ILLUMINA, INC.
FOR THE ANNUALSPECIAL MEETING OF STOCKHOLDERS
To Be Held on May 16,September 9, 2008
GeneralWhy am I receiving this proxy statement?
Our board of directors is soliciting proxies for a special meeting of our stockholders. You are receiving this proxy statement because our records indicate that you owned shares of Illumina common stock at the close of business on July 28, 2008, and that entitles you to vote at the special meeting. You can use a proxy to vote your shares whether or not you attend the special meeting. This proxy statement describes the matter on which we would like you to vote so that you can make an informed decision.
We sent this proxy statement, the proxy, and the notice of the special meeting to stockholders on or about August 12, 2008.
What is the purpose of the special meeting?
We are asking you to vote on a proposed amendment to our certificate of incorporation to increase the number of shares of common stock we are authorized to issue from 120 million to 320 million.
Where will the special meeting be held?
The enclosed proxy is solicited on behalf of the Board of Directors of Illumina, Inc., a Delaware corporation, for use at its annual meeting of stockholders to be held on Friday, May 16, 2008. The annualspecial meeting will be held on September 9, 2008 at 11 a.m.11:00 A.M., Pacific Daylight Timetime, at9885 9865 Towne Centre Drive, San Diego, California 92121. For directions, please call us at(858) 202-4500.
How does the board of directors recommend that I vote my shares?These
Our board of directors recommends that you vote “FOR” the proposed amendment to our certificate of incorporation. Please see the information included in this proxy solicitation materials were mailed on or about April 4, 2008,statement relating to all stockholdersthe proposed amendment.
Who is entitled to vote at the annual meeting.
Votingspecial meeting?
The specific proposals to be considered and acted uponOnly those who owned shares of our common stock at the annual meeting are summarized in the accompanying notice and are described in more detail in this proxy statement. As of the close of business on March 24,July 28, 2008 the record date for determination of stockholdersare entitled to receive notice of and to vote at the annual meeting, 56,250,880special meeting.
How many shares are entitled to vote?
57,300,177 shares of our common stock par value $0.01 perwere outstanding at the close of business on July 28, 2008 and are entitled to vote at the specia l meeting.
How many votes do I have?
Each share were issued and outstanding. No shares of our preferredcommon stock were outstanding as of that date. Each stockholder is entitled to one vote, and there is no cumulative voting. Accordingly, you are entitled to one vote for each share of Illumina common stock held by such stockholder as ofthat you owned at the close of business on March 24,July 28, 2008. Stockholders may not cumulate votes in the election of directors.
If your shares are held in your name, you must return your proxy or attend the annual meeting in person in order to vote on the proposals. Under the rules that govern brokers who have record ownership of shares that are held in “street name” for their clients, brokers may vote such shares on behalf of their clients with respect to “routine” matters (such as the election of directors or the ratification of auditors), but not with respect to non-routine matters (such as a proposal submitted by a stockholder). If the proposals to be acted upon at any meeting include both routine and non-routine matters, the broker may turn in a proxy card for uninstructed shares thatHow many votes FOR the routine matters, but expressly states that the broker is not voting on non-routine matters. This is called a “broker non-vote.” If your shares are held in street name and you do not vote your proxy, your brokerage firm may either vote your shares on routine matters or leave your shares unvoted.
All votes will be tabulated by the inspector of election appointed for the meeting, who will separately tabulate affirmative and negative votes, abstentions and broker non-votes. Abstentions and broker non-votes are counted as present for purposes of determining the presence or absence of a quorum for the transaction of business. Abstentions will be counted toward the tabulations of votes cast on proposals presented to the stockholders and will have the same effect as negative votes, whereas broker non-votes will not be counted for purposes of determining whether a proposal has been approved. We encourage you to provide instructions to your brokerage firm by voting your proxy. This ensures that your shares will be voted at the meeting.
Shares are counted as present at the meeting if the stockholder either is present and votes in person at the meeting or has properly submitted a proxy card or has voted electronically. A majority of our outstanding shares as of the record date must be present at the special meeting (eitherin order to conduct business?
A majority of the outstanding shares of our common stock that are entitled to vote must be present, either in person or represented by proxy)proxy, in order to holdconduct business at the annualspecial meeting. We refer to this as a “quorum.”
What shares will be considered to be “present” at the special meeting?
Shares voted in person at the special meeting and conduct business. This is calledshares for which properly executed proxies have been returned will be counted as “present” for purposes of establishing a “quorum.” Assuming a quorum is present,quorum. Shares voted as abstentions and broker non-votes will be included in the two nominees receiving the highest number of shares that are considered present at the special meeting.
How many votes will be elected as directors. The ratification ofare needed for the independent auditors and the approval of theproposal to pass?
The amendment to our 2005 Stock and Incentive Plan will requirecertificate of incorporation requires the affirmative vote of a majority of the shares present in person or represented by proxyof our common stock that were outstanding at the meeting. Weclose of business on July 28, 2008. An abstention or broker non-vote will publishhave the final voting results ofsame effect as a vote against the meeting in our quarterly report onForm 10-Q for the second quarter of 2008, which will be filed with the Securities and Exchange Commission or SEC.proposal.
Voting Electronically via the Internet or by TelephoneHow do I vote?
If you are a holder of record (that is, your shares are registered in theyour own name of a bank or brokerage firm, you may be eligiblewith our transfer agent), then in order to vote your shares electronically over the Internet or by telephone. A large number of banks and brokerage firms are participating in the Broadridge Financial Solutions, Inc. online program. This program provides eligible stockholders who receive a paper copy of this proxy statement the opportunity to vote via Internet or by telephone. If your bank or brokerage firm is participating in this program, your proxy card will provide instructions. If your proxy card does not reference Internet or telephone information, please complete and return the proxy card in the self-addressed, postage paid envelope provided.
Proxies
If the enclosed form of proxy is properly signed, dated and returned, the shares represented will be voted at the annual meeting in accordance with the instructions specified on the proxy.
If the proxy does not specify how the shares are to be voted, then:proposal, you must either:
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| | • | complete, sign, date, and return the proxy will be voted FOR the election of the directors nominated by the Board of Directors (unless the authority to vote for the election of nominee directors is withheld);enclosed proxy; or |
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| | • | attend the special meeting and vote by ballot. |
If you hold your shares in “street name” (that is, your shares are registered in the name of a broker, bank, or other intermediary that is holding
the shares on your behalf), then please refer to the information forwarded by your broker, bank, or other intermediary. Many brokers and banks participate in programs that permit eligible stockholders to vote their shares by internet or telephone. If your broker or bank participates in such a program, then it will provide you with applicable instructions.
We urge you to vote by proxy even if you plan to attend the special meeting, so that we will know as soon as possible that enough votes will be present for us to hold the special meeting. If you attend the special meeting in person, you may vote at the meeting even if you have returned a proxy, in which case only your vote at the special meeting will count.
Can I revoke or change my proxy after completing and returning it?
Yes. You may revoke your proxy or change your vote by either:
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| • | sending, at any time before the special meeting, a notice of revocation, or another signed proxy with a later date, to our secretary at our principal executive offices at 9885 Towne Centre Drive, San Diego, California 92121; or |
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| • | attending the special meeting and voting by ballot (in this case, your proxy will be voted FORautomatically revoked, and only your vote at the ratificationspecial meeting will be counted). |
What if I vote “abstain”?
An abstention vote will:
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| • | be counted as “present” for purposes of the appointment of Ernst & Young LLP as our independent auditors for the fiscal year ending December 28, 2008 (unless contrary instructions are given);establishing a quorum; and |
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| | • | have the proxy will be voted FORsame effect as a vote “against” the approval of anproposed amendment to increase the maximum numberour certificate of shares of our common stock authorized for issuance under our 2005 Stock and Incentive Plan by 1,200,000 shares (unless contrary instructions are given).incorporation. |
YouWhat is a broker non-vote?
If a broker or bank holds shares in “street name” for a customer, then that customer may revokeinstruct the broker or change yourbank how to vote those shares. If the customer does not provide voting instructions, the broker or bank may exercise voting discretion with respect to routine matters. However, for non-routine matters, a broker or bank may not vote shares it holds on behalf of a customer that has not properly provided voting instructions. A broker non-vote occurs when a broker or bank expressly instructs on a proxy card that it is not voting on a non-routine matter.
The proposal to amend our certificate of incorporation to increase our authorized shares of common stock is a non-routine matter. Accordingly, brokers and banks cannot exercise voting discretion with respect to the proposal if they do not receive instructions from their customers on how to vote their shares.
A broker non-vote will:
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| • | be counted as “present” for purposes of establishing a quorum; and |
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| • | have the same effect as a vote against the proposed amendment to our certificate of incorporation. |
Who will count the votes?
We have hired our transfer agent, Computershare Trust Company, N.A., to determine whether or not a quorum is present and to tabulate votes cast by proxy or in person at any time before the annual meeting by filingspecial meeting.
Where can I find the voting results?
We will announce the voting results at the special meeting. We also intend to disclose the results in a press release and a current report onForm 8-K to be filed with our Secretarythe Securities and Exchange Commission, or SEC. Our SEC filings are available at the SEC’s website athttp://www.sec.gov.
When and where will a list of stockholders be available?
We will make a list of stockholders available for examination during ordinary business hours at our principal executive officescorporate headquarters, located at 9885 Towne Centre Drive, San Diego, California 92121, a notice of revocation or another signed proxy with a later date. In addition, if you attendduring the annual meeting and vote by ballot, your proxy (including any electronic votes)ten days preceding the special meeting. We will be revoked automatically and only your votealso make the list available for examination at the annual meeting will be counted.
We do not know of other matters to be presented for consideration at the annualspecial meeting. However, if any other matters properly come before the annual meeting, it is the intention of the proxy agent named in the enclosed form of proxy to vote the shares they represent as the Board of Directors may recommend. Your execution of the enclosed proxy grants discretionary authority to the proxy agent with respect to such other matters.
Solicitation
We will bear the entire cost of solicitation, including the preparation, assembly, printing and mailing of this proxy statement, the proxy and any additional solicitation materials we furnish to our stockholders. Copies of solicitation materials will be furnished to brokerage houses, fiduciaries and custodians holding shares in their names that are beneficially owned by others so that theyHow may forward the solicitation material to such beneficial owners. In addition, we may reimburse such persons for their costs in forwarding the solicitation materials to such beneficial owners. The original solicitation of proxies by mail may be supplemented by a solicitation by telephone or other means by our directors, officers or employees. No additional compensation will be paid to these individuals for any such services.
Stockholders Sharing the Same Address
The SEC has adopted rules that permit companies and intermediaries, such as brokers, to satisfy delivery requirements for proxy statementsI communicate with respect to two or more stockholders sharing the same address by delivering a single proxy statement addressed to those stockholders. This process, commonly referred to as “householding,” potentially provides extra convenience for stockholders and cost savings for companies. Because we utilize the “householding” rules for proxy materials, stockholders who share
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the same address will receive only one copy of the annual report and proxy statement, unless we receive contrary instructions from any stockholder at that address. We will continue to mail a proxy card to each stockholder of record.
If you prefer to receive multiple copies of the proxy statement and annual report at the same address, additional copies will be provided to you promptly upon request. If you are a stockholder of record, you may obtain additional copies by writing to our Secretary at our principal executive offices at 9885 Towne Centre Drive, San Diego, California 92121, or calling us at(858) 202-4500. Eligible stockholders of record receiving multiple copies of the annual report and proxy statement can request “householding” by contacting us in the same manner.
If you are a beneficial owner but not a stockholder of record (for example, you hold your shares in a brokerage or custody account), you can request additional copies of the proxy statement and annual report or you can request householding by notifying your broker, bank or nominee.
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MATTERS TO BE CONSIDERED AT THE ANNUAL MEETING
PROPOSAL ONE: ELECTION OF DIRECTORS
General
Our certificate of incorporation and bylaws provide for a classified Board of Directors consisting of three classes of directors with staggered three-year terms. The board currently consists of nine persons, with one class consisting of four directors, one class consisting of three directors, and one class consisting of two directors. The board has determined that a majority of the members of the board, specifically Mr. Bradbury, Mr. Bowman, Ms. Eastham, Dr. Goldstein, Dr. Grint, Dr. Rastetter, Dr. Walt and Mr. Whitfield, are independent directors under the rules of The NASDAQ Global Select Market. Each of the nominees listed below are currently serving on the board. The nominees have agreed to serve if elected, and management has no reason to believe that such nominees will be unable to serve. The proposal to elect the two nominees to the board requires the affirmative vote of the holders of a plurality of shares entitled to vote that are present or represented at the annual meeting and entitled to vote on such proposal. In the event the nominees are unable or decline to serve as directors at the time of the annual meeting, the proxies will be voted for any nominees who may be designated by the present Board of Directors to fill the vacancy. Unless otherwise instructed, the proxy holders will vote the proxies received by them FOR the nominees named below.
Recommendation of the Board of Directors
The Board of Directors recommends that the stockholders vote FOR the election of the two nominees listed immediately below.
Nominees for Term Ending Upon the 2011 Annual Meeting of Stockholders
Daniel M. Bradbury, 47,has been a director since January 2004. Mr. Bradbury has been serving as the Chief Executive Officer of Amylin Pharmaceuticals, a biopharmaceutical company, since March 2007, as President and a board member for Amylin since June 2006 and as Amylin’s Chief Operating Officer from June 2003 to June 2006. He previously served as Executive Vice President from June 2000 until his promotion in June 2003. He joined Amylin in 1994 and held officer-level positions in Corporate Development and Marketing since that time. From 1984 to 1994, Mr. Bradbury held a number of sales and marketing positions at SmithKline Beecham Pharmaceuticals, a drug manufacturer. Mr. Bradbury is a director of Novacea, Inc., a biopharmaceutical company. He also serves as a board member for PhRMA, BIOCOM, the Keck Graduate Institute’s Board of Trustees and the San Diego Regional Economic Development Corporation. Mr. Bradbury is a member of the Royal Pharmaceutical Society of Great Britain and serves on the UCSD Rady School of Management’s Advisory Council. He received a Bachelor of Pharmacy from Nottingham University and a Diploma in Management Studies from Harrow and Ealing Colleges of Higher Education.
Roy A. Whitfield, 54,has been a director since January 2007. Mr. Whitfield is the former Chairman of the Board and Chief Executive Officer of Incyte Corporation (formerly Incyte Genomics), a drug discovery and development company he co-founded in 1991. From June 1993 to November 2001, Mr. Whitfield served as its Chief Executive Officer and from November 2001 until his retirement in June 2003 as its Chairman. Mr. Whitfield remains on the board of Incyte Corporation. From 1984 to 1989, Mr. Whitfield held senior operating and business development positions with Technicon Instruments Corporation, a medical instrumentation company, and its predecessor company, Cooper Biomedical, Inc., a biotechnology and medical diagnostics company. Earlier, Mr. Whitfield spent seven years with the Boston Consulting Group’s international consulting practice. In addition to serving on the Incyte Board, he is a director of Bioseek, DiscoveRx, Nektar Therapeutics and Sciona, Inc. Mr. Whitfield received a B.S. in Mathematics from Oxford University and an M.B.A. from Stanford University.
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Continuing Directors for Term Ending Upon the 2009 Annual Meeting of Stockholdersdirectors?
A. Blaine Bowman, 61,has been a director since January 2007. Mr. Bowman was formerly the Chairman, President and Chief Executive Officer and is currently a director of Dionex Corporation, a manufacturer of analytical instruments. Mr. Bowman retired as President and Chief Executive Officer of Dionex in July 2002 and as Chairman of the Board in 2005. He joined Dionex in 1977 and was named President and CEO in 1980. Before joining Dionex, Mr. Bowman was a management consultant with McKinsey & Company, a management consulting firm, and a product engineer with Motorola Semiconductor Products Division, a communication equipment company. Mr. Bowman also serves as a director of Cell Biosciences, Inc. Mr. Bowman received his B.S. in Physics from Brigham Young University and an M.B.A. from Stanford University.
Karin Eastham, C.P.A., 58,has been a director since July 2004. She has over 25 years experience in financial and operations management, primarily in life sciences companies. She currently serves as Executive Vice President and Chief Operating Officer, and as a member of the Board of Trustees of Burnham Institute for Medical Research, a non-profit corporation engaged in basic biomedical research. From April 1999 to May 2004, Ms. Eastham served as Senior Vice President, Finance, Chief Financial Officer, and Secretary of Diversa Corporation. She previously held similar positions with CombiChem, Inc., a computational chemistry company, and Cytel Corporation, a biopharmaceutical company. Ms. Eastham also held several positions, including Vice President, Finance, at Boehringer Mannheim Corporation, from 1976 to 1988. Ms. Eastham also serves as a director for Tercica, Inc., Amylin, Inc., and SGX Pharmaceuticals, Inc. Ms. Eastham received a B.S. and an M.B.A. from Indiana University and is a Certified Public Accountant and a Certified Director.
Jay T. Flatley, 55,has served as our President, Chief Executive Officer and a director since October 1999. Prior to joining Illumina, Mr. Flatley was co-founder, President, Chief Executive Officer and a director of Molecular Dynamics, a life sciences company, from May 1994 to September 1999. He served in various other positions with that company from 1987 to 1994. From 1985 to 1987, Mr. Flatley was Vice President of Engineering and Vice President of Strategic Planning at Plexus Computers, a UNIX computer company. Mr. Flatley also serves as a director at GenVault and is a member of the Keck Graduate Institute Board of Trustees. Mr. Flatley holds a B.A. in Economics from Claremont McKenna College and a B.S. and M.S. in Industrial Engineering from Stanford University.
William H. Rastetter, Ph.D., 60,has been a director since November 1998 and Chairman of the Board since January 2005. During 2007, Dr. Rastetter became Chief Executive Officer and the Executive Chairman of Apoptos, Inc. Since August 2006, Dr. Rastetter has been serving as a partner of Venrock Associates, a venture capital company. Dr. Rastetter retired as the Executive Chairman of Biogen Idec Inc., a biopharmaceutical company, at the end of 2005. He had served in this position since the merger of Biogen, Inc. and IDEC Pharmaceuticals Corporation in November 2003. He served as Chief Executive Officer of IDEC Pharmaceuticals, a biotechnology company, from December 1986 through November 2003 and as chairman of the Board of Directors from May 1996 to November 2003. Additionally, he served as President of IDEC Pharmaceuticals from 1986 to 2002, and as Chief Financial Officer from 1988 to 1993. From 1982 to 1986, Dr. Rastetter served in various positions at Genentech, Inc., a biotechnology company, and previously he was an associate professor at the Massachusetts Institute of Technology. Dr. Rastetter holds a B.S. in Chemistry from the Massachusetts Institute of Technology and received his M.A. and Ph.D. in Chemistry from Harvard University.
Continuing Directors for Term Ending Upon the 2010 Annual Meeting of Stockholders
Jack Goldstein, Ph.D., 60,has been a director since June 2006. Dr. Goldstein was most recently President and Chief Operating Officer of Chiron Corporation, a biotechnology company, where he worked in various capacities from 2002 until its acquisition by Novartis in April 2006. Prior to Chiron Corporation, he spent two years as a general partner at Windamere Venture Partners, a venture capital company, preceded by four years at Applied Imaging Corporation, a medical imaging company, first as President and Chief Executive Officer and then later as Chairman. Dr. Goldstein spent over a decade at
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Ortho Diagnostic Systems, a Johnson & Johnson company, in various executive positions, including four years as President. He was earlier Vice President of Research and Development at a medical diagnostics division of Baxter Healthcare Corporation. He currently sits on the Board of Directors of Orasure Technologies, Inc., a point-of-care diagnostic company, and Immucor Inc., a diagnostic company specializing in immunohematology. Dr. Goldstein earned a B.A. in Biology from Rider University, and an M.S. in Immunology and a Ph.D. in Microbiology from St. John’s University.
Paul Grint M.D., 50, has been a director since April 2005. Dr. Grint is currently Chief Medical Officer and Head of Development at Kalypsys Inc., a biotechnology company. Prior to joining Kalypsys, Dr. Grint was Senior Vice President and Chief Medical Officer of Zephyr Sciences, Inc., a biopharmaceutical company. He held similar positions at Pfizer, a drug manufacturer, in La Jolla, California, IDEC Pharmaceuticals, a biotechnology company, and Schering-Plough, a drug manufacturer. He has more than 15 years of experience in biologics and small molecule drug development, marked by the successful development of numerous commercial products in the fields of infectious disease, immunology and oncology. Dr. Grint began his pharmaceutical career at the Wellcome Research Laboratories in the UK and received his medical degree from the University of London, St. Bartholomew’s Hospital Medical College in London. He is a Fellow of the Royal College of Pathologists, a member of numerous professional and medical societies and the author or co-author of over 50 publications.
David R. Walt, Ph.D., 55, one of our founders, has been a director and Chairman of our Scientific Advisory Board since June 1998. Dr. Walt has been the Robinson Professor of Chemistry at Tufts University since September 1995 and has been a Howard Hughes Medical Institute Professor since September 2006. Dr. Walt is a Member of the National Academy of Engineering, a Fellow of the American Institute of Medical and Biological Engineers, and a Fellow of the American Association for the Advancement of Science. Dr. Walt has published over 200 papers and is named as an inventor or co-inventor of over 40 patents. He also serves as a board member for Quanterix, Inc. Dr. Walt holds a B.S. in Chemistry from the University of Michigan and received his Ph.D. in Chemical Biology from SUNY at Stony Brook.
Board Committees and Meetings
The Board of Directors held six meetings during the fiscal year ended December 30, 2007. The board has three standing committees to facilitate and assist the board in the execution of its responsibilities. These committees are currently the Audit Committee, the Compensation Committee and the Nominating/Corporate Governance Committee. In accordance with The NASDAQ Global Select Market listing standards, all of the committees are comprised solely of non-employee, independent directors. Charters for each committee are available on our website atwww.illumina.comby first clicking on “Corporate,” then “Investor Relations” and then “Corporate Governance.” The charter of each committee is also available in print to any shareholder who requests it. Each director attended or participated in 75% or more of the aggregate of (i) the total number of meetings of the Board of Directors in 2007 and (ii) the total number of meetings held by all committees of the board on which such director served during 2007. We do not have a formal policy regarding our directors’ attendance at annual meetings of stockholders, but we encourage our directors and director nominees to attend the annual meeting. Two of our directors attended the 2007 annual meeting of stockholders.
The table below shows the current membership for each of the standing board committees:
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Audit
| | Compensation
| | Nominating/Corporate Governance
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Committee | | Committee | | Committee |
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Daniel M. Bradbury, Chairperson | | Karin Eastham, Chairperson | | Jack Goldstein, Ph.D., Chairperson |
A. Blaine Bowman | | Paul Grint, M.D. | | Paul Grint, M.D. |
Karin Eastham | | William H. Rastetter, Ph.D. | | William H. Rastetter, Ph.D. |
William H. Rastetter, Ph.D. | | Roy A. Whitfield | | David R. Walt, Ph.D. |
The Audit Committee currently consists of four directors, each of whom our Board of Directors has determined is independent within the meaning of the rules of The NASDAQ Global Select Market and
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Rule 10A-3 under the Securities Exchange Act of 1934, as amended (the Exchange Act). The board determined that Ms. Eastham qualifies as an “audit committee financial expert,” as defined by the SEC rules adopted pursuant to the Sarbanes-Oxley Act of 2002. The Audit Committee is responsible for, among other things, approving the services performed by our independent auditors and reviewing our accounting practices and systems of internal accounting controls. The Audit Committee held eight meetings during 2007.
The Compensation Committee currently consists of four directors, each of whom the board has determined is independent within the meaning of the rules of The NASDAQ Global Select Market. The Compensation Committee is primarily responsible for reviewing and approving our general compensation policies and setting compensation levels for our executive officers and Board of Directors. The compensation levels for our President and Chief Executive officer are, additionally, subject to approval by the Board of Directors. The Compensation Committee also has the authority to administer our 2000 Employee Stock Purchase Plan, our 2005 Stock and Incentive Plan and our New Hire Stock and Incentive Plan. The Compensation Committee meets regularly in executive sessions. However, from time to time, various members of management and other employees as well as outside advisors or consultants may be invited by the Compensation Committee to make presentations, provide financial or other background information or advice or otherwise participate in Compensation Committee meetings. The Chief Executive Officer may not participate in or be present during any deliberations or determinations of the Compensation Committee regarding his compensation or individual compensation objectives. The Compensation Committee held three meetings during 2007.
Mr. Flatley, our Chief Executive Officer, has been delegated authority to grant, without any further action required by the Compensation Committee, stock options and restricted stock units to employees who are not our officers or who do not report directly to him. The purpose of this delegation of authority is to enhance the flexibility of equity administration and to facilitate the timely grant of equity awards to non-management employees, particularly new employees, within specified limits approved by the Compensation Committee.
The Nominating/Corporate Governance Committee currently consists of four directors, each of whom the board has determined is independent within the meaning of the rules of The NASDAQ Global Select Market. The Nominating/Corporate Governance Committee is responsible for identifying individuals qualified to serve as members of our Board of Directors, selecting nominees for election to the board, evaluating the performance of the board, developing and recommending to the board corporate governance guidelines and providing oversight with respect to corporate governance and ethical conduct. The Nominating/Corporate Governance Committee held three meetings during 2007.
Compensation Committee Interlocks and Insider Participation
Our executive compensation program has been administered by the Compensation Committee of our Board of Directors. Ms. Eastham, Dr. Grint, Dr. Rastetter and Mr. Whitfield served as members of our Compensation Committee during fiscal 2007. None of these individuals has been an officer or employee of ours.
None of our current executive officers has ever served as a member of a Board of Directors or Compensation Committee of any other entity that has or has had one or more executive officers serving as a member of our Board of Directors or Compensation Committee during the last fiscal year.
Code of Ethics
We have adopted a code of ethics that applies to all officers and employees, including our principal executive officer and principal financial officer. This code of ethics is reviewed on an annual basis and modified as deemed necessary. It was filed as Exhibit 14 to our Annual Report onForm 10-K for the fiscal year ended December 28, 2003, filed with the SEC. Our code of ethics is also available for download from our website,www.illumina.com, by first clicking on “Corporate,” then “Investor Relations” and then “Corporate Governance.”
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DIRECTOR NOMINATION
Criteria for Board Membership. In selecting candidates for appointment or re-election to the board, the Nominating/Corporate Governance Committee of our Board of Directors considers the appropriate balance of experience, skills, diversity and other relevant characteristics required of members of the Board of Directors. The Nominating/Corporate Governance Committee seeks to ensure that at least a majority of the directors are independent under the rules of The NASDAQ Global Select Market, that members of our Audit Committee meet the financial literacy and sophistication requirements under the rules of The NASDAQ Global Select Market and at least one of them qualifies as an “audit committee financial expert” under the rules of the SEC. Nominees for director are selected on the basis of their depth and breadth of experience, integrity, ability to make independent analytical inquiries, understanding of our business environment and willingness to devote adequate time to board duties.
Process for Identifying and Evaluating Nominees. The Nominating/Corporate Governance Committee believes we are well-served by our current directors. In the ordinary course, absent special circumstances or a material change in the criteria for board membership, the Nominating/Corporate Governance Committee will re-nominate incumbent directors who continue to be qualified for board service and are willing to continue as directors. If an incumbent director is not standing for re-election, or if a vacancy on the board occurs between annual stockholder meetings, the Nominating/Corporate Governance Committee will seek out potential candidates for board appointment who meet the criteria for selection as a nominee and have the specific qualities or skills being sought. In addition, from time to time the board may seek to expand its ranks to bring in new board members with special skillsand/or experience relevant and useful to us at our particular stage of development. Director candidates will be selected based on input from members of our board, our senior management and, if the Nominating/Corporate Governance Committee deems appropriate, a third-party search firm. The Nominating/Corporate Governance Committee will evaluate each candidate’s qualifications and check relevant references; in addition, such candidates will be interviewed by at least one member of the Nominating/Corporate Governance Committee. Candidates meriting serious consideration will meet with all members of the board. Based on this input, the Nominating/Corporate Governance Committee will evaluate which of the prospective candidates is qualified to serve as a director and whether the committee should recommend to the board that this candidate be appointed to fill a current vacancy on the board or presented for the approval of the stockholders, as appropriate.
Stockholder Nominees. The Nominating/Corporate Governance Committee will consider written proposals from stockholders for nominees for director under the same criteria described above but, based on those criteria, may not necessarily recommend those nominees to the board. Any such nominations should be submitted to the Nominating/Corporate Governance Committee, via the attention of our Secretary, and should include the following information: (a) all information relating to such nominee that is required to be disclosed pursuant to the Exchange Act (including such person’s written consent to a background check, to being named in the proxy statement as a nominee and to serving as a director if elected); (b) the names and addresses of the stockholders making the nomination and the number of shares of our common stock which are owned beneficially and of record by such stockholders; and (c) appropriate biographical information and a statement as to the qualification of the nominee. Nominations should be submitted in the time frame described in our Bylaws and under the caption “Stockholder Proposals for our 2009 Annual Meeting” below.
From time to time, we have retained and may in the future retain the services of an independent third-party search firm to assist the Nominating/Corporate Governance Committee in identifying and evaluating potential candidates.
Board Nominees for the 2008 Annual Meeting. Nominees listed in this Proxy Statement are current directors standing for re-election.
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COMMUNICATION WITH DIRECTORS
You may send, in an envelope marked “Confidential,” a written communication to the Chairchair of the Audit Committee,our audit committee, via the attention of our Secretary,secretary, at 9885 Towne Centre Drive, San Diego, CA 92121. All suchOur secretary will deliver these envelopes will be delivered unopened to the Chairpersonchairperson of our Audit Committee.audit committee.
Can I access the proxy materials on the Internet?
This proxy statement, the form of proxy, and all other proxy materials relating to the special meeting are available at www.envisionreports.com/ilmn.
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PROPOSED AMENDMENT TO OUR CERTIFICATE OF INCORPORATION
Our certificate of incorporation currently authorizes the issuance of 120 million shares of common stock and 10 million shares of preferred stock, of which 120,000 shares have been designated as series A junior participating preferred stock. As of July 28, 2008, the record date for the special meeting, there were 57,300,177 shares of common stock, and no shares of preferred stock, outstanding. In addition, as of that date, there were:
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| • | 9,542,426 shares of common stock issuable upon conversion of outstanding options; |
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| • | 19,910,121 shares of common stock potentially issuable upon exercise of outstanding warrants; |
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| • | 9,161,160 shares of common stock reserved for issuance upon conversion of our outstanding convertible notes; |
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| • | 3,812,350 shares of common stock reserved for issuance pursuant to future grants under our existing option plans; |
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| • | 5,465,516 shares of common stock reserved for issuance pursuant to future grants under our existing Employee Stock Purchase Plan; and |
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| • | 437,350 shares of common stock issuable under restricted stock agreements. |
In addition, on August 6, 2008, we entered into an underwriting agreement in connection with a public offering of 3,500,000 shares of common stock, which closed on August 12, 2008. Accordingly, as of July 28, 2008, as adjusted to give effect to this public offering, there were 109,129,100 shares of common stock that were outstanding or reserved for future issuance.
Description of the Proposed Amendment
On July 20, 2008, our board of directors conditionally approved atwo-for-one stock split in the form of a stock dividend. However, our existing certificate of incorporation does not authorize a sufficient number of shares of common stock to effect atwo-for-one stock split. Accordingly, in order to effect the stock split and have an adequate number of additional authorized shares to meet business needs as they arise, our board of directors approved an amendment to our certificate of incorporation. The proposed amendment would increase the number of shares of common stock we are authorized to issue from 120 million to 320 million. Our stockholders must approve this amendment before it will become effective, and thetwo-for-one stock split is conditioned upon receiving this stockholder approval and effecting the amendment. If adopted, the amendment to our certificate of incorporation will become effective when it is filed with the Delaware Secretary of State. If the proposal is not approved by our stockholders, then we will be unable to file the amendment or implement thetwo-for-one stock split. The proposed amendment does not affect the authorized number of shares of preferred stock.
You may review the full text of the proposed amendment to our certificate of incorporation in Appendix A to this proxy statement. Our board of directors has the right, in accordance with Delaware law, to abandon the proposed amendment to our certificate of incorporation at any time before it is filed with the Delaware Secretary of State.
Description of the Stock Split
As described above, our board of directors approved, subject to stockholder approval and effectiveness of the proposed amendment to our certificate of incorporation, atwo-for-one stock split in the form of a stock dividend. Pursuant to this stock dividend, if paid, each person who is a stockholder of record at the close of business on the record date for the dividend will receive one additional share of common stock for each share of common stock which the person held at the close of business on that record date. We currently expect the record date for the stock dividend to be September 10, 2008 and
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that the dividend will be paid on September 22, 2008, assuming our stockholders approve the proposed amendment to our certificate of incorporation. A stockholder’s proportional equity interest in Illumina will not increase as a result of the stock dividend. However, we believe that the stock split may place the market price of our common stock in a range that is more attractive to investors, particularly individuals, which may result in a broader market for our stock. Our board of directors has the right, in accordance with Delaware law, to change the amount of the stock dividend or not to effect the dividend at all.
PROPOSAL TWO: RATIFICATION OF INDEPENDENT AUDITORSPurposes and Effects of the Proposed Amendment to Our Certificate of Incorporation
The primary purpose of the proposed amendment is to authorize a sufficient number of shares of common stock to effect atwo-for-one stock split in the form of a stock dividend. In addition, our board of directors believes that it is in our best interests to increase the number of authorized shares of common stock beyond the number necessary to effect the stock split. This would allow us to have additional authorized but unissued shares available for issuance to meet business needs as they arise, without the expense or delay of having to obtain additional stockholder approval. These business needs may include, among other things, financings, business combination transactions, future stock dividends, adopting new or modifying our current equity incentive plans, and other proper corporate purposes. Future issuances of our common stock would not require further stockholder approval unless required by Delaware law or the rules of any securities exchange on which our shares are then listed or traded. We currently have no immediate plans to issue additional shares of common stock other than as permitted or required under our outstanding options, warrants, restricted stock agreements or convertible notes or under our existing equity incentive plans. In addition, as previously announced, we conducted a public offering of 3,500,000 shares of our common stock, which closed on August 12, 2008. Pursuant to the underwriting agreement relating to this public offering, we granted the underwriter a customary30-day option to purchase up to 525,000 additional shares of our common stock in connection with this offering.
If our stockholders approve the proposed amendment to our certificate of incorporation at the special meeting, approximately 210,870,900 shares (or, if we effect thetwo-for-one stock split, approximately 101,741,800 shares) of common stock would be available for future issuance, excluding shares that are not already reserved for future issuance under outstanding options, warrants, restricted stock agreements, and convertible notes or under our existing equity incentive plans. Because our stockholders do not have preemptive rights to subscribe for additional securities, future issuances of shares of our common stock may have a dilutive effect on our existing stockholders’ voting power and proportionate equity interest in us. In addition, future issuances could reduce our reported earnings per share and book value per share. Under Delaware law, our stockholders are not entitled to dissenters’ rights with respect to the proposed amendment to our certificate of incorporation.
As is presently the case, the availability of additional shares of our common stock for issuance could enable our board of directors to render more difficult, or discourage an attempt, to obtain control of us. For example, the issuance of shares of common stock in a public or private sale, merger, or other transaction would increase the number of outstanding shares, which could dilute the interests of a person attempting to obtain control of us. We are currently not aware of any pending or threatened efforts to obtain control of us. In addition, the increased shares authorized by the proposed amendment could permit our board of directors to issue shares to persons who are supportive of our management’s position. These persons may vote their shares to prevent or delay a proposed business combination that our board of directors considers unacceptable, even if our stockholders believe the business combination is desirable.
Our Stockholder Rights Plan
On May 3, 2001, our board of directors adopted a stockholder rights plan pursuant to which each share of our common stock generally will carry with it one preferred share purchase right. Each right
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entitles the registered holder to purchase, from us, one one-thousandth of a share of our series A junior participating preferred stock. The Audit Committee has appointedrights are not currently exercisable and will expire in May 2011, unless extended or unless we earlier redeem or exchange the firmrights. The terms of Ernst & Young LLP,the rights are set forth in a rights agreement, dated as of May 3, 2001, between us and Equiserve Trust Company, N.A., as rights agent.
In order to implement our independent auditors during 2007,stockholder rights plan, we designated and reserved 120,000 shares of our authorized preferred stock as “series A junior participating preferred stock” for issuance upon exercise of the preferred share purchase rights. If our stockholders approve the proposed amendment to serveour certificate of incorporation, then we intend to designate and reserve an additional 200,000 shares of series A junior participating preferred stock for issuance in connection with the additional shares of common stock being authorized by the amendment.
The rights plan is designed to protect our stockholders against unsolicited offers to acquire us and other coercive takeover tactics that, in our board’s opinion, would impair our board’s ability to represent our stockholders’ interests. The rights plan may make an unsolicited takeover more difficult or less likely to occur, or may prevent a takeover altogether, even if our stockholders believe the takeover is beneficial to them or the takeover would permit our stockholders to sell their stock at a price above prevailing market prices.
Effects of the Stock Split
As described above, we intend to effect atwo-for-one stock split in the same capacity for the year ending December 28, 2008, and is asking the stockholders to ratify this appointment. The affirmative voteform of a majoritystock dividend, if our stockholders approve the proposed amendment to our certificate of incorporation.
Accounting Effects
If we effect the proposed stock split, an amount equal to the par value of the shares represented and voting atissued in the annual meeting is required to ratify the appointment of Ernst & Young LLP.
In the event the stockholders fail to ratify the appointment, the Board of Directors will reconsider its selection. Even if the selection is ratified, the Audit Committee in its discretion may direct the appointment of a different independent auditor at any time during the year if the Audit Committee believes that such a change would be in our and our stockholders’ best interests.
A representative of Ernst & Young LLP is expected to be present at the annual meeting. This representative will have the opportunity to make a statement if he or she desires to do so, andstock split will be availabletransferred from retained earnings to respond to appropriate questions.our common stock account. The $0.01 par value of the common stock would not change.
Audit FeesTax Effects
The aggregate fees billed by Ernst & Young LLP for professional services rendered forUnder current U.S. federal income tax laws (which may change, possibly with retroactive effect), the auditreceipt, in the form of a stock dividend, of one additional share of our annual financial statements,common stock for each share of common stock previously owned generally will not result in taxable income, gain, or loss to our stockholders. The tax basis of each share of our common stock a stockholder holds immediately before the quarterly reviewsstock split generally will be allocated equally between such old share and the new share received in respect of the financial statements includedold share in ourForm 10-Qs and the reviewstock split. The holding period for each of those two shares will include the period for which the corresponding old share of our registration statements were $698,581common stock was held. The laws of jurisdictions other than the United States may impose taxes in connection with the proposed stock split, and $500,612 for fiscal years 2007this discussion does not consider the effects of such laws. We urge stockholders to consult their own tax and 2006, respectively. Audit fees also include fees for professional services rendered forfinancial advisors as to the auditspecific tax consequences of the effectivenessstock split to them, including the effects of internal control over financial reporting.applicable federal, state, local, foreign and other tax laws.
Audit-Related FeesOther Effects
The aggregate fees billed by Ernst & Young LLPIf we implement the stock split, appropriate adjustments will be made to the terms of outstanding stock options and other stock-based instruments that we have awarded or will award under our equity incentive plans. Appropriate adjustments will also be made to the terms of our outstanding warrants and
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convertible notes. Generally speaking, atwo-for-one stock split will cause the number of shares underlying these instruments to be doubled and, if applicable, the effective exercise or conversion price to be halved. For example, the conversion rate for audit-related professional services rendered were $191,240 and $72,873the $400,000,000 principal amount of our outstanding 0.625% Convertible Senior Notes due 2014 will increase from 22.9029 shares of common stock per $1,000 principal amount to 45.8058 shares of common stock per $1,000 principal amount. In addition, atwo-for-one stock split will double the number of shares reserved for fiscal years 2007 and 2006, respectively. These fees primarily relate to services rendered for work associated withissuance under our acquisition of Solexa, Inc. and February 2007 convertible debt offering.existing equity incentive plans.
Tax Fees
The aggregate fees billed by Ernst & Young LLP for tax services rendered were $134,629Furthermore, after a stock split, brokerage commissions on transactions in our common stock and $125,991 for fiscal years 2007 and 2006, respectively. For fiscal 2007, these fees primarily relatetransfer taxes, if any, may be higher, compared to services rendered for the preparation of a Section 382 tax study and federal, state and foreign tax filings, and review of our international structure. For fiscal 2006, these fees primarily related to services rendered for the preparation of a Section 382 tax study and federal and state tax filings.
All Other Fees
For fiscal years 2007 and 2006, Ernst & Young LLP did not perform any professional services other than as stated under the captions Audit Fees, Audit-Related Fees and Tax Fees above.
Pre-Approval Policies and Procedures
The Audit Committee, as required by the Exchange Act, requires advance approval of all audit services and permitted non-audit services to be provided by the independent auditors. The Audit Committee must approve the permitted servicesimilar transactions before the independent auditors are engaged to perform it. The services understock split involving the captions Audit Fees, Audit-Related Fees and Tax Fees above were pre-approved by our Audit Committee in accordance with this policy.same dollar amount.
Recommendation of the Board of Directors
The BoardOur board of Directorsdirectors recommends that the stockholdersyou vote FOR the ratification of the selection of Ernst & Young LLP to serve as our independent auditors for the fiscal year ending December 28, 2008.
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PROPOSAL THREE: APPROVAL OF AMENDMENT TO THE 2005 STOCK AND INCENTIVE PLAN
On March 27, 2008, our Board of Directors approved anproposed amendment to our 2005 Stock and Incentive Plan (the “2005 Plan”), subject to stockholder approval, to increase the maximum numbercertificate of shares of our common stock authorized for issuance under the 2005 Plan by 1,200,000, from 15,142,358 shares to 16,342,358 shares.
Our Board of Directors approved the 2005 Plan in April 2005, subject to stockholder approval, and our stockholders approved the 2005 Plan at our 2005 annual meeting. The 2005 Plan replaced our 2000 Stock Plan and became the primary form of providing equity-based compensation to participants. Our Board of Directors continues to believe that equity compensation awards are an important part of our overall compensation program. Due to the growth in our business since the 2005 Plan was initially adopted, our Board of Directors believes the increase in the number of shares subject to the plan is necessary to attract and retain qualified officers, employees, consultants and directors.
If this amendment is not approved, the maximum number of shares of common stock authorized for issuance under the 2005 Plan will remain at 15,142,358 shares, subject to the “evergreen” provisions described below.
The following is a summary of the material features of the 2005 Plan, as well as the amendment proposed for approval.
Description of the 2005 Plan
A copy of our 2005 Plan, as amended, is filed as exhibit 10.1 to our Current Report onForm 8-K, which we filed with the SEC on July 30, 2007. The following description of the 2005 Plan is only a summary and is qualified by reference to the complete text of the 2005 Plan.
The material terms of the 2005 Plan include the following:
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| • | the types of awards that may be granted under the 2005 Plan are stock options (including incentive stock options and nonstatutory stock options), restricted stock grants, restricted stock units, stock appreciation rights and other similar types of awards (including other awards under which recipients are not required to pay any purchase or exercise price, such as phantom stock rights), as well as cash awards; |
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| • | the maximum number of shares subject to awards that may be granted to any one participant under the 2005 Plan during any single fiscal year is 500,000 shares, except that up to 1,000,000 additional shares may be granted to a participant during the fiscal year in which the participant’s service with us commences (the “162(m) Share Limit”); |
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| • | the maximum value of any cash award granted to any participant for any fiscal year under the 2005 Plan is $1,000,000 (the “162(m) Cash Limit”); |
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| • | we may not reprice or otherwise reduce the exercise price of outstanding options granted under the 2005 Plan (other than in connection with certain corporate transactions such as stock splits, stock dividends or similar transactions) without the approval of our stockholders; |
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| • | the 2005 Plan provides that our Board of Directors may grant awards to our directors (including our outside or non-employee directors) and, to the extent the 2005 Plan or the board establishes an automatic option grant program for directors under the 2005 Plan, the board may in its discretion change the terms of options to be granted under such program, or discontinue the program at any time in its sole discretion. The 2005 Plan provides for an automatic option grant program for our non-employee directors, which is described below under “Director Compensation — 2005 Stock and Incentive Plan”; |
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| • | the number of shares reserved for issuance under the 2005 Plan (including the maximum number of shares in the evergreen feature described below) and subject to outstanding awards, the exercise or purchase price per share applicable to outstanding awards, the number of shares to be |
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| | granted to our non-employee directors under any director option grant program for our non-employee directors and the 162(m) Share Limit will each be adjusted proportionately to reflect the terms of certain corporate transactions, including stock splits, stock dividends, and certain other transactions affecting our capital stock; |
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| • | the 2005 Plan has an “evergreen” feature pursuant to which additional shares will automatically be added to the shares reserved for issuance under the 2005 Plan without further stockholder approval as of the first day of each fiscal year through 2010. The number of shares automatically added each year is the lesser of 1,200,000 shares (subject to certain adjustments upon changes in capitalization, dissolution or certain corporate transactions), 5% of the outstanding shares of our common stock as of the last day of the immediately preceding fiscal year or a number of shares established by our board; |
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| • | shares subject to awards that expire or terminate for any reason without having been exercised in full, or without the shares subject to such awards having been issued in full, will become available for re-issuance under the 2005 Plan; |
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| • | shares of common stock which we retained upon exercise of an award in order to satisfy the exercise or purchase price of an award or any withholding taxes due with respect to the exercise or purchase will not continue to be available for issuance under the 2005 Plan; and |
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| • | the 2005 Plan will expire in 2015 (unless it expires or is terminated earlier pursuant to its terms). |
General
The purposes of the 2005 Plan are to attract and retain the best available personnel for positions of substantial responsibility, to provide additional incentive to service providers and to promote the success of our business. Stock options, restricted stock, restricted stock units, stock appreciation rights and other similar types of awards (including other awards under which recipients are not required to pay any purchase price or exercise price, such as phantom stock rights), as well as cash awards may be granted under the 2005 Plan (each an “Award”). Options granted under the 2005 Plan may be either “incentive stock options,” as defined in Section 422 of the Internal Revenue Code of 1986 (the “Code”), or non-statutory stock options.
Administration. The 2005 Plan is administered by the Compensation Committee of our Board of Directors (the “Administrator”).
Eligibility. Non-statutory stock options and stock awards may be granted under the 2005 Plan to our or our parent’s or subsidiaries’ employees, directors (including non-employee directors) and consultants. Incentive stock options and cash awards may be granted only to our employees or our subsidiaries’ employees. The Administrator, in its discretion, selects the employees to whom stock options and other stock awards, as well as cash awards, may be granted, the time or times at which such Awards are granted, and the terms of such Awards to be granted under the 2005 Plan. As of March 24, 2008, we had approximately 1,100 employees and eight non-employee directors who would be eligible to participate in the 2005 Plan.
Plan Benefits. Because benefits under the 2005 Plan will depend on the Administrator’s actions and, with respect to options and other stock awards, the fair market value of common stock at various future dates, it is not possible to determine the benefits that will be received by employees, officers, directors and consultants under such types of awards. As of March 24, 2008, the closing sales price of our common stock was $74.33 per share.
Nontransferability of Awards. Options and stock awards granted under the 2005 Plan are not transferable other than by will or the laws of descent and distribution and may be exercised during the lifetime of the holder of the option or stock award only by the holder; provided that non-statutory stock options may be transferred by gift to immediate family members of the participant or to a trust in which
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non-statutory stock options are to be passed to a beneficiary of the participant upon the death of the participant.
Stock Options
Exercise Price. The Administrator determines the exercise price of options at the time the options are granted. The exercise price of options granted under the 2005 Plan may not be less than 100% of the fair market value of our common stock on the date of grant of such option, except that the exercise price of an incentive stock option to an employee who is also a 10% stockholder must have an exercise price at least equal to 110% of the fair market value of our common stock on the date of grant of such option. We may grant options with exercise prices equal to less than 100% of the fair market value of our common stock on the date of grant in connection with our acquisition of another company. The fair market value of our common stock is generally the closing sales price as quoted on The NASDAQ Global Select Market on the date of grant. No option may be repriced to reduce the exercise price of such option without stockholder approval (except in connection with a change in our capitalization, such as a stock split or a recapitalization).
Exercise of Option; Form of Consideration. The Administrator determines when options vest and become exercisable, and in its discretion may accelerate the vestingand/or exercisability of any outstanding option. Our standard vesting schedule applicable to options granted to newly hired employees in 2007 was five years, whereby one-fifth of the total number of shares subject to the option become vested and exercisable on the first year anniversary of the date of grant and an additional 1/60th of the total number of shares subject to the option become vested and exercisable on each subsequent monthly anniversary of the date of grant. Our standard vesting schedule for options granted to continuing employees is 1/60th of the total number of shares subject to an option become vested and exercisable on each monthly anniversary of the date of grant. In 2008, we changed the standard vesting schedule to four years for options granted to new hires and continuing employees under the 2005 Plan to be more consistent and competitive with practices in our sector. Thus, one-fourth of the total number of shares subject to the option become vested and exercisable on the first year anniversary of the date of grant and an additional 1/48th of the total number of shares subject to the option become vested and exercisable on each subsequent monthly anniversary of the date of grant. Our standard vesting schedule for options granted to continuing employees is 1/48th of the total number of shares subject to an option become vested and exercisable on each monthly anniversary of the date of grant. The means of payment for shares issued upon exercise of an option are specified in each option agreement. The 2005 Plan permits payment to be made by cash, check, promissory note, cancellation of indebtedness, other shares of our common stock (with some restrictions), broker assistedsame-day sale or any other means of consideration permitted by applicable law.
Term of Option. The term of an option may be no more than ten years from the date of grant, except that the term of an incentive stock option may not be more than five years from the date of grant for an optionee who is also a 10% stockholder. No option may be exercised after the expiration of its term.
Termination of Options. Generally, if an optionee’s services to us as an employee, consultant or director terminate other than for death or disability, vested options will remain exercisable for a period of 90 days following the optionee’s termination. Unless otherwise provided for in the option agreement, generally if an optionee becomes disabled or dies while an employee, consultant or director, the optionee’s vested options will be exercisable for twelve months following the optionee’s death or termination as a result of disability, or if earlier, the expiration of the term of such option. The Administrator has the authority to extend the period of time for which an option is to remain exercisable following optionee’s termination, except that no option may be exercisable later than the expiration of the term of the option.
Automatic Director Stock Option Program. The 2005 Plan allows the Administrator to grant nonstatutory stock options to non-employee directors, and, to the extent it establishes an automatic
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option grant program for directors under the 2005 Plan, it may change the terms of options to be granted under such program or discontinue the program at any time in its sole discretion. The 2005 Plan provides for an automatic option grant program for our non-employee directors, which is described below under “Director Compensation — 2005 Stock and Incentive Plan.” The per-share exercise price applicable to these options is equal to the fair market value of our common stock on the date of grant. In the event of our merger with or into another corporation, a sale of substantially all of our assets or another corporate transaction (as defined in the 2005 Plan), if a successor corporation does not assume or substitute for each of these options, then each of those outstanding options will vest in full and be fully exercisable, including as to shares which would not otherwise be vested or exercisable.
Stock Awards
Stock awards may be stock grants, stock units, stock appreciation rights or other similar stock awards (including stock awards having an exercise or purchase price that is less than the fair market value of the common stock as of the date of grant of the award, such as phantom stock rights). Stock grants are awards of a specific number of shares of our common stock. Stock units represent a promise to deliver shares of our common stock, or an amount of cash or property equal to the value of the underlying shares, at a future date. Stock appreciation rights are rights to receive cashand/or shares of our common stock based on a change in the fair market value of a specific number of shares of our common stock. Each stock award is evidenced by a stock award agreement between us and the participant. The 2005 Plan allows the Administrator broad discretion to determine the terms of individual awards, including the number of shares that such participant will be entitled to purchase or receive and the price (if any) to be paid by the recipient in connection with the issuance of the shares. Each stock award agreement will contain provisions regarding (i) the number of shares subject to such stock award or a formula for determining such number, (ii) the purchase price of the shares, if any, and the means of payment for the shares, (iii) the performance criteria, if any, and level of achievement versus these criteria that will determine the number of shares granted, issued, retainable and vested, as applicable, (iv) such terms and conditions on the grant, issuance, vesting and forfeiture of the shares, as applicable, as may be determined from time to time by the Administrator, (v) restrictions on the transferability of the stock award, and (vi) such further terms and conditions, in each case not inconsistent with the 2005 Plan, as may be determined from time to time by the Administrator. Shares may be granted under the 2005 Plan as stock awards without requiring the participant to pay us an amount equal to the fair market value of our common stock as of the Award grant date in order to acquire the Award shares.
Cash Awards
Cash awards granted under the 2005 Plan will generally be made to individuals who are, or who we anticipate may be, one of our five most highly compensated officers (such individuals being those employees whose compensation may not be fully deductible by us under Section 162(m) of the Code if it exceeds, with respect to a given year, the limits imposed by that section). Each cash award granted under the 2005 Plan will be subject to performance objectives (“Qualifying Performance Criteria”) that may be based on the following:
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| • | cash flow; |
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| • | earnings, including gross margin, earnings before interest and taxes, earnings before taxes, and net earnings; |
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| • | earnings per share; |
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| • | growth in earnings or earnings per share; |
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| • | stock price; |
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| • | return on equity or average stockholders’ equity, total stockholder return, return on capital, return on assets or net assets, return on investment, or return on operating revenue; |
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| • | revenue, income, net income, operating income, net operating income, operating profit, net operating profit, or operating margin; |
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| • | market share; |
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| • | contract awards or backlog; |
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| • | overhead or other expense reduction; |
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| • | growth in stockholder value relative to the moving average of the S&P 500 Index or our peer group index; |
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| • | credit rating; |
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| • | strategic plan development and implementation; |
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| • | improvement in workforce diversity; and |
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| • | such other similar criteria as may be determined by the Administrator (as defined below). |
Each cash award will be reflected in an agreement containing provisions regarding (1) the target and maximum amount payable to the participant as a cash award, (2) the Qualifying Performance Criteria and level of achievement versus the criteria that will determine the amount of such payment, (3) the period as to which performance will be measured for establishing the amount of any payment, (4) the timing of any payment earned by virtue of performance, (5) restrictions on the alienation or transfer of the cash award prior to actual payment, (6) forfeiture provisions, and (7) such further terms and conditions, in each case not inconsistent with the 2005 Plan, as may be determined from time to time by the Administrator. The maximum amount payable as a cash award may be a multiple of the target amount payable. The maximum amount payable pursuant to a cash award granted under the 2005 Plan for any fiscal year to any participant may not exceed $1,000,000. Nothing in the 2005 Plan prevents us from granting cash awards outside of the 2005 Plan to any individual.
Adjustments on Changes in Capitalization, Merger or Change of Control
In the event of any stock dividend, stock split, reverse stock split, recapitalization, combination, reclassification or similar change to our capital structure without receipt of consideration by us, appropriate adjustments will be made to (i) the number of shares subject to the 2005 Plan (including the number of shares subject to the evergreen feature), (ii) the 162(m) Share Limit, (iii) the number of shares that may be granted to our non-employee directors under the automatic stock option provisions of the 2005 Plan applicable to such directors, and (iv) the exercise price and number of shares under each outstanding Award. Any such adjustments shall be made by the Administrator, and the decision of the Administrator shall be final, binding and conclusive.
The 2005 Plan provides that in the event of our merger with or into another corporation, a sale of substantially all of our assets or another corporate transaction (as defined in the 2005 Plan), the board or the Administrator may provide for the assumption, substitution or adjustment of each outstanding Award, accelerate the vesting of options and terminate any restrictions on stock awards or cash awards or terminate Awards on such terms and conditions as the board or Administrator determines, including for a cash payment to the participant.
In the event of a proposed dissolution or liquidation of us, each Award will terminate immediately prior to the consummation of the dissolution or liquidation, unless otherwise determined by the Administrator.
Amendment and Termination of the 2005 Plan
The board may amend, alter, suspend or discontinue the 2005 Plan. However, we must obtain stockholder approval for any amendment to the 2005 Plan to the extent necessary and desirable to comply with applicable laws and the continued listing standards of The NASDAQ Global Select Market.
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Generally, no such action by the board or stockholders may alter or impair any outstanding Award under the 2005 Plan without the written consent of the holder. In addition, no amendment shall be made that would reduce the exercise price of outstanding options without the written consent of the stockholders. The 2005 Plan will terminate in June 2015.
Federal Income Tax Consequences of Awards under the 2005 Plan
THE FOLLOWING IS A GENERAL SUMMARY OF THE TYPICAL FEDERAL INCOME TAX CONSEQUENCES OF THE ISSUANCE AND EXERCISE OF OPTIONS OR AWARDS OF RESTRICTED STOCK UNDER THE 2005 PLAN. IT DOES NOT DESCRIBE STATE OR OTHER TAX CONSEQUENCES OF THE ISSUANCE AND EXERCISE OF OPTIONS OR OF GRANT OF RESTRICTED STOCK.
Options. The grant of an incentive stock option has no federal income tax effect on the optionee. Upon exercise the optionee does not recognize income for “regular” tax purposes. However, the excess of the fair market value of the stock subject to an option over the exercise price of such option (the “option spread”) is includible in the optionee’s “alternative minimum taxable income” for purposes of the alternative minimum tax. If the optionee does not dispose of the stock acquired upon exercise of an incentive stock option until more than two years after the option grant date and more than one year after exercise of the option, any gain (or loss) upon sale of the shares will be a long-term capital gain (or loss). If the holding periods are not satisfied, then: (1) if the sale price exceeds the exercise price, the optionee will recognize capital gain equal to the excess, if any, of the sale price over the fair market value of the shares on the date of exercise and will recognize ordinary income equal to the difference, if any, between the lesser of the sale price or the fair market value of the shares on the exercise date and the exercise price; or (2) if the sale price is less than the exercise price, the optionee will recognize a capital loss equal to the difference between the exercise price and the sale price. We are not entitled to a federal income tax deduction in connection with incentive stock options, except to the extent that the optionee has taxable ordinary income on a disqualifying disposition (unless limited by Section 162(m) of the Code).
The grant of a non-statutory stock option has no federal income tax effect on the optionee. Upon the exercise of a non-statutory stock option with respect to vested shares, the optionee has taxable ordinary income (and, unless limited by Section 162(m), we are entitled to a corresponding deduction) equal to the option spread on the date of exercise. Upon the disposition of stock acquired upon exercise of a non-statutory stock option, the optionee recognizes either long-term or short-term capital gain or loss, depending on how long such stock was held, on any difference between the sale price and the exercise price, to the extent not recognized as taxable income on the date of exercise. We may allow non-statutory stock options to be transferred subject to conditions and restrictions imposed by the Administrator; special tax rules may apply on such a transfer.
In the case of both incentive stock options and non-statutory stock options, special federal income tax rules apply if our common stock is used to pay all or part of the option price, and different rules than those described above will apply if unvested shares are purchased on exercise of the option.
Stock Awards. Stock awards will generally be taxed in the same manner as non-statutory stock options. However, shares issued under a restricted stock award are subject to a “substantial risk of forfeiture” within the meaning of Section 83 of the Code to the extent the shares will be forfeited in the event that the participant ceases to provide services to us and are not nontransferable. As a result of this substantial risk of forfeiture, the participant will not recognize ordinary income at the time the award shares are issued. Instead, the participant will recognize ordinary income on the dates when the stock is no longer subject to a substantial risk of forfeiture, or when the stock becomes transferable, if earlier. The participant’s ordinary income is measured as the difference between the amount paid for the stock, if any, and the fair market value of the stock on the date the stock is no longer subject to forfeiture.
The employee may accelerate his or her recognition of ordinary income, if any, and begin his or her capital gains holding period by timely filing (i.e., within 30 days of the share issuance date) an election pursuant to Section 83(b) of the Code. In such event, the ordinary income recognized, if any, is measured as the difference between the amount paid for the stock, if any, and the fair market value of the stock on
16
the date of such issuance, and the capital gain holding period commences on such date. The ordinary income recognized by an employee will be subject to tax withholding by us. Unless limited by Section 162(m) of the Code, we are entitled to a deduction in the same amount as and at the time the employee recognizes ordinary income.
Cash Awards. Upon receipt of cash, the recipient will have taxable ordinary income, in the year of receipt, equal to the cash received. Any cash received will be subject to tax withholding by us. Unless limited by Section 162(m) of the Code, we will be entitled to tax deduction in the amount and at the time the recipient recognizes compensation income.
Recommendation of the Board of Directors
The Board of Directors recommends that the stockholders vote FOR the approval of the amendment to the 2005 Plan.incorporation.
OTHER MATTERS
AsThe proposal to amend our certificate of incorporation described above will be the only business transacted at the special meeting, and, as of the date of this proxy statement, we know of no other matters that will be presented for consideration at the annualspecial meeting. IfHowever, if any other matters properlyproper business should come before the annualspecial meeting, it is the intention of the proxy agentpersons named in the enclosed form ofaccompanying proxy will, to the fullest extent permitted by applicable law, have discretionary authority to vote the shares represented as the Board of Directors may recommend. Discretionary authority with respectaccording to such other matters is granted by the execution of the enclosed proxy.their best judgment.
OWNERSHIP OF SECURITIES
The following table sets forth information known to us with respect towithin our knowledge regarding the beneficial ownership of our common stock as of February 29,June 27, 2008 for:by:
| | |
| | • | each of our directors; |
| |
| | • | each of theour named executive officers listedidentified in the summary compensation table included in this proxy statement;statement for our 2008 annual meeting of stockholders; |
| |
| | • | each stockholder known by uswho, to ownour knowledge, beneficially owns more than 5% of our common stock; and |
| |
| | • | all of our directors and executive officers as a group. |
Beneficial ownership is determined in accordance withGenerally, a person beneficially owns a security if that person has, or has the rules of the SEC and generally includesright to acquire within 60 days, sole or shared voting or investment power with respect to securities.over that security. Shares of common stock subject tothat underlie stock options currently exercisable or warrants that are exercisable within 60 days from February 29,of June 27, 2008 are deemedconsidered to be outstanding for computingpurposes of calculating the percentage ownership of the person holding thesethose options or warrants, and the percentage ownership of any group of which thethat holder is a member, but are not deemedconsidered outstanding for computingpurposes of calculating the percentage ownership of any other person.
Except as indicated by footnote, and subject to community property laws where applicable, we understand that the persons named in the table below have sole voting and investment power with respect to allover the shares of common stock shown as beneficially owned by them. Except as otherwise noted, below, the address of each person listed onin the table below is 9885 Towne Centre Drive, San Diego, CA 92121. Some of the shares of
6
common stock held by our directors, officers, and
17
consultants are subject to repurchase rights in our favor. For a description of these repurchase rights, see the footnotes below.
| | | | | | | | | | | | | |
| | | Shares Issuable
| | | | |
| | | Pursuant to Options
| | Beneficial Ownership |
| | | Exercisable Within
| | Number of Shares
| | |
| | | 60 Days of
| | (including
| | |
| | | February 29,
| | number shown in
| | Percentage
|
Name and Address | | 2008 | | first column) | | of Total(1) |
| |
DIRECTORS AND EXECUTIVE OFFICERS | | | | | | | | | | | | |
| Jay T. Flatley(2) | | | 582,186 | | | | 1,097,410 | | | | 1.93 | % |
| Christian O. Henry | | | 58,312 | | | | 65,212 | | | | * | |
| Christian G. Cabou(3) | | | 56,328 | | | | 61,411 | | | | * | |
| Arthur L. Holden(4) | | | — | | | | — | | | | — | |
| Tristan B. Orpin | | | 75,745 | | | | 84,434 | | | | * | |
| John R. Stuelpnagel, D.V.M | | | 289,582 | | | | 627,418 | | | | 1.11 | % |
| John West(5) | | | — | | | | 36,062 | | | | * | |
| William H. Rastetter, Ph.D.(6) | | | 53,500 | | | | 96,840 | | | | * | |
| Daniel M. Bradbury | | | 43,500 | | | | 43,500 | | | | * | |
| A. Blaine Bowman | | | 13,895 | | | | 13,895 | | | | * | |
| Karin Eastham | | | 31,000 | | | | 31,000 | | | | * | |
| Jack Goldstein, Ph.D. | | | 6,667 | | | | 6,667 | | | | * | |
| Paul Grint, M.D. | | | 23,000 | | | | 23,000 | | | | * | |
| David R. Walt, Ph.D.(7) | | | 53,500 | | | | 880,813 | | | | 1.57 | % |
| Roy Whitfield | | | 13,895 | | | | 13,895 | | | | * | |
| All directors and executive officers as a group (15 persons) | | | 1,301,110 | | | | 3,081,557 | | | | 5.36 | % |
5% STOCKHOLDERS | | | | | | | | | | | | |
| FMR LLC(8) | | | — | | | | 8,342,595 | | | | 14.86 | % |
| 82 Devonshire Street | | | | | | | | | | | | |
| Boston, MA 02109 | | | | | | | | | | | | |
| Morgan Stanley(9) | | | — | | | | 7,232,025 | | | | 12.88 | % |
| 1585 Broadway | | | | | | | | | | | | |
| New York, NY 10036 | | | | | | | | | | | | |
| T. Rowe Price Associates, Inc.(10) | | | — | | | | 3,387,150 | | | | 6.03 | % |
| 100 E. Pratt Street | | | | | | | | | | | | |
| Baltimore, MD 21202 | | | | | | | | | | | | |
| Federated Investors, Inc.(11) | | | — | | | | 3,332,636 | | | | 5.94 | % |
| Federated Investors Tower | | | | | | | | | | | | |
Pittsburgh, PA15222-3779 | | | | | | | | | | | | |
| | | | | | | | | | | | | |
| | | Shares
| | | | |
| | | Underlying Options
| | | | |
| | | and Warrants
| | | | Beneficial
|
| | | Exercisable Within
| | Shares Beneficially
| | Ownership as a
|
| | | 60 Days of
| | Owned (Including
| | Percentage of the
|
| | | June 27,
| | Shares Shown in the
| | Shares
|
| | | 2008 | | First Column) | | Outstanding(1) |
| |
DIRECTORS AND NAMED EXECUTIVE OFFICERS: | | | | | | | | | | | | |
| Jay T. Flatley(2) | | | 618,228 | | | | 1,089,452 | | | | 1.89 | % |
| Christian O. Henry | | | 70,709 | | | | 77,109 | | | | * | |
| Christian G. Cabou(3) | | | 63,906 | | | | 68,989 | | | | * | |
| Arthur L. Holden(4) | | | — | | | | — | | | | * | |
| Tristan B. Orpin | | | 65,656 | | | | 74,345 | | | | * | |
| John R. Stuelpnagel, D.V.M(5) | | | 68,916 | | | | 331,752 | | | | * | |
| John West(6) | | | — | | | | 42,562 | | | | * | |
| William H. Rastetter, Ph.D.(7) | | | 66,000 | | | | 110,340 | | | | * | |
| Daniel M. Bradbury | | | 53,000 | | | | 54,000 | | | | * | |
| A. Blaine Bowman | | | 13,895 | | | | 14,895 | | | | * | |
| Karin Eastham | | | 36,000 | | | | 37,000 | | | | * | |
| Jack Goldstein, Ph.D. | | | 23,334 | | | | 24,334 | | | | * | |
| Paul Grint, M.D. | | | 33,000 | | | | 34,000 | | | | * | |
| David R. Walt, Ph.D.(8) | | | 66,000 | | | | 797,773 | | | | 1.39 | % |
| Roy Whitfield | | | 13,895 | | | | 14,895 | | | | * | |
| All directors and Executive Officers as a Group (15 persons) | | | 1,192,539 | | | | 2,771,446 | | | | 4.75 | % |
GREATER THAN 5% BENEFICIAL OWNERS: | | | | | | | | | | | | |
| FMR LLC(9) | | | — | | | | 8,342,595 | | | | 14.60 | % |
82 Devonshire Street
Boston, MA 02109 | | | | | | | | | | | | |
| Morgan Stanley(10) | | | — | | | | 7,232,025 | | | | 12.66 | % |
1585 Broadway
New York, NY 10036 | | | | | | | | | | | | |
| T. Rowe Price Associates, Inc.(11) | | | — | | | | 3,387,150 | | | | 5.93 | % |
100 E. Pratt Street
Baltimore, MD 21202 | | | | | | | | | | | | |
| | |
| * | | Represents beneficial ownership of 1% or less than 1% of the outstanding shares of our common stock. |
| | |
| (1) | | Percentage ownership is based on 56,143,77857,143,474 shares of common stock outstanding on February 29, 2008.June 27, 2008, excluding treasury shares. |
| | |
| (2) | | Includes 15,80011,800 shares beneficially owned by Mr. Flatley’s children. |
| |
| (3) | | Mr. Cabou has sharedshares voting power over 500 of these shares with his wife. |
| |
| (4) | | Mr. Holden resigned, effective October 2007. |
| |
| (5) | | Dr. Stuelpnagel moved to part-time status as of April 1, 2008 as an Illumina Fellow. Additionally, he stepped down from our Board of Directors as of that date. |
|
| (6) | | Mr. West resigned, effective February 2008. |
| |
(6)(7) | | Includes 1,170 shares beneficially owned by Dr. Rastetter’s former wife. |
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| | |
(7)(8) | | Includes 138,980103,980 shares beneficially owned by Dr. Walt’s wife and 6,000 beneficially owned by Dr. Walt’s Trust and 4,540 shares beneficially owned by Dr. Walt’s children.Trust. |
| | |
|
(8)(9) | | Based solely on information contained in a Schedule 13G filed with the SEC by FMR LLC on February 14, 2008. We understand that FMR Corp. is the predecessor of FMR LLC, and that Fidelity Management & Research Company, a wholly-ownedwholly owned subsidiary of FMR LLC, beneficially owns 8,341,695 shares as a result of acting as investment advisor to various investment companies. We understand that Fidelity Growth Company Fund, an investment company, beneficially owns 3,315,839 of these shares. We understand that FMR LLC and Edward C. Johnson have sole power to dispose of 8,341,695 of these shares.shares and that Pyramis Global Advisors Trust Company, an indirect wholly-ownedwholly owned subsidiary of FMR LLC, beneficially owns 900 shares. We understand that Pyramis Global Advisors Trust Company’s address is 53 State Street, Boston, Massachusetts 02109. |
| |
(9)(10) | | Based solely on information contained in a Schedule 13G filed with the SEC by Morgan Stanley on February 14, 2008. We understand that Morgan Stanley Investment Management Inc., an investment advisor and wholly owned subsidiary of Morgan Stanley, may be deemed to beneficially own the shares reported as beneficially owned by Morgan Stanley. |
| |
(10)(11) | | Based solely on information contained in a Schedule 13G filed with the SEC by T. Rowe Price Associates, Inc. on February 13, 2008. We understand that the ultimate power to direct the receipt of dividends paid with respect to, and the proceeds from the sale of, the shares indicated as beneficially owned by T. Rowe Price Associates, Inc. (Price Associates) is vested in the individual and institutional clients of Price Associates for whom Price Associates serves as an investment advisor. |
|
(11) | | Based solely on information contained in Schedule 13G filed by Federated Investors, Inc. on February 13, 2008. We understand that Federated Investors, Inc. (Federated) is the parent holding company of Federated Equity Management Company of Pennsylvania and Federated Global Investment Management Corp., which act as investment advisors to registered investment companies and separate accounts that own shares of our common stock. We understand that all of Federated’s outstanding voting stock is held in a voting shares irrevocable trust for which John F. Donahue, Rhodora J. Donahue and J. Christopher Donahue act as trustees. This voting trust, and its trustees, may be deemed to beneficially own the shares of our common stock listed in the table above as beneficially owned by Federated. We understand that each of Federated, the trust and the trustees expressly disclaims beneficial ownership of these shares. |
SOLICITATION
We will bear the entire cost of this solicitation, including the preparation, assembly, printing, and mailing of this proxy statement, the proxy, and any additional solicitation materials we furnish to our stockholders. We will provide proxy materials to brokers, banks, and other financial intermediaries and request them to forward those materials to the beneficial owners of our common stock. We may reimburse these persons for the costs they incur in sending the proxy materials to beneficial owners. In addition, our directors, officers, or employees may solicit proxies by telephone or other means. We will not pay any additional compensation to these individuals for the solicitation.
STOCKHOLDERS SHARING THE SAME ADDRESS
The SEC has adopted rules that permit companies and intermediaries, such as brokers, to deliver a single proxy statement to two or more stockholders that share the same address. This process, commonly referred to as “householding,” may provide an extra convenience for stockholders and cost savings for companies. We endeavor to household our proxy materials to the extent that we deliver them in paper. Accordingly, stockholders who share the same address may receive only one copy of this proxy statement, unless a stockholder at that address delivers contrary instructions to us.
If you prefer to receive multiple copies of the proxy statement at the same address, you may receive additional copies promptly upon request. If you are a stockholder of record, you may obtain additional copies by writing to our secretary at our principal executive offices at 9885 Towne Centre Drive, San Diego, California 92121, or calling us at(858) 202-4500. Eligible stockholders of record who receive multiple copies of the proxy statement can request householding by contacting us in the same manner. If you are a beneficial owner but not a stockholder of record (for example, you hold your shares in a brokerage or custody account), you can request additional copies of the proxy statement or you can request householding by notifying your broker, bank, or other intermediary.
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EXECUTIVE COMPENSATION
Compensation Discussion and Analysis
The following discussion and analysis provides disclosure of the objectives and practices underlying the compensation programs for the President and Chief Executive Officer and the other executive officers collectively identified as the “named executive officers.” Compensation programs for the named executive officers are subject to approval by the Compensation Committee of the Board of Directors. Compensation programs for the President and Chief Executive Officer are, additionally, subject to approval by the Board of Directors.
Compensation Philosophy and Objectives
Our executive compensation and benefit programs aim to encourage our management team to continually pursue strategic opportunities, while effectively managing our day-to-day operations. Specifically, we have created a compensation package that combines short- and long-term components (cash and equity, respectively) at the levels we believe are most appropriate to motivate and reward our senior management team.
Our executive compensation program is designed to achieve five primary objectives:
| | |
| • | attract, retain and reward executives who contribute to our success; |
|
| • | provide economic incentives for executives to achieve business objectives by linking executive compensation with our financial and operating performance; |
|
| • | offer compensation packages that are competitive and consistent with those of peer companies with which we compete for talent; |
|
| • | align the interests of our executives and shareholders by strengthening the relationship between executive pay and shareholder value; and |
|
| • | reward individual performance. |
During fiscal 2007, the Compensation Committee of our Board of Directors (the Committee) retained Radford Surveys + Consulting, an Aon Consulting Company, (Radford) as the Committee’s advisory reporting directly to the Committee Chair. The Committee maintains sole authority to hire, fire and determine the work to be performed by Radford. In 2007 the Committee directed Radford to conduct a comprehensive formal review and analysis of our executive compensation and incentive programs relative to competitive benchmarks. This review consisted of a benchmarking analysis of our executive compensation philosophy and practices against prevailing market practices of identified peer group companies and broader industry trends. The analysis included the review of the total compensation of each of our named executive officers and senior managers with respect to the individual components of base salary, incentive cash compensation (bonus) and equity compensation. It was based on an assessment of market trends covering available public information in addition to proprietary data provided by Radford. The peer group was developed considering companies within the industry that have similar business challenges and complexities where we might recruit and lose executive talent. The Compensation Committee considered a number of factors in defining the market including industry competitors of similar revenue range, employee size and market cap range which we believe reflects the market for talent and stockholder investment. Many of the industry competitors are located in our geographical area, which reflects high-cost of living areas and impacts rate of pay.
20
The following companies made up the comparison peer group:
| | |
Abraxis Bioscience, Inc. | | K-V Pharmaceutical Co. |
Affymetrix, Inc. | | Millennium Pharmaceuticals, Inc. |
Amylin Pharmaceuticals, Inc. | | National Instruments Corp. |
Arrow International, Inc. | | OSI Pharmaceuticals, Inc. |
Cytyc Corp. | | PDL BioPharm, Inc. |
DJO, Inc. | | ResMed, Inc. |
Endo Pharmaceutical Holdings, Inc. | | The Cooper Co., Inc. |
Gen-Probe, Inc. | | Valeant Pharmaceuticals International |
IDEXX Laboratories, Inc. | | Varian, Inc. |
ImClone Systems, Inc. | | VIASYS Healthcare, Inc. |
Inverness Medical Innovations, Inc. | | West Pharmaceutical Services, Inc. |
We target our total compensation for executives at approximately the 50th percentile of compensation paid to executives within business of similar size and complexity as examined by Radford in the assessment. We may deviate from these general target levels to reflect the experience level of the executive, his sustained performance level and market factors as deemed appropriate by the Compensation Committee. The Compensation Committee reviews the information prepared by management from the Radford assessment, considers an executive’s contribution to the achievement of strategic goals and objectives, the executive’s overall compensation and other factors to determine the appropriate level and mix of incentive compensation. There is not a set formula to determine where an individual is paid when compared to market and within our company to positions with similar responsibility and impact on operations.
Throughout this proxy statement, the following executives are referred to as the “named executive officers:”
| | |
| • | Jay T. Flatley — President, Chief Executive Officer and Director |
|
| • | Christian O. Henry — Senior Vice President, Chief Financial Officer and Acting General Manager, Sequencing |
|
| • | Christian G. Cabou — Senior Vice President, General Counsel and Secretary |
|
| • | Arthur L. Holden — Former Senior Vice President, Corporate and Market Development |
|
| • | Tristan B. Orpin — Senior Vice President, Commercial Operations |
|
| • | John R. Stuelpnagel — Co-Founder, Former Senior Vice President, General Manager, Microarrays, Chief Operating Officer and Director |
|
| • | John West — Former Senior Vice President and General Manager, Sequencing |
Role of the Compensation Committee
The Committee has overall responsibility for approving and evaluating our executive officer compensation plans, policies and programs. Karin Eastham, Paul Grint, William H. Rastetter and Roy A. Whitfield are the members of the Committee with Ms. Eastham serving as Committee Chairperson. Our Board of Directors has determined that each member of the Committee is independent within the meaning of the rules of The NASDAQ Global Select Market. The Committee functions under a written charter (the Charter), which was adopted by our Board of Directors. The Charter is reviewed annually and updated as appropriate. A copy of the Charter is available on our website atwww.illumina.comby first clicking on “Corporate,” then “Investor Relations” and then “Corporate Governance.”
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The primary responsibilities of the Committee are to:
| | |
| • | recommend to the Board of Directors the amount and form of compensation to be paid to our Chief Executive Officer based on his performance; |
|
| • | review and approve the amount and form of compensation to be paid to our other executive officers; |
|
| • | exercise oversight of our compensation practices for all other non-executive employees; and |
|
| • | administer our equity compensation plans. |
The Committee meets as often as it considers necessary to perform its duties and responsibilities. The Committee held three meetings during 2007 and has held one meeting so far in 2008. Ms. Eastham works with the Chief Executive Officer to establish the meeting agenda in advance of each meeting. The Committee typically meets with the Chief Executive Officer, Chief Financial Officer, General Counsel, Vice President of Human Resources, our external counsel and, on occasion, with an independent compensation consultant retained by the Committee. When appropriate, such as when the Committee is discussing or evaluating compensation for the Chief Executive Officer, the Committee meets in executive session without management. The Committee receives and reviews materials in advance of each meeting. These materials include information that management believes will be helpful to the Committee, as well as materials that the Committee has specifically requested, including benchmark information, historical compensation data, performance metrics and criteria, the Board’s assessment of our performance against our goals and the Chief Executive Officer’s assessment of each executive’s performance against pre-determined objectives.
Components of 2007 Executive Compensation
For the fiscal year ended December 30, 2007, the components of compensation for named executive officers were:
| | |
| • | base salary; |
|
| • | annual bonus; |
|
| • | long-term equity compensation; and |
|
| • | change in control and other benefits. |
Base Salary
Base salary, which is determined by the level of responsibility, expertise, experience and sustained performance level of the executive and competitive conditions in the industry, is the primary fixed component of the executive pay program. Based on the experience of the Committee members and information derived from the Radford assessment, the Committee believes that the salaries of our executive officers fall within the normal ranges of the biotechnology industry.
Salary levels are considered each January as part of our executive performance review process, as well as upon promotion or other change in job responsibility. The Committee met on January 29, 2008 to review 2007 corporate and executive goal performance, make determinations for the 2007 bonus awards based on the performance reviews and establish the 2008 executive compensation plan, including determinations of 2008 base salary levels. The Committee believes that increases to base salary should reflect the executive’s performance for the preceding year and pay level relative to similar positions in our peer group. Base salary increases also reflect anticipated future contributions of the executive.
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As illustrated in the table below, the average salary increase for all named executive officers in 2007 was 19%, reflecting the continued growth of our business during 2006, the promotion and job expansion of two named executive officers in 2007 and the strong execution by the executive team against organizational and individual objectives. The average salary increase for all named executive officers in 2008 was 10%, which reflects strong growth in annual revenue, operating income and market capitalization and projected worldwide growth of our business in fiscal 2008.
| | | | | | | | | | | | | | | | | | | | | |
| | | 2006 Base
| | 2007 Base
| | 2008 Base
| | % Increase |
Named Executive Officer | | Salary | | Salary | | Salary | | 2007 | | 2008 |
| |
| Jay T. Flatley | | $ | 465,000 | | | $ | 580,000 | | | $ | 650,000 | | | | 25 | % | | | 12 | % |
| Christian O. Henry | | | 250,000 | | | | 300,000 | | | | 345,000 | | | | 20 | % | | | 15 | % |
| Christian G. Cabou | | | 290,000 | | | | 315,000 | | | | 337,000 | | | | 9 | % | | | 7 | % |
| Arthur L. Holden(1) | | | 285,000 | | | | 300,000 | | | | — | | | | 5 | % | | | — | |
| Tristan B. Orpin | | | 220,000 | | | | 325,000 | | | | 351,000 | | | | 48 | % | | | 8 | % |
| John R. Stuelpnagel | | | 320,000 | | | | 350,000 | | | | 371,000 | | | | 9 | % | | | 6 | % |
| John West(2) | | | — | | | | 375,000 | | | | — | | | | — | | | | — | |
| | |
(1) | | Mr. Holden resigned effective October 2007. |
|
(2) | | Mr. West joined us in January 2007 as part of our Solexa acquisition and resigned effective February 2008. |
The Chief Executive Officer makes recommendations to the Committee for base salary actions based on performance and current pay relative to market practices for executive officers, except himself. The Committee reviews these recommendations, makes any adjustments it considers necessary, and then approves the salary changes. The Committee recommends to the Board of Directors the base salary for our Chief Executive Officer based on performance and his current pay relative to other chief executives in our peer group. Following the above increases, all named executive officers are within the competitive norms according to the Radford data compiled for use by the Committee.
Annual Bonus
Our annual bonus program is an “at-risk” bonus compensation arrangement designed to foster a performance-oriented culture, where individual performance is aligned with organizational objectives. Our annual bonus program provides guidelines for the calculation of annual non-equity, incentive-based compensation, subject to Committee oversight and modification.
At the beginning of each year, the Chief Executive Officer develops corporate objectives focused primarily on financial performance and other critical corporate goals, such as new product introductions, market penetration, infrastructure investments and consistency of operating results. The corporate objectives are based on the annual operating plan, which is approved by the Board of Directors in January of each year. In addition, the Chief Executive Officer, together with each executive eligible for the annual bonus program, develops a corresponding set of objectives to measure individual performance for the year. The corporate and individual objectives are reviewed by the Committee. The Committee and the Board of Directors approve the corporate objectives. Any executive that is hired during the year is eligible to participate in the annual bonus program for that year. Any bonus received by such executive is prorated based on the number of months the executive served during the year of hire. During 2007, one new named executive officer, Mr. West, joined us as a result of our Solexa acquisition in January 2007. He resigned effective February 2008.
For fiscal 2007, 65% of each executive officer’s annual bonus was based upon achievement of corporate financial objectives relating to revenue and operating income, with these components accounting for 40% and 25%, respectively, of the total annual bonus. The remaining 35% of the executive’s award was based upon individual performance. Each executive had the potential to earn up to a maximum of a 130% payout based on performance against the revenue and operating income
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financial objectives, with these components increasing to a maximum of 60% and 35%, respectively. In 2007, the “at-risk” bonus component of each executive’s total target cash compensation ranged between 29% and 38%. For fiscal 2008, the “at-risk” bonus component of each executive’s total target cash compensation ranges between 33% and 43%.
The Committee and the Board of Directors approve minimum, target and maximum levels for each component of the corporate financial objective portion of the annual bonus award. Payments of awards are based upon the achievement of such objectives for the year. No payouts are earned for a component if the minimum level is not achieved. Target levels represent our desired level of performance which the Committee and the Board of Directors believe are both attainable and practical based on a realistic estimate of our future financial performance. Maximum levels are designed to motivate and reward realistically achievable superior performance. The Committee and the Board of Directors can use their discretion when determining the pay for our executive officers and also the attainment of individual and corporate performance goals. For fiscal 2007, the revenue goal had a minimum payout of 0% and a maximum payout of 60% of target and the operating income goal had a minimum payout of 0% and a maximum payout of 35% of target.
Upon completion of the fiscal year, the Committee and the Board of Directors assesses our performance for each corporate financial objective of the annual bonus comparing the actual fiscal year results to the pre-determined minimum, target and maximum levels for each objective and an overall percentage amount for the corporate financial objectives is calculated.
We have included a hypothetical example to demonstrate the calculation. For example, assume Executive A’s base salary for 2007 was $330,000. His target bonus was set at 60% of his base salary, calculated as $198,000. As per the model below, he could achieve up to 130% of the target bonus if revenue and operating targets were exceeded. His potential bonus and assessment for the fiscal year ended December 30, 2007, were determined as follows:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | Individual | | | | Revenue | | | | Operating Income | | | | Total Payout |
| |
| Maximum bonus potential | | | 35 | % | | | + | | | | 60 | % | | | + | | | | 35 | % | | | = | | | | 130 | % |
| Executive A Assessment | | | 30 | %* | | | + | | | | 55 | %* | | | + | | | | 35 | %* | | | = | | | | 120 | % |
| | |
* | | Assumes Executive A did not meet all Individual goals, however Revenue and Operating Income targets were exceeded. Additionally, amounts may include judgmental adjustments determined at the Committee’s discretion. |
120% x 60% Target = 72%
$330,000 Base Salary x 72% = $237,600 Total Bonus Recommendation
24
The following is a table of the 2007 bonus opportunities as a percentage of base salary and the actual bonuses earned in 2007 by each named executive officer:
| | | | | | | | | | | | | |
| | | 2007 Target
| | | | 2008 Target
|
| | | Bonus as a % of
| | Actual Bonus
| | Bonus as a % of
|
Named Executive Officer | | Base Salary | | Payout(1) | | Base Salary(2) |
| |
| Jay T. Flatley | | | 60 | % | | $ | 432,680 | | | | 75 | % |
| Christian O. Henry | | | 40 | % | | | 144,508 | | | | 50 | % |
| Christian G. Cabou | | | 40 | % | | | 154,254 | | | | 50 | % |
| Arthur L. Holden(3) | | | 40 | % | | | — | | | | — | |
| Tristan B. Orpin | | | 40 | % | | | 160,451 | | | | 50 | % |
| John R. Stuelpnagel(4) | | | 50 | % | | | 211,747 | | | | — | |
| John West(5) | | | 40 | % | | | 182,774 | | | | — | |
| | |
(1) | | Depending on the executive, the actual bonus payment was between 120.4% and 124.3% of the executive’s 2007 target bonus due to exceeding the 2007 corporate financial objectives and individual performance objectives. These bonuses were paid in February 2008. |
|
(2) | | The increase in the target bonus percentages for 2008 is due to our projected worldwide growth in fiscal 2008. |
|
(3) | | Mr. Holden resigned effective October 2007. |
|
(4) | | Dr. Stuelpnagel will move to part-time status as of April 1, 2008 as an Illumina Fellow. Additionally, he will step down from our Board of Directors as of that date. |
|
(5) | | Mr. West joined us in January 2007 as part of our Solexa acquisition and resigned effective February 2008. |
Awards made to named executive officers under the annual bonus award program for performance in 2006 are reflected in the column titled “Bonus” of the Summary Compensation Table on page 30. These bonuses were paid in February 2007.
Long-Term Equity Compensation
The Committee believes it is appropriate to align the interests of executives with those of shareholders. We believe that one of the most effective ways to accomplish this objective is to provide
25
executive officers with a substantial economic interest in the long-term appreciation of our stock price through equity grants. In keeping with our compensation philosophy to tie executive pay to shareholder value creation, executives realize value through stock options only to the extent that our stock price increases.
The Committee also approves the offer letter for each executive that is hired, which may include a new hire stock option grant. This approval must be obtained prior to extending the formal offer to the candidate. Stock options are granted to executives on their first day of employment. During 2007, one new named executive officer, Mr. West, joined us as a result of our Solexa acquisition in January 2007. He resigned effective February 2008.
The initial option grant made to each executive officer upon joining us is primarily based on competitive conditions applicable to the executive officer’s specific position. In addition, our Compensation Committee considers the number of options and restricted stock units (RSUs) owned by our other executive officers in comparable positions. Subsequent grants of options and RSUs to executive officers are generally considered and, if appropriate, awarded in connection with their annual performance review each January. Such subsequent grants serve to maintain a competitive position for us relative to new opportunities that may become available to our executive officers and to enhance the retention features of the program.
Stock options were granted to all executive officers, except Mr. West, on January 25, 2007 with an exercise price of $40.08 per share. On January 29, 2007, subsequent to our acquisition of Solexa, stock options were granted to Mr. West with an exercise price of $39.22 per share. All exercise prices are equal to the fair market value per share of our common stock on the grant date. The fair market value is equal to the closing price of our common stock on The NASDAQ Global Select Market on the grant date with the exception of Mr. West’s grant, which was issued at a price equal to the closing fair market value of our common stock on the NASDAQ Global Select Market on the day prior to the grant date in accordance with the Solexa, Inc. 2005 Equity Incentive Plan. The Committee has never granted options with an exercise price that is less than the closing price of our common stock on the grant date, nor has it granted options which are priced on a date other than the grant date.
Stock options for newly hired executives are granted on the date employment with the Company commences and those granted prior to December 30, 2007 vest over a five-year period, with 20% of the options vesting on the first anniversary of the grant date and the remaining options vesting monthly over the next 48 months. In 2007, stock options granted to executives subsequent to hiring vest monthly over a five-year period. Vesting in all cases is subject to the individual’s continued service to us through the vesting date. Each of the options has a maximum term of ten years, measured from the applicable grant date, subject to earlier termination if the optionee’s service with us ceases.
Effective January 1, 2008, long-term equity compensation packages to executives will include grants of both stock options and RSUs. Subsequent to this date, stock options for newly hired executives are granted on the date employment with the Company commences and vest over a four-year period, with 25% of the options vesting on the first anniversary of the grant and the remaining options vesting monthly over the next 36 months. Stock options granted to executives subsequent to hiring vest monthly over a four-year period. Vesting in all cases is subject to the individual’s continued service to us through the vesting date. Each of the options has a maximum term of ten years, measured from the applicable grant date, subject to earlier termination if the optionee’s service with us ceases.
Stock options were granted by the Compensation Committee on January 29, 2008 to Messrs. Cabou, Henry and Orpin, with an exercise price of $64.97 per share, and by the Board of Directors to Mr. Flatley on February 1, 2008 with an exercise price of $67.59 per share. RSUs were also granted on January 29, 2008 to Messrs. Cabou, Henry and Orpin, and to Mr. Flatley on February 1, 2008. These RSUs vest 15% on the first anniversary of the grant date, 20% on the second anniversary of the grant date, 30% on the third anniversary of the grant date, and 35% on the fourth anniversary of the grant date. Vesting in all cases is subject to the individual’s continued service with us through the vesting date.
26
Compensation Mix
The following table shows the mix of base salary, bonus and long-term equity compensation for our named executive officers for fiscal 2007:
| | | | | | | | | |
| | | Dollars | | | Percent | |
| |
| Base Salary | | $ | 2,470,192 | | | | 20 | % |
| Annual Bonus(1) | | $ | 1,286,414 | | | | 10 | % |
| Long-Term Equity Compensation(2) | | $ | 8,735,875 | | | | 70 | % |
| | | | | | | | | |
| Total | | $ | 12,492,481 | | | | 100 | % |
| | | | | | | | | |
| | |
(1) | | Reflects bonuses earned in 2007 and paid in February 2008. |
|
(2) | | The amounts in this column reflect the total dollar amount recognized for financial statement reporting purposes for the fiscal year ended December 30, 2007, in accordance with SFAS 123R of awards pursuant to the stock option program and thus include amounts from awards granted in and prior to 2007. Assumptions used in the calculation of this amount are included in Note 1 to our audited financial statements for the fiscal year ended December 30, 2007, included in our Annual Report onForm 10-K filed with the SEC on February 26, 2008. |
Change in Control Benefits
Our executive management and other employees have built our company into the successful enterprise that it is today. We believe that the interests of shareholders will be best served if the interests of our executive management are aligned with them, and providing change in control benefits may eliminate, or at least reduce, the reluctance of executive management to pursue potential change in control transactions that may be in the best interests of shareholders. As a result, in August 2006, we entered into Change in Control Severance Agreements (the Agreements) with each of our named executive officers, except Mr. West. The Agreements are effective for three years after which they automatically renew annually for additional one year periods unless a notice of non-extension is provided by either party. The Agreements were filed as exhibits to our Current Report onForm 8-K, which was filed with the SEC on August 23, 2006.
For purposes of these benefits, in general, a change in control is deemed to occur in any of the following circumstances:
| | |
| • | any merger or consolidation in which we are not the surviving entity; |
|
| • | the sale of all or substantially all of our assets to any other person or entity; |
|
| • | the acquisition of beneficial ownership of a controlling interest in the outstanding shares of our common stock by any person or entity; |
|
| • | a contested election of our directors as a result of which or in connection with which the persons who were directors before such election or their nominees cease to constitute a majority of the Board, or |
|
| • | any other event specified by the Board. |
Under the Agreements, the executive would receive benefits if he were terminated within two years following the change of control either:
| | |
| • | by the Company other than for “cause,” which is defined in the agreement, to include repeated failure or refusal to materially perform his duties that existed immediately prior to the change of control, conviction of a felony or a crime of moral turpitude or engagement in an act of malfeasance, fraud or dishonesty that materially damages our business; or |
|
| • | by the executive on account of “good reason,” which is defined in the agreement to include certain reductions in his annual base salary, bonus, position, title, responsibility, level of authority |
27
| | |
| | or reporting relationships that existed immediately prior to the change of control, and a relocation, without the executive’s written consent, of the executive’s principal place of business by more than 35 miles from his principal place of business immediately prior to the change of control. |
Pursuant to the Agreements, if a covered termination of the executive officer’s employment occurs in connection with a change in control of us, then, with the exception of the Chief Executive Officer, the executive officer is generally entitled to the following benefits:
| | |
| • | a severance payment equal to the executive officer’s annual base salary plus the greater of (a) the executive officer’s then-current annual target bonus or other target incentive amount or (b) the annual bonus or other incentive paid or payable to the executive officer for the most recently completed fiscal year; |
|
| • | a lump sum payment of the executive officer’s earned but unpaid compensation; |
|
| • | continuance, for 12 months following termination, of certain medical and other benefits; |
|
| • | continuance of the executive officer’s indemnification rights and liability insurance; |
|
| • | automatic vesting of the executive officer’s unvested stock options and equity or equity-based awards; and |
|
| • | certain professional outplacement services. |
Our Chief Executive Officer is entitled to a severance payment equal to twice the sum of his annual base salary and the greater of his target or most recently paid or payable target bonus or other target incentives and 24 months of continued certain medical and other benefits in addition to the benefits previously described for the remaining named executive officers.
Based upon a hypothetical change of control date of December 28, 2007, the change in control benefits for our named executive officers would have been as follows:
| | | | | | | | | | | | | | | | | | | | | |
| | | Change in Control Benefit |
| | | | | | | | | Fair Market Value
| | |
| | | Severance
| | Severance
| | | | of Accelerated
| | |
| | | Calculated from
| | Calculated from
| | Medical and Dental
| | Equity
| | |
Name | | Base Salary | | Bonus | | Benefits | | Compensation(1) | | Total(2) |
| |
| Jay T. Flatley | | $ | 1,160,000 | | | $ | 696,000 | | | $ | 38,000 | | | $ | 24,982,737 | | | $ | 26,876,737 | |
| Christian O. Henry | | $ | 300,000 | | | $ | 120,000 | | | $ | 19,000 | | | $ | 5,897,698 | | | $ | 6,336,698 | |
| Christian G. Cabou | | $ | 315,000 | | | $ | 126,000 | | | $ | 19,000 | | | $ | 4,576,338 | | | $ | 5,036,338 | |
| Arthur L. Holden(3) | | $ | — | | | $ | — | | | $ | — | | | $ | — | | | $ | — | |
| Tristan B. Orpin | | $ | 325,000 | | | $ | 130,000 | | | $ | 19,000 | | | $ | 4,355,456 | | | $ | 4,829,456 | |
| John R. Stuelpnagel | | $ | 350,000 | | | $ | 175,000 | | | $ | 19,000 | | | $ | 13,642,824 | | | $ | 14,186,824 | |
| John West(4) | | $ | — | | | $ | — | | | $ | — | | | $ | — | | | $ | — | |
| | |
(1) | | The payments relating to stock options represent the value of unvested and accelerated stock options as of December 30, 2007, calculated by multiplying the number of accelerated options by the difference between the exercise price and the closing price of our common stock on December 28, 2007. The payment for Mr. Stuelpnagel includes $626,138 related to 10,420 shares of restricted stock that would vest upon a hypothetical change of control. This amount is calculated by multiplying these shares by the closing price of our common stock on December 28, 2007. |
|
(2) | | The Agreements provide that each executive’s total change in control payment may be reduced in the event such payment is subject to the excise tax imposed by Section 4999 of the Internal Revenue Code of 1986, as amended, and such a reduction would provide a greater after-tax benefit for the executive. |
|
(3) | | Mr. Holden resigned effective October 2007. |
|
(4) | | Mr. West did not enter into a change in control severance agreement. |
28
Other Benefits and Perquisites
We do not provide pension arrangements or post-retirement health coverage for our executives or employees, other than the change in control benefits previously discussed. Otherwise, we provide medical and other benefits to executives that are generally available to other full-time employees, including dental, vision, and group term life insurance, AD&D premiums, a 401(k) plan and an Employee Stock Purchase Plan (ESPP). Our discretionary contributions to the 401(k) plan on behalf of each employee participating in the plan are set at up to 50% of the first 6% of employees’ contributions to the plan, based on our meeting certain financial targets. Beginning in 2008, we began offering a deferred compensation plan to all employees at a Vice President level or higher, as well as the members of our Board of Directors.
All of our executive officers participated in our 401(k) plan during fiscal 2007 and received matching contributions.
Tax and Accounting Considerations
Deductibility of Executive Compensation
Section 162(m) of the Internal Revenue Code of 1986 limits the deductibility of compensation payable in any tax year to the Chief Executive Officer and the other four most highly compensated executive officers. Section 162(m) stipulates that a publicly held company cannot deduct compensation to its top officers in excess of $1 million. Compensation that is “performance-based” compensation within the meaning of the Code does not count toward the $1 million limit. We believe that compensation paid under the executive incentive plans is generally fully deductible for federal income tax purposes with the exception of RSUs. However, in certain situations, the Committee may approve compensation that will not meet these requirements in order to ensure competitive levels of total compensation for our executive officers. For fiscal 2007, there were no executive compensation plan components that did not meet the Section 162(m) definition.
Accounting for Stock-Based Compensation
On January 2, 2006, we began accounting for stock-based payments in accordance with the requirements of SFAS No. 123 (revised 2004), Share-Based Payment.
COMPENSATION COMMITTEE REPORT
Our Compensation Committee has reviewed and discussed with management the Compensation Discussion and Analysis set forth above and, based on such review and discussions, the Compensation Committee recommended to the Board that the Compensation Discussion and Analysis be included in this Proxy Statement.
COMPENSATION COMMITTEE
Karin Eastham (Chairperson)
Paul Grint, M.D.
William H. Rastetter, Ph.D.
Roy A. Whitfield
29
Summary Compensation Table
| | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | All Other
| | |
Name and Principal Position | | Year | | Salary ($) | | Bonus ($)(1) | | Option Awards ($)(2) | | Compensation ($) | | Total ($) |
| |
Jay T. Flatley | | | 2007 | | | $ | 575,577 | | | $ | 302,250 | | | $ | 2,833,237 | | | $ | 12,942 | (3) | | $ | 3,724,006 | | | President, Chief Executive Officer and Director | | | 2006 | | | $ | 463,462 | | | $ | 149,175 | | | $ | 1,183,466 | | | $ | — | | | $ | 1,796,103 | |
| Christian O. Henry | | | 2007 | | | $ | 298,077 | | | $ | 97,500 | | | $ | 986,068 | | | $ | — | | | $ | 1,381,645 | |
Senior Vice President,
Chief Financial
Officer and Acting General Manager,
Sequencing | | | 2006 | | | $ | 249,616 | | | $ | 27,300 | | | $ | 378,594 | | | $ | — | | | $ | 655,510 | |
Christian G. Cabou(4) | | | 2007 | | | $ | 314,038 | | | $ | 65,937 | | | $ | 979,289 | | | $ | — | | | $ | 1,359,264 | | | Senior Vice President, General Counsel and Secretary | | | 2006 | | | $ | 161,731 | | | $ | — | | | $ | 292,271 | | | $ | 40,000 | (5) | | $ | 494,002 | |
| Arthur L. Holden(6) | | | 2007 | | | $ | 252,115 | | | $ | 83,363 | | | $ | 619,352 | | | $ | 1,656 | (3) | | $ | 956,486 | |
| Former Senior Vice President, Corporate and Market Development | | | 2006 | | | $ | 202,789 | | | $ | — | | | $ | 322,094 | | | $ | — | | | $ | 524,883 | |
Tristan B. Orpin | | | 2007 | | | $ | 320,962 | | | $ | 72,500 | | | $ | 740,952 | | | $ | 57,641 | (7) | | $ | 1,192,055 | | | Senior Vice President, Commercial Operations | | | 2006 | | | $ | 219,154 | | | $ | 25,245 | | | $ | 272,075 | | | $ | 169,366 | (7) | | $ | 685,840 | |
| John R. Stuelpnagel | | | 2007 | | | $ | 348,846 | | | $ | 124,800 | | | $ | 1,394,302 | | | $ | 14,967 | (3) | | $ | 1,882,915 | |
| Co-Founder, Former Senior Vice President, General Manager, Microarrays, Chief Operating Officer and Director | | | 2006 | | | $ | 319,231 | | | $ | 58,500 | | | $ | 631,606 | | | $ | 7,846 | (3) | | $ | 1,017,183 | |
John West(8) | | | 2007 | | | $ | 360,577 | | | $ | 4,223,030 | (9) | | $ | 1,182,675 | | | $ | — | | | $ | 5,766,282 | | | Former Senior Vice President and General Manager, Sequencing | | | 2006 | | | $ | — | | | $ | — | | | $ | — | | | $ | — | | | $ | — | |
| | |
(1) | | The 2007 amounts in this column reflect bonuses earned in 2006 and paid in February 2007. The 2006 amounts in this column reflect bonuses earned in 2005 and paid in February 2006. Bonuses earned in 2007 and paid in February 2008 are described in the Compensation Discussion and Analysis, under the caption “Annual Bonus.” |
|
(2) | | The 2007 and 2006 amounts in this column reflect the dollar amounts recognized for financial statement reporting purposes for the fiscal years ended December 30, 2007 and December 31, 2006, respectively, in accordance with SFAS 123R of awards pursuant to the stock option program and thus include amounts from awards granted in and prior to 2007 and 2006, respectively. Assumptions used in the calculation of these amounts are included in Note 1 to our audited consolidated financial statements for the fiscal years ended December 30, 2007 and December 31, 2006, included in our Annual Report onForm 10-K filed with the SEC on February 26, 2008 and February 28, 2007, respectively. |
|
(3) | | These amounts represent payment in lieu of paid time-off. |
|
(4) | | Mr. Cabou joined us in May 2006. |
|
(5) | | This amount represents an allowance paid to Mr. Cabou for relocation and housing. |
|
(6) | | Mr. Holden joined us in April 2006 and resigned effective October 2007. |
|
(7) | | These amounts represent commissions paid to Mr. Orpin. Commissions are earned quarterly and paid in the following quarter. |
30
| | |
(8) | | Mr. West joined us in January 2007 as part of our Solexa acquisition and resigned effective February 2008. |
|
(9) | | Reflects $142,867 of Mr. West’s bonus earned in 2006 and paid in February 2007, and $4,080,163 of Mr. West’s Change of Control bonus paid as part of our acquisition of Solexa. |
Grants of Plan Based Awards During Fiscal 2007
| | | | | | | | | | | | | | | | | |
| | | | | All Other Option
| | | | |
| | | | | Awards: Number of
| | Exercise or Base Price of
| | Grant Date Fair Value of
|
| | | | | Securities Underlying
| | Option
| | Stock and Option
|
| | | | | Options
| | Awards
| | Awards(1)
|
Name | | Grant Date | | (#) | | ($/sh) | | ($) |
| |
| Jay T. Flatley | | | 1/25/2007 | | | | 350,000 | | | $ | 40.08 | | | $ | 9,293,935 | |
| Christian O. Henry | | | 1/25/2007 | | | | 150,000 | | | $ | 40.08 | | | $ | 3,983,115 | |
| Christian G. Cabou | | | 1/25/2007 | | | | 75,000 | | | $ | 40.08 | | | $ | 1,991,558 | |
| Arthur L. Holden | | | 1/25/2007 | | | | 60,000 | | | $ | 40.08 | | | $ | 1,593,246 | |
| Tristan B. Orpin | | | 1/25/2007 | | | | 100,000 | | | $ | 40.08 | | | $ | 2,655,410 | |
| John R. Stuelpnagel | | | 1/25/2007 | | | | 165,000 | | | $ | 40.08 | | | $ | 4,381,427 | |
| John S. West | | | 1/29/2007 | | | | 200,000 | | | $ | 39.22 | | | $ | 5,133,920 | |
| | |
(1) | | Assumptions used in the calculation of these amounts are included in Note 1 to our audited consolidated financial statements for the fiscal year ended December 30, 2007, included in our Annual Report onForm 10-K filed with the SEC on February 26, 2008. |
Outstanding Equity Awards at 2007 Fiscal Year-End
| | | | | | | | | | | | | | | | | |
| | | Option Awards |
| | | Number of Securities
| | Number of Securities
| | | | |
| | | Underlying
| | Underlying
| | Option Exercise
| | |
| | | Unexercised Options
| | Unexercised Options
| | Price
| | Option Expiration
|
Name | | (#) Exercisable | | (#) Unexercisable(1) | | ($) | | Date |
| |
| Jay T. Flatley | | | 35,000 | | | | 115,000 | | | $ | 5.99 | | | | 9/27/2011 | |
| | | | 65,000 | | | | 5,000 | | | $ | 2.77 | | | | 2/10/2013 | |
| | | | 156,666 | | | | 43,334 | | | $ | 7.90 | | | | 1/7/2014 | |
| | | | 113,333 | | | | 86,667 | | | $ | 8.60 | | | | 2/25/2015 | |
| | | | 95,833 | | | | 154,167 | | | $ | 20.97 | | | | 1/30/2016 | |
| | | | 64,166 | | | | 285,834 | | | $ | 40.08 | | | | 1/25/2017 | |
| Christian O. Henry | | | 6,667 | | | | 50,000 | | | $ | 10.46 | | | | 6/6/2015 | |
| | | | 2,667 | | | | 24,667 | | | $ | 20.97 | | | | 1/30/2016 | |
| | | | 27,500 | | | | 122,500 | | | $ | 40.08 | | | | 1/25/2017 | |
| Christian G. Cabou | | | 37,500 | | | | 102,500 | | | $ | 27.40 | | | | 5/30/2016 | |
| | | | 13,750 | | | | 61,250 | | | $ | 40.08 | | | | 1/25/2017 | |
| Arthur L. Holden(2) | | | — | | | | — | | | $ | — | | | | — | |
| Tristan B. Orpin | | | 5,568 | | | | — | | | $ | 4.64 | | | | 12/2/2012 | |
| | | | 3,766 | | | | 8,667 | | | $ | 7.90 | | | | 1/7/2014 | |
| | | | 29,166 | | | | 20,834 | | | $ | 9.08 | | | | 1/20/2015 | |
| | | | 19,166 | | | | 30,834 | | | $ | 20.97 | | | | 1/30/2016 | |
| | | | 18,333 | | | | 81,667 | | | $ | 40.08 | | | | 1/25/2017 | |
| John R. Stuelpnagel | | | — | | | | 60,000 | | | $ | 5.99 | | | | 9/27/2011 | |
| | | | 47,500 | | | | 2,500 | | | $ | 2.77 | | | | 2/10/2013 | |
| | | | 78,333 | | | | 21,667 | | | $ | 7.90 | | | | 1/7/2014 | |
| | | | 70,833 | | | | 54,167 | | | $ | 8.60 | | | | 2/25/2015 | |
| | | | 47,916 | | | | 77,084 | | | $ | 20.97 | | | | 1/30/2016 | |
| | | | 30,250 | | | | 134,750 | | | $ | 40.08 | | | | 1/25/2017 | |
| John West | | | 6,383 | | | | — | (3) | | $ | 3.72 | | | | 8/6/2014 | |
| | | | 61,400 | | | | — | (3) | | $ | 18.58 | | | | 5/9/2015 | |
| | | | 45,833 | | | | 154,167 | (4) | | $ | 39.22 | | | | 1/29/2017 | |
31
| | |
(1) | | With the exception of Mr. West, all options granted to executive officers upon hire vest over a five year period, with 20% of the options vesting on the first anniversary of the grant and the remaining options vesting monthly over the next 48 months. Stock options granted to executives subsequent to hiring vest monthly over a five year period. Vesting in all cases is subject to the individual’s continued service to us through the vesting date. |
|
(2) | | Mr. Holden resigned effective October 2007. |
|
(3) | | The vesting of Mr. West’s option grants accelerated 24 months subsequent to our acquisition of Solexa, per the change in control provision in his option agreements. |
|
(4) | | Options granted to Mr. West on January 29, 2007, subsequent to our acquisition of Solexa. Mr. West’s option grant was to vest monthly over a four year period and was subject to his continued service to us through the vesting date. Mr. West resigned effective February 2008. |
Option Exercises and Stock Vested During Fiscal 2007
| | | | | | | | | |
| | | Option Awards |
| | | Number of Shares
| | Value Realized
|
Name | | Acquired on Exercise (#) | | on Exercise(1) ($) |
| |
| Jay T. Flatley | | | 80,000 | | | $ | 4,198,290 | |
| Christian O. Henry | | | 55,999 | | | $ | 1,300,074 | |
| Christian G. Cabou | | | 10,000 | | | $ | 325,350 | |
| Arthur L. Holden | | | 53,000 | | | $ | 1,575,440 | |
| Tristan B. Orpin | | | 96,099 | | | $ | 3,208,349 | |
| John R. Stuelpnagel | | | 40,000 | | | $ | 2,050,940 | |
| John West | | | 245,000 | | | $ | 10,169,927 | |
| | |
(1) | | Based on the difference between the closing sale price per share of our common stock on the dates of exercise and the exercise price per share exercised. |
DIRECTOR COMPENSATION
We use a combination of cash and stock-based compensation to attract and retain qualified candidates to serve on the board. In setting director compensation, we consider the amount of time that directors expend in fulfilling their duties to us, as well as the skill level required by us of members of the board.
Cash Compensation
During 2007, members of the board and board committees who were not our employees were entitled to receive annual cash retainers as set forth in the table below. In addition, we reimburse our non-employee directors for their expenses incurred in connection with attending board and committee meetings. We do not provide directors with additional compensation for attending meetings. Directors who are our employees receive no compensation for their services as directors.
| | | | | | | | | | | | | | | | | |
| | | | | | | | | Nominating/
|
| | | | | | | | | Corporate
|
| | | Board of
| | Audit
| | Compensation
| | Governance
|
| | | Directors | | Committee | | Committee | | Committee |
| |
| Chairperson(1) | | $ | 20,000 | | | $ | 8,000 | | | $ | 5,000 | | | $ | 3,500 | |
| Member | | | 25,000 | | | | 10,000 | | | | 5,000 | | | | 2,500 | |
| | |
(1) | | Fees received are in addition to the annual cash retainer that all non-employee members receive. |
32
Effective January 1, 2008, members of the board and board committees who are not our employees will be entitled to receive annual cash retainers as set forth in the table below.
| | | | | | | | | | | | | | | | | |
| | | | | | | | | Nominating/
|
| | | | | | | | | Corporate
|
| | | Board of
| | Audit
| | Compensation
| | Governance
|
| | | Directors | | Committee | | Committee | | Committee |
| |
| Chairperson(1) | | $ | 20,000 | | | $ | 7,500 | | | $ | 4,500 | | | $ | 3,000 | |
| Member | | | 50,000 | | | | 12,500 | | | | 7,500 | | | | 3,000 | |
| | |
(1) | | Fees received are in addition to the annual cash retainer that all non-employee members receive. |
2005 Stock and Incentive Plan
Under our 2005 Stock and Incentive Plan, which was approved by our stockholders at the June 28, 2005 annual meeting of stockholders, directors who are not our officers or employees receive:
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| • | a one-time option grant of 20,000 shares vesting annually over three years upon first joining the board, which is to be automatically granted on the date the individual is elected a director, whether by stockholder approval or appointment by the board, with an exercise price equal to the fair market value of our common stock on the date of grant; and |
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| • | annual option grants of 10,000 shares vesting on the earlier of (i) the one year anniversary of the date of grant of the option and (ii) the date immediately preceding the date of the annual meeting of our stockholders for the year following the year of grant of the option, which is to be automatically granted on the date of each annual stockholder meeting, with an exercise price equal to the fair market value of our common stock on the date of grant. |
Effective January 1, 2008, directors who are not our officers or employees will receive annual option grants of 7,500 shares with vesting terms identical to those in effect for fiscal 2007. In addition, each non-employee director will receive a grant of 1,000 RSUs with vesting terms identical to each non-employee director’s annual option grant.
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Director Summary Compensation Table for Fiscal 2007
The table below summarizes the compensation we paid to non-employee directors for the fiscal year ended December 30, 2007.
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| | | Fees Paid in Cash ($) | | | | |
| | | | | | | | | Nominating /
| | | | | | |
| | | Board of
| | Audit
| | | | Corporate
| | | | Option
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| | | Directors
| | Committee
| | Compensation
| | Governance
| | | | Awards
| | Total
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Name(1) | | Retainer | | Fee | | Committee Fee | | Committee Fee | | Total | | ($)(2) | | ($) |
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| William H. Rastetter | | $ | 45,000 | | | $ | 10,000 | | | $ | 5,000 | | | $ | 3,375 | | | $ | 63,375 | | | $ | 183,120 | | | $ | 246,495 | |
| A. Blaine Bowman(3) | | $ | 22,917 | | | $ | 7,500 | | | $ | — | | | $ | — | | | $ | 30,417 | | | $ | 151,478 | | | $ | 181,895 | |
| Daniel M. Bradbury | | $ | 25,000 | | | $ | 18,000 | | | $ | — | | | $ | 2,500 | | | $ | 45,500 | | | $ | 196,274 | | | $ | 241,774 | |
| Karin Eastham | | $ | 25,000 | | | $ | 10,000 | | | $ | 10,000 | | | $ | — | | | $ | 45,000 | | | $ | 187,932 | | | $ | 232,932 | |
| Jack Goldstein | | $ | 25,000 | | | $ | — | | | $ | — | | | $ | 5,125 | | | $ | 30,125 | | | $ | 247,834 | | | $ | 277,959 | |
| Paul Grint | | $ | 25,000 | | | $ | — | | | $ | 5,000 | | | $ | 2,500 | | | $ | 32,500 | | | $ | 201,919 | | | $ | 234,419 | |
| David R. Walt | | $ | 25,000 | | | $ | — | | | $ | — | | | $ | 1,250 | | | $ | 26,250 | | | $ | 183,120 | | | $ | 209,370 | |
| Roy Whitfield(3) | | $ | 22,917 | | | $ | — | | | $ | 3,750 | | | $ | — | | | $ | 26,667 | | | $ | 151,478 | | | $ | 178,145 | |
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(1) | | Jay T. Flatley, our President and Chief Executive Officer, and John S. Stuelpnagel, our Chief Operating Officer, are not included in this table as they are our employees and receive no additional compensation for their services as directors. The compensation received by Messrs. Flatley and Stuelpnagel as our employees are shown in the Summary Compensation Table on page 30. |
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(2) | | The amounts in this column reflect the dollar amount recognized for financial statement reporting purposes for the fiscal year ended December 30, 2007, in accordance with SFAS 123R of awards pursuant to our stock option program and thus include amounts from awards granted in and prior to 2007. Assumptions used in the calculation of these amounts are included in Note 1 to our audited consolidated financial statements for the fiscal year ended December 30, 2007, included in our Annual Report onForm 10-K filed with the SEC on February 26, 2008. |
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(3) | | Messrs. Bowman and Whitfield were appointed as directors on January 26, 2007. |
As of December 30, 2007, each director had the following number of options outstanding:
| | | | |
Name
| | # of Shares |
|
Dr. Rastetter | | | 66,000 | |
Mr. Bowman | | | 27,228 | |
Mr. Bradbury | | | 56,000 | |
Ms. Eastham | | | 46,000 | |
Dr. Goldstein | | | 30,000 | |
Dr. Grint | | | 38,000 | |
Dr. Walt | | | 66,000 | |
Mr. Whitfield | | | 27,228 | |
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The following report of the Audit Committee, the report of the Compensation Committee under “Compensation Committee Report,” along with statements in this proxy statement regarding the Audit Committee’s charter, are not considered “soliciting material” and are not considered to be “filed” with the SEC as part of this proxy statement. Any current or future cross-references to this proxy statement in filings with the SEC under either the Securities Act or the Exchange Act will not include such reports or statements, except to the extent that we specifically incorporates it by reference in such filing.
Audit Committee Report
The Audit Committee oversees our financial reporting process on behalf of our Board of Directors. Management has primary responsibility for the financial reporting process, including the systems of internal controls. In fulfilling its oversight role, the Audit Committee monitors and advises the Board of Directors on the integrity of our consolidated financial statements and disclosures, the independent auditors’ qualifications and independence, the adequacy of our internal controls, and our compliance with legal and regulatory requirements. The Audit Committee has the following responsibilities, among others:
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| • | reviewing with management and the independent auditors the consolidated audited financial statements in our Annual Report and the consolidated financial statements in our quarterly reports, 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; |
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| • | reviewing with management and the independent auditors our earnings press releases, as well as other financial information provided to the public; |
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| • | reviewing with management and the independent auditors significant financial reporting issues and judgments made in connection with the preparation of our consolidated financial statements; |
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| • | reviewing with management and the independent auditors our application of critical accounting policies, including consistency from period to period and compatibility with generally accepted accounting principles; |
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| • | reviewing with the independent auditors matters relating to the conduct of the audit, including the overall scope of the audit, any difficulties encountered in the course of the audit work, any restriction on the scope of the audit, and any significant disagreements with management; |
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| • | assessing auditor independence and absence of conflicts of interest; |
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| • | recommending, for stockholder approval, the independent auditors to examine our accounts, controls and financial statements; |
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| • | pre-approving any audit and permitted non-audit services provided to us by our independent auditors; |
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| • | obtaining from the independent auditors a written report on the effectiveness of our internal controls over financial reporting; |
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| • | reviewing with management our system of internal accounting controls and disclosure controls; and |
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| • | establishing procedures for the receipt, retention and treatment of complaints we receive regarding accounting, internal accounting controls or auditing matters. |
The Audit Committee meets with the independent auditors and our outside counsel, with and without our management present, to discuss the results of their examinations, their evaluations of our internal controls, and the overall quality of our financial reporting.
The Audit Committee has reviewed and discussed the consolidated financial statements with management and Ernst & Young LLP, our independent auditors. Management is responsible for the
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preparation, presentation and integrity of our financial statements; accounting and financial reporting principles; establishing and maintaining disclosure controls and procedures (as defined in Exchange ActRule 13a-15(e)); establishing and maintaining internal control over financial reporting (as defined in Exchange ActRule 13a-15(f)); evaluating the effectiveness of disclosure controls and procedures; evaluating the effectiveness of internal control over financial reporting; and evaluating any change in internal control over financial reporting that has materially affected, or is reasonably likely to materially affect, internal control over financial reporting. Ernst & Young LLP is responsible for performing an independent audit of the consolidated financial statements and expressing an opinion on the conformity of those financial statements with U.S. generally accepted accounting principles, as well as expressing an opinion on the effectiveness of internal control over financial reporting.
During the course of fiscal 2007, management completed the documentation, testing and evaluation of our system of internal control over financial reporting in response to the requirements set forth in Section 404 of the Sarbanes-Oxley Act of 2002 and related regulations. The Audit Committee was kept apprised of the progress of the evaluation and provided oversight and advice to management during the process. In connection with this oversight, the Audit Committee received periodic updates from management and Ernst & Young LLP at each regularly scheduled Audit Committee meeting. At the conclusion of the process, management provided the Audit Committee with, and the Audit Committee reviewed, a report on the effectiveness of our internal control over financial reporting. The Audit Committee also reviewed the report of management contained in our Annual Report onForm 10-K for the fiscal year ended December 30, 2007 filed with the SEC, as well as Ernst & Young LLP’s Reports of Independent Registered Public Accounting Firm included in our Annual Report onForm 10-K related to its audit of (i) the consolidated financial statements and financial statement schedule and (ii) the effectiveness of internal control over financial reporting. The Audit Committee continues to oversee our efforts related to our internal control over financial reporting and management’s preparations for the evaluation for fiscal 2008.
The Audit Committee has reviewed and discussed the consolidated audited financial statements with management, discussed with the independent auditors the matters required to be discussed by SAS 61 (Codification of Statements of Auditing Standards), has received the written disclosures and the letter from independent auditors required by ISB Standard No. 1, and has had discussions with the independent auditors regarding their independence. Based on the reviews and discussions referred to above, the Audit Committee recommended to the Board of Directors that the audited financial statements be included in our Annual Report onForm 10-K for the fiscal year ended December 30, 2007 for filing with the SEC.
AUDIT COMMITTEE
Daniel M. Bradbury (Chairperson)
Karin Eastham
William H. Rastetter, Ph.D.
A. Blaine Bowman
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CERTAIN TRANSACTIONS
We entered into a license agreement with Tufts University in 1998 in connection with the license of patents filed by Dr. David Walt, one of our directors. Dr. Walt is the Robinson Professor of Chemistry at Tufts. Under that agreement, we pay royalties to Tufts upon the commercial sale of products based on the licensed technology. It is our understanding that Tufts University pays a portion of the royalties received from us to Dr. Walt, the amount of which is controlled solely by Tufts University.
All future transactions between us and our officers, directors, principal stockholders and affiliates will be subject to approval by a majority of the independent and disinterested members of our Board of Directors, and will be on terms determined by such members of the Board of Directors to be no less favorable to us than could be obtained from unaffiliated third parties.
We have entered into indemnification agreements with each of our directors and executive officers pursuant to which we have agreed to indemnify these persons to the fullest extent permitted by law in connection with certain claims that may arise generally relating to their acting in their capacities as our directors or executive officers.
SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
The members of our Board of Directors, our executive officers and persons who hold more than 10% of our outstanding common stock are subject to the reporting requirements of Section 16(a) of the Exchange Act, which requires them to file reports with respect to their ownership of and transactions related to our common stock and related derivative securities. Based solely upon our review of copies of Section 16(a) reports, which we received from such persons for their transactions during the 2007 fiscal year, we believe that all reporting requirements under Section 16(a) for such fiscal year were met in a timely manner by these individuals, with the following exceptions: Form 4 filings for annual grants of 10,000 shares each to six members of the Board of Directors were filed 36 days late on July 25, 2007, a Form 4 for the disposal of 5,000 shares by Tristan Orpin was filed one day late on February 9, 2007 and Form 4 filings for grants of 20,000 shares each to Blaine Bowman and Roy Whitfield were filed two days late on February 1, 2007 and a Form 4 filing for the disposal of 4,000 shares indirectly held in a Trust by David Walt was filed 160 days late on March 27, 2008.
STOCKHOLDER PROPOSALS FOR OUR 2009 ANNUAL MEETING
Stockholder proposals that are intendedIf you wish to be presented atsubmit a stockholder proposal for possible inclusion in our 2009 annual meeting must be received at our principal executive offices no later than November 27, 2008, in order to be included in the proxy statement and form of proxy relating to thatour 2009 annual meeting, andthen you must deliver the proposal in proper form to our principal executive offices no later than December 5, 2008. The proposal must also meet all other requirements as specified in our bylaws.bylaws and Delaware law. In addition, the proxy solicited by the Boardthat our board of Directorsdirectors will solicit for theour 2009 annual meeting will confer discretionary authority to vote on anyall stockholder proposalproposals presented at that meeting, unless we receive notice of suchthe proposal not later thanon or before February 10,18, 2009.
ANNUAL REPORT
A copy of our 2007 Annual Report has been provided concurrently with this proxy statement to all stockholders entitled to notice of and to vote at the annual meeting. The annual report is not incorporated into this proxy statement and is not considered proxy solicitation material.
FORM 10-K
We filed our Annual Report onForm 10-K with the SEC on February 26, 2008. A copy of this report is available without charge through either our website atwww.illumina.comor the SEC’s EDGAR website atwww.sec.gov.Stockholders also may obtain a paper copy of this report without charge. Requests should be directed in writing to the Chief Financial Officer of Illumina, Inc., at our principal executive offices located at 9885 Towne Centre Drive, San Diego, California 92121, telephone number(858) 202-4500.
THE BOARD OF DIRECTORS OF ILLUMINA, INC.
Dated: April 4,August 12, 2008
379
APPENDIX A: AMENDMENT TO CERTIFICATE OF INCORPORATION
Our board of directors recommends amending the first paragraph of Article IV of our amended and restated certificate of incorporation to read as follows:
The corporation is authorized to issue two classes of shares of stock, which shall be designated, respectively, Common Stock, $0.01 par value per share, and Preferred Stock, $0.01 par value per share. The total number of shares that the corporation is authorized to issue is 330,000,000 shares. The number of shares of Common Stock authorized is 320,000,000. The number of shares of Preferred Stock authorized is 10,000,000.
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Admission Ticket
Electronic Voting Instructions
You can vote by Internet or telephone!
Available 24 hours a day, 7 days a week!
Instead of mailing your proxy, you may choose one of the two voting methods outlined below to vote your proxy.
VALIDATION DETAILS ARE LOCATED BELOW IN THE TITLE BAR.
Proxies submitted by the Internet or telephone must be received by 1:00 a.m., Central Time, on May 16, 2008.Vote by Internet
• | | Log on to the Internet and go to
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• | | Follow the steps outlined on the secured website. |
Vote by telephone
• | | Call toll free 1-800-652-VOTE (8683) within the United States, Canada & Puerto Rico any time on a touch tone
telephone. There isNO CHARGEto you for the call. |
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• | | Follow the instructions provided by the recorded message. |
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Using ablack ink pen, mark your votes with anXas shown in
this example. Please do not write outside the designated areas. | | xý |
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Special Meeting Proxy Card | | | | | | | | |
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| ▼ PLEASE FOLD ALONG THE PERFORATION, DETACH AND RETURN THE BOTTOM PORTION IN THE ENCLOSED ENVELOPE. ▼ |
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Annual Meeting Proxy Card
IF YOU HAVE NOT VOTED VIA THE INTERNETOR TELEPHONE, FOLD ALONG THE PERFORATION, DETACH AND RETURN THE BOTTOM PORTION IN THE ENCLOSED ENVELOPE.AProposals — The Board of Directors recommends a vote FOR all the nominees listed and FOR Proposals 2 and 3. | Proposal — The Board of Directors recommends a voteFOR Proposal 1. |
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1. Election of Directors | | | | | | | | |
| | For | | Withhold | | | | For | | WithholdAgainst | | Abstain | | |
01 — A. Daniel M. Bradbury1. | Approval of Amendment to the Certificate of Incorporation. | | o | | o | | 02 — Roy A. Whitfield | | o | | o | | |
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In his discretion, the proxy is authorized to vote upon any
other business that may properly come before the meeting. | | |
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| | | | | For | | Against | | Abstain | | | | | | | | For | | Against | | Abstain |
| 2. | | Ratify the appointment of Ernst & Young LLP as independent auditors. | | o | | o | | o | | | 3. | Approve an amendment to increase the maximum number of shares of common stock authorized for issuance under the 2005 Stock and Incentive Plan by 1,200,000 shares. | | o | | o | | o |
In his discretion, the proxy is authorized to vote upon any
other business that may properly come before the meeting.
BNon-Voting ItemsChange of Address— Please print your new address below.
C
| Authorized Signatures — This section must be completed for your vote to be counted. — This section must be completed for your vote to be counted. —- Date and Sign Below |
Please sign exactly as name appears hereon. Joint owners should each sign. Executors, administrators, trustees, guardians or other fiduciaries should give full title as such. If signing for a corporation, please sign in full corporate name by a duly authorized officer.
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Date (mm/dd/yyyy) –— Please print date below. | | Signature 1 — Please keep signature within the boxbox. | | Signature 2 — Please keep signature within the boxbox. |
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<STOCK#> 00XW9A
IF YOU HAVE NOT VOTED VIA THE INTERNETOR TELEPHONE, | | |
| ▼ PLEASE FOLD ALONG THE PERFORATION, DETACH AND RETURN THE BOTTOM PORTION IN THE ENCLOSED ENVELOPE.▼ |
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Proxy — ILLUMINA, INC.
9885 TOWNE CENTRE DRIVE
SAN DIEGO, CA 92121
SOLICITED BY THE BOARD OF DIRECTORS FOR
FOR THE ANNUALSPECIAL MEETING OF STOCKHOLDERS
The undersigned hereby appoints Jay T. Flatley, with the power to appoint his substitute, and hereby authorizes him to represent and to vote, as designated on the reverse side, all shares of common stock of Illumina, Inc. (the “Company”) held of record by the undersigned on March 24,July 28, 2008 at the AnnualSpecial Meeting of Stockholders to be held on May 16,September 9, 2008 and any adjournments thereof.
THIS PROXY WHEN PROPERLY EXECUTED WILL BE VOTED AS DIRECTED. IF NO DIRECTION IS GIVEN WITH RESPECT TO A PARTICULAR PROPOSAL, THIS PROXY WILL BE VOTED FOR SUCH PROPOSAL.
PLEASE MARK, DATE, SIGN, AND RETURN THIS PROXY CARD PROMPTLY, USING THE ENCLOSED ENVELOPE. NO POSTAGE IS REQUIRED IF MAILED IN THE UNITED STATES.
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SEE REVERSE SIDE | | CONTINUED AND TO BE SIGNED ON REVERSE SIDE | | SEE REVERSE SIDE |
