach of duty or breach of trust against the company, except that indemnification is allowed for liabilities incurred in proceedings in which: judgment is entered in favor of the director or officer, or the director or officer is acquitted; or the director or officer is held liable, but the court finds that he/she acted honestly and reasonably and that relief should be granted. The Companies Act enables companies to purchase and maintain insurance for directors and officers against liabilities arising from negligence, default, breach of duty or breach of trust against the company. Solexas articles of association do provide that: every director, auditor, secretary or other |
95
Lynx | Solexa | |||
person did not believe to be in or not opposed to
the best interests of Lynx. Delaware law and Lynxs bylaws provide that Lynx has the power to purchase insurance on behalf of any person required or permitted to be indemnified pursuant to the bylaws. |
officer of the company shall be indemnified
against all liability incurred in the execution of his duties;
and the company may purchase insurance against any such liability. See also Liability of Directors and Officers above. |
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Voting Rights | Delaware law and Lynxs bylaws provide that each stockholder is entitled to one vote for each share of capital stock held by such stockholder. |
Under English law, unless the articles of
association provide otherwise, a shareholder entitled to vote at
a shareholders meeting is entitled to one vote on a show
of hands regardless of the number of shares he or she holds;
provided, however, that any group of five ordinary shareholders
(or a lesser number if provided in the articles of association)
and any shareholder representing at least 10% of the total
voting rights (or a lower percentage if provided in the articles
of association) has the statutory right to demand a vote by a
poll, which means that each ordinary shareholder would be
entitled to one vote for each ordinary share held by the
shareholder. Solexas articles of association provide that the following, present in person or by proxy and entitled to vote, may demand a poll (before or on the declaration of the result of the show of hands or on the withdrawal of any other demand for a poll): (a) the chairman of a meeting, (b) any shareholder, (c) shareholders representing at least 1/10 of the total voting rights of all shareholders having a right to vote at the meeting, or (d) shareholders holding shares conferring a right to vote at the meeting and for which an aggregate sum has been paid up equal to at least 1/10 of the total sum paid up on all the shares conferring such right. Under English law, the voting rights of shareholders are regulated by a companys articles of association. In addition, ordinary resolutions may, if a poll is not demanded, be decided on a show of hands and must be approved by at least a majority of the shareholders present and voting at a |
96
Lynx | Solexa | |||
meeting. If a poll is demanded, the resolution
conducted on a poll must be approved by holders of at least a
majority of the votes cast at the meeting. Both special and
extraordinary resolutions require the affirmative vote of at
least 75% of the votes cast at the meeting. Proxies may vote on
a poll vote. Solexas articles of association further provide that: Every B preferred shareholder present in person or proxy (or if a corporation by duly authorized representative or proxy) shall have; one vote on a show of hands; and on a poll, every B preferred shareholder present shall have one vote for each ordinary share into which the B preferred shares held by such holder are convertible in accordance with Article 2.2(d) of Solexas articles of association. Every A ordinary shareholder present in person or by proxy (or if a corporation by duly authorized representative or proxy) shall have; one vote on a show of hands; and on a poll, one vote of each A ordinary share held by him; and Every holder of ordinary shares present in person or by proxy (or if a corporation by duly authorized representative or by proxy) shall have; one vote; and on a poll, one vote for each ordinary share held by him. Solexas articles of association specify a quorum of two shareholders, present in person or by proxy or represented by a duly authorized representative and entitled to vote. |
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Lynx | Solexa | |||
Solexas shareholders agreement restricts the shareholders voting rights by providing that, without a written consent from at least 66% of the B preferred and A ordinary shareholders (taken together), the shareholders will exercise their voting rights to procure that the company does not effect or propose certain matters. | ||||
Appraisal Rights |
Delaware law provides that stockholders have the
right, in some circumstances, to dissent from certain corporate
reorganizations and to instead demand payment of the fair cash
value of their shares. Unless a corporations certificate of incorporation provide otherwise, dissenters do not have rights of appraisal with respect to a merger or consolidation by a corporation, if the shares of the corporation are either: listed on a national securities exchange; designated as a national market system security on an interdealer quotation system by the NASD; or held by at least 2,000 stockholders of record; unless the stockholders receive in exchange for their shares anything other than cash in lieu of fractional shares, shares of the surviving corporation, shares of any other corporation that are publicly listed or held by more than 2,000 stockholders, or a combination of the foregoing. Stockholders of a corporation surviving a merger do not have appraisal rights if no vote of the stockholders of the surviving corporation is required to approve the merger. Appraisal rights are not available to Lynx stockholders with respect to the transaction. |
Under English law, shareholders do not generally
have appraisal rights, as the concept is understood under
Delaware law, and Solexas articles of association do not
contain any appraisal rights. Under a scheme of reconstruction under Section 110 of the Insolvency Act 1986 of England and Wales, a shareholder can require the liquidator to abstain from carrying the reconstruction resolution into effect, or to purchase such shareholders interest at a price agreed or determined by arbitration. Additionally, any shareholder who complains that the affairs of the company are being conducted, or that the directors powers are being exercised, in a manner unfairly prejudicial to such shareholder or some part of the shareholders (including such shareholder), or in disregard of such shareholders proper interests as a shareholder, may apply to the High Court in England for relief. If the High Court finds the complaint to be justified, it may exercise its discretion as to the appropriate remedy, which may include an order for the purchase of the shares on such terms, including as to price, as the High Court may determine. Under the Companies Act, a group of shareholders may be able to bring a derivative action in the name of the company against other shareholders if they consider that wrongdoing has occurred against the company. |
98
Lynx | Solexa | |||
Certain Business Combination Restrictions |
Delaware law provides that if a person acquires
15% or more of the voting stock of a Delaware corporation such
person is an interested stockholder and may not
engage in certain business combinations with the
corporation for a period of three years from the time such
person acquired 15% or more of the corporations voting
stock. The statute contains certain exceptions to this
prohibition. If, for example, the board of directors approves
the acquisition of stock or the transaction prior to the time
that the person becomes an interested stockholder, or if the
interested stockholder owns at least 85% of the outstanding
voting stock of the corporation at the time the transaction
commences (excluding voting stock owned by directors who are
also officers and certain employee stock plans), or if the
transaction is approved by the board of directors and by the
affirmative vote at a meeting of stockholders of 2/3 of the
holders of the outstanding voting stock which is not owned by
the interested stockholder, then the three year prohibition
concerning a business combination is not applicable. A Delaware corporation can elect in its certificate of incorporation or bylaws not to be governed by this particular Delaware law. Lynx has not made that election. |
Under the Companies Act, the company must obtain
prior shareholder consent to any transaction of substantial
value between the company and any director or person connected
with any director. Pursuant to the shareholders agreement, each Solexa shareholder undertakes to procure that without the prior written consent of the holders of at least 66% of the B preferred and A ordinary shares taken together, Solexa shall not, inter alia, acquire or dispose of the whole or part of the undertaking of another person or of Solexa, or negotiate the disposal of shares in Solexa, except when such a disposal is a company building merger as such term is described in Company Building Merger below. |
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Stock Class Rights |
Under Delaware law, any change to the rights of
holders of the shares of common stock of Lynx would require an
amendment to Lynxs certificate of incorporation. Delaware law provides that the holders of shares of a class or series shall be entitled to vote as a class upon a proposed amendment if the amendment will increase or decrease the authorized shares of the class or series; increase or decrease the par value of the shares of the class or series; alter or change the powers, preferences or special rights of the shares of the class or series so as to affect them adversely. |
Solexas shareholders agreement
provides that without a written consent from at least 66% of the
B preferred and A ordinary shareholders (taken together) the
shareholders will exercise their voting rights to procure that
the company does not effect or propose certain matters. (See also Amendment of Governing Instruments above in relation to the need for class consent in certain circumstances.) |
99
Lynx | Solexa | |||
Under Lynxs certificate of incorporation,
Lynx has the right to issue shares of common stock as well as
shares of preferred stock. The shares of authorized common stock shall be identical in all respects and have equal rights and privileges. Without action by the stockholders, such shares of common stock may be issued by Lynx from time to time for such consideration as may be fixed by the board of directors; provided, however, that such consideration shall not be less than par value. Any and all shares so issued, the full consideration for which has been paid or delivered shall be deemed fully paid stock non-assessable. The board of directors shall have the authority to issue the shares of the preferred stock from time to time on such terms and conditions as it may determine, and to divide the preferred stock into one or more classes or series and in connection with the creation of any such class or series to fix by the resolution or resolutions providing for the issue of shares thereof the designations, powers, preferences and relative participating, optional or other special rights of such class or series, and the qualifications, limitations, or restrictions thereof, to the full extent now or hereafter permitted by law. The number of authorized shares of preferred stock may be increased or decreased (but not below the number then outstanding) by the affirmative vote of the holders of a majority of the common stock. |
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Rights of Purchase and Redemption | Under Delaware law, any corporation may purchase, redeem and dispose of its own shares, except that it may not purchase or redeem these shares if the capital of the corporation is impaired at the time or would become impaired as a result of the redemption, provided that if a corporation redeems its stock, immediately following any such redemption, the corporation must have outstanding one or more shares of one or more classes which shares together must have full voting power. | Under English law, a company may issue redeemable shares if authorized by its articles of association, subject to any conditions stated therein. |
100
Lynx | Solexa | |||
However, at any time, a corporation may purchase
or redeem any of its shares which are entitled upon any
distribution of assets to a preference over another class of its
stock if these shares will be retired upon acquisition or
redemption, thereby reducing the capital of the corporation. The NASDAQ requires that publicity be given and prior notice be sent to the NASDAQ of any material information which would reasonably be expected to effect the value of the securities or influence investors decisions, such as redemption of the securities. The NASDAQ rules provide that upon receipt of such notice trading may be suspended. |
A company may purchase its own shares, including
any redeemable shares, if the purchase is authorized by its
memorandum and articles of association and has been approved by
a special resolution. A company may redeem or repurchase shares only if the shares are fully paid and if any payment in respect of the redemption is otherwise than out of distributable profits or the proceeds of a fresh issue of shares. Solexas articles of association authorize the issue of redeemable shares, subject to the Companies Act and with the sanction of a special resolution, and the purchase of its own shares, subject to and in accordance with the Companies Act and to any rights conferred on the holders of any class of shares. Pursuant to the shareholders agreement each of Solexas shareholders undertakes to procure that without the prior written consent of the holders of at least 66% of the B preferred and A ordinary shares (taken together) Solexa shall not, inter alia redeem any shares. |
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Stockholder Vote on Certain Transactions |
Generally, under Delaware law, unless the
certificate of incorporation provides for the vote of a larger
portion of the stock, completion of a merger, consolidation,
sale, lease or exchange of all or substantially all of a
corporations assets or dissolution requires: the approval of the board of directors; and approval by the vote of the holders of a majority of the outstanding stock or, if the certificate of incorporation provides for more or less than one vote per share, a majority of the votes of the outstanding stock of a corporation entitled to vote on the matter. Lynxs certificate of incorporation does not requires a vote of a larger portion of the stock. |
The Companies Act provides for schemes of
arrangement, which are arrangements or compromises between a
company and any class of shareholders or creditors and used in
certain types of reconstructions, amalgamations, capital
reorganizations or takeovers. These arrangements require: the approval at a special meeting convened by order of the court, of a majority in number of shareholders or creditors representing 75% in value of the capital held by, or debt owed to, the class of shareholders or creditors, or class thereof present and voting, either in person or by proxy; and the approval of the court. Solexas shareholders agreement provides that without a written consent from at least 66% of the B preferred and A ordinary |
101
Lynx | Solexa | |||
Under the rules of the NASDAQ, acquisitions
involving the following require shareholder approval: any director, officer or substantial shareholder of the issuer has a five percent or greater interest (or such persons collectively have a 10% or greater interest), in the company or assets to be acquired or in the consideration to be paid in the transaction and the issuance of common stock could result in an increase in outstanding common shares or voting power of five percent or more; or where, due to the issuance of additional shares of common stock, or securities convertible into or exercisable for common stock, other than a public offering for cash: the common stock has, or will have upon issuance, voting power equal to or in excess of 20% of the voting power outstanding before the issuance of such stock or securities; or the number of shares of common stock to be issued is or will be equal to or in excess of 20% of the number of shares of common stock outstanding before the issuance of such stock or securities. |
shareholders (taken together) the shareholders will exercise their voting rights to procure that the company does not effect or propose certain matters. | |||
Right of Inspection |
Delaware law allows any stockholder to inspect
the corporations stock ledger, a list of its stockholders,
and its other books and records, and to make copies or extracts
of those materials during normal business hours; provided,
however, that, the stockholder makes a written request under
oath stating the purpose of such stockholders inspection,
and the inspection is for a purpose reasonably related to the
persons interest as a stockholder. Lynxs bylaws provide that as long as there are 100 or more holders of record of Lynx shares, the board of directors shall cause an annual report to be sent to each stockholder not later than 120 days after the close of Lynxs fiscal year and at least 15 days prior to the next annual meeting of stockholders. |
Except when disclosed under the provisions of the
Companies Act, the register, index of names of shareholders and
certain other registers of an English company may be inspected
during business hours: without payment, by its shareholders; or for a small fee by any other person. In such cases, the documents may be copied for a small fee. |
102
Lynx | Solexa | |||
Standard of Conduct for Directors | Delaware law does not contain specific provisions setting forth the standard of conduct of a director. The scope of the fiduciary duties of directors is generally determined by the courts of the State of Delaware. In general, directors have a duty to act without self-interest, on a well- informed basis and in a manner they reasonably believe to be in the best interest of the stockholders. |
Under English law, a director has a fiduciary
duty to act in a companys best interest. This duty
includes obligations: not to create an actual or potential conflict between the directors duty to the company and duties to any other person or the directors personal interests; and to exercise the directors powers only in accordance with the memorandum and articles of association of the company. In addition, a director must exercise reasonable care and skill. |
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Stockholder Suits |
Under Delaware law, a stockholder may initiate a
derivative action to enforce a right of a corporation if the
corporation fails to enforce the right itself. The complaint
must: state that the plaintiff was a stockholder at the time of the transaction of which the plaintiff complains or that the plaintiffs shares thereafter devolved on the plaintiff by operation of law; and allege with particularity the efforts made by the plaintiff to obtain the action the plaintiff desires from the directors and the reasons for the plaintiffs failure to obtain the action; or state the reasons for not making the effort. Additionally, the plaintiff must remain a stockholder through the duration of the derivative suit. The action will not be dismissed or compromised without the approval of the Delaware Court of Chancery. |
While English law only permits a shareholder to
initiate a derivative action on behalf of the company in limited
circumstances, the Companies Act permits a shareholder whose
name is on the register of shareholders of the company to apply
for a court order: when the companys affairs are being or have been conducted in a manner unfairly prejudicial to the interests of all or some shareholders, including the shareholder making the claim; or when any act or omission of the company is or would be so prejudicial. A court has wide discretion in granting relief, and may authorize civil proceedings to be brought in the name of the company by a shareholder on terms that the court directs. Except in these limited circumstances, English law does not generally permit class action lawsuits by shareholders on behalf of the company, or on behalf of other shareholders. |
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Anti-Takeover Measures |
Under Delaware law, directors generally have a
duty to act without self-interest, on a well-informed basis and
in a manner they reasonably believe to be in the best interests
of the stockholders. Nevertheless, a Delaware court will |
Under English law, directors of a company have a fiduciary duty to take only those actions which are in the interests of the company. Generally, anti-takeover measures are not actions which fall within this category. |
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Lynx | Solexa | |||
generally apply a policy of judicial deference to
board of directors decisions to adopt anti-takeover measures in
the face of a potential takeover where the directors are able to
show that: they had reasonable grounds for believing that there was a danger to corporate policy and effectiveness from an acquisition proposal; and the board action taken was reasonable in relation to the threat posed. |
Pursuant to the shareholders agreement each of Solexas shareholders undertakes to procure that without the prior written consent of the holders of at least 66% of the B preferred and A ordinary shares (taken together) Solexa shall not, inter alia, acquire or dispose of the whole or part of any undertaking or merge nor propose to do so other than in specific circumstances. | |||
Disclosure of Interests | Acquirors of common stock are subject to disclosure requirements under Section 13(d)(1) of the Exchange Act and Rule 13d-1 thereunder, which provide that any person who becomes the beneficial owner of more than five percent of the outstanding common stock of Lynx must, within ten days after such acquisition. |
All companies registered in England and Wales are
required to maintain a register of directors interests
which can be inspected during business hours at the
companys registered office by any member (without payment)
and by any member of the public for a small fee. Directors other directorships must be disclosed in the annual return. |
||
Limitations On Enforceability Of Civil Liabilities Under U.S. Federal Securities Laws |
Lynx is a U.S. company incorporated under
the laws of Delaware. U.S. investors generally can initiate
lawsuits in the United States against Lynx and its directors and
officers and can enforce lawsuits based on U.S. federal
securities laws in U.S. courts. Directors and officers of Lynx are governed by rules under the Exchange Act that may require directors and officers to forfeit to Lynx any short swing profits realized from purchases and sales, as determined under the Exchange Act and the rules thereunder, of Lynx equity securities. |
Solexa is an English company located in the
United Kingdom. Most of the officers of Solexa are residents of
the United Kingdom and not the United States. A large portion of
the assets of Solexa and its directors and officers are located
outside of the United States. As a result, U.S. investors
may find it difficult, in a lawsuit based on the civil liability
provisions of the U.S. federal securities laws, to: effect service within the United States upon Solexa and the directors and officers of Solexa located outside the United States; enforce in U.S. courts or outside the United States judgments obtained against those persons in U.S. courts; enforce in U.S. courts judgments obtained against those persons in courts in jurisdictions outside the United States; and enforce against those persons in the |
104
Lynx | Solexa | |||
United Kingdom, whether in original actions or in actions for the enforcement of judgments of U.S. courts, civil liabilities based solely upon the U.S. federal securities laws. | ||||
Reporting |
Under the Exchange Act proxy rules, Lynx must
comply with notice and disclosure requirements relating to the
solicitation of proxies for stockholder meetings. As a U.S. public company, Lynx must file with the SEC, among other reports and notices: an annual report on Form 10-K within 90 days after the end of each fiscal year; quarterly reports on Form 10-Q within 45 days after the end of each of the first three fiscal quarters of each year; and current reports on Form 8-K within 4 business days after the occurrence of important corporate events. |
As a foreign private limited company, Solexa is
not subject to the Exchange Act proxy rules. However, Solexa is
governed by the Companies Act. Under English law, Solexa must deliver, inter alia, the following documents to Companies House for filing by the registrar of companies for England and Wales: annual accounts and report, ten months after the end of the relevant accounting period; an annual return, within 28 days after the date to which it is made up; forms 288 noting the resignation and appointment of directors and secretary, within 14 days of the date of the change; auditors notice of resignation, within 14 days of the companys receipt of such notice; copies of all special and extraordinary resolutions passed by the company, within 15 days of the date the resolution was passed; a form 123 on any increase in the share capital of the company; and a form 88(2) on the allotment of shares in the capital of the company. |
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Return of Assets | Lynx currently only has common stock outstanding. In the event of dissolution, liquidation or winding up of Lynx, the holders of Lynx common stock are entitled to share ratably in the assets of Lynx legally available for distribution to Lynxs stockholders. | Solexas articles of association provide that on a return of assets and in specified circumstances the holders of B preferred shares shall be entitled to be paid out of the surplus assets of Solexa remaining after payment of its liabilities, an amount equal to the greater of 1.5 times the subscription price paid for each B preferred shares and the amount to be received if the |
105
Lynx | Solexa | |||
B preferred shares were converted into ordinary shares at the then current B preferred conversion rate (in each case plus any arrears of dividend). Thereafter, the holders of A ordinary shares would be entitled in priority to the holders of ordinary shares to be paid an amount equal to the greater of the subscription price paid for each of the A ordinary shares and the amount that they would receive if they converted their shares into ordinary shares on a one to one basis (in each case plus any arrears of dividend). Thereafter, the holders of ordinary shares shall be entitled to be paid either in proportion to the amount paid up on subscription or, if the B preferred shares and A ordinary shares have been converted into ordinary shares, then on a pro-rata basis between all the ordinary shares. | ||||
Company Building Merger | There are no equivalent provisions under Lynxs certificate of incorporation and bylaws. | Upon a company building merger, whereby the shareholders of Solexa would receive at least 40% of the nominal share capital and at least 40% of the voting control in the surviving or succeeding entity, then firstly, at the election of at least 66% of the holders of B preferred shares, the holders of B preferred shares shall either receive such number of securities in the surviving entity as is determined by multiplying the subscription price paid for the B preferred shares plus arrears of dividends accrued on or after January 1, 2005, the number of outstanding B preferred shares and by 1.25 and dividing the result by the per share price of the equity securities issued in such company building merger, or have their B preferred shares converted into such number of ordinary shares equal to the B preferred conversion rate multiplied by 1.25. Thereafter, the holders of A ordinary shares may, at the election of 51% of the A ordinary shareholders, the holders of A ordinary shares shall either receive such number of securities in the surviving entity as is determined by multiplying the subscription price paid for the A ordinary shares plus arrears of dividends accrued on or after January 1, 2005 and the number of outstanding A ordinary shares and dividing the result by the per share price of the |
106
Lynx | Solexa | |||
equity securities issued in such company building merger, or have their A ordinary shares converted into ordinary shares at a rate of one ordinary share per each A ordinary shares held. Thereafter, the remaining equity securities of the surviving entity shall be distributed to the ordinary shareholders pro-rata. | ||||
Conversion | Holders of Lynx common stock do not have conversion rights under Lynxs certificate of incorporation and bylaws. | Solexas articles of association provide that the holders of the B preferred shares and A ordinary shares shall have certain rights as regards conversion. The holders of B preferred shares and A ordinary shares have provided an undertaking in the company support agreement not to convert such shares into ordinary shares. | ||
Shareholder Redemption of Shares | Holders of Lynx common stock do not have redemption rights under Lynxs certificate of incorporation and bylaws. | As regards redemption, on or after July 31, 2010 or in the event of any repudiatory breach by Solexa of the articles of association and/or shareholders agreement, any holder of B preferred shares may request in writing that the company redeem such shares for either a cash amount equivalent to the greater of either the subscription paid by that shareholder or the fair value of the B preferred shares being redeemed, in either case plus arrears of dividends. | ||
Compulsory Transfer of Shares | There are no equivalent provisions under the Delaware law or in Lynxs certificate of incorporation and bylaws. |
Solexas articles of association provide
that a Solexa shareholders shares can be compulsorily
transferred in accordance with the pre-emption on transfer
procedure described in Pre-emptive Rights above in the following
circumstances: if another person becomes entitled to an individual shareholders shares due to bankruptcy; in respect of a corporate shareholder, if a liquidator, administrator or administrative receiver is appointed over it or a material part of its assets; if a share remains registered in the name of a deceased shareholder for longer than one year after the shareholders death; in respect of a corporate shareholder, if there is a change of control of the |
107
Lynx | Solexa | |||
shareholder and if required by the directors;
or if a drag-along right occurs. See Enforced Participation in a Sale of Shares to a Third Party below. In addition to the above circumstances, a director or employee of or consultant to Solexa (with specific limited exceptions) who ceases to hold that position or a former director or employee of or consultant to Solexa who acquires shares after the termination of his employment by way of exercise of options acquired during the period of his employment will be required to sell his shares. |
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Voluntary Participation in a Sale of Shares to a Third Party | There are no equivalent provisions under Lynxs certificate of incorporation and bylaws. | Solexas articles of association provide that in the event that a shareholder is proposing to transfer more than 10% in nominal amount of the ordinary shares held by that shareholder or any B preferred or A ordinary shares (other than in circumstances where a transfer notice has been given in accordance with the articles of association and the transferor is permitted to transfer some or all of his shares to a third party), then, as a condition to the transfer of such shares, such purchaser shall offer to buy an equivalent proportion from certain specific other shareholders depending on the class of shares being transferred. | ||
Enforced Participation in a Sale of Shares to a Third Party | There are no equivalent provisions under Lynxs certificate of incorporation and bylaws. |
If the holders of at least 66% of the
B preferred and A ordinary shareholders (taken together as
one class) intend to sell their shares to a purchaser who has
made a bona fide offer at arms length terms for the entire
issued share capital, then Solexa must give notice to all other
shareholders that their shares are to be compulsorily purchased
on the same terms as those offered to the 66% of B preferred and
A ordinary shareholders and the other shareholders must
sell their shares on those same terms. Under the Companies Act, where an offeror has acquired, or contracted to acquire no less than 90% in nominal value of the shares or class of shares to which the offer relates, they can seek to |
108
Lynx | Solexa | |||
compulsorily acquire all the remaining shares of the relevant class. | ||||
Anti-Dilution Provisions | There are no equivalent provisions under Lynxs certificate of incorporation and bylaws. | In the event that Solexa shall issue any additional shares without consideration or for a consideration, per share, less than the B preferred conversion price in effect on the date of such issue, then the B Preferred conversion price shall be adjusted in accordance with a specified formula. | ||
Access to Financial Information | See Rights of Inspection above. | Under the shareholders agreement, Solexa agrees to prepare monthly management accounts. Each of the holders of B preferred shares and A ordinary shares, and the directors appointed by them, are entitled to examine the books and accounts of Solexa upon reasonable notice. | ||
Certain other Restrictions on Share Transfers | Holders of Lynx common stock are not currently subject to any restrictions on share transfers under Lynxs certificate of incorporation and bylaws. However, Lynxs bylaws provide that Lynx shall have the power to enter into and perform any agreement with any number of stockholders of any one or more classes of stock of Lynx to restrict the transfer of shares of stock of Lynx of any one or more classes owned by such stockholders in any manner not prohibited by the DGCL. |
The shareholders agreement provides that
those shareholders who held their shares prior to July 30,
2004 will not agree to any transfer, mortgage, charge or other
disposal of the whole or part of their individual interest in,
or grant any options or other rights over, any shares except
(i) with the written consent of at least 66% of the
B preferred and A ordinary shareholders (taken together as
one class); or (ii) where required to do so by
Solexas articles of association or the shareholders
agreement. In addition to the above, the shareholders who held their shares prior to July 30, 2004 agree that they will not effect any such disposal to any person who is not a party to the shareholders agreement without first obtaining an undertaking from the transferee to be bound they the terms of the shareholders agreement. |
109
UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL STATEMENTS
The following unaudited pro forma condensed combined financial statements give effect to the proposed transaction between Solexa and Lynx. For accounting purposes, Solexa is considered to be acquiring Lynx in this transaction. Accordingly, the purchase price is allocated among the fair values of the assets and liabilities of Lynx, while the historical results of Solexa are reflected in the results of the combined company. The transaction will be accounted for under the purchase method of accounting in accordance with Statement of Financial Accounting Standards (SFAS) No. 141, Business Combinations. Under the purchase method of accounting, the total estimated purchase price, calculated as described in Note 1 to these unaudited pro forma condensed combined financial statements, is allocated to the net tangible and intangible assets acquired and liabilities assumed in connection with the transaction, based on their estimated fair values as of the completion of the transaction. Independent valuation specialists are currently conducting an independent valuation in order to assist management of Solexa and Lynx in determining the estimated fair values of a significant portion of these assets. The initial work performed by the independent valuation specialists has been considered in managements preliminary estimates of the fair values reflected in these unaudited pro forma condensed combined financial statements. A final determination of these estimated fair values, which cannot be made prior to the completion of the transaction, will include managements consideration of the final valuation prepared by the independent valuation specialists. This final valuation will be based on the actual net tangible and intangible assets of Lynx that exist as of the date of completion of the transaction.
The unaudited pro forma condensed combined balance sheet as of June 30, 2004 gives effect to the proposed transaction as if it occurred on June 30, 2004 and combines the historical balance sheets of Solexa and Lynx at June 30, 2004. The Solexa balance sheet information was derived from its unaudited June 30, 2004 balance sheet included herein. The Lynx consolidated balance sheet information was derived from its unaudited June 30, 2004 consolidated balance sheet included in its Report on Form 10-Q for the quarter ended June 30, 2004 incorporated herein by reference.
The unaudited pro forma condensed combined statement of operations for the year ended December 31, 2003 is presented as if the transaction was consummated on January 1, 2003 and combines the historical results of Solexa and Lynx for the year ended December 31, 2003. The historical results of Solexa were derived from its audited December 31, 2003 statement of operations included herein. The historical results of Lynx were derived from its consolidated statement of operations included in its Annual Report on Form 10-K, as amended, for its fiscal year ended December 31, 2003 incorporated herein by reference.
The unaudited pro forma condensed combined statement of operations for the six months ended June 30, 2004 is presented as if the transaction was consummated on January 1, 2003 and combines the historical results of Solexa and Lynx for the six months ended June 30, 2004. The historical results of Solexa were derived from its unaudited June 30, 2004 statement of operations included herein. The historical results of Lynx for the six months ended June 30, 2004 were derived from its consolidated statement of operations included in its Report on Form 10-Q for the quarter ended June 30, 2004 incorporated herein by reference.
The unaudited pro forma condensed combined financial statements have been prepared by Solexa and Lynx management for illustrative purposes only and are not necessarily indicative of the condensed consolidated financial position or results of operations in future periods or the results that actually would have been realized had Lynx and Solexa been a combined company during the specified periods. The pro forma adjustments are based on the preliminary information available at the time of the preparation of this document. The unaudited pro forma condensed combined financial statements, including the notes thereto, are qualified in their entirety by reference to, and should be read in conjunction with, the historical consolidated financial statements of Lynx included in its Annual Report on Form 10-K, as amended, for its year ended December 31, 2003, the unaudited condensed historical consolidated financial statements of Lynx included in its Form 10-Q for its quarter ended June 30, 2004, the historical consolidated financial statements of Solexa for the year ended December 31, 2003 included herein and the unaudited condensed consolidated financial statements of Solexa for the six months ended June 30, 2004 included herein.
110
Further, the unaudited pro forma condensed combined financial statements do not include any adjustments for liabilities resulting from integration planning, as management of Solexa and Lynx are in the process of making these assessments and estimates of these costs are not currently known. However, the combined company may incur significant restructuring charges upon completion of the transaction or in subsequent quarters for costs associated with exiting activities of Solexa. Also, since the final intrinsic value associated with deferred stock compensation will be calculated at the closing date of the proposed transaction, the amount allocated to this item could change materially depending on the price of Lynx common stock or the number of Solexa unvested options outstanding as of the time of the closing of the proposed transaction.
There are no material intercompany balances or transactions between Solexa and Lynx as of the dates and for the periods of these pro forma condensed combined financial statements. Certain reclassification adjustments have been made to conform Solexas historical reported balances to Lynxs financial statement basis of presentation.
These unaudited pro forma condensed combined financial statements have been prepared based on preliminary estimates of fair values. They do not include liabilities resulting from integration planning which are not presently estimable as discussed above. Amounts preliminarily allocated to intangible assets with definite lives may change, which could result in a material change in amortization of intangible assets. Therefore, the actual amounts recorded as of the completion of the transaction may differ materially from the information presented in these unaudited pro forma condensed combined financial statements. In addition to the receipt of the final valuation, the impact of future integration activities, the timing of completion of the transaction and other changes in Lynxs net tangible and intangible assets that occur prior to completion of the transaction could cause material differences in the information presented.
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UNAUDITED PRO FORMA CONDENSED COMBINED BALANCE SHEET
Lynx | Pro Forma | Pro Forma | ||||||||||||||||
Solexa | Therapeutics | Adjustments | Combined | |||||||||||||||
(In thousands) | ||||||||||||||||||
ASSETS | ||||||||||||||||||
Current assets:
|
||||||||||||||||||
Cash and cash equivalents
|
$ | 2,802 | $ | 1,116 | $ | 14,348 | a | $ | 18,266 | |||||||||
Restricted cash
|
| 364 | | 364 | ||||||||||||||
Short-term investments
|
| 905 | | 905 | ||||||||||||||
Accounts receivable
|
83 | 599 | | 682 | ||||||||||||||
Inventory
|
| 937 | | 937 | ||||||||||||||
Other current assets
|
437 | 296 | | 733 | ||||||||||||||
Total current assets
|
3,322 | 4,217 | 14,348 | 21,887 | ||||||||||||||
Property and equipment, net
|
1,008 | 9,202 | | 10,210 | ||||||||||||||
Intangible assets, net
|
1,967 | 2,403 | 2,400 | c | 4,367 | |||||||||||||
(2,403 | )d | |||||||||||||||||
Goodwill
|
| | 50,602 | b | 50,602 | |||||||||||||
Other non-current assets
|
| 256 | | 256 | ||||||||||||||
$ | 6,297 | $ | 16,078 | $ | 64,947 | $ | 87,322 | |||||||||||
LIABILITIES AND STOCKHOLDERS EQUITY | ||||||||||||||||||
Current liabilities:
|
||||||||||||||||||
Accounts payable
|
$ | 322 | $ | 630 | $ | | $ | 952 | ||||||||||
Accrued compensation
|
136 | 357 | | 493 | ||||||||||||||
Accrued professional fees
|
| 213 | | 213 | ||||||||||||||
Deferred revenues
|
| 759 | (759 | )e | | |||||||||||||
Equipment loans current portion
|
20 | 460 | | 480 | ||||||||||||||
Other accrued liabilities
|
223 | 119 | 1,100 | j | 1,442 | |||||||||||||
Total current liabilities
|
701 | 2,538 | 341 | 3,580 | ||||||||||||||
Deferred revenues
|
| 4,027 | (1,899 | )e | 2,128 | |||||||||||||
Equipment loans, less current portion
|
16 | | | 16 | ||||||||||||||
Other non-current liabilities
|
| 906 | | 906 | ||||||||||||||
Stockholders equity:
|
||||||||||||||||||
A convertible ordinary shares
|
15 | | (15 | )k | | |||||||||||||
B convertible ordinary shares
|
| | 16 | a | | |||||||||||||
(16 | )k | |||||||||||||||||
Common stock
|
| 124,097 | (124,097 | )f | 352 | |||||||||||||
276 | g | |||||||||||||||||
76 | k | |||||||||||||||||
Ordinary shares
|
9 | | (9 | )k | | |||||||||||||
Additional paid-in capital
|
21,085 | | 14,332 | a | 98,003 | |||||||||||||
58,303 | g | |||||||||||||||||
4,319 | h | |||||||||||||||||
(36 | )k | |||||||||||||||||
Deferred compensation
|
| | (2,134 | )i | (2,134 | ) | ||||||||||||
Accumulated comprehensive income
|
2,563 | 16 | (16 | )f | 2,563 | |||||||||||||
Accumulated deficit
|
(18,092 | ) | (115,506 | ) | 115,506 | f | (18,092 | ) | ||||||||||
Total stockholders equity
|
5,580 | 8,607 | 66,505 | 80,692 | ||||||||||||||
$ | 6,297 | $ | 16,078 | $ | 64,947 | $ | 87,322 | |||||||||||
See Notes to Unaudited Pro Forma Condensed Combined Financial Statements.
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UNAUDITED PRO FORMA CONDENSED COMBINED
Lynx | Pro Forma | Pro Forma | ||||||||||||||||
Solexa | Therapeutics | Adjustments | Combined | |||||||||||||||
(In thousands, except per share amounts) | ||||||||||||||||||
Net revenues:
|
||||||||||||||||||
Technology access and services fees
|
$ | 7 | $ | 15,840 | $ | | $ | 15,847 | ||||||||||
License fees from related party
|
| 760 | (760 | )l | | |||||||||||||
Collaborative research and other
|
| 1,501 | | 1,501 | ||||||||||||||
Total revenues
|
7 | 18,101 | (760 | ) | 17,348 | |||||||||||||
Operating costs and expenses:
|
||||||||||||||||||
Cost of services fees and other
|
| 4,362 | | 4,362 | ||||||||||||||
Research and development
|
5,639 | 12,178 | 405 | m | 18,222 | |||||||||||||
General and administrative
|
1,087 | 6,773 | 521 | i | 8,381 | |||||||||||||
Restructuring charge for workforce reduction
|
| 292 | | 292 | ||||||||||||||
Total operating costs and expenses
|
6,726 | 23,605 | 926 | 31,257 | ||||||||||||||
Loss from operations
|
(6,719 | ) | (5,504 | ) | (1,686 | ) | (13,909 | ) | ||||||||||
Equity in net loss of related party
|
| (1,930 | ) | | (1,930 | ) | ||||||||||||
Interest income (expense), net
|
363 | (158 | ) | | 205 | |||||||||||||
Other income (expense), net
|
| (966 | ) | | (966 | ) | ||||||||||||
Net loss before provision for (benefit from)
income taxes
|
(6,356 | ) | (8,558 | ) | (1,686 | ) | (16,600 | ) | ||||||||||
Provision for (benefit from) income taxes
|
(707 | ) | 202 | | (505 | ) | ||||||||||||
Net loss
|
$ | (5,649 | ) | $ | (8,760 | ) | $ | (1,686 | ) | $ | (16,095 | ) | ||||||
Basic and diluted net loss per share
|
$ | (0.89 | ) | $ | (1.80 | ) | $ | (0.50 | ) | |||||||||
Shares used in computation of basic and diluted
net loss per share
|
6,338 | 4,854 | 27,647 | o | 32,501 | |||||||||||||
See Notes to Unaudited Pro Forma Condensed Combined Financial Statements.
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UNAUDITED PRO FORMA CONDENSED COMBINED
Lynx | Pro Forma | Pro Forma | ||||||||||||||||
Solexa | Therapeutics | Adjustments | Combined | |||||||||||||||
(In thousands, except per share amounts) | ||||||||||||||||||
Net revenues:
|
||||||||||||||||||
Technology access and services fees
|
$ | 41 | $ | 2,626 | $ | | $ | 2,667 | ||||||||||
License fees from related party
|
| 380 | (380 | )l | | |||||||||||||
Collaborative research and other
|
| 78 | | 78 | ||||||||||||||
Total revenues
|
41 | 3,084 | (380 | ) | 2,745 | |||||||||||||
Operating costs and expenses:
|
||||||||||||||||||
Cost of services fees and other
|
| 2,670 | | 2,670 | ||||||||||||||
Research and development
|
3,035 | 5,064 | 203 | m | 8,302 | |||||||||||||
General and administrative
|
1,335 | 3,087 | 261 | i | 4,645 | |||||||||||||
(38 | )n | |||||||||||||||||
Restructuring charge for workforce reduction
|
| 118 | | 118 | ||||||||||||||
Total operating costs and expenses
|
4,370 | 10,939 | 426 | 15,735 | ||||||||||||||
Loss from operations
|
(4,329 | ) | (7,855 | ) | (806 | ) | (12,990 | ) | ||||||||||
Interest income (expense), net
|
113 | (21 | ) | | 92 | |||||||||||||
Other income (expense), net
|
| 44 | | 44 | ||||||||||||||
Net loss before provision for (benefit from)
income taxes
|
(4,216 | ) | (7,832 | ) | (806 | ) | (12,854 | ) | ||||||||||
Provision for (benefit from) income taxes
|
| 1 | | 1 | ||||||||||||||
Net loss
|
$ | (4,216 | ) | $ | (7,833 | ) | $ | (806 | ) | $ | (12,855 | ) | ||||||
Basic and diluted net loss per share
|
$ | (0.67 | ) | $ | (1.13 | ) | $ | (0.37 | ) | |||||||||
Shares used in computation of basic and diluted
net loss per share
|
6,338 | 6,924 | 27,647 | o | 34,571 | |||||||||||||
See Notes to Unaudited Pro Forma Condensed Combined Financial Statements.
114
NOTES TO UNAUDITED PRO FORMA
CONDENSED COMBINED FINANCIAL STATEMENTS
1. | Basis of Presentation |
On September 28, 2004, Solexa and Lynx announced a definitive agreement pursuant to which, for accounting purposes, Solexa would acquire Lynx in a transaction to be accounted for using the purchase method. The total preliminary estimated purchase price of approximately $64.0 million includes Lynx common stock valued at approximately $58.6 million, the estimated fair value of Solexa common stock options assumed of approximately $4.3 million and estimated direct transaction costs of approximately $1.1 million.
The unaudited pro forma condensed combined financial statements reflect the issuance of 27.6 million shares of Lynx common stock in exchange for all of the outstanding shares of Solexa B preferred shares, Solexa A ordinary shares and ordinary shares outstanding and options to purchase 1.9 million shares of Lynx common stock in exchange for all Solexa share options. The fair value of the Lynx common stock to be issued in the proposed transaction of $2.11 is based on an average of the closing prices for a range of trading days (September 24, 2004 through September 30, 2004, inclusive) around and including the announcement date (September 28, 2004) of the proposed transaction. Based on the total number of shares subject to Solexa stock options outstanding at September 28, 2004, Lynx would assume options to purchase approximately 2.1 million Solexa ordinary shares at a weighted average exercise price of $1.01. The actual number of shares subject to options to be issued will be determined based on the actual number of Solexa options outstanding at the completion of the proposed transaction.
The preliminary estimated total purchase price of the proposed transaction is as follows (in thousands):
Lynx common stock
|
$ | 58,579 | ||
Estimated fair value of options assumed
|
4,319 | |||
Estimated direct transaction costs
|
1,100 | |||
Total preliminary estimated purchase price
|
$ | 63,998 | ||
Under the purchase method of accounting, the total estimated purchase price as shown in the table above is allocated to the Lynx net tangible and identifiable intangible assets acquired and liabilities assumed based on their estimated fair values as of the date of the completion of the transactions. Based on the preliminary independent valuation and other information currently available, and subject to changes upon receipt of the final valuation and other factors as described in the introduction to these unaudited pro forma condensed combined financial statements, the allocation of the preliminary estimated purchase price, the estimated useful lives and related first-year amortization associated with certain assets is as follows (in thousands):
Estimated | |||||||||||||
First Year | Useful Life | ||||||||||||
Amount | Amortization | (Years) | |||||||||||
Preliminary estimated purchase price allocation:
|
|||||||||||||
Net tangible assets (net of liabilities)
|
$ | 8,862 | $ | | | ||||||||
Patents and developed core technology
|
2,400 | 405 | 4-10 years | ||||||||||
Goodwill
|
50,602 | | | ||||||||||
Deferred compensation related to assumed options
|
2,134 | | | ||||||||||
Total preliminary estimated purchase price
|
$ | 63,998 | $ | 405 | |||||||||
A preliminary valuation of the purchased assets was undertaken by a third party valuation specialist to assist the management of Solexa and Lynx in determining the estimated fair value of each identifiable intangible asset and in allocating the preliminary purchase price among acquired assets. Management evaluated Lynxs projects currently under development and determined that no value was attributable to in-process research and development.
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CONDENSED COMBINED FINANCIAL STATEMENTS (Continued)
Patents and developed core technology relate to all of Lynxs products and services that have reached technological feasibility. Developed core technology represents a combination of Lynxs processes, patents and trade secrets developed through years of experience in the development and application of novel genomics analysis solutions. This proprietary knowledge base can be leveraged by Lynx to develop new technology and improved products and manufacturing processes. Lynx expects to amortize the patents and developed core technology on a straight-line basis over estimated lives of four to ten years.
In accordance with SFAS No. 142, Goodwill and Other Intangible Assets, goodwill will not be amortized but instead will be tested for impairment at least annually (more frequently if certain indicators are present). In the event that the management determines that the value of goodwill has become impaired, Lynx will incur an accounting charge for the amount of impairment during the fiscal quarter in which the determination is made.
2. | Pro Forma Adjustments |
Pro forma adjustments are necessary to reflect the estimated purchase price, to adjust amounts related to Lynxs net tangible and identifiable intangible assets to a preliminary estimate of their fair values, to reflect the amortization expense related to the estimated amortizable intangible assets and deferred stock compensation and to reflect the issuance of Series B preferred stock by Solexa in July and October 2004.
There are no material intercompany balances or transactions between Lynx and Solexa as of the dates or for the periods of the unaudited pro forma condensed combined financial statements. Certain reclassifications have been made to conform Solexas historical reported balances to Lynxs financial statement basis of presentation.
The unaudited pro forma condensed combined financial statements do not include any adjustments for liabilities resulting from integration planning, as management of Solexa and Lynx are in the process of making these assessments, and estimates of these costs are not currently known. However, liabilities may be recorded for costs that would affect amounts in the pro forma condensed combined financial statements and when recorded will result in an offsetting increase to goodwill.
In addition, the combined company may incur significant restructuring charges upon completion of the proposed transaction or in subsequent quarters for costs associated with exiting activities of Solexa. If recorded, these costs will be charged to operations and cost of revenues.
The pro forma adjustments included in the unaudited pro forma condensed combined financial statements are as follows:
(a) To reflect Solexas issuance of 4,444,444 Series B preferred shares for net proceeds of $14.3 million in July and October 2004 | |
(b) To record the preliminary estimate of goodwill determined in the preliminary purchase price allocation | |
(c) To record the preliminary estimate of the fair value of patents and developed core technology determined in the preliminary purchase price allocation | |
(d) To eliminate the existing intangible assets of Lynx | |
(e) To adjust Lynxs deferred revenue to reflect the preliminary estimate of the fair value of Solexas legal performance obligations under Lynxs contracts | |
(f) To eliminate Lynxs historical common stock, accumulated deficit and accumulated other comprehensive income | |
(g) To record the estimated fair value of Lynx common stock to be issued in the transaction |
116
CONDENSED COMBINED FINANCIAL STATEMENTS (Continued)
(h) To record the estimated fair value of Solexa stock options assumed | |
(i) To record estimated deferred compensation and the associated amortization expense reflecting the intrinsic value of Solexa stock options assumed by Lynx | |
(j) To record Solexas estimated direct costs related to the proposed transaction | |
(k) To reflect the conversion of all outstanding Solexa shares to Lynx common stock and adjust common stock to reflect the par value of shares outstanding | |
(l) To eliminate historical amounts of Lynxs recognition of deferred revenue that do not represent a legal performance obligation | |
(m) To record amortization expense associated with intangible assets resulting from the preliminary purchase price allocation | |
(n) To reverse amortization expense related to Lynxs pre-transaction intangible assets | |
(o) Pro forma combined basic and diluted net loss per share is based on the weighted average shares outstanding of Lynx plus 27.6 million common shares issued in the proposed transaction |
117
CHAPTER THREE PROPOSAL 2 FOR THE ANNUAL MEETING OF
APPROVAL OF ISSUANCE OF LYNX COMMON STOCK IN CONNECTION WITH
General
On October 26, 2004, Lynxs board of directors unanimously found it to be advisable and in the best interests of Lynx to seek stockholder approval for (i) the sale, issuance or potential issuance, in connection with one or more capital raising transactions, of up to 10,000,000 shares of Lynx common stock (including shares issuable upon conversion or exercise of convertible debt or warrants convertible into or exercisable for Lynx common stock) to investors who will likely include affiliates of certain director nominees who will be appointed to Lynxs board of directors on the first closing date, upon such terms as Lynxs board of directors, or a committee hereof, may deem to be in the best interests of Lynx and its stockholders, for an aggregate consideration of not more than $10,000,000 (excluding amounts receivable by Lynx upon exercise of any warrants issued pursuant to any such capital raising transaction) and at an effective price of not less than 80% of the last closing price of the Lynx common stock as reported on the NASDAQ SmallCap Market prior to the pricing of the securities to be issued pursuant to any such capital raising transaction and (ii) the change of control, if any, of Lynx which may occur as a result of such sale, issuance or potential issuance in order to comply with the requirements of NASDAQ Marketplace Rule 4350. Any such capital raising transaction would occur, if at all, prior to the completion of the offer. The securities issued pursuant to any such capital raising transaction may consist of (1) shares of Lynx common stock, (2) securities convertible into or exercisable for shares of Lynx common stock, including convertible debt or warrants, or (3) units consisting of combinations of two or more of such securities.
Lynx is seeking stockholder approval for the potential issuance of securities pursuant to a capital raising transaction in order to comply with the requirements of NASDAQ Marketplace Rule 4350. NASDAQ Marketplace Rule 4350(i)(1)(A) requires stockholder approval prior to the issuance of securities to officers or directors of the issuer at a price below the book or market value of the common stock. Each of these shareholders is affiliated with a director nominee who will be appointed to Lynxs board of directors on the first closing date as follows: certain entities affiliated with Abingworth Management Limited are affiliated with Dr. Lloyd-Harris; certain entities affiliates with OBP Management IV L.P. are affiliated with Mr. Carthy; certain entities affiliated with Schroder Venture Managers are affiliated with Mr. Daniel; and certain entities affiliated with Amadeus Capital Partners Limited are affiliated with Dr. Hauser. Lynx is seeking stockholder approval to ensure compliance with the rule and allow participation by entities affiliates with each of Abingworth Management Limited, OBP Management IV L.P., Schroder Venture Managers and Amadeus Capital Partners Limited. For a description of the number and percent of outstanding shares of Lynx common stock that such shareholders will own following the completion of the offer as well as information regarding such shareholders affiliation with certain director nominees who will be appointed to Lynxs board of directors following the first closing date, see the section entitled Information About Solexa Security Ownership of Certain Beneficial Owners and Management of Solexa.
NASDAQ Marketplace Rule 4350(i)(1)(D) requires stockholder approval prior to the sale or issuance or potential issuance of shares of common stock (or of securities convertible into or exercisable for shares of common stock) in a transaction other than a public offering (as defined by NASDAQ), where the number of shares of common stock issued or to be issued is equal to 20% or more of a companys outstanding common stock or 20% ore more of the voting power of the company outstanding before the issuance, and where the effective sale price of the common stock is less than the greater of the book or market value of the common stock. The effective price of Lynx common stock to be sold and issued in the proposed financing will be not less than 80% of the last closing price of the Lynx common stock as reported on the NASDAQ SmallCap Market prior to the pricing of such securities and, as such, the proposed financing may require stockholder consent pursuant to NASDAQ Marketplace Rule 4350(i)(1)(D).
118
Lynx is also seeking stockholder approval for the potential change of control of Lynx which may occur as a result of the proposed financing in order to comply with the requirements of NASDAQ Marketplace Rule 4350(i)(1)(B). NASDAQ Marketplace Rule 4350(i)(1)(B) requires stockholder approval prior to the sale or issuance of shares of common stock (or of securities convertible into or exercisable for shares of common stock) in a transaction which results in a change of control (as defined by NASDAQ) of Lynx. At present, several of Solexas shareholders, who are affiliated with certain director nominees who will be appointed to Lynxs board of directors on the first closing date, have expressed preliminary interest in participating in the proposed financing. Following the completion of the offer, these shareholders will hold a substantial percentage of the outstanding shares of Lynx. If such shareholders participate in the proposed financing, one or more of such shareholders may acquire, or have the right to acquire, 20% or more of the common stock or voting power of Lynx. For a description of the potential change in control, see the section entitled Potential Change of Control of Lynx in Connection with the Proposed Financing on page 120.
NASDAQ requires that any company that solicits stockholder approval for purposes of complying with the requirements of NASDAQ Marketplace Rule 4350 in connection with the potential issuance of securities where the specific terms of such securities have not been determined at the time of such solicitation, specify in the proxy statement used to solicit such stockholder approval (1) the maximum aggregate consideration that may be received by such company in connection with the potential issuance of such securities, (2) if such securities are going to be sold and issued at a price that is less than the trading price of the common stock on the date of the pricing of such securities, the maximum amount of such discount, (3) the maximum number of shares issued or issuable, (4) the purpose of the transaction and (5) the period of time during which the potential issuance of such securities may be made by such company.
While Lynx will need to raise capital to continue to finance its operations, Lynxs board of directors has not yet determined the specific terms of any securities that Lynx would issue in connection with the capital raising transaction. Lynxs board of directors anticipates, however, that the terms of any such securities would be such that the issuance of such securities would be subject to NASDAQ Marketplace Rules 4350. In order to comply with NASDAQ Marketplace Rules 4350, Lynx is seeking stockholder approval for this proposal so that Lynxs board of directors, or a committee thereof, will have the flexibility to effect the capital raising transaction at such time as they deem it to be in the best interests of Lynx and its stockholders without delays arising from the need to obtain stockholder approval at such time. Such a delay could jeopardize Lynxs ability to maintain its business and operations.
Approval of this proposal will, subject to the limitations set forth in the proposal, give Lynxs board of directors, or a committee thereof, discretion to determine the amount, type and terms of securities to be issued by Lynx in the proposed financing and the identity of the investor to whom such securities will be issued. Subject to the limitations set forth in this proposal, Lynxs board of directors, or a committee thereof, will have discretion to determine any applicable dividend or interest rates, conversion or exercise prices, voting rights, redemption prices and other terms to the proposed financing. If securities convertible into or exercisable for Lynx common stock are issued, then stockholder approval of this proposal also will constitute approval of the issuance of shares of Lynx common stock upon exercise of such securities, and no additional approval will be solicited. In no event will the number of shares of Lynx common stock issued by Lynx in connection with any and all capital raising transactions subject to this proposal and the number of shares of Lynx common stock subject to securities that are convertible into or exercisable for shares of Lynx common stock and that are issued by Lynx in connection with any and all of such capital raising transactions, exceed 10,000,000 shares of Lynx common stock in the aggregate.
The maximum aggregate consideration that may be received by Lynx in connection with the potential issuance of securities pursuant to any and all capital raising transactions subject to this proposal shall not exceed $10,000,000 (excluding amounts receivable by Lynx upon exercise of any warrants issued pursuant to such capital raising transactions). In the event that the price of Lynx common stock to be sold and issued pursuant to any such capital raising transaction is less than the last closing price of Lynx common stock as reported by NASDAQ SmallCap Market prior to the time of issuance, the discount from such last closing price shall in no event exceed 20%. The actual discount, if any, will be determined by Lynxs board of directors, or a committee thereof, and will depend upon market conditions and negotiations between Lynx and
119
Any capital raising transaction subject to this proposal would likely result in a significant increase in the number of shares of Lynx common stock outstanding, and, as a result, current stockholders would own a smaller percentage of the outstanding Lynx common stock and, accordingly, a smaller percentage interest in the voting power, liquidation value and book value of Lynx. The sale or resale of any Lynx common stock issued pursuant to such capital raising transaction could cause the market price of the Lynx common stock to decline.
The foregoing description of the reasons for the financing are included for informational purposes to Lynx stockholders in connection with this proxy solicitation and do not constitute an offer to sell or a solicitation of an offer to buy any securities of Lynx. Lynx cannot guarantee that any financing will be completed (or, if so, what the terms or timing may be) and, accordingly, cannot be certain that it will receive any proceeds from any potential financing. The types of securities to be sold and issued in the financing and the terms thereof, including, among other things, any applicable dividend or interest rates, conversion or exercise prices, voting rights, redemption prices, will be subject to market conditions and negotiations with investors.
Potential Change in Control of Lynx in Connection with the Proposed Financing
NASDAQ Marketplace Rule 4350(i)(1)(B) requires stockholder approval prior to the sale or issuance of shares of common stock (or of securities convertible into or exercisable for shares of common stock) in a transaction which results in a change of control (as defined by NASDAQ) of Lynx. Under the NASDAQ rules, a change of control of Lynx will generally occur when an investor or group of investors acquires, or obtains the right to acquire, 20% or more of the common stock (or securities convertible into or exercisable for common stock) or the voting power of an issuer on a post-transaction basis.
At present, certain entities that are affiliated with certain director nominees who will be appointed to Lynxs board of directors on the first closing date, have expressed preliminary interest in participating in the proposed financing. These entities are (i) entities affiliated with Abingworth Management Limited, which are Abingworth Bioventures II SICAV, Abingworth Bioventures II A LP, Abingworth Bioventures III A LP, Abingworth Bioventures III B LP, Abingworth Bioventures III C LP and Abingworth Bioventures III Executives LP, (ii) entities affiliated with Amadeus Capital Partners, which are Amadeus II A, Amadeus II B, Amadeus II C, Amadeus II D GmbH & Co KG and Amadeus II Affiliates Fund LP, (iii) entities affiliated with OBP Management IV L.P., which are Oxford Bioscience Partners IV L.P. and mRNA Fund II LP, and (iv) entities affiliated with Schroder Venture Managers Inc., which are Schroder Ventures International Life Sciences Fund II Strategic Partners L.P., Schroder Ventures International Life Sciences Fund II L.P.1, Schroder Ventures International Life Sciences Fund II L.P.2, Schroder Ventures International Life Sciences II L.P.3, Schroder Ventures International Life Sciences Fund II Group Co-Investment Scheme and SV (Nominee) Limited as Nominee to Schroder Ventures Investments Limited. While there can be no assurance that any such entity will actually participate in any such financing, Lynx is requesting that its stockholders approve the proposed financing to ensure compliance with the rule and allow participation by the foregoing entities affiliates with each of Abingworth Management Limited, OBP Management IV L.P., Schroder Venture Managers and Amadeus Capital Partners Limited. Following the completion of the offer, these shareholders will hold a substantial percentage of the outstanding shares of Lynx. If such shareholders participate in the proposed financing, one or more of such shareholders may acquire, or have the right to acquire, 20% or more of the common stock or voting power of Lynx. Accordingly, Lynx is seeking stockholder approval to ensure compliance with this aspect of NASDAQ Marketplace Rule 4350. For a description of the number and percent of outstanding shares of Lynx common stock that
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Use of Proceeds
The funds that may be raised are expected to be used for general corporate purposes, including working capital purposes.
Manner of Offering
Lynx has not made any selling or underwriting arrangements to complete a capital raising transaction. Lynx anticipates that any securities sold and issued in a capital raising transaction would not be registered under the Securities Act, but that would be accompanied by resale registration rights.
Timing
If Lynxs stockholders approve this proposal, the NASDAQ rules would permit Lynx to complete the capital raising transactions subject to this proposal at any time prior to completion of the offer.
Overall Effect of the Proposal
If the proposal is approved by the stockholders, Lynx, in compliance with the NASDAQ rules, could complete the sale or issuance of up to 10,000,000 shares of its Lynx common stock (including shares issuable upon conversion or exercise of convertible debt or warrants exercisable for or convertible into Lynx common stock) in one or more capital raising transactions at a discount to market price and to book value of the Lynx common stock, in an offering that is not a public offering as defined by NASDAQ and in a transaction involving investors who will likely include affiliates of certain director nominees who will be appointed to Lynxs board of directors on the first closing date that may result in a change of control of Lynx. This approval would not limit the Lynxs ability to do a public offering, as defined by NASDAQ, or to issue or sell a number of shares of Lynx common stock (including shares issuable upon conversion or exercise of convertible debt, warrants or other securities exercisable for or convertible into Lynx common stock) that is less than 20% of the outstanding shares on terms that might or might not be similar to those in this proposal.
The issuance of the Lynxs common stock in capital raising transactions subject to this proposal is not intended to have an anti-takeover effect and is not part of a plan by management to institute anti-takeover measures. Except for the transactions contemplated by the acquisition agreement, Lynx does not have knowledge of any effort to accumulate Lynxs securities or to obtain control of Lynx by means of a merger, tender offer, solicitation in opposition to management or otherwise.
Advantages and Disadvantages of the Proposal
If Lynx is able to complete one or more capital raising transactions as described, it will be able to continue to operate beyond March 2005. However, issuing a large number of additional shares of Lynx common stock will dilute the percentage of Lynx common stock owned by all existing stockholders, decrease the percentage interest of all existing stockholders in the voting power, liquidation value and book value of Lynx and increase the number of voting shares necessary to meet the voting requirements imposed by state law with respect to a merger, tender offer, proxy contest or other business combination involving Lynx. Such increase in the number of voting shares would also increase the costs associated with launching or obtaining approval of any such merger, tender offer, proxy contest or other business combination involving Lynx.
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Required Vote
To be approved by the stockholders, the proposal to approve the issuance of the Lynx securities and the potential change of control must receive the affirmative votes of a majority of the votes cast, in person or by proxy, at the meeting. Abstentions and broker non-votes will have no effect.
Management and Lynxs board of directors Recommend a Vote in Favor of Proposal 2.
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CHAPTER FOUR OTHER INFORMATION FOR
ELECTION OF DIRECTORS
There are seven nominees for the nine director positions presently authorized pursuant to the terms of Lynxs bylaws. Sydney Brenner and Richard Woychik have informed Lynxs board of directors that, for personal reasons, they do not intend to stand for re-election and their terms will expire at the Lynx annual meeting.
Proxies may not be voted for a greater number of persons than the number of nominees named. Each director shall be elected at the annual meeting of Lynx stockholders and will hold office until the next annual meeting of stockholders and until his or her successor is elected or qualified or until the directors death, resignation or removal. Each nominee listed below is currently a director of Lynx who was previously elected by the stockholders. It is Lynxs policy to invite all directors to attend the Annual Meeting. All Lynxs directors except for Sydney Brenner, Richard Woychik and Leroy Hood attended the 2003 annual meeting of stockholders.
Directors are elected by a plurality of the votes properly cast in person or by proxy. The seven nominees receiving the highest number of affirmative votes will be elected. Shares represented by executed proxies will be voted, if authority to do so is not withheld, for the election of the seven nominees named below. In the event that any nominee should be unavailable for election as a result of an unexpected occurrence, the shares of a Lynx stockholder will be voted for the election of such substitute nominee as Lynxs management may propose. Each person nominated for election has agreed to serve if elected, and management has no reason to believe that any nominee will be unable to serve.
Nominees
The following is a brief biography of each nominee for director:
Principal Occupation/ | ||||||
Name | Age | Position Held with Lynx | ||||
Kevin P. Corcoran
|
46 | President, Chief Executive Officer and Director | ||||
Craig C. Taylor(1)(2)(3)
|
54 | Chairman of the board of directors | ||||
Leroy Hood, M.D., Ph.D.
|
66 | Director | ||||
James C. Kitch(2)(3)
|
57 | Director | ||||
Marc D. Kozin(1)(3)
|
43 | Director | ||||
James V. Mitchell
|
53 | Director | ||||
David C. UPrichard, Ph.D.(1)
|
56 | Director |
(1) | Member of the Audit Committee. |
(2) | Member of the Compensation Committee. |
(3) | Member of the Nominating and Corporate Governance Committee. |
Kevin P. Corcoran has served as a director of Lynx since July 2002. Mr. Corcoran was appointed President and Chief Executive Officer of Lynx in June 2002. He joined Lynx in September 1995 as Staff Software Engineer, and from January 1999 to June 2002, Mr. Corcoran served as Vice President, Operations. Prior to joining Lynx, Mr. Corcoran held various managerial positions with Applied Biosystems, Inc., an instrumentation company, from July 1992 to September 1995. His most recent role at Applied Biosystems, Inc. was Group Leader for Genetic Analysis software. Mr. Corcoran received a B.S. in Computer Science from California State University, Hayward.
Craig C. Taylor was elected Chairman of the board of directors of Lynx in December 2000, has served as a director of Lynx since March 1994 and served as Acting Chief Financial Officer from July 1994 to April
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Leroy Hood, M.D., Ph.D., has served as a director of Lynx since May 2000. In December 1999, he founded the Institute for Systems Biology, a private nonprofit research institute, and currently serves as the President and a director. From 1992 to 1999, he was the chair of the Molecular Biotechnology Department at the University of Washington and the William Gates III Professor of Biomedical Sciences. Dr. Hood received an M.D. from John Hopkins Medical School and a Ph.D. from the California Institute of Technology. He has been a member of the National Academy of Sciences and the American Academy of Arts and Sciences since 1982. He currently serves as a director of Paradigm Genetics, a biotechnology company.
James C. Kitch has served as a director of Lynx since February 1993 and as Secretary of Lynx from February 1992 to December 1997. Since 1979, Mr. Kitch has been a partner at Cooley Godward LLP, a law firm, which has provided legal services to Lynx.
Marc D. Kozin has served as a director of Lynx since July 2002. Since 1996, Mr. Kozin has served as President of the North American practice for L.E.K. Consulting LLC, a business consulting company. In this position, he leads L.E.K.s life science strategic planning services. Mr. Kozin received a B.A. in Economics from Duke University and an M.B.A. from The Wharton School, University of Pennsylvania. He also serves as a member of the Board of Governors at New England Medical Center.
James V. Mitchell has served as a director of Lynx since March 2003. Mr. Mitchell co-founded Meier Mitchell & Company, a company active in the venture lending area, in 1984 and sold the company in 1999. He subsequently served as President of GATX Ventures, a wholly-owned subsidiary of GATX Financial and Vice President of GATX Financial, a specialized finance and leasing company that acquired Meier Mitchell & Company, until October 2002. Mr. Mitchell received a B.A. in Economics from the University of California at Santa Barbara and an M.B.A. from The Wharton School, University of Pennsylvania.
David C. UPrichard, Ph.D., has served as a director of Lynx since March 2001. Dr. UPrichard currently serves as the President of Druid Consulting LLC, a pharmaceutical and biotechnology consulting company, and as a Venture Partner at Apax Partners Ltd., a private equity fund company. From September 1999 to March 2003, he served as the Chief Executive Officer of 3-Dimensional Pharmaceuticals, Inc., a pharmaceutical company. From 1997 until 1999, he served as the President, Research and Development, for SmithKline Beecham Pharmaceuticals, a pharmaceutical company. Prior to joining SmithKline Beecham, from 1994 to 1997, Dr. UPrichard served as International Research Director of Zeneca Pharmaceuticals, Inc., and, from 1991 to 1994, he managed research groups in the U.S. and U.K. at ICI Pharmaceuticals, Inc. and Zeneca, both of which are pharmaceutical companies. Dr. UPrichard received a B.Sc. in Pharmacology from the University of Glasgow and a Ph.D. in Pharmacology from the University of Kansas. He currently serves as a director of Invitrogen Corp., a biotechnology company, Guilford Pharmaceuticals Corp., a pharmaceutical company and several private companies.
Management and Lynxs board of directors Recommend a Vote in Favor of Each Named Nominee.
Appointment of Directors Following the Transaction
The acquisition agreement provides that Lynxs board of directors will take all actions necessary such that, on the first closing date, Lynxs board of directors shall consist of Craig C. Taylor, Genghis Lloyd-Harris, Tom Daniel, Hermann Hauser, Mark Carthy and John West. In addition, Lynx and Solexa have agreed that Steve Allen and one or more other directors who shall be acceptable to Lynxs board of directors and Solexas board of directors shall be appointed. For details of such persons who are expected to be appointed to Lynxs board of directors, see section entitled Directors and Management of Lynx Following the Transaction on page 56.
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Independence of the Board of Directors
As required under the NASDAQ Stock Market listing standards, a majority of the members of a listed companys board of directors must qualify as independent, as affirmatively determined by the board of directors. Lynxs board of directors consults with Lynxs counsel to ensure that the board of directors determinations are consistent with all relevant securities and other laws and regulations regarding the definition of independent, including those set forth in pertinent listing standards of the NASDAQ, as in effect time to time.
Consistent with these considerations, after review of all relevant transactions or relationships between each director, or any of his or her family members, and Lynx, its senior management and its independent auditors, Lynxs board of directors affirmatively has determined that all of Lynxs directors are independent within the meaning of the applicable NASDAQ listing standards, except for Mr. Corcoran, Lynxs President and Chief Executive Officer.
Information Regarding the Board of Directors and Its Committees
As required under new NASDAQ listing standards, Lynxs independent directors will meet in regularly scheduled executive sessions at which only independent directors are present. Persons interested in communicating with the independent directors with their concerns or issues may address correspondence to a particular director, or to the independent directors generally, c/o Lynx Therapeutics, Inc. at 25861 Industrial Blvd., Hayward, California 94545. If no particular director is named, letters will be forwarded, depending on the subject matter, to the Chair of the Audit, Compensation or Governance and Nominating Committee.
Lynxs board of directors has three committees: an Audit Committee, a Compensation Committee and a Nominating and Corporate Governance Committee.
Audit Committee |
The Audit Committee of Lynxs board of directors oversees Lynxs corporate accounting and financial reporting process. For this purpose, the Audit Committee performs several functions. The Audit Committee evaluates the performance of and assesses the qualifications of the independent registered public accounting firm; determines the engagement of the independent registered public accounting firm; determines whether to retain or terminate the existing independent registered public accounting firm or to appoint and engage new independent registered public accounting firm; reviews and approves the retention of the independent registered public accounting firm to perform any proposed permissible non-audit services; monitors the rotation of partners of the independent registered public accounting firm on Lynxs engagement team as required by law; reviews the financial statements to be included in Lynxs annual report on Form 10-K and quarterly reports on Form 10-Q; and discusses with management and the independent registered public accounting firm the results of the annual audit and the results of the accounting firms review of Lynxs quarterly financial statements.
Three directors comprise the Audit Committee: Messrs. Taylor and Kozin and Dr. UPrichard. The Audit Committee met four times during 2003. The Audit Committee has adopted an amended and restated Audit Committee charter in October 2004 that is attached as Annex E to this proxy statement/ prospectus.
Lynxs board of directors annually reviews the NASDAQ listing standards definition of independence for Audit Committee members and has determined that all members of Lynxs Audit Committee are independent (as independence is currently defined in Rule 4350(d)(2)(A)(i) and (ii) of the NASDAQ listing standards). Lynx currently does not have an audit committee financial expert as defined in Item 401(h) of Regulation S-K. At this time, the board of directors believes that the interests of Lynxs stockholders can be adequately served for the time being by the current members but intends to add such an expert to the board of directors once a suitable candidate can be identified and recruited.
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Compensation Committee |
Lynxs Compensation Committee of Lynxs board of directors reviews and approves the overall compensation strategy and policies for the Company. The Compensation Committee reviews and approves corporate performance goals and objectives relevant to the compensation of Lynxs executive officers and other senior management; reviews and approves the compensation and other terms of employment of Lynxs Chief Executive Officer; reviews and approves the compensation and other terms of employment of the other executive officers; and administers the Companys stock option and purchase plans, pension and profit sharing plans, stock bonus plans, deferred compensation plans and other similar programs. The Compensation Committee also serves as the Stock Option Committee for the Lynx 1992 plan for employees of Lynx and in that capacity approves employee stock option grants.
The Compensation Committee is currently composed of two non-employee directors: Messrs. Taylor and Kitch. The Compensation Committee acted by unanimous consent once during 2003. All members of the Compensation Committee are independent, as independence is currently defined in Rule 4200(a)(15) of the NASDAQ listing standards.
Nominating and Corporate Governance Committee |
The Nominating and Corporate Governance Committee of Lynxs board of directors is responsible for identifying, reviewing and evaluating candidates to serve as directors of Lynx (consistent with criteria approved by the board of directors), reviewing and evaluating incumbent directors, or recommending to the board of directors for selection candidates for election to the board of directors, making recommendations to the board of directors regarding the membership of the committees of the board of directors, assessing the performance of the board of directors, and developing a set of corporate governance principles for Lynx. Lynxs Nominating and Corporate Governance Committee Charter can be found on Lynxs website at www.lynxgen.com. Three directors comprise the Nominating and Corporate Governance Committee: Messrs. Kitch, Kozin and Taylor. All members of the Nominating and Corporate Governance Committee are independent (as independence is currently defined in Rule 4200(a)(15) of the NASDAQ listing standards). The Nominating and Corporate Governance Committee was formed in October 2004.
The Nominating and Corporate Governance Committee believes that candidates for director should have certain minimum qualifications, including being able to read and understand basic financial statements, being over 21 years of age and having the highest personal integrity and ethics. The Nominating and Corporate Governance Committee also intends to consider such factors as possessing relevant expertise upon which to be able to offer advice and guidance to management, having sufficient time to devote to the affairs of Lynx, demonstrated excellence in his or her field, having the ability to exercise sound business judgment and having the commitment to rigorously represent the long-term interests of Lynxs stockholders. However, the Nominating and Corporate Governance Committee retains the right to modify these qualifications from time to time. Candidates for director nominees are reviewed in the context of the current composition of the board of directors, the operating requirements of Lynx and the long-term interests of stockholders. In conducting this assessment, the Nominating and Corporate Governance Committee considers diversity, age, skills, and such other factors as it deems appropriate given the current needs of the board of directors and Lynx, to maintain a balance of knowledge, experience and capability. In the case of incumbent directors whose terms of office are set to expire, the Nominating and Corporate Governance Committee reviews such directors overall service to Lynx during their term, including the number of meetings attended, level of participation, quality of performance, and any other relationships and transactions that might impair such directors independence. In the case of new director candidates, the Nominating and Corporate Governance Committee also determines whether the nominee must be independent for NASDAQ purposes, which determination is based upon applicable NASDAQ listing standards, applicable SEC rules and regulations and the advice of counsel, if necessary. The Nominating and Corporate Governance Committee then uses its network of contacts to compile a list of potential candidates, but may also engage, if it deems appropriate, a professional search firm. The Nominating and Corporate Governance Committee conducts any appropriate and necessary inquiries into the backgrounds and qualifications of possible candidates after considering the function and needs of the board of directors. The Nominating and Corporate Governance Committee meets to discuss and consider such
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The Nominating and Corporate Governance Committee will consider director candidates recommended by Lynx stockholders. The Nominating and Corporate Governance Committee does not intend to alter the manner in which it evaluates candidates, including the minimum criteria set forth above, based on whether the candidate was recommended by a stockholder or not. Stockholders who wish to recommend individuals for consideration by the Nominating and Corporate Governance Committee to become nominees for election to the board of directors may do so by delivering a written recommendation to the Nominating and Corporate Governance Committee at the following address: Lynx Therapeutics, Inc., 25861 Industrial Blvd., Hayward, California 94545, attention: Nominating and Corporate Governance Committee at least 120 days prior to the anniversary date of the mailing of Lynxs proxy statement for the last annual meeting of Stockholders. Submissions must include the full name of the proposed nominee, a description of the proposed nominees business experience for at least the previous five years, complete biographical information, a description of the proposed nominees qualifications as a director and a representation that the nominating stockholder is a beneficial or record owner of Lynxs stock. Any such submission must be accompanied by the written consent of the proposed nominee to be named as a nominee and to serve as a director if elected.
Meetings of the Board of Directors
During the fiscal year ended December 31, 2003, Lynxs board of directors held nine meetings. All directors except Dr. Hood and Dr. Brenner attended at least 75% of the aggregate of the meetings of the board of directors held during the period. In addition, all of the committee members, except Mr. Kozin, attended at least 75% of the aggregate of the meetings of the committees on which they served during the same period.
Stockholder Communications with the Board of Directors
Lynxs board of directors has adopted a formal process by which Lynx stockholders may communicate with the board or any of its directors. Lynx stockholders who wish to communicate with Lynxs board of directors may do so by sending a letter to Corporate Secretary, Lynx Therapeutics, Inc., 25861 Industrial Blvd., Hayward, California 94545. All communications will be compiled by the Corporate Secretary of Lynx and submitted to the board of directors or the individual directors on a periodic basis. These communications will be reviewed by one or more employees of Lynx designated by the board of directors, who will determine whether they should be presented to the board. The purpose of the screening is to allow Lynxs board of directors to avoid having to consider irrelevant or inappropriate communications (such as advertisements, solicitations and hostile communications). The screening procedures have been approved by a majority of the independent directors of the board.
Employee Communications with the Board of Directors
Each employee of Lynx has a responsibility to promptly report any suspected misconduct, illegal activities or fraud, including any questionable accounting, internal accounting controls, and auditing matters, or other violations of federal and state laws. To facilitate the reporting of employee complaints regarding suspected violations, the Audit Committee of Lynxs board of directors has adopted a Whistleblower Policy and has established procedures for (i) the submission by employees of suspected violations and (ii) the receipt, retention and treatment of these complaints.
Code of Conduct
Lynxs written Code of Conduct applies to all of Lynxs officers, directors and employees, including its executive officers. The Code of Conduct is available on Lynxs website at www.lynxgen.com. If Lynx makes any substantive amendments to the Code of Conduct or grants any waiver from a provision of the Code of Conduct to any executive officer or director, Lynx will promptly disclose the nature of the amendment or waiver on its website.
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REPORT OF THE AUDIT COMMITTEE OF THE BOARD OF DIRECTORS1
The Audit Committee oversees Lynxs financial reporting process on behalf of Lynxs board of directors. Lynxs management has the primary responsibility for the financial statements and the reporting process, including the systems of internal controls. In fulfilling its oversight responsibilities, the Audit Committee reviewed and discussed the audited financial statements for fiscal year 2003 with management, including a discussion of the quality, not just the acceptability, of the accounting principles, the reasonableness of significant judgments and the clarity of disclosures in the financial statements.
The Audit Committee discussed with Lynxs independent registered public accounting firm, who is responsible for expressing an opinion on the conformity of those audited financial statements with generally accepted accounting principles, their judgments as to the quality, not just the acceptability, of Lynxs accounting principles and such other matters as are required to be discussed with the Audit Committee by the Statement on Auditing Standards No. 61 (Communication With Audit Committees), as amended. In addition, the Audit Committee discussed with the independent registered public accounting firm its independence from management and Lynx. The Audit Committee received the written disclosures and the letter from the independent registered public accounting firm required by the Independence Standards Board Standard No. 1 (Independence Standards Board Standard No. 1, Independence Discussion With Audit Committees), as amended, and considered the compatibility of nonaudit services with the independent registered public accounting firms independence.
The Audit Committee discussed with Lynxs independent registered public accounting firm the overall scope and plans for its audit. The Audit Committee meets with the independent registered public accounting firm, with and without management present, to discuss the results of its examinations, its evaluations of Lynxs internal controls and the overall quality of Lynxs financial reporting.
In reliance on the reviews and discussions referred to above, the Audit Committee recommended to Lynxs board of directors, and the Board of Directors approved, that the audited financial statements be included in Lynxs Annual Report on Form 10-K for the year ended December 31, 2003, as amended, for filing with the SEC. The Audit Committee has selected and the Board of Directors has approved, subject to stockholder ratification, Ernst & Young LLP as Lynxs independent registered public accounting firm for the year ending December 31, 2004.
From the members of the Audit Committee: | |
Craig C. Taylor | |
Marc D. Kozin | |
David C. U Prichard, Ph.D. |
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PROPOSAL 4 FOR THE ANNUAL MEETING OF LYNX STOCKHOLDERS
APPROVAL OF AMENDMENT TO LYNXS CERTIFICATE
Overview
Lynxs board of directors has approved a proposal to amend Lynxs certificate of incorporation to effect a reverse stock split of all outstanding shares of Lynx common stock at an exchange ratio ranging from one-to-two to one-to-four. Lynxs board of directors has recommended that this proposal be presented to Lynx stockholders for approval. Lynx stockholders are now being asked to vote upon amendments to Lynxs certificate of incorporation to effect this reverse stock split whereby a number of outstanding shares of Lynx common stock between and including two and four, such number consisting only of whole shares, will be combined into one share of Lynx common stock. Pending stockholder approval, Lynxs board of directors will have the sole discretion pursuant to Section 242(c) of the DGCL to elect, as it determines to be in the best interests of Lynx and its stockholders, whether or not to effect a reverse stock split, and if so, the number of shares of Lynx common stock between and including two and four that will be combined into one share of Lynx common stock, at any time before the first anniversary of this annual meeting of stockholders. Lynxs board of directors believes that stockholder approval of amendments granting Lynxs board of directors this discretion, rather than approval of a specified exchange ratio, provides Lynxs board of directors with maximum flexibility to react to then-current market conditions and, therefore, is in the best interests of Lynx and its stockholders.
The text of the forms of proposed amendments to Lynxs certificate of incorporation is attached to this proxy statement/ prospectus as Annex C. By approving these amendments, stockholders will approve a series of amendments to Lynxs certificate of incorporation pursuant to which any whole number of outstanding shares between and including two and four would be combined into one share of Lynx common stock, and authorize Lynxs board of directors to file only one such amendment, as determined by Lynxs board of directors in the manner described herein, and to abandon each amendment not selected by Lynxs board of directors. Lynxs board of directors may also elect not to do any reverse split.
If approved by Lynxs stockholders, and following such approval, Lynxs board of directors determines that effecting a reverse stock split is in the best interests of Lynx and its stockholders, the reverse stock split will become effective upon filing one such amendment with the Secretary of State of the State of Delaware. The amendment filed thereby will contain the number of shares selected by Lynxs board of directors within the limits set forth in this proposal to be combined into one share of Lynx common stock.
If Lynxs board of directors elects to effect a reverse stock split following stockholder approval, the number of issued and outstanding shares of common stock would be reduced in accordance with an exchange ratio determined by Lynxs board of directors within the limits set forth in this proposal. Except for adjustments that may result from the treatment of fractional shares as described below, each stockholder will hold the same percentage of Lynx outstanding common stock immediately following the reverse stock split as such stockholder held immediately prior to the reverse stock split. Currently, Lynx is authorized to issue up to a total of 62,000,000 shares of capital stock, consisting of 2,000,000 shares of preferred stock and 60,000,000 shares of common stock. The amendment would not change the number of total authorized shares of Lynx capital stock. Thus, immediately following the reverse stock split, the total number of authorized shares of capital stock would remain at 62,000,000, consisting of 2,000,000 shares of preferred stock and 60,000,000 shares of common stock. The par value of Lynx common stock and preferred stock would remain unchanged at $0.01 per share, as well. Based on the number of issued and outstanding shares of common stock as of October 22, 2004, a total of approximately 50,200,000 shares of common stock would be authorized but unissued immediately prior to the reverse stock split (without giving effect to shares of common stock to be issued in connection with the proposed offer and transaction described in proposal 1 hereof). Lynxs board of directors does not have any definite plans with regard to the authorized but unissued shares of common stock of Lynx following the reverse stock split other than in connection with the proposed transaction with Solexa as
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Reasons for the Reverse Stock Split
Lynxs board of directors believes that a reverse stock split may be desirable for a number of reasons. First, Lynxs board of directors believes that a reverse stock split will allow Lynx to avoid having Lynx common stock delisted from the NASDAQ SmallCap Market as a result of the proposed transaction with Solexa. As more fully described in the section entitled Listing of Lynx Common Stock on the NASDAQ SmallCap Market on page 56, the NASDAQ staff has indicated to Lynx that the transaction, if completed, would constitute a reverse merger under the NASDAQ Marketplace Rule 4330(f). As a result, Lynx must apply for initial inclusion of its common stock for listing on the NASDAQ SmallCap Market following the transaction. In order to satisfy the NASDAQ initial listing requirements, including a $4.00 per share price minimum bid price for the 90 trading days preceding the completion of the transaction, Lynxs board of directors has deemed it advisable to amend Lynxs certificate of incorporation to effect a reverse stock split. Second, Lynxs board of directors believes that a reverse stock split could improve the marketability and liquidity of Lynx common stock. Third, Lynxs board of directors believes that a reverse stock split is desirable in order to increase Lynx common stock price in the near term while Lynx continues to progress towards achieving its business objectives.
Lynx common stock is quoted on the NASDAQ SmallCap Market. In order for Lynx common stock to continue to be quoted on the NASDAQ SmallCap Market following the transaction, Lynx must satisfy certain initial listing standards established by NASDAQ. Among other things, if the closing bid price of Lynx common stock does not reach $4.00 per share, NASDAQ may delist Lynx common stock from trading on the NASDAQ SmallCap Market. If Lynx common stock were to be delisted, Lynx common stock would trade on the OTC Bulletin Board or in the pink sheets maintained by the National Quotation Bureau, Inc. Such alternative markets are generally considered to be less efficient than, and not as broad as, the NASDAQ SmallCap Market.
Lynxs board of directors expects that a reverse stock split of Lynx common stock will increase the market price of Lynx common stock so that Lynx is in compliance with the NASDAQ minimum bid price listing standard. However, the effect of a reverse split upon the market price of Lynx common stock cannot be predicted with any certainty, and the history of similar stock split combinations for companies in like circumstances is varied. It is possible that the per share price of Lynx common stock after the reverse split will not rise in proportion to the reduction in the number of shares of Lynx common stock outstanding resulting from the reverse stock split, and there can be no assurance that the market price per post-reverse split share will either exceed or remain in excess of the $4.00 minimum bid price for a sustained period of time. The market price of Lynx common stock may be based also on other factors that may be unrelated to the number of shares outstanding, including Lynxs future performance. In addition, there can be no assurance that Lynx will not be delisted due to a failure to meet other initial listing requirements even if the market price per post-reverse split share of Lynx common stock is in excess of $4.00. Notwithstanding the foregoing, Lynxs board of directors believes that the proposed reverse stock split, when implemented within the proposed exchange ratio range, will result in the market price of Lynx common stock rising to the level necessary to satisfy the $4.00 minimum bid price requirement.
Lynxs board of directors also believes that the increased market price of Lynx common stock expected as a result of implementing a reverse stock split will improve the marketability and liquidity of Lynx common stock and will encourage interest and trading in Lynx common stock. Because of the trading volatility often associated with low-priced stocks, many brokerage houses and institutional investors have internal policies and practices that either prohibit them from investing in low-priced stocks or tend to discourage individual brokers from recommending low-priced stocks to their customers. Some of those policies and practices may function to make the processing of trades in low-priced stocks economically unattractive to brokers. Additionally, because brokers commissions on low-priced stocks generally represent a higher percentage of the stock price than commissions on higher-priced stocks, the current average price per share of Lynx common stock can
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Lynxs board of directors is hopeful that the price of Lynx common stock will increase as a result of improvements in Lynxs business. Lynxs board of directors believes that the market price of Lynx common stock will increase to the extent Lynx is able to achieve commercial success over time. Nevertheless, Lynxs board of directors believes that a reverse stock split is desirable because of the anticipated higher market price of Lynx common stock resulting from such action.
Board Discretion to Implement the Reverse Stock Split
If the reverse stock split is approved by Lynxs stockholders, it will be effected, if at all, only upon a determination by Lynxs board of directors that a reverse stock split (with an exchange ratio determined by Lynxs board of directors as described above) is in the best interests of Lynx and its stockholders. The determination by Lynxs board of directors as to whether the reverse split will be effected, if at all, will be based upon certain factors, including meeting the initial listing requirements for the NASDAQ SmallCap Market, existing and expected marketability and liquidity of Lynx common stock, prevailing market conditions and the likely effect on the market price of Lynx common stock. If Lynxs board of directors determines to effect the reverse stock split, Lynxs board of directors will consider certain factors in selecting the specific exchange ratio, including the overall market conditions at the time and the recent trading history of Lynx common stock.
Notwithstanding approval of the reverse stock split by the stockholders, Lynxs board of directors may, in its sole discretion, abandon all of the proposed amendments and determine prior to the effectiveness of any filing with the Secretary of State of the State of Delaware not to effect the reverse stock split prior to the one-year anniversary of this annual meeting of stockholders, as permitted under Section 242(c) of the DGCL. If Lynxs board of directors fails to implement any of the reverse stock splits prior to the one-year anniversary of this annual meeting of stockholders, stockholder approval again would be required prior to implementing any reverse stock split.
Effects of the Reverse Stock Split
After the effective date of the proposed reverse stock split, each stockholder will own a reduced number of shares of Lynx common stock. However, the proposed reverse stock split will affect all of Lynx stockholders uniformly and will not affect any stockholders percentage ownership interest in Lynx, except to the extent that the reverse stock split results in any of Lynx stockholders owning a fractional share as described below. Proportionate voting rights and other rights and preferences of the holders of Lynx common stock will not be affected by the proposed reverse stock split (other than as a result of the payment of cash in lieu of fractional shares). For example, a holder of two percent of the voting power of the outstanding shares of common stock immediately prior to the reverse stock split would continue to hold two percent of the voting power of the outstanding shares of common stock immediately after the reverse stock split. The number of stockholders of record will not be affected by the proposed reverse stock split (except to the extent that any stockholder holds only a fractional share interest and receives cash for such interest after the proposed reverse stock split).
Although the proposed reverse stock split will not affect the rights of stockholders or any stockholders proportionate equity interest in Lynx, subject to the treatment of fractional shares, the number of authorized shares of common stock will not be reduced. This will increase significantly the ability of Lynxs board of directors to issue authorized and unissued shares without further stockholder action. The issuance in the future of such additional authorized shares may have the effect of diluting the earnings per share and book value per share, as well as the stock ownership and voting rights, of the currently outstanding shares of common stock.
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The proposed reverse stock split will reduce the number of shares of common stock available for issuance under the Lynx 1992 plan and the 1998 Employee Stock Purchase Plan in proportion to the exchange ratio selected by Lynxs board of directors within the limits set forth in this proposal. Lynx also has certain outstanding stock options and warrants to purchase shares of Lynx common stock. Under the terms of the outstanding stock options and warrants, the proposed reverse stock split will effect a reduction in the number of shares of common stock issuable upon exercise of such stock options and warrants in proportion to the exchange ratio of the reverse stock split and will effect a proportionate increase in the exercise price of such outstanding stock options and warrants. In connection with the proposed reverse stock split, the number of shares of common stock issuable upon exercise or conversion of outstanding stock options and warrants will be rounded to the nearest whole share and no cash payment will be made in respect of such rounding.
If the proposed reverse stock split is implemented, it will increase the number of stockholders of Lynx who own odd lots of less than 100 shares of Lynx common stock. Brokerage commission and other costs of transactions in odd lots are generally higher than the costs of transactions of more than 100 shares of common stock.
Lynx common stock is currently registered under Section 12(g) of the Exchange Act , and Lynx is subject to the periodic reporting and other requirements of the Exchange Act. The proposed reverse stock split will not affect the registration of the common stock under the Exchange Act. Subject to NASDAQs consent, if the proposed reverse stock split is implemented, Lynx common stock will continue to be reported on the NASDAQ SmallCap Market under the symbol LYNX (although NASDAQ would likely add the letter D to the end of the trading symbol for a period of 20 trading days to indicate that the reverse stock split has occurred).
The proposed reverse stock split will not affect the par value of Lynx common stock. As a result, on the effective date of the reverse stock split, the stated capital on Lynx balance sheet attributable to the common stock will be reduced in proportion to the exchange ratio selected by Lynxs board of directors in the manner described above, and the additional paid-in capital account shall be credited with the amount by which the stated capital is reduced. The per share net income or loss and net book value of Lynx common stock will be increased because there will be fewer shares of Lynx common stock outstanding.
Effective Date
The proposed reverse stock split would become effective as of 5:00 p.m. Eastern Time on the date of filing of a certificate of amendment to Lynxs certificate of incorporation with the office of the Secretary of State of the State of Delaware. Except as explained below with respect to fractional shares, on the effective date, shares of common stock issued and outstanding immediately prior thereto will be combined and converted, automatically and without any action on the part of the stockholders, into new shares of common stock in accordance with reverse stock split ratio determined by Lynxs board of directors within the limits set forth in this proposal.
Payment For Fractional Shares
No fractional shares of common stock will be issued as a result of the proposed reverse stock split. Instead, stockholders who otherwise would be entitled to receive fractional shares, upon surrender to the exchange agent of such certificates representing such fractional shares, will be entitled to receive cash in an amount equal to the product obtained by multiplying (i) the closing sales price of Lynx common stock on the effective date as reported on the NASDAQ SmallCap Market by (ii) the number of shares of Lynx common stock held by such stockholder that would otherwise have been exchanged for such fractional share interest.
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Exchange of Stock Certificates
As soon as practicable after the effective date, stockholders will be notified that the reverse split has been effected. Lynxs transfer agent will act as exchange agent for purposes of implementing the exchange of stock certificates. We refer to such person as the exchange agent in this proposal 4. Holders of pre-reverse split shares will be asked to surrender to the exchange agent certificates representing pre-reverse split shares in exchange for certificates representing post-reverse split shares in accordance with the procedures to be set forth in a letter of transmittal to be sent by Lynx. No new certificates will be issued to a stockholder until such stockholder has surrendered such stockholders outstanding certificate(s) together with the properly completed and executed letter of transmittal to the exchange agent. Stockholders should not destroy any stock certificate and should not submit any certificates until requested to do so.
Accounting Consequences
The par value per share of Lynx common stock would remain unchanged at $0.01 per share after the reverse stock split. As a result, on the effective date of the reverse split, the stated capital on Lynxs balance sheet attributable to the common stock will be reduced proportionally, based on the exchange ratio of the reverse stock split, from its present amount, and the additional paid-in capital account shall be credited with the amount by which the stated capital is reduced. The per share common stock net income or loss and net book value will be increased because there will be fewer shares of Lynx common stock outstanding. Lynx does not anticipate that any other accounting consequences would arise as a result of the reverse stock split.
No Appraisal Rights
Under the DGCL, Lynxs stockholders are not entitled to appraisal rights with respect to the proposed amendments to Lynxs certificate of incorporation to effect the reverse stock split, and Lynx will not independently provide Lynxs stockholders with any such rights.
Material Federal U.S. Income Tax Consequences of the Reverse Stock Split
The following is a summary of important tax considerations of the proposed reverse stock split. It addresses only stockholders who hold the pre-reverse split shares and post-reverse split shares as capital assets. It does not purport to be complete and does not address stockholders subject to special rules, such as financial institutions, tax-exempt organizations, insurance companies, dealers in securities, mutual funds, foreign stockholders, stockholders who hold the pre-reverse split shares as part of a straddle, hedge or conversion transaction or other risk reduction strategy, stockholders who hold the pre-reverse split shares as qualified small business stock within the meaning of Section 1202 of the Code, stockholders who are subject to the alternative minimum tax provisions of the Code and stockholders who acquired their pre-reverse split shares pursuant to the exercise of employee stock options or otherwise as compensation. This summary is based upon current law, which may change, possibly even retroactively. It does not address tax considerations under state, local, foreign and other laws. Furthermore, Lynx has not obtained a ruling from the Internal Revenue Service or an opinion of legal or tax counsel with respect to the consequences of the reverse stock split. Each stockholder is advised to consult such stockholders tax advisor as to such stockholders own situation.
The reverse stock split is intended to constitute a reorganization within the meaning of Section 368 of the Code. Assuming the reverse split qualifies as a reorganization, a stockholder generally will not recognize gain or loss on the reverse stock split, except (as discussed below) to the extent of cash, if any, received in lieu of a fractional share interest in the post-reverse split shares. The aggregate tax basis of the post-reverse split shares received will be equal to the aggregate tax basis of the pre-reverse split shares exchanged therefor (excluding any portion of the holders basis allocated to fractional shares), and the holding period of the post-reverse split shares received will include the holding period of the pre-reverse split shares exchanged.
A holder of the pre-reverse split shares who receives cash in lieu of a fractional share interest in the post-reverse split shares will generally recognize gain or loss equal to the difference between the portion of the tax basis of the pre-reverse split shares allocated to the fractional share interest and the cash received. Such gain or loss will be a capital gain or loss and will be short term if the pre-reverse split shares were held for one year
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No gain or loss will be recognized by Lynx as a result of the reverse stock split.
Management and Lynxs board of directors Recommend a Vote in Favor of Proposal 4.
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PROPOSAL 5 FOR THE ANNUAL MEETING OF LYNX STOCKHOLDERS
APPROVAL OF 2 MILLION SHARE INCREASE IN SHARES ISSUABLE UNDER THE
In July 1992, Lynxs board of directors adopted, and the stockholders of Lynx subsequently approved, the Lynx 1992 plan. In May 1996, Lynxs stockholders approved an amendment to the Lynx 1992 plan extending the term of the Lynx 1992 plan until March 2006. As a result of a series of amendments, as of October 22, 2004, there were 3,071,052 shares of Lynx common stock authorized for issuance under the Lynx 1992 plan. At October 22, 2004, options covering an aggregate of 545,144 shares, less exercised and canceled shares, of Lynx common stock had been granted under the Lynx 1992 plan, and only 2,187,115 shares of Lynx common stock (plus any shares that might in the future be returned to the Lynx 1992 plan as a result of cancellations or expiration of options) remained available for future grants under the Lynx 1992 plan.
In October 2004, the board of directors approved an amendment to the Lynx 1992 plan, subject to stockholder approval, to increase the total number of shares of Lynx common stock authorized for issuance under the Lynx 1992 plan from 1,071,052 to 3,071,052 shares. The board of directors adopted this amendment to ensure that Lynx can continue to grant stock options at levels determined appropriate by the board of directors. During the last fiscal year, Lynx granted options under the Lynx 1992 plan: (i) to its executive officers and directors to purchase 158,750 shares of common stock at exercise prices ranging from $2.09 to $4.03 per share; and (ii) to all employees and consultants as a group (excluding executive officers) to purchase 84,000 shares of common stock at exercise prices ranging from $2.09 to $3.80 per share.
Stockholders are requested in this proposal 5 to approve the amendment to the Lynx 1992 plan. The affirmative vote of the holders of a majority of the shares present in person or represented by proxy and entitled to vote at the meeting will be required to approve the amendment to the Lynx 1992 plan. Abstentions will be counted toward the tabulation of votes cast on proposals presented to the stockholders and will have the same effect as negative votes. Broker non-votes are counted towards a quorum, but are not counted for any purpose in determining whether this matter has been approved.
Management and Lynxs board of directors Recommend a Vote in Favor of Proposal 5.
The essential features of the Lynx 1992 plan are outlined below:
General
The Lynx 1992 plan provides for the grant of both incentive and nonstatutory stock options. Incentive stock options granted under the Lynx 1992 plan are intended to qualify as incentive stock options within the meaning of Section 422 of the Code. Nonstatutory stock options granted under the Lynx 1992 plan are not intended to qualify as incentive stock options under the Code. See the section entitled Federal Income Tax Information on page 138 for a discussion of the tax treatment of options.
Purpose
Lynxs board of directors adopted the Lynx 1992 plan to provide a means by which selected employees (including officers), directors and consultants of Lynx and its affiliates may be given an opportunity to purchase stock in Lynx, to assist in retaining the services of such persons, to secure and retain the services of persons capable of filling such positions and to provide incentives for such persons to exert maximum efforts for the success of Lynx and its affiliates. All of the approximately 86 current employees, directors and consultants of Lynx and its affiliates are eligible to participate in the Lynx 1992 plan.
Administration
Lynxs board of directors administers the Lynx 1992 plan. Subject to the provisions of the Lynx 1992 plan, Lynxs board of directors has the power to construe and interpret the Lynx 1992 plan and to determine the persons to whom, and the dates on which, options will be granted, the number of shares of Lynx common stock to be subject to each option, the time or times during the term of each option within which all or a
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Lynxs board of directors has the power to delegate administration of the Lynx 1992 plan to a committee composed of one or more members of the board. In the discretion of the board of directors, a committee may consist solely of two or more outside directors in accordance with Section 162(m) of the Code or solely of two or more non-employee directors in accordance with Rule 16b-3 of the Exchange Act. The board may abolish such committee at any time and revest in the board the administration of the Lynx 1992 plan. The board has delegated administration of the Lynx 1992 plan to the Compensation Committee of the board of directors. As used herein with respect to the Lynx 1992 plan, the board refers to the Compensation Committee as well as to the board of directors itself.
The regulations under Section 162(m) of the Code require that the directors who serve as members of the committee must be outside directors. The Lynx 1992 plan provides that, in the boards discretion, directors serving on the committee may be outside directors within the meaning of Section 162(m) of the Code. This limitation would exclude from the committee directors who are (i) current employees of Lynx or an affiliate, (ii) former employees of Lynx or an affiliate receiving compensation for past services (other than benefits under a tax-qualified pension plan), (iii) current or former officers of Lynx or an affiliate, (iv) directors currently receiving direct or indirect remuneration from Lynx or an affiliate in any capacity (other than director) and (v) any other person who is otherwise considered an outside director for purposes of Section 162(m) of the Code. The definition of an outside director under Section 162(m) is generally narrower than the definition of a non-employee director under Rule 16b-3 of the Exchange Act.
Eligibility
Incentive stock options may be granted under the Lynx 1992 plan only to employees (including officers) of Lynx and its affiliates. Employees (including officers), directors and consultants of both Lynx and its affiliates are eligible to receive nonstatutory stock options under the Lynx 1992 plan.
No incentive stock option may be granted under the Lynx 1992 plan to any person who, at the time of the grant, owns (or is deemed to own) stock possessing more than 10% of the total combined voting power of Lynx or any affiliate of Lynx, unless the option exercise price is at least 110% of the fair market value of the stock subject to the option on the date of grant, and the term of the option does not exceed five years from the date of grant. In addition, the aggregate fair market value, determined at the time of grant, of the shares of Lynx common stock with respect to which incentive stock options are exercisable for the first time by an optionholder during any calendar year (under the Lynx 1992 plan and all other such plans of Lynx and its affiliates) may not exceed $100,000. No employee may be granted options under the Lynx 1992 plan covering more than 142,857 shares of Lynx common stock during any calendar year. This limitation is referred to as the Section 162(m) limitation.
Stock Subject to the Lynx 1992 plan
Subject to this proposal 5, an aggregate of 3,071,052 shares of Lynx common stock is authorized for issuance under the Lynx 1992 plan. If options granted under the Lynx 1992 plan expire or otherwise terminate without being exercised, the shares of Lynx common stock not acquired pursuant to such options again become available for issuance under the Lynx 1992 plan. If any common stock acquired pursuant to the exercise of an option is repurchased by Lynx under an unvested share repurchase option provided under the Lynx 1992 plan for any reason, the stock repurchased by Lynx under such repurchase option will not revert to and again become available for issuance under the Lynx 1992 plan.
Terms of Options
The following is a description of the permissible terms of options under the Lynx 1992 plan. Individual option grants may be more restrictive as to any or all of the permissible terms described below.
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Exercise Price; Payment. The exercise price of incentive stock options under the Lynx 1992 plan may not be less than the fair market value of Lynx common stock on the date of grant, and in some cases (see the section entitled Eligibility above on page 136), may not be less than 110% of such fair market value. The exercise price of nonstatutory options under the Lynx 1992 plan may not be less than 85% of the fair market value of Lynx common stock the date of grant. At October 26, 2004, the closing price of Lynx common stock as reported on the NASDAQ SmallCap Market was $3.00 per share.
The exercise price of options granted under the Lynx 1992 plan must be paid either (i) in cash at the time the option is exercised or (ii) at the discretion of the board of directors at the time of grant of the option by delivery of other shares of Lynx common stock, pursuant to a deferred payment arrangement or in any other form of legal consideration acceptable to the board of directors.
Option Exercise. Options granted under the Lynx 1992 plan may become exercisable, or vest, in cumulative increments as determined by the board of directors. Shares covered by currently outstanding options under the Lynx 1992 plan typically vest over five years during the optionholders employment by, or service as a director or consultant to, Lynx or an affiliate of Lynx, which we refer to collectively as service. Shares covered by options granted in the future under the Lynx 1992 plan may be subject to different vesting terms. The board of directors has the authority to accelerate the time during which an option may be exercised. In addition, options granted under the Lynx 1992 plan may permit exercise prior to vesting. However, any unvested shares acquired under such an early exercise arrangement will be subject to repurchase by Lynx, generally at the exercise price, should the optionholders service terminate before vesting. To the extent provided by the terms of an option, an optionholder may satisfy any federal, state or local tax withholding obligation relating to the exercise of such option by a cash payment upon exercise, by authorizing Lynx to withhold a portion of the stock otherwise issuable to the optionholder, by delivering already-owned stock of Lynx, or by a combination of these means.
Term. The maximum term of options under the Lynx 1992 plan is ten years, except that in certain cases (see Eligibility above) the maximum term is five years. Options under the Lynx 1992 plan terminate three months after termination of the optionholders service with Lynx or any affiliate of Lynx, unless (a) such termination is due to the optionholders permanent and total disability (as defined in the Code), in which case the option may, but need not, provide that it may be exercised (to the extent the option was exercisable at the time of the termination of service) at any time within 12 months of such termination; (b) the optionholder dies before the optionholders service has terminated or the optionholder dies within the period, if any, specified in the option agreement after the termination of the optionholders service for a reason other than death, in which case the option may, but need not, provide that it may be exercised (to the extent the option was exercisable at the time of the optionholders death) within 12 months of the optionholders death by the person or persons to whom the rights to such option pass by will or by the laws of descent and distribution; or (c) the option by its terms specifically provides otherwise. An optionholder may designate who may exercise the option following the optionholders death. Individual options by their terms may provide for exercise within a longer period of time following termination of service. The option term generally is extended in the event that exercise of the option within these periods is prohibited. An optionholders option agreement may provide that if the exercise of the option following the termination of the optionholders service would be prohibited because of the issuance of stock would violate the registration requirements under the Securities Act, then the option will terminate on the earlier of (i) the expiration of the term of the option or (ii) three months after the termination of the optionholders service during which the exercise of the option would not be in violation of such registration requirements.
Adjustment Provisions
Transactions not involving receipt of consideration, such as a merger, consolidation, reorganization, recapitalization, reincorporation, stock dividend, dividend in property other than cash, stock split, liquidating dividend, combination of shares, exchange of shares or change in corporate structure, may change the class(es) and number of shares of Lynx common stock subject to the Lynx 1992 plan and outstanding options. In such an event, the Lynx 1992 plan will be appropriately adjusted as to the maximum number and/or class of securities issuable under the Lynx 1992 plan, the maximum number and/or class of securities for which any
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Effect of Certain Corporate Events
In the event of a sale of all or substantially all of the assets of Lynx, in the event of a certain specified type of merger, consolidation or reverse merger, or a corporate transaction, any surviving or acquiring corporation shall assume any options outstanding under the Lynx 1992 plan or substitute similar options for those outstanding under the Lynx 1992 plan. If any surviving or acquiring corporation elects not to assume options outstanding under the Lynx 1992 plan, or to substitute similar options, then with respect to optionholders whose service with Lynx or any of its affiliates has not terminated, the vesting shall be accelerated in full and the options will terminate if not exercised at or prior to the effective date of the corporate transaction.
The acceleration of an option in the event of a corporate transaction may be viewed as an anti-takeover provision, which may have the effect of discouraging a proposal to acquire or otherwise obtain control of Lynx.
Duration, Amendment and Termination
Lynxs board of directors may suspend or terminate the Lynx 1992 plan without stockholder approval or ratification at any time. Unless sooner terminated, the Lynx 1992 plan will terminate on March 11, 2006.
Lynxs board of directors may also amend the Lynx 1992 plan at any time or from time to time. However, no amendment will be effective unless approved by the stockholders of Lynx within 12 months before or after its adoption by the board of directors to the extent stockholder approval is necessary to satisfy the requirements of Section 422 of the Code, Rule 16b-3 promulgated under the Exchange Act, or any NASDAQ or other securities exchange listing requirements. The board of directors may in its sole discretion submit any other amendment to the Lynx 1992 plan for stockholder approval.
Restrictions on Transfer
The optionholder may not transfer an incentive stock option other than by will or by the laws of descent and distribution. During the lifetime of an optionholder, an incentive stock option may be exercised only by the optionholder. A nonstatutory stock option is transferable to the extent provided in the option agreement. If the option agreement for a nonstatutory stock option does not provide for transferability, then the nonstatutory stock option is not transferable except by will or by the laws of descent and distribution and is exercisable during the lifetime of the optionholder only by the optionholder. In addition, shares subject to repurchase by Lynx under an early exercise stock purchase agreement may be subject to restrictions on transfer that the board of directors deems appropriate.
Federal Income Tax Information
Incentive Stock Options. Incentive stock options under the Lynx 1992 plan are intended to be eligible for the favorable federal income tax treatment accorded incentive stock options under the Code.
There generally are no federal income tax consequences to the optionholder or Lynx by reason of the grant or exercise of an incentive stock option. However, the exercise of an incentive stock option may increase the optionholders alternative minimum tax liability, if any.
If an optionholder holds stock acquired through exercise of an incentive stock option for more than two years from the date on which the option is granted and more than one year from the date on which the shares are transferred to the optionholder upon exercise of the option, any gain or loss on a disposition of such stock will be a long-term capital gain or loss.
Generally, if the optionholder disposes of the stock before the expiration of either of these holding periods, which we refer to as a disqualifying disposition, then at the time of disposition the optionholder will realize taxable ordinary income equal to the lesser of (i) the excess of the stocks fair market value on the date of exercise over the exercise price, or (ii) the optionholders actual gain, if any, on the purchase and sale. The
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To the extent the optionholder recognizes ordinary income by reason of a disqualifying disposition, Lynx will generally be entitled (subject to the requirement of reasonableness, the provisions of Section 162(m) of the Code and the satisfaction of a tax reporting obligation) to a corresponding income tax deduction in the tax year in which the disqualifying disposition occurs.
Nonstatutory Stock Options. Nonstatutory stock options granted under the Lynx 1992 plan generally have the following federal income tax consequences:
There are no tax consequences to the optionholder or Lynx by reason of the grant of a nonstatutory stock option. Upon exercise of a nonstatutory stock option, the optionholder normally will recognize taxable ordinary income equal to the excess, if any, of the stocks fair market value on the date of exercise over the option exercise price. However, to the extent the stock is subject to certain types of vesting restrictions, the taxable event will be delayed until the vesting restrictions lapse unless the participant elects to be taxed on receipt of the stock. With respect to employees, Lynx is generally required to withhold from regular wages or supplemental wage payments an amount based on the ordinary income recognized. Subject to the requirement of reasonableness, the provisions of Section 162(m) of the Code and the satisfaction of a tax reporting obligation, Lynx will generally be entitled to an income tax deduction equal to the taxable ordinary income realized by the optionholder.
Upon disposition of the stock, the optionholder will recognize a capital gain or loss equal to the difference between the selling price and the sum of the amount paid for such stock plus any amount recognized as ordinary income upon exercise of the option (or vesting of the stock). Such gain or loss will be long-term or short-term depending on whether the stock was held for more than one year.
Potential Limitation on Company Deductions. Section 162(m) of the Code denies a deduction to any publicly-held corporation for compensation paid to certain covered employees in a taxable year to the extent that compensation to such covered employee exceeds $1 million. It is possible that compensation attributable to stock options, when combined with all other types of compensation received by a covered employee from Lynx, may cause this limitation to be exceeded in any particular year.
Certain kinds of compensation, including qualified performance-based compensation, are disregarded for purposes of the deduction limitation. In accordance with Treasury regulations issued under Section 162(m), compensation attributable to stock options will qualify as performance-based compensation if the option is granted by a compensation committee comprised solely of outside directors and the plan contains a per-employee limitation on the number of shares for which options may be granted during a specified period, the per-employee limitation is approved by the stockholders, and the exercise price of the option is no less than the fair market value of the stock on the date of grant.
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Equity Compensation Plan Information
The following table provides certain information with respect to all of Lynxs equity compensation plans in effect as of December 31, 2003:
Number of | |||||||||||||
Securities to Be | Weighted- | Number of Securities | |||||||||||
Issued upon | Average Exercise | Remaining Available for | |||||||||||
Exercise of | Price of | Future Issuance Under | |||||||||||
Outstanding | Outstanding | Equity Compensation | |||||||||||
Options, | Options, | Plans (Excluding | |||||||||||
Warrants | Warrants | Securities Reflected in | |||||||||||
Plan Category(1) | and Rights | and Rights | Column (a)) | ||||||||||
(a) | (b) | (c) | |||||||||||
Equity compensation plans approved by security
holders:
|
|||||||||||||
1992 Stock Option Plan
|
524,103 | $ | 39.38 | 208,156 | |||||||||
1998 Employee Stock Purchase Plan
|
N/A | N/A | 75,010 | ||||||||||
Total
|
524,103 | $ | 39.38 | 283,166 | |||||||||
(1) | All of the equity compensation plans of Lynx that were in effect as of December 31, 2003 were adopted with the approval of Lynxs security holders. |
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PROPOSAL 6 FOR THE ANNUAL MEETING OF LYNX STOCKHOLDERS
RATIFICATION OF SELECTION OF INDEPENDENT
The Audit Committee of the Board of Directors has selected Ernst & Young LLP as Lynxs independent registered public accounting firm for the fiscal year ending December 31, 2004 and has further directed that management submit the selection of the independent registered public accounting firm for ratification by the stockholders at the Lynx annual meeting. Ernst & Young LLP has audited Lynxs financial statements since Lynxs inception in 1992. Representatives of Ernst & Young LLP are expected to be present at the annual meeting, will have an opportunity to make a statement if they so desire and will be available to respond to appropriate questions.
Neither Lynxs bylaws nor other governing documents or law require stockholder ratification of the selection of Ernst & Young LLP as Lynxs independent registered public accounting firm. However, the Audit Committee of the Board of Directors is submitting the selection of Ernst & Young LLP to the stockholders for ratification as a matter of good corporate practice. If the stockholders fail to ratify the selection, the Audit Committee and the board of directors will reconsider whether or not to retain that firm. Even if the selection is ratified, the Audit Committee of the board of directors in its discretion may direct the appointment of a different independent registered public accounting firm at any time during the year if they determine that such a change would be in the best interests of Lynx and its stockholders.
The affirmative vote of the holders of a majority of the shares present in person or represented by proxy and entitled to vote at the annual meeting will be required to ratify the selection of Ernst & Young LLP. Abstentions will be counted towards the tabulation of votes cast on proposals presented to stockholders and will have the same effect as negative votes. Broker non-votes are counted towards a quorum, but are not counted for any purpose in determining whether this matter has been approved.
Independent Auditors Fees
The following table represents aggregate fees billed to Lynx for fiscal years ended December 31, 2003 and December 31, 2002, by Ernst & Young LLP, Lynxs independent registered public accounting firm (amounts in thousands).
Fiscal Year Ended | ||||||||
December 31, | ||||||||
2003 | 2002 | |||||||
Audit Fees
|
$ | 224,160 | $ | 186,936 | ||||
Audit-Related Fees
|
36,500 | | ||||||
Tax Fees
|
31,320 | 31,000 | ||||||
All Other Fees
|
7,144 | 8,456 | ||||||
Total Fees
|
$ | 299,124 | $ | 226,392 |
Audit Fees: this category includes fees for the audit of Lynxs annual financial statements, review of the financial statements included in Lynxs quarterly reports on Form 10-Q and services that are normally provided by the independent auditors in connection with statutory and regulatory filings or engagements for those fiscal years. This category also includes advice on audit and accounting matters that arose during, or as a result of, the audit or the review of interim financial statements and statutory audits required by non-U.S. jurisdictions.
Audit-Related Fees: this category consists of assurance and related services by Ernst & Young LLP that are reasonably related to the performance of the audit or review of Lynxs financial statements and are not reported above under Audit Fees.
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Tax Fees: this category consists of professional services rendered by Ernst & Young LLP for tax compliance and tax advice. The services for the fees disclosed under this category include tax return preparation and technical tax advice.
All Other Fees: this category consists of fees for professional services rendered by Ernst & Young LLP in connection with research and consultations regarding a foreign joint venture and reorganization of Lynx GmbH.
All of the fees described above were approved by the Audit Committee. The Audit Committee has determined the rendering of non-audit services by Ernst & Young LLP is compatible with maintaining their independence.
Pre-Approval Policies and Procedures
The Audit Committee has adopted a policy and procedures for the pre-approval of audit and non-audit services rendered by Lynxs independent registered public accounting firm, Ernst & Young LLP. The policy generally pre-approves specified services in the defined categories of audit services, audit-related services, and tax services up to specified amounts. Pre-approval may also be given as part of the Audit Committees approval of the scope of the engagement of the independent auditor or on an individual explicit case-by-case basis before the independent auditor is engaged to provide each service. The pre-approval of services may be delegated to one or more of the Audit Committees members, but the decision must be reported to the full Audit Committee at its next scheduled meeting.
Management and Lynxs board of directors Recommend a Vote in Favor of Proposal 6.
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SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
The following table sets forth certain information regarding beneficial ownership of Lynx common stock as of October 5, 2004 by: (i) each stockholder who is known by us to own beneficially more than five percent of the common stock; (ii) each executive officers named in the Summary Compensation Table on page 145, which we refer to as the named executive officers; (iii) each director of Lynx; and (iv) all of Lynxs current directors and executive officers as a group.
Beneficial Ownership(1) | |||||||||
Number of | Percent of | ||||||||
Name of Beneficial Owner | Shares | Total | |||||||
H.G. Wellington & Co., Inc.
|
563,864 | 7.5 | % | ||||||
Suite 1702, 14 Wall Street | |||||||||
New York, NY 10005 | |||||||||
Barclays Global Investors, NA
|
409,505 | 5.4 | % | ||||||
Barclays PLC
|
|||||||||
45 Fremont St. 17th Fl. | |||||||||
San Francisco, CA 94105 | |||||||||
Craig C. Taylor
|
74,758 | (2) | 1.0 | % | |||||
Sydney Brenner, M.B., D. Phil
|
52,057 | (3) | * | ||||||
Kevin P. Corcoran
|
32,351 | (4) | * | ||||||
Kathy A. San Roman
|
25,084 | (5) | * | ||||||
Mary J. Schramke
|
3,850 | (6) | * | ||||||
Thomas J. Vasicek, Ph.D.
|
17,344 | (7) | * | ||||||
James C. Kitch
|
8,177 | (8) | * | ||||||
Leroy Hood, M.D., Ph.D.
|
5,687 | (9) | * | ||||||
David C. UPrichard, Ph.D.
|
4,716 | (10) | * | ||||||
James V. Mitchell
|
4,028 | (11) | * | ||||||
Marc D. Kozin
|
3,472 | (12) | * | ||||||
Richard P. Woychik, Ph.D.
|
| * | |||||||
All directors and officers as a group
(12 persons)
|
231,524 | (13) | 3.0 | % |
* | Less than one percent. |
(1) | Beneficial ownership is determined in accordance with the rules of the SEC and, unless otherwise indicated, includes voting or investment power with respect to securities. Information as to H.G. Wellington & Co., Inc. is based upon a report on Form 13F filed by H.G. Wellington & Co., Inc. with the SEC on August 3, 2004, which indicated that H.G. Wellington & Co., Inc. had sole voting and investment power with respect to 563,864 shares of common stock. Information as to Barclays is based upon a report on Form 13F filed by Barclays PLC with the SEC on August 16, 2004, which indicates that Barclays PLC and Barclays Global Investors, NA had sole voting and investment power with respect to 150,000 and 259,505 shares of common stock, respectively. Information as to Lynxs directors and officers are supplied by the officers and the directors. Except as otherwise noted, and subject to community property laws where applicable, Lynx believes that each person named in the table has sole voting and investment power with respect to all shares shown as beneficially owned by such stockholder. Percentage of beneficial ownership is based on 7,527,538 shares of common stock outstanding as of October 5, 2004, except as otherwise noted in the footnotes. Shares of common stock subject to options currently exercisable or exercisable within 60 days of October 5, 2004, are deemed outstanding for computing the percentage of the person holding such options but are not deemed outstanding for computing the percentage of beneficial ownership of any other person. |
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(2) | Includes 16,606 shares of common stock, 3,868 shares of common stock issuable upon exercise of stock options that are exercisable within 60 days of October 5, 2004, and 2,270 shares of common stock issuable upon exercise of warrants held by Mr. Taylor. Also includes 52,014 shares of common stock held by Asset Management Associates 1989 L.P. Mr. Taylor, the Chairman of the board of directors of Lynx, is a general partner of AMC Partners 89, which is the general partner of Asset Management Associates 1989 L.P. Mr. Taylor shares the power to vote and control the disposition of shares held by Asset Management Associates 1989 L.P. and, therefore, may be deemed to be the beneficial owner of such shares. Mr. Taylor disclaims beneficial ownership of such shares, except to the extent of his pro-rata interest therein. | |
(3) | Includes 19,200 shares of common stock issuable upon exercise of stock options held by Dr. Brenner that are exercisable within 60 days of October 5, 2004. | |
(4) | Includes 27,708 shares of common stock issuable upon exercise of stock options held by Mr. Corcoran that are exercisable within 60 days of October 5, 2004. | |
(5) | Includes 25,084 shares of common stock issuable upon exercise of stock options held by Ms. San Roman that are exercisable within 60 days of October 5, 2004. | |
(6) | Includes 3,850 shares of common stock issuable upon exercise of stock options held by Dr. Schramke that are exercisable within 60 days of October 5, 2004. | |
(7) | Includes 16,618 shares of common stock issuable upon exercise of stock options held by Dr. Vasicek that are exercisable within 60 days of October 5, 2004. | |
(8) | Includes 2,568 shares of common stock, 4,702 shares of common stock issuable upon the exercise of stock options that are exercisable within 60 days of October 5, 2004, and 908 shares of common stock issuable upon exercise of a warrant held by Mr. Kitch. Mr. Kitch holds these options for the benefit of Cooley Godward LLP. He shares the power to vote and control the disposition of such shares and, therefore, may be deemed to be the beneficial owner of such shares. Mr. Kitch disclaims beneficial ownership of such shares, except to the extent of his pro-rata interest therein. | |
(9) | Includes 4,702 shares of common stock issuable upon exercise of stock options held by Dr. Hood that are exercisable within 60 days of October 5, 2004. |
(10) | Includes 4702 shares of common stock issuable upon exercise of stock options held by Dr. UPrichard that are exercisable within 60 days of October 5, 2004. |
(11) | Includes 2,708 shares of common stock issuable upon exercise of stock options held by Mr. Mitchell that are exercisable within 60 days of October 5, 2004. |
(12) | Includes 3,472 shares of common stock issuable upon exercise of stock options held by Mr. Kozin that are exercisable within 60 days of October 5, 2004. |
(13) | Includes 110,413 shares of common stock (including shares of common stock held by entities affiliated with certain directors), 117,933 shares of common stock issuable upon exercise of stock options that are exercisable within 60 days of October 5, 2004 and 3,178 shares of common stock issuable upon exercise of warrants held by current directors and officers. See Notes 2 through 12 above. |
Section 16(a) Beneficial Ownership Reporting Compliance
Section 16(a) of the Exchange Act requires Lynxs directors and executive officers, and persons who own more than 10 percent of a registered class of Lynxs equity securities, to file with the SEC initial reports of ownership and reports of changes in ownership of common stock and other equity securities of Lynx. Officers, directors and greater than ten percent stockholders are required by SEC regulation to furnish Lynx with copies of all Section 16(a) forms they file.
To Lynxs knowledge, based solely on a review of the copies of such reports furnished to Lynx and written representations that no other reports were required, during the fiscal year ended December 31 2003, all Section 16(a) filing requirements applicable to its officers, directors and greater than ten percent beneficial owners were complied with.
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Compensation of Directors
Lynx does not compensate directors for service as directors. Non-employee directors are eligible to participate in the Lynx 1992 plan. Options granted to non-employee directors under the Lynx 1992 plan are discretionary and intended by Lynx not to qualify as incentive stock options under the Code.
The following table sets forth options granted to Lynxs directors during the last fiscal year. The exercise price is equal to the fair market value of the common stock on the last market trading day prior to the date of grant (based on the closing sales price reported on the NASDAQ SmallCap Market). As of October 22, 2004, no options had been exercised by non-employee directors under the Lynx 1992 plan.
Number of | ||||||||||||
Securities | Exercise | |||||||||||
Underlying | Price Per | |||||||||||
Options | Share | |||||||||||
Name | Date of Grant | Granted (#) | ($/sh) | |||||||||
Sydney Brenner, M.B., D. Phil
|
05/21/2003 | 1,250 | $ | 4.03 | ||||||||
Leroy Hood, M.D., Ph.D.
|
05/21/2003 | 1,250 | $ | 4.03 | ||||||||
James C. Kitch
|
05/21/2003 | 1,250 | $ | 4.03 | ||||||||
Craig C. Taylor
|
05/21/2003 | 1,250 | $ | 4.03 | ||||||||
Marc D. Kozin
|
05/21/2003 | 1,250 | $ | 4.03 | ||||||||
James V. Mitchell
|
03/20/2003 | 5,000 | $ | 2.09 | ||||||||
David C. UPrichard, Ph.D.
|
05/21/2003 | 1,250 | $ | 4.03 |
In June 2001, Dr. Brenner entered into a consulting agreement with Lynx. Pursuant to the agreement, Dr. Brenner performs consulting services of at least eight to 16 hours per month in consideration of his standard consulting fee. In 2003, Dr. Brenner received no consulting fees for services performed for Lynx.
Compensation of Executive Officers
The following table sets forth certain compensation paid by Lynx during the calendar years ended December 31, 2003, 2002 and 2001, to Lynxs (i) Chief Executive Officer and (ii) other four most highly compensated executive officers whose compensation exceeded $100,000 at December 31, 2003:
Summary Compensation Table
Long-Term Compensation Awards | |||||||||||||||||||||||||||||
Annual Compensation | |||||||||||||||||||||||||||||
Restricted | Securities | ||||||||||||||||||||||||||||
Other Annual | Stock | Underlying | All Other | ||||||||||||||||||||||||||
Salary | Bonus | Compensation | Awards | Options | Compensation | ||||||||||||||||||||||||
Name and Principal Position | Year | ($) | ($) | ($) | ($) | (#) | ($) | ||||||||||||||||||||||
Kevin P. Corcoran
|
2003 | $ | 245,713 | | $ | 750 | (1) | | 40,000 | | |||||||||||||||||||
President and Chief | 2002 | $ | 220,544 | | $ | 750 | (1) | | 5,000 | | |||||||||||||||||||
Executive Officer | 2001 | $ | 176,654 | | $ | 750 | (1) | | | | |||||||||||||||||||
Edward C. Albini(2)
|
2003 | $ | 246,184 | | $ | 750 | (1) | | 30,000 | | |||||||||||||||||||
Former Chief | 2002 | $ | 221,552 | | $ | 750 | (1) | | 7,142 | | |||||||||||||||||||
Financial Officer | 2001 | $ | 205,185 | | $ | 750 | (1) | | | | |||||||||||||||||||
Jen-i Mao, Ph.D.
|
2003 | $ | 173,879 | | $ | 750 | (1) | | 25,000 | | |||||||||||||||||||
Former Vice President, | 2002 | $ | 179,879 | | $ | 25,750 | (1)(3) | | 2,142 | | |||||||||||||||||||
Genetic Analysis | 2001 | $ | 179,723 | | $ | 50,750 | (1)(3) | | | | |||||||||||||||||||
Kathy A. San Roman
|
2003 | $ | 154,619 | | $ | 750 | (1) | | 25,000 | | |||||||||||||||||||
Vice President, Human | 2002 | $ | 159,032 | | $ | 750 | (1) | | 5,000 | | |||||||||||||||||||
Resources & Administration | 2001 | $ | 157,500 | | $ | 750 | (1) | | | | |||||||||||||||||||
and Acting Chief Financial Officer | |||||||||||||||||||||||||||||
Thomas J. Vasicek, Ph.D.
|
2003 | $ | 216,257 | | $ | 21,720 | (1)(4) | | 25,000 | | |||||||||||||||||||
Vice President, Business | 2002 | $ | 108,416 | | $ | 15,750 | (1)(5) | | 17,142 | | |||||||||||||||||||
Development | 2001 | | | | | | |
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(1) | Includes contributions of $750 made by Lynx to its 401(k) Plan on behalf of such employee. |
(2) | Mr. Albini resigned as Chief Financial Officer of Lynx effective as of February 25, 2004. |
(3) | Pursuant to Dr. Maos offer of employment with Lynx, $25,000 and $50,000 of her loan in the aggregate amount of $100,000 were forgiven in June 2001 and 2002, respectively. Dr. Mao resigned as Vice President, Genetic Analysis of Lynx effective as of April 15, 2004. |
(4) | Includes sales commissions received by Dr. Vasicek. |
(5) | Includes a sign-on bonus received by Dr. Vasicek when he joined Lynx in June 2002. |
Except as disclosed above, Lynx did not pay any compensation characterized as long-term compensation, including restricted stock awards issued at a price below fair market value or long-term incentive plan payouts, during the year ended December 31, 2003 to any of the named executive officers.
Stock Option Grants and Exercises
Lynx grants options to its executive officers under the Lynx 1992 plan. As of October 22, 2004, options to purchase a total of 545,144 shares were outstanding under the Lynx 1992 plan, and options to purchase 187,115 shares remained available for grant thereunder.
The following table sets forth, for each of the named executive officers, certain information regarding options granted to, exercised by and held during the fiscal year ended December 31, 2003.
Option Grants in Last Fiscal Year
Individual Grants | Potential Realizable | |||||||||||||||||||||||
Value at Assumed | ||||||||||||||||||||||||
Number of | % of Total | Annual Rates of Stock | ||||||||||||||||||||||
Securities | Options | Price Appreciation for | ||||||||||||||||||||||
Underlying | Granted to | Exercise | Option Term (2) | |||||||||||||||||||||
Options | Employees | Price Per | Expiration | |||||||||||||||||||||
Name | Granted(#) | in 2003(1) | Share($/sh) | Date | 5%($) | 10%($) | ||||||||||||||||||
Kevin P. Corcoran
|
40,000 | 16.48 | % | $ | 2.09 | 03/20/13 | $ | 52,576 | $ | 133,237 | ||||||||||||||
Edward C. Albini
|
30,000 | 12.36 | % | $ | 2.09 | 03/20/13 | $ | 39,432 | $ | 99,928 | ||||||||||||||
Jen-i Mao, Ph.D.
|
25,000 | 10.30 | % | $ | 2.09 | 03/20/13 | $ | 32,860 | $ | 83,273 | ||||||||||||||
Kathy A. San Roman
|
25,000 | 10.30 | % | $ | 2.09 | 03/20/13 | $ | 32,860 | $ | 83,273 | ||||||||||||||
Thomas J. Vasicek, Ph.D.
|
25,000 | 10.30 | % | $ | 2.09 | 03/20/13 | $ | 32,860 | $ | 83,273 |
(1) | Based on options for an aggregate of 242,750 shares granted to Lynxs employees and directors during the year ended December 31, 2003, including the named executive officers. |
(2) | The potential realizable value is calculated based on the term of the option at its time of grant (ten years). It is calculated by assuming that the stock price on the date of grant appreciates at the indicated annual rate, compounded annually for the entire term of the option, and that the option is exercised and sold on the last day of the term for the appreciated stock price. The assumed annual rates of appreciation are for illustrative purposes only. |
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The following table sets forth certain information concerning the number of options exercised by the named executive officers during the year ended December 31, 2003, and the number of shares covered by both exercisable and unexercisable stock options held by the named executive officers.
Aggregated Option Exercises in the Year Ended December 31, 2003 and Option Values
Value of Unexercised | ||||||||||||||||||||||||
Number of Unexercised | In-the-Money Options at | |||||||||||||||||||||||
Shares | Options at Year-End | Year End | ||||||||||||||||||||||
Acquired on | Value | |||||||||||||||||||||||
Name | Exercise | Realized | Exercisable | Unexercisable | Exercisable | Unexercisable | ||||||||||||||||||
Kevin P. Corcoran
|
| | 13,745 | 39,132 | $ | 25,680 | $ | 145,520 | ||||||||||||||||
Edward C. Albini
|
| | 21,353 | 32,930 | $ | 19,260 | $ | 109,140 | ||||||||||||||||
Jen-i Mao, Ph.D.
|
| | 18,713 | 22,714 | $ | 16,050 | $ | 90,950 | ||||||||||||||||
Kathy A. San Roman
|
| | 16,069 | 26,296 | $ | 16,071 | $ | 90,950 | ||||||||||||||||
Thomas J. Vasicek, Ph.D.
|
| | 5,142 | 37,000 | | $ | 107,000 |
Employment, Severance and Change of Control Agreements
In March 2003, Lynx entered into an employment agreement with Edward C. Albini, Lynxs former Chief Financial Officer and Secretary, providing for an annual compensation of $250,000. In the event Mr. Albinis employment is terminated without cause by Lynx, or by any successor or acquiring entity, upon or after certain change of control events, Mr. Albini shall be eligible to receive severance compensation equal to three months of his base salary. The severance shall be the only severance, benefit or cash compensation, other than accrued wages, to which Mr. Albini shall be entitled from Lynx in the event of a termination without cause. In the event, however, that a successor or acquiring entity is obligated to pay such severance to Mr. Albini, such severance shall be in addition to any equity compensation or benefits for which Mr. Albini may be eligible under the Lynx 1992 plan. Mr. Albini resigned as Chief Financial Officer and Secretary of Lynx effective as of February 25, 2004.
In March 2003, Lynx entered into an employment agreement with Kathy A. San Roman, Lynxs Vice President, Human Resources and Administration, providing for an annual compensation of $160,000. In the event Ms. San Romans employment is terminated without cause by Lynx, or by any successor or acquiring entity, upon or after certain change of control events, Ms. San Roman shall be eligible to receive severance compensation equal to three months of her base salary. The severance shall be the only severance, benefit or cash compensation, other than accrued wages, to which Ms. San Roman shall be entitled from Lynx in the event of a termination without cause. In the event, however, that a successor or acquiring entity is obligated to pay such severance to Ms. San Roman, such severance shall be in addition to any equity compensation or benefits for which Ms. San Roman may be eligible under the Lynx 1992 plan.
In March 2003, Lynx granted stock options under the Lynx 1992 plan to Kevin C. Corcoran, Edward C. Albini, Thomas J. Vasicek, Ph.D., Jen-i Mao, Ph.D. and Kathy A. San Roman to purchase 40,000, 30,000, 25,000, 25,000 and 25,000 shares of common stock, respectively. If within thirteen months following a change of control, each optionholders continuous service is terminated (i) due to an involuntary termination without cause or (ii) due to a voluntary termination with good reason, then the vesting and exercisability of the shares subject to such option shall be accelerated in full.
In June 2002, Lynx entered into an employment agreement with Kevin P. Corcoran, Lynxs President and Chief Executive Officer, providing for an annual compensation of $250,000. In the event Mr. Corcorans employment is terminated without cause by Lynx, or by any successor or acquiring entity, upon or after certain change of control events, Mr. Corcoran shall be eligible to receive severance compensation: (a) if the termination occurs on or prior to the first year anniversary of the effective date of the agreement, equal to six months of his base salary; and (b) if the termination occurs after the first year anniversary of the effective date of the agreement, equal to three months of his base salary. The severance shall be the only severance, benefit or cash compensation, other than accrued wages, to which Mr. Corcoran shall be entitled from Lynx in the
147
In June 2002, Lynx entered into an employment agreement with Thomas J. Vasicek, Ph.D., Lynxs Vice President, Business Development, providing for (i) an initial annual compensation of $200,000; (ii) subject to certain performance-based criteria, a potential annualized base salary increase to $240,000; and (iii) subject to the achievement of certain milestones, a possible cash bonus equal to one percent of the cash proceeds received by Lynx from certain third-party transactions. Also under the terms of the agreement, Dr. Vasicek was granted an option to purchase 17,142 shares of common stock at an exercise price of $8.05 per share, subject to a five-year vesting schedule. In the event Dr. Vasiceks employment is terminated without cause by Lynx, or by any successor or acquiring entity, upon or after certain change of control events, Dr. Vasicek shall be eligible to receive severance compensation: (a) if the termination occurs on or prior to the first year anniversary of Dr. Vasiceks hire date, equal to six months of his base salary; and (b) if the termination occurs after the first year anniversary of Dr. Vasiceks hire date, equal to three months of his base salary. The severance shall be the only severance, benefit or cash compensation, other than accrued wages, to which Dr. Vasicek shall be entitled from Lynx in the event of a termination without cause. In the event, however, that a successor or acquiring entity is obligated to pay such severance to Dr. Vasicek, such severance shall be in addition to any equity compensation or benefits for which Dr. Vasicek may be eligible under the Lynx 1992 plan.
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REPORT OF THE COMPENSATION COMMITTEE OF THE BOARD OF DIRECTORS
General
Lynx became a public reporting company in December l993, and the Compensation Committee of the board was established in March l994. Accordingly, the Compensation Committee has made the primary compensation determinations for Lynxs officers, including the establishment of base salaries, consideration of bonuses and stock option grants. The current members of the Compensation Committee are Messrs. Taylor and Kitch. The Compensation Committee has provided the following with respect to the compensation of executive officers during the year ended December 31, 2003.
Compensation Philosophy
Lynx and its Compensation Committee believe that the compensation of all employees, including executive officers, must be sufficient to attract and retain highly qualified personnel and that Lynx must align compensation with short-term and long-term business strategies and performance goals. The current compensation philosophy is to emphasize stockholder value linked with incentives such as stock options over salary increases. The basic elements of executive officer compensation are as follows:
Salary. To insure that its compensation practices remain competitive, Lynx compares its compensation of executives with that of executives of other companies of similar industry, size and geographic location. Salary increases are generally granted on an annual basis and are based on both individual performance and the standard percentage of salary increases granted to other employees.
Bonuses. During 2003, the Compensation Committee did not consider bonuses when establishing executive compensation, focusing instead on base salary and long-term incentives as the primary compensation vehicles appropriate to the stages of Lynxs development. As part of its general compensation philosophy, however, Lynx believes that executive performance may be maximized via a system of annual incentive awards, and Lynx may consider such awards in the future.
Long-term Incentives. Lynx believes that equity ownership provides significant motivation to executive officers to maximize value for Lynxs stockholders. The Compensation Committee grants stock options to executive officers and other key employees based on a variety of factors, including the financial performance of Lynx and assessment of personal performance. Through stock option grants, executives receive significant equity incentives to build long-term stockholder value. The exercise price of options generally is 100% of the fair market value as quoted on the NASDAQ SmallCap Market on the last market trading day prior to the day of determination. Employees receive value from these grants only if the common stock appreciates in the long term.
The size of option grants is generally intended to reflect the executive officers position with Lynx and his or her contributions to Lynx, including his or her success in achieving their individual performance criteria. Lynxs option program generally uses a five-year vesting period to encourage key employees to continue in the employ of Lynx. During 2003, options granted to executive officers vesting in equal monthly installments from the date of grant over a five-year period. All stock options granted to executive officers in 2003 were granted at a fair market value on the date of grant.
Chief Executive Officer Compensation
Mr. Corcorans compensation was established in accordance with the criteria described above and pursuant to the terms of his employment agreement. Mr. Corcoran received an annual compensation of
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Federal Tax Considerations
Section 162(m) of the Code limits Lynx to a deduction for federal income tax purposes of not more than $1 million of compensation paid to certain executive officers in a taxable year. Compensation above $1 million may be deducted if it is performance-based compensation within the meaning of the Code. The board of directors has not yet established a policy for determining which forms of incentive compensation awarded to executive officers shall be designed to qualify as performance based compensation.
From the members of the Compensation Committee: | |
Craig C. Taylor | |
James C. Kitch |
Compensation Committee Interlocks and Insider Participation
Lynxs Compensation Committee was established in March 1994 and is currently composed of two non-employee directors: Messrs. Taylor and Kitch. Mr. Taylor served as Acting Chief Financial Officer of Lynx from July 1994 to April 1997, and Mr. Kitch served as Secretary of Lynx from February 1992 to December 1997. There were no officers or employees of Lynx who participated in deliberations of the Compensation Committee concerning executive officer compensation during the year ended December 31, 2003. No executive officer of Lynx has served as a member of the board of directors or compensation committee of any entity that has one or more executive officers serving as a member of Lynxs board of directors or Compensation Committee.
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PERFORMANCE MEASUREMENT COMPARISON(3)
The following graph shows the initial stockholder return of an investment of $100 in cash on December 30, 1998 for: (i) the common stock of Lynx; (ii) the NASDAQ Stock Market; and (iii) the S&P Biotechnology Index. All values assume reinvestment of the full amount of all dividends and are calculated as of December 31 of each year.
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CERTAIN LYNX TRANSACTIONS
For legal services rendered during the calendar year ended December 31, 2003, Lynx paid approximately $322,000 to Cooley Godward LLP, Lynxs counsel, of which Mr. Kitch, a director of Lynx, is a partner.
For business development consulting services and expenses during the calendar year ended December 31, 2003, Lynx paid approximately $204,000 to L.E.K. Consulting LLC, of which, Mr. Kozin, a director of Lynx, is President of their North American practice.
In June 2001, Dr. Brenner entered into a consulting agreement with Lynx. Pursuant to the agreement, Dr. Brenner performs consulting services of at least eight to 16 hours per month in consideration of his standard consulting fee. In 2003, Dr. Brenner received no consulting fees for services performed for Lynx.
For genomics discovery services performed during the calendar year ended December 31, 2003, Lynx received approximately $248,000 from the Institute for Systems Biology, of which, Dr. Hood, a director of Lynx, is President and Director.
Lynxs bylaws provide that Lynx will indemnify its directors and executive officers and may indemnify Lynxs other officers, employees and other agents to the fullest extent permitted by Delaware law. Lynx is also empowered under its Bylaws to enter into indemnification agreements with its directors and officers and to purchase insurance on behalf of any person whom Lynx is required or permitted to indemnify. Pursuant to this provision, Lynx have entered into indemnity agreements with each of its directors and executive officers, as well as certain employees.
HOUSEHOLDING OF PROXY MATERIALS
The SEC has adopted rules that permit companies and intermediaries (e.g., brokers) to satisfy the delivery requirements for proxy statements and annual reports with respect to two or more stockholders sharing the same address by delivering a single proxy statement addressed to those stockholders. This process, which is commonly referred to as householding, potentially means extra convenience for stockholders and cost savings for companies.
This year, a number of brokers with account holders who are Lynx stockholders will be householding Lynxs proxy materials. A single proxy statement will be delivered to multiple stockholders sharing an address unless contrary instructions have been received from the affected stockholders. Once a Lynx stockholder has received notice from such stockholders broker that they will be householding communications to such stockholders address, householding will continue until he or she are notified otherwise or until such stockholder revoke such stockholders consent. If, at any time, a Lynx stockholder no longer wish to participate in householding and would prefer to receive a separate proxy statement and annual report, such stockholder shall notify such stockholders broker, direct a written request to: Investor Relations, Lynx Therapeutics, Inc., 25861 Industrial Blvd., Hayward, CA 94545 or contact Kathy San Roman at (510) 670-9300. Stockholders who currently receive multiple copies of the proxy statement at their address and would like to request householding of their communications should contact their broker.
OTHER MATTERS
Lynxs board of directors knows of no other matters that will be presented for consideration at the annual meeting. If any other matters are properly brought before the meeting, it is the intention of the persons named in the accompanying proxy to vote on such matters in accordance with their best judgment.
A copy of Lynxs Annual Report to the SEC on Form 10-K for the fiscal year ended December 31, 2003, as amended, is available without charge upon written request to: Investor Relations, Lynx Therapeutics, Inc., 25861 Industrial Blvd., Hayward, California 94545.
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CHAPTER FIVE INFORMATION FOR SOLEXA SHAREHOLDERS
THIS DOCUMENT IS IMPORTANT AND REQUIRES YOUR IMMEDIATE ATTENTION. If you are in any doubt as to the action you should take, and if you are in the U.K., you are recommended to seek your own personal financial advice immediately from your stockbroker, bank manager, solicitor, accountant or other independent financial adviser duly authorized under the Financial Services and Markets Act 2000. If you are outside the U.K. you should immediately consult another appropriately authorized independent financial adviser.
The distribution of this document in jurisdictions other than the U.K. may be restricted by law. If you are a Solexa shareholder and are not located in the U.K., you should inform yourself of these restrictions. Any failure to comply with any of those restrictions may constitute a violation of the securities laws of any such jurisdiction.
The contents of this document and the form of acceptance, which have been prepared by and are the sole responsibility of Lynx Therapeutics, Inc., have been approved by Gargoyle Partners LLP (regulated in the U.K. by the Financial Services Authority) solely for the purposes of section 21 of the Financial Services and Markets Act 2000. Gargoyle Partners LLP is acting for Lynx Therapeutics, Inc. and no one else in connection with the offer and will not be responsible to any other person for providing the protections afforded to clients by Gargoyle Partners LLP or for providing advice in relation to the offer.
153
LETTER FROM THE CHAIRMAN OF SOLEXA LIMITED
Solexa Limited,
200
To Solexa Shareholders and, for information only, to holders of Solexa Options
Dear Solexa Shareholder,
OFFER BY LYNX THERAPEUTICS, INC. FOR SOLEXA LIMITED
Introduction
It was announced on 28 September 2004 that Solexa and Lynx had reached agreement on the terms of a recommended transaction.
I am writing on behalf of Solexas board of directors to explain the background to the proposed transaction and the reasons why your board of directors considers the terms of the Offer to be in the best interests of Solexa and unanimously recommends that you accept the Offer.
This letter, together with the letter from the Chairman of Lynx and the attached registration statement on Form S-4, constitutes the document. Defined terms used in this letter are defined in Appendix II to the letter from the Chairman of Lynx. The terms of the Offer and further information on Lynx and Solexa and their respective financial positions are set out in this document.
The transaction also has the support and recommendation of Lynxs board of directors. A document addressed to Lynxs stockholders is being sent to Lynxs stockholders asking them to vote at the Lynx Stockholders Meeting. The Offer is conditional upon, amongst other things, the Lynx Stockholder Approvals.
Summary of the Terms of the Offer
The transaction is to be effected through an Offer being made by Lynx to acquire, subject to the conditions and further terms set out in Appendix I to the letter from the Chairman of Lynx and the accompanying Form of Acceptance, all of the outstanding Solexa Shares, and through an Option Offer for each outstanding Solexa Option.
The formal Offer is set out in the letter from the Chairman of Lynx.
Lynx will issue, or otherwise allocate for issue under options to acquire Lynx common stock, a total of 29.5 million shares of Lynx Common Stock pursuant to the terms of the Offer and the Option Offer. The 29.5 million shares of Lynx Common Stock will comprise (a) the Lynx Common Stock issued in exchange for all of the outstanding Solexa Shares (including those Solexa Ordinary Shares issued upon the exercise of the Solexa Options); and (b) the Lynx Common Stock to be issued upon exercise (whenever exercised) of options to acquire Lynx Common Stock received in exchange for Solexa Options.
Following the completion of the transaction, Solexa Shareholders will become holders of Lynx Common Stock, and Solexa will become a wholly-owned subsidiary of Lynx. Based on the number of shares of Lynx Common Stock outstanding as of October 5, 2004 and the shares of Lynx common stock to be issued or otherwise allocated for issuance, following the completion of the transaction and upon such issue, the current shareholders and optionholders of Solexa will own approximately 80% of the outstanding Lynx Common
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On October 26, 2004, the closing sales price of Lynx Common Stock on the NASDAQ SmallCap Market was $3.00 per share. This valued the entire issued share capital of Solexa at that date at approximately $22.5 million.
Background to and Reasons for Recommending the Offer
The background to the transaction can be found beginning on page 36 of the registration statement and Solexas board of directors reasons for its recommendation can be found beginning on page 40 of the registration statement.
Action to be Taken to Accept the Offer
The procedure for acceptance of the Offer is set out in paragraph 6 of the letter from the Chairman of Lynx.
Taxation
Your attention is drawn to the paragraph headed Material U.K. Tax Consequences of the Transaction in Appendix III to the letter from the Chairman of Lynx. If you are in any doubt as to your own tax position, you should immediately consult an independent financial advisor.
Option Offer
In connection with the transaction, all outstanding Solexa Options will, in the event of a compulsory acquisition, become fully vested and exercisable pursuant to the terms of the applicable Solexa Plans. For details of the compulsory acquisition, see the section entitled Compulsory Acquisition on page 159.
Under the Option Offer to be made by Lynx, holders of Solexa Options will be able to elect to exercise their Solexa Options and thereby be deemed to accept the Offer (while it remains open for acceptance) in respect of the Solexa Shares they receive on exercise. However, it may not be in the interests of all Solexa Option holders to exercise their Solexa Options, depending on the relevant option exercise price and the value of Lynx Common Stock.
Alternatively, holders of Solexa Options will be able to elect to roll their Solexa Options over into options to purchase Lynx Common Stock, which options will remain subject to the original vesting schedule and other applicable terms and conditions. Under the Option Offer, if holders of Solexa Options do not elect to exercise their Solexa Options or to roll their Solexa Options over into options to purchase shares of Lynx Common Stock, and if the compulsory acquisition procedure is implemented by Lynx to acquire any remaining Ordinary Shares, the Solexa Options will terminate and cease to be outstanding within one month following notification to Solexa optionholders of such compulsory acquisition procedure. The terms of the Option Offer and the details of compulsory acquisition are summarized on Appendix III to the letter from the Chairman of Lynx. Lynx will write to Solexa Option holders in more detail on this subject in due course.
Further Information
Your attention is also drawn to the terms of the Offer and other information on Lynx and Solexa contained in this document and the additional information for Solexa Shareholders set out in Appendix III to the letter from the Chairman of Lynx.
Irrevocable Undertakings
Lynx has received signed Company Support Agreements, containing irrevocable undertakings to accept the Offer, from certain Solexa Shareholders holding such number of Solexa Shares equal to 100% of the outstanding Solexa B Preferred Shares, 100% of the Solexa A Ordinary Shares and approximately 85.2% of
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Recommendation
Solexas board of directors consider the terms of the Offer to be in the best interests of Solexa. Accordingly, Solexas board of directors unanimously recommends all Solexa Shareholders accept the Offer.
Yours faithfully | |
Tim Rink | |
Chairman |
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LETTER FROM THE CHAIRMAN OF LYNX THERAPEUTICS, INC.
LYNX THERAPEUTICS, INC.
Registered office:
200
To Solexa Shareholders and, for information only, to holders of Solexa options
Dear Solexa Shareholder,
OFFER BY LYNX THERAPEUTICS, INC. FOR SOLEXA LIMITED
1. Introduction
1.1 On 28 September 2004, Lynx and Solexa entered into an Acquisition Agreement pursuant to which Lynx agreed to make an Offer for the whole of the issued share capital of Solexa. Solexas board of directors has approved the terms of the Offer and recommended that Solexas shareholders accept the Offer. This letter contains the Offer. A Form of Acceptance for completion by you, if you wish to accept the Offer, is enclosed with this letter.
1.2 Lynx is required to prepare and file with the United States Securities and Exchange Commission a registration statement to register the offer and sale of Lynx Common Stock to be issued or otherwise allocated for issue pursuant to the Offer and the Option Offer. The registration statement also includes the proxy statement for Lynx Stockholders Meeting which will be convened for the purposes of obtaining the Lynx Stockholder Approvals.
1.3 The registration statement was declared effective on under the Securities Act. A copy of the registration statement, including the proxy statement that has today been sent to the stockholders of Lynx, accompanies this letter.
1.4 All capitalised terms herein are defined in Appendix II.
2. The Offer
2.1 Lynx hereby offers to acquire all the Solexa Shares, on the terms and subject to the conditions set out in Appendix I attached hereto and in the Form of Acceptance.
2.2 The Solexa Shares will be acquired fully paid and free from all liens, charges and Encumbrances and together with all rights attaching to them as at the date of Completion. The right to receive all accrued dividend rights and entitlements attaching to the Solexa Shares (whether or not declared, due or owing) including any debts due by Solexa in respect thereof will be transferred to Lynx.
2.3 The Offer is conditional upon satisfaction or, where permitted, waiver of each of the Conditions set out in Part A of Appendix I and is subject to the further terms set out in Part B of Appendix I.
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3. Consideration
3.1 The consideration for the sale of the B Preferred Shares will be satisfied by the issue and allotment by Lynx at Completion to the B Preferred Shareholders of:
2.61560 Lynx Common Stock for every B Preferred Share |
3.2 The consideration for the sale of the A Ordinary Shares will be satisfied by the issue and allotment by Lynx at Completion to the A Ordinary Shareholders of:
2.75326 Lynx Common Stock for every A Ordinary Share |
3.3 The consideration for the sale of the Ordinary Shares will be satisfied by the issue and allotment by Lynx to the Ordinary Shareholders of a total of:
0.88637 Lynx Common Stock for every Ordinary Share |
3.4 In the event that the total number of shares of Lynx Common Stock issued or allocated for issuance pursuant to the Offer and the Option Offer shall be less than 29.5 million, then an additional number of shares of Lynx Common Stock shall be issued on a pro rata basis to the holders of Solexa Shares and Solexa Options so that the total number of shares issued or allocated for issuance shall be equal to 29.5 million.
3.5 Lynx Common Stock issued in respect of fractional entitlements will not be allotted to Solexa Shareholders on Completion but in lieu thereof each accepting Solexa Shareholder will receive from Lynx an amount of cash (rounded to the nearest whole cent), without interest, equal to the product obtained by multiplying such fraction by the closing price of one share of Lynx Common Stock, as reported on the NASDAQ SmallCap Market, for the last trading day immediately prior to Completion.
4. Consideration Shares
4.1 The Consideration Shares will be allotted, credited as fully paid, and will rank pari passu in all respects with Lynx Common Stock in issue at the date of their allotment.
4.2 Lynx will use all reasonable endeavours to ensure that all the Consideration Shares are listed on the NASDAQ SmallCap Market on or as soon as reasonably practicable after their allotment.
4.3 The Consideration Shares may not, directly or indirectly, be sold or transferred by a Solexa Shareholder for 180 days following the first issue of Consideration Shares by Lynx.
5. Payment of Consideration
5.1 Any share certificates in respect of Consideration Shares to be issued by Lynx to Solexa Shareholders who validly accept the Offer, and whose acceptances are complete in all respects, will be delivered as soon as practicable following Completion (and, in any event, within 10 days of Completion) to Solexa. Solexa will be responsible for distributing such documents to Solexas shareholders in accordance with the completed instructions in the Form of Acceptance.
5.2 All documents and remittances sent by or to Solexas shareholders will be sent at their risk and no acknowledgement of receipt will be given by Lynx. If the Offer is withdrawn or terminates in accordance with its terms, the Form of Acceptance, share certificate(s) and/or other document(s) of title will be sent by post within seven days of the Offer being withdrawn or terminating to the address set out in the Form of Acceptance or, if none is set out, to Solexa (who will be responsible for distributing such documents to the relevant Solexa Shareholders).
6. Procedure for Acceptance
6.1 To accept the Offer, you must complete and sign the accompanying Form of Acceptance in accordance with the instructions contained in it which form part of the terms of the Offer.
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6.2 The Form of Acceptance, duly completed in all respects, should be returned, together with the relevant share certificate(s) and/or other document(s) of title, to Leigh Palmer, Solexa Limited, Chesterford Research Park, Little Chesterford, Nr. Saffron Walden, Essex CB10 1XL, Great Britain, so as to arrive as soon as possible, but in any event not later than on , 200 . Lynx and its agents reserve the right to treat as valid in whole or in part Forms of Acceptance which are not entirely in order or for which the relative share certificate(s) and/or other documents of title are not lodged with Leigh Palmer.
6.3 Even if your share certificate(s) and/or other document(s) of title is/are not readily available or is/are lost, you should nevertheless complete, sign and return the Form of Acceptance as indicated above. The share certificate(s) and/or other document(s) of title should be forwarded as soon as possible thereafter, or, if you have lost your share certificate(s), a form of lost share certificate indemnity (a Share Indemnity) should be requested from Leigh Palmer, Solexa Limited, Chesterford Research Park, Little Chesterford, Nr. Saffron Walden, Essex CB10 1XL, Great Britain and completed and signed as indicated. Although no Consideration Shares will be issued or allotted to you until such document(s), or a duly completed Share Indemnity in lieu thereof, is/are received, Lynx reserves the right to treat acceptances of the Offer as valid, even though not complete in all respects or not accompanied by the relative share certificate(s) and/or other document(s) of title.
7. Taxation
Your attention is drawn to the paragraph entitled Material U.K. Tax Consequences of the Transaction in Appendix III attached hereto. If you are in any doubt as to your own tax position, you should immediately consult an independent financial advisor. |
8. Option Offer
8.1 The Option Offer will extend the Offer to holders of Solexa Options who may choose to exercise their Solexa Options (while it remains open for acceptance) in respect of the Solexa Shares they receive on exercise. Alternatively, the holders of Solexa Options may choose to exchange their Solexa Options for equivalent options to purchase shares of Lynx Common Stock on the basis of 0.88637 Lynx Common Stock under new Lynx options for every 1 Ordinary Share under existing options to purchase Solexa Shares.
8.2 Lynx will be writing to holders of Solexa Options separately with further details of the Option Offer.
9. Compulsory Acquisition
9.1 If the Offer becomes or is declared unconditional in all respects and if valid acceptances in respect of not less than 90% of the Ordinary Shares have been received, Lynx intends to exercise its rights pursuant to the provisions of section 428 to 430F of the Companies Act 1985 (as amended) to acquire compulsorily any remaining Ordinary Shares.
9.2 Lynx has received irrevocable undertakings pursuant to the Company Support Documents, to accept (or procure the acceptance of) the Offer in respect of the following shares:
(a) a total of 4,166,666 B Preferred Shares representing 100% of all the issued B Preferred Shares in the share capital of Solexa as at the date of this document; | |
(b) a total of 5,000,002 A Ordinary Shares representing 100% of all the issued A Ordinary Shares in the share capital of Solexa as at the date of this document; and | |
(c) a total of 1,928,596 Ordinary Shares representing 85.2% of all the Ordinary Shares in the share capital of Solexa as at the date of this document. |
9.3 The irrevocable undertakings will only cease to be binding in the event of the Acquisition Agreement being amended by Lynx and Solexa to lower or change the form of consideration set out in the Acquisition Agreement.
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10. Further Information
Your attention is drawn to the Form of Acceptance and to the following Appendices which form part of this document: |
Appendix I
|
Conditions and further terms of the Offer | |
Appendix II
|
Definitions | |
Appendix III
|
Additional Information for Solexa Shareholders |
11. Action to be Taken
To accept the Offer, the Form of Acceptance must be completed and returned. Forms of Acceptance should be completed and returned as soon as possible and, in any event so as to be received by not later than , London time, on 200 . |
Yours faithfully | |
Craig Taylor | |
Chairman of the Board | |
Lynx Therapeutics, Inc. |
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APPENDIX I
CONDITIONS AND CERTAIN FURTHER TERMS OF THE OFFER
Part A: Conditions of the Offer
1. The Offer is subject to the valid acceptances being received (and not, where permitted, withdrawn) in respect of not less than 90% in nominal value of each class of Solexa Shares to which the Offer relates.
2. The Offer is also subject to the following conditions being fulfilled or, where appropriate, waived by Lynx or Solexa, as applicable:
(a) each party having received each of the Required Consents; | |
(b) the representations and warranties of each party set forth in the Acquisition Agreement, in accordance with the terms of the Acquisition Agreement: (i) being true and correct in all material respects as of the date of the Acquisition Agreement; or (ii) being true and correct, disregarding all qualifications and exceptions relating to materiality contained in such representations and warranties, on and as of the date of the expiration of the Offer with the same force and effect as if made or as of such date, except for those representations and warranties which address matters only as of a particular date, which must be true and correct as of such date; provided, however, that there shall be excluded and disregarded for the purpose of this clause 1(c)(ii) any failure of such representations and warranties to be true and correct where such failure would not, individually or in the aggregate, have a Material Adverse Effect on Solexa; | |
(c) each party having performed in all material respects any obligation or complied in all material respects with any of its agreements or covenants to be performed or complied with by it under the Acquisition Agreement prior to the expiration of the Offer; | |
(d) the Registration Statement becoming effective under the Securities Act or not being the subject of any stop order or proceedings or threatened proceedings suspending the effectiveness of the registration statement or any part thereof; | |
(e) the shares of Lynx Common Stock to be issued in the Offer being approved for listing on the NASDAQ SmallCap Market, subject to official notice of issuance; | |
(f) Lynx having obtained the Lynx Stockholder Approvals; | |
(g) there being no suit, action or proceeding by any Governmental Entity pending or overtly threatened in writing against Lynx or Solexa: (i) seeking to prohibit or impose any material limitations on Lynxs ownership or operation of all or a material portion of Solexas businesses or assets, or to compel Lynx or its Subsidiaries and affiliates to dispose of or hold separate any material portion of the business or assets of Solexa or Lynx and its Subsidiaries, in each case taken as a whole; (ii) challenging the acquisition by Lynx of any Solexa Shares under the Offer, seeking to restrain or prohibit the making or completion of the transaction or the performance of any of the other transactions contemplated by the Acquisition Agreement, the Lynx Support Agreement or Solexa Support Agreement (including the voting and/or Offer acceptance provisions thereunder), or seeking to obtain from Solexa or Lynx any damages that are material in relation to Lynx and Solexa, taken as a whole; (iii) seeking to impose material limitations on the ability of Lynx, or render Lynx unable, to exchange, pay for or purchase some or all of the Solexa Shares pursuant to the Offer; (iv) seeking to impose material limitations on the ability of Lynx to effectively exercise full rights of ownership of Solexa Shares, including, without limitation, the right to vote the Solexa Shares purchased by it on all matters properly presented to Solexa shareholders; (v) obliging Solexa, Lynx or any of Lynxs Subsidiaries to pay material damages in connection with the transactions contemplated by the Acquisition Agreement; or (vi) which otherwise is reasonably likely to have a Material Adverse Effect on Solexa and Lynx taken together as a whole; | |
(h) there being no law, statute, rule, regulation, ordinance, judgment, order, decree or injunction enacted, entered, enforced, promulgated, or deemed applicable, pursuant to an authoritative interpreta- |
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tion by or on behalf of any Government Entity, to the Offer, or any other action being taken by any Governmental Entity, that could reasonably be expected to result, directly or indirectly, in any of the consequences referred to in (i) through (vi) of paragraph 1(j) above; | |
(i) no change having occurred in the recommendation of Solexas board of directors that Solexas Shareholders accept the Offer nor any resolution of Solexas board of directors being passed to do so; | |
(j) no change having occurred in the recommendation of Lynxs board of directors that Lynxs stockholders give the Lynx Stockholders Approvals and approve each of the other proposals that Lynx and Solexa shall deem reasonably necessary for the purpose of effecting the transaction nor any resolution of Lynxs board of directors being passed to do so; | |
(k) there having been no Material Adverse Effect with respect to each party; and | |
(l) the Acquisition Agreement not having terminated in accordance with its terms. |
3. In addition, the Offer is subject to the fulfilment or waiver by Lynx of the following condition:
(a) Solexa having had cash and cash equivalent balances of at least £5,000,000 on December 1, 2004; provided, however, that for purposes of this condition, cash and cash equivalents of Solexa includes: (A) the aggregate principal amount of all Advances made prior to Completion pursuant to the Loan Agreement; (B) the aggregate payments made by Solexa to Lynx pursuant to the Modified Agreements; and (C) up to $300,000 of fees and expenses incurred by Solexa in connection with the Acquisition Agreement and the transactions contemplated thereby and paid by Solexa at or prior to December 1, 2004. |
4. Furthermore, the Offer is subject to the fulfilment or waiver by Solexa of several conditions, including the following:
(a) Seven Hills not having withdrawn or modified its fairness opinion delivered to Lynxs board of directors in a manner adverse to Lynx or Solexa; | |
(b) Solexa having received confirmation from the U.K. Inland Revenue that the sale of Solexa Shares in exchange for shares of Lynx Common Stock will qualify for roll-over relief from capital gains tax under applicable English law; | |
(c) Lynx being eligible to register the shares of Lynx Common Stock issued to certain Solexa shareholders for resale using Form S-3; | |
(d) there not having occurred a dissolution, liquidation or termination of existence of Lynx or the failure of Lynx to pay its debts as they mature on a reasonably timely basis or any similar occurrence; and | |
(e) Solexa having received an opinion of Solexas corporate counsel and Lynx having received an opinion of Lynxs corporate counsel, each to the effect that the offer will qualify as a reorganization for United States federal income tax purposes. |
Part B: Further Terms of the Offer
The following further terms apply to the Offer:
1. If the Conditions set out in Part A, Appendix I above have not been satisfied or, where permitted, waived on or before 31 March 2005 then, but without prejudice to any other rights or remedies available to Lynx, Lynx may without any liability to Solexas shareholders elect to withdraw the Offer by giving notice in writing to Solexa. | |
2. Subject to paragraph 1, the Offer is open for acceptance by every recipient until the date upon which the Offer becomes wholly unconditional. If the Offer becomes unconditional, it will remain open for acceptance for not less than six weeks from the date on which the Offer became wholly unconditional. | |
3. The Offer will lapse and entirely terminate if all the Conditions have not been satisfied or waived by 31 March 2005 or such later date as Lynx and Solexa may agree. |
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4. The Solexa Shares will be acquired free from all liens, charges, and Encumbrances and together with all rights attached to them as at the date of Completion, and the right to receive all accrued dividend rights and entitlements attaching to the Solexa Shares (whether or not declared, due or owing) including any debts due by Solexa in respect thereof will be transferred to Lynx. | |
5. Any Consideration Shares allotted to a Solexa Shareholder located in the United States or that is a U.S. Person will be issued in certificated form and each share certificate issued to a U.S. Person shall bear a legend to the following effect: |
THE SHARES REPRESENTED BY THIS CERTIFICATE WERE ISSUED IN A TRANSACTION TO WHICH RULE 145 PROMULGATED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, APPLIES. THE SHARES REPRESENTED BY THIS CERTIFICATE MAY NOT BE TRANSFERRED UNTIL THE DATE THAT IS 180 DAYS FOLLOWING THE FIRST CLOSING DATE (AS DEFINED IN THE ACQUISITION AGREEMENT DATED SEPTEMBER 28, 2004 BETWEEN LYNX THERAPEUTICS, INC. AND SOLEXA LIMITED, A COPY OF WHICH AGREEMENT IS ON FILE AT THE PRINCIPAL OFFICES OF LYNX THERAPEUTICS, INC). THE HOLDER WILL, AND EACH SUBSEQUENT U.S. PERSON IS REQUIRED TO, NOTIFY ANY SUBSEQUENT PURCHASER OF SHARES FROM IT OF THE FOREGOING RESTRICTIONS. |
6. The instructions and authorities contained in, and the terms of, the Form of Acceptance constitute part of the terms of the Offer. | |
7. The Offer and all acceptances thereof and the Form of Acceptance shall be governed by and construed in accordance with English law. | |
8. The accidental omission to despatch this document to, or any failure to receive the same by, any person to whom the Offer is made, or should be made, shall not invalidate the Offer in any way. All communications, notices, certificates, documents of title and remittances to be delivered by or sent to or from Solexa Shareholders will be delivered by or sent to or from them (or their designated agents) at their own risk. No acknowledgement of receipt of any Form of Acceptance, share certificate(s) or other documents of title will be given. Lynx reserves the right to treat acceptances of the Offer as valid although not accompanied by the relevant share certificate(s) and/or other documents of title or otherwise not in order. | |
9. All powers of attorney and authorities on the terms conferred by or referred to in this Appendix I or in the Form of Acceptance are given by way of security for the performance of the obligations of the Solexa Shareholder concerned and are irrevocable in accordance with section 4 of the Powers of Attorney Act 1971. | |
10. Each Solexa Shareholder by whom, or on whose behalf, the Form of Acceptance is executed irrevocably undertakes, warrants and agrees to and with Lynx (so as to bind him, his personal representatives, heirs, successors and assigns) to the following effect: |
(a) that, in the event that the Solexa Shareholder is the registered holder of any B Preferred Shares, the Solexa Shareholder shall not following receipt of a Notice of a Company-Building Merger (as referred to in Article 2 of the Solexa Articles) or otherwise in contemplation of the Offer elect or vote in favour of Article 2.5(a)(ii) of the Solexa Articles; | |
(b) that, in the event that the Solexa Shareholder is the registered holder of any A Ordinary Shares, the Solexa Shareholder shall not following receipt of a Notice of a Company-Building Merger (as referred to in the Solexa Articles) or otherwise in contemplation of the Offer elect or vote in favour of Article 2.5(b)(ii) of the Solexa Articles; | |
(c) that the execution of the Form of Acceptance by it constitutes (i) an irrevocable acceptance of the Offer in respect of the number of Solexa Shares inserted or deemed to be inserted in the Form of Acceptance, subject to the terms and conditions set out or referred to in this document and the Form of Acceptance and (ii) a waiver of any rights of pre-emption under the |
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Solexa Articles, the Shareholders Agreement or otherwise in respect of the transfer of any of the Solexa Shares or any Solexa Shares or other securities in the share capital of Solexa owned by, or issuable to, any person; | |
(d) that the Solexa Shares in respect of which the Offer is accepted or deemed to be accepted by him are sold free from all liens, charges or Encumbrances and together with all rights attaching thereto as at the date of Completion and that there are transferred to Lynx the right to receive all accrued dividend rights and entitlements attaching to the Solexa Shares (whether or not declared, due or owing) including any debts due by Solexa in respect thereof; | |
(e) that Lynx shall be entitled (without prejudice to Lynxs entitlements under the Company Support Documents), once the Offer becomes unconditional, to direct the exercise (including, without limitation, the execution and delivery of written resolutions) of any votes attaching to any Solexa Shares in respect of which the Offer has been accepted or is deemed to have been accepted by it, and that the execution of the Form of Acceptance by it constitutes an authority to Solexa from such Solexa Shareholder to send any notice which may be required to be sent to him as a member of Solexa to Lynx at its registered office, and an authority to any director of Lynx to act as his attorney with the power to sign any consent to short notice of a general meeting on his behalf and/or to execute a form of proxy in respect of such Solexa Shares appointing any person determined by Lynx to attend general meetings of Solexa and to exercise the votes attaching to such Solexa Shares on its behalf, where relevant, such votes to be cast as Lynx may determine and prior to the Offer becoming unconditional, such Solexa Shareholder shall exercise his votes in relation to such resolutions as may be reasonably necessary to enable the Offer to be implemented provided that, in the case of a Solexa Shareholder executing a Form of Acceptance in the capacity of trustee, the appointment of the attorney is made in accordance with section 25 of the Trustee Act 1925 and shall be effective for the period of 12 months from the date of the Form of Acceptance; | |
(f) that the execution of the Form of Acceptance constitutes, subject to the Offer becoming unconditional, in accordance with its terms: |
(i) consent of the Solexa Shareholder to the transfer of any other Solexa Shares to Lynx pursuant to the Offer and the Option Offer and waiver of any rights of pre-emption under the Solexa Articles; | |
(ii) if the Solexa Shareholder is a holder of B Preferred Shares or A Ordinary Shares, consent of such Solexa Shareholder to the change in jurisdiction where the Solexa business is controlled and managed; | |
(iii) the irrevocable undertaking of the Solexa Shareholder not to, directly or indirectly, for a period ending on the earlier to occur of: |
(A) 180 days following the first issue of Consideration Shares by Lynx; and | |
(B) the termination of the Acquisition Agreement, |
sell or transfer any Solexa Shares held by them and any shares of Lynx Common Stock and Solexa Shares to be acquired during that period; |
(iv) the irrevocable appointment by the Solexa Shareholder of any director of Lynx as such Solexa Shareholders attorney, and an irrevocable instruction to the attorney, on behalf of such Solexa Shareholder and in his name: |
(A) to execute and complete all or any form(s) of transfer and/or other document(s) at the attorneys discretion in relation to the Solexa Shares referred to in paragraph 1 of the Form of Acceptance in favour of Lynx or of such other person as Lynx may direct; |
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(B) to deliver such form(s) of transfer and/or other document(s) at the attorneys discretion together with the certificate(s) and/or other document(s) relating to such Solexa Shares for registration; and | |
(C) to do all such other acts and things as may, in the opinion of such attorney, be necessary or expedient for the purpose of, or in connection with, the acceptance of the Offer and to vest in Lynx or such persons as it may direct such Solexa Shares, |
provided that, in the case of a Solexa Shareholder executing a Form of Acceptance in the capacity of trustee, the appointment of the attorney is made in accordance with section 25 of the Trustee Act 1925 and shall be effective for the period of 12 months from the date of the Form of Acceptance; and |
(v) an irrevocable authority and request from it to Solexa to register the transfer of its Solexa Shares pursuant to the Offer and to deliver any share certificate(s) in respect thereof (or a Share Indemnity in lieu thereof) to Lynx or as it may direct at the risk of such Solexa Shareholder; |
(g) that the Solexa Shareholder will deliver to Lynx at its registered office his share certificate(s) and/or other document(s) of title in respect of his Solexa Shares, or a Share Indemnity in lieu thereof, as soon as possible and in any event prior to the Offer becoming unconditional; | |
(h) that the terms of this paragraph shall be deemed to be incorporated in and form part of the Form of Acceptance, which shall be read and construed accordingly; | |
(i) that, if he accepts the Offer, he shall do all such acts and things as shall be necessary or expedient to vest in Lynx or its nominees the Solexa Shares held by him at Completion and in respect of which the Offer is accepted, including discharging any liens, charges or Encumbrances over such Solexa Shares; | |
(j) that he agrees to ratify each and every lawful act or thing which may be done or effected by any director of Lynx in the exercise of any of his powers and/or authorities hereunder; and | |
(k) that, in the event of the Offer being withdrawn or terminating, such Form of Acceptance shall constitute his irrevocable authority and request to Lynx to return his Form of Acceptance and the relevant share certificate(s) and or the document(s) of title in respect of the Solexa Shares held by him (or the Share Indemnity in lieu thereof) for which he has accepted the Offer by ordinary post at his risk to Solexa. |
References in this paragraph to Solexa Shareholders shall include references to the person or persons executing a Form of Acceptance and, in the event of more than one person executing a Form of Acceptance, the provisions of this paragraph shall apply to them jointly and to each of them.
Dated:
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APPENDIX II
DEFINITIONS
In the letters from the Chairman of Solexa Limited and from the Chairman of Lynx Therapeutics, Inc., the following definitions apply unless the context requires otherwise.
Acquisition Agreement means the acquisition agreement dated 28 September 2004 entered into between Solexa and Lynx;
Advances means the advances as defined in Clause 1.1 of the Loan Agreement;
A Ordinary Shares means the A ordinary shares of £0.0025 each in the capital of Solexa and A Ordinary Shareholder means a holder of any of them;
B Preferred Shares means the B preferred shares of £0.0025 each in the capital of Solexa and B Preferred Shareholder means a holder of any of them;
Business Day means any day of the year on which banking institutions in San Francisco and London are open to the public for conducting business and are not required or authorized to close;
Completion means completion of the acquisition of the Solexa Shares by Lynx, in respect of which the Offer has been accepted, and the admission to the NASDAQ SmallCap Market of the Consideration Shares;
Company Support Agreement means an agreement between Lynx and each of Solexas Shareholders and/or holders of Solexa Options identified in Schedule 1 of the Acquisition Agreement dated 28 September 2004;
Company Support Documents means the Company Support Agreements and certain irrevocable undertakings executed by each of Abingworth Bioventures II SICAV, Tim Rink, Shankar Balasubramanian and Nick McCooke on October 28, 2004;
Conditions means the conditions set out in paragraph 1 of Part A of Appendix I to this document;
Consideration Shares means a maximum of 29,500,000 shares of Lynx Common Stock to be allotted and issued credited as fully paid to Solexas Shareholders in accordance with the terms of the Offer, upon exercise of the Solexa Options and upon exercise (whenever exercised) of options to acquire Lynx Common Stock received in exchange for Solexa Options pursuant to the Option Offer;
Encumbrance means any mortgage, charge (fixed or floating), pledge, lien, option, right to acquire, assignment by way of security, trust arrangement for the purpose of providing security or any other security interest of any kind, including retention arrangements and any agreement to create any of the foregoing;
Form of Acceptance means the form of acceptance and authority to accompany this letter on its issue to holders of Solexa Shares;
Government Entity means any court, administrative agency or commission or other governmental authority or instrumentality, foreign or domestic;
Loan Agreement means the loan agreement dated 12 August 2004 between Lynx and Solexa which provides for the terms and conditions on which Solexa has made, and will make, certain loans to Lynx;
Lynx means Lynx Therapeutics, Inc., a Delaware Corporation having its principal place of business at 25861 Industrial Boulevard, Hayward, California 94545;
Lynx Common Stock means Lynx common stock, par value $0.01 per share;
Lynx Stockholder Approvals means:
(a) the approval of the issue of Lynx Common Stock in connection with the Offer; | |
(b) the approval of the change of control of Lynx in connection with the Offer; and |
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(c) the approval of an amendment to Lynxs 1992 Stock Option Plan to increase the number of shares reserved for the issue thereunder by 2,000,000 shares; |
Lynx Stockholders Meeting means the meeting of Lynx stockholders convened for the purposes of obtaining the Lynx Stockholder Approvals;
Lynx Support Agreements means the irrevocable undertakings dated 28 September 2004 between Solexa and each of the holders of, and/or holders of options to purchase, Lynx Common Stock as identified in Schedule 2 of the Acquisition Agreement;
Material Adverse Effect means with respect to Lynx or Solexa, as the case may be, any change, effect, event, occurrence, state of facts or development: (i) that is, or is reasonably likely to be, materially adverse to the value, condition (financial or otherwise), business or results of operations of Solexa or Lynx (and in the case of Lynx, taken together with the Subsidiaries of Lynx), as the case may be: or (ii) that will, or is reasonably likely to, impair the ability of any party to the Acquisition Agreement to perform its obligations under the Acquisition Agreement or prevent or materially delay consummation of any of the transactions contemplated by the Acquisition Agreement; provided, however, that in the case of (i), no adverse change, effect, event, occurrence, state of facts or development attributable to conditions affecting the United States or the United Kingdom economy as a whole that is not unique to Lynx or Solexa, as the case may be, and that does not disproportionately affect Lynx or Solexa, as the case may be, shall be deemed in itself to constitute, or shall be taken into account in determining, whether there has been or will be a Material Adverse Effect;
Modified Agreements means the proposed modified version of the Colony Technology Sharing Agreement dated 22 March 2004 between Lynx and Solexa and the proposed OEM arrangement between Lynx and Solexa;
Offer means the offer by Lynx to acquire all the Solexa Shares on the terms and subject to the conditions set out in this document and in the Form of Acceptance;
Option Offer means the offer by Lynx in respect of each outstanding Solexa Option on the terms and subject to the conditions set forth in the Acquisition Agreement;
Ordinary Shares means the ordinary shares of £0.0025 each in the capital of Solexa and Ordinary Shareholder means a holder of any of them;
Required Consents means the consents, waivers and approvals designated as required consents to be obtained by Lynx or Solexa under the Acquisition Agreement;
Securities Act means the United States Securities Act of 1933, as amended;
Shareholders Agreement means the subscription and shareholders agreement dated 30 July 2004 between the Solexa Shareholders and Solexa;
Solexa means Solexa Limited (registered number 3625145) whose registered office is at Chesterford Research Park, Little Chesterford, Saffron Walden, Essex CB10 1XL, Great Britain;
Solexa Articles means Solexas articles of association in force as at the date of this document;
Solexa Options means outstanding options to acquire Ordinary Shares under the Solexa Option Plans;
Solexa Option Plans means the Solexa Share Option Plan for Consultants, the Solexa Unapproved Share Option Plan and the Solexa Limited Enterprise Management Incentive Plan;
Solexa Shares means all the existing issued Ordinary Shares, A Ordinary Shares and B Preferred Shares and any further such shares which are allotted or issued before the date upon which the Offer is no longer open for acceptance, including any Ordinary Shares to be issued pursuant to the Option Offer, and Solexa Shareholder means a holder of any of them;
Subsidiary means any corporation, partnership, limited liability company, joint venture or other legal entity of which Lynx or Solexa, as the case may be (either alone or through or together with any other Subsidiary), owns, directly or indirectly, 50%. Or more of the stock or other equity interests the holders of
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United States and U.S. Person have the meanings given in Rule 902 of Regulation S under the Securities Act.
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APPENDIX III
ADDITIONAL INFORMATION FOR SOLEXA SHAREHOLDERS
Directors and Executive Officers of Solexa
(i) The directors of Solexa are set out below:
Steve Allen Shankar Balasubramanian Mark Carthy Tom Daniel Hermann Hauser Genghis Lloyd-Harris Tim Rink Tony Smith John West |
(ii) The executive officers of Solexa are set out below:
Simon Bennett John Milton Leigh Palmer Harold Swerdlow Clive Brown |
(iii) The registered office of Solexa is:
Chesterford Research Park Little Chesterford Nr Saffron Walden Essex CB10 1XL Great Britain |
Compulsory Acquisition
If, as a result of the Offer or otherwise, Lynx acquires or contracts to acquire Ordinary Shares representing at least 90% in nominal value of Ordinary Shares within the time period specified in the Companies Act, then:
(a) Lynx will be entitled and intends to effect the company acquisition procedures provided for in Sections 428 to 430F under the Companies Act (as set out in Annex F of the registration statement) to compel the purchase of any outstanding Ordinary Shares on the same terms as are provided in the Offer in accordance with the relevant procedures and time limits described in the Companies Act. The compulsory acquisition procedure will not be applicable to the Offer relating to B Preferred and A Ordinary Shares as Lynx has already received irrevocable undertakings to accept the Offer from 100% of the holders of B Preferred Shares and A Ordinary Shares; | |
(b) a holder of Ordinary Shares may require Lynx to purchase such holders Ordinary Shares on the same terms as provided in the Offer in accordance with the relevant procedures and time limits described in Section 430A of the Companies Act. |
Where the Offer becomes subject to the compulsory acquisition procedures provided for in Sections 428 to 430F under the Companies Act, the directors of Solexa are required to notify the holders of Solexa Options of this fact. The Solexa Options will become exercisable within one month of the notification by the Solexa directors. To the extent that Solexa Options are not exercised within this one month period, they will terminate and cease to be outstanding.
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The Solexa Share Option Plan for Consultants provides that, in the absence of a compulsory acquisition right, on a general offer for Solexa, options can be exercised within six months with no provision for termination of any Solexa Options which are not exercised. The Solexa Share Option Plan for Consultants does however provide that, if the offer becomes subject to the compulsory acquisition procedure under Sections 428 to 430F of the Companies Act, options to purchase Solexa Shares under this scheme will lapse to the extent that they are not exercised within one month of the notification by the Solexa directors of Lynx acquiring or contracting to acquire at least 90% in nominal value of each class of Solexa Shares to which the Offer relates. Accordingly, in order to ensure the termination of any unexercised options to acquire Solexa Shares under the Solexa Share Option Plan for Consultants (which is possible if the compulsory acquisition procedure can be invoked), Nick McCooke has agreed in his irrevocable undertaking to withdraw his acceptance in respect of one Ordinary Share if acceptances of the Offer have been received by Lynx in respect of all the outstanding Solexa Shares.
Consequences of Sale
Upon completion of the transaction, Solexa Shareholders will becomes holders of Lynx Common Stock and Solexa will becomes a wholly-owned subsidiary of Lynx. Based on the number of Lynx Common Stock outstanding as of October 5, 2004 and the shares of Lynx Common Stock to be issued or otherwise allocated for issuance, upon completion of the transaction, the current Solexa Shareholders will own approximately 80% of the outstanding Lynx Common Stock in the aggregate and the current holders of Lynx Common Stock will own approximately 20% of the outstanding Lynx Common Stock in aggregate. Solexa Shareholders shall carefully consider the matters discussed under Risk Factors beginning on page 22 of the registration statement.
Material U.K. Tax Consequences of the Transaction
The following paragraphs, which are intended as a general guide only and are based on current legislation and United Kingdom Inland Revenue practice (which may change), summarize the United Kingdom tax implications of acceptance of the Offer for Solexa Shareholders who are resident or ordinarily resident in the United Kingdom for tax purposes and who hold their Solexa shares as investments.
U.K. Tax Consequences of the Exchange |
The liability of Solexa Shareholders to U.K. taxation in respect of capital gains will depend on their individual circumstances. Solexa Shareholders who are either resident, or ordinarily resident, for taxation purposes in the U.K. and for Solexa Shareholders not so resident who (if they are companies) hold their Solexa Shares in connection with, or for the purposes of, a trade carried on in the U.K. through a permanent establishment in the U.K. or who (if they are not companies) hold their Solexa Shares in connection with, or for the purpose of, a trade carried on in the U.K. through a branch or agency in the U.K. the following implications may arise from the Offer.
The receipt of new Lynx Common Stock under the Offer by Solexa Shareholders will constitute a disposal for the purposes of U.K. taxation on chargeable gains. Such a disposal may, depending upon the individual circumstances of Solexa Shareholders, give rise to a taxable gain or allowable loss for the purposes of U.K. taxation. Such a gain or loss would arise where the market value of the new Lynx Common Stock acquired pursuant to the Offer differs from the aggregate of the cost to Solexas Shareholders for U.K. tax purposes of their Solexa Shares, taking into account any applicable relief (see below).
Solexa Shareholders accepting the Offer will to the extent that they receive Lynx Common Stock not be treated at such time as having made a disposal of Solexa Shares. Instead, their new holdings of Lynx Common Stock should be treated as the same assets as there Solexa Shares, acquired at the same time and for the same consideration as those shares so that any gain will effectively be rollover into the new Lynx Common Stock. Solexa Shareholders who receive a cash payment in respect of fractional entitlement of Lynx Common Stock may, depending on their individual circumstances, have a liability to pay UK capital gains tax.
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U.K. Tax Consequences of Disposing of Lynx Common Stock |
The subsequent disposal of Lynx Common Stock acquired pursuant to the Offer will normally constitute a disposal for the purposes of taxation of chargeable gains and may, depending on individual circumstances, give rise to a liability to United Kingdom taxation.
Taper relief, which applies to individual investors and trustees (but not to corporate investors), may apply on any disposal to reduce the chargeable gain assessable to tax. The reduction in the gain will depend on the period for which the investments have been held. Individual shareholders will also benefit from an annual exemption (£8200 for the 2004/5 tax year). Corporate investors will not qualify for taper relief or the annual exemption, though any gain may be tempered by a reduction to take account of inflation (indexation allowance).
Individuals not domiciled in the United Kingdom, who are resident or ordinarily resident in the United Kingdom, or who return to the United Kingdom after a period of temporary non-residence, are liable to capital gains tax on gains from disposals of assets situated outside the United Kingdom only in respect of amounts remitted to, or treated as remitted to, the United Kingdom.
Individuals not resident or ordinarily resident in the United Kingdom would normally not be subject to U.K. taxation on capital gains on acceptance of the Offer nor on any subsequent disposal of Lynx Common Stock acquired pursuant to the Offer unless either:
| they are temporarily non-resident (i.e., they were previously a long term resident of the United Kingdom and have spent less than five years resident outside the United Kingdom in which case gains realized during the period of non-residence from disposals of assets held when they left the United Kingdom are charged in the first year of return to the United Kingdom); or | |
| they are carrying on a trade through a branch or agency in the United Kingdom and the asset concerned was used for the purposes of that branch or agency. |
Companies who are not resident in the U.K. would normally not be subject to U.K. taxation on capital gains on acceptance of the Offer nor on any subsequent disposal of Lynx Common Stock acquired pursuant to the Offer unless they are carrying on a trade through a permanent establishment in the U.K. and the asset concerned was used for the purposes of that permanent establishment.
Solexa Shareholders who acquire or acquired their Solexa Shares by exercising rights under a Solexa Option Plan are reminded that special tax provisions may apply to them on the exercise or exchange of options or on any disposal of Solexa Shares acquired under a Solexa Option Plan, including provisions imposing a charge to United Kingdom income tax.
Stamp Duty and Stamp Duty Reserve Tax |
No stamp duty nor stamp duty reserve tax will be payable on the receipt by Solexa Shareholders of Lynx Common Stock pursuant to the Offer. Provided that any instrument of transfer is executed and retained outside the United Kingdom and does not relate to any property situate, or to any matter or thing done or to be done, in the United Kingdom, no stamp duty will be payable in respect of transfers of Lynx Common Stock. This section applies to all shareholders whether or not resident or ordinarily resident in the United Kingdom.
Dividends |
U.K. resident and domiciled holders of shares of Lynx Common Stock will, in general, be subject to U.K. income tax or corporation tax on the gross amount of dividends paid on the shares of Lynx Common Stock. Dividends received by U.K. corporation taxpayers will be taxed at the prevailing corporation tax rate. An individual shareholder will generally be chargeable to income tax on dividends paid on the shares of Lynx common stock at the Schedule F ordinary rate (currently 10%) or, to the extent that such stockholders income exceeds the threshold for higher-rate tax, at the Schedule F upper rate (currently 32.5%). Credit will be available against income or corporation tax for any U.S. tax required to be deducted or withheld from the dividends, provided that such credit does not exceed the credit which would have been allowed had all
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Additional credits may be available to U.K. holders of Lynx Common Stock who control directly or indirectly 10% or more of the voting power in Lynx. Any such holders should consult their own tax advisers regarding the U.K. taxation of dividends received on the shares of Lynx Common Stock.
Holders of shares of Lynx Common Stock who are resident in the United Kingdom but domiciled outside the United Kingdom will be liable to income tax only in respect of amounts remitted to, or treated as remitted to, the United Kingdom in respect of dividends paid on Lynx Common Stock.
Any Solexa Shareholder or participant in a Solexa Option Plan who is in any doubt about such shareholders tax position should consult such shareholders professional advisor immediately.
Regulatory Approval
The transaction is subject to antitrust laws. For the reasons described in greater detail in the section Regulatory Matters; Hart-Scott-Rodino Act and Antitrust on page 53 of the registration statement, the transaction between the parties is not presently believed to be subject to the reporting and waiting provisions of the Hart-Scott-Rodino Antitrust Improvements Act of 1976, or the HSR Act. Thus, no filings have been made or are presently contemplated with the U.S. Department of Justice and the U.S. Federal Trade Commission. Nevertheless, either the Department of Justice or the Federal Trade Commission as well as a foreign regulatory agency or government, state or private person, may challenge the transaction at any time before or after completion.
Fees and Expenses
Except as set forth below, Lynx will not pay any fees or commissions to any broker, dealer or other person for soliciting tenders of the Solexa share capital pursuant to the Offer or acceptances of the Offer.
In connection with the financial advisory services rendered by Seven Hills, Lynx has agreed to pay Seven Hills a retainer fee of $50,000 and a transaction a fee of $500,000 plus one percent of the consideration to be paid by Lynx upon completion of the transaction. Lynx also agreed to pay Seven Hills a fee of $250,000 in connection with its opinion, which fee will be credited against the transaction fee. Lynx has agreed to reimburse Seven Hills for its reasonable out-of-pocket expenses and to indemnify Seven Hills and related persons against specified liabilities relating to or arising out of services performed by Seven Hills.
Lynx has retained Gargoyle Partners LLP to review and approve certain of the documents relating to the Offer and the Option Offer which constitute a financial promotion under the Financial Services and Markets Act 2000. Lynx has agreed to pay Gargoyle Partners LLP a transaction fee of £20,000. Lynx has also agreed to reimburse Gargoyle Partners LLP for its reasonable out-of-pocket expenses including all reasonable fees and disbursements of Gargoyle Partners LLPs legal advisors. The maximum amount that may be claimed by Gargoyle Partners LLP in respect of its out-of-pocket expenses is £6,500, subject to increase with the approval of Lynx, such approval not to be unreasonably withheld.
In addition, Lynx has retained EquiServe Trust Company, N.A., Inc. to act as the exchange agent in connection with the offer. EquiServe Trust Company, N.A. has not been retained to make solicitations or recommendations in its role as exchange agent. EquiServe Trust Company, N.A. will receive reasonable and customary compensation for its services, will be reimbursed for certain reasonable out-of-pocket expenses and will be indemnified against certain liabilities and expenses in connection therewith, including certain liabilities under the United States federal securities laws.
Brokers, dealers, commercial banks and trust companies will be reimbursed by Lynx for customary mailing and handling expenses incurred by them in forwarding offering material to their customers.
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Documents Available for Inspection
Copies of the following documents are available for inspection at the offices of Solexa during normal business hours on any week day (public holidays excepted) from the date the Offer has commenced until the Offer is no longer open for acceptance:
(a) the Certificate of Incorporation and By-laws of Lynx; | |
(b) the Articles of Association of Solexa; | |
(c) the audited consolidated accounts of Lynx for the last 2 financial years ended December 31, 2002 and 2003; | |
(d) the audited consolidated accounts of Solexa for the last 2 financial years ended December 31, 2002 and 2003; | |
(e) the irrevocable undertakings referred to in paragraph 9.2 of the letter from the Chairman of Lynx; and | |
(f) this offer letter and the form of acceptance. |
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CHAPTER SIX ADDITIONAL INFORMATION
The validity of the shares of Lynx common stock offered by this document and certain legal matters with respect to the material United States federal income tax consequences of the transaction will be passed upon for Lynx by Cooley Godward LLP, Palo Alto, California. Certain legal matters with respect to the material United States federal income tax consequences of the transaction will be passed upon for Solexa by Heller Ehrman White & McAuliffe LLP, Menlo Park, California.
EXPERTS
Ernst & Young LLP, independent registered public accounting firm, have audited the consolidated financial statements included in the Annual Report on Form 10-K, as amended, of Lynx for the year ended December 31, 2003, as set forth in their report (which contains an explanatory paragraph describing conditions that raise substantial doubt about the ability of Lynx to continue as a going concern as described in Note 18 to the consolidated financial statements), which is incorporated by reference in this proxy statement/ prospectus which forms a part of the Registration Statement of Lynx. These financial statements are incorporated by reference in reliance on Ernst & Young LLPs report given their authority as experts in accounting and auditing.
The financial statements of Solexa at December 31, 2003 and 2002, and for each of the three years in the period ended December 31, 2003, appearing in this proxy statement/prospectus have been audited by Ernst & Young LLP, independent registered public accounting firm, as set forth in their report thereon appearing elsewhere herein, and are included in reliance upon such report given on the authority of such firm as experts in accounting and auditing.
WHERE YOU CAN FIND MORE INFORMATION
This document incorporates the annual report, on Form 10-K, as amended, of Lynx, as well as other reports by reference that are not presented in or delivered with this document. Copies of the Lynx annual report are delivered with this proxy statement/ prospectus to stockholders of Lynx.
In addition, Lynx files reports, proxy statements and other information with the SEC. Lynx stockholders and Solexa shareholders may read and copy any reports, proxy statements or other information filed by Lynx at the SECs Public Reference Room at 450 Fifth Street, N.W., Washington, D.C. 20549. You may obtain information on the operation of the Public Reference Room by calling the SEC at (800) SEC-0330.
Copies of these materials can also be obtained by mail at prescribed rates from the Public Reference Section of the Securities and Exchange Commission, 450 Fifth Street, N.W., Washington, D.C. 20549 or by calling Securities and Exchange Commission at (800) SEC-0330. The SEC maintains a website that contains reports, proxy statements and other information regarding Lynx. The address of the SEC website is http://www.sec.gov.
Reports, proxy statements and other information regarding Lynx may also be inspected at The National Association of Securities Dealers, Inc., 1735 K Street, N.W., Washington, D.C. 20006.
The SEC allows Lynx to incorporate by reference information into this proxy statement/ prospectus, which means that Lynx can disclose important information to its stockholders by referring them to another document filed separately with the SEC. The documents incorporated by reference into this proxy statement/ prospectus contain important information that you should read about Lynx.
The following documents, which have been filed by Lynx with the SEC, are incorporated by reference into this document:
1. Lynxs Form 10-K Annual Report for the fiscal year ended December 31, 2003 and filed on March 30, 2004 (File No. 000-22570); |
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2. Lynxs Form 10-K/ A Annual Report for the fiscal year ended December 31, 2003 and filed on April 29, 2004 (File No. 000-22570); | |
3. Lynxs Form 10-K/ A Annual Report for the fiscal year ended December 31, 2003 and filed on June 30, 2004 (File No. 000-22570); | |
4. Lynxs Form 10-K/ A Annual Report for the fiscal year ended December 31, 2003 and filed on October 22, 2004 (File No. 000-22570); | |
5. Lynxs Form 10-Q Quarterly Report for the quarter ended March 31, 2004 and filed on May 13, 2004 (File No. 000-22570); | |
6. Lynxs Form 10-Q Quarterly Report for the quarter ended June 30, 2004 and filed on August 13, 2004 (File No. 000-22570); | |
7. Lynxs Current Report on Form 8-K dated December 31, 2003 and filed on March 12, 2004 (File No. 000-22570); and | |
8. Lynxs Current Reports on Form 8-K filed on March 12, 2004 (File No. 000-22570), September 30, 2004 (File No. 000-22570) and October 26, 2004 (File No. 000-22570). |
Lynx also incorporates by reference into this proxy statement/ prospectus all documents filed with the SEC by Lynx pursuant to Section 13(a), 13(c), 14 or 15(d) of the Exchange Act from the date of this proxy statement/ prospectus but prior to the termination of the offering. These documents include periodic reports, such as Annual Reports on Form 10-K, Quarterly Reports on Form 10-Q and Current Reports on Form 8-K, as well as proxy statements.
Lynx has supplied all information contained or incorporated by reference in this proxy statement/ prospectus relating to Lynx.
If you are a Lynx stockholder, you may have previously received some of the documents incorporated by reference in this proxy statement/ prospectus, but you can obtain any of them through Lynx, the SEC or the SECs internet website as described above. Documents incorporated by reference are available from Lynx without charge, excluding all exhibits, unless Lynx has specifically incorporated by reference an exhibit in this proxy statement/ prospectus. You may obtain documents incorporated by reference in this proxy statement/ prospectus by requesting them in writing or by telephone from Lynx at the following address:
Lynx Therapeutics, Inc.
If you would like to request documents from Lynx, please do so by , 200 in order to receive them before your annual meeting.
Any statement contained herein or in a document incorporated or deemed to be incorporated by reference into this document will be deemed to be modified or superseded for purposes of the document to the extent that a statement contained in this document or any other subsequently filed document that is deemed to be incorporated by reference into this document modifies or supersedes the statement. Any statement so modified or superseded will not be deemed, except as so modified or superseded, to constitute a part of this document.
Lynx has filed a registration statement under the Securities Act with the SEC with respect to Lynx common stock to be issued to Solexa shareholders in the transaction. This proxy statement/ prospectus constitutes the prospectus of Lynx filed as part of the registration statement. This proxy statement/ prospectus does not contain all of the information set forth in the registration statement because parts of the registration statement are omitted in accordance with the rules and regulations of the SEC. The registration statement and its exhibits are available for inspection and copying at the SECs offices as set forth above.
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If you are Lynx stockholder, you should rely only on the information contained or incorporated by reference in this proxy statement/ prospectus to vote on the issuance of Lynx common stock in the transaction and the resulting change of control of Lynx. If you are Solexa shareholder, you should rely only on the information contained or incorporated by reference in this proxy statement/ prospectus to decide whether to accept Lynxs offer. Lynx and Solexa have not authorized anyone to provide you with information that is different from what is contained in this proxy statement/ prospectus. This proxy statement/ prospectus is dated , 2004. You should not assume that the information contained in this proxy statement/ prospectus is accurate as of any date other than , 2004, and neither the mailing of the proxy statement/ prospectus to Lynx stockholders and Solexa shareholders nor the issuance of Lynx common stock in the transaction shall create any implication to the contrary.
Information on Lynxs Website
Information on any Lynx internet website or the website of any subsidiary of Lynx is not part of this document and you should not rely on that information in deciding whether to approve the proposals described in the proxy statement/ prospectus, unless that information is also in this document or in a document that is incorporated by reference in this document.
Information on Solexas Website
Information on any Solexa internet website or the website of any subsidiary of Solexa is not part of this document and you should not rely on that information in deciding whether to approve the proposals described in the proxy statement/ prospectus, unless that information is also in this document or in a document that is incorporated by reference in this document.
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SOLEXA LIMITED
F-2 | ||
F-3 | ||
F-4 | ||
F-5 | ||
F-7 | ||
F-9 |
F-1
SOLEXA LIMITED
The Board of Directors
We have audited the accompanying balance sheets of Solexa Limited (a development stage company) as of December 31, 2002 and 2003, and the related statements of operations, movements in shareholders equity and cash flows for each of the three years in the period ended December 31, 2003 and for the period from September 2, 1998 (inception) to December 31, 2003. These financial statements are the responsibility of the Companys management. Our responsibility is to express an opinion on these financial statements based on our audits.
We conducted our audits in accordance with United Kingdom auditing standards and United States generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of Solexa Limited (a development stage company) as at December 31, 2002 and 2003 and the results of its operations and its cash flows for each of the three years in the period ended December 31, 2003 and for the period from September 2, 1998 (inception) to December 31, 2003 in conformity with United States generally accepted accounting principles.
/s/ ERNST & YOUNG LLP |
Cambridge, England
F-2
SOLEXA LIMITED
December 31, | June 30, | |||||||||||||
2002 | 2003 | 2004 | ||||||||||||
(Unaudited) | ||||||||||||||
(In thousands) | ||||||||||||||
ASSETS
|
||||||||||||||
Current assets:
|
||||||||||||||
Cash and cash equivalents
|
$ | 13,295 | $ | 8,907 | $ | 2,802 | ||||||||
Accounts receivable
|
97 | 42 | 83 | |||||||||||
Prepaid expenses and other current assets
|
487 | 239 | 437 | |||||||||||
Total current assets
|
13,879 | 9,188 | 3,332 | |||||||||||
Intangible assets, net
|
| | 1,967 | |||||||||||
Property and equipment (net)
|
1,134 | 1,213 | 1,008 | |||||||||||
Total assets
|
$ | 15,013 | $ | 10,401 | $ | 6,297 | ||||||||
LIABILITIES AND SHAREHOLDERS
EQUITY
|
||||||||||||||
Current liabilities:
|
||||||||||||||
Accounts payable and accrued liabilities
|
$ | 806 | $ | 752 | $ | 681 | ||||||||
Current portion of equipment financing
|
| 18 | 20 | |||||||||||
Total current liabilities
|
806 | 770 | 701 | |||||||||||
Equipment financing, net of current portion
|
| 25 | 16 | |||||||||||
Total liabilities
|
806 | 795 | 717 | |||||||||||
Commitments and contingencies
|
||||||||||||||
Shareholders equity:
|
||||||||||||||
A ordinary shares, 0.37 cents (0.25p)
par value:
|
||||||||||||||
Authorized: 4,000,000 at December 31, 2002
and 2003 and at June 30, 2004
|
||||||||||||||
Issued and outstanding: 4,000,000 at
December 31, 2002 and 2003 and at June 30, 2004
|
15 | 15 | 15 | |||||||||||
Ordinary shares, 0.37 cents (0.25p) par value:
|
||||||||||||||
Authorized: 3,648,513 at December 31, 2002
and 2003 and at June 30, 2004
|
||||||||||||||
Issued and outstanding: 2,338,138 at
December 31, 2002 and 2003 and at June 30, 2004
|
9 | 9 | 9 | |||||||||||
Additional paid-in capital
|
21,085 | 21,085 | 21,085 | |||||||||||
Deficit accumulated during the development stage
|
(8,227 | ) | (13,876 | ) | (18,092 | ) | ||||||||
Accumulated other comprehensive income
|
1,325 | 2,373 | 2,563 | |||||||||||
Total shareholders equity
|
14,207 | 9,606 | 5,580 | |||||||||||
Total liabilities and shareholders equity
|
$ | 15,013 | $ | 10,401 | $ | 6,297 | ||||||||
See accompanying notes
F-3
SOLEXA LIMITED
Period from | Period from | ||||||||||||||||||||||||||||
September 2, | Six Months Ended | September 2, | |||||||||||||||||||||||||||
Year Ended December 31, | 1998 (Inception) | June 30, | 1998 (Inception) | ||||||||||||||||||||||||||
to December 31, | to June 30, | ||||||||||||||||||||||||||||
2001 | 2002 | 2003 | 2003 | 2003 | 2004 | 2004 | |||||||||||||||||||||||
(In thousands, except per share amounts) | |||||||||||||||||||||||||||||
(Unaudited) | (Unaudited) | (Unaudited) | |||||||||||||||||||||||||||
Revenues:
|
|||||||||||||||||||||||||||||
Service income
|
$ | | $ | | $ | 7 | $ | 7 | $ | | $ | 41 | $ | 48 | |||||||||||||||
Operating expenses:
|
|||||||||||||||||||||||||||||
Research and development
|
1,918 | 4,308 | 5,639 | 12,749 | 2,661 | 3,035 | 15,784 | ||||||||||||||||||||||
General and administrative
|
695 | 1,008 | 1,087 | 3,162 | 664 | 1,335 | 4,497 | ||||||||||||||||||||||
Total operating expenses
|
2,613 | 5,316 | 6,726 | 15,911 | 3,325 | 4,370 | 20,281 | ||||||||||||||||||||||
Operating loss
|
(2,613 | ) | (5,316 | ) | (6,719 | ) | (15,904 | ) | (3,325 | ) | (4,329 | ) | (20,233 | ) | |||||||||||||||
Other income (expense):
|
|||||||||||||||||||||||||||||
Interest income
|
222 | 555 | 368 | 1,203 | 209 | 113 | 1,316 | ||||||||||||||||||||||
Interest expense
|
(118 | ) | | (5 | ) | (175 | ) | | | (175 | ) | ||||||||||||||||||
Total other income (expense)
|
104 | 555 | 363 | 1,028 | 209 | 113 | 1,141 | ||||||||||||||||||||||
Loss before income tax benefit
|
(2,509 | ) | (4,761 | ) | (6,356 | ) | (14,876 | ) | (3,116 | ) | (4,216 | ) | (19,092 | ) | |||||||||||||||
Income tax benefit
|
| (293 | ) | (707 | ) | (1,000 | ) | | | (1,000 | ) | ||||||||||||||||||
Net loss applicable to ordinary
shareholders
|
$ | (2,509 | ) | $ | (4,468 | ) | $ | (5,649 | ) | $ | (13,876 | ) | $ | (3,116 | ) | $ | (4,216 | ) | $ | (18,092 | ) | ||||||||
Net loss per share Basic and
Diluted
|
$ | (0.88 | ) | $ | (0.70 | ) | $ | (0.89 | ) | $ | (0.49 | ) | $ | (0.67 | ) | ||||||||||||||
Weighted average number shares used to compute
basic and diluted loss per share
|
2,837 | 6,338 | 6,338 | 6,338 | 6,338 | ||||||||||||||||||||||||
See accompanying notes
F-4
SOLEXA LIMITED
Deficit | ||||||||||||||||||||||||||||||||
A Convertible | Accumulated | Accumulated | ||||||||||||||||||||||||||||||
Ordinary Shares | Ordinary Shares | Additional | Other | During the | ||||||||||||||||||||||||||||
Paid-in | Comprehensive | Development | ||||||||||||||||||||||||||||||
Shares | Amount | Shares | Amount | Capital | Income (Loss) | Stage | Total | |||||||||||||||||||||||||
(In thousands, except share amounts) | ||||||||||||||||||||||||||||||||
On incorporation (September 2, 1998)
|
| $ | | | $ | | $ | | $ | | $ | | $ | | ||||||||||||||||||
Issuance of ordinary shares in October 1998 at
0.25p (0.37 cents) per share for cash
|
| | 725,000 | 3 | | | | 3 | ||||||||||||||||||||||||
Issuance of ordinary shares in October 1998 at
£0.73 ($1.07) per share for cash
|
| | 275,000 | 1 | 294 | | | 295 | ||||||||||||||||||||||||
Loss for the financial period
|
| | | | | | (98 | ) | (98 | ) | ||||||||||||||||||||||
Foreign currency translation
|
| | | | | 36 | | 36 | ||||||||||||||||||||||||
Comprehensive loss
|
| | | | | | | 62 | ||||||||||||||||||||||||
At December 31, 1998
|
| | 1,000,000 | 4 | 294 | 36 | (98 | ) | 236 | |||||||||||||||||||||||
Issuance of ordinary shares in May and October
1999 at £1 ($1.47) per share for cash, net of issuance
expenses of $3,000
|
| | 400,000 | 1 | 584 | | | 585 | ||||||||||||||||||||||||
Loss for the financial period
|
| | | | | | (366 | ) | (366 | ) | ||||||||||||||||||||||
Foreign currency translation
|
| | | | | 56 | | 56 | ||||||||||||||||||||||||
Comprehensive loss
|
(310 | ) | ||||||||||||||||||||||||||||||
At December 31, 1999
|
| | 1,400,000 | 5 | 878 | 92 | (464 | ) | 511 | |||||||||||||||||||||||
Issuance of ordinary shares in November 2000 at
£1 ($1.47) per share for cash
|
| | 60,000 | | 88 | | | 88 | ||||||||||||||||||||||||
Loss for the financial period
|
| | | | | | (786 | ) | (786 | ) | ||||||||||||||||||||||
Foreign currency translation
|
| | | | | (25 | ) | | (25 | ) | ||||||||||||||||||||||
Comprehensive loss
|
(811 | ) | ||||||||||||||||||||||||||||||
At December 31, 2000
|
| | 1,460,000 | 5 | 966 | 67 | (1,250 | ) | (212 | ) | ||||||||||||||||||||||
Issuance of A ordinary shares in
September 2001 at £3 ($4.41) per share for cash, net of
issuance costs of $107,000
|
4,000,000 | 15 | | | 17,505 | | | 17,520 | ||||||||||||||||||||||||
Issuance of ordinary shares in February 2001 at
£1 ($1.47) per share for cash
|
| 20,000 | 1 | 28 | | 29 |
F-5
SOLEXA LIMITED
STATEMENT OF SHAREHOLDERS EQUITY (Continued)
Deficit | ||||||||||||||||||||||||||||||||
Accumulated | Accumulated | |||||||||||||||||||||||||||||||
A Ordinary Shares | Ordinary Shares | Additional | Other | During the | ||||||||||||||||||||||||||||
Paid-in | Comprehensive | Development | ||||||||||||||||||||||||||||||
Shares | Amount | Shares | Amount | Capital | Income (Loss) | Stage | Total | |||||||||||||||||||||||||
(In thousands, except share amounts) | ||||||||||||||||||||||||||||||||
Conversion of loan into ordinary shares in
September 2001 at £2 ($2.94) per share
|
| $ | | 858,138 | $ | 3 | $ | 2,518 | $ | | $ | | $ | 2,521 | ||||||||||||||||||
Fair value of options issued to consultants
|
| | | | 38 | | | 38 | ||||||||||||||||||||||||
Loss for the financial period
|
| | | | | | (2,509 | ) | (2,509 | ) | ||||||||||||||||||||||
Foreign currency translation
|
| | | | | (251 | ) | | (251 | ) | ||||||||||||||||||||||
Comprehensive loss
|
(2,760 | ) | ||||||||||||||||||||||||||||||
At December 31, 2001
|
4,000,000 | 15 | 2,338,138 | 9 | 21,055 | (184 | ) | (3,759 | ) | 17,136 | ||||||||||||||||||||||
Fair value of options issued to consultants
|
| | | | 30 | | | 30 | ||||||||||||||||||||||||
Loss for the financial period
|
| | | | | | (4,468 | ) | (4,468 | ) | ||||||||||||||||||||||
Foreign currency translation
|
| | | | | 1,509 | | 1,509 | ||||||||||||||||||||||||
Comprehensive loss
|
(2,959 | ) | ||||||||||||||||||||||||||||||
At December 31, 2002
|
4,000,000 | 15 | 2,338,138 | 9 | 21,085 | 1,325 | (8,227 | ) | 14,207 | |||||||||||||||||||||||
Loss for the financial period
|
| | | | | | (5,649 | ) | (5,649 | ) | ||||||||||||||||||||||
Foreign currency translation
|
| | | | | 1,048 | | 1,048 | ||||||||||||||||||||||||
Comprehensive loss
|
(4,601 | ) | ||||||||||||||||||||||||||||||
At December 31, 2003
|
4,000,000 | 15 | 2,338,138 | 9 | 21,085 | 2,373 | (13,876 | ) | 9,606 | |||||||||||||||||||||||
Loss for the financial period (unaudited)
|
| | | | | | (4,216 | ) | (4,216 | ) | ||||||||||||||||||||||
Foreign currency translation (unaudited)
|
190 | | 190 | |||||||||||||||||||||||||||||
Comprehensive loss (unaudited)
|
(4,026 | ) | ||||||||||||||||||||||||||||||
At June 31, 2004 (unaudited)
|
4,000,000 | $ | 15 | 2,338,138 | $ | 9 | $ | 21,085 | $ | 2,563 | $ | (18,092 | ) | $ | 5,580 | |||||||||||||||||
F-6
SOLEXA LIMITED
Period from | Period from | |||||||||||||||||||||||||||
September 2, | September 2, | |||||||||||||||||||||||||||
Year Ended December 31, | 1998 (Inception) | Six Months Ended June 30, | 1998 (Inception) | |||||||||||||||||||||||||
to December 31, | to June 30, | |||||||||||||||||||||||||||
2001 | 2002 | 2003 | 2003 | 2003 | 2004 | 2004 | ||||||||||||||||||||||
(Unaudited) | (Unaudited) | (Unaudited) | ||||||||||||||||||||||||||
(In thousands) | ||||||||||||||||||||||||||||
Operating activities:
|
||||||||||||||||||||||||||||
Net loss
|
$ | (2,509 | ) | $ | (4,468 | ) | $ | (5,649 | ) | $ | (13,876 | ) | $ | (3,116 | ) | $ | (4,216 | ) | $ | (18,092 | ) | |||||||
Adjustments to reconcile net loss to net cash
used in operating activities:
|
||||||||||||||||||||||||||||
Depreciation and amortization
|
182 | 396 | 539 | 1,188 | 281 | 357 | 1,545 | |||||||||||||||||||||
Non-cash interest charge in relation to
convertible loan stock
|
117 | | | 173 | | | 173 | |||||||||||||||||||||
Non-cash charge in relation to options issued to
consultants
|
38 | 30 | | 68 | | | 68 | |||||||||||||||||||||
Changes in operating assets and liabilities:
|
||||||||||||||||||||||||||||
Accounts receivable
|
(1 | ) | 1 | (7 | ) | (32 | ) | | (58 | ) | (90 | ) | ||||||||||||||||
Prepaid expenses and other current assets
|
(131 | ) | (339 | ) | 345 | (176 | ) | 356 | (179 | ) | (355 | ) | ||||||||||||||||
Accounts payable and other accrued liabilities
|
479 | (48 | ) | (131 | ) | 620 | 44 | (83 | ) | 537 | ||||||||||||||||||
Net cash used in operating activities
|
(1,825 | ) | (4,428 | ) | (4,903 | ) | (12,035 | ) | (2,435 | ) | (4,179 | ) | (16,214 | ) | ||||||||||||||
Investing activities:
|
||||||||||||||||||||||||||||
Purchase of property and equipment
|
(591 | ) | (571 | ) | (445 | ) | (2,164 | ) | (430 | ) | (81 | ) | (2,245 | ) | ||||||||||||||
Purchase of technology rights
|
| | | | | (2,032 | ) | (2,032 | ) | |||||||||||||||||||
Receipt from sale of tangible fixed assets
|
| | 1 | 1 | | | 1 | |||||||||||||||||||||
Net cash used in investing activities
|
(591 | ) | (571 | ) | (444 | ) | (2,163 | ) | (430 | ) | (2,113 | ) | (4,276 | ) | ||||||||||||||
Financing activities:
|
||||||||||||||||||||||||||||
Payments of capital lease obligations
|
| | (15 | ) | (15 | ) | | (9 | ) | (24 | ) | |||||||||||||||||
Proceeds from issuance of ordinary shares, net of
issuance costs
|
17,694 | | | 18,774 | | | 18,774 | |||||||||||||||||||||
Loans drawn down in year, net of issuance costs
|
| | | 2,374 | | | 2,374 | |||||||||||||||||||||
Net cash provided by/ (used in) financing
activities
|
17,694 | | (15 | ) | 21,133 | | (9 | ) | 21,124 | |||||||||||||||||||
F-7
SOLEXA LIMITED
STATEMENTS OF CASH FLOWS (Continued)
Period from | Period from | ||||||||||||||||||||||||||||
September 2, | September 2, | ||||||||||||||||||||||||||||
Year Ended December 31, | 1998 (Inception) | Six Months Ended June 30, | 1998 (Inception) | ||||||||||||||||||||||||||
to December 31, | to June 30, | ||||||||||||||||||||||||||||
2001 | 2002 | 2003 | 2003 | 2003 | 2004 | 2004 | |||||||||||||||||||||||
(Unaudited) | (Unaudited) | (Unaudited) | |||||||||||||||||||||||||||
(In thousands) | |||||||||||||||||||||||||||||
Net increase/(decrease) in cash and cash
equivalents
|
$ | 15,278 | $ | (4,999 | ) | $ | (5,362 | ) | $ | 6,935 | $ | (2,865 | ) | $ | (6,301 | ) | $ | 634 | |||||||||||
Effect of exchange rate differences on cash and
cash equivalents
|
(278 | ) | 1,441 | 974 | 1,972 | 311 | 196 | 2,168 | |||||||||||||||||||||
Cash and cash equivalents, beginning of period
|
1,853 | 16,853 | 13,295 | | 13,295 | 8,907 | | ||||||||||||||||||||||
Cash and cash equivalents, end of period
|
$ | 16,853 | $ | 13,295 | $ | 8,907 | $ | 8,907 | $ | 10,741 | $ | 2,802 | $ | 2,802 | |||||||||||||||
Supplemental cash flow information:
|
|||||||||||||||||||||||||||||
Cash paid during the period for:
|
|||||||||||||||||||||||||||||
Interest
|
$ | | $ | | $ | 5 | $ | 5 | $ | | $ | 3 | $ | 8 | |||||||||||||||
Schedule of non-cash transactions
|
|||||||||||||||||||||||||||||
Acquisitions of equipment purchased through
capital leases
|
$ | | $ | | $ | (40 | ) | $ | (40 | ) | $ | | $ | | $ | (40 | ) | ||||||||||||
Conversion of loan into ordinary shares
|
$ | 2,369 | $ | | $ | | $ | 2,369 | $ | | $ | | $ | 2,369 |
F-8
SOLEXA LIMITED
NOTES TO THE FINANCIAL STATEMENTS
1. | Formation and Business of the Company |
Solexa Limited, (the Company) was incorporated in England and Wales on September 2, 1998 as Intercede 1356 Limited. On October 9, 1998 the Company changed its name to Solexa Limited. The principal activity of the Company is the development of novel techniques for the analysis of DNA.
The Company has not yet generated substantial revenues from its operations. Accordingly, through the date of these financial statements, the Company is considered to be in the development stage.
The financial statements have been prepared on a going concern basis, which assumes that the Company will continue in operational existence for the foreseeable future. The Company has experienced operating losses since its inception of $14 million, including a net loss of $6 million for the year ended December 31, 2003 and expects such losses to continue as it furthers its research and development programs. As of December 31, 2003, and June 30, 2004, the Companys cash and cash equivalents were $8.9 million and $2.8 million, respectively.
The Company is involved in research and development activities and until it is able to convert this activity into a significant profitable revenue stream it will continue to rely on financial support from investors. If such finance were not available it might not be appropriate to continue recording the assets and liabilities of the Company at the values set out in the balance sheet and, accordingly, adjustments might be required to write down the value of assets and recognize contingent and other liabilities.
On July 30, 2004, Solexa issued 4,166,666 Series B preferred shares resulting in net proceeds of $13.5 million. On October 18, 2004 the Company completed a subsequent issue of 277,778 Series B preferred shares raising net proceeds of $0.9 million. The directors believe that with the funds raised in July and October 2004, the Companys current cash and cash equivalents will be sufficient to enable it to meet its projected operating and capital requirements through at least the end of October 2005. The Company may seek additional financing, as needed through equity or debt offerings. The directors believe that financial support to carry out the Companys activities will continue to be made available. They have therefore prepared these financial statements on a going concern basis while recognizing that the Company will require further funding to complete the development of its technology before it is able to generate profits. The terms on which such funding may be available, if at all, will be dependent upon the results of ongoing research and development activities.
The condensed financial statements as of June 30, 2004 and for the six months ended June 30, 2003 and 2004 are unaudited, but, in the opinion of management, contain all adjustments (consisting only of normal recurring adjustments) necessary for their fair presentation. Operating results for the six months ended June 30, 2004 are not necessarily indicative of the results that may be expected for the year ending December 31, 2004.
2. | Summary of Significant Accounting Policies |
The financial information contained in these financial statements does not constitute statutory accounts as defined in section 240 of the Companies Act 1985, as amended, of Great Britain. Statutory accounts for the years ended December 31, 2001, 2002 and 2003 on which the auditors reports were unqualified and did not contain a statement under section 237 (2) or (3) of that Act have been delivered to the Registrar of Companies for England and Wales.
F-9
NOTES TO THE FINANCIAL STATEMENTS (Continued)
Use of Estimates |
The preparation of financial statements in conformity with accounting principles generally accepted in the United States requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosures of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.
Concentration of Credit Risk and Other Risks and Uncertainties |
Financial instruments which potentially subject the Company to concentrations of risk consist principally of cash and cash equivalents. The Companys cash and cash equivalents are invested in deposits with one major bank in the United Kingdom. Deposits in this bank may exceed the amount of insurance provided on such deposits. The Company has not experienced any losses on its deposits of cash and cash equivalents.
For the year ended December 31, 2003 and the six months ended June 30, 2004, revenue from one customer accounted for 88% and 92%, respectively, of the Companys revenues.
Foreign Currency and Currency Translation |
Monetary transactions in foreign currencies are translated into pounds sterling at the rate ruling at the date of transaction. Monetary assets and liabilities denominated in foreign currencies are retranslated into pounds sterling at the rate of exchange ruling at the balance sheet date. Transaction gains and losses are recognized in operating expenses within the Statement of Operations.
These financial statements are presented in U.S. dollars. Translation of balance sheet data from pounds sterling to U.S. dollars is made at the exchange rate ruling at the balance sheet date. Translation of operating statement and cash flow amounts is made at the average exchange rate for the period. Translation gains and losses are recognized within other comprehensive income.
Cash and Cash Equivalents |
The Company considers all highly liquid investments with an original maturity of three months or less at the time of initial deposit to be cash equivalents.
The Company invests its surplus cash in bank term deposits, having a maturity period of between one day and one year. These deposits can be terminated early at a nominal cost. Accordingly, all cash resources with original maturity of three months or less have been classified as cash equivalents and those with original maturity of more than three months as short-term investments.
Fair Value of Financial Instruments |
For financial instruments consisting of cash and cash equivalents, accounts payable and accrued liabilities included in the Companys financial statements, the carrying amounts are reasonable estimates of fair value due to their short maturities.
Property and Equipment |
Property and equipment is stated at cost and depreciated on a straight-line basis over the estimated useful lives of the related assets, which are generally three to four years. Amortization of leasehold improvements is computed using the straight-line method over the shorter of the remaining lease term or the estimated useful life of the related assets. Upon sale or retirement of assets, the costs and related accumulated depreciation and
F-10
NOTES TO THE FINANCIAL STATEMENTS (Continued)
amortization are removed from the balance sheet and the resulting gain or loss is reflected in operations. Maintenance and repairs are charged to operations as incurred.
Intangible Assets |
Acquired technology rights are capitalized at cost and amortized on a straight-line basis over their estimated useful lives, which are generally seven years.
Impairment of Long-lived Assets |
In accordance with the provisions of Statement of Financial Accounting Standards (SFAS) No. 144, Accounting for the Impairment or Disposal of Long-lived Assets, the Company reviews long-lived assets, including property and equipment, for impairment whenever events or changes in business circumstances indicate that the carrying amount of the assets may not be fully recoverable. Under SFAS No. 144, an impairment loss would be recognized when estimated undiscounted future cash flows expected to result from the use of the asset and its eventual disposition is less than its carrying amount. Impairment, if any, is measured as the amount by which the carrying amount of a long-lived asset exceeds its fair value. Through December 31, 2003, there have been no such impairments.
Revenue Recognition |
Revenues are earned on amounts invoiced to customers in respect of services supplied. The Company recognizes revenue when persuasive evidence of an arrangement exists; services have been rendered; the fee is fixed and determinable; and collectibility is reasonably assured. Determination of whether persuasive evidence of an arrangement exists and whether services have been rendered are based on managements judgments regarding the fixed nature of the fee charged for research performed and milestones met, and the collectibility of those fees. Should changes in conditions cause management to determine these criteria are not met for certain future transactions, revenue recognized for any reporting period could be adversely affected.
Research and Development Expenditures |
Research and development expenditures consist primarily of costs associated with compensation and other expenses for research and development personnel, supplies and development materials, costs for consultants and related contract research, facility costs, amortization of purchased technology and depreciation. Expenditures relating to research and development are expensed as incurred.
Leased Assets |
The costs of operating leases are charged to operations on a straight-line basis over the lease term.
Where the Company enters into a lease which entails taking substantially all the risks and rewards of ownership of an asset, the lease is treated as a capital lease. The asset is recorded in the balance sheet as an asset and is depreciated in accordance with the above depreciation policies. The capital elements of future lease payments are recorded as liabilities and the interest is charged to operations over the period of the lease.
Pension Costs |
The Company operates a defined contribution pension plan. Contributions are charged to the operating statement as they become payable in accordance with the rules of the plan.
F-11
NOTES TO THE FINANCIAL STATEMENTS (Continued)
Income Taxes |
The Company accounts for income taxes under the liability method. Under this method, deferred tax assets and liabilities are determined based on the difference between the financial statement and tax bases of assets and liabilities using enacted tax rates in effect for the year in which the differences are expected to affect taxable income.
Valuation allowances are established when necessary to reduce deferred tax assets to the amounts expected to be realized.
Credit for research and development tax credits is taken in the accounting period of receipt from the U.K. Inland Revenue, in respect of qualifying research and development costs incurred.
Net Loss Per Share and Anti-dilutive Securities |
Basic and diluted net loss per share have been computed using the weighted-average number of ordinary shares outstanding during the period. The following potentially dilutive outstanding securities were not considered in the computation of diluted net loss per share because they would be anti-dilutive:
Year Ended December 31, | ||||||||||
Six Months Ended | ||||||||||
2001 | 2002 | 2003 | June 30, 2004 | |||||||
(Unaudited) | ||||||||||
Options to purchase ordinary shares
|
520,875 | 861,042 | 1,052,783 | 1,107,999 | ||||||
Stock-Based Compensation |
The Company accounts for stock-based employee compensation arrangements in accordance with the provisions of Accounting Principles Board Opinion No. 25 Accounting for Stock Issued to Employees, (APB25). Under APB 25, compensation expense is based on the difference, if any, on the date of grant, between the estimated fair value of the Companys ordinary shares and the exercise price of the option. SFAS No. 123, Accounting for Stock-Based Compensation, defines a fair value based method of accounting for an employee stock option or similar equity instrument.
The Company accounts for equity instruments issued to non employees in accordance with the provisions of SFAS No. 123 and Emerging Issues Task Force (EITF) Issue No. 96-18, Accounting for Equity Instruments That Are Issued to Other Than Employees for Acquiring, or in Conjunction with Selling Goods, or Services.
F-12
NOTES TO THE FINANCIAL STATEMENTS (Continued)
The following table illustrates the effect on net loss if the Company had applied the fair value recognition provisions of SFAS 123 to stock-based employee compensation arrangements. The following results may not be representative of future periods.
Year Ended December 31, | Six Months Ended June 30, | ||||||||||||||||||||
2001 | 2002 | 2003 | 2003 | 2004 | |||||||||||||||||
(Unaudited) | (Unaudited) | ||||||||||||||||||||
(In thousands, except per share amounts) | |||||||||||||||||||||
Net loss applicable to ordinary shareholders, as
reported
|
$ | (2,509 | ) | $ | (4,468 | ) | $ | (5,649 | ) | $ | (3,116 | ) | $ | (4,216 | ) | ||||||
Less: total stock-based employee compensation
determined under fair value based method for all awards
|
(105 | ) | (175 | ) | (203 | ) | (99 | ) | (101 | ) | |||||||||||
Adjusted net loss
|
$ | (2,614 | ) | $ | (4,643 | ) | $ | (5,852 | ) | $ | (3,215 | ) | $ | (4,317 | ) | ||||||
Net loss per ordinary share, basic and diluted:
|
|||||||||||||||||||||
As reported
|
$ | (0.88 | ) | $ | (0.70 | ) | $ | (0.89 | ) | $ | (0.49 | ) | $ | (0.67 | ) | ||||||
Adjusted
|
$ | (0.92 | ) | $ | (0.73 | ) | $ | (0.92 | ) | $ | (0.51 | ) | $ | (0.68 | ) | ||||||
The fair value of each option granted is estimated on the date of grant using the Black-Scholes option valuation model and the following weighted average assumptions:
Years Ended | ||||||||||||||||||||
December 31, | Six Months Ended June 30, | |||||||||||||||||||
2001 | 2002 | 2003 | 2003 | 2004 | ||||||||||||||||
(Unaudited) | (Unaudited) | |||||||||||||||||||
Risk free interest rate
|
4.35 | % | 2.98 | % | 2.84 | % | 2.98 | % | 2.94 | % | ||||||||||
Expected life (in years)
|
5 | 5 | 5 | 5 | 5 | |||||||||||||||
Volatility
|
109 | % | 106 | % | 88 | % | 106 | % | 88 | % | ||||||||||
Dividend yield
|
0.00 | % | 0.00 | % | 0.00 | % | 0.00 | % | 0.00 | % |
Based on the above assumption, the weighted average estimated fair values of options granted were $1.99, $1.91, $1.03 and $2.61 per share for the years ended December 31, 2001, 2002 and 2003 and for the six months ended June 30, 2004, respectively.
The Black-Scholes option valuation model was developed for use in estimating the fair value of traded options that have no vesting restrictions and are fully transferable. In addition, option valuation models require the input of highly subjective assumptions, including the expected stock price volatility. Because the Companys stock options have characteristics significantly different from those of traded options, and because changes in the subjective input assumptions can materially affect the fair value estimates, in managements opinion, the existing models do not necessarily provide a reliable single measure of fair value of the Companys stock options.
Comprehensive Income (Loss) |
In accordance with SFAS No. 130, Reporting Comprehensive Income, all components of comprehensive income (loss), including net income (loss), are reported in the financial statements in the period in which
F-13
NOTES TO THE FINANCIAL STATEMENTS (Continued)
they are recognized Net income (loss) and other comprehensive income (loss), including foreign currency translation adjustments, are reported, net of any related tax effect, to arrive at comprehensive income (loss).
Recent Accounting Pronouncements |
In January 2003, the FASB issued FASB Interpretation No. 46 (FIN 46), Consolidation of Variable Interest Entities, an Interpretation of ARB No. 51. FIN 46 requires certain variable interest entities to be consolidated by the primary beneficiary of the entity if the equity investors in the entity do not have the characteristics of a controlling financial interest or do not have sufficient equity at risk for the entity to finance its activities without additional subordinated financial support from other parties. In December 2003, the FASB issued FIN 46R, a revision to FIN 46. FIN 46R provides a broad deferral of the latest date by which all public entities must apply FIN 46 to certain variable interest entities to the first reporting period ended after March 15, 2004. As the Company has no variable interest entities, the adoption of FIN 46 will not have an impact on the Companys financial position, cash flows or results of operations.
In May 2003, the FASB issued SFAS No. 150, Accounting For Certain Financial Instruments with Characteristics of Both Liabilities and Equity, which establishes standards for how an issuer of financial instruments classifies and measures certain financial instruments with characteristics of both liabilities and equity. It requires that an issuer classify a financial instrument that is within its scope as a liability (or in some circumstances, as an asset) if, at inception, the monetary value of the obligation is based solely or predominantly on: (a) a fixed monetary amount known at inception, (b) variations in something other than the fair value of the issuers equity shares or (c) variations inversely related to changes in the fair value of the issuers equity shares. SFAS No. 150 is effective for financial instruments entered into or modified after May 31, 2003, and otherwise is effective at the beginning of the first interim period beginning after June 15, 2003. The adoption of SFAS No. 150 did not have an impact on the consolidated financial statements.
3. | Cash and Cash Equivalents |
The following is a summary of cash and cash equivalents at December 31, 2002 and 2003 and June 30, 2004:
December 31, | ||||||||||||
June 30, | ||||||||||||
2002 | 2003 | 2004 | ||||||||||
(Unaudited) | ||||||||||||
(In thousands) | ||||||||||||
Cash
|
$ | 36 | $ | 192 | $ | | ||||||
Deposits with original maturity of less than
three months
|
13,259 | 8,715 | 2,802 | |||||||||
$ | 13,295 | $ | 8,907 | $ | 2,802 | |||||||
F-14
NOTES TO THE FINANCIAL STATEMENTS (Continued)
4. | Prepaid Expenses and Other Current Assets |
The following is a summary of prepaid expenses and other current assets at December 31, 2002 and 2003 and June 30, 2004:
December 31, | ||||||||||||
June 30, | ||||||||||||
2002 | 2003 | 2004 | ||||||||||
(Unaudited) | ||||||||||||
(In thousands) | ||||||||||||
Research and development tax credit
|
$ | 313 | $ | | $ | | ||||||
Prepaid expenses
|
123 | 190 | 309 | |||||||||
Other debtors
|
51 | 49 | 128 | |||||||||
$ | 487 | $ | 239 | $ | 437 | |||||||
5. | Intangible Assets |
Intangible assets consisted of the following:
December 31, | ||||||||||||
June 30, | ||||||||||||
2002 | 2003 | 2004 | ||||||||||
(Unaudited) | ||||||||||||
(In thousands) | ||||||||||||
Acquired technology rights
|
$ | | $ | | $ | 2,015 | ||||||
Less accumulated amortization
|
| | (48 | ) | ||||||||
Intangible assets, net
|
$ | | $ | | $ | 1,967 | ||||||
Acquired technology rights are being amortized over their useful economic life of seven years.
The technology rights were acquired from Manteia SA under the terms of a joint asset purchase agreement with Lynx Therapeutics, Inc. (Lynx).
6. | Property and Equipment |
Property and equipment consisted of the following:
December 31, | |||||||||||||||
June 30, | |||||||||||||||
Useful Lives in Years | 2002 | 2003 | 2004 | ||||||||||||
(In thousands) | |||||||||||||||
(Unaudited) | |||||||||||||||
Leasehold property
|
remaining lease term (2 years) or useful life, whichever is the shorter | 205 | 278 | 283 | |||||||||||
Laboratory equipment
|
4 | 1,264 | 1,794 | 1,877 | |||||||||||
Office equipment
|
4 | 84 | 95 | 101 | |||||||||||
Computer equipment
|
3-4 | 278 | 403 | 432 | |||||||||||
1,831 | 2,570 | 2,693 | |||||||||||||
Less accumulated depreciation
|
|||||||||||||||
and amortization
|
(697 | ) | (1,357 | ) | (1,685 | ) | |||||||||
Property and equipment, net
|
1,134 | 1,213 | 1,008 | ||||||||||||
F-15
NOTES TO THE FINANCIAL STATEMENTS (Continued)
Depreciation charged for the years ended December 31, 2001, 2002 and 2003 was $182,000, $396,000 and $539,000 respectively.
The cost of assets held under capital leases at December 31, 2002 and 2003 was $nil and $60,000 respectively. Accumulated depreciation on assets under capital leases as at December 31, 2002 and 2003 was $nil and $10,000 respectively.
7. | Accounts Payable and Accrued Liabilities |
Accounts payable and accrued liabilities consisted of the following:
December 31, | ||||||||||||
June 30, | ||||||||||||
2002 | 2003 | 2004 | ||||||||||
(In thousands) | ||||||||||||
(Unaudited) | ||||||||||||
Accounts payable
|
$ | 315 | $ | 352 | $ | 322 | ||||||
Taxes payable and social security
|
78 | 156 | 136 | |||||||||
Pension contributions payable
|
28 | 35 | 40 | |||||||||
Accrued expenses and deferred income
|
385 | 209 | 183 | |||||||||
$ | 806 | $ | 752 | $ | 681 | |||||||
8. | Related Party Transactions |
Dr. Balasubramian, an employee of the University of Cambridge and a shareholder and director of the Company, received $33,000 (2002: $30,000; 2001: $29,000) for consultancy services provided to the Company. As at December 31, 2003 and 2002 no amounts were payable by the Company to Dr. Balasubramian.
$18,000 (2002: $20,000; 2001: $19,000) was paid to Dr. Rink, a shareholder and director of the Company in respect of consultancy services provided. At December 31, 2003 $8,000 was payable by the Company to Mr. Rink (2002: $4,000).
9. | Commitments |
Licensing and Research Agreements |
The Company has entered into various research, license and collaboration agreements to support its research and development activities. At December 31, 2003 the Company had no outstanding commitments under such agreements.
Leases |
In 2003, the Company entered into a two-year lease for its corporate headquarters and research and development facility in Cambridge, U.K.
Rent expense, which includes lease payments related to the Companys corporate headquarters and research and development facility and other rent related expenses, was $130,000, $154,000 and $217,000 for the years ended December 31, 2001, 2002 and 2003, respectively.
As at December 31, 2003, the Company had $50,000 (net book value) of plant and equipment financed through long-term obligations. The obligation under the equipment lease is secured by the equipment financed, bears interest at 19% and is due in monthly installments.
F-16
NOTES TO THE FINANCIAL STATEMENTS (Continued)
Annual future minimum payments are as follows at December 31, 2003:
Capital | Operating | |||||||
Leases | Leases | |||||||
(In thousands) | ||||||||
2004
|
$ | 24 | $ | 250 | ||||
2005
|
24 | 125 | ||||||
2006
|
6 | | ||||||
54 | $ | 375 | ||||||
Less amount representing interest
|
(11 | ) | ||||||
Present value of future minimum lease payments
|
43 | |||||||
Less current portion
|
(18 | ) | ||||||
Long-term portion
|
$ | 25 | ||||||
10. | Contingencies |
In the ordinary course of business the Company may be subject to legal proceedings and claims. The Company is not currently subject to any legal proceedings.
On June 24, 2004 the Company entered into a service agreement with Mr. McCooke, a director and shareholder. Under the terms of the agreement a bonus payment of $225,000 (£125,000) is payable to Mr. McCooke upon the successful completion of a merger or takeover between the Company and Lynx Therapeutics, Inc.
11. | Shareholders Equity |
Ordinary shares, A ordinary shares and B preferred shares |
Each Ordinary and A ordinary share entitles the holder to one vote on all matters submitted to a vote of the Companys shareholders. Each B preferred share entitles the holder to one vote for every ordinary share into which the B preferred shares are convertible into. When a dividend is declared by the Board, all A ordinary and B preferred shareholders are entitled to receive a fixed dividend accruing at a rate of 8% per annum (accruing on a daily basis and calculated on a simple and not compounded basis). The dividend payable to holders of the B preferred shares is in priority to the dividend payable to the holders of the A ordinary shares, which in turn is in priority to any dividend which the Board may declare as payable to the holders of all Ordinary shares. To date, no dividends have been declared.
In the event of liquidation of the Company, the return of assets to Ordinary shareholders shall be applied in the following order of priority:
1. First in paying to the holders of the B preferred shares the greater of a) 1.5 times the subscription price paid by them per share together with an amount equal to any arrears or accruals of dividends on the B preferred shares and b) an amount equal to any arrears or accruals of dividends on the B preferred shares together with the amount which the holders would receive if their B preferred shares had been converted into Ordinary shares immediately prior to such liquidation.
2. Second in paying to the holders of the A ordinary shares the greater of a) the subscription price paid by them per share (£3 or $4.41) together with an amount equal to any arrears or accruals of dividends on the A ordinary shares and b) an amount equal to any arrears or accruals of dividends on the A ordinary shares,
F-17
NOTES TO THE FINANCIAL STATEMENTS (Continued)
the amount which the holders would receive if their A ordinary shares had been converted into Ordinary shares immediately prior to such liquidation on a one to one basis.
3. Third in paying to the holders of the Ordinary shares any remaining capital after payment of all outstanding liabilities.
Any holder of A ordinary shares may require the Company to convert their A ordinary shares into Ordinary shares on a one to one basis. Any holder of B preferred shares may require the Company to convert their B preferred shares into Ordinary shares at a ratio of one Ordinary shares for each B preferred share. This ratio may be adjusted if additional shares are issued by the Company in accordance with anti-dilution provisions.
In the event of a merger and/or consolidation of the Company or an acquisition of or by the Company, which results in the shareholders receiving at least 40% of the nominal share capital and at least 40% of the voting control in the surviving or succeeding entity the shareholders shall be entitled, immediately prior to or upon the completion of such event, to the following:
(a) in the case of the B Preferred Shareholders, at the election of the B Majority and in priority to all other Shareholders, either: |
(i) to receive, pro rata, the number of equity securities of the surviving entity determined by multiplying the sum of the subscription price paid for the B preferred shares plus the per share arrears accrued on or after January 1, 2005 by the number of outstanding B preferred shares and by 1.25 and dividing the result by the per share price of the equity securities issued in the merger provided, that the maximum number of equity securities issuable shall not exceed the aggregate number of equity securities issued to all other shareholders calculated on a fully-diluted basis, as if all A ordinary shares, all B preferred shares and all convertible securities had been fully converted into ordinary shares and any outstanding options had been fully exercised; or | |
(ii) to have each B preferred share held converted into 1.25 ordinary shares; then |
(b) in the case of the A ordinary shareholders, at the election of 51% of the A ordinary shareholders, either: |
(i) to receive, pro rata, the number of equity securities of the surviving entity determined by multiplying the sum of the A ordinary subscription price for each such share plus the per share arrears accrued on or after January 1, 2005 by the number of outstanding A ordinary shares, and by dividing the result by the per share price of the equity securities issued in the merger provided, however, that the maximum number of equity securities issuable shall not exceed four times the aggregate number of the equity securities issued in such a merger to the holders of ordinary shares calculated on a fully-diluted basis, as if all A ordinary shares, all B preferred shares and all convertible securities had been fully converted into ordinary shares any outstanding options had been fully exercised; or | |
(ii) to have converted into, and re-designated as, ordinary shares at a rate of one ordinary share per each A ordinary share held; then |
(c) in the case of the ordinary shareholders, the remaining equity securities of the surviving entity that are distributable to the shareholders of the Company. | |
As regards redemption any B preferred shareholder subject to approval by the Investor Majority may request in writing that the Company redeem on or after July 31, 2010 all of their B preferred shares |
F-18
NOTES TO THE FINANCIAL STATEMENTS (Continued)
a cash amount equivalent to the greater of either (i) the subscription price paid by that shareholder plus the arrears, or (ii) the fair value of the B preferred shares being redeemed. |
Share Option Plan |
The Company operates three share option schemes as follows:
The Solexa Share Option Plan for Consultants |
This plan was adopted by the Company on April 14, 1999. Options may be granted under this plan to consultants and vest over four years from the date of grant with 25% vesting on the first anniversary of the date of grant, and the remainder vesting at the rate of 1/36 per complete month thereafter. Options only become exercisable after the third anniversary of the date of grant, to the extent they have vested.
The Solexa Unapproved Company Share Option Plan |
This plan was adopted by the Company on January 23, 2001. Options may be granted under the unapproved scheme to employees and generally vest over four years from the date employment starts (or for subsequent awards, from the date awarded) with 25% vesting on the first anniversary of the date of grant, and the remainder vesting at the rate of 1/36 per complete month thereafter. Options are exercisable once vested.
The Solexa Ltd Enterprise Management Incentive Plan (the EMI Plan) |
This plan was adopted by the Company on May 22, 2002. Options may be granted under the EMI Plan to employees and generally vest over four years from the date employment starts (or for subsequent awards, from the date awarded) with 25% vesting on the first anniversary of the date of grant, and the remainder vesting at the rate of 1/36 per complete month thereafter. Options are exercisable once vested.
During 2003 137,450 options which had conditional vesting terms dependent upon milestone achievement were granted to all employees except directors. As at June 30, 2004 the Board had agreed that 50% of the award should start vesting on April 1, 2004, with the remaining 50% on June 1, 2004.
F-19
NOTES TO THE FINANCIAL STATEMENTS (Continued)
A summary of the Companys share options activity and related information is as follows:
Weighted | |||||||||
Options | Average | ||||||||
Outstanding | Exercise Price | ||||||||
Balance at January 1, 2001
|
150,375 | $ | 1.29 | ||||||
Granted
|
324,000 | 1.44 | |||||||
Lapsed
|
(8,833 | ) | 1.36 | ||||||
Balance at December 31, 2001
|
465,542 | 1.39 | |||||||
Granted
|
323,500 | 1.50 | |||||||
Lapsed
|
(2,000 | ) | 1.50 | ||||||
Balance at December 31, 2002
|
787,042 | 1.56 | |||||||
Granted
|
287,450 | 0.68 | |||||||
Lapsed
|
(21,709 | ) | 1.64 | ||||||
Balance at December 31, 2003
|
1,052,783 | 1.46 | |||||||
Granted (unaudited)
|
86,000 | 0.98 | |||||||
Lapsed (unaudited)
|
(14,184 | ) | 1.13 | ||||||
Balance at June 30, 2004 (unaudited)
|
1,124,599 | $ | 1.43 | ||||||
The following table summarizes information about options outstanding at December 31, 2003:
Weighted | ||||||||||||
Average | ||||||||||||
Remaining | ||||||||||||
Number | Contractual Life | Number | ||||||||||
Exercise Price | Outstanding | (Years) | Exercisable | |||||||||
$0.73
|
269,450 | 9.27 | 27,250 | |||||||||
$0.96
|
18,000 | 9.95 | | |||||||||
$1.29
|
72,625 | 5.63 | 72,625 | |||||||||
$1.79
|
692,708 | 8.13 | 433,885 | |||||||||
1,052,783 | 533,760 | |||||||||||
12. | Pension Plans |
The Company operates a defined contribution personal pension plan for substantially all of its employees. Company contributions to the plan totaled $88,000, $197,000 and $286,000 in the years ended December 31, 2001, 2002 and 2003, respectively.
13. | Taxes |
The Company has made a taxable loss in each of the operating periods since incorporation. The tax credits of $nil, $293,000 and $707,000 for the year ended December 31, 2001, 2002 and 2003, respectively, represent U.K. research and development tax relief against such expenditures in the United Kingdom.
F-20
NOTES TO THE FINANCIAL STATEMENTS (Continued)
A reconciliation of the (benefit)/provision for income taxes with the amount computed by applying the U.K. statutory corporation tax rate of 30% to loss before income taxes is as follows:
Year Ended, December 31, | ||||||||||||
2001 | 2002 | 2003 | ||||||||||
(In thousands) | ||||||||||||
Loss before income taxes
|
$ | (2,509 | ) | $ | (4,761 | ) | $ | (6,356 | ) | |||
Income tax expense computed at statutory
corporation tax rate
|
$ | (753 | ) | $ | (1,428 | ) | $ | (1,907 | ) | |||
Disallowed expenses and non-taxable income
|
23 | 15 | 11 | |||||||||
Depreciation in excess of capital allowances
|
(92 | ) | (52 | ) | 23 | |||||||
Other temporary differences
|
5 | 1 | | |||||||||
Tax losses
|
817 | 1,464 | 1,873 | |||||||||
Research and development tax relief
|
| (293 | ) | (707 | ) | |||||||
$ | | $ | (293 | ) | $ | (707 | ) | |||||
Significant components of the Companys deferred tax assets are shown below:
December 31, | |||||||||
2002 | 2003 | ||||||||
(In thousands) | |||||||||
Deferred tax assets (liabilities):
|
|||||||||
Net operating loss carryforwards
|
$ | 2,651 | $ | 4,013 | |||||
Depreciation and amortization
|
(340 | ) | (353 | ) | |||||
Other temporary differences
|
2 | 10 | |||||||
Total net deferred tax assets
|
2,313 | 3,670 | |||||||
Valuation allowance for deferred tax assets
|
(2,313 | ) | (3,670 | ) | |||||
Net deferred taxes
|
$ | | $ | | |||||
Deferred income taxes reflect the net tax effect of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes. A valuation allowance has been established, as realization of such assets is uncertain.
The Company has, subject to agreement with the U.K. Inland Revenue, the following tax losses and accumulated tax losses available for carry forward against future operations, which under U.K. tax laws do not expire:
December 31, | ||||||||
2002 | 2003 | |||||||
(In thousands) | ||||||||
Accumulated tax losses
|
$ | 5,939 | $ | 13,375 | ||||
14. | Subsequent Events |
On August 12, 2004, the Company and Lynx entered into a loan agreement pursuant to which Lynx has received from the Company advances totaling $2.5 million upon completion of certain milestones, the last $500,000 of which was paid on October 15, 2004.
F-21
NOTES TO THE FINANCIAL STATEMENTS (Continued)
On September 28, 2004, the Company entered into an acquisition agreement with Lynx. Under the terms of the agreement Lynx will acquire the entire issued and outstanding share capital of the Company, subject to Lynxs shareholder approval and acceptance of the offer by Solexas shareholders.
F-22
ACQUISITION AGREEMENT
dated as of
September 28, 2004
by and between
SOLEXA LIMITED
TABLE OF CONTENTS
A-i
A-ii
ACQUISITION AGREEMENT
ACQUISITION AGREEMENT (this Agreement), dated as of September 28, 2004, by and between Solexa Limited, a company registered in England and Wales having its principal place of business at Chesterford Research Park, Little Chesterford, Nr Saffron Walden, Essex, Great Britain CB10 1XL (the Company) and Lynx Therapeutics, Inc., a Delaware corporation having its principal place of business at 25861 Industrial Boulevard, Hayward, California 94545 (Parent).
WHEREAS, the Board of Directors of the Company or a duly authorized sub-committee appointed by the Board of Directors of the Company (the Company Board) has unanimously (i) determined that this Agreement and the transactions contemplated hereby, including the Offer and the Option Offer (each as defined below) are in the best interests of the Company, (ii) approved this Agreement and the transactions contemplated hereby, and (iii) resolved to recommend that the shareholders of the Company accept the Offer;
WHEREAS, the Board of Directors of Parent (the Parent Board) has unanimously resolved (i) that this Agreement and the transactions contemplated hereby, including the issuance of shares of Parent common stock, par value $0.01 per share (Parent Common Stock), in connection with the Offer and the Option Offer, are fair to and in the best interest of the stockholders of Parent, (ii) to approve this Agreement and the transactions contemplated hereby, and (iii) to recommend that the stockholders of Parent approve the issuance of the shares of Parent Common Stock in connection with the Offer and the Option Offer and approve the other matters referred to in Section 1.1(f) of this Agreement;
WHEREAS, in furtherance thereof, it is proposed that Parent shall, as promptly as practicable following the Effective Date (as defined below), commence (i) an exchange offer (the Offer) to acquire all of the outstanding B preferred shares of (pound)0.0025 each in the capital of the Company (the B Preferred Shares), to acquire all of the outstanding A ordinary shares of (pound)0.0025 each in the capital of the Company (the A Ordinary Shares), and to acquire all of the outstanding ordinary shares of (pound)0.0025 each in the capital of the Company (the Ordinary Shares and, together with the B Preferred Shares and the A Ordinary Shares, the Shares), in exchange for shares of Parent Common Stock, and (ii) the Option Offer (as defined below), each in accordance with the terms and subject to the conditions provided herein;
WHEREAS, concurrently with the execution of this Agreement, and as a condition and inducement to Parents willingness to enter into this Agreement, the Company shareholders and optionholders identified on Schedule 1 to this Agreement are entering into Company Support Agreements in substantially the form attached hereto as Exhibit A (the Company Support Agreements);
WHEREAS, concurrently with the execution of this Agreement, and as a condition and inducement to the Companys willingness to enter into this Agreement, the Parent stockholders and optionholders identified on Schedule 2 to this Agreement are entering into Parent Support Agreements in substantially the form attached hereto as Exhibit B (the Parent Support Agreements);
WHEREAS, Parent and the Company have previously entered into a Loan Agreement, dated as of August 12, 2004 (the Loan Agreement), which provides for the terms and conditions on which the Company has made certain loans to, and would make certain loans to Parent following the date hereof, and further provides for certain rights and remedies of the parties in the event that this Agreement shall be terminated prior to the consummation of the Offer;
WHEREAS, concurrently with the execution of this Agreement, Parent and the Company have entered into a letter agreement setting forth the parties agreement as to the interpretation of certain of the terms of the Loan Agreement as they relate to the provisions of this Agreement (the Loan Agreement Side Letter);
WHEREAS, the parties intend that the exchange of shares contemplated by the Offer will qualify as a tax-free rollover of shares under Sections 126-138A of the United Kingdom Taxation of Chargeable Gains Act of 1992 (the TCGA) and as a reorganization for United States federal income tax purposes within the meaning of Section 368(a) of the United States Internal Revenue Code of 1986 (the Code); and
A-1
WHEREAS, Parent and the Company desire to make certain representations, warranties, covenants and agreements in connection with the Offer and the Option Offer and also to prescribe various conditions to consummation of the Offer and the Option Offer.
NOW, THEREFORE, in consideration of the foregoing and the mutual promises, representations, warranties, covenants and agreements herein contained, the parties hereto, intending to be legally bound, hereby agree as follows:
ARTICLE I
THE OFFER
SECTION 1.1 The Offer.
(a) Provided that (i) this Agreement shall not have been terminated in accordance with Section 7.1 and (ii) no event set forth in Annex A hereto shall have occurred and be continuing (unless such event shall have been waived by Parent or the Company, as applicable), as promptly as practicable following the effective date of the Registration Statement referred to in Section 1.1(d) below (the Effective Date), Parent shall commence the Offer for any and all of the Shares at the various Exchange Ratios contemplated by Section 1.1(b) below. The obligation of Parent to first issue shares of Parent Common Stock in exchange for Shares pursuant to the Offer (the First Closing) shall be subject only to (i) the valid acceptances of the Offer (and not, where permitted, withdrawn) by holders of at least ninety percent (90%) in nominal value of each of the issued B Preferred Shares, the issued A Ordinary Shares and the issued Ordinary Shares to which the Offer relates (the Minimum Condition) (and the expression Offer shall be construed in accordance with section 428 of the United Kingdom Companies Act 1985 (the Companies Act)), and (ii) the satisfaction or waiver (in accordance with the terms of this Section 1.1 (a)) of the other conditions set forth in Annex A. Parent shall not make any changes in the terms and conditions of the Offer without the prior written approval of the Company. It is agreed that the conditions set forth in Section 1 of Annex A are for the sole benefit of Parent and may be waived by Parent (and only by Parent), in whole or in part at any time and from time to time, in its sole discretion. It is agreed that the conditions set forth in Section 2 of Annex A are for the sole benefit of the Company and may be waived by the Company (and only by the Company), in whole or in part at any time and from time to time, in its sole discretion. To evidence the satisfaction of the conditions set forth in Section 2 of Annex A, the Company shall deliver to Parent on the First Closing Date (as defined below) a certificate, executed by the Chief Executive Officer of the Company, indicating the Companys concurrence that the conditions set forth in Section 2 of Annex A shall have been satisfied. Parent shall not be permitted to issue Parent Common Stock in exchange for Shares pursuant to the Offer until after it has received the certificate described in the preceding sentence from the Company. The failure by Parent or the Company, as the case may be, at any time to exercise any of the foregoing rights shall not be deemed a waiver of any such right, and each such right shall be deemed an ongoing right that may be asserted at any time and from time to time.
(b) The consideration to be offered by Parent to the holders of Ordinary Shares, A Ordinary Shares and B Preferred Shares in the Offer shall be as follows:
(i) Each holder of Ordinary Share(s) shall be entitled to receive 0.88637 of a share of Parent Common Stock for each Ordinary Share held (the Ordinary Share Exchange Ratio). | |
(ii) Each holder of A Ordinary Share(s) shall be entitled to receive 2.75326 shares of Parent Common Stock for each A Ordinary Share held (the A Ordinary Share Exchange Ratio). | |
(iii) Each holder of B Preferred Share(s) shall be entitled to receive 2.61560 shares of Parent Common Stock for each B Preferred Share held (the B Preferred Exchange Ratio and, together with the Ordinary Share Exchange Ratio and the A Ordinary Share Exchange Ratio, the Exchange Ratios); |
provided, however, that the maximum number of shares of Parent Common Stock to be issued by Parent (x) pursuant to the Offers and (y) in connection with the Compulsory Acquisition contemplated by Section 5.7 hereof, to the extent applicable, and (z) upon exercise (whenever exercised) of the options to acquire Parent Common Stock received in exchange for Company Options (as defined below) pursuant to the
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(c) Subject to the terms and conditions thereof, the Offer shall expire at midnight, New York City time, on the date that is the later of (i) twenty (20) Business Days after the date the Offer is commenced and (ii) five (5) Business Days following the date on which the Parent Stockholder Approvals (as defined in Section 1.1(f) hereof) shall have been received; provided, however, that (i) Parent shall (A) from time to time, extend the Offer, if at the scheduled expiration date of the Offer any of the conditions to the Offer shall not have been satisfied or waived, until such time as such conditions are satisfied or waived, but not beyond the Final Date (as defined in Section 7.1(b)(ii)), (B) extend the Offer for any period required by any rule, regulation, interpretation or position of the United States Securities and Exchange Commission (the SEC) applicable to the Offer, and (C) extend the Offer or the Option Offer for any period required by the rules of any Company Share Option Scheme. Subject to the terms and conditions of the Offer and this Agreement, on the First Closing Date (as defined below) and each Subsequent Closing Date (as defined below) Parent shall issue shares of Parent Common Stock in exchange for all Shares in respect of which valid acceptances have been received by such date (and not, where permitted, withdrawn) pursuant to the Offer or pursuant to the compulsory acquisition procedures set forth in Section 5.7. The First Closing Date shall be the second Business Day following satisfaction of the Minimum Condition and the satisfaction or waiver of the conditions set forth in Annex A. Should less than all of the Shares (including for purposes of this Section 1.1(c) Ordinary Shares issued or to be issued by the Company upon exercise of Company Options pursuant to the Option Offer), be exchanged for Parent Common Stock on the First Closing Date, Parent shall, at one or more subsequent closings (the date of each subsequent closing being a Subsequent Closing Date) accept for exchange, and issue shares of Parent Common Stock for, all Shares in respect of which valid acceptances have been received (and not, where permitted, withdrawn) on or before such Subsequent Closing Date. No fraction of a share of Parent Common Stock will be issued upon consummation of the Offer, but in lieu thereof each accepting shareholder or optionholder, in the case of optionholders exercising Company Options pursuant to the Option Offer as set forth in Section 1.4 below, and who would otherwise be entitled to receive a fraction of a share of Parent Common Stock (after aggregating all fractional shares of Parent Common Stock that otherwise would be received by such holder) in the Offer or Option Offer, as appropriate, shall receive from Parent an amount of cash (rounded to the nearest whole cent), without interest, equal to the product obtained by multiplying such fraction by the closing price of one (1) share of Parent Common Stock, as reported on the Nasdaq SmallCap Market (Nasdaq), for the last trading day immediately prior to the First Closing Date. A Business Day means any day of the year on which banking institutions in San Francisco and London are open to the public for conducting business and are not required or authorized to close.
(d) Parent shall use its reasonable best efforts to, within twenty (20) Business Days of the date of this Agreement, prepare and file with the SEC a registration statement on Form S-4 to register the offer and sale of Parent Common Stock pursuant to the Offer (the Registration Statement). The Company shall cooperate in good faith with, and provide reasonable assistance to, Parent in the preparation of the
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(e) Parent hereby approves of and consents to the transactions contemplated by this Agreement, including the Offer and the Option Offer, and represents that the Parent Board, at a meeting duly called and held on September 28, 2004, subject to the terms and conditions set forth herein, has unanimously: (i) determined that this Agreement and the transactions contemplated hereby, including the issuance of shares of Parent Common Stock in connection with the Offer and the Option Offer, are fair to and in the best interest of the stockholders of Parent, (ii) approved this Agreement and the transactions contemplated hereby, and (iii) resolved to recommend that the stockholders of Parent approve the issuance of the shares of Parent Common Stock in connection with the Offer and approve the other matters referred to in Section 1.1(f) hereof.
(f) Promptly after the date hereof, Parent shall take all action necessary in accordance with applicable Law and its certificate of incorporation and bylaws to call, give notice of, convene and hold a meeting of its stockholders (the Parent Stockholders Meeting) to be held as promptly as practicable, and in any event within 45 days after the Effective Date, for the purpose of (i) approving the issuance of shares of Parent Common Stock in connection with the Offer, (ii) approving the change-of-control of Parent in connection with the transactions contemplated by this Agreement, (iii) approving an amendment to Parents 1992 Stock Option Plan to increase the number of shares reserved for issuance thereunder by 2,000,000 shares; and
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(g) As soon as reasonably practicable following the date of this Agreement and if required by any applicable law, Parent shall engage a person authorized by the Financial Services Authority for the purposes of approving the Offer Documents and any documents to be delivered to the holders of Company Options pursuant to the Option Offer, each of which constitutes financial promotion under Section 21 of the Financial Services and Markets Act 2000.
(h) Parent agrees to use its commercially reasonable efforts to: (i) within 30 days of the First Closing Date, file a post-effective amendment to the Registration Statement on Form S-3 registering the resale by those Company shareholders who; (A) have executed Company Support Agreements, and (B) may be deemed to be an affiliate of the Company, as the term affiliate is defined for purposes of paragraphs (c) and (d) of Rule 145 of the Rules and Regulations, of the Parent Common Stock issuable to such shareholders in the Offer, and (ii) cause such post-effective amendment on Form S-3 to be declared effective under the Securities Act as promptly as practicable after its filing, and in any event within one hundred eighty (180) days following the First Closing Date. The various terms and procedures associated with resale under such registration statement are set forth in the Company Support Agreements between Parent and certain Company shareholders.
SECTION 1.2 Company Actions With Respect to the Offer.
(a) The Company hereby approves of and consents to the transactions contemplated by this Agreement, including the terms of the Offer and the Option Offer set out in this Agreement, and represents that the Company Board or a duly authorized sub-committee appointed by the Company Board, at a meeting duly called and held on September 23, 2004, subject to the terms and conditions set forth herein, has unanimously: (i) determined that this Agreement and the transactions contemplated hereby, including the Offer, are in the best interests of the Company; (ii) approved this Agreement and the transactions contemplated hereby; and (iii) resolved to recommend that the shareholders of the Company accept the Offer.
(b) In connection with the Offer, the Company shall, promptly following a request by Parent, furnish Parent with such information, including updated lists of the shareholders and optionholders of the Company and updated lists of Shares and options held by such shareholders and optionholders, and such assistance as Parent or its agents may reasonably request in communicating (i) the Offer to the record holders of the Shares and (ii) the Option Offer to the holders of Company Options. Subject to any applicable Laws, and except for such steps as are necessary to disseminate the Offer Documents and any other documents necessary to consummate the Offer and the Option Offer, Parent and its agents shall hold in confidence the information contained in any such listings and files, will use such information only in connection with the Offer and the
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(c) Solely in connection with the execution by certain of the shareholders of the Company of the Company Support Agreements and in connection with the exchange of Shares pursuant to the Offer, the Company hereby waives any and all rights of first refusal it may have with respect to Shares owned by, or issuable to, any person, other than rights to repurchase unvested shares, if any, that may be held by persons pursuant to the grant of restricted stock purchase rights or following exercise of employee stock options.
SECTION 1.3 Boards of Directors.
(a) The Parent Board will take all actions necessary such that, on the First Closing Date, the Parent Board shall consist of Craig C. Taylor, Genghis Lloyd-Harris, Thomas Daniel, Hermann Hauser, Mark Carthy and John West. In addition, on the First Closing Date, one or more other directors who shall be mutually acceptable to the Parent Board and the Company Board shall be appointed to the Parent Board. The parties shall ensure that the composition of the Parent Board upon such appointments shall comply with the rules and regulations of Nasdaq and the SEC. John West shall be appointed as Chief Executive Officer of Parent, effective on the First Closing Date and contingent upon the occurrence of the First Closing Date.
(b) Parents obligation to reconstitute the Parent Board shall be subject to Section 14(f) of the Exchange Act and Rule 14f-1 promulgated thereunder, and accordingly Parent shall promptly take all action required pursuant to such Section and Rule in order to fulfill its obligations under this Section 1.3 and shall include in the Proxy Statement/ Prospectus such information with respect to the Company and its officers and directors as is required under such Section and Rule in order to fulfill its obligations under this Section 1.3. The Company shall promptly supply to Parent in writing and be solely responsible for any information with respect to itself and its officers, directors and affiliates required by such Section and Rule.
(c) The Company Board will take all actions necessary such that, on the First Closing Date, the Company Board shall consist of one or more of the following individuals who shall be mutually acceptable to the Parent Board and the Company Board: John West, Dr. Tony Smith, Dr. Shankar Balasubramanian and Dr. Steve Allen.
SECTION 1.4 Stock Options and Stock Plans.
(a) Provided that (i) this Agreement shall not have been terminated in accordance with Section 7.1 and (ii) none of the events set forth in Annex A hereto that would entitle Parent to fail to consummate the Offer shall have occurred and be continuing (and shall not have been waived by Parent or the Company, as applicable), either concurrently with the commencement of the Offer or as soon thereafter as reasonably practicable but in no event later than four weeks following the commencement of the Offer, Parent shall commence an exchange offer (the Option Offer) for each outstanding option to acquire Ordinary Shares (each, a Company Option and together, the Company Options) under the Solexa Share Option Plan for Consultants (the Consultant Share Option Scheme), the Solexa Unapproved Company Share Option Plan (the Unapproved Share Option Scheme) and the Solexa Limited Enterprise Management Incentive Plan (the Management Share Option Scheme and, together with the Consultant Share Option Scheme and the Unapproved Share Option Scheme, the Company Share Option Schemes) on the terms contemplated by Section 1.4(b) below.
(b) Under the Option Offer, each outstanding Company Option under the Company Share Option Schemes, to the extent vested or, in the event that the Company Acquisition procedure is invoked, whether vested or unvested, shall, (i) at the election of the holder of each Company Option either, (A) be exercised in accordance with rules of the relevant Company Share Option Scheme and such Ordinary Shares received upon the exercise be exchanged for shares of Parent Common Stock on the same terms as those offered under the Offer (the Option Exercise); or (B) become an option to acquire, on the same terms and conditions as were applicable under the relevant Company Share Option Scheme immediately prior to the First Closing Date, including the same vesting schedule, a number of shares of Parent Common Stock equal to the number of Ordinary Shares issuable upon the exercise of each such Company Option prior to the First Closing Date
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(c) Parent shall take all corporate action necessary to reserve for issuance a sufficient number of shares of Parent Common Stock for delivery upon exercise of the Company Options converted in accordance with this Section 1.4. As promptly as practicable after the First Closing Date, Parent shall file a registration statement on Form S-8 (or any successor form) or another appropriate form with respect to the Parent Common Stock subject to such options and shall use its commercially reasonable efforts to maintain the effectiveness of such registration statement or registration statements for so long as such options remain outstanding.
ARTICLE II
REPRESENTATIONS AND WARRANTIES OF THE COMPANY
The Company represents and warrants to Parent, except as set forth in the disclosure letter supplied by the Company to Parent dated as of the date hereof (the Company Disclosure Letter), as follows:
SECTION 2.1 Information and Executives; Organization and Qualification.
(a) The registered owners of the B Preferred Shares, A Ordinary Shares and Ordinary Shares, and the number of Shares held by such owners, are set forth on Schedule 2.1 of the Company Disclosure Letter and all of such Shares are fully paid and comprise the entire issued share capital of the Company. None of the share capital of the Company (whether issued or unissued) is under any option or other right to acquire by the Company or subject to any mortgage, charge (fixed or floating), pledge, lien, security, interest or other third party right (including rights of pre-emption) created by the Company and no dividends or other rights or benefits have been declared, made or paid or agreed to be declared, made or paid thereon.
(b) The Company is an entity duly organized and validly existing under the laws of the jurisdiction of its incorporation or organization, with the requisite power and authority to own and use its properties and assets and to carry on its business as currently conducted. No receiver has been appointed in respect of the Company or in respect of any of its assets nor has any administration order been made nor any notice issued for convening a meeting at which a resolution is to be proposed for the winding up of the Company, and nor has any such resolution been passed.
SECTION 2.2 Company Financial Statements.
(a) The Company has made available to Parent a copy of the Companys audited balance sheet as of December 31, 2003 and the related statements of income for the fiscal year then ended, accompanied by the report of the Companys independent public accountants and the directors report(s) thereon (the Company Financial Statements). The Company Financial Statements have been prepared in accordance with accounting principles, standards and practices which are generally accepted in the United Kingdom (UK GAAP) and on the same basis and in accordance with the same accounting policies as the corresponding accounts for the preceding financial year, comply with the requirements of the Companies Act 1985 and give a true and fair view of the state of affairs of the Company on the date of such financial statements and of the profits and losses for the period concerned. The Companys audited balance sheet as of December 31, 2003 is referred to in this Agreement as the Company Balance Sheet.
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(b) The Company Balance Sheet makes adequate provision for or, in the case of actual liabilities, properly discloses, notes or takes into account as at the date of the Company Balance Sheet (the Company Balance Sheet Date): (i) all liabilities whether actual contingent or disputed; (ii) all capital commitments whether actual or contingent; (iii) all bad and doubtful debts; and (iv) all accrued Taxes (as defined in Section 2.4 below).
(c) The Company Balance Sheet adequately provides or reserves for all Taxes for which the Company was liable at the Company Balance Sheet Date.
(d) The profits (or losses) shown in the Company Balance Sheet have not to a material extent been affected (except as disclosed therein) by any extraordinary or exceptional event or circumstance or by any other factor rendering such profits unusually high or low.
(e) The management accounts for July 2004 (Management Accounts) have been prepared in accordance with accounting policies on a basis consistent with the management accounts prepared in the preceding twelve months. To the Knowledge (as defined below) of the Company, the Management Accounts have been prepared in accordance with UK GAAP; provided that the Management Accounts do not contain all of the footnote disclosure that would otherwise be required by UK GAAP and such Management Accounts are subject to normal year-end adjustments which are not anticipated to be material.
(f) The Management Accounts reflect the financial affairs of the Company (at the date to which they have been prepared), reflect the Companys results for the period covered thereby and are not inaccurate or misleading in any material respect.
SECTION 2.3 Events since the Company Balance Sheet Date. Since the Company Balance Sheet Date:
(a) the business of the Company has been carried on in the ordinary course and so as to maintain the same as a going concern; | |
(b) the Company has not acquired or disposed of or agreed to acquire or dispose of any business or any material asset (other than trading stock in the ordinary course of the business carried on by it) or assumed or acquired any material liability (including a contingent liability); | |
(c) no dividend or other distribution (as defined by the Income and Corporation Taxes Act of 1988 (ICTA)) has been declared, made or paid to the Companys members nor has it repaid any loan capital or other debenture; | |
(d) no change has been made (or agreed to be made) in the emoluments or other terms of employment of any of the Companys employees who are in receipt of remuneration in excess of £50,000 per annum or of any of the directors of the Company nor has the Company paid any bonus or special remuneration to any such employee or any of its directors; | |
(e) the Company has not borrowed monies (except in the ordinary course of the business carried on by it or from its bankers under agreed loan facilities); | |
(f) to the Companys Knowledge, there has not been any deterioration in the financial position or prospects of the business of the Company (whether in consequence of normal trading or otherwise); | |
(g) no part of the business of the Company has been effected to a material extent by the loss of any important customer, or of any source of supply or by the cancellation or loss of any order or contract or by any other abnormal factor or event nor, to the Companys Knowledge, are there any circumstances likely to lead thereto; | |
(h) no employee has been dismissed or made redundant nor has the Company taken or omitted to take any action which would entitle any employee to claim that he has been constructively dismissed; and | |
(i) there are no liabilities (including contingent liabilities) outstanding on the part of the Company other than those liabilities disclosed in the Company Balance Sheet or incurred in the ordinary and proper course of business since the Company Balance Sheet Date which are similarly disclosed in the books and records of the Company. |
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For purposes of this Agreement, Knowledge shall mean, with respect to Parent or the Company, as the case may be, with respect to any matter in question, the actual knowledge of the executive officers and members of the Parent Board or the Company Board, as the case may be, after inquiry of his or her direct reports.
SECTION 2.4 Taxes.
(a) Except as would not, individually or in the aggregate, have a Material Adverse Effect on the Company, the Company has duly made all Tax Returns and given or delivered all notices, accounts and information which ought to have been made to and is not involved in any dispute with the Inland Revenue or other authority concerning any matter likely to affect in any way the liability (whether accrued, contingent or future) of it to Taxes of any nature whatsoever or other sums imposed, charged, assessed, levied or payable under the provisions of the taxation statutes and the Company is not aware of any matter which may lead to such dispute.
(b) Except as would not, individually or in the aggregate, have a Material Adverse Effect on the Company, the Company has duly paid or fully provided for all Taxes for which it is liable and there are no circumstances in which interest or penalties in respect of Tax not duly paid could be charged against it in respect of any period prior to the Company Balance Sheet Date.
(c) Except as would not, individually or in the aggregate, have a Material Adverse Effect on the Company, no liability of the Company for Taxes has arisen or will arise prior to the First Closing Date save for corporation Tax payable in respect of normal trading profits earned by it or income Tax deducted under PAYE regulations or national insurance contributions or Value Added Tax or sickness pay for which it is accountable to the Inland Revenue, Customs and Excise or other relevant authority and which has where appropriate been deducted or charged and where due paid to the Inland Revenue or such other relevant authority.
(d) The Company has not entered into or been a party to any schemes or arrangements designed partly or wholly for the purpose of it or (so far as each of the Company is aware) any other person avoiding the payment or levy of Taxes.
(e) All documents in the possession of the Company and to which the Company is a party or to the production of which it is entitled and which attract stamp or transfer duty in the United Kingdom or elsewhere have been properly stamped.
(f) The Company is not involved in and has not in the last six years been involved in any dispute with or investigation by the Inland Revenue or other Taxing Authority concerning any matter likely to affect in any way the liability (whether accrued, contingent or future) of it to Taxes of any nature whatsoever or other sums imposed, charges, assessed, levied or payable under the provisions of the tax statutes and the Company and, to the Knowledge of the Company, there is no matter that exists would lead to such a dispute or investigation.
(g) The Company is, and has been since incorporation, resident for tax purposes only in the United Kingdom. The Company is duly registered in the United Kingdom for the purposes of value added tax.
(h) As used in this Agreement, (i) the term Tax or Taxes shall mean, with respect to any person, (a) all taxes, domestic or foreign, including without limitation any income (net, gross or other, including recapture of any tax items such as investment tax credits), alternative or add-on minimum tax, gross income, gross receipts, gains, sales, use, leasing, lease, user, ad valorem, transfer, recording, franchise, profits, property (real or personal, tangible or intangible), fuel, license, withholding on amounts paid to or by such Person, payroll, employment, unemployment, social security, excise, severance, stamp, occupation, premium, environmental or windfall profit tax, custom, duty, value added or other tax (but excluding stamp duty), or other like assessment or charge of any kind whatsoever, together with any interest, levies, assessments, charges, penalties, additions to tax or additional amounts imposed by any Taxing Authority, (b) any joint or several liability of such person with any other person for the payment of any amounts of the type described in (a) of this definition, including without limitation any liability under U.S. Treasury Regulations Section 1.1502-6 promulgated under the Code and any similar provisions of applicable U.S. state Tax Law, and (c) any liability of such person for the payment of any amounts of the type described in (a) as a result of any express or
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SECTION 2.5 Litigation.
(a) Neither the Company nor, to the Companys Knowledge, any person for whose acts and defaults it may be vicariously liable, is at present engaged whether as claimant, defendant or otherwise in any legal action, proceeding, mediation or arbitration (or any similar proceedings) which is either in progress or, to the Companys Knowledge, is threatened or is pending or is being prosecuted for any criminal offence and no governmental or official investigation or inquiry concerning the Company is in progress or, to the Companys Knowledge, pending that could, individually or in the aggregate, have a Material Adverse Effect on the Company.
(b) There are no circumstances known to the Company likely to lead to any claim or legal action, proceeding or arbitration (other than as aforesaid) prosecution, investigation or enquiry described in Section 2.5(a) above.
SECTION 2.6 Property and the Environment.
(a) The Company has a good and marketable title to and is legal and beneficial owner of the property set forth in Schedule 2.6(a) (the Company Property). With the exception of the Company Property, the Company does not own, use or occupy any other land or building whether under a license or otherwise.
(b) The Company Property is free from all material pledges, claims, liens, charges, encumbrances, leases, tenancies, options, licenses, mortgages and security interests of any kind or nature whatsoever, other than liens for Taxes not yet due and payable and restrictions imposed by applicable securities laws (collectively, Encumbrances) and any agreement to create any of them.
(c) The Company has received no indication that the Company Property is not in a good and substantial state of repair. The Company is not aware of any structural problems in respect thereof and no deleterious substances not approved by any relevant Code of Practice have been used in the construction of the Company Property.
(d) All covenants, obligations (including without limitation statutory obligations), restrictions and conditions affecting any of the Company Property or the Company as owner or lessee thereof have been observed and performed and all outgoings (including rates) have been duly paid and the Company Property is insured to its full reinstatement value.
(e) There are no covenants, obligations, restrictions, conditions, easements or encumbrances or statutory consents or authorizations which are of an unusual or onerous nature or which would affect the continued use
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(f) There are no compulsory purchase orders or resolutions affecting the Company Property or, to the Companys Knowledge, any proposal for such an order or resolution.
(g) All deeds and documents necessary to prove title to the Company Property are in the possession of the Company and have been or will be duly stamped.
(h) There is no actual or contingent liability on the part of the Company in relation to any real property other than the Company Property, including any actual or contingent liability as previous lessee or underlessee or guarantor or surety or covenantor in relation to any lease or underlease.
(i) The Company has obtained and is and has been in compliance with the terms and conditions of all consents required under Environmental Laws required in respect of the Companys activities and, to the Companys Knowledge, is and has been in compliance with and has no material actual or contingent liability under Environmental Law and there are no facts or circumstances which so far as the Company is aware are likely to lead to the revocation, suspension or variation of any consent required under Environmental Laws, except in each case as could not, individually or in the aggregate, have or result in a Material Adverse Effect on the Company.
(j) No conditions exist in respect of or connected with the Company Property in respect of which the Company is or is likely to be responsible under Environmental Law for all or any part of the costs or expenses associated with investigation, treatment, remediation or other works in respect of any Hazardous Substance and no conditions exist in respect of or in connection with any properties previously owned or occupied by the Company whereby the Company is likely to be responsible under Environmental law for all or any part of such costs or expenses.
(k) Since the Companys occupation of the Company Property, there are and have been no Hazardous Substances beyond an allowable or permissible quota or limit prescribed or specified under any Environmental Law disposed of, spilled or discharged by the Company in or under the Company Property nor in water or groundwater on or under the Company Property and the Company is not aware of any Hazardous Substances which are or have been present in water or groundwater on or under the Company Property.
(l) The Company has received no indication of any actual, pending or threatened actions against it by regulatory authorities or third parties in respect of any alleged non-compliance with or liability under Environmental Law.
(m) As used herein, the term Environmental Law means any law, regulation, treaty, directive, decision, code, notice or judgment relating to: (i) the protection, investigation or restoration of the environment, health and safety, or natural resources, (ii) the handling, use, presence, disposal, release or threatened release of any Hazardous Substance, or (iii) noise, odor, wetlands, pollution or contamination to persons or property. As used herein, the term Hazardous Substance means any substance that is: (i) listed, classified or regulated pursuant to any Environmental Law; (ii) any petroleum product or by-product, asbestos-containing material, lead-containing paint or plumbing, polychlorinated biphenyls, radioactive materials or radon; or (iii) any other substance which may be the subject of regulatory action by any Government Authority pursuant to any Environmental Law.
SECTION 2.7 Intellectual Property.
(a) Section 2.7(a) of the Company Disclosure Letter lists (i) all patents and patent applications, all applications for trademarks, trade names and service marks, and all registered trademarks, trade names, service marks, and copyrights that are owned or purported to be owned by the Company, and such list specifies, as applicable, the jurisdictions by or in which each such patent, trademark, trade name, service mark or copyright has been issued or registered or in which any application for such issuance and registration has been filed, (ii) all material licenses, sub-licenses and other agreements as to which the Company is a party and pursuant to which any person is authorized to use any Company Intellectual Property (as defined below) (Company Licenses), and (iii) all material licenses, sub-licenses and other agreements to which the
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(b) The Company is the sole legal and beneficial owner of, or is licensed to use, the Company Intellectual Property.
(c) All Company Intellectual Property owned by the Company is unencumbered and subsisting and, to the Companys Knowledge, is valid and enforceable, and nothing has been done or so far as the Company is aware omitted to be done which may cause any of it to cease to be so.
(d) The Company has (i) made all applications for registration for such Company Intellectual Property owned by the Company, all of the Companys rights in the Company Third-Party Intellectual Property Rights and that the Company considered prudent to be registered in any jurisdiction in which the Company conducts its business; and (ii) taken such other steps as the Company considered prudent for the protection of the Company Intellectual Property owned by the Company and all of the Companys rights in the Company Third-Party Intellectual Property Rights, including without limitation carrying out all relevant searches in all jurisdictions where the Company conducts its business before registering or using the Company Intellectual Property and repeating such searches on a regular basis.
(e) Such renewal and extension fees in respect of any registered Company Intellectual Property owned by the Company as the Company considered prudent to be maintained have been duly paid, and all other steps as the Company considered prudent to be taken for the maintenance and protection of any registered Company Intellectual Property owned by the Company have been taken, in any jurisdiction in which they are registered.
(f) So far as the Company is aware all documents and materials (i) material to the right, title and interest of the Company to the Company Intellectual Property, including without limitation any licenses of the Company Third-Party Intellectual Property Rights; and (ii) necessary for the prosecution or maintenance (as applicable) of all registrations and applications for registrations in relation to the Company Intellectual Property owned by the Company form part of the records or materials in the possession or ownership of the Company.
(g) None of the Company Intellectual Property is subject, in whole or in part, to any charge or license other than as set out in the Company Licenses and Company Third-Party Intellectual Property Rights. None of the Company Intellectual Property (excluding for the purposes of this warranty Company Third-Party Intellectual Property Rights) is subject, in whole or in part, to any charge other than as set out in the Company Licenses. None of the Company Intellectual Property (excluding for the purposes of this warranty
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(h) The Company has not (i) authorized or otherwise expressly or impliedly permitted any use whatsoever of the Company Intellectual Property owned by the Company; or (ii) granted to any third party any right or interest in respect of such Company Intellectual Property, other than under a Company License.
(i) To the Companys Knowledge, all Company Intellectual Property, including without limitation all Company Third-Party Intellectual Property Rights, will be available for use by the Company on substantially identical terms and conditions immediately following the First Closing Date.
(j) The Company Intellectual Property comprises all the Intellectual Property reasonably necessary to carry on the business as conducted by the Company as at the date of this Agreement.
(k) No activities, documents, materials (whether in tangible or intangible form), software, the Company websites, products, services or processes of the Company (or any licensee under any Company Third-Party Intellectual Property Rights in relation to the Company Intellectual Property) involve or have involved the unlicensed use of a third partys confidential information or give or have given rise to liability to pay compensation or, to the Companys Knowledge, infringe or have infringed, any Intellectual Property of a third party.
(l) No third party or competent authority has made any claim, challenge or opposition, to the Company against the Company in relation to the Company Intellectual Property, and. to the Companys Knowledge, no third party has made or is making any unauthorized use of, or has infringed or is infringing, any Company Intellectual Property.
(m) To the Companys Knowledge, no third party has registered or applied to register in any country any Intellectual Property made, or claimed to be owned, by the Company.
(n) No Company License or license comprising Company Third-Party Intellectual Property Rights, or other agreement in relation to the Company Intellectual Property, has been the subject of any material breach by the Company and the Company has not formally waived any material breach of any other party, and no notice or knowledge of breach of or termination of any license comprising Company Third-Party Intellectual Property Rights has been received by the Company.
(o) The Company is not subject to any order or injunction or other restrictive measure or undertaking imposed by any court or other body of competent jurisdiction in relation to the Company Intellectual Property (including, without limitation, any prohibition or restriction on use).
(p) The Company has at all times taken all such steps as it considered prudent to keep confidential all know-how used in the business and the Company has not disclosed (except in the ordinary course of business and in the case of a material disclosure, subject to a binding confidentiality obligation) any of its know-how other than to its employees and professional advisors.
(q) The Company is entitled to use all know-how in its possession and, to the Companys Knowledge, there are no restrictions on the use of that know-how.
(r) No claims, disputes or proceedings in respect of Company Intellectual Property have been settled by the Company in the three years immediately preceding the date hereof.
(s) There are and have been no claims, formal disputes or proceedings which have a material adverse effect on (i) the Company Intellectual Property owned by the Company or its ownership of the Company Intellectual Property owned by the Company; (ii) the Companys use of the Company Third-Party Intellectual Property Rights; or (iii) the right of the Company (and any licensee of the Company) to use anywhere in the world any of the Company Intellectual Property.
(t) No party (whether individual, partnership, or company) retained, commissioned, employed or otherwise engaged by the Company from time to time and who, in the course of such engagement created,
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(u) In respect of any personal data processed by the Company, the Company (i) has made all necessary registrations and notifications of its particulars in accordance with the Data Protection Legislation and has listed all notifications and registrations in Section 2.7(u) of the Company Disclosure Letter; (ii) are aware all details supplied to the Information Commissioner in relation to each application for registration or notification are accurate and complete; (iii) comply and will continue to comply with the Data Protection Legislation (including but not limited to the Data Protection Principles) and any guidance notes or guidelines issued by the Information Commissioner; (iv) will co-operate fully in complying with any subject access requests made pursuant to the Data Protection Legislation; and (v) no notice of any kind has been served on the Company under any provision under any part of the Data Protection Legislation or any analogous legislation in any part of the world.
(v) To the Companys Knowledge, the contents of the Company websites comply with all laws and regulations and codes of practice in any applicable jurisdiction and the website does not contain any hypertext links to other websites.
SECTION 2.8 Assets, Debts and Stock.
(a) None of the book debts included in the Company Financial Statements or which have subsequently arisen have been outstanding for more than two months from their due dates for payment and all such debts have realised or will realise in the normal course of collection their full value save as provided in the Company Financial Statements or in the books of the Company.
(b) The Company has not granted any security over any part of its undertaking or assets.
(c) All assets used by and all debts due to the Company or which have otherwise been represented as being its property or due to it or used or held for the purposes of its business are its absolute property to which the Company has good and marketable title and none is the subject of any encumbrance (save in respect of liens arising in the normal course of trading) or the subject of any factoring arrangement, hire-purchase, retention of title, conditional sale or credit sale agreement.
(d) Each asset needed for the proper conduct of the business of the Company is in good repair and working order (fair wear and tear excepted).
SECTION 2.9 Contracts with Connected Persons.
(a) There are no loans made by the Company to any of its directors or shareholders and/or any person connected with any of them and no debts or liabilities owing by the Company to any of its directors or shareholders and/or any person connected with them as aforesaid.
(b) There are no existing contracts or arrangements to which the Company is a party and in which any of its directors or shareholders and/or any person connected with any of them is interested.
SECTION 2.10 Employment Arrangements; Employee Benefits.
(a) Full details of all contracts of service or for services and other arrangements (including, without limitation, details of notice periods and all remuneration) of all officers, employees and consultants of the Company are set out in Section 2.10(a) of the Company Disclosure Letter.
(b) There are no agreements or other arrangements (binding or otherwise) or outstanding or anticipated claims or disputes between the Company and any trade union or other body representing all or any of the employees of the Company.
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(c) The Company does not owe any amount to, nor does it have any outstanding obligations in respect of, any of its present or former directors, employees or shareholders other than remuneration accrued during the month in which this Agreement has been entered into.
(d) No gratuitous payment has been made or promised in connection with the actual or proposed termination or suspension of employment or variation of any contract of employment of any present or former director or employee of the Company.
(e) There are no agreements or arrangements (whether legally enforceable or not) for the payment of any pensions, allowances, lump sums or other like benefits on redundancy, retirement or on death or during periods of sickness or disablement for the benefit of any director or former director or employee or former employee of the Company or for the benefit of the dependants of any such person.
(f) There have been no relevant transfers to the Company pursuant to the Transfer of Undertakings (Protection of Employment) Regulations 1981.
(g) All officers, employees and consultants of the Company have assigned past and have agreed to assign future Intellectual Property and know-how relating to the business of the Company to the Company pursuant to agreements in the form previously delivered to Parent.
(h) The Company has complied in all respects with its obligations in respect of the group personal pension scheme provided by Scottish Amicable (the GPP Scheme) to the employees and directors of the Company. The Companys sole obligations in connection with the GPP Scheme are limited to providing access to the employees and directors of the Company to the GPP Scheme, paying employers contributions to the GPP Scheme and deducting contributions of the members of the GPP Scheme.
(i) The Company has complied in all material respects with its obligations (including its obligations as trustee and administrator) in respect of the group life assurance scheme (the Life Assurance Scheme).
(j) The Life Assurance Scheme only provides lump sum benefits on the death of employees and directors while in service. All benefits which may become payable to or in respect of employees or directors under the Life Assurance Scheme are fully insured and all related insurance premiums have been paid at the insurance companys normal rates..
(k) The Company does not sponsor, participate in, or contribute and has not since its incorporation sponsored, participated in or contributed to any defined benefit scheme.
(l) To the Companys Knowledge, the GPP Scheme is approved under Chapter IV, Part XIV of the Income and Corporation Taxes Act 1988, and the Life Assurance Scheme is approved under Chapter I, Part XIV of the Income and Corporation Taxes Act 1988, and there is no matter which might give the Inland Revenue reason to withdraw such approval in respect of other arrangements.
(m) The Company has complied with its duty to facilitate access to a stakeholder pension scheme under Section 3 of the Welfare Reform and Pensions Act 1999.
(n) No claim concerning the GPP Scheme or the Life Assurance Scheme (including, without limitation, contact with the Occupational Pensions Regulatory Authority, the Pensions Advisory Service or the Pensions Ombudsman or an application under any internal dispute resolution procedure) has been made by or in respect of any employee or director, and none is pending or threatened. The Company is not aware of any matter which might give rise to such a claim.
(o) All officers, employees and consultants of the Company have entered into non-disclosure agreements and all officers and employees have executed restrictive covenants preventing competition with the Company in the form previously delivered to Parent.
(p) Section 2.10(p) of the Company Disclosure Letter sets forth, as of the date hereof, the total outstanding Company Options and (i) the name of the holder of each Company Option, (ii) the exercise price per share of such Company Option, (iii) the number of shares covered by such Company Option, (iv) the vesting schedule for such Company Option, (v) the term of each option and (vi) whether the
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(q) The Company has not taken any action that would result in the accelerated vesting, exercisability or payment of any Company Options as a consequence of the execution of, or consummation of, the transactions contemplated by, this Agreement.
SECTION 2.11 Statutory and Legal Requirements.
(a) All statutory, municipal, governmental, court and other requirements applicable to the carrying on of the business of the Company, the formation, continuance in existence, creation and issue of securities, management, property or operation of the Company have been complied with, and all permits, authorities, licenses and consents have been obtained and all conditions applicable thereto complied with and so far as the Company is aware there are no circumstances which might lead to the suspension, alteration or cancellation of any such permits, authorities, licenses or consents except where the failure to obtain or maintain such permits, authorities, licenses or consents could not, individually or in the aggregate, be expected to have a Material Adverse Effect on the Company, nor is there any agreement which materially restricts the fields within which the Company may carry on its business.
(b) The Company has not committed and is not liable for any criminal, illegal, unlawful, ultra vires or unauthorized act or breach of covenant, contract or statutory duty and so far as each of the Company is aware no officer or senior manager of the Company has committed any crime other than minor traffic offences.
(c) No person, not being a director of the Company, has any actual or ostensible authority, whether under a power of attorney, agency agreement or otherwise, to commit the Company to any obligation other than an obligation of a nature which it is usual for it to incur in the ordinary course of its business.
SECTION 2.12 Records and Registers; Memorandum of Association and Articles of Association.
(a) The records (including computer records), statutory books, registers, minute books and books of account of the Company are duly entered up and maintained in accordance with all legal requirements applicable thereto and contain true, full and accurate records of all matters required to be dealt with therein and all such books and all records and documents (including documents of title) which are its property are in its possession or under its control and all accounts, documents and returns required to be delivered or made to the Registrar of Companies have been duly and correctly delivered or made and there has been no notice of any proceedings to rectify the register of members of the Company and there are no circumstances which might lead to any application for rectification of the register of members.
(b) The Company has delivered or otherwise made available to Parent a true and correct copy of the Memorandum of Association, Articles of Association and other charter documents of the Company, each as amended to date and as currently in full force and effect. The Company is not in violation of any of the provisions of its Memorandum of Association, Articles of Association or other charter documents.
SECTION 2.13 Insurance. Section 2.13 of the Company Disclosure Letter contains full and accurate details of all insurance policies held by the Company. In respect of such insurances, (a) all premiums have been duly paid to date, (b) all the policies are in full force and effect and, so far as the Company is aware, are not voidable on account of any act, omission or non-disclosure on the part of the insured party nor could they
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SECTION 2.14 Group Structure. The Company does not have any Subsidiaries nor has it at any time been the holding company of any company or a member of or the beneficial owner of any shares, securities or other interest in any company or other person. For purposes of this Agreement, Subsidiary shall mean any corporation, partnership, limited liability company, joint venture or other legal entity of which Parent or the Company, as the case may be (either alone or through or together with any other Subsidiary), owns, directly or indirectly, 50% or more of the stock or other equity interests the holders of which are generally entitled to vote for the election of the board of directors or other governing body of such corporation , partnership, limited liability company, joint venture or other legal entity.
SECTION 2.15 Agreements and Capital Commitments.
(a) The Company (i) has no material capital commitments; (ii) is not a party to any contract, arrangement or commitment (whether in respect of capital expenditure or otherwise) which is of an unusual, onerous or long-term nature or which involves or could involve a material obligation or liability; (iii) has not become bound and no person has become entitled (or with the giving of notice and/or the issue of a certificate and/or the passage of time or otherwise may become entitled) to require it to repay any loan capital or other debenture, redeemable preference share capital, borrowed money or grant made to it by any governmental or other authority or person prior to the stipulated due date; (iv) is not a party to any agreement which is or may become terminable as a result of the entry into or completion of this Agreement; (v) is not bound by any guarantee or contract of indemnity or suretyship under which any liability or contingent liability is outstanding; (vi) has not entered into any agreement which requires or may require, or confers any right to require, the sale (whether for cash or otherwise) or the transfer by it of any asset; (vii) is not a party to any joint venture, consortium, partnership, unincorporated association or profit sharing arrangement or agreement; (viii) is not a party to or enjoys the benefit of any agreement requiring registration or notification under or by virtue of any statute; or (ix) is not in default of any agreement or arrangement to which it is a party (each of (i) through (ix) above being referred to as a Company Material Contract).
(b) The Company has not been and is not a party to any contract or arrangements binding upon it for the purchase or sale of property or the supply of goods or services at a price different to that reasonably obtainable on an arms length basis.
SECTION 2.16 Borrowings and Facilities. Full details of all limits on the Companys bank overdraft facilities and all borrowings of the Company are set out in Section 2.16 of the Company Disclosure Letter and the Company is not in breach of any of their terms and none of such facilities or terms of borrowing will be terminated as a result of the entry into of this Agreement.
SECTION 2.17 Government Grants. The Company has applied for, or received, the grants or investments or subsidies or financial assistance from government departments or agencies or local or other government authorities as set forth on Section 2.17 of the Company Disclosure Letter (Governmental Grants). The Company has not done, or omitted to do, any act or thing which could result in all or any part of any such Governmental Grant or other similar payment being made of withheld in whole or in part and, to the Knowledge of the Company, no such circumstances exist which could give rise to any such payment being withheld.
SECTION 2.18 Internal Accounting Controls. The Company has not been informed by its auditors in relation to the audit of the Company Financial Statements that any measures should be implemented to change the accounting systems of the Company.
SECTION 2.19 Authority and Enforceability; No Conflicts.
(a) The Company has all requisite corporate power and authority to enter into this Agreement and to consummate the transactions contemplated hereby. The execution and delivery of this Agreement and the consummation by the Company of the transactions contemplated hereby have been duly authorized by all
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(b) The execution and delivery of this Agreement by the Company does not, and the consummation by the Company of the transactions contemplated hereby will not, conflict with, or result in a violation of, any provision of the Memorandum of Association or Articles of Association of the Company, as amended to date and as currently in full force and effect. The execution and delivery of this Agreement by the Company does not, and the consummation by the Company of the transactions contemplated hereby will not, give rise to any liability on the part of the Company to make a payment to any person, or conflict with, or result in a violation of, or default under (with or without notice or lapse of time, or both), or give rise to a right of termination, cancellation or acceleration of any obligation or loss of any benefit under, any mortgage, indenture, lease, contract or other agreement or instrument, permit, concession, franchise, license, judgment, order, decree, statute, law, ordinance, rule or regulation applicable to the Company or any of its properties or assets, except to the extent that such liability, conflict, violation, default, right of termination, cancellation, acceleration or loss of benefit could not reasonably be expected to have a Material Adverse Effect on the Company. Section 2.19 of the Company Disclosure Letter lists all consents, waivers and approvals under the Companys Articles of Association or the Company Material Contracts or any other agreements, contracts, licenses, leases or other obligations of the Company in effect as of the date of this Agreement required to be obtained in connection with the consummation of the transactions contemplated hereby, except to the extent that the failure to obtain such consents, waivers and approvals could not reasonably be expected to have a Material Adverse Effect on the Company. To the Knowledge of the Company, there are no circumstances which may give rise to any material alteration in the terms and conditions of any material facility or borrowings of the Company which might affect or prejudice their continuation.
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF PARENT
Parent represents and warrants to the Company, except as set forth in the disclosure letter supplied by the Purchase to the Company dated as of the date hereof (the Parent Disclosure Schedule):
SECTION 3.1 Subsidiaries. Parent has no direct or indirect Subsidiaries other than those listed in Section 3.1(a) of the Parent Disclosure Schedule. Parent owns, directly or indirectly, all of the capital stock or comparable equity interests of each Subsidiary free and clear of any Encumbrance, and all the issued and outstanding shares of capital stock or comparable equity interests of each Subsidiary are validly issued and are fully paid, non-assessable and free of preemptive and similar rights.
SECTION 3.2 Organization and Qualification. Each of Parent and each Subsidiary of Parent is an entity duly organized, validly existing and in good standing under the laws of the jurisdiction of its incorporation or organization (as applicable), with the requisite power and authority to own and use its properties and assets and to carry on its business as currently conducted. Neither Parent nor any Subsidiary of Parent is in violation of any of the provisions of its respective certificate or articles of incorporation, bylaws or other organizational or charter documents. Each of Parent and each Subsidiary of Parent is duly qualified to do business and is in good standing as a foreign corporation or other entity in each jurisdiction in which the nature of the business conducted or property owned by it makes such qualification necessary, except where the failure to be so qualified or in good standing, as the case may be, could not, individually or in the aggregate, be expected to have a Material Adverse Effect on Parent.
SECTION 3.3 Authorization; Enforcement. Parent has the requisite corporate power and authority to enter into and to consummate the transactions contemplated by this Agreement and otherwise to carry out its obligations hereunder and thereunder. The execution and delivery of this Agreement by Parent and the consummation by it of the transactions contemplated hereby and thereby have been duly authorized by all necessary action on the part of Parent and no further consent or action is required by Parent, the Parent Board or its stockholders. This Agreement has been (or upon delivery will be) duly executed by Parent and is, or
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SECTION 3.4 No Conflicts. The execution, delivery and performance of this Agreement by Parent and the consummation by Parent of the transactions contemplated hereby and thereby do not and will not (i) conflict with or violate any provision of Parents or any of Parents Subsidiaries certificate or articles of incorporation, bylaws or other organizational or charter documents, (ii) give rise to any liability on the part of Parent or any Subsidiary to make any payment to any person, conflict with, or constitute a default (or an event that with notice or lapse of time or both would become a default) under, or give to others any rights of termination, amendment, acceleration or cancellation (with or without notice, lapse of time or both) of, any agreement, credit facility, debt or other instrument (evidencing any Parent or Subsidiary debt or otherwise) or other understanding to which Parent or any Subsidiary is a party or by which any property or asset of Parent or any Subsidiary is bound or affected, except to the extent that such liability, conflict, default or termination right could not reasonably be expected to have a Material Adverse Effect on Parent, or (iii) result in a violation of any law, rule, regulation, order, judgment, injunction, decree or other restriction of any court or governmental authority to which Parent or any Subsidiary of Parent is subject (including federal and state securities laws and regulations and the rules and regulations of any self-regulatory organization to which Parent or its securities are subject), or by which any property or asset of Parent or a Subsidiary of Parent is bound or affected.
SECTION 3.5 Capitalization. The number of shares and type of all authorized, issued and outstanding capital stock, options, warrants and other securities of Parent (whether or not presently convertible into or exercisable or exchangeable for shares of capital stock of Parent) is set forth in Section 3.5 of the Parent Disclosure Schedule. All outstanding shares of capital stock are duly authorized, validly issued, fully paid and nonassessable and have been issued in compliance with all applicable securities laws. Except as set forth on Section 3.5 of the Parent Disclosure Schedule, there are no outstanding options, warrants, script rights to subscribe to, calls or commitments of any character whatsoever relating to, or securities, rights or obligations convertible into or exercisable or exchangeable for, or giving any person any right to subscribe for or acquire, any shares of Parent Common Stock, or contracts, commitments, understandings or arrangements by which Parent or any Subsidiary of Parent is or may become bound to issue additional shares of Parent Common Stock, or securities or rights convertible or exchangeable into shares of Parent Common Stock. There are no anti-dilution or price adjustment provisions contained in any security issued by Parent (or in any agreement providing rights to security holders) and the consummation of the transaction contemplated by this Agreement will not obligate Parent to issue shares of Parent Common Stock or other securities to any person and will not result in a right of any holder of Parent securities to adjust the exercise, conversion, exchange or reset price under such securities. To the Knowledge of Parent, except as specifically disclosed in Section 3.5 of the Parent Disclosure Schedule, no person or group of related persons beneficially owns (as determined pursuant to Rule 13d-3 under the Securities Exchange Act of 1934 (the Exchange Act)), or has the right to acquire, by agreement with or by obligation binding upon Parent, beneficial ownership of in excess of 5% of the outstanding Parent Common Stock, ignoring for such purposes any limitation on the number of shares of Parent Common Stock that may be owned at any single time.
SECTION 3.6 SEC Reports; Financial Statements. Parent has filed all reports required to be filed by it under the Securities Act of 1933 (the Securities Act) and the Exchange Act, including pursuant to Section 13(a) or 15(d) thereof, for the two years preceding the date hereof (or such shorter period as Parent was required by law to file such material) (the foregoing materials being collectively referred to herein as the SEC Reports and, together with this Agreement and the Parent Disclosure Schedule, the Disclosure Materials) on a timely basis or has received a valid extension of such time of filing and has filed any such SEC Reports prior to the expiration of any such extension. Parent has made available to the Company copies of all SEC Reports filed within the ten (10) days preceding the date hereof. As of their respective dates, the SEC Reports complied in all material respects with the requirements of the Securities Act and the Exchange Act and the rules and regulations of SEC promulgated thereunder, and none of the SEC Reports, when filed, contained any untrue statement of a material fact or omitted to state a material fact required to be stated therein or necessary in order to make the statements therein, in the light of the circumstances under which
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SECTION 3.7 Material Changes. Since the date of the latest audited financial statements included within the SEC Reports, except as specifically disclosed in the SEC Reports, (i) there has been no event, occurrence or development that, individually or in the aggregate, has had or that could result in a Material Adverse Effect on Parent, (ii) Parent has not incurred any liabilities (contingent or otherwise) other than (A) trade payables and accrued expenses incurred in the ordinary course of business consistent with past practice and (B) liabilities not required to be reflected in Parents financial statements pursuant to US GAAP or required to be disclosed in filings made with the SEC, (iii) Parent has not altered its method of accounting or the identity of its auditors, (iv) Parent has not declared or made any dividend or distribution of cash or other property to its stockholders or purchased, redeemed or made any agreements to purchase or redeem any shares of its capital stock, and (v) Parent has not issued any equity securities to any officer, director or affiliate, except pursuant to existing options to purchase Parent Common Stock (Parent Options) and the stock purchase plan.
SECTION 3.8 Absence of Litigation. Except as set forth in Section 3.8 of the Parent Disclosure Schedule, there is no action, suit, claim, proceeding, inquiry or investigation before or by any court, public board, government agency, self-regulatory organization or body pending or, to the knowledge of Parent, overtly threatened against or affecting Parent or any of its Subsidiaries that could, individually or in the aggregate, have a Material Adverse Effect on Parent. Section 3.8 of the Parent Disclosure letter contains a complete list and summary description of any pending or, to the knowledge of Parent, threatened proceeding against or affecting Parent or any of its Subsidiaries that could individually or in the aggregate, have a Material Adverse Effect on Parent.
SECTION 3.9 Compliance. Neither Parent nor any Subsidiary of Parent (i) is in default under or in violation of (and no event has occurred that has not been waived that, with notice or lapse of time or both, would result in a default by Parent or any Subsidiary of Parent under), nor has Parent or any Subsidiary of Parent received notice of a claim that it is in default under or that it is in violation of, any indenture, loan or credit agreement or any other agreement or instrument to which it is a party or by which it or any of its properties is bound (whether or not such default or violation has been waived), (ii) is in violation of any order of any court, arbitrator or governmental body, or (iii) is or has been in violation of any statute, rule or regulation of any governmental authority, including without limitation all foreign, federal, state and local laws relating to taxes, environmental protection, occupational health and safety, product quality and safety and employment and labor matters, except in each case as could not, individually or in the aggregate, have or result in a Material Adverse Effect on Parent.
SECTION 3.10 Title to Assets. Parent and its Subsidiaries have good and marketable title in fee simple to all real property owned by them that is material to the business of Parent and its Subsidiaries and good and marketable title in all personal property owned by them that is material to the business of Parent and its Subsidiaries, in each case free and clear of all Encumbrances, except for Encumbrances as do not materially affect the value of such property and do not materially interfere with the use made and proposed to be made of such property by Parent and its Subsidiaries. Any real property and facilities held under lease by Parent and its Subsidiaries are held by them under valid, subsisting and enforceable leases of which Parent and its Subsidiaries are in compliance.
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SECTION 3.11 Form S-3 Eligibility. Parent is eligible to register shares of Parent Common Stock for resale by the shareholders of the Company using Form S-3 promulgated under the Securities Act who may be deemed to be affiliates of the Company (for purposes of paragraphs (c) and (d) of Rule 145 of the General Rules and Regulations under the Securities Act.
SECTION 3.12 Listing and Maintenance Requirements. Except as described in Parents amended Annual Report for the year ended December 31, 2003 filed on Form 10-K/ A with SEC on June 30, 2004, as amended (the Annual Report), Parent has not, in the two years preceding the date hereof, received notice (written or oral) from any trading market on which the Parent Common Stock is or has been listed or quoted to the effect that Parent is not in compliance with the listing or maintenance requirements of such trading market.
SECTION 3.13 Registration Rights. Except as described in Section 3.13 of the Parent Disclosure Schedule, Parent has not granted or agreed to grant to any person any rights (including piggy-back registration rights) to have any securities of Parent registered with SEC or any other governmental authority that have not been satisfied.
SECTION 3.14 Disclosure. All disclosure provided to the Company regarding Parent, its business and the transactions contemplated hereby, including the Schedules to this Agreement, furnished by or on behalf of Parent are true and correct and do not contain any untrue statement of a material fact or omit to state any material fact necessary in order to make the statements made therein, in the light of the circumstances under which they were made, not misleading. No event or circumstance has occurred or information exists with respect to Parent or any of its Subsidiaries or its or their business, properties, prospects, operations or financial conditions, which, under applicable law, rule or regulation, requires public disclosure or announcement by Parent but which has not been so publicly announced or disclosed, except, until such time as the press release is issued as contemplated by Section 6.2, the execution of this Agreement and the other agreements referred to herein and executed concurrently herewith.
SECTION 3.15 Intellectual Property.
(a) Section 3.15 of the Parent Disclosure Schedule lists (i) all patents and patent applications, all applications for trademarks, trade names and service marks, and all registered trademarks, trade names, service marks, and copyrights that are owned or purported to be owned by Parent or any Subsidiary of Parent, and such list specifies, as applicable, the jurisdictions by or in which each such patent, trademark, trade name, service mark or copyright has been issued or registered or in which any application for such issuance and registration has been filed, (ii) all material licenses, sub-licenses and other agreements as to which Parent or any Subsidiary of Parent is a party and pursuant to which any person is authorized to use any Parent Intellectual Property (as defined below), and (iii) all material licenses, sub-licenses and other agreements to which Parent or any Subsidiary of Parent is a party and pursuant to which Parent or any Subsidiary of Parent is authorized to use any third-party Intellectual Property that is included in the Parent Intellectual Property (third-party Intellectual Property included in the Parent Intellectual Property being referred to in this Agreement as Parent Third-Party Intellectual Property Rights). All agreements described in Section 3.15 of the Parent Disclosure Schedule as they relate to Sections 3.15(a)(ii) and (iii) are valid, enforceable and legally binding, subject to the effect or availability of rules of law governing specific performance, injunctive relief or other equitable remedies (regardless of whether any such remedy is considered in a proceeding at law or in equity), and to Parents Knowledge, neither the Parent nor any Subsidiary of Parent and no third party is in material breach of any such agreement described in Section 3.15 of the Parent Disclosure Schedule. Parent Intellectual Property means the Intellectual Property that is material to the business of Parent or any Subsidiary of Parent as currently conducted by Parent or any Subsidiary of Parent.
(b) Parent and each of its Subsidiaries own all right, title and interest in and to (free and clear of any Encumbrances), or are licensed to use, or otherwise possess legally enforceable rights in the Parent Intellectual Property, subject only to the license agreements to which Parent is a party and pursuant to which Parent licenses others to use any such Parent Intellectual Property as set forth in Section 3.15 of the Parent Disclosure Schedule.
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(c) To the Knowledge of Parent, there is no unauthorized use, disclosure, infringement or misappropriation of any Parent Intellectual Property rights by any third party, including any employee or former employee of Parent or any Subsidiary of Parent. Neither Parent nor any Subsidiary of Parent has entered into any agreement to indemnify any other person against any charge of infringement of any Intellectual Property, other than indemnification provisions contained in purchase orders or agreements for the sale, license or distribution of any Parent Intellectual Property or products containing Parent Intellectual Property arising in the ordinary course of business.
(d) The execution and delivery of this Agreement by Parent and the consummation by Parent of the transactions contemplated hereby will not cause Parent or any Subsidiary of Parent to breach any material license, sub-license or other agreement relating to the Parent Intellectual Property, and will not entitle any other party to any such license, sub-license or agreement to terminate or modify such license, sub-license or agreement.
(e) All issued patents and registered trademarks, service marks and copyrights held by Parent or any Subsidiary of Parent are valid and subsisting and there is no assertion or pending claim challenging the validity or effectiveness of any Parent Intellectual Property, and to the Knowledge of Parent, no such challenge is being threatened. Neither Parent nor any of its Subsidiaries is a party to any suit, action or proceeding that involves a claim against Parent or any of its Subsidiaries of infringement or violation of any Intellectual Property of any third party, nor, to the Knowledge of Parent, is any such suit, action or proceeding being threatened against Parent or any of its Subsidiaries. The conduct of the business of Parent and each Subsidiary of Parent as currently conducted does not conflict with or infringe, and no one has asserted to Parent that such conduct of the business conflicts with or infringes any Intellectual Property rights of any third party. To the Knowledge of Parent, there are no facts or alleged facts which would reasonably serve as a basis for any claim that Parent or any Subsidiary of Parent does not have the right to use and to transfer the right to use, free of any rights or claims of others, all Parent Intellectual Property rights in the development, manufacture, sale, licensing or use of any material products of Parent or any Subsidiary of Parent as presently being developed, manufactured, sold, licensed or used in the business of Parent as currently conducted. Neither Parent nor any Subsidiary of Parent nor any licensor of Parent or any Subsidiary of Parent is bringing any action, suit or proceeding for infringement of Parent Intellectual Property or breach of any license or agreement involving Parent Intellectual Property against any third party. There are no pending or, to the Knowledge of Parent, threatened interference, re-examinations, oppositions or nullities involving any patents, patent rights or applications therefore included in the Parent Intellectual Property, except such as may have been commenced by Parent or any Subsidiary of Parent as disclosed in Section 3.15 of the Parent Disclosure Schedule.
(f) Parent has taken all commercially reasonable steps to protect and preserve the confidentiality of all trade secrets and has taken all measures it deems reasonable and appropriate to protect and preserve the confidentiality of all other Parent Intellectual Property not otherwise protected by patents, patent applications or copyright (Parent Confidential Information). Each of Parent and its Subsidiaries has a policy requiring each employee to execute an employment and confidentiality agreement substantially in Parents standard form. Each current or former employee of Parent or any of its Subsidiaries has signed an employment and confidentiality agreement with Parent or its Subsidiaries. Parent has delivered or made available to the Company the standard form of employment and confidentiality agreement used by Parent and its Subsidiaries and any employment and confidentiality agreement entered into by Parent or any of its Subsidiaries that differs from the standard form of such agreement in any material respect No current or former employee of Parent or any Subsidiary of Parent has any right, claim or interest in or with respect to any Parent Intellectual Property.
SECTION 3.16 Insurance. Parent and its Subsidiaries are insured by insurers of recognized financial responsibility against such losses and risks and in such amounts as are prudent and customary in the businesses in which Parent and the Subsidiaries of Parent are engaged. Neither Parent nor any Subsidiary of Parent has any reason to believe that it will not be able to renew its existing insurance coverage as and when such coverage expires or to obtain similar coverage from similar insurers as may be necessary to continue its business.
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SECTION 3.17 Regulatory Permits. Parent and the Subsidiaries possess all certificates, authorizations and permits issued by the appropriate federal, state, local or foreign regulatory authorities necessary to conduct their respective businesses as described in the SEC Reports, except where the failure to possess such permits could not, individually or in the aggregate, have or result in a Material Adverse Effect on Parent (Material Permits), and neither Parent nor any Subsidiary of Parent has received any notice of proceedings relating to the revocation or modification of any Material Permit.
SECTION 3.18 Transactions With Affiliates and Employees. Except as set forth in the Annual Report, none of the officers or directors of Parent and, to the Knowledge of Parent, none of the employees of Parent is presently a party to any transaction with Parent or any Subsidiary of Parent (other than for services as employees, officers and directors), including any contract, agreement or other arrangement providing for the furnishing of services to or by, providing for rental of real or personal property to or from, or otherwise requiring payments to or from any officer, director or such employee or, to the Knowledge of Parent, any entity in which any officer, director, or any such employee has a substantial interest or is an officer, director, trustee or partner.
SECTION 3.19 Internal Accounting Controls. Parent and its Subsidiaries maintain a system of internal accounting controls sufficient to provide reasonable assurance that (i) transactions are executed in accordance with managements general or specific authorizations, (ii) transactions are recorded as necessary to permit preparation of financial statements in conformity with generally accepted accounting principles and to maintain asset accountability, (iii) access to assets is permitted only in accordance with managements general or specific authorization, and (iv) the recorded accountability for assets is compared with the existing assets at reasonable intervals and appropriate action is taken with respect to any differences.
SECTION 3.20 Employee Benefit Plans; Employee Benefits.
(a) Section 3.20 of the Parent Disclosure Schedule contains a true and complete list of each (i) deferred compensation and each incentive compensation plan, equity compensation plan, welfare plan, fund or program (within the meaning of section 3(1) of the Employee Retirement Income Security Act of 1974, as amended (ERISA) or any similar welfare benefit plan under the laws of any foreign jurisdiction, whether or not excluded from coverage under specific titled or subtitles of ERISA; (ii) pension plan, fund or program (within the meaning of section 3(2) of ERISA) or any similar pension benefit plan under the laws of any foreign jurisdiction, whether or not excluded from coverage under specific titles or subtitles of ERISA; (iii) employment, consulting, termination or severance agreement; and (iv) other employee benefit plan, fund, program, agreement or arrangement, in each case, that is sponsored, maintained or contributed to or required to be contributed to by Parent or by any trade or business, whether or not incorporated (an Parent ERISA Affiliate), that together with Parent would be deemed a single employer within the meaning of section 4001(b) of ERISA or Section 414(b), (c), (m) or (o) of the Code, or to which Parent or an Parent ERISA Affiliate is party, whether written or oral, for the benefit of any employee or former employee of Parent or any Subsidiary of Parent (the Parent Plans).
(b) With respect to each Parent Plan, Parent has heretofore delivered or made available to the Company true and complete copies of the Parent Plan and any amendments thereto, any related trust or other funding vehicle, any reports or summaries required under ERISA or the Code or any related contracts, including service provider agreements, insurance contract, minimum premium contracts, stop-loss agreements, subscription and participation agreements and recordkeeping agreements and the most recent determination letter received from the Internal Revenue Service with respect to each Parent Plan intended to qualify under Section 401 of the Code.
(c) Each Parent Plan has been operated and administered in all material respects in accordance with its terms and applicable law, including but not limited to ERISA and the Code and each Parent Plan intended to be qualified within the meaning of section 401(a) of the Code is so qualified and the trusts maintained thereunder are exempt from taxation under section 501(a) of the Code.
(d) No liability under Title IV or section 302 of ERISA has been incurred by Parent or any Parent ERISA Affiliate that has not been satisfied in full, and no condition exists that presents a material risk to
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(e) There are no pending, threatened or anticipated claims by or on behalf of any Parent Plan, by any employee or beneficiary covered under any such Parent Plan, or otherwise involving any such Parent Plan (other than routine claims for benefits).
(f) Parent does not have any plan or commitment to create any plan, fund or program (within the meaning of Section 3(1) of ERISA) or to modify or change any existing Parent Plan and there has been no amendment to, written interpretation or announcement (whether or not written) by Parent relating to, or change in participation or coverage under, any Parent Plan which would materially increase the expense of maintaining such parent Plan above the level of expense incurred with respect to that Parent Plan for the most recent fiscal year.
(g) With respect to each Parent Plan constituting a group health plan within the meaning of Section 4980B(g)(2) of the Code, the provisions of section 4980B of the Code and Sections 601-609 of ERISA have been complied with in all material respects.
(h) As of the date of this Agreement, there are outstanding 550,405 Parent Options. Section 3.20(h) of the Parent Disclosure Schedule set forth, as of the date of this Agreement (i) the name of the holder of each Parent Option, (ii) the exercise price per share of such Parent Option, (iii) the number of shares covered by such Parent Option, (iv) the vesting schedule for such Parent Option, (v) the term of each option and (vi) whether the exercisability of such Parent Option shall be accelerated in any manner by any of the transactions contemplated by this Agreement or upon any other event or condition and the extent of such acceleration, if any. On the First Closing Date, the Company shall deliver to Parent an updated Section 3.20(h) of the Parent Disclosure Schedule setting forth the information referred to in the preceding sentence updated to a date as close to the First Closing Date as is reasonably practicable. All outstanding Parent Options have been duly authorized by the Parent Board or a committee thereof, are validly issued, and were issued in compliance with all applicable securities Laws.
(i) Parent has not taken any action that would result in the accelerated vesting, exercisability or payment of any Parent Options as a consequence of the execution of, or consummation of, the transactions contemplated by this Agreement.
SECTION 3.21 Taxes. Except as would not, individually or in the aggregate, have a Material Adverse Effect on Parent, (i) all Parent Tax Returns required to be filed with any Taxing Authority by, or with respect to, Parent and its Subsidiaries have been filed in accordance with all applicable Laws; (ii) Parent and its Subsidiaries have timely paid all Taxes shown to be due on such Tax Returns, (iii) as of the date or time of filing, the Parent Tax Returns filed were true, correct and complete in all material respects; (iv) Parent and its Subsidiaries have made an adequate provision (determined in accordance with US GAAP) for any and all unpaid Taxes for periods through the date of Parents unaudited balance sheet as of June 30, 2004 (the Parent Balance Sheet), whether or not required to be shown on a Tax Return, and for all Taxes payable by Parent and its Subsidiaries for which no Parent Tax Return has yet been filed, and no Taxes have been incurred by the Company since the date of the Company Balance Sheet other than in the ordinary course of Parents business; (v) there is not now, nor has there been in the past six years, any action, suit, proceeding, audit or claim now proposed or pending against or with respect to Parent or any of its Subsidiaries in respect of any Tax (other than Taxes which are being contested in good faith and for which adequate reserves (determined in accordance with US GAAP) are reflected on the Parent Balance Sheet) and Parent is not aware of any matter which could lead to such a proceeding; (vi) no waiver or extension of any statute of limitations is in effect with respect to any Tax Return of Parent or any of its Subsidiaries; and (vii) to the Knowledge of Parent, neither Parent nor any of its Subsidiaries is liable for any Tax imposed on any entity other than Parent or such Subsidiaries; (viii) Parent has withheld and paid over all Taxes required to have been withheld and paid over, and complied in all material respects with all information reporting and backup withholding in connection with amounts paid or owing to any employee, creditor, independent contractor, or other third party; (ix) there are no Encumbrances on any of the assets of Parent or any of its Subsidiaries with respect to Taxes; (x) neither Parent nor any of its Subsidiaries have any liability for unpaid Taxes pursuant to
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SECTION 3.22 Material Contracts.
(a) Material Contracts. For purposes of this Agreement, Parent Material Contract shall mean:
(i) any employment or consulting Contract with any executive officer or other employee of Parent earning an annual salary in excess of $50,000; | |
(ii) any agreement of indemnification or any guaranty other than any agreement of indemnification or guaranty entered into in the ordinary course of business; | |
(iii) any contract containing any covenant limiting in any material respect the right of Parent or any of its Subsidiaries to engage in any line of business, to make use of any Parent Intellectual Property or compete with any Person in any material line of business or to compete with any person or entity after the First Closing Date; | |
(iv) any contract relating to the disposition or acquisition by Parent or any of its Subsidiaries after the date hereof of a material amount of assets not in the ordinary course of business or pursuant to which Parent or any of its Subsidiaries has any material ownership interest in any other person or entity or other business enterprise other than its Subsidiaries; | |
(v) any dealer, distributor, joint marketing or development agreement under which Parent or any of its Subsidiaries have continuing material obligations to jointly market any product, technology or service and which may not be canceled without penalty upon notice of ninety (90) days or less, or any material agreement pursuant to which Parent or any of its Subsidiaries have continuing material obligations to jointly develop any Intellectual Property that will not be owned, in whole or in part, by Parent or any of its Subsidiaries and which may not be terminated without penalty upon notice of ninety (90) days or less; | |
(vi) any contract to provide source code to any third party for any product or technology that is material to Parent and its Subsidiaries taken as a whole; | |
(vii) any contract containing any material support, maintenance or service obligation on the part of Parent or any of its Subsidiaries, other than those obligations that are terminable by Parent or any of its Subsidiaries involving annual revenues to Parent in excess of $50,000 on no more than ninety (90) days notice without material liability or financial obligation to Parent or its Subsidiaries; | |
(viii) any contract to license any third party to manufacture or reproduce any of Parents products, services or technology, except agreements in the ordinary course of business and terminable without penalty upon notice of ninety (90) days or less; | |
(ix) any mortgages, indentures, guarantees, loans or credit agreements, security agreements or other contracts relating to the borrowing of money or extension of credit, other than accounts receivables and payables in the ordinary course of business; or | |
(x) any other agreement, contract or commitment that involves a payment to or from Parent in excess of $20,000 on its face in any individual case. |
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(b) Schedule. Section 3.23(b) of the Parent Disclosure Schedule sets forth a list of all Parent Material Contracts to which Parent or any of its Subsidiaries is a party or is bound by as of the date hereof.
(c) No Breach. All Parent Material Contracts are valid and in full force and effect except to the extent they have previously expired in accordance with their terms or if the failure to be in full force and effect, individually or in the aggregate, would not reasonably be expected to have a Material Adverse Effect on Parent. Neither Parent nor any of its Subsidiaries has violated any provision of, or committed or failed to perform any act which, with or without notice, lapse of time or both would constitute a default under the provisions of, any Parent Material Contract, except in each case for those violations and defaults which, individually or in the aggregate, would not reasonably be expected to have a Material Adverse Effect on to Parent.
SECTION 3.23 Financial Advisor. Neither Parent nor any of its Subsidiaries has entered into or are bound by any agreements or understandings with any investment bank, financial advisor or other similar entity whatsoever, except for Seven Hills Partners LLC (the Parent Financial Advisor). Parent has furnished to the Company a true and complete copy of all agreements between Parent and the Parent Financial Advisor pursuant to which such Parent Financial Advisor is entitled to an Opinion Fee (as such term is defined in that certain letter agreement dated July 15, 2004 between the Parent Financial Advisor and Parent (the Parent Financial Advisor Agreement)) upon the rendering of the opinion of Financial Advisor described in Section 3.24 below, a Transaction Fee (as such term is defined in the Parent Financial Advisor Agreement) upon the occurrence of the First Closing or any other payment relating to the transactions contemplated hereunder.
SECTION 3.24 Opinion of Financial Advisor. The Parent Board has received the written opinion of the Parent Financial Advisor to the effect that, as of the date of the opinion, the consideration to be paid by Parent pursuant to this Agreement is fair from a financial point of view to Parent. Parent will provide the Company with a written copy of such opinion as soon as practicable following the date hereof, and the Parent Financial Advisor has consented to the reproduction of such opinion in its entirety in the Proxy Statement/ Prospectus.
SECTION 3.25 No Restrictions on the Offer; Takeover Statutes. The Parent Board has unanimously approved this Agreement and the Offer and the other transactions contemplated hereby and the execution of the Parent Support Agreements, and such approval is sufficient to render inapplicable to this Agreement, the Offer, the Loan Agreement, the Parent Support Agreements and the other transactions contemplated hereby and thereby, the restrictions on business combinations of Section 203 of the Delaware General Corporation Law. Parent has not adopted any stockholder rights plan or similar poison pill arrangement that would be applicable to this Agreement, the Offer, the Loan Agreement or the Parent Support Agreements and the other transactions contemplated hereby and thereby. No Delaware law or other takeover statute or similar law and no provision of the certificate of incorporation or bylaws, or other organizational documents or governing instruments of Parent or any of its Subsidiaries or any material agreement to which any of them is a party (a) would or would purport to impose restrictions which might adversely affect or delay the consummation of the transactions contemplated by this Agreement, the Loan Agreement or the Parent Support Agreement or (b) as a result of the consummation of the transactions contemplated by this Agreement, the Loan Agreement or the Parent Support Agreement would or would purport to entitle any person to acquire securities of Parent.
ARTICLE IV
COVENANTS OF THE COMPANY
SECTION 4.1 Conduct of Business. During the period from the date of this Agreement to the earlier of the First Closing Date or the termination of this Agreement, the Company shall carry on its business in the ordinary course in substantially the same manner as heretofore conducted and, to the extent consistent with such ordinary course, use all reasonable efforts to preserve intact its current business organizations, keep available the services of its current officers and employees (as a group) and preserve its relationships with customers, suppliers, licensors, licensees, distributors and others having business dealings with it. Without limiting the generality of the foregoing, during the period from the date of this Agreement to the earlier of the
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(a) (i) declare, set aside or pay any dividends on, or make any other distributions (whether in cash, stock or property) in respect of, any of its capital stock, (ii) adjust, split, combine or reclassify any of its capital stock or issue or authorize the issuance of any other securities in respect of, in lieu of or in substitution for shares of its capital stock or (iii) purchase, redeem or otherwise acquire any shares of capital stock of the Company or any other securities thereof or any rights, warrants or options to acquire any such shares or other securities, provided that the foregoing shall not prohibit the Company from making repurchases from employees following the termination of their employment with the Company pursuant to the terms of preexisting agreements at prices not exceeding fair market value on the date of such repurchase; | |
(b) issue, deliver, sell, pledge, grant options over or otherwise encumber any of its share capital, any other voting securities or any securities convertible into, or any rights, warrants or options, including Company Options, to acquire, any such shares, voting securities or convertible securities (other than (i) the issuance of Shares upon the exercise of Company Options outstanding as of the date hereof), or (ii) the issuance of 277,778 B Preferred Shares with respect to the investment of up to £500,000 in the capital of the Company pursuant to the Subscription and Shareholders Agreement dated July 30, 2004 (the Shareholders Agreement) between the Company and certain shareholders listed therein, together with a further 66,667 A Ordinary Shares issued as bonus shares to satisfy the anti-dilution provisions, each as contemplated by the Shareholders Agreement); provided, however, that Parents consent to the Companys requested grant of options over the share capital of the Company shall not be unreasonably withheld; | |
(c) amend its Memorandum of Association, Articles of Association or other comparable charter or organizational documents; | |
(d) mortgage or otherwise encumber or subject to any material Lien or, except in the ordinary course of business consistent with past practice and pursuant to existing contracts or commitments, sell, lease, license, transfer or otherwise dispose of any material properties or assets; | |
(e) incur, assume, guarantee or become obligated with respect to any indebtedness, or incur, assume, guarantee or become obligated with respect to any other material obligations; | |
(f) make any material tax election or take any material tax position (unless required by law) or change its fiscal year or accounting methods, policies or practices (except as required by changes in UK GAAP) or settle or compromise any material income tax liability; | |
(g) make any loan, advance or capital contributions to or investment in any person or entity; | |
(h) pay, discharge or satisfy any claims, liabilities or obligations (absolute, accrued, asserted or unasserted, contingent or otherwise), other than the payment, discharge or satisfaction thereof, in the ordinary course of business consistent with past practice and in accordance with their terms, modify, amend or terminate any material contract or agreement to which it is a party, or release or waive any material rights or claims, or waive the benefits of, or agree to modify in any manner, any confidentiality, standstill or similar agreement to which the Company is a party; | |
(i) (i) grant to any current or former director, officer or employee of the Company any increase in compensation (cash, equity or otherwise) or benefits (provided that the Company may increase the compensation of non-executive employees in the ordinary course of business consistent with past practice), (ii) grant to any such current or former director, officer, or employee any increase in severance or termination pay (cash, equity or otherwise) or adopt any new severance plan or amend or modify in any respect any severance plan, agreement or arrangement existing on the date hereof, (iii) except as may be required by applicable Law, adopt or amend any Company Plan or enter into any employment, deferred compensation, severance or termination agreement or arrangement with or for the benefit of any |
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such current or former director, officer, or employee, (iv) waive any stock repurchase right, accelerate, amend or change the period of exercisability of options or restricted stock, or reprice options granted under any employee, consultant, director or other stock plan or authorize cash payments in exchange for any options granted under any such plans, (v) hire or offer to hire any employee or independent contractors; provided, however, that Parents consent to the Companys request to hire, or offer to hire, any employee or independent contractor shall not be unreasonably withheld. | |
(j) transfer or license to any person or entity or otherwise extend, amend or modify any rights to the Company Intellectual Property, or enter into grants to transfer or license to any person future rights to the Company Intellectual Property other than non-exclusive licenses granted to end-users and non-exclusive distribution, reseller and similar commercial agreements entered into in the ordinary course of business and consistent with past practice; provided that in no event shall the Company (i) license, or enter into a distribution, reseller or similar arrangement, on an exclusive basis, or sell, any Company Intellectual Property; or (ii) enter into any contract (v) containing pricing or discounting terms or provisions other than in the ordinary course of business consistent with past practice, (w) requiring the Company to use its best efforts or (x) limiting the right of the Company to engage in any line of business or to compete with any person; | |
(k) enter into any contract or commitment with aggregate commitments of the Company in excess of $50,000; | |
(l) take or agree or commit to take any action that would make any representation or warranty of the Company hereunder inaccurate in any material respect at, or as of any time prior to, the First Closing Date or (ii) omit or agree or commit to omit to take any action necessary to prevent any such representation or warranty from being inaccurate in any material respect at any such time; | |
(m) commence or settle any litigation, other than to enforce the Companys rights under this Agreement; or | |
(n) authorize any of, or commit or agree to take any of, the foregoing actions. |
SECTION 4.2 Access to Information. From the date hereof until the First Closing Date, the Company will give Parent, its counsel, financial advisors, auditors and other authorized representatives full access (during normal business hours and upon reasonable notice) to the offices, properties, officers, employees, accountants, auditors, counsel and other representatives, books and records of the Company, will furnish to Parent, its counsel, financial advisors, auditors and other authorized representatives such financial, operating and property related data and other information as such persons may reasonably request, and will instruct the Companys employees, counsel and financial advisors to cooperate with Parent in its investigation of the business of the Company.
SECTION 4.3 Waiver of Change of Control and Acceleration Benefits. Following the date hereof, the Company shall use its reasonable best efforts to obtain the waiver of the applicable Company securityholders and employees with respect to any change of control or acceleration benefits, other than the acceleration of Company Options pursuant to the Option Offer, that would otherwise be triggered by the consummation of the Offer and the other transactions contemplated hereby.
SECTION 4.4 No Solicitation.
(a) The Company agrees that neither the Company nor any of its officers, directors, employees, agents and representatives (including, without limitation, any investment banker, attorney or accountant retained by the Company) of the Company shall, (i) initiate, continue, solicit or encourage, directly or indirectly, any inquiries or the making of any proposal or offer (including, without limitation, any proposal or offer to shareholders of the Company) with respect to a merger, consolidation or similar transaction involving, or any purchase of all or any significant portion of the assets or equity securities of, the Company involving any person other than Parent (any such proposal or offer being hereinafter referred to as an Company Acquisition Proposal), or (ii) engage in any negotiations concerning, or provide any confidential information or data to, or have any discussions with, any person relating to an Company Acquisition Proposal, or otherwise facilitate
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(b) For purposes of this Agreement, Company Superior Proposal means any bona fide Company Acquisition Proposal (1) to acquire, directly or indirectly, at least a majority of the Shares then outstanding, or all or substantially all of the assets of the Company, (2) that contains terms and conditions that the Board of Directors reasonably determines in good faith (after consultation with its financial advisor) to be more favorable from a financial point of view to the Companys shareholders than the Offer, (3) that the Company Board reasonably determines in its good faith judgment (after consultation with its legal counsel) to be reasonably capable of being completed (taking into account all legal, financial, regulatory and other aspects of the proposal and the person making the proposal), and (4) that does not contain any due diligence condition and for which any financing upon which it is conditioned is committed.
(c) Except as set forth in this Section 4.3(c), the Company Board shall not make a change in its recommendation that the shareholders accept the Offer (a Change in Company Recommendation). Notwithstanding the foregoing, if the Company Board determines in its reasonable good faith judgment prior to the First Closing Date, after consultation with outside legal counsel, that the failure to make a Change in Company Recommendation would be a violation of its fiduciary duties to the Companys shareholders, then the Company Board may make a Change in Company Recommendation. In the event that the Company Board determines that it shall be necessary to make a Change in Company Recommendation, it shall give Parent at least four (4) Business Days prior written notice of such determination before making a public announcement regarding such Change in Company Recommendation.
ARTICLE V
COVENANTS OF PARENT
SECTION 5.1 Conduct of Business. During the period from the date of this Agreement to the earlier of the First Closing Date or the termination of this Agreement, Parent shall, and shall cause its Subsidiaries to, carry on their business in the ordinary course in substantially the same manner as heretofore conducted and, to
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(a) (i) declare, set aside or pay any dividends on, or make any other distributions (whether in cash, stock or property) in respect of, any of its capital stock, other than dividends and distributions by any direct or indirect wholly-owned subsidiary of Parent to its parent, (ii) adjust, split, combine or reclassify any of its capital stock or issue or authorize the issuance of any other securities in respect of, in lieu of or in substitution for shares of its capital stock or (iii) purchase, redeem or otherwise acquire any shares of capital stock of Parent or any Subsidiary or any other securities thereof or any rights, warrants or options to acquire any such shares or other securities, provided that the foregoing shall not prohibit Parent from making repurchases from employees following the termination of their employment with Parent or one of its Subsidiaries pursuant to the terms of preexisting agreements at prices not exceeding fair market value on the date of such repurchase; | |
(b) issue, deliver, sell, pledge, grant options over or otherwise encumber any shares of its capital stock, any other voting securities or any securities convertible into, or any rights, warrants or options, including Parent Options and warrants to purchase Parent capital stock (Parent Warrants), to acquire, any such shares, voting securities or convertible securities (other than (i) the issuance of Parent Common Stock upon the exercise of Parent Options and Parent Warrants outstanding as of the date hereof or (ii) the issuance of Parent Options and/or Parent Warrants in exchange for the cancellation of Parent Options or Parent Warrants, as the case may be, which are outstanding as of the date of this Agreement and which are out-of-the-money at the time of such exchange and cancellation; provided that such exchange and cancellation is done without the expenditure of any cash or cash equivalents by Parent and is otherwise effected on terms satisfactory to the Company in its reasonable discretion); provided, however, that the Companys consent to Parents requested grant of options to purchase Parent Common Stock shall not be unreasonably withheld; | |
(c) amend its certificate of incorporation, bylaws or other comparable charter or organizational documents; | |
(d) mortgage or otherwise encumber or subject to any material Lien or, except in the ordinary course of business consistent with past practice and pursuant to existing contracts or commitments, sell, lease, license, transfer or otherwise dispose of any material properties or assets; | |
(e) incur, assume, guarantee or become obligated with respect to any indebtedness, or incur, assume, guarantee or become obligated with respect to any other material obligations; | |
(f) make or agree to make any new capital expenditures or acquisitions of assets or property or other acquisitions or commitments in excess of $15,000 individually or $50,000 in the aggregate payable in any calendar month or otherwise acquire or agree to acquire any material assets or property other than in the ordinary course and consistent with past practice; | |
(g) make any material tax election or take any material tax position (unless required by law) or change its fiscal year or accounting methods, policies or practices (except as required by changes in US GAAP) or settle or compromise any material income tax liability; | |
(h) make any loan, advance or capital contributions to or investment in any person or entity; | |
(i) pay, discharge or satisfy any claims, liabilities or obligations (absolute, accrued, asserted or unasserted, contingent or otherwise), other than the payment, discharge or satisfaction thereof, in the ordinary course of business consistent with past practice and in accordance with their terms, modify, |
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amend or terminate any material contract or agreement to which it is a party, or release or waive any material rights or claims, or waive the benefits of, or agree to modify in any manner, any confidentiality, standstill or similar agreement to which Parent or any Subsidiary is a party; | |
(j) (i) grant to any current or former director, officer or employee of Parent or any Subsidiary any increase in compensation (cash, equity or otherwise) or benefits (provided that Parent may increase the compensation of non-executive employees in the ordinary course of business consistent with past practice), (ii) grant to any such current or former director, officer, or employee any increase in severance or termination pay (cash, equity or otherwise) or adopt any new severance plan or amend or modify in any respect any severance plan, agreement or arrangement existing on the date hereof, (iii) except as may be required by applicable Law, adopt or amend any Parent Plan or enter into any employment, deferred compensation, severance or termination agreement or arrangement with or for the benefit of any such current or former director, officer, or employee, (iv) waive any stock repurchase right, accelerate, amend or change the period of exercisability of options or restricted stock, or reprice options granted under any employee, consultant, director or other stock plan or authorize cash payments in exchange for any options granted under any such plans, or (v) hire or offer to hire any employee or independent contractors; provided, however, that the Companys consent to Parents request to hire, or offer to hire, any employee or independent contractor shall not be unreasonably withheld. | |
(k) transfer or license to any person or entity or otherwise extend, amend or modify any rights to Parent Intellectual Property, or enter into grants to transfer or license to any person future rights to Parent Intellectual Property other than non-exclusive licenses granted to end-users and non-exclusive distribution, reseller and similar commercial agreements entered into in the ordinary course of business and consistent with past practice; provided that in no event shall Parent (i) license, or enter into a distribution, reseller or similar arrangement, on an exclusive basis, or sell, any Company Intellectual Property; or (ii) enter into any contract (v) providing for any site licenses, (w) containing pricing or discounting terms or provisions other than in the ordinary course of business consistent with past practice, (x) requiring Parent to use its best efforts or (y) limiting the right of Parent to engage in any line of business or to compete with any person; | |
(l) enter into any contract or commitment with aggregate commitments of Parent in excess of $50,000; | |
(m) take or agree or commit to take any action that would make any representation or warranty of Parent hereunder inaccurate in any material respect at, or as of any time prior to, the First Closing Date or (ii) omit or agree or commit to omit to take any action necessary to prevent any such representation or warranty from being inaccurate in any material respect at any such time; | |
(n) commence or settle any litigation, other than to enforce the Parents rights under this Agreement; or | |
(o) authorize any of, or commit or agree to take any of, the foregoing actions. |
SECTION 5.2 Access to Information.
From the date hereof until the First Closing Date, Parent will give the Company, its counsel, financial advisors, auditors and other authorized representatives full access (during normal business hours and upon reasonable notice) to the offices, properties, officers, employees, accountants, auditors, counsel and other representatives, books and records of Parent and its Subsidiaries, will furnish to the Company, its counsel, financial advisors, auditors and other authorized representatives such financial, operating and property related data and other information as such persons may reasonably request, and will instruct Parents and its Subsidiaries employees, counsel and financial advisors to cooperate with the Company in its investigation of the business of Parent and its Subsidiaries.
SECTION 5.3 No Solicitation.
(a) Parent agrees that neither Parent nor any Subsidiary nor any of the respective officers, directors, employees, agents and representatives (including, without limitation, any investment banker, attorney or
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(b) For purposes of this Agreement, Parent Superior Proposal means any bona fide Parent Acquisition Proposal (1) to acquire, directly or indirectly, at least a majority of the shares of Parent Common Stock then outstanding, or all or substantially all of the assets of Parent, (2) that contains terms and conditions that the Parent Board reasonably determines in good faith (after consultation with its financial advisor) to be more favorable from a financial point of view to Parents stockholders than the transactions contemplated hereby, (3) that the Parent Board reasonably determines in its good faith judgment (after consultation with its financial advisor and its legal counsel) to be reasonably capable of being completed (taking into account all legal, financial, regulatory and other aspects of the proposal and the person making the proposal), and (4) that does not contain any due diligence condition and for which any financing upon which it is conditioned is committed.
(c) Except as set forth in this Section 5.3(c), the Parent Board shall not make a change in its recommendation that the stockholders of Parent approve the issuance of shares of Parent Common Stock pursuant to the Offer and the other matters referred to in Section 1.1(f) (a Change in Parent Recommendation). Notwithstanding the foregoing, if the Parent Board determines in its reasonable good faith judgment prior to the First Closing Date, after consultation with outside legal counsel, that the failure to make a Change in Parent Recommendation would be a violation of its fiduciary duties to Parents stockholders, then the Parent Board may make a Change in Parent Recommendation. In the event that the Patent Board determines that it shall be necessary to make a Change in Parent Recommendation, it shall give the Company at least four (4) Business Days prior written notice of such determination before making a public announcement
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SECTION 5.4 Listing of Additional Shares. Parent shall use its reasonable best efforts to file with Nasdaq prior to the First Closing Date a Notification Form: Listing of Additional Shares for the listing of the Parent Common Stock to be issued in connection with the transactions contemplated by this Agreement, such listing to be effective prior to or as of the First Closing Date.
SECTION 5.5 Director and Officer Liability. (a) For six years after the First Closing Date, Parent will, or will cause the Company to, indemnify and hold harmless the present and former officers, directors, employees and agents of the Company (the Indemnified Parties) in respect of acts or omissions occurring on or prior to the First Closing Date or arising out of or pertaining to the transactions contemplated by this Agreement to the extent provided under the Companys articles of incorporation and bylaws in effect on the date hereof and indemnification agreements existing on the date hereof; and shall pay any expenses of the Indemnified Parties, as incurred, in advance of the final disposition of any such action or proceeding, provided that such indemnification shall not be provided in violation of applicable Laws. Parent shall not amend the Memorandum of Association or Articles of Association of the Company to amend the indemnification provisions therein in a manner inconsistent with this Section 5.5 for the six-year period referred to above. For six years after the First Closing Date, Parent will use its reasonable best efforts to cause to be maintained an extension of coverage of each of Parents and the Companys policies of directors and officers liability insurance maintained by Parent and the Company, respectively, at the First Closing Date, for the benefit of those persons who are covered by such policies at the First Closing Date, with respect to matters occurring prior to the First Closing Date; provided, however, that Parent shall not be required to cause to be maintained such liability insurance policies to the extent that the annual cost of maintaining such policies exceeds 125% of the premium paid by each of Parent and the Company in respect of such insurance for the year ended December 31, 2003.
(b) The Indemnified Parties are intended third party beneficiaries of this Section 5.5 to the extent such provisions benefit any such Indemnified Party.
(c) Parent will not, nor will Parent permit the Company following the First Closing Date to, merge or consolidate with any other person or sell all or substantially all of its assets unless Parent or the Company will ensure that the surviving or resulting entity assumes the obligations imposed by this Section 5.5.
SECTION 5.6 Section 16 Matters. Prior to the First Closing Date, Parent shall take all such steps as may be required to cause the transactions contemplated by this Agreement, including any acquisitions of Parent securities (including derivative securities with respect to Parent securities) by each individual who will be subject to the reporting requirements of Section 16(a) of the Exchange Act with respect to Parent, as the case may be, to be exempt under Rule 16b-3 promulgated under the Exchange Act.
SECTION 5.7 Compulsory Acquisition. Parent hereby agrees that promptly following the First Closing Date, Parent shall, so far as it is eligible to do so, deliver a notice to the holders of Company Shares who did not accept the Offer that Parent intends to acquire such Shares in accordance with sections 428 through 430F of the Companies Act 1985 (the Compulsory Acquisition). Each holder of B Preferred Shares, A Ordinary Share and Ordinary Shares who did not accept the Offer shall receive, in exchange for each such Share held by such shareholder, the applicable Exchange Ratio as set forth in Section 1.1(b) hereof.
SECTION 5.8 Waiver of Change of Control and Acceleration Benefits. Following the date hereof, Parent shall use its reasonable best efforts to obtain the waiver of the applicable Parent securityholders and employees with respect to any change of control or acceleration benefits that would otherwise be triggered by the consummation of the Offer and the other transactions contemplated hereby.
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ARTICLE VI
COVENANTS OF PARENT AND THE COMPANY
SECTION 6.1 Reasonable Efforts; Notification.
(a) Subject to Section 6.1(b) below, each of the parties agrees to use reasonable efforts to take, or cause to be taken, all other actions, and to do, or cause to be done, and to assist and cooperate with the other parties in doing, all other things reasonably necessary, proper or advisable to consummate and make effective, in the most expeditious manner practicable the Offer and the other transactions contemplated by this Agreement, including (i) the obtaining of all other necessary actions or nonactions, waivers, consents and approvals from Governmental Entities and the making of all other necessary registrations and filings (including other filings with Governmental Entities, if any), (ii) the obtaining of all necessary consents, approvals or waivers from third parties, (iii) the preparation of the Registration Statement, the Proxy Statement/ Prospectus and the Offer Documents, and (iv) the execution and delivery of any additional instruments necessary to consummate the transactions contemplated by, and to fully carry out the purposes of, this Agreement.
(b) Notwithstanding the foregoing, promptly following the date hereof, Parent and the Company agree to fully cooperate with one another and shall each use their reasonable best efforts to identify the detailed steps, actions, documents and procedures necessary or desirable to effect the Offer, the Option Offer and the other transactions contemplated by this Agreement, and shall negotiate in good faith such amendments or additions to Section 1.1(a), (c), (d) and (f), Section 1.4 and Section 5.4 of this Agreement, whether required by Law or otherwise, as each shall deem necessary or advisable to effect the transactions contemplated by this Agreement in the most expeditious manner possible.
(c) The Company shall give prompt notice to Parent and Parent shall give prompt notice to the Company of (i) any representation or warranty made by it contained in this Agreement becoming untrue or inaccurate in any respect or (ii) the failure by it to comply with or satisfy in any respect any covenant, condition or agreement to be compiled with or satisfied by it under this Agreement; provided, however, that no such notification shall affect the representations, warranties, covenants or agreements of the parties or the conditions to the obligations of the parties under this Agreement.
(d) The Company shall give prompt notice to Parent, and Parent shall give prompt notice to the Company, of (i) any notice or other communication from any person alleging that the consent of such person is or may be required in connection with the transactions contemplated by this Agreement and (ii) any notice or other communication from any Governmental Entity in connection with the transactions contemplated by this Agreement.
SECTION 6.2 Public Announcements. Parent, on the one hand, and the Company, on the other hand, will consult with each other before issuing, and provide each other the opportunity to review and comment upon, any press release or other public statements with respect to the transactions contemplated by this Agreement or with respect to, or relating to, the business of Parent or the Company, as applicable, and shall not issue any such press release with respect to the transactions contemplated by this Agreement or make any such public statement with respect to the transactions contemplated by this Agreement without the prior consent of the other party, except as may be required by applicable Laws, court process or by obligations pursuant to any listing agreement with any national securities exchange or with Nasdaq. The parties agree that the initial press release to be issued with respect to the transactions contemplated by this Agreement will be in a form to be reasonably agreed to by the parties.
SECTION 6.3 Modified Agreements. Promptly following the date hereof, Parent and the Company will negotiate in good faith and use their respective reasonable best efforts to modify the Colony Technology Sharing Agreement dated March 22, 2004 (the CTSA)and to enter into a proposed OEM arrangement between Parent and the Company, which terms shall include a payment commitment by the Company of $500,000 (subject to the satisfaction by Parent of Parents obligations under such agreements), in form and upon terms to be mutually agreed by the parties (the Modified Agreements). In addition to the foregoing, Parent and the Company shall enter into all required modifications to the CTSA as required by the Loan Agreement.
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SECTION 6.4 Joint Remuneration Planning Committee. Promptly following the date hereof, Parent and the Company will appoint a joint remuneration planning committee consisting of Craig Taylor and the members of the Companys existing remuneration committee (the Joint Remuneration Planning Committee). The Joint Remuneration Planning Committee will negotiate in good faith and use its reasonable efforts to (a) negotiate and execute an employment agreement with John West which sets forth the terms of Mr. Wests proposed employment with Parent as its Chief Executive Officer effective upon, and subject to, the First Closing Date, and which agreement shall maintain the economic terms and legal protections of Mr. Wests existing employment agreement with the Company; provided, however, that such terms and protections may be amended as necessary to cause such employment agreement to comply with the laws of the United States or any individual state within the United States, as applicable; and (b) review other remuneration matters that may arise from time to time following the execution of this Agreement and prior to the First Closing Date and which may affect the combined company following the First Closing Date.
SECTION 6.5 Certain Tax Matters.
(a) This Agreement is intended to constitute a plan of reorganization within the meaning of section 1.368-2(g) of the income tax regulations promulgated under the Code. From and after the date of this Agreement and until the First Closing Date (and thereafter where relevant), each party hereto shall use its reasonable best efforts to cause the exchange of shares contemplated by the Offer to qualify, and will not knowingly take any action, cause any action to be taken, fail to take any action or cause any action to fail to be taken which action or failure to act could prevent such exchange of shares from qualifying, as a reorganization within the meaning of Section 368(a) of the Code.
(b) As of the date hereof, the Company does not know of any reason (i) why it would not be able to deliver to counsel to the Company and Parent, at the date of the legal opinions referred to below, a certificate substantially in compliance with IRS published advance ruling guidelines, with customary exceptions and modifications thereto, to enable such firms to deliver the legal opinions contemplated by paragraph (p) of Section 2 of Annex A, or (ii) why counsel to the Company and Parent would not be able to deliver the opinions contemplated by paragraph (p) of Section 2 of Annex A. The Company will deliver such certificate to counsel to the Company and Parent, effective as of the date of such opinions.
(c) As of the date hereof, Parent does not know of any reason (i) why it would not be able to deliver to counsel to the Company and Parent, at the date of the legal opinions referred to below, a certificate substantially in compliance with IRS published advance ruling guidelines, with customary exceptions and modifications thereto, to enable such firms to deliver the legal opinions contemplated by paragraph (p) of Section 2 of Annex A, or (ii) why counsel to the Company and Parent would not be able to deliver the opinions contemplated by paragraph (p) of Section 2 of Annex A. Parent will deliver such certificate to counsel to the Company and Parent, effective as of the date of such opinions.
(d) In the period prior to the First Closing Date, the Company shall be entitled to seek confirmation from Inland Revenue pursuant to Section 138 of the TCGA that the sale of the Shares in exchange of shares of Parent Common Stock will be effected for bona fide commercial reasons and will not form part of any such scheme or arrangement as is mentioned in Section 137(l) of the TCGA and that, therefore, the proposed share exchange qualifies for roll-over relief from capital gains tax pursuant to Section 135 of the TCGA.
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ARTICLE VII
TERMINATION
SECTION 7.1 Termination. This Agreement may be terminated and the Offer may be abandoned at any time prior to the First Closing Date:
(a) by mutual written consent of the Company and Parent; | |
(b) by either Parent or the Company, if: |
(i) the Offer shall have expired, terminated or been withdrawn in accordance with the terms of this Agreement without Parent having exchanged any Shares pursuant to the Offer (unless a principal cause of the Offer having expired or having been terminated or withdrawn is a breach by the party seeking to terminate this Agreement of any of its obligations under this Agreement); | |
(ii) the First Closing not having taken place on or before March 31, 2005 (the Final Date) (unless a principal cause of the First Offer not having taken place by such date is a breach by the party seeking to terminate this Agreement of any of its obligations under this Agreement); or | |
(iii) there shall be any law or regulation that makes consummation of the Offer illegal or otherwise prohibited or if any judgment, injunction, order or decree enjoining Parent or the Company from consummating the Offer is entered and such judgment, injunction, order or decree shall become final and non-appealable; |
(c) by Parent, at any time prior to the First Closing Date, if a Change in Company Recommendation shall have occurred or the Company Board shall have resolved to do so; | |
(d) by the Company, at any time prior to the First Closing Date, if a Change in Parent Recommendation shall have occurred or the Parent Board shall have resolved to do so; | |
(e) by Parent, if an event or circumstance shall have occurred that makes satisfaction of or compliance with the conditions set forth in paragraphs of (b) or (c) of Section 1 of Annex A impossible, or if there shall have been a breach by the Company causing a failure of either of such conditions and such breach shall have remained uncured for 30 days following receipt of written notice thereof from Parent; | |
(f) by the Company, if an event or circumstance shall have occurred that makes satisfaction of or compliance with the conditions set forth in paragraphs of (c), (d) or (h) of Section 2 of Annex A impossible, or if there shall have been a breach by Parent or one of its Subsidiaries causing a failure of either of such conditions and such breach shall have remained uncured for 30 days following receipt of written notice thereof from the Company; | |
(g) by either Parent or the Company, if the Parent Stockholders Meeting shall have been duly convened and the Parent Stockholder Approvals shall not have been obtained; or | |
(h) by the Company, if an event or circumstance set forth in paragraphs (e) or (n) of Section 2 of Annex A shall have occurred; provided, however, that the event or circumstance set forth in paragraph (n) of Section 2 of Annex A is not the direct result of the Companys failure to perform its obligations pursuant to the Loan Agreement or the Modified Agreements; | |
(i) by the Company, if an event or circumstance set forth in paragraph (o) of Section 2 of Annex A shall have occurred and such event or circumstance shall have remained uncured for 45 days following receipt of written notice thereof from the Company; or | |
(j) by Parent, if an event or circumstance set forth in paragraph (k) of Section 1 f Annex A shall have occurred and such event or circumstance shall have remained uncured for 45 days following receipt of written notice thereof from Parent. |
SECTION 7.2 Effect of Termination. If this Agreement is terminated pursuant to Section 7.1, this Agreement shall become void and of no effect with no liability on the part of any party hereto or their
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ARTICLE VIII
MISCELLANEOUS
SECTION 8.1 Notices. All notices, requests and other communications to any party hereunder shall be in writing (including telecopy or similar writing) and shall be given:
if to the Company, to: |
Solexa Limited
with a copy to: |
Heller Ehrman White & McAuliffe LP
and with a copy to: |
CMS Cameron McKenna
if to Parent, to: |
Lynx Therapeutics, Inc.
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with a copy to: |
Cooley Godward LLP
or such other address or facsimile number as such party may hereafter specify for the purpose by notice to the other parties hereto. Each such notice, request or other communication shall be deemed to be properly delivered, given and received: (i) when delivered by hand; (ii) on the day sent by facsimile, provided that the sender has received confirmation of transmission as of or prior to 5:00 p.m. local time of the recipient, on such day; (iii) the first Business Day after sent by facsimile (to the extent that (a) the sender has received confirmation of transmission after 5:00 p.m. local time of the recipient on the day sent by facsimile or (b) notice is sent on a day that is not a Business Day); or (iv) the third Business Day after sent by registered mail or by courier or express delivery service.
SECTION 8.2 Survival of Representations and Warranties. The representations and warranties and agreements contained herein and in any certificate or other writing delivered pursuant hereto shall not survive the First Closing Date or the termination of this Agreement; provided, however, that the covenants set forth in Section 7.2 (Effect of Termination), Section 8.4 (Fees and Expenses), and Section 8.6 (Governing Law) and the Confidentiality Agreement (as defined in Section 8.8 below), the Loan Agreement and the Loan Agreement Side Letter shall survive any such termination.
SECTION 8.3 Amendments; No Waivers. Any provision of this Agreement may be amended or waived prior to the First Closing Date if, and only if, such amendment or waiver is in writing and signed, in the case of an amendment, by the Company, Parent, or in the case of a waiver, by the party against whom the waiver is to be effective. No failure or delay by any party in exercising any right, power or privilege hereunder shall operate as a waiver thereof nor shall any single or partial exercise thereof preclude any other or further exercise thereof or the exercise of any other right, power or privilege. The rights and remedies herein provided shall be cumulative and not exclusive of any rights or remedies provided by law.
SECTION 8.4 Fees and Expenses. All costs and expenses incurred in connection with this Agreement shall be paid by the party incurring such cost or expense.
SECTION 8.5 Successors and Assigns; Parties in Interest. The provisions of this Agreement shall be binding, upon and inure to the benefit of the parties hereto and their respective successors and assigns, provided that no party may assign, delegate or otherwise transfer any of its rights or obligations under this Agreement without the consent of the other parties hereto except that Parent may transfer or assign, in whole or from time to time in part, to one or more of its wholly-owned Subsidiaries, any or all of its rights or obligations, but any such transfer or assignment will not relieve Parent of its obligations under this Agreement. Except as expressly set forth herein, nothing in this Agreement, express or implied, is intended to or shall confer upon any person not a party hereto any right, benefit or remedy of any nature whatsoever under or by reason of this Agreement, including to confer third party beneficiary rights.
SECTION 8.6 Governing Law; Enforcement. This Agreement shall be construed in accordance with and governed by the laws of the State of Delaware, without regard to the conflict of laws principles thereof; provided, however, that the terms and provisions of this Agreement with respect to the implementation and provisions of the Offer shall be construed in accordance with and governed by the laws of England. Each of the parties hereto, (a) consents to submit itself to the personal jurisdiction of the Court of Chancery of the State of Delaware and Federal District Court for the District of Delaware in the event a dispute arises out of this Agreement or any agreement or transaction contemplated hereby, (b) agrees that it will not attempt to deny or defeat such personal jurisdiction by motion or other request for leave from any such court, (c) agrees that it will not bring any action relating to this Agreement or any agreement or transaction contemplated hereby in
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SECTION 8.7 Counterparts; Effectiveness; Interpretation. This Agreement may be signed in any number of counterparts, each of which shall be an original, with the same effect as if the signatures thereto and hereto were upon the same instrument. This Agreement shall become effective when each party hereto shall have received counterparts hereof signed by all of the other parties hereto. When a reference is made in this Agreement to a Section, such reference shall be to a Section of this Agreement unless otherwise indicated. The table of contents and headings contained in this Agreement are for reference purposes only and shall not affect in any way the meaning or interpretation of this Agreement. Whenever the words include, includes or including are used in this Agreement, they shall be deemed to be followed by the words without limitation.
SECTION 8.8 Entire Agreement. This Agreement, the Loan Agreement, the Loan Agreement Side Letter, the Mutual Confidentiality Agreement between Parent and the Company dated August 12, 2004 (the Confidentiality Agreement) and the Colony Technology Sharing Agreement between Parent and the Company dated March 22, 2004 constitute the entire agreement among the parties hereto and supersede all prior agreements and understandings, both written and oral, among the parties hereto with respect to the subject matter hereof.
SECTION 8.9 Definitions. The definitions used in this Agreement are defined in the following sections:
Defined Term | Section | |
A Ordinary Share Exchange Ratio
|
Section 1.1(b)(ii) | |
A Ordinary Shares
|
Recitals | |
First Closing Date
|
Section 1.3(a) | |
Agreement
|
Preamble | |
Annual Report
|
Section 3.12 | |
B Preferred Exchange Ratio
|
Section 1.1(b)(iii) | |
B Preferred Shares
|
Recitals | |
Business Day
|
Section 1.1(c) | |
Change in Parent Recommendation
|
Section 5.3(c) | |
Code
|
Recitals | |
Companies Act
|
Section 1.1(a) | |
Company
|
Preamble | |
Company Acquisition Proposal
|
Section 4.4(a) | |
Company Balance Sheet
|
Section 2.2(a) | |
Company Balance Sheet Date
|
Section 2.2(b) | |
Company Board
|
Recitals | |
Company Disclosure Letter
|
Article II | |
Company Financial Statements
|
Section 2.2(a) | |
Company Intellectual Property
|
Section 2.7(a) | |
Company License
|
Section 2.7(a) | |
Company Material Contract
|
Section 2.15(a) | |
Company Option; Company Options
|
Section 1.4(a) | |
Company Property
|
Section 2.6(a) | |
Company Share Option Schemes
|
Section 1.4(a) |
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Defined Term | Section | |
Company Superior Proposal
|
Section 4.4(b) | |
Company Support Agreements
|
Recitals | |
Company Third-Party Intellectual Property Rights
|
Section 2.7(a) | |
Compulsory Acquisition
|
Section 5.7 | |
Confidentiality Agreement
|
Section 8.8 | |
Consultant Share Option Scheme
|
Section 1.4(a) | |
CTSA
|
Section 6.3 | |
Disclosure Materials
|
Section 3.6 | |
Effective Date
|
Section 1.1(a) | |
Encumbrances
|
Section 2.6(b) | |
Environmental Law
|
Section 2.6(m) | |
ERISA
|
Section 3.21 | |
Exchange Act
|
Section 3.5 | |
Exchange Rate
|
Section 1.4(b) | |
Exchange Ratio
|
Section 1.1(b)(iii) | |
Final Date
|
Section 7.1(b)(ii) | |
First Closing
|
Section 1.1(a) | |
First Closing Date
|
Section 1.1(c) | |
FSA
|
Section 1.1(d) | |
Government Entity
|
Annex A | |
Government Grant
|
Section 2.17 | |
GPP Scheme
|
Section 2.10(h) | |
Hazardous Substance
|
Section 2.6(m) | |
ICTA
|
Section 2.3(c) | |
Indemnified Parties
|
Section 5.5 | |
Intellectual Property
|
Section 2.7(a) | |
Joint Remuneration Planning Committee
|
Section 6.4 | |
Knowledge
|
Section 2.3 | |
Law
|
Section 1.1(d) | |
Life Assurance Scheme
|
Section 2.10(i) | |
Loan Agreement
|
Recitals | |
Loan Agreement Side Letter
|
Recitals | |
Management Accounts
|
Section 2.2(e) | |
Management Share Option Scheme
|
Section 1.4(a) | |
Material Adverse Effect
|
Section 2.4(f) | |
Material Permits
|
Section 3.17 | |
Minimum Condition
|
Section 1.1(a) | |
Modified Agreements
|
Section 6.3 | |
Nasdaq
|
Section 1.1(c) | |
Offer
|
Recitals | |
Offer Documents
|
Section 1.1(d) |
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Defined Term | Section | |
Option Exercise
|
Section 1.4(b) | |
Option Offer
|
Section 1.4(a) | |
Option Roll Over
|
Section 1.4(b) | |
Ordinary Share Exchange Ratio
|
Section 1.1(b)(i) | |
Ordinary Shares
|
Recitals | |
Parent
|
Preamble | |
Parent Acquisition Proposal
|
Section 5.3(a) | |
Parent Balance Sheet
|
Section 3.22 | |
Parent Board
|
Recitals | |
Parent Common Stock
|
Recitals | |
Parent Confidential Information
|
Section 3.15(f) | |
Parent Disclosure Schedule
|
Article III | |
Parent ERISA Affiliate
|
Section 3.21(a) | |
Parent Financial Advisor
|
Section 3.23 | |
Parent Financial Advisor Agreement
|
Section 3.23 | |
Parent Financial Statements
|
Section 3.6(c) | |
Parent Intellectual Property
|
Section 3.15(a) | |
Parent Material Contract
|
Section 3.23 | |
Parent Options
|
Section 3.7 | |
Parent Plans
|
Section 3.21(a) | |
Parent Stockholder Approval
|
Section 1.1(f) | |
Parent Stockholders Meeting
|
Section 1.1(f) | |
Parent Superior Proposal
|
Section 5.3(b) | |
Parent Support Agreements
|
Recitals | |
Parent Third-Party Intellectual Property Rights
|
Section 3.15(a) | |
Parent Warrants
|
Section 5.1(b) | |
Proxy Statement/ Prospectus
|
Section 1.1(d) | |
Registration Statement
|
Section 1.1(d) | |
SEC
|
Section 1.1(c) | |
Securities Act
|
Section 3.6 | |
Shareholders Agreement
|
Section 4.1(b) | |
Shares
|
Recitals | |
Subscription Agreement Addendum
|
Recitals | |
Subsequent Closing Date
|
Section 1.1(c) | |
Subsidiary
|
Section 2.14 | |
Tax
|
Section 2.4(f) | |
Tax Authority
|
Section 2.4(f) | |
Tax Return(s)
|
Section 2.4(f) | |
TCGA
|
Recitals |
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Defined Term | Section | |
Total Share Consideration
|
Section 1.1(b)(iv) | |
UK GAAP
|
Section 2.2(a) | |
Unapproved Share Option Scheme
|
Section 1.4(a) | |
US GAAP
|
Section 3.6 |
[signature page immediately follows]
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The parties hereto have caused this Agreement to be duly executed by their respective authorized officers as of the day and year first above written.
SOLEXA LIMITED |
By: | /s/ JOHN WEST |
|
|
Title: CEO | |
LYNX THERAPEUTICS, INC. |
By: | /s/ KEVIN P. CORCORAN |
|
|
Title: President & CEO |
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EXHIBIT A
FORM OF COMPANY SUPPORT AGREEMENT
[The Form of Company Support Agreement is filed separately as Exhibit 99.2 of
EXHIBIT B
FORM OF PARENT SUPPORT AGREEMENT
[The Form of Parent Support Agreement is filed separately as Exhibit 99.1 of
September 27, 2004
PERSONAL & CONFIDENTIAL
Board of Directors
Members of the Board:
You have requested our opinion as to the fairness, from a financial point of view, to Lynx Therapeutics, Inc. (Lynx or the Company) of the Consideration (as defined below) to be paid by the Company in the proposed acquisition (the Acquisition) of Solexa Limited (Solexa) by the Company pursuant to the Acquisition Agreement dated September 27, 2004 between the Company and Solexa (the Agreement). Pursuant to the Agreement, Lynx will make an offer to acquire 100% of Solexas outstanding B preferred shares, A ordinary shares, ordinary shares, and options to acquire Solexa ordinary shares in exchange for an aggregate of 29,500,000 shares of Lynx common stock (including shares issuable under the options to acquire Lynx common stock to be issued to holders of Solexa options) plus cash in respect of any fractional Solexa shares (the Consideration).
In connection with this opinion, Seven Hills, among other things:
a. reviewed certain publicly available financial statements and other information of the Company; | |
b. reviewed the Companys internal cashflow information and projections, prepared by Company management; | |
c. reviewed certain internal financial statements and other financial and operating data concerning the Company and Solexa, prepared by the managements of the Company and Solexa, respectively; | |
d. reviewed certain financial projections concerning the Company, Solexa, and the combined company, including the impact of the Acquisition on projected revenues and profitability, prepared by the managements of the Company and Solexa; | |
e. discussed the past and current operations and financial condition and the prospects of the Company, Solexa, and the combined company with the managements of the Company and Solexa; | |
f. reviewed and discussed with the managements of the Company and Solexa their strategic and financial rationales for the Acquisition; |
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g. participated in discussions and negotiations among the managements and representatives of the Company and Solexa; | |
h. reviewed the reported historical prices and trading activity for the Companys common stock; | |
i. reviewed certain financial information of selected comparable publicly-traded genomic systems companies; | |
j. reviewed certain financial information of selected public early-stage genomics companies; | |
k. reviewed certain financial information of selected recent acquisitions of genomic and medical systems companies; | |
l. compared relative contributions of Lynx, Solexa, and the combined company regarding certain financial and other operating information; | |
m. reviewed the valuations, to the extent publicly available, of recent financings for comparable private companies; | |
n. reviewed the Agreement, the Loan Agreement dated August 12, 2004 between Lynx and Solexa, and certain other related documents; and | |
o. performed such other analyses and considered such other factors as we deemed appropriate. |
We have relied upon the accuracy and completeness of all of the financial, accounting and other information discussed with or reviewed by us and have assumed such accuracy and completeness for purposes of rendering this opinion, and we have not assumed any responsibility for independent verification of such information. We have relied upon the assurances of management of the Company that it is not aware of any facts that would make such information inaccurate or misleading. With respect to the projections and information relating to the strategic, financial and operational costs and benefits resulting from the Acquisition, we have assumed that they were reasonably prepared on bases reflecting the best currently available estimates and judgments of the future financial performance of Lynx, Solexa and the combined company, and that Lynx, Solexa and the combined company would perform substantially in accordance with such projections. Furthermore, we did not obtain or make, or assume responsibility for obtaining or making, any independent evaluation or appraisal of the properties or assets or liabilities (contingent or otherwise) of the Company or Solexa, nor were we furnished with any such evaluations or appraisals, nor have we evaluated the solvency or fair value of the Company or Solexa under any state or federal laws relating to bankruptcy, insolvency or similar matters. With respect to financial projections reviewed by us concerning Solexa on a stand-alone basis, we note that such projections were prepared by prior management of Solexa, and that current management of Solexa has informed us that such projections do not necessarily reflect such managements current estimates with respect to the future financial performance of Solexa on a stand-alone basis.
We have also assumed that all material governmental, regulatory or other consents and approvals necessary for the consummation of the Acquisition will be obtained or the absence of such consents and approvals will not have any material adverse effect on the Company, on Solexa or on the contemplated benefits of the Acquisition. We have relied, without verification, on the description of the pro forma capitalization of the combined company as of the effective time of the Acquisition provided to us by the managements of the Company and Solexa. We have also assumed the Acquisition will qualify as a tax-free reorganization for U.S. federal income tax purposes. We have further assumed that the Acquisition will be consummated in accordance with the terms described in the Agreement and other documents furnished to us, without waiver, modification or amendment of any material term, condition, or agreement therein, and that all of the outstanding preferred shares, ordinary shares and options to acquire ordinary shares of Solexa will be acquired by the Company pursuant to the Acquisition. We note that we are not legal, tax or regulatory experts and have relied upon, without assuming any responsibility for independent verification or liability therefor, the assessment of the Companys legal, tax and regulatory advisors with respect to the legal, tax and regulatory matters related to the Acquisition.
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Our opinion does not address the relative merits of the Acquisition as compared to any alternative business transaction that might be available to the Company. We note, however, that the Companys internal cashflow information indicates that it would have exhausted its available cash reserves in September 2004, but for loans from Solexa pursuant to the Loan Agreement, and that in the absence of the Acquisition and continued financing from Solexa, a bankruptcy or similar reorganization of the Company is a significant possibility. We were limited in our services to providing investment banking services in connection with the Companys contemplated Acquisition of Solexa, and we were not authorized or requested to, and did not, solicit alternative offers for the Company or its assets, not have we investigated any alternative transactions that may be available to the Company. Our advisory services and the opinion expressed herein are provided for the information and assistance of the Board of Directors of the Company in connection with its consideration of the Acquisition and such opinion does not constitute a recommendation as to how any holder of shares of the Companys common stock should vote with respect to the Acquisition.
Our opinion is necessarily based on economic, market and other conditions as in effect on, and the information made available to us as of, the date hereof. It should be understood that subsequent developments may affect this opinion and that we do not have any obligation to update, revise, or reaffirm this opinion. Our opinion is limited to the fairness, from a financial point of view, to the Company of the Consideration to be paid by the Company pursuant to the Agreement in the Acquisition and we express no opinion as to the underlying decision by the Company to engage in the Acquisition. We are expressing no opinion herein as to the price at which the Companys common stock will trade at any future time, including upon consummation of the Acquisition, or as to the Companys, Solexas or the combined companys ability to attract financing in the future, including significant financing which the management of Solexa has indicated may be required in the first quarter of 2005. In addition, Seven Hills may provide investment banking services to the Company, Solexa and/or the combined company in the future, for which services Seven Hills may receive compensation.
We have acted as financial advisor to the Company with respect to the Acquisition and will receive a fee from the Company for our services, including rendering this opinion, a significant portion of which is contingent upon the consummation of the Acquisition. We will receive a fee from the Company for rendering this opinion which is not contingent upon the consummation of the Acquisition. The Company has agreed to indemnify us for certain liabilities that may arise out of the rendering of this opinion.
Based upon and subject to the foregoing, and based upon such other matters as we consider relevant, it is our opinion that, as of the date hereof, the Consideration to be paid by the Company pursuant to the Agreement is fair from a financial point of view to the Company.
This opinion and a summary discussion of our underlying analyses with respect to the Acquisition, in form and substance satisfactory to us and our legal counsel, may be included in a proxy or registration statement of the Company distributed in connection with the Acquisition. In furnishing this opinion, Seven Hills does not admit that we are experts within the meaning of the term experts as used in the Securities Act of 1933, as amended (the Securities Act), and the rules and regulations promulgated thereunder, nor do we admit that this opinion constitutes a report or valuation within the meaning of Section 11 of the Securities Act.
Very truly yours, | |
/s/ SEVEN HILLS PARTNERS LLC |
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CERTIFICATE OF AMENDMENT TO
Lynx Therapeutics, Inc. (the Corporation), a corporation organized and existing under the General Corporation Law of the State of Delaware, DOES HEREBY CERTIFY:
FIRST: The name of the Corporation is Lynx Therapeutics, Inc. | |
SECOND: The Corporations original Certificate of Incorporation was filed with the Secretary of State of the State of Delaware on February 18, 1992 under the name of Applied Genomics Incorporated. | |
THIRD: The Board of Directors of the Corporation, acting in accordance with the provision of Sections 141 and 242 of the General Corporation Law of the State of Delaware adopted resolutions to amend the first paragraph of Article IV of the Amended and Restated Certificate of Incorporation of the Corporation to read in its entirety as follows: |
This Corporation is authorized to issue two classes of stock to be designated, respectively, Preferred Stock and Common Stock. The total number of shares that the Corporation is authorized to issue is Sixty-two million (62,000,000) shares. Sixty million (60,000,000) shares shall be Common Stock, par value one cent ($.01) per share (the Common Stock) and Two million (2,000,000) shares shall be Preferred Stock, par value one cent ($.01) per share (the Preferred Stock). Effective as of 5:00 p.m., Eastern time, on the date this Certificate of Amendment to Amended and Restated Certificate of Incorporation is filed with the Secretary of State of the State of Delaware, each [*] shares of the Corporations Common Stock, par value one cent ($.01) per share, issued and outstanding shall, automatically and without any action on the part of the respective holders thereof, be combined and converted into one (1) share of Common Stock, par value one cent ($.01) per share, of the Corporation. No fractional shares shall be issued and, in lieu thereof, any holder of less than one share of Common Stock shall be entitled to receive cash for such holders fractional share based upon the closing sales price of the Corporations Common Stock as reported on The Nasdaq SmallCap Market as of the date this Certificate of Amendment is filed with the Secretary of State of the State of Delaware. |
FOURTH: This Certificate of Amendment to Amended and Restated Certificate of Incorporation was submitted to the stockholders of the Corporation and was duly approved by the required vote of the stockholders of the Corporation in accordance with Sections 222 and 242 of the Delaware General Corporation Law. The total number of outstanding shares entitled to vote or consent to this Amendment was shares of Common Stock. A majority of the outstanding shares of Common Stock, voting together as a single class, voted in favor of this Certificate of Amendment to Amended and Restated Certificate of Incorporation. The vote required was a majority of the outstanding shares of Common Stock, voting together as a single class. |
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IN WITNESS WHEREOF, Lynx Therapeutics, Inc. has caused this Certificate of Amendment to be signed by its Chief Executive Officer as of , 200 .
LYNX THERAPEUTICS, INC. |
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Kevin P. Corcoran | |
Chief Executive Officer |
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LYNX THERAPEUTICS, INC.
1992 STOCK OPTION PLAN
Adopted July 1, 1992
1. | Purposes. |
(a) Eligible Option Recipients. The persons eligible to receive Options are the Employees, Directors and Consultants of the Company and its Affiliates.
(b) Available Options. The purpose of the Plan is to provide a means by which eligible recipients of Options may be given an opportunity to benefit from increases in value of the Common Stock through the granting of the following Options: (i) Incentive Stock Options, and (ii) Nonstatutory Stock Options.
(c) General Purpose. The Company, by means of the Plan, seeks to retain the services of the group of persons eligible to receive Options, to secure and retain the services of new members of this group and to provide incentives for such persons to exert maximum efforts for the success of the Company and its Affiliates.
2. | Definitions. |
(a) Affiliate means any parent corporation or subsidiary corporation of the Company, whether now or hereafter existing, as those terms are defined in Sections 424(e) and (f), respectively, of the Code.
(b) Board means the Board of Directors of the Company.
(c) Code means the Internal Revenue Code of 1986, as amended.
(d) Committee means a Committee appointed by the Board in accordance with subsection 3(c).
(e) Common Stock means the common stock of the Company.
(f) Company means Lynx Therapeutics, Inc., a Delaware corporation.
(g) Consultant means any person, including an advisor, (1) engaged by the Company or an Affiliate to render consulting or advisory services and who is compensated for such services or (2) who is a member of the Board of Directors of an Affiliate. However, the term Consultant shall not include either Directors of the Company who are not compensated by the Company for their services as Directors or Directors of the Company who are merely paid a directors fee by the Company for their services as Directors.
(h) Continuous Service means that the Optionholders service with the Company or an Affiliate, whether as an Employee, Director or Consultant, is not interrupted or terminated. The Optionholders Continuous Service shall not be deemed to have terminated merely because of a change in the capacity in which the Optionholder renders service to the Company or an Affiliate as an Employee, Consultant or Director or a change in the entity for which the Optionholder renders such service, provided that there is no interruption or termination of the Optionholders Continuous Service. For example, a change in status from an Employee of the Company to a Consultant of an Affiliate or a Director of the Company will not constitute an interruption of Continuous Service. The Board or the chief executive officer of the Company, in that partys sole discretion, may determine whether Continuous Service shall be considered interrupted in the case of any leave of absence approved by that party, including sick leave, military leave or any other personal leave.
(i) Covered Employee means the chief executive officer and the four (4) other highest compensated officers of the Company for whom total compensation is required to be reported to stockholders under the Exchange Act, as determined for purposes of Section 162(m) of the Code.
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(j) Director means a member of the Board of Directors of the Company.
(k) Disability means the permanent and total disability of a person within the meaning of Section 22(e)(3) of the Code; provided, however, that to the extent that Section 260.140.41 of Title 10 of the California Code of Regulations applies to an Option, Disability shall mean the inability of a person, in the opinion of a qualified physician acceptable to the Company, to perform the major duties of that persons position with the Company or an Affiliate because of the sickness or injury of the person and such inability results in termination of employment by the Company or an Affiliate.
(l) Employee means any person employed by the Company or an Affiliate. Mere service as a Director or payment of a directors fee by the Company or an Affiliate shall not be sufficient to constitute employment by the Company or an Affiliate.
(m) Exchange Act means the Securities Exchange Act of 1934, as amended.
(n) Fair Market Value means, as of any date, the value of the Common Stock determined as follows and in each case in a manner consistent with Section 260.140.50 of Title 10 of the California Code of Regulations:
(i) If the Common Stock is listed on any established stock exchange or traded on the Nasdaq National Market, Nasdaq SmallCap Market or Over The Counter Bulletin Board system the Fair Market Value of a share of Common Stock shall be the closing sales price for such stock (or the closing bid, if no sales were reported) as quoted on such exchange, market or system (or the exchange, market or system with the greatest volume of trading the Common Stock) on the last market trading day prior to determination, as reported in The Wall Street Journal or such other source as the Board deems reliable. | |
(ii) In the absence of an established market or system for the Common Stock, the Fair Market Value shall be determined in good faith by the Board. |
(o) Incentive Stock Option means an Option intended to qualify as an incentive stock option within the meaning of Section 422 of the Code and the regulations promulgated thereunder.
(p) Non-Employee Director means a Director of the Company who either (i) is not a current Employee or Officer of the Company or its parent or a subsidiary, does not receive compensation (directly or indirectly) from the Company or its parent or a subsidiary for services rendered as a consultant or in any capacity other than as a Director (except for an amount as to which disclosure would not be required under Item 404(a) of Regulation S-K promulgated pursuant to the Securities Act (Regulation S-K)), does not possess an interest in any other transaction as to which disclosure would be required under Item 404(a) of Regulation S-K and is not engaged in a business relationship as to which disclosure would be required under Item 404(b) of Regulation S-K; or (ii) is otherwise considered a non-employee director for purposes of Rule 16b-3.
(q) Nonstatutory Stock Option means an Option not intended to qualify as an Incentive Stock Option.
(r) Officer means a person who is an officer of the Company within the meaning of Section 16 of the Exchange Act and the rules and regulations promulgated thereunder.
(s) Option means an Incentive Stock Option or a Nonstatutory Stock Option granted pursuant to the Plan.
(t) Option Agreement means a written agreement between the Company and an Optionholder evidencing the terms and conditions of an individual Option grant. Each Option Agreement shall be subject to the terms and conditions of the Plan.
(u) Optionholder means a person to whom an Option is granted pursuant to the Plan or, if applicable, such other person who holds an outstanding Option.
(v) Outside Director means a Director of the Company who either (i) is not a current employee of the Company or an affiliated corporation (within the meaning of Treasury Regulations promulgated under Section 162(m) of the Code), is not a former employee of the Company or an affiliated corporation
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(w) Plan means this Lynx Therapeutics, Inc. 1992 Stock Option Plan.
(x) Rule 16b-3 means Rule 16b-3 promulgated under the Exchange Act or any successor to Rule 16b-3, as in effect from time to time.
(y) Securities Act means the Securities Act of 1933, as amended.
(z) Ten Percent Stockholder means a person who owns (or is deemed to own pursuant to Section 424(d) of the Code) stock possessing more than ten percent (10%) of the total combined voting power of all classes of stock of the Company or of any of its Affiliates.
3. | Administration. |
(a) Administration by Board. The Board will administer the Plan unless and until the Board delegates administration to a Committee, as provided in subsection 3(c).
(b) Powers of Board. The board shall have the power, subject to, and within the limitations of, the express provisions of the Plan:
(i) To determine from time to time which of the persons eligible under the Plan shall be granted Options; when and how each Option shall be granted; what type or combination of types of Option shall be granted; the provisions of each Option granted (which need not be identical), including the time or times when a person shall be permitted to receive stock pursuant to an Option; and the number of shares with respect to which an Option shall be granted to each such person. | |
(ii) To construe and interpret the Plan and Options granted under it, and to establish, amend and revoke rules and regulations for its administration. The Board, in the exercise of this power, may correct any defect, omission or inconsistency in the Plan or in any Option Agreement, in a manner and to the extent it shall deem necessary or expedient to make the Plan fully effective. | |
(iii) To amend the Plan or an Option as provided in Section 11. | |
(iv) Generally, to exercise such powers and to perform such acts as the Board deems necessary or expedient to promote the best interests of the Company which are not in conflict with the provisions of the Plan. |
(c) Delegation to Committee.
(i) General. The Board may delegate administration of the Plan to a Committee or Committees of one or more members of the Board, and the term Committee shall apply to any person or persons to whom such authority has been delegated. If administration is delegated to a Committee, the Committee shall have, in connection with the administration of the Plan, the powers theretofore possessed by the Board, including the power to delegate to a subcommittee any of the administrative powers the Committee is authorized to exercise (and references in this Plan to the Board shall thereafter be to the Committee or subcommittee), subject, however, to such resolutions, not inconsistent with the provisions of the Plan, as may be adopted from time to time by the Board. The Board may abolish the Committee at any time and revest in the Board the administration of the Plan.
(ii) Committee Composition when Common Stock is Publicly Traded. At such time as the Common Stock is publicly traded, in the discretion of the Board, a Committee may consist solely of two or more Outside Directors, in accordance with Section 162(m) of the Code, and/or solely of two or more Non-Employee Directors, in accordance with Rule 16b-3. Within the scope of such authority, the Board or the Committee may (i) delegate to a committee of one or more members of the Board who are not Outside Directors, the authority to grant Options to eligible persons who are either (a) not then Covered Employees
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4. | Shares Subject to the Plan. |
(a) Share Reserve. Subject to the provisions of Section 10 relating to adjustments upon changes in stock and Section 4(d) below, the stock that may be issued pursuant to Options shall not exceed in the aggregate three million seventy one thousand fifty two (3,071,052) shares of Common Stock less any shares of Common Stock remaining outstanding which were originally issued to Employees, Officers or Directors of, or Consultants to, the Company pursuant to stock purchase agreements or similar compensatory arrangements approved by the Board. Such share reserve consists of the (i) one million seventy one thousand fifty two (1,071,052) shares of Common Stock currently reserved for issuance under the Plan, plus (ii) an increase of two million (2,000,000) shares of Common Stock authorized by the Board on October 26, 2004, subject to stockholder approval at the 2004 Annual Meeting to be held on , 200 .
(b) Reversion of Shares to the Share Reserve. If any Option shall for any reason expire or otherwise terminate, in whole or in part, without having been exercised in full, the stock not acquired under such Option shall revert to and again become available for issuance under the Plan. If any Common Stock acquired pursuant to the exercise of an Option shall for any reason be repurchased by the Company under an unvested share repurchase option provided under the Plan, the stock repurchased by the Company under such repurchase option shall not revert to and again become available for issuance under the Plan.
(c) Source of Shares. The stock subject to the Plan may be unissued shares or reacquired shares, bought on the market or otherwise.
(d) Reserve Limitation. Notwithstanding Section 4(a), if at the time of each grant of a Stock Award under the Plan, the Company is subject to Section 260.140.45 of Title 10 of the California Code of Regulations (Section 260.140.45), and to the extent required by Section 260.140.45 the total number of securities issuable upon exercise of all outstanding options of the Company and the total number of shares provided for under this Plan or any other equity incentive, stock bonus or similar plan or agreement of the Company shall not exceed thirty percent (30%) of the then outstanding capital stock of the Company (as measured as set forth in Section 260.140.45), unless stockholder approval to exceed thirty percent (30%) has been obtained in compliance with Section 260.140.45, in which case the limit shall be such higher percentage as approved by the stockholders.
5. | Eligibility. |
(a) Eligibility for Specific Options. Incentive Stock Options may be granted only to Employees. Nonstatutory Stock Options may be granted to Employees, Directors and Consultants.
(b) Ten Percent Stockholders.
(i) So long as the Company is subject to Section 260.140.41 of Title 10 of the California Code of Regulations, no Ten Percent Stockholder shall be eligible for the grant of a Nonstatutory Stock Option unless the exercise price of such Option is at least one hundred ten percent (110%) of the Fair Market Value of the Common Stock at the date of grant and the Option is not exercisable after the expiration of five (5) years from the date of grant; provided, however, that a Nonstatutory Stock Option may be granted at a lower exercise price and a longer term if a lower percentage of the Fair Market Value of the Common Stock on the date of grant and a longer term is permitted by Section 260.140.41 of Title 10 of the California Code of Regulations at the time of the grant of the Nonstatutory Stock Option. | |
(ii) No Ten Percent Stockholder shall be eligible for the grant of a Nonstatutory Stock Option unless the exercise price of such Option is at least one hundred ten percent (110%) of the Fair Market |
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Value of the Common Stock at the date of grant and the Option is not exercisable after the expiration of five (5) years from the date of grant. | |
(iii) So long as the Company is subject to Section 260.140.42 of Title 10 of the California Code of Regulations, a Ten Percent Stockholder shall not be granted a restricted stock award unless the purchase price of the restricted stock is at least (A) one hundred percent (100%) of the Fair Market Value of the Common Stock on the date of grant or (B) such lower percentage of the Fair Market Value of the Common Stock on the date of grant as is permitted by Section 260.140.42 of Title 10 of the California Code of Regulations at the time of the grant of the restricted stock award. |
(c) Section 162(m) Limitation. Subject to the provisions of Section 10 relating to adjustments upon changes in stock, no employee shall be eligible to be granted Options covering more than one hundred forty two thousand eight hundred fifty seven (142,857) shares of the Common Stock during any calendar year.
(d) Consultants.
(i) A Consultant shall not be eligible for the grant of an Option if, at the time of grant, a Form S-8 Registration Statement under the Securities Act (Form S-8) is not available to register either the offer or the sale of the Companys securities to such Consultant because of the nature of the services that the Consultant is providing to the Company, or because the Consultant is not a natural person, or as otherwise provided by the rules governing the use of Form S-8, unless the Company determines both (i) that such grant (A) shall be registered in another manner under the Securities Act (e.g., on a Form S-3 Registration Statement) or (B) does not require registration under the Securities Act in order to comply with the requirements of the Securities Act, if applicable, and (ii) that such grant complies with the securities laws of all other relevant jurisdictions. | |
(ii) Form S-8 generally is available to consultants and advisors only if (i) they are natural persons; (ii) they provide bona fide services to the issuer, its parents, its majority-owned subsidiaries or majority-owned subsidiaries of the issuers parent; and (iii) the services are not in connection with the offer or sale of securities in a capital-raising transaction, and do not directly or indirectly promote or maintain a market for the issuers securities. |
6. | Option Provisions. |
Each Option shall be in such form and shall contain such terms and conditions as the Board shall deem appropriate. All Options shall be separately designated Incentive Stock Options or Nonstatutory Stock Options at the time of grant, and a separate certificate or certificates will be issued for shares purchased on exercise of each type of Option. The provisions of separate Options need not be identical, but each Option shall include (through incorporation of provisions hereof by reference in the Option or otherwise) the substance of each of the following provisions:
(a) Term. Subject to the provisions of subsection 5(b) regarding Ten Percent Stockholders, no Option shall be exercisable after the expiration of ten (10) years from the date it was granted. | |
(b) Exercise Price of an Incentive Stock Option. Subject to the provisions of subsection 5(b) regarding Ten Percent Stockholders, the exercise price of each Incentive Stock Option shall be not less than one hundred percent (100%) of the Fair Market Value of the stock subject to the Option on the date the Option is granted. Notwithstanding the foregoing, an Incentive Stock Option may be granted with an exercise price lower than that set forth in the preceding sentence if such Option is granted pursuant to an assumption or substitution for another option in a manner satisfying the provisions of Section 424(a) of the Code. | |
(c) Exercise Price of a Nonstatutory Stock Option. Subject to the provisions of subsection 5(b) regarding Ten Percent Stockholders, the exercise price of each Nonstatutory Stock Option shall be not less than eighty-five percent (85%) of the Fair Market Value of the stock subject to the Option on the date the Option is granted. Notwithstanding the foregoing, a Nonstatutory Stock Option may be granted with an exercise price lower than that set forth in the preceding sentence if such Option is granted |
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pursuant to an assumption or substitution for another option in a manner satisfying the provisions of Section 424(a) of the Code. | |
(d) Consideration. The purchase price of stock acquired pursuant to an Option shall be paid, to the extent permitted by applicable statutes and regulations, either (i) in cash at the time the Option is exercised or (ii) at the discretion of the Board at the time of the grant of the Option (or subsequently in the case of a Nonstatutory Stock Option) by delivery to the Company of other Common Stock, according to a deferred payment or other arrangement (which may include, without limiting the generality of the foregoing, the use of other Common Stock) with the Optionholder or in any other form of legal consideration that may be acceptable to the Board; provided, however, that at any time that the Company is incorporated in Delaware, payment of the Common Stocks par value, as defined in the Delaware General Corporation Law, shall not be made by deferred payment. | |
In the case of any deferred payment arrangement, interest shall be compounded at least annually and shall be charged at the minimum rate of interest necessary to avoid the treatment as interest, under any applicable provisions of the Code, of any amounts other than amounts stated to be interest under the deferred payment arrangement or at such higher rate of interest necessary in order to avoid variable award treatment for financial accounting purposes. | |
(e) Transferability of an Incentive Stock Option. An Incentive Stock Option shall not be transferable except by will or by the laws of descent and distribution and shall be exercisable during the lifetime of the Optionholder only by the Optionholder. Notwithstanding the foregoing provisions of this subsection 6(e), the Optionholder may, by delivering written notice to the Company, in a form satisfactory to the Company, designate a third party who, in the event of the death of the Optionholder, shall thereafter be entitled to exercise the Option. | |
(f) Transferability of a Nonstatutory Stock Option. A Nonstatutory Stock Option shall be transferable to the extent provided in the Option Agreement; provided however, to the extent that the Company is subject to Section 260.140.41(d) of Title 10 of the California Code of Regulations at the time of the grant of the Nonstatutory Stock Option, the Nonstatutory Stock Option shall not be transferable except by will or by the laws of descent and distribution and shall be exercisable during the lifetime of the Optionholder only by the Optionholder. If the Nonstatutory Stock Option does not provide for transferability, then the Nonstatutory Stock Option shall not be transferable except by will or by the laws of descent and distribution and shall be exercisable during the lifetime of the Optionholder only by the Optionholder. Notwithstanding the foregoing provisions of this subsection 6(f), the Optionholder may, by delivering written notice to the Company, in a form satisfactory to the Company, designate a third party who, in the event of the death of the Optionholder, shall thereafter be entitled to exercise the Option. | |
(g) Vesting Generally. The total number of shares of Common Stock subject to an Option may, but need not, vest and therefore become exercisable in periodic installments which may, but need not, be equal. The Option may be subject to such other terms and conditions on the time or times when it may be exercised (which may be based on performance or other criteria) as the Board may deem appropriate. The vesting provisions of individual Options may vary. The provisions of this subsection 6(g) are subject to any Option provisions governing the minimum number of shares as to which an Option may be exercised. Notwithstanding the foregoing, to the extent that the Company is subject to the following restrictions on vesting under Section 260.140.41(f) of Title 10 of the California Code of Regulations at the time of the grant of the Option, then an Option granted to an Employee who is not an Officer or Director on the date of grant shall provide for vesting of the total number of shares of Common Stock at a rate of at least twenty percent (20%) per year over five (5) years from the date the Option was granted, subject to reasonable conditions such as continued employment. | |
(h) Termination of Continuous Service. In the event an Optionholders Continuous Service terminates (other than upon the Optionholders death or Disability), the Optionholder may exercise his or her Option (to the extent that the Optionholder was entitled to exercise it as of the date of termination) but only within such period of time ending on the earlier of (i) the date three (3) months |
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following the termination of the Optionholders Continuous Service (or such longer or shorter period specified in the Option Agreement), which period, for so long as the Company is subject to Section 260.140.41(g) of Title 10 of the California Code of Regulations, shall not be less than thirty (30) days unless such termination is for cause), or (ii) the expiration of the term of the Option as set forth in the Option Agreement. If, after termination, the Optionholder does not exercise his or her Option within the time specified in the Option Agreement, the Option shall terminate. | |
(i) Extension of Termination Date. An Optionholders Option Agreement may also provide that if the exercise of the Option following the termination of the Optionholders Continuous Service (other than upon the Optionholders death or Disability) would be prohibited at any time solely because the issuance of shares would violate the registration requirements under the Securities Act, then the Option shall terminate on the earlier of (i) the expiration of the term of the Option set forth in subsection 6(a) or (ii) the expiration of a period of three (3) months after the termination of the Optionholders Continuous Service during which the exercise of the Option would not be in violation of such registration requirements. | |
(j) Disability of Optionholder. In the event an Optionholders Continuous Service terminates as a result of the Optionholders Disability, the Optionholder may exercise his or her Option (to the extent that the Optionholder was entitled to exercise it as of the date of termination), but only within such period of time ending on the earlier of (i) the date twelve (12) months following such termination (or such longer or shorter period specified in the Option Agreement, which period, for so long as the Company is subject to Section 260.140.41(g) of Title 10 of the California Code of Regulations, shall not be less than six (6) months) or (ii) the expiration of the term of the Option as set forth in the Option Agreement. If, after termination, the Optionholder does not exercise his or her Option within the time specified herein, the Option shall terminate. | |
(k) Death of Optionholder. In the event (i) an Optionholders Continuous Service terminates as a result of the Optionholders death or (ii) the Optionholder dies within the period (if any) specified in the Option Agreement after the termination of the Optionholders Continuous Service for a reason other than death, then the Option may be exercised (to the extent the Optionholder was entitled to exercise the Option as of the date of death) by the Optionholders estate, by a person who acquired the right to exercise the Option by bequest or inheritance or by a person designated to exercise the option upon the Optionholders death pursuant to subsection 6(e) or 6(f), but only within the period ending on the earlier of (1) the date twelve (12) months following the date of death (or such longer or shorter period specified in the Option Agreement, which period, for so long as the Company is subject to Section 260.140.41(g) of Title 10 of the California Code of Regulations, shall not be less than six (6) months) or (2) the expiration of the term of such Option as set forth in the Option Agreement. If, after death, the Option is not exercised within the time specified herein, the Option shall terminate. | |
(l) Early Exercise. The Option may, but need not, include a provision whereby the Optionholder may elect at any time before the Optionholders Continuous Service terminates to exercise the Option as to any part or all of the shares subject to the Option prior to the full vesting of the Option. Subject to the Repurchase Limitation of Section 9(h) (for so long as the Company is subject to Sections 260.140.41 and 260.140.42 of Title 10 of the California Code of Regulations), any unvested shares so purchased may be subject to an unvested share repurchase option in favor of the Company or to any other restriction the Board determines to be appropriate. Provided that the Repurchase Limitation in Section 9(h) is not violated,(for so long as the Company is subject to Sections 260.140.41 and 260.140.42 of Title 10 of the California Code of Regulations) the Company will not exercise its repurchase option until at least six (6) months (or such longer or shorter period of time required to avoid a charge to earnings for financial accounting purposes) have elapsed following exercise of the Option unless the Board otherwise specifically provides in the Option. |
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7. | Covenants of the Company. |
(a) Availability of Shares. During the terms of the Options, the Company shall keep available at all times the number of shares of Common Stock required to satisfy such Options.
(b) Securities Law Compliance. The Company shall seek to obtain from each regulatory commission or agency having jurisdiction over the Plan such authority as may be required to grant Options and to issue and sell shares of Common Stock upon exercise of the Options; provided, however, that this undertaking shall not require the Company to register under the Securities Act the Plan, any Option or any stock issued or issuable pursuant to any such Option. If, after reasonable efforts, the Company is unable to obtain from any such regulatory commission or agency the authority which counsel for the Company deems necessary for the lawful issuance and sale of stock under the Plan, the Company shall be relieved from any liability for failure to issue and sell stock upon exercise of such Options unless and until such authority is obtained.
8. | Use of Proceeds from Stock. |
Proceeds from the sale of stock pursuant to Options shall constitute general funds of the Company.
9. | Miscellaneous. |
(a) Acceleration of Exercisability and Vesting. The Board shall have the power to accelerate the time at which an Option may first be exercised or the time during which an Option or any part thereof will vest in accordance with the Plan, notwithstanding the provisions in the Option stating the time at which it may first be exercised or the time during which it will vest.
(b) Stockholder Rights. No Optionholder shall be deemed to be the holder of, or to have any of the rights of a holder with respect to, any shares subject to such Option unless and until such Optionholder has satisfied all requirements for exercise of the Option pursuant to its terms.
(c) No Employment or other Service Rights. Nothing in the Plan or any instrument executed or Option granted pursuant thereto shall confer upon any Optionholder or other holder of Options any right to continue to serve the Company or an Affiliate in the capacity in effect at the time the Option was granted or shall affect the right of the Company or an Affiliate to terminate (i) the employment of an Employee with or without notice and with or without cause, (ii) the service of a Consultant pursuant to the terms of such Consultants agreement with the Company or an Affiliate or (iii) the service of a Director pursuant to the Bylaws of the Company or an Affiliate, and any applicable provisions of the corporate law of the state in which the Company or the Affiliate is incorporated, as the case may be.
(d) Incentive Stock Option $100,000 Limitation. To the extent that the aggregate Fair Market Value (determined at the time of grant) of stock with respect to which Incentive Stock Options are exercisable for the first time by any Optionholder during any calendar year (under all plans of the Company and its Affiliates) exceeds one hundred thousand dollars ($100,000), the Options or portions thereof which exceed such limit (according to the order in which they were granted) shall be treated as Nonstatutory Stock Options.
(e) Investment Assurances. The Company may require an Optionholder, as a condition of exercising or acquiring stock under any Option, (i) to give written assurances satisfactory to the Company as to the Optionholders knowledge and experience in financial and business matters and/or to employ a purchaser representative reasonably satisfactory to the Company who is knowledgeable and experienced in financial and business matters and that he or she is capable of evaluating, alone or together with the purchaser representative, the merits and risks of exercising the Option; and (ii) to give written assurances satisfactory to the Company stating that the Optionholder is acquiring the stock subject to the Option for the Optionholders own account and not with any present intention of selling or otherwise distributing the stock. The foregoing requirements, and any assurances given pursuant to such requirements, shall be inoperative if (iii) the issuance of the shares upon the exercise or acquisition of stock under the Option has been registered under a then currently effective registration statement under the Securities Act or (iv) as to any particular requirement, a determination is made by counsel for the Company that such requirement need not be met in the circumstances under the then applicable securities laws. The Company may, upon advice of counsel to the
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(f) Withholding Obligations. To the extent provided by the terms of an Option Agreement, the Optionholder may satisfy any federal, state or local tax withholding obligation relating to the exercise or acquisition of stock under an Option by any of the following means (in addition to the Companys right to withhold from any compensation paid to the Optionholder by the Company) or by a combination of such means: (i) tendering a cash payment; (ii) authorizing the Company to withhold shares from the shares of the Common Stock otherwise issuable to the Optionholder as a result of the exercise or acquisition of stock under the Option; or (iii) delivering to the Company owned and unencumbered shares of the Common Stock.
(g) Information Obligation. To the extent required by Section 260.140.46 of Title 10 of the California Code of Regulations, the Company shall deliver financial statements to Participants at least annually. This Section 9(g) shall not apply to key Employees whose duties in connection with the Company assure them access to equivalent information.
(h) Repurchase Limitation. The terms of any repurchase option shall be specified in the Stock Award, and the repurchase price may be either the Fair Market Value of the shares of Common Stock on the date of termination of Continuous Service or the lower of (i) the Fair Market Value of the shares of Common Stock on the date of repurchase or (ii) their original purchase price. To the extent required by Section 260.140.41 and Section 260.140.42 of Title 10 of the California Code of Regulations at the time a Stock Award is made, any repurchase option contained in a Stock Award granted to a person who is not an Officer, Director or Consultant shall be upon the terms described below:
(i) Fair Market Value. If the repurchase option gives the Company the right to repurchase the shares of Common Stock upon termination of Continuous Service at not less than the Fair Market Value of the shares of Common Stock to be purchased on the date of termination of Continuous Service, then (i) the right to repurchase shall be exercised for cash or cancellation of purchase money indebtedness for the shares of Common Stock within ninety (90) days of termination of Continuous Service (or in the case of shares of Common Stock issued upon exercise of Stock Awards after such date of termination, within ninety (90) days after the date of the exercise) or such longer period as may be agreed to by the Company and the Participant (for example, for purposes of satisfying the requirements of Section 1202(c)(3) of the Code regarding qualified small business stock) and (ii) the right terminates when the shares of Common Stock become publicly traded. | |
(ii) Original Purchase Price. If the repurchase option gives the Company the right to repurchase the shares of Common Stock upon termination of Continuous Service at the lower of (i) the Fair Market Value of the shares of Common Stock on the date of repurchase or (ii) their original purchase price, then (x) the right to repurchase at the original purchase price shall lapse at the rate of at least twenty percent (20%) of the shares of Common Stock per year over five (5) years from the date the Stock Award is granted (without respect to the date the Stock Award was exercised or became exercisable) and (y) the right to repurchase shall be exercised for cash or cancellation of purchase money indebtedness for the shares of Common Stock within ninety (90) days of termination of Continuous Service (or in the case of shares of Common Stock issued upon exercise of Options after such date of termination, within ninety (90) days after the date of the exercise) or such longer period as may be agreed to by the Company and the Participant (for example, for purposes of satisfying the requirements of Section 1202(c)(3) of the Code regarding qualified small business stock). |
10. | Adjustments upon Changes in Stock. |
(a) Capitalization Adjustments. If any change is made in the stock subject to the Plan, or subject to any Option, without the receipt of consideration by the Company (through merger, consolidation, reorganization, recapitalization, reincorporation, stock dividend, dividend in property other than cash, stock split, liquidating dividend, combination of shares, exchange of shares, change in corporate structure or other transaction not involving the receipt of consideration by the Company), the Plan will be appropriately adjusted
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(b) Dissolution or Liquidation. In the event of a dissolution or liquidation of the Company, then such Options shall be terminated if not exercised (if applicable) prior to such event.
(c) Asset Sale, Merger, Consolidation or Reverse Merger. In the event of (1) a sale of substantially all of the assets of the Company, (2) a merger or consolidation in which the Company is not the surviving corporation or (3) a reverse merger in which the Company is the surviving corporation but the shares of Common Stock outstanding immediately preceding the merger are converted by virtue of the merger into other property, whether in the form of securities, cash or otherwise, then any surviving corporation or acquiring corporation shall assume any Options outstanding under the Plan or shall substitute similar Options (including an award to acquire the same consideration paid to the stockholders in the transaction described in this subsection) for those outstanding under the Plan. In the event any surviving corporation or acquiring corporation refuses to assume such Options or to substitute similar Options for those outstanding under the Plan, then with respect to Options held by Optionholders whose Continuous Service has not terminated, the vesting shall be accelerated in full, and the Options shall terminate if not exercised at or prior to such event. With respect to any other Options outstanding under the Plan, such Options shall terminate if not exercised prior to such event.
11. | Amendment of the Plan and Options. |
(a) Amendment of Plan. The Board at any time, and from time to time, may amend the Plan. However, except as provided in Section 10 relating to adjustments upon changes in stock, no amendment shall be effective unless approved by the stockholders of the Company to the extent stockholder approval is necessary to satisfy the requirements of Section 422 of the Code, Rule 16b-3 or any Nasdaq or securities exchange listing requirements.
(b) Stockholder Approval. The Board may, in its sole discretion, submit any other amendment to the Plan for stockholder approval, including, but not limited to, amendments to the Plan intended to satisfy the requirements of Section 162(m) of the Code and the regulations thereunder regarding the exclusion of performance-based compensation from the limit on corporate deductibility of compensation paid to certain executive officers.
(c) Contemplated Amendments. It is expressly contemplated that the Board may amend the Plan in any respect the Board deems necessary or advisable to provide eligible Employees with the maximum benefits provided or to be provided under the provisions of the Code and the regulations promulgated thereunder relating to Incentive Stock Options and/or to bring the Plan and/or Incentive Stock Options granted under it into compliance therewith.
(d) No Impairment of Rights. Rights under any Option granted before amendment of the Plan shall not be impaired by any amendment of the Plan unless (i) the Company requests the consent of the Optionholder and (ii) the Optionholder consents in writing.
(e) Amendment of Options. The Board at any time, and from time to time, may amend the terms of any one or more Options; provided, however, that the rights under any Option shall not be impaired by any such amendment unless (i) the Company requests the consent of the Optionholder and (ii) the Optionholder consents in writing.
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12. | Termination or Suspension of the Plan. |
(a) Plan Term. The Board may suspend or terminate the Plan at any time. Unless sooner terminated, the Plan shall terminate on March 11, 2006. No Options may be granted under the Plan while the Plan is suspended or after it is terminated.
(b) No Impairment of Rights. Rights and obligations under any Option granted while the Plan is in effect shall not be impaired by suspension or termination of the Plan, except with the written consent of the Optionholder.
13. | Effective Date of Plan. |
The Plan shall become effective as determined by the Board, but no Option shall be exercised unless and until the Plan has been approved by the stockholders of the Company, which approval shall be within twelve (12) months before or after the date the Plan is adopted by the Board.
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LYNX THERAPEUTICS, INC.
CHARTER OF THE AUDIT COMMITTEE
I. | Purpose |
The purpose of the Audit Committee (the Committee) of the Board of Directors (the Board) of LYNX THERAPEUTICS, INC., a Delaware corporation (the Company), shall be to act on behalf of the Board in fulfilling the Boards oversight responsibilities with respect to (1) the Companys corporate accounting and financial reporting processes; (2) the Companys systems of internal accounting and financial controls and audits of financial statements; (3) the quality and integrity of the Companys financial statements and reports; and (4) the qualifications, independence and performance of the firm or firms of certified public accountants engaged as the Companys independent outside auditors for the purpose of preparing or issuing an audit report or performing other audit, review or attest services (the Auditors).
The policy of the Committee, in discharging these obligations, shall be to maintain and foster an open avenue of communication between the Committee, the Auditors and the Companys financial management.
II. | Composition |
The Committee shall consist of at least three (3) members of the Board. No Committee member shall be an employee of the Company and each member shall be free from any relationship that would interfere with the exercise of his or her independent judgment, as determined by the Board, in accordance with the applicable independence requirements of The Nasdaq Stock Market, Inc. (Nasdaq) and the rules and regulations of the Securities and Exchange Commission (SEC), including any exceptions permitted by such requirements. Each member shall meet such other qualifications for membership on an audit committee as Nasdaq may promulgate from time to time, including being able to read and understand fundamental financial statements at the time of appointment. At least one member shall satisfy any applicable Nasdaq and SEC financial experience requirements as in effect from time to time. The members of the Committee and the Committees Chairperson shall be appointed by and serve at the discretion of the Board. Vacancies occurring on the Committee shall be filled by the Board.
III. | Meetings and Minutes |
The Committee shall hold at least four (4) regular meetings per year and additional meetings as its members shall deem necessary or appropriate. Minutes of each meeting of the Committee shall be prepared and distributed to each director of the Company and the Secretary of the Company promptly after each meeting.
IV. | Member Compensation |
No Audit Committee member shall receive or accept, directly or indirectly, any consulting, advisory or other compensatory fees from the Company, except for the members fees for services as a director and member of the Audit Committee and any other committees of the Board, as may be fixed from time to time by the Board.
V. | Authority |
The Committee shall have authority to appoint, determine compensation for, at the expense of the Company, retain and oversee the Auditors as set forth in Section 10A(m)(2) of the Securities Exchange Act of 1934, as amended, and the rules thereunder and otherwise to fulfill its responsibilities under this charter.
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VI. | Responsibilities |
The operation of the Committee shall be subject to the Bylaws of the Company and Delaware General Corporation Law, each as in effect from time to time. The Committee shall oversee the Companys financial reporting process on behalf of the Board, shall have direct responsibility for the appointment, compensation, retention and oversight of the work of the Auditors, who shall report directly and be accountable to the Committee. The Committees functions and procedures should remain flexible to address changing circumstances most effectively. To implement the Committees purpose and policy, the Committee shall be charged with the following functions and processes with the understanding, however, that the Committee may supplement or (except as otherwise required by applicable laws or rules) deviate from these activities as appropriate under the circumstances:
1. Evaluation and Retention of Auditors. To evaluate the performance of the Auditors, to assess their qualifications and to determine whether to retain or to terminate the existing Auditors or to appoint and engage new auditors for the ensuing year. | |
2. Approval of Audit Engagements. To determine and approve engagements of the Auditors, prior to commencement of such engagements, to perform all proposed audit, review and attest services, including the scope of and plans for the audit, the adequacy of staffing, the compensation to be paid, at the Companys expense, to the Auditors and the negotiation and execution, on behalf of the Company, of the Auditors engagement letters, which approval may be pursuant to preapproval policies and procedures established by the Committee consistent with applicable laws and rules, including the delegation of preapproval authority to one or more Committee members so long as any such preapproval decisions are presented to the full Committee at the next scheduled meeting. | |
3. Approval of Non-Audit Services. To determine and approve engagements of the Auditors, prior to commencement of such engagements (unless in compliance with exceptions available under applicable laws and rules related to immaterial aggregate amounts of services), to perform any proposed permissible non-audit services, including the scope of the service and the compensation to be paid therefor, which approval may be pursuant to preapproval policies and procedures established by the Committee consistent with applicable laws and rules, including the delegation of preapproval authority to one or more Committee members so long as any such preapproval decisions are presented to the full Committee at the next scheduled meeting. | |
4. Audit Partner Rotation. To monitor the rotation of the partners of the Auditors on the Companys audit engagement team as required by applicable laws and rules and to consider periodically and, if deemed appropriate, adopt a policy regarding rotation of auditing firms. | |
5. Auditor Conflicts. At least annually, to receive and review written statements from the Auditors delineating all relationships between the Auditors and the Company, consistent with Independence Standards Board Standard No. 1, or any successor standard, to consider and discuss with the Auditors any disclosed relationships and any compensation or services that could affect the Auditors objectivity |
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and independence, and to assess and otherwise take appropriate action to oversee the independence of the Auditors. | |
6. Former Employees of Auditor. To consider and, if deemed appropriate, adopt a policy regarding Committee preapproval of employment by the Company of individuals employed or formerly employed by the Auditors and engaged on the Companys account. | |
7. Audited Financial Statement Review. To review, upon completion of the audit, the financial statements proposed to be included in the Companys Annual Report on Form 10-K to be filed with the Securities and Exchange Commission and to recommend whether or not such financial statements should be so included. | |
8. Annual Audit Results. To discuss with management and the Auditors the results of the annual audit, including the Auditors assessment of the quality, not just acceptability, of accounting principles, the reasonableness of significant judgments and estimates (including material changes in estimates), any material audit adjustments proposed by the Auditors and any adjustments proposed but not recorded, the adequacy of the disclosures in the financial statements and any other matters required to be communicated to the Committee by the Auditors under generally accepted auditing standards or other promulgated standards. | |
9. Quarterly Results. To review and discuss with management and the Auditors the results of the Auditors review of the Companys quarterly financial statements, prior to public disclosure of quarterly financial information, if practicable, or filing with the Securities and Exchange Commission of the Companys Quarterly Report on Form 10-Q, and any other matters required to be communicated to the Committee by the Auditors under generally accepted auditing standards or other promulgated standards. | |
10. Managements Discussion and Analysis. To review and discuss with management and the Auditors, as appropriate, the Companys disclosures contained under the caption Managements Discussion and Analysis of Financial Condition and Results of Operations in its periodic reports to be filed with the Securities and Exchange Commission. | |
11. Press Releases. To review and discuss with management and the Auditors, as appropriate, earnings press releases, as well as the substance of financial information and earnings guidance provided to analysts and ratings agencies, which discussions may be general discussions of the type of information to be disclosed or the type of presentation to be made. The Chair of the Committee may represent the entire Committee for purposes of this discussion. | |
12. Accounting Principles and Policies. To review and discuss with management and the Auditors, as appropriate, significant issues that arise regarding accounting principles and financial statement presentation, including critical accounting policies and practices, alternative accounting policies available under Generally Accepted Accounting Principles (GAAP) related to material items discussed with management, any off-balance sheet structures, and any other significant reporting issues and judgments. | |
13. Risk Assessment and Management. To review and discuss with management and the Auditors, as appropriate, the Companys guidelines and policies with respect to risk assessment and risk management, including the Companys major financial risk exposures and the steps taken by management to monitor and control these exposures. | |
14. Management Cooperation with Audit. To evaluate the cooperation received by the Auditors during their audit examination, including a review with the Auditors of any significant difficulties with the audit or any restrictions on the scope of their activities or access to required records, data and information, significant disagreements with management and managements response, if any. | |
15. Management Letters. To review and discuss with the Auditors and, if appropriate, management, any management or internal control letter issued or, to the extent practicable, proposed to be issued by the Auditors and managements response, if any, to such letter, as well as any additional material written communications between the Auditors and management. |
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16. Disagreements Between Auditors and Management. To review and discuss with management and the Auditors any material conflicts or disagreements between management and the Auditors regarding financial reporting, accounting practices or policies and to resolve any conflicts or disagreements regarding financial reporting. | |
17. Internal Controls Over Financial Reporting. To confer with management and the Auditors regarding the scope, adequacy and effectiveness of internal controls over financial reporting, including any special audit steps taken in the event of material control deficiencies. | |
18. Separate Sessions. Periodically, to meet in separate sessions with the Auditors, and management to discuss any matters that the Committee, the Auditors or management believe should be discussed privately with the Committee. | |
19. Correspondence with Regulators. To consider and review with management, the Auditors, outside counsel, as appropriate, and, in the judgment of the Committee, such special counsel, separate accounting firm and other consultants and advisors as the Committee deems appropriate, any significant regulatory or other legal or accounting matters that could have a material impact on the Companys financial statements, any correspondence with regulators or governmental agencies and any published reports that raise material issues regarding the Companys financial statements or accounting policies. | |
20. Complaint Procedures. To establish procedures, when and as required by applicable laws and rules, for the receipt, retention and treatment of complaints received by the Company regarding accounting, internal accounting controls or auditing matters and the confidential and anonymous submission by employees of concerns regarding questionable accounting or auditing matters. | |
21. Regulatory and Accounting Initiatives. To review with counsel, the Auditors and management, as appropriate, any significant regulatory or other legal or accounting initiatives or matters that may have a material impact on the Companys financial statements, compliance programs and policies if, in the judgment of the Committee, such review is necessary or appropriate. | |
22. Ethical Compliance. To review the results of managements efforts to monitor compliance with the Companys programs and policies designed to ensure adherence to applicable laws and rules, as well as to its code of ethical conduct, including review and approval of related-party transactions as required by Nasdaq rules. | |
23. Investigations. To investigate any matter brought to the attention of the Committee within the scope of its duties if, in the judgment of the Committee, such investigation is necessary or appropriate. | |
24. Proxy Report. To prepare the report required by the rules of the Securities and Exchange Commission to be included in the Companys annual proxy statement. | |
25. Annual Charter Review. To review and assess the adequacy of this charter annually and recommend any proposed changes to the Board for approval and have the charter published at least every three years in accordance with Securities and Exchange Commission regulations. | |
26. Report to Board. To report to the Board with respect to material issues that arise regarding the quality or integrity of the Companys financial statements, the Companys compliance with legal or regulatory requirements, the performance or independence of the Companys Auditors, or such other matters as the Committee deems appropriate from time to time or whenever it shall be called upon to do so. | |
27. Annual Committee Evaluation. To conduct an annual evaluation of the performance of the Committee. | |
28. General Authority. To perform such other functions and to have such powers as may be necessary or appropriate in the efficient and lawful discharge of the foregoing. |
The Auditors shall be ultimately accountable to the Committee, as representatives of the Companys stockholders. It shall be the responsibility of management to prepare the Companys financial statements and
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EXTRACT FROM THE COMPANIES ACT 1985 OF ENGLAND AND WALES, AS AMENDED
428 Takeover offers
(1) In this Part of this Act a takeover offer means an offer to acquire all the shares, or all the shares of any class or classes, in a company (other than shares which at the date of the offer are already held by the offeror), being an offer on terms which are the same in relation to all the shares to which the offer relates or, where those shares include shares of different classes, in relation to all the shares of each class.
(2) In subsection (1) shares means shares (other than relevant treasury shares) which have been allotted on the date of the offer, but a takeover offer may include among the shares to which it relates
(a) all or any shares that are allotted after the date of the offer but before a specified date; | |
(b) all or any relevant treasury shares that cease to be held as treasury shares before a specified date; | |
(c) all or any other relevant treasury shares. |
(2A) In this section
relevant treasury shares means shares which |
(a) are held by the company as treasury shares on the date of the offer; or | |
(b) become shares held by the company as treasury shares after that date but before a specified date; |
specified date means a date specified in or determined in accordance with the terms of the offer. |
(3) The terms offered in relation to any shares shall for the purposes of this section be treated as being the same in relation to all the shares or, as the case may be, all the shares of a class to which the offer relates notwithstanding any variation permitted by subsection (4).
(4) A variation is permitted by this subsection where
(a) the law of a country or territory outside the United Kingdom precludes an offer of consideration in the form or any of the forms specified in the terms in question or precludes it except after compliance by the offeror with conditions with which he is unable to comply or which he regards as unduly onerous; and | |
(b) the variation is such that the persons to whom an offer of consideration in that form is precluded are able to receive consideration otherwise than in that form but of substantially equivalent value. |
(5) The reference in subsection (1) to shares already held by the offeror includes a reference to shares which he has contracted to acquire but that shall not be construed as including shares which are the subject of a contract binding the holder to accept the offer when it is made, being a contract entered into by the holder either for no consideration and under seal or for no consideration other than a promise by the offeror to make the offer.
(6) In the application of subsection (5) to Scotland, the words and under seal shall be omitted.
(7) Where the terms of an offer make provision for their revision and for acceptances on the previous terms to be treated as acceptances on the revised terms, the revision shall not be regarded for the purposes of this Part of this Act as the making of a fresh offer and references in this Part of this Act to the date of the offer shall accordingly be construed as references to the date on which the original offer was made.
(8) In this Part of this Act the offeror means, subject to section 430D, the person making a takeover offer and the company means the company whose shares are the subject of the offer.
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429 Right of offeror to buy out minority shareholders
(1) If, in a case in which a takeover offer does not relate to shares of different classes, the offeror has by virtue of acceptances of the offer acquired or contracted to acquire not less than nine-tenths in value of the shares to which the offer relates he may give notice to the holder of any shares to which the offer relates which the offeror has not acquired or contracted to acquire that he desires to acquire those shares.
(2) If, in a case in which a takeover offer relates to shares of different classes, the offeror has by virtue of acceptances of the offer acquired or contracted to acquire not less than nine-tenths in value of the shares of any class to which the offer relates he may give notice to the holder of any shares of that class which the offeror has not acquired or contracted to acquire that he desires to acquire those shares.
(3) No notice shall be given under subsection (1) or (2) unless the offeror has acquired or contracted to acquire the shares necessary to satisfy the minimum specified in that subsection before the end of the period of four months beginning with the date of the offer; and no such notice shall be given after the end of the period of two months beginning with the date on which he has acquired or contracted to acquire shares which satisfy that minimum.
(4) Any notice under this section shall be given in the prescribed manner; and when the offeror gives the first notice in relation to an offer he shall send a copy of it to the company together with a statutory declaration by him in the prescribed form stating that the conditions for the giving of the notice are satisfied.
(5) Where the offeror is a company (whether or not a company within the meaning of this Act) the statutory declaration shall be signed by a director.
(6) Any person who fails to send a copy of a notice or a statutory declaration as required by subsection (4) or makes such a declaration for the purposes of that subsection knowing it to be false or without having reasonable grounds for believing it to be true shall be liable to imprisonment or a fine, or both, and for continued failure to send the copy or declaration, to a daily default fine.
(7) If any person is charged with an offence for failing to send a copy of a notice as required by subsection (4) it is a defence for him to prove that he took reasonable steps for securing compliance with that subsection.
(8) Where during the period within which a takeover offer can be accepted the offeror acquires or contracts to acquire any of the shares to which the offer relates but otherwise than by virtue of acceptances of the offer, then, if
(a) the value of the consideration for which they are acquired or contracted to be acquired (the acquisition consideration) does not at that time exceed the value of the consideration specified in the terms of the offer; or | |
(b) those terms are subsequently revised so that when the revision is announced the value of the acquisition consideration, at the time mentioned in paragraph (a) above, no longer exceeds the value of the consideration specified in those terms, |
the offeror shall be treated for the purposes of this section as having acquired or contracted to acquire those shares by virtue of acceptances of the offer; but in any other case those shares shall be treated as excluded from those to which the offer relates.
430 Effect of notice under section 429
(1) The following provisions shall, subject to section 430C, have effect where a notice is given in respect of any shares under section 429.
(2) The offeror shall be entitled and bound to acquire those shares on the terms of the offer.
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(3) Where the terms of an offer are such as to give the holder of any shares a choice of consideration the notice shall give particulars of the choice and state
(a) that the holder of the shares may within six weeks from the date of the notice indicate his choice by a written communication sent to the offeror at an address specified in the notice; and | |
(b) which consideration specified in the offer is to be taken as applying in default of his indicating a choice as aforesaid; |
and the terms of the offer mentioned in subsection (2) shall be determined accordingly.
(4) Subsection (3) applies whether or not any time-limit or other conditions applicable to the choice under the terms of the offer can still be complied with; and if the consideration chosen by the holder of the shares
(a) is not cash and the offeror is no longer able to provide it; | |
(b) was to have been provided by a third party who is no longer bound or able to provide it, |
the consideration shall be taken to consist of an amount of cash payable by the offeror which at the date of the notice is equivalent to the chosen consideration.
(5) At the end of six weeks from the date of the notice the offeror shall forthwith
(a) send a copy of the notice to the company; and | |
(b) pay or transfer to the company the consideration for the shares to which the notice relates. |
(6) If the shares to which the notice relates are registered the copy of the notice sent to the company under subsection (5)(a) shall be accompanied by an instrument of transfer executed on behalf of the shareholder by a person appointed by the offeror; and on receipt of that instrument the company shall register the offeror as the holder of those shares.
(7) If the shares to which the notice relates are transferable by the delivery of warrants or other instruments the copy of the notice sent to the company under subsection (5)(a) shall be accompanied by a statement to that effect; and the company shall on receipt of the statement issue the offeror with warrants or other instruments in respect of the shares and those already in issue in receipt of the shares shall become void.
(8) Where the consideration referred to in paragraph (b) of subsection (5) consists of shares or securities to be allotted by the offeror the reference in that paragraph to the transfer of the consideration shall be construed as a reference to the allotment of the shares or securities to the company.
(9) Any sum received by a company under paragraph (b) of subsection (5) and any other consideration received under that paragraph shall be held by the company on trust for the person entitled to the shares in respect of which the sum or other consideration was received.
(10) Any sum received by a company under paragraph (e) of subsection (5), and any dividend or other sum accruing from any other consideration received by a company under that paragraph, shall be paid into a separate bank account, being an account the balance on which bears interest at an appropriate rate and can be withdrawn by such notice (if any) as is appropriate.
(11) Where after reasonable enquiry made at such intervals as are reasonable the person entitled to any consideration held on trust by virtue of subsection (9) cannot be found and twelve years have elapsed since the consideration was received or the company is wound up the consideration (together with any interest, dividend or other benefit that has accrued from it) shall be paid into court.
(12) In relation to a company registered in Scotland, subsections (13) and (14) shall apply in place of subsection (11).
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(13) Where after reasonable enquiry made at such intervals as are reasonable the person entitled to any consideration held on trust by virtue of subsection (9) cannot be found and twelve years have elapsed since the consideration was received or the company is wound up
(a) the trust shall terminate; | |
(b) the company or, as the case may be, the liquidator shall sell any consideration other than cash and any benefit other than cash that has accrued from the consideration; and | |
(c) a sum representing |
(i) the consideration so far as it is cash; | |
(ii) the proceeds of any sale under paragraph (b) above; and | |
(iii) any interest, dividend or other benefit that has accrued from the consideration, |
shall be deposited in the name of the Accountant of Court in a bank account such as is referred to in subsection (10) and the receipt for the deposit shall be transmitted to the Account of Court. |
(14) Section 58 of the Bankruptcy (Scotland) Act 1985 (so far as consistent with this Act) shall apply with any necessary modifications to sums deposited under subsection (13) as that section applies to sums deposited under section 57(1)(a) of that Act.
(15) The expenses of any such enquiry as is mentioned in subsection (11) or (13) may be defrayed out of the money or other property held on trust for the person or persons to whom the enquiry relates.
430A Right of minority shareholder to be bought out by offeror
(1) If a takeover offer relates to all the shares in a company and at any time before the end of the period within which the offer can be accepted
(a) the offeror has by virtue of acceptances of the offer acquired or contracted to acquire some (but not all) of the shares to which the offer relates; and | |
(b) those shares, with or without any other shares in the company which he has acquired or contracted to acquire, amount to not less than nine-tenths in value of all the shares in the company, |
the holder of any shares to which the offer relates who has not accepted the offer may by a written communication addressed to the offeror require him to acquire those shares.
(1A) For the purposes of subsection (1), a takeover offer relates to all the shares in a company if it is an offer to acquire all the shares in the company within the meaning of section 428.
(2) If a takeover offer relates to shares of any class or classes and at any time before the end of the period within which the offer can be accepted
(a) the offeror has by virtue of acceptances of the offer required or contracted to acquire some (but not all) of the shares of any class to which the offer relates; and | |
(b) those shares, with or without any other shares of that class which he has acquired or contracted to acquire, amount to not less than nine-tenths in value of all the shares of that class, |
the holder of any shares of that class who has not accepted the offer may by a written communication addressed to the offeror require him to acquire those shares.
(2A) For the purposes of subsections (1) and (2), in calculating nine-tenths of the value of all the shares in the company, or all the shares of any class or classes of shares of the company, any shares held by the company as treasury shares shall be treated as having been acquired by the offeror.
(3) Within one month of the time specified in subsection (1) or, as the case may be, subsection (2) the offeror shall give any shareholder who has not accepted the offer notice in the prescribed manner of the rights
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(4) A notice under subsection (3) may specify a period for the exercise of the rights conferred by this section and in that event the rights shall not be exercisable after the end of that period; but no such period shall end less than three months after the end of the period within which the offer can be accepted.
(5) Subsection (3) does not apply if the offeror has given the shareholder a notice in respect of the shares in question under section 429.
(6) If the offeror fails to comply with subsection (3) he and, if the offeror is a company, every officer of the company who is in default or to whose neglect the failure is attributable, shall be liable to a fine and, for continued contravention, to a daily default fine.
(7) If an offeror other than a company is charged with an offence for failing to comply with subsection (3) it is a defence for him to prove that he took all reasonable steps for securing compliance with that subsection.
430B Effect of requirement under section 430A
(1) The following provisions shall, subject to section 430C, have effect where a shareholder exercises his rights in respect of any shares under section 430A.
(2) The offeror shall be entitled and bound to acquire those shares on the terms of the offer or on such other terms as may be agreed.
(3) Where the terms of an offer are such as to give the holder of shares a choice of consideration the holder of the shares may indicate his choice when requiring the offeror to acquire them and the notice given to the holder under section 430A(3)
(a) shall give particulars of the choice and of the rights conferred by this subsection; and | |
(b) may state which consideration specified in the offer is to be taken as applying in default of his indicating a choice; |
and the terms of the offer mentioned in subsection (2) shall be determined accordingly.
(4) Subsection (3) applies whether or not any time-limit or other conditions applicable to the choice under the terms of the offer can still be complied with; and if the consideration chosen by the holder of the shares
(a) is not cash and the offeror is no longer able to provide it; or | |
(b) was to have been provided by a third party who is no longer bound or able to provide it, |
the consideration shall be taken to consist of an amount of cash payable by the offeror which at the date when the holder of the shares requires the offeror to acquire them is equivalent to the chosen consideration.
430C Applications to the court
(1) Where a notice is given under section 429 to the holder of any shares the court may, on an application made by him within six weeks from the date on which the notice was given
(a) order that the offeror shall not be entitled and bound to acquire the shares; or | |
(b) specify terms of acquisition different from those of the offer. |
(2) If an application to the court under subsection (1) is pending at the end of the period mentioned in subsection (5) of section 430 that subsection shall not have effect until the application has been disposed of.
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(3) Where the holder of any shares exercises his rights under section 430A the court may, on an application made by him or the offeror, order that the terms on which the offeror is entitled and bound to acquire the shares shall be such as the court thinks fit.
(4) No order for costs or expenses shall be made against a shareholder making an application under subsection (1) or (3) unless the court considers
(a) that the application was unnecessary, improper or vexatious; or | |
(b) that there has been unreasonable delay in making the application or unreasonable conduct on his part in conducting the proceedings on the application. |
(5) Where a takeover offer has not been accepted to the extent necessary for entitling the offeror to give notices under subsection (1) or (2) of section 429 the court may, on the application of the offeror, make an order authorising him to give notices under that subsection if satisfied
(a) that the offeror has after reasonable enquiry been unable to trace one or more of the persons holding shares to which the offer relates; | |
(b) that the shares which the offeror has acquired or contracted to acquire by virtue of acceptances of the offer, together with the shares held by the person or persons mentioned in paragraph (a), amount to not less than the minimum specified in that subsection; and | |
(c) that the consideration offered is fair and reasonable; |
but the court shall not make an order under this subsection unless it considers that it is just and equitable to do so having regard, in particular, to the number of shareholders who have been traced but who have not accepted the offer.
430D Joint offers
(1) A takeover offer may be made by two or more persons jointly and in that event this Part of this Act has effect with the following modifications.
(2) The conditions for the exercise of the rights conferred by sections 429 and 430A shall be satisfied by the joint offerors acquiring or contracting to acquire the necessary shares jointly (as respects acquisitions by virtue of acceptances of the offer) and either jointly or separately (in other cases); and, subject to the following provisions, the rights and obligations of the offeror under those sections and sections 430 and 430B shall be respectively joint rights and joint and several obligations of the joint offerors.
(3) It shall be a sufficient compliance with any provision of those sections requiring or authorising a notice or other document to be given or sent by or to the joint offerors that it is given or sent by or to any of them; but the statutory declaration required by section 429(4) shall be made by all of them and, in the case of a joint offeror being a company, signed by a director of that company.
(4) in sections 428, 430(8) and 430E references to the offeror shall be construed as references to the joint offerors or any of them.
(5) In section 430(6) and (7) references to the offeror shall be construed as references to the joint offerors or such of them as they may determine.
(6) In sections 430(4)(a) and 430B(4)(a) references to the offeror being no longer able to provide the relevant consideration shall be construed as references to none of the joint offerors being able to do so.
(7) In section 430C references to the offeror shall be construed as references to the joint offerors except that any application under subsection (3) or (5) may be made by any of them and the reference in subsection (5)(a) to the offeror having been unable to trace one or more of the persons holding shares shall be construed as a reference to none of the offerors having been able to do so.
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430E Associates
(1) The requirement in section 428(1) that a takeover offer must extend to all the shares, or all the shares of any class or classes, in a company shall be regarded as satisfied notwithstanding that the offer does not extend to shares which associates of the offeror hold or have contracted to acquire; but, subject to subsection (2), shares which any such associate holds or has contracted to acquire, whether at the time when the offer is made or subsequently, shall be disregarded for the purposes of any reference in this Part of this Act to the shares to which a takeover offer relates.
(2) Where during the period within which a takeover offer can be accepted any associate of the offeror acquires or contracts to acquire any of the shares to which the offer relates, then, if the condition specified in subsection (8)(a) or (b) of section 429 is satisfied as respects those shares they shall be treated for the purposes of that section as shares to which the offer relates.
(3) In section 430A(1)(b) and (2)(b) the reference to shares which the offeror has acquired or contracted to acquire shall include a reference to shares which any associate of his has acquired or contracted to acquire.
(4) In this section associate, in relation to an offeror means
(a) a nominee of the offeror | |
(b) a holding company, subsidiary or fellow subsidiary of the offeror or a nominee of such a holding company, subsidiary or fellow subsidiary; | |
(c) a body corporate in which the offeror is substantially interested; or | |
(d) any person who is, or is a nominee of, a party to an agreement with the offeror for the acquisition of, or of an interest in, the shares which are the subject of the takeover offer, being an agreement which includes provisions imposing obligations or restrictions such as are mentioned in section 204(2)(a). |
(5) For the purposes of subsection (4)(b) a company is a fellow subsidiary of another body corporate if both are subsidiaries of the same body corporate but neither is a subsidiary of the other.
(6) For the purposes of subsection (4)(c) an offeror has a substantial interest in a body corporate if
(a) that body or its directors are accustomed to act in accordance with his directions or instructions; or | |
(b) he is entitled to exercise or control the exercise of one-third or more of the voting power at general meetings of that body. |
(7) Subsections (5) and (6) of section 204 shall apply to subsection (4)(d) above as they apply to that section and subsections (3) and (4) of section 203 shall apply for the purposes of subsection (6) above as they apply for the purposes of subsection (2)(b) of that section.
(8) Where the offeror is an individual his associates shall also include his spouse and any minor child or step-child of his.
430F Convertible securities
(1) For the purposes of this Part of this Act securities of a company shall be treated as shares in the company if they are convertible into or entitle the holder to subscribe for such shares; and references to the holder of shares or a shareholder shall be construed accordingly.
(2) Subsection (1) shall not be construed as requiring any securities to be treated
(a) as shares of the same class as those into which they are convertible or for which the holder is entitled to subscribe; or | |
(b) as shares of the same class as other securities by reason only that the shares into which they are convertible or for which the holder is entitled to subscribe are of the same class. |
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PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
Item 20. | Indemnification of Directors and Officers |
Article VI of Lynxs amended and restated certificate of incorporation, as amended, provides that, to the fullest extent permitted by the General Corporation Law of Delaware, as the same now exists or may hereafter be amended, a director of Lynx shall not be personally liable to the corporation or its stockholders for monetary damages for breach of fiduciary duty as a director. Delaware law provides that directors of a corporation will not be personally liable for monetary damages for breach of their fiduciary duties as directors, except for liability:
| for any breach of their duty of loyalty to the corporation or its stockholders, | |
| for acts or omissions not in good faith or that involve intentional misconduct or a knowing violation of law, | |
| for unlawful payments of dividends or unlawful stock repurchases or redemptions, or | |
| for any transaction from which the director derived an improper personal benefit. |
Lynxs bylaws provide that Lynx shall indemnify its directors and executive officers to the fullest extent not prohibited by Delaware law or other applicable law, though the extent of indemnification may be modified through individual contracts. Lynx shall not be required to indemnify any director or executive officer in connection with any proceeding initiated by such person unless (i) such indemnification is expressly required to be made by law, (ii) the proceeding was authorized by the board of directors, or (iii) such indemnification is provided by Lynx, in its sole discretion, pursuant to Delaware law. Lynxs bylaws provide that Lynx may indemnify its other officers, employees and agents as set forth in Delaware law. Lynx has the power to purchase insurance on behalf of any person required or permitted to be indemnified pursuant to the bylaws.
Lynx has entered into agreements to indemnify its directors and executive officers, in addition to indemnification provided for in Lynxs bylaws. These agreements, among other things, provide for indemnification of Lynxs directors and executive officers for certain expenses (including attorneys fees), judgments, fines and settlement amounts that any such person becomes legally obligated to pay because of any claims made against or by such person in connection with any action or proceeding to which such person is, was, or is threatened to be made a party by reason of the fact that such person serves or served as a director, officer, employee or other agent of Lynx or any other company or enterprise at the request of Lynx. Lynx believes that these provisions and agreements are necessary to attract and retain qualified persons as directors and executive officers.
Item 21. | Exhibits and Financial Statements |
(a) Exhibits
The following exhibits are filed as part of the Registration Statement.
Exhibit No. | Description of Document | |||
2 | .1 | Acquisition Agreement, dated as of February 4, 1998, by and between Lynx Therapeutics, Inc. and Inex Pharmaceuticals Corporation, incorporated by reference to the indicated exhibit of Lynxs Current Report on Form 8-K filed on March 24, 1998. | ||
2 | .2* | Acquisition Agreement, dated as of September 28, 2004, by and between Solexa Limited and Lynx Therapeutics, Inc. (included in Annex A to this Registration Statement). | ||
3 | .1 | Amended and Restated Certificate of Incorporation of Lynx Therapeutics, Inc., incorporated by reference to the indicated exhibit of Lynxs Form 10-Q for the period ended June 30, 2000. | ||
3 | .1.1 | Certificate of Amendment to Amended and Restated Certificate of Incorporation of Lynx Therapeutics, Inc., incorporated by reference to the indicated exhibit of Lynxs Form 10-K for the period ended December 31, 2002. |
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Exhibit No. | Description of Document | |||
3 | .2 | Bylaws of Lynx Therapeutics, Inc., as amended, incorporated by reference to the indicated exhibit of Lynxs Form 10-Q for the period ended June 30, 2000. | ||
4 | .1 | Form of Common Stock Certificate, incorporated by reference to Exhibit 4.2 of Lynxs Statement Form 10 (File No. 0-22570), as amended (see the Statement Form 10). | ||
5 | .1* | Opinion of Cooley Godward LLP, regarding the validity of the securities to be issued. | ||
8 | .1++ | Opinion of Cooley Godward LLP, regarding tax disclosure. | ||
8 | .2++ | Opinion of Heller Ehrman White & McAuliffe LLP, regarding tax disclosure. | ||
10 | .1 | Form of Indemnity Agreement entered into between Lynx Therapeutics, Inc. and its directors and officers, incorporated by reference to Exhibit 10.7 of Lynxs Statement Form 10. | ||
10 | .2** | The Lynx Therapeutics, Inc. 1992 Stock Option Plan (the Stock Option Plan), incorporated by reference to Exhibit 10.8 of Lynxs Statement Form 10. | ||
10 | .3** | Form of Incentive Stock Option Grant under the Stock Option Plan, incorporated by reference to Exhibit 10.9 of Lynxs Statement Form 10. | ||
10 | .4** | Form of Nonstatutory Stock Option Grant under the Stock Option Plan, incorporated by reference to Exhibit 10.10 of Lynxs Statement Form 10. | ||
10 | .5 | Agreement of Assignment and License of Intellectual Property Rights, dated June 30, 1992, by and between Lynx Therapeutics, Inc. and ABI, incorporated by reference to Exhibit 10.11 of Lynxs Statement Form 10. | ||
10 | .6 | Amended and Restated Investor Rights Agreement, dated as of November 1, 1995, incorporated by reference to Exhibit 10.30 of Lynxs Form 10-K for the period ended December 31, 1995. | ||
10 | .7+ | Technology Development and Services Agreement, dated as of October 2, 1995, by and among Lynx Therapeutics, Inc., Hoechst Aktiengesellschaft and its subsidiary, Hoechst Marion Roussel, Inc., incorporated by reference to Exhibit 10.28 of Lynxs Form 10-K for the period ended December 31, 1995. | ||
10 | .7.1+ | Amended and Restated First Amendment to Technology Development and Services Agreement, dated May 1, 1998, by and between Lynx Therapeutics, Inc. and Hoechst Marion Roussel, Inc., incorporated by reference to Exhibit 10.36 of Lynxs Form 10-Q for the period ended June 30, 1998. | ||
10 | .7.2+ | Second Amendment to Technology Development and Services Agreement, dated March 1, 1999, by and among Lynx Therapeutics, Inc., Hoechst Marion Roussel, Inc. and its affiliate Hoechst Schering AgrEvo GmbH, incorporated by reference to the indicated exhibit of Lynxs Form 10-K/A filed on August 24, 2001 for the period ended December 31, 2001. | ||
10 | .7.3+ | Third Amendment to Technology Development and Services Agreement, dated December 20, 1999, by and among Lynx Therapeutics, Inc., Aventis Pharmaceutical Inc. and its affiliate Aventis CropScience GmbH, incorporated by reference to the indicated exhibit of Lynxs Form 10-K/ A filed on August 24, 2001 for the period ended December 31, 2001. | ||
10 | .7.4+ | Fourth Amendment to Technology Development and Services Agreement, dated March 31, 2002, by and between Lynx Therapeutics, Inc. and Aventis CropScience GmbH, incorporated by reference to the indicated exhibit of Lynxs Form 10-Q for the period ended March 31, 2002. | ||
10 | .7.5+ | Fifth Amendment to Technology Development and Services Agreement, dated as of September 30, 2002, by and between Lynx Therapeutics, Inc. and Bayer CropScience GmbH, incorporated by reference to the indicated exhibit of Lynxs Form 10-Q for the period ended September 30, 2002. | ||
10 | .10 | Lease, dated as of February 27, 1998, by and between Lynx Therapeutics, Inc. and SimFirst, L.P., Limited Partnership, incorporated by reference to Exhibit 10.35 of Lynxs Form 10-Q for the period ended March 31, 1998. | ||
10 | .11** | Lynx Therapeutics, Inc. 1998 Employee Stock Purchase Plan (the Purchase Plan), incorporated by reference to Exhibit 99.1 of Lynxs Form S-8 (File No. 333-59163). |
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Exhibit No. | Description of Document | |||
10 | .12+ | Research Collaboration Agreement, dated as of October 29, 1998, by and between Lynx Therapeutics, Inc. and E.I. Dupont de Nemours and Co., incorporated by reference to Exhibit 10.13 of Lynxs Form 10-K/ A filed on August 24, 2001 for the period ended December 31, 2001. | ||
10 | .12.1+ | Letter Amendment, dated March 1, 2002, to Research Collaboration Agreement by and between Lynx Therapeutics, Inc. and E.I. DuPont De Nemours and Co., incorporated by reference to the indicated exhibit of Lynxs Form 10-Q for the period ended March 31, 2002. | ||
10 | .13 | Master Loan and Security Agreement, dated as of October 26, 1998, by and between Lynx Therapeutics, Inc. and Transamerica Business Credit Corporation, incorporated by reference to Exhibit 10.14 of Lynxs Form 10-K/ A filed on August 24, 2001 for the period ended December 31, 2001. | ||
10 | .14 | Promissory Note No. 7, dated as of September 29, 2000, issued by Lynx Therapeutics, Inc. to Transamerica Business Credit Corporation, incorporated by reference to Exhibit 10.15 of Lynxs Form 10-K/ A filed on August 24, 2001 for the period ended December 31, 2001. | ||
10 | .15+ | Collaboration Agreement, dated as of September 30, 1999, by and between Lynx Therapeutics, Inc. and Hoechst Schering AgrEvo GmbH, incorporated by reference to Exhibit 10.16 of Lynxs Form 10-K/ A filed on August 24, 2001 for the period ended December 31, 2001. | ||
10 | .16** | Employment Agreement, dated as of October 18, 1999, by and between Lynx Therapeutics, Inc. and Norman John Wilkie Russell, Ph.D., incorporated by reference to Exhibit 10.13 of Lynxs Form 10-Q for the period ended September 30, 1999. | ||
10 | .17+ | Collaboration Agreement, dated as of October 1, 2000, by and between Lynx Therapeutics, Inc. and Takara Shuzo Co., Ltd. incorporated by reference to Exhibit 10.18 of Lynxs Form 10-K/ A filed on August 24, 2001 for the period ended December 31, 2001. | ||
10 | .17.1+ | Amendment No. 1 to Collaboration Agreement, dated December 19, 2002, by and between Lynx Therapeutics, Inc. and Takara Bio Inc., incorporated by reference to the indicated exhibit of Lynxs Form 10-K for the period ended December 31, 2002. | ||
10 | .17.2+ | Amendment No. 2 to Collaboration Agreement, dated June 30, 2003, by and between Lynx Therapeutics, Inc. and Takara Bio Inc., incorporated by reference to the indicated exhibit of Lynxs Form 10-Q for the period ended September 30, 2003. | ||
10 | .18 | Securities Purchase Agreement, dated as of May 24, 2001, by and among Lynx Therapeutics, Inc. and the investors listed therein, incorporated by reference to Exhibit 10.1 of Lynxs Current Report on Form 8-K, filed on June 4, 2001. | ||
10 | .19 | Registration Rights Agreement, dated as of May 24, 2001, by and among Lynx Therapeutics, Inc. and the investors listed therein, incorporated by reference to Exhibit 10.2 of Lynxs Current Report on Form 8-K, filed on June 4, 2001. | ||
10 | .20 | Form of Warrant issued by Lynx Therapeutics, Inc. in favor of each investor thereto, incorporated by reference to Exhibit 10.3 of Lynxs Current Report on Form 8-K, filed on June 4, 2001. | ||
10 | .21+ | Joint Venture Agreement, dated as of June 29, 2001, by and between Lynx Therapeutics, Inc. and BASF Aktiengesellschaft, incorporated by reference to Exhibit 10.18 of Lynxs Form 10-Q for the period ended June 30, 2001. | ||
10 | .22+ | First Amendment to Joint Venture Agreement, by and between Lynx Therapeutics, Inc. and BASF Aktiengesellschaft, dated as of August 14, 2001, incorporated by reference to Exhibit 10.22.2 of Lynxs Form 10-Q for the period ended September 30, 2001. | ||
10 | .23+ | Technology License Agreement, dated as of June 1, 2001, by and between Lynx Therapeutics, Inc. and BASF-LYNX Bioscience AG, incorporated by reference to Exhibit 10.19 of Lynxs Form 10-Q for the period ended June 30, 2001. | ||
10 | .24 | Common Stock Purchase Agreement, by and between Lynx Therapeutics, Inc. and Takara Shuzo Co., Ltd., dated as of October 1, 2001, incorporated by reference to Exhibit 10.24 of Lynxs Form 10-Q for the period ended September 30, 2001. | ||
10 | .25+ | Purchase Agreement, dated as of March 5, 2002, by and between Geron Corporation and Lynx Therapeutics, Inc., incorporated by reference to the indicated exhibit of Lynxs Current Report on Form 8-K filed on March 18, 2002. |
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Exhibit No. | Description of Document | |||
10 | .26+ | Common Stock Purchase Agreement, dated as of March 5, 2002, by and between Geron Corporation and Lynx Therapeutics, Inc., incorporated by reference to the indicated exhibit of Lynxs Current Report on From 8-K filed on March 18, 2002. | ||
10 | .27 | Form of Securities Purchase Agreement by and among Lynx Therapeutics, Inc. and the investors listed therein, incorporated by reference to the indicated exhibit of Lynxs Current Report on Form 8-K, as amended, filed on April 30, 2002. | ||
10 | .28 | Form of Registration Rights Agreement by and among Lynx Therapeutics, Inc. and the investors listed therein, incorporated by reference to the indicated exhibit of Lynxs Current Report on Form 8-K, as amended, filed on April 30, 2002. | ||
10 | .29 | Form of Warrant issued by Lynx Therapeutics, Inc. in favor or each investor party to the Securities Purchase Agreement and Friedman, Billings, Ramsey & Co., Inc., incorporated by reference to the indicated exhibit of Lynxs Current Report on Form 8-K, as amended, filed on April 30, 2002. | ||
10 | .30** | Employment Agreement, dated as of June 3, 2002, by and between Lynx Therapeutics, Inc. and Kevin P. Corcoran, incorporated by reference to the indicated exhibit of Lynxs Form 10-Q for the period ended June 30, 2002. | ||
10 | .31** | Employment Agreement, dated as of June 10, 2002, by and between Lynx Therapeutics, Inc. and Thomas J. Vasicek, Ph.D., incorporated by reference to the indicated exhibit of Lynxs Form 10-Q for the period ended June 30, 2002. | ||
10 | .32** | Letter Agreement, dated as of July 9, 2002, by and between Lynx Therapeutics, Inc. and Norman John Wilkie Russell, Ph.D., incorporated by reference to the indicated exhibit of Lynxs Form 10-Q for the period ended June 30, 2002. | ||
10 | .33 | Common Stock Purchase Agreement, dated as of September 25, 2002, by and between Lynx Therapeutics, Inc. and Takara Shuzo Co., Ltd., incorporated by reference to the indicated exhibit of Lynxs Form 10-Q for the period ended September 30, 2002. | ||
10 | .34 | Loan and Security Agreement, dated October 23, 2002, by and between Lynx Therapeutics, Inc. and Comerica Bank-California, incorporated by reference to the indicated exhibit of Lynxs Form 10-Q for the period ended September 30, 2002. | ||
10 | .35 | Common Stock Purchase Agreement, dated as of December 26, 2002, by and between Lynx Therapeutics, Inc. and Takara Shuzo Co., Ltd., incorporated by reference to the indicated exhibit of Lynxs Form 10-K for the period ended December 31, 2002. | ||
10 | .39 | Securities Purchase Agreement by and among Lynx Therapeutics, Inc. and the investors listed therein, incorporated by reference to the indicated exhibit of Lynxs Form 8-K filed on September 25, 2003. | ||
10 | .40 | Form of Warrant issued by Lynx Therapeutics, Inc. in favor of each investor, incorporated by reference to the indicated exhibit of Lynxs Form 8-K filed on September 25, 2003. | ||
10 | .41+ | Services Agreement, by and between E.I. DuPont de Nemours and Lynx Therapeutics, Inc. | ||
10 | .42 | Securities Purchase Agreement by and among Lynx Therapeutics, Inc. and the investors listed therein, incorporated by reference to the indicated exhibit of Lynxs Form 8-K filed on January 2, 2004. | ||
10 | .43 | Form of Warrant issued by Lynx Therapeutics, Inc. in favor of each investor, incorporated by reference to the indicated exhibit of Lynxs Form 8-K filed on January 2, 2004. | ||
10 | .44 | Securities Purchase Agreement by and among the Company and the investors listed therein, incorporated by reference to the indicated exhibit of Lynxs Form 8-K filed on March 12, 2004. | ||
10 | .45 | Form of Warrant issued by the Company in favor of each investor, incorporated by reference to the indicated exhibit of Lynxs Form 8-K filed on March 12, 2004. | ||
10 | .46 | Asset Purchase Agreement, dated as of March 22, 2004, by and among Lynx Therapeutics, Inc. and the parties listed therein, incorporated by reference to the indicated exhibit of Lynxs Form 10-Q filed on May 13, 2004. |
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Exhibit No. | Description of Document | |||
10 | .47+ | Colony Technology Sharing Agreement, dated as of March 22, 2004, by and between Solexa Limited and Lynx Therapeutics, Inc., incorporated by reference to the indicated exhibit of Lynxs Form 10-Q filed on May 13, 2004. | ||
10 | .48 | Deed, dated October 25, 2004, by and between Lynx Therapeutics, Inc. and Solexa Limited, regarding Colony Technology Sharing Agreement dated March 22, 2004, incorporated by reference to the indicated exhibit of Lynxs Form 8-K filed on October 26, 2004. | ||
10 | .49* | Loan Agreement, dated August 12, 2004, by and between Lynx and Solexa Limited. | ||
10 | .50* | Letter, dated September 28, 2004, from Solexa Limited to Lynx. | ||
10 | .51* | Master Development Agreement, dated as of October 28, 2004, between Solexa Limited and Lynx Therapeutics, Inc. | ||
21 | .1 | Subsidiaries of Lynx Therapeutics, Inc., incorporated by reference to the indicated exhibit of Lynxs Form 10-K/A filed on June 30, 2004 for the period ended December 31, 2003. | ||
23 | .1* | Consent of Ernst & Young LLP, Independent Registered Public Accounting Firm, with respect to Lynx Therapeutics, Inc. | ||
23 | .2* | Consent of Ernst & Young LLP, Independent Registered Public Accounting Firm, with respect to Solexa Limited. | ||
23 | .3* | Consent of Cooley Godward LLP (included in Exhibit 5.1). | ||
23 | .4++ | Consent of Heller Ehrman White & McAuliffe LLP (included in Exhibit 8.2). | ||
24 | .1* | Power of Attorney (pursuant to which Amendments to this Registration Statement may be filed) (included in the signature page of this Registration Statement). | ||
99 | .1 | Form of Support Agreement between Solexa Limited and certain stockholders of Lynx Therapeutics, Inc., incorporated by reference to the indicated exhibit of Lynxs Current Report on Form 8-K filed on September 30, 2004. | ||
99 | .2 | Form of Support Agreement between Lynx Therapeutics, Inc. and certain stockholders of Solexa Limited, incorporated by reference to the indicated exhibit of Lynxs Current Report on Form 8-K filed on September 30, 2004. | ||
99 | .3 | Form of Support Agreement between Lynx Therapeutics, Inc. and the former Chief Executive Officer of Solexa Limited, incorporated by reference to the indicated exhibit of Lynxs Current Report on Form 8-K filed on September 30, 2004. | ||
99 | .4* | Form of Irrevocable undertaking between Lynx Therapeutics, Inc. and certain holders of ordinary shares of Solexa Limited. | ||
99 | .5* | Form of Irrevocable undertaking between Lynx Therapeutics, Inc. and former Chief Executive Officer of Solexa Limited. | ||
99 | .6* | Form of proxy card for annual meeting for stockholders of Lynx Therapeutics, Inc. | ||
99 | .7* | Consent of Seven Hills Partners LLC, financial advisors to Lynx Therapeutics, Inc. |
* | Being filed herewith, all other exhibits previously filed. | |
** | Management contract or compensatory plan or arrangement. | |
+ | Portions of this agreement have been deleted pursuant to our request for confidential treatment. | |
++ | To be filed by amendment. |
Item 22. | Undertakings |
The undersigned Registrant hereby undertakes:
(a) That, for purposes of determining any liability under the Securities Act of 1933, each filing of the registrants annual report pursuant to Section 13(a) or Section 15(d) of the Securities Exchange Act of 1934 (and, where applicable, each filing of an employee benefit plans annual report pursuant to Section 15(d) of the Securities Exchange Act of 1934) that is incorporated by reference in this registration statement shall be deemed to be a new registration statement relating to the securities offered |
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therein, and the offering of such securities at that time shall be deemed to be the initial bona fide offering thereof. | |
(b) That prior to any public reoffering of the securities registered hereunder through use of a prospectus which is a part of this registration statement, by any person or party who is deemed to be an underwriter within the meaning of Rule 145(c), the issuer undertakes that such reoffering prospectus will contain the information called for by the applicable registration form with respect to reofferings by persons who may be deemed underwriters, in addition to the information called for by the other items of the applicable form. | |
(c) That every prospectus: (i) that is filed pursuant to paragraph (b) immediately preceding, or (ii) that purports to meet the requirements of Section 10(a)(3) of the Act and is used in connection with an offering of securities subject to Rule 415, will be filed as a part of an amendment to the registration statement and will not be used until such amendment is effective, and that, for purposes of determining any liability under the Securities Act of 1933, each such posteffective amendment shall be deemed to be a new registration statement relating to the securities offered therein, and the offering of such securities at that time shall be deemed to be the initial bona fide offering thereof. | |
(d) Insofar as indemnification for liabilities under the Securities Act of 1933 may be permitted to directors, officers and controlling persons of the Registrant pursuant to the provisions described in Item 20 above, or otherwise, the Registrant has been advised that in the opinion of the Securities and Exchange Commission such indemnification is against public policy as expressed in the Act and is, therefore, unenforceable. In the event that a claim for indemnification against such liabilities (other than the payment by the Registrant of expenses incurred or paid by a director, officer or controlling person of the Registrant in the successful defense of any action, suit or proceeding) is asserted by such director, officer, or controlling person in connection with the securities being registered, the Registrant will, unless in the opinion of its counsel the matter has been settled by controlling precedent, submit to a court of appropriate jurisdiction the question whether such indemnification by it is against public policy as expressed in the Act and will be governed by the final adjudication of such issue. | |
(e) To respond to requests for information that is incorporated by reference into the prospectus pursuant to Items 4, 10(b), 11, or 13 of this Form, within one business day of receipt of any such request, and to send the incorporated documents by first class mail or other equally prompt means. This includes information contained in documents filed subsequent to the effective date of this registration statement through the date of responding to the request. | |
(f) To supply by means of a posteffective amendment all information concerning a transaction, and the company being acquired involved therein, that was not the subject of and included in this registration statement when it became effective. |
II-6
SIGNATURES
Pursuant to the requirements of the Securities Act, the Registrant has duly caused this registration statement to be signed on its behalf by the undersigned, thereunto duly authorized, in the city of Hayward, State of California, on October 29, 2004.
LYNX THERAPEUTICS, INC. |
By: | /s/ KEVIN P. CORCORAN |
|
|
Kevin P. Corcoran | |
President and Chief Executive Officer |
POWER OF ATTORNEY
Know All Persons by These Presents, that each person whose signature appears below constitutes and appoints Kevin P. Corcoran and Kathy A. San Roman each or any of them, as his true and lawful attorneys-in-fact and agents, each acting alone, with full power of substitution and resubstitution, for him and in his name, place and stead, in any and all capacities, to sign, execute and file this registration statement and any or all amendments (including, without limitation, post-effective amendments) to this registration statement, and to file the same, with all exhibits thereto and any and all documents required to be filed with respect therewith, with the Securities and Exchange Commission or any regulatory authority, granting unto such attorneys-in-fact and agents full power and authority to do and perform each and every act and thing requisite and necessary to be done in connection therewith and about the premises in order to effectuate the same as fully to all intents and purposes as he might or could do in person, hereby ratifying and confirming all that such attorneys-in-fact and agents, each acting alone, or his substitute or substitutes, may lawfully do or cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Act of 1933, as amended, this registration statement has been signed by the following persons in the capacities and on the dates indicated:
Signature | Title | Date | ||||
/s/ KEVIN P. CORCORAN Kevin P. Corcoran |
President, Chief Executive Officer and Director (Principal Executive Officer) |
October 29, 2004 | ||||
/s/ CRAIG C. TAYLOR Craig C. Taylor |
Chairman of the Board of Directors | October 29, 2004 | ||||
/s/ KATHY A. SAN ROMAN Kathy A. San Roman |
Vice President Human Resources &
Administration and Acting Chief Financial Officer (Principal Financial and Accounting Officer) |
October 29, 2004 | ||||
Sydney Brenner |
Director | October , 2004 | ||||
/s/ LEROY HOOD Leroy Hood |
Director | October 29, 2004 |
II-7
Signature | Title | Date | ||||
/s/ JAMES C. KITCH James C. Kitch |
Director | October 29, 2004 | ||||
/s/ MARC D. KOZIN Marc D. Kozin |
Director | October 29, 2004 | ||||
/s/ JAMES V. MITCHELL James V. Mitchell |
Director | October 29, 2004 | ||||
David C. UPrichard |
Director | October , 2004 | ||||
/s/ RICHARD P. WOYCHIK Richard P. Woychik |
Director | October 29, 2004 |
II-8
EXHIBIT INDEX
Exhibit No. | Description of Document | |||
2 | .1 | Acquisition Agreement, dated as of February 4, 1998, by and between Lynx Therapeutics, Inc. and Inex Pharmaceuticals Corporation, incorporated by reference to the indicated exhibit of Lynxs Current Report on Form 8-K filed on March 24, 1998. | ||
2 | .2* | Acquisition Agreement, dated as of September 28, 2004, by and between Solexa Limited and Lynx Therapeutics, Inc. (included in Annex A to this Registration Statement). | ||
3 | .1 | Amended and Restated Certificate of Incorporation of Lynx Therapeutics, Inc., incorporated by reference to the indicated exhibit of Lynxs Form 10-Q for the period ended June 30, 2000. | ||
3 | .1.1 | Certificate of Amendment to Amended and Restated Certificate of Incorporation of Lynx Therapeutics, Inc., incorporated by reference to the indicated exhibit of Lynxs Form 10-K for the period ended December 31, 2002. | ||
3 | .2 | Bylaws of Lynx Therapeutics, Inc., as amended, incorporated by reference to the indicated exhibit of Lynxs Form 10-Q for the period ended June 30, 2000. | ||
4 | .1 | Form of Common Stock Certificate, incorporated by reference to Exhibit 4.2 of Lynxs Statement Form 10 (File No. 0-22570), as amended (see the Statement Form 10). | ||
5 | .1* | Opinion of Cooley Godward LLP, regarding the validity of the securities to be issued. | ||
8 | .1++ | Opinion of Cooley Godward LLP, regarding tax disclosure. | ||
8 | .2++ | Opinion of Heller Ehrman White & McAuliffe LLP, regarding tax disclosure. | ||
10 | .1 | Form of Indemnity Agreement entered into between Lynx Therapeutics, Inc. and its directors and officers, incorporated by reference to Exhibit 10.7 of Lynxs Statement Form 10. | ||
10 | .2** | The Lynx Therapeutics, Inc. 1992 Stock Option Plan (the Stock Option Plan), incorporated by reference to Exhibit 10.8 of Lynxs Statement Form 10. | ||
10 | .3** | Form of Incentive Stock Option Grant under the Stock Option Plan, incorporated by reference to Exhibit 10.9 of Lynxs Statement Form 10. | ||
10 | .4** | Form of Nonstatutory Stock Option Grant under the Stock Option Plan, incorporated by reference to Exhibit 10.10 of Lynxs Statement Form 10. | ||
10 | .5 | Agreement of Assignment and License of Intellectual Property Rights, dated June 30, 1992, by and between Lynx Therapeutics, Inc. and ABI, incorporated by reference to Exhibit 10.11 of Lynxs Statement Form 10. | ||
10 | .6 | Amended and Restated Investor Rights Agreement, dated as of November 1, 1995, incorporated by reference to Exhibit 10.30 of Lynxs Form 10-K for the period ended December 31, 1995. | ||
10 | .7+ | Technology Development and Services Agreement, dated as of October 2, 1995, by and among Lynx Therapeutics, Inc., Hoechst Aktiengesellschaft and its subsidiary, Hoechst Marion Roussel, Inc., incorporated by reference to Exhibit 10.28 of Lynxs Form 10-K for the period ended December 31, 1995. | ||
10 | .7.1+ | Amended and Restated First Amendment to Technology Development and Services Agreement, dated May 1, 1998, by and between Lynx Therapeutics, Inc. and Hoechst Marion Roussel, Inc., incorporated by reference to Exhibit 10.36 of Lynxs Form 10-Q for the period ended June 30, 1998. | ||
10 | .7.2+ | Second Amendment to Technology Development and Services Agreement, dated March 1, 1999, by and among Lynx Therapeutics, Inc., Hoechst Marion Roussel, Inc. and its affiliate Hoechst Schering AgrEvo GmbH, incorporated by reference to the indicated exhibit of Lynxs Form 10-K/A filed on August 24, 2001 for the period ended December 31, 2001. | ||
10 | .7.3+ | Third Amendment to Technology Development and Services Agreement, dated December 20, 1999, by and among Lynx Therapeutics, Inc., Aventis Pharmaceutical Inc. and its affiliate Aventis CropScience GmbH, incorporated by reference to the indicated exhibit of Lynxs Form 10-K/A filed on August 24, 2001 for the period ended December 31, 2001. | ||
10 | .7.4+ | Fourth Amendment to Technology Development and Services Agreement, dated March 31, 2002, by and between Lynx Therapeutics, Inc. and Aventis CropScience GmbH, incorporated by reference to the indicated exhibit of Lynxs Form 10-Q for the period ended March 31, 2002. |
Exhibit No. | Description of Document | |||
10 | .7.5+ | Fifth Amendment to Technology Development and Services Agreement, dated as of September 30, 2002, by and between Lynx Therapeutics, Inc. and Bayer CropScience GmbH, incorporated by reference to the indicated exhibit of Lynxs Form 10-Q for the period ended September 30, 2002. | ||
10 | .10 | Lease, dated as of February 27, 1998, by and between Lynx Therapeutics, Inc. and SimFirst, L.P., Limited Partnership, incorporated by reference to Exhibit 10.35 of Lynxs Form 10-Q for the period ended March 31, 1998. | ||
10 | .11** | Lynx Therapeutics, Inc. 1998 Employee Stock Purchase Plan (the Purchase Plan), incorporated by reference to Exhibit 99.1 of Lynxs Form S-8 (File No. 333-59163). | ||
10 | .12+ | Research Collaboration Agreement, dated as of October 29, 1998, by and between Lynx Therapeutics, Inc. and E.I. Dupont de Nemours and Co., incorporated by reference to Exhibit 10.13 of Lynxs Form 10-K/ A filed on August 24, 2001 for the period ended December 31, 2001. | ||
10 | .12.1+ | Letter Amendment, dated March 1, 2002, to Research Collaboration Agreement by and between Lynx Therapeutics, Inc. and E.I. DuPont De Nemours and Co., incorporated by reference to the indicated exhibit of Lynxs Form 10-Q for the period ended March 31, 2002. | ||
10 | .13 | Master Loan and Security Agreement, dated as of October 26, 1998, by and between Lynx Therapeutics, Inc. and Transamerica Business Credit Corporation, incorporated by reference to Exhibit 10.14 of Lynxs Form 10-K/ A filed on August 24, 2001 for the period ended December 31, 2001. | ||
10 | .14 | Promissory Note No. 7, dated as of September 29, 2000, issued by Lynx Therapeutics, Inc. to Transamerica Business Credit Corporation, incorporated by reference to Exhibit 10.15 of Lynxs Form 10-K/ A filed on August 24, 2001 for the period ended December 31, 2001. | ||
10 | .15+ | Collaboration Agreement, dated as of September 30, 1999, by and between Lynx Therapeutics, Inc. and Hoechst Schering AgrEvo GmbH, incorporated by reference to Exhibit 10.16 of Lynxs Form 10-K/ A filed on August 24, 2001 for the period ended December 31, 2001. | ||
10 | .16** | Employment Agreement, dated as of October 18, 1999, by and between Lynx Therapeutics, Inc. and Norman John Wilkie Russell, Ph.D., incorporated by reference to Exhibit 10.13 of Lynxs Form 10-Q for the period ended September 30, 1999. | ||
10 | .17+ | Collaboration Agreement, dated as of October 1, 2000, by and between Lynx Therapeutics, Inc. and Takara Shuzo Co., Ltd. incorporated by reference to Exhibit 10.18 of Lynxs Form 10-K/A filed on August 24, 2001 for the period ended December 31, 2001. | ||
10 | .17.1+ | Amendment No. 1 to Collaboration Agreement, dated December 19, 2002, by and between Lynx Therapeutics, Inc. and Takara Bio Inc., incorporated by reference to the indicated exhibit of Lynxs Form 10-K for the period ended December 31, 2002. | ||
10 | .17.2+ | Amendment No. 2 to Collaboration Agreement, dated June 30, 2003, by and between Lynx Therapeutics, Inc. and Takara Bio Inc., incorporated by reference to the indicated exhibit of Lynxs Form 10-Q for the period ended September 30, 2003. | ||
10 | .18 | Securities Purchase Agreement, dated as of May 24, 2001, by and among Lynx Therapeutics, Inc. and the investors listed therein, incorporated by reference to Exhibit 10.1 of Lynxs Current Report on Form 8-K, filed on June 4, 2001. | ||
10 | .19 | Registration Rights Agreement, dated as of May 24, 2001, by and among Lynx Therapeutics, Inc. and the investors listed therein, incorporated by reference to Exhibit 10.2 of Lynxs Current Report on Form 8-K, filed on June 4, 2001. | ||
10 | .20 | Form of Warrant issued by Lynx Therapeutics, Inc. in favor of each investor thereto, incorporated by reference to Exhibit 10.3 of Lynxs Current Report on Form 8-K, filed on June 4, 2001. | ||
10 | .21+ | Joint Venture Agreement, dated as of June 29, 2001, by and between Lynx Therapeutics, Inc. and BASF Aktiengesellschaft, incorporated by reference to Exhibit 10.18 of Lynxs Form 10-Q for the period ended June 30, 2001. | ||
10 | .22+ | First Amendment to Joint Venture Agreement, by and between Lynx Therapeutics, Inc. and BASF Aktiengesellschaft, dated as of August 14, 2001, incorporated by reference to Exhibit 10.22.2 of Lynxs Form 10-Q for the period ended September 30, 2001. |
Exhibit No. | Description of Document | |||
10 | .23+ | Technology License Agreement, dated as of June 1, 2001, by and between Lynx Therapeutics, Inc. and BASF-LYNX Bioscience AG, incorporated by reference to Exhibit 10.19 of Lynxs Form 10-Q for the period ended June 30, 2001. | ||
10 | .24 | Common Stock Purchase Agreement, by and between Lynx Therapeutics, Inc. and Takara Shuzo Co., Ltd., dated as of October 1, 2001, incorporated by reference to Exhibit 10.24 of Lynxs Form 10-Q for the period ended September 30, 2001. | ||
10 | .25+ | Purchase Agreement, dated as of March 5, 2002, by and between Geron Corporation and Lynx Therapeutics, Inc., incorporated by reference to the indicated exhibit of Lynxs Current Report on Form 8-K filed on March 18, 2002. | ||
10 | .26+ | Common Stock Purchase Agreement, dated as of March 5, 2002, by and between Geron Corporation and Lynx Therapeutics, Inc., incorporated by reference to the indicated exhibit of Lynxs Current Report on From 8-K filed on March 18, 2002. | ||
10 | .27 | Form of Securities Purchase Agreement by and among Lynx Therapeutics, Inc. and the investors listed therein, incorporated by reference to the indicated exhibit of Lynxs Current Report on Form 8-K, as amended, filed on April 30, 2002. | ||
10 | .28 | Form of Registration Rights Agreement by and among Lynx Therapeutics, Inc. and the investors listed therein, incorporated by reference to the indicated exhibit of Lynxs Current Report on Form 8-K, as amended, filed on April 30, 2002. | ||
10 | .29 | Form of Warrant issued by Lynx Therapeutics, Inc. in favor or each investor party to the Securities Purchase Agreement and Friedman, Billings, Ramsey & Co., Inc., incorporated by reference to the indicated exhibit of Lynxs Current Report on Form 8-K, as amended, filed on April 30, 2002. | ||
10 | .30** | Employment Agreement, dated as of June 3, 2002, by and between Lynx Therapeutics, Inc. and Kevin P. Corcoran, incorporated by reference to the indicated exhibit of Lynxs Form 10-Q for the period ended June 30, 2002. | ||
10 | .31** | Employment Agreement, dated as of June 10, 2002, by and between Lynx Therapeutics, Inc. and Thomas J. Vasicek, Ph.D., incorporated by reference to the indicated exhibit of Lynxs Form 10-Q for the period ended June 30, 2002. | ||
10 | .32** | Letter Agreement, dated as of July 9, 2002, by and between Lynx Therapeutics, Inc. and Norman John Wilkie Russell, Ph.D., incorporated by reference to the indicated exhibit of Lynxs Form 10-Q for the period ended June 30, 2002. | ||
10 | .33 | Common Stock Purchase Agreement, dated as of September 25, 2002, by and between Lynx Therapeutics, Inc. and Takara Shuzo Co., Ltd., incorporated by reference to the indicated exhibit of Lynxs Form 10-Q for the period ended September 30, 2002. | ||
10 | .34 | Loan and Security Agreement, dated October 23, 2002, by and between Lynx Therapeutics, Inc. and Comerica Bank-California, incorporated by reference to the indicated exhibit of Lynxs Form 10-Q for the period ended September 30, 2002. | ||
10 | .35 | Common Stock Purchase Agreement, dated as of December 26, 2002, by and between Lynx Therapeutics, Inc. and Takara Shuzo Co., Ltd., incorporated by reference to the indicated exhibit of Lynxs Form 10-K for the period ended December 31, 2002. | ||
10 | .39 | Securities Purchase Agreement by and among Lynx Therapeutics, Inc. and the investors listed therein, incorporated by reference to the indicated exhibit of Lynxs Form 8-K filed on September 25, 2003. | ||
10 | .40 | Form of Warrant issued by Lynx Therapeutics, Inc. in favor of each investor, incorporated by reference to the indicated exhibit of Lynxs Form 8-K filed on September 25, 2003. | ||
10 | .41+ | Services Agreement, by and between E.I. DuPont de Nemours and Lynx Therapeutics, Inc. | ||
10 | .42 | Securities Purchase Agreement by and among Lynx Therapeutics, Inc. and the investors listed therein, incorporated by reference to the indicated exhibit of Lynxs Form 8-K filed on January 2, 2004. | ||
10 | .43 | Form of Warrant issued by Lynx Therapeutics, Inc. in favor of each investor, incorporated by reference to the indicated exhibit of Lynxs Form 8-K filed on January 2, 2004. | ||
10 | .44 | Securities Purchase Agreement by and among the Company and the investors listed therein, incorporated by reference to the indicated exhibit of Lynxs Form 8-K filed on March 12, 2004. |
Exhibit No. | Description of Document | |||
10 | .45 | Form of Warrant issued by the Company in favor of each investor, incorporated by reference to the indicated exhibit of Lynxs Form 8-K filed on March 12, 2004. | ||
10 | .46 | Asset Purchase Agreement, dated as of March 22, 2004, by and among Lynx Therapeutics, Inc. and the parties listed therein, incorporated by reference to the indicated exhibit of Lynxs Form 10-Q filed on May 13, 2004. | ||
10 | .47+ | Colony Technology Sharing Agreement, dated as of March 22, 2004, by and between Solexa Limited and Lynx Therapeutics, Inc., incorporated by reference to the indicated exhibit of Lynxs Form 10-Q filed on May 13, 2004. | ||
10 | .48 | Deed, dated October 25, 2004, by and between Lynx Therapeutics, Inc. and Solexa Limited, regarding Colony Technology Sharing Agreement dated March 22, 2004, incorporated by reference to the indicated exhibit of Lynxs Form 8-K filed on October 26, 2004. | ||
10 | .49* | Loan Agreement, dated August 12, 2004, by and between Lynx and Solexa Limited. | ||
10 | .50* | Letter, dated September 28, 2004, from Solexa Limited to Lynx. | ||
10 | .51* | Master Development Agreement, dated as of October 28, 2004, between Solexa Limited and Lynx Therapeutics, Inc. | ||
21 | .1 | Subsidiaries of Lynx Therapeutics, Inc., incorporated by reference to the indicated exhibit of Lynxs Form 10-K/ A filed on June 30, 2004 for the period ended December 31, 2003. | ||
23 | .1* | Consent of Ernst & Young LLP, Independent Registered Public Accounting Firm, with respect to Lynx Therapeutics, Inc. | ||
23 | .2* | Consent of Ernst & Young LLP, Independent Registered Public Accounting Firm, with respect to Solexa Limited. | ||
23 | .3* | Consent of Cooley Godward LLP (included in Exhibit 5.1). | ||
23 | .4++ | Consent of Heller Ehrman White & McAuliffe LLP (included in Exhibit 8.2). | ||
24 | .1* | Power of Attorney (pursuant to which Amendments to this Registration Statement may be filed) (included in the signature page of this Registration Statement). | ||
99 | .1 | Form of Support Agreement between Solexa Limited and certain stockholders of Lynx Therapeutics, Inc., incorporated by reference to the indicated exhibit of Lynxs Current Report on Form 8-K filed on September 30, 2004. | ||
99 | .2 | Form of Support Agreement between Lynx Therapeutics, Inc. and certain stockholders of Solexa Limited, incorporated by reference to the indicated exhibit of Lynxs Current Report on Form 8-K filed on September 30, 2004. | ||
99 | .3 | Form of Support Agreement between Lynx Therapeutics, Inc. and the former Chief Executive Officer of Solexa Limited, incorporated by reference to the indicated exhibit of Lynxs Current Report on Form 8-K filed on September 30, 2004. | ||
99 | .4* | Form of Irrevocable undertaking between Lynx Therapeutics, Inc. and certain holders of ordinary shares of Solexa Limited. | ||
99 | .5* | Form of Irrevocable undertaking between Lynx Therapeutics, Inc. and former Chief Executive Officer of Solexa Limited. | ||
99 | .6* | Form of proxy card for annual meeting for stockholders of Lynx Therapeutics, Inc. | ||
99 | .7* | Consent of Seven Hills Partners LLC, financial advisors to Lynx Therapeutics, Inc. |
* | Being filed herewith, all other exhibits previously filed. | |
** | Management contract or compensatory plan or arrangement. | |
+ | Portions of this agreement have been deleted pursuant to our request for confidential treatment. | |
++ | To be filed by amendment. |