-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, EDF29KZ+nMLCjA7gmx1Ng8wZRx5laG2uHec+9wh53wUw7YUdtPxa16OTn4eOvZjt /x70w8bHZPAzsdmru2PAEw== 0001170918-05-000337.txt : 20050516 0001170918-05-000337.hdr.sgml : 20050516 20050516171552 ACCESSION NUMBER: 0001170918-05-000337 CONFORMED SUBMISSION TYPE: PREM14A PUBLIC DOCUMENT COUNT: 1 CONFORMED PERIOD OF REPORT: 20050715 FILED AS OF DATE: 20050516 DATE AS OF CHANGE: 20050516 FILER: COMPANY DATA: COMPANY CONFORMED NAME: XTRANA INC CENTRAL INDEX KEY: 0000830736 STANDARD INDUSTRIAL CLASSIFICATION: IN VITRO & IN VIVO DIAGNOSTIC SUBSTANCES [2835] IRS NUMBER: 581729436 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: PREM14A SEC ACT: 1934 Act SEC FILE NUMBER: 001-14257 FILM NUMBER: 05835952 BUSINESS ADDRESS: STREET 1: PO BOX 668 CITY: SEDALIA STATE: CO ZIP: 80135 BUSINESS PHONE: 3034664424 MAIL ADDRESS: STREET 1: PO BOX 668 CITY: SEDALIA STATE: CO ZIP: 80135 FORMER COMPANY: FORMER CONFORMED NAME: BIOPOOL INTERNATIONAL INC DATE OF NAME CHANGE: 19920703 FORMER COMPANY: FORMER CONFORMED NAME: CYTRX BIOPOOL LTD DATE OF NAME CHANGE: 19890716 PREM14A 1 prem14a-071505.txt SCHEDULE 14A (RULE 14A-101) INFORMATION REQUIRED IN PROXY STATEMENT SCHEDULE 14A INFORMATION PROXY STATEMENT PURSUANT TO SECTION 14(A) OF THE SECURITIES EXCHANGE ACT OF 1934 Filed by the registrant |X| Filed by a Party other than the Registrant |_| Check the appropriate box: |X| Preliminary Proxy Statement |_| Confidential, For Use of the |_| Definitive Proxy Statement Commission Only (as permitted |_| Definitive Additional Materials by Rule 14a-6(e)(2)) |_| Soliciting Material Pursuant to Rule 14a-11(c) or Rule 14a-12 XTRANA, INC. - -------------------------------------------------------------------------------- (Name of Registrant as Specified in Its Charter) - -------------------------------------------------------------------------------- (Name of Person(s) Filing Proxy Statement, if Other Than the Registrant) Payment of Filing Fee (Check the appropriate box): |_| No Fee Required |X| Fee computed on table below per Exchange Act Rules 14a-6(i)(1) and 0-11. (1) Title of each class of securities to which transaction applies: Common Stock, $0.01 Par value per share - -------------------------------------------------------------------------------- (2) Aggregate number of securities to which transactions applies: 8,072,482 shares of common stock. The number is adjusted to reflect the 1-for-10 reverse stock split which will be effective as of the effective time of the merger and the issuance of the merger shares. - -------------------------------------------------------------------------------- (3) Per unit price or other underlying value of transaction computed pursuant to Exchange Act Rule 0-11 (set forth the amount on which the filing fee is calculated and state how it was determined): $1.50, Based on the average of the high and low priced quoted on the Over-the-Counter Bulletin Board on May 12, 2005 and adjusted to reflect the 1-for-10 reverse stock split which will be effective as of the effective time of the merger and issuance of the merger shares. - -------------------------------------------------------------------------------- (4) Proposed maximum aggregate value of transaction: $12,108,723. The value of the transaction has been adjusted to reflect the 1-for-10 reverse stock split which will be effective as of the effective time of the merger and issuance of the merger shares. - -------------------------------------------------------------------------------- (5) Total fee paid: $2,422 - -------------------------------------------------------------------------------- |_| Fee paid previously with preliminary materials: |_| Check box if any part of the fee is offset as provided by Exchange Act Rule 0-11(a)(2) and identify the filing for which the offsetting fee was paid previously. Identify the previous filing by registration statement number, or the form or schedule and the date of its filing. (1) Amount previously paid: - -------------------------------------------------------------------------------- (2) Form, Schedule or Registration Statement no.: - -------------------------------------------------------------------------------- (3) Filing party: - -------------------------------------------------------------------------------- (4) Date filed: - -------------------------------------------------------------------------------- XTRANA, INC. P.O. BOX 688 SEDALIA, COLORADO 80135 (303) 466-4424 May ___, 2005 Dear Stockholders: I am pleased to invite you to attend Xtrana, Inc.'s Annual Meeting of Stockholders to be held July 15, 2005 at 11:00 a.m. Pacific Daylight Time at the offices of Stubbs Alderton & Markiles, LLP, 15821 Ventura Blvd., Suite 525, Encino, CA 91436. The formal Notice of Annual Meeting of Stockholders and Proxy Statement are attached. The matters to be acted upon by the Stockholders are set forth in the Notice of Annual Meeting of Stockholders. At the Annual Meeting, you will be asked to consider and vote upon the following: 1. The election of six directors. 2. A proposal to adopt the Agreement and Plan of Merger, dated as of December 14, 2004, as amended, by and among Xtrana, Inc., AIC Merger Corporation, a direct wholly-owned subsidiary of Xtrana, Inc. and Alpha Innotech Corporation, pursuant to which AIC Merger Corporation will be merged with and into Alpha Innotech Corporation, with Alpha Innotech Corporation as the surviving corporation in the merger. 3. A proposal to amend our Certificate of Incorporation to effect a reverse stock split pursuant to which ten shares of the Company's outstanding common stock will be exchanged for one new share of common stock immediately prior to the consummation of the proposed merger. 4. A proposal to amend our Certificate of Incorporation to change the name of our corporation to Alpha Innotech Corp. following a successful completion of the proposed merger. XTRANA CANNOT COMPLETE ITS MERGER WITH ALPHA INNOTECH UNLESS YOU APPROVE PROPOSALS 2, 3 AND 4 5. Any other matters that properly come before the Annual Meeting or any adjournments or postponements of the Annual Meeting. Our Board of Directors believes the merger agreement and the transactions contemplated by the merger agreement, including the merger, are fair to and in the best interests of Xtrana, Inc. and its stockholders. OUR BOARD OF DIRECTORS HAS ADOPTED THE MERGER AGREEMENT AND UNANIMOUSLY RECOMMENDS THAT YOU VOTE "FOR" ADOPTION OF THE MERGER AGREEMENT. I enthusiastically support this merger and join with the Board of Directors in recommending that you vote in favor of the merger. It is important that your shares be voted whether or not you plan to be present at the Annual Meeting. Please complete, sign, date and return the enclosed form of proxy promptly. YOUR VOTE IS VERY IMPORTANT! Sincerely, Xtrana, Inc. ---------------------------------- Michael D. Bick, PhD Chairman of the Board of Directors NOTICE OF ANNUAL MEETING OF STOCKHOLDERS OF XTRANA, INC. TO BE HELD JULY 15, 2005 TO THE STOCKHOLDERS OF XTRANA, INC.: Notice is hereby given that a Annual Meeting (the "Annual Meeting") of stockholders of Xtrana, Inc. will be held at the offices of Stubbs Alderton & Markiles, LLP, 15821 Ventura Blvd., Suite 525, Encino, CA 91436, on July 15, 2005 at 11:00 a.m. Pacific Daylight Time, for the following purposes: 1. The election of six directors. 2. To consider and vote upon a proposal to adopt the Agreement and Plan of Merger, dated as of December 14, 2004, as amended, by and among Xtrana, Inc., AIC Merger Corporation, a direct wholly-owned subsidiary of Xtrana, Inc. and Alpha Innotech Corporation, pursuant to which AIC Merger Corporation will be merged with and into Alpha Innotech Corporation, with Alpha Innotech Corporation as the surviving corporation in the merger. 3. To consider and vote upon a proposal to amend our Certificate of Incorporation to effect a reverse stock split pursuant to which ten shares of the Company's outstanding common stock will be converted into one new share of common stock immediately prior to the consummation of the proposed merger described in Proposal No. 2. 4. To consider and vote upon a proposal to amend our Certificate of Incorporation to change the name of our corporation to Alpha Innotech Corp. following a successful completion of the proposed merger described in Proposal No. 2. 5. To consider and vote upon any other matters that properly come before the Annual Meeting or any adjournments or postponements of the Annual Meeting. The Board of Directors has fixed the close of business on May 25, 2005 as the record date for determination of the stockholders entitled to notice of and to vote at the Annual Meeting or any adjournment thereof. The six nominees for directors who receive the highest number of votes will be elected. Approval of the matters to be voted upon in connection with Proposal numbers 2, 3 and 4 above, require the affirmative vote of a majority of the outstanding shares of common stock as of the record date. IT IS IMPORTANT THAT YOUR SHARES BE REPRESENTED AT THE MEETING REGARDLESS OF THE NUMBER OF SHARES YOU HOLD. YOU ARE INVITED TO ATTEND THE MEETING IN PERSON, BUT WHETHER OR NOT YOU PLAN TO ATTEND, PLEASE COMPLETE, DATE, SIGN AND RETURN THE ACCOMPANYING PROXY IN THE ENCLOSED ENVELOPE. IF YOU DO ATTEND THE MEETING, YOU MAY, IF YOU PREFER, REVOKE YOUR PROXY AND VOTE YOUR SHARES IN PERSON. The accompanying Proxy Statement and the Appendices thereto (including the Agreement and Plan of Merger, as amended, attached as APPENDIX A to the attached Proxy Statement) form a part of this notice. By Order of the Board of Directors ---------------------------------- Michael D. Bick, PhD Chairman of the Board of Directors P.O. Box 688 Sedalia, Colorado 80135 (303) 466-4424 Dated: May __, 2005 PLEASE COMPLETE, DATE, AND SIGN THE ENCLOSED PROXY AND RETURN IT IN THE ENVELOPE PROVIDED AS PROMPTLY AS POSSIBLE, WHETHER OR NOT YOU PLAN TO ATTEND THE ANNUAL MEETING. IF YOU LATER DECIDE TO REVOKE YOUR PROXY FOR ANY REASON, YOU MAY DO SO IN THE MANNER DESCRIBED IN THE ATTACHED PROXY STATEMENT. XTRANA, INC. P.O. Box 688 Sedalia, Colorado 80135 (303) 466-4424 - -------------------------------------------------------------------------------- PROXY STATEMENT ANNUAL MEETING OF STOCKHOLDERS This Proxy Statement is being furnished to you as a holder of outstanding shares common stock, par value $0.01 per share, of Xtrana, Inc. ("Xtrana," the "Company," "we" or "us") in connection with the solicitation of proxies by our Board of Directors, for use at a Annual Meeting of Stockholders (the "Annual Meeting") to be held at the offices of Stubbs Alderton & Markiles, LLP, 15821 Ventura Blvd., Suite 525, Encino, CA 91436, on July 15, 2005 at 11:00 a.m. Pacific Daylight Time. Accompanying this Proxy Statement is the Board of Directors' Proxy for the Annual Meeting, which you may use to indicate your vote as to the proposal described in this Proxy Statement. All Proxies which are properly completed, signed and returned to us prior to the Annual Meeting, and which have not been revoked, will be voted in favor of the proposal described in this Proxy Statement unless otherwise directed. You may revoke a Proxy given to us at any time before it is voted either by filing with our Secretary, at our executive offices, a written notice of revocation or a duly executed proxy bearing a later date, or by attending the Annual Meeting and expressing a desire to vote your shares in person. The close of business on May 25, 2005, has been fixed as the record date for the determination of stockholders entitled to notice of and to vote at the Annual Meeting or any adjournments of the Annual Meeting. As of the record date, we had outstanding [16,533,269] shares of common stock, par value $0.01 per share, our only outstanding voting securities. A stockholder is entitled to cast one vote for each share held on the record date on all matters to be considered at the Annual Meeting. Our principal executive offices are located at P.O. Box 688, Sedalia, Colorado 80135. This Proxy Statement and the accompanying Proxy are expected to be mailed to our stockholders on or about June 1, 2005. At the Annual Meeting, the stockholders will consider and vote upon the proposal to (1) elect six directors, (2) approve a proposal to adopt the Agreement and Plan of Merger, dated as of December 14, 2004, as amended, by and among us, our wholly-owned subsidiary AIC Merger Corporation, and Alpha Innotech Corporation ("Alpha Innotech"), pursuant to which AIC Merger Corporation will be merged with and into Alpha Innotech, with Alpha Innotech as the surviving corporation in the merger (this agreement, as amended, is referred to in this Proxy Statement as the "Merger Agreement" and this transaction is referred to as the "Merger"), (3) approve a proposal to amend our Certificate of Incorporation to effect a reverse stock split pursuant to which ten shares of our outstanding common stock will be exchanged for one new share of our common stock immediately prior to the Merger; (4) approve a proposal to amend our Certificate of Incorporation to change the name of our corporation to Alpha Innotech Corp. following a successful completion of the Merger, and (5) consider such other proposals as may properly come before the Annual Meeting or any adjournment thereof. Additional information about the Merger and the parties to the Merger Agreement is contained in this Proxy Statement, which should be reviewed carefully. THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS THAT THE XTRANA STOCKHOLDERS VOTE "FOR" THE PERSONS NOMINATED FOR ELECTION AS DIRECTORS. i FOR THE REASONS SET FORTH HEREIN, THE BOARD OF DIRECTORS HAS UNANIMOUSLY CONCLUDED THAT THE MERGER IS IN THE BEST INTERESTS OF XTRANA AND THE XTRANA STOCKHOLDERS AND UNANIMOUSLY RECOMMENDS THAT THE XTRANA STOCKHOLDERS VOTE "FOR" THE APPROVAL OF THE MERGER AGREEMENT AND THE TRANSACTIONS CONTEMPLATED THEREIN, INCLUDING THE AMENDMENT OF OUR CERTIFICATE OF INCORPORATION TO EFFECT A 1-FOR-10 REVERSE STOCK SPLIT AND CHANGE OUR CORPORATE NAME. * * * YOU MAY RELY ONLY ON THE INFORMATION CONTAINED IN THIS PROXY STATEMENT. XTRANA HAS NOT AUTHORIZED ANYONE TO PROVIDE INFORMATION DIFFERENT FROM THAT CONTAINED IN THIS PROXY STATEMENT. NEITHER THE DELIVERY OF THIS PROXY STATEMENT NOR THE CONSUMMATION OF THE MERGER BY XTRANA MEANS THAT INFORMATION CONTAINED IN THIS PROXY STATEMENT IS CORRECT AFTER THE DATE OF THIS PROXY STATEMENT. TABLE OF CONTENTS SUMMARY........................................................................1 THE ANNUAL MEETING OF STOCKHOLDERS.............................................5 PROPOSAL NO. 1: ELECTION OF DIRECTORS..........................................8 PROPOSAL NO. 2: MERGER........................................................15 PROPOSAL NO. 3: REVERSE STOCK SPLIT...........................................48 PROPOSAL NO. 4: NAME CHANGE...................................................53 BENEFICIAL OWNERSHIP OF COMMON STOCK..........................................54 PROPOSALS OF STOCKHOLDERS.....................................................55 OTHER MATTERS.................................................................55 INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE...............................56 APPENDIX A: AGREEMENT AND PLAN OF MERGER (INCLUDING AMENDMENT NO. 1).........A-1 APPENDIX B: OPINION OF FINANCIAL ADVISORS....................................B-1 APPENDIX C: FINANCIAL STATEMENTS OF ALPHA INNOTECH CORPORATION...............C-1 APPENDIX D: CERTIFICATE OF AMENDMENT TO CERTIFICATE OF INCORPORATION.........D-1 ii SUMMARY YOU SHOULD READ THE FOLLOWING SUMMARY TOGETHER WITH THE MORE DETAILED INFORMATION AND FINANCIAL STATEMENTS AND THE NOTES TO THOSE STATEMENTS APPEARING ELSEWHERE IN THIS PROXY STATEMENT OR DELIVERED WITH THIS PROXY STATEMENT. THE COMPANIES XTRANA, INC.: We were incorporated in Delaware in 1987. We previously developed nucleic acid-based tests for use in drug discovery, detection of environmental and food contaminants, forensics and identity testing, human and animal diseases, genetic predisposition to disease, and other applications. We sold substantially all of our intellectual property assets to Applera Corporation in May 2004 pursuant to an Assignment Agreement approved by our stockholders in March, 2004. As a result, we no longer have any ongoing operations. Our corporate office is located at P.O. Box 688, Sedalia, Colorado 80135 and our telephone number is (303) 466-4424. ALPHA INNOTECH CORPORATION Alpha Innotech Corporation, a privately held company, was incorporated in California in 1992. Alpha Innotech develops, manufactures, and markets digital imaging and detection systems for the life science research and drug discovery markets. Alpha Innotech maintains its corporate offices at 2401 Merced Street, San Leandro, California 94577 and its telephone number is (510) 483-9620. THE AGREEMENT AND PLAN OF MERGER THE EFFECT OF THE MERGER On December 14, 2004, Xtrana and Alpha Innotech entered into the Merger Agreement. Pursuant to the Merger Agreement: o Our wholly-owned subsidiary AIC Merger Corporation will merge with and into Alpha Innotech; o Alpha Innotech will be the surviving corporation and a wholly-owned subsidiary of Xtrana; o The separate existence of AIC Merger Corporation will end; o Each share of Alpha Innotech common stock and preferred stock issued and outstanding at the closing of the Merger (other than treasury stock and dissenters' shares) will be converted into shares of newly issued Xtrana common stock; and o Immediately following the Merger, the Alpha Innotech stockholders will hold approximately 83% and our stockholders will hold approximately 17% of the outstanding shares of the surviving corporation (excluding options and warrants). See "PROPOSAL NO. 2 MERGER" MERGER CONSIDERATION Upon approval and consummation of the Merger, we will issue, in exchange for all outstanding shares of Alpha Innotech common and preferred stock, that number of shares of our common stock as will equal approximately 83% of our total outstanding shares immediately after the consummation of the Merger. Of these shares, 500,000 shares will be issued and placed in an escrow account for a period of 12 months following the closing, and may be cancelled if Alpha Innotech suffers any liabilities under the indemnification provisions of the Merger Agreement. An additional 500,000 shares of our common stock will be issued and placed in escrow for a period of 12 months following closing and may be released to Alpha Innotech stockholders if we suffer any liabilities under the indemnification provisions set forth in the Merger Agreement. The Merger consideration described above assumes the completion of the 1-for-10 reverse stock split of Xtrana, Inc. common stock described below. CONDITIONS THAT MUST BE Each party's obligation to complete the Merger is SATISFIED FOR THE MERGER subject to the prior satisfaction or waiver of TO OCCUR certain conditions. In addition to customary closing conditions, we have to comply with the following material conditions that must be satisfied or waived before completion of the Merger: o we shall have obtained the affirmative vote of the holders of a majority of shares of Xtrana Common Stock in favor of the Merger; o we shall have been issued a permit from the California Department of Corporations following a fairness hearing with respect to the issuance of our Common Stock pursuant to the Merger Agreement; o we shall have implemented a 1-for-10 reverse stock split; and o we shall change our corporate name at the time of the closing to "Alpha Innotech Corp." TERMINATION OF THE The Merger Agreement may be terminated and the MERGER AGREEMENT Merger may be abandoned at any time prior to the completion of the Merger: o by mutual written consent of the parties; o by either party if any governmental entity issues an order restraining the consummation of the Merger; o by either Alpha Innotech or us if the closing has not occurred by July 31, 2005 (unless the failure to close is the result of a terminating party's failure to act); o by either party in the event other party materially breaches its representations under the Merger Agreement; o by either party if our respective stockholders fail to approve the Merger; and o by either party if a material adverse change with respect to the business of the other party has occurred prior to the closing. In the event that the Merger Agreement is terminated because the closing has not occurred by July 31, 2005, or by Alpha Innotech because of an adverse change in our business, or a breach of our representations and warranties, or by Alpha Innotech because our stockholders do not approve the Merger, then we will be obligated to pay Alpha Innotech $100,000 by offset against the obligations of Alpha Innotech pursuant to a $500,000 promissory note issued by Alpha Innotech to us pursuant to the terms of the Merger Agreement. 2 FEDERAL INCOME TAX The Merger is intended to be a tax-free CONSEQUENCES reorganization in which no gain or loss will be recognized by us or our stockholders. For a further discussion of the federal income tax consequences of the Merger, see "THE PROPOSED MERGER - Material Federal Income Tax Consequences." REGULATORY REQUIREMENTS Other than the following actions, we are not aware of any governmental or regulatory requirements with which we must comply in completing the Merger: o compliance with the general corporation law of the State of Delaware; o issuance of permit from the California Department of Corporations following a fairness hearing; and o compliance with any applicable state securities laws. See "THE PROPOSED MERGER--Regulatory Approvals." CONDUCT OF BUSINESS The Merger Agreement provides that, pending the Merger, neither we nor AIC Merger Corporation or Alpha Innotech will enter a transaction or take any action outside the ordinary course of business. VOTE REQUIRED: Approval of the matters to be voted upon in connection with the Merger, including Proposals 2, 3 and 4, requires the affirmative vote of the holders of a majority of our outstanding shares of common stock. As a result, the failure to vote in person or by proxy on any such proposal at the Annual Meeting or abstaining on the Merger proposal has the same effect as voting against the Merger proposal. See "THE ANNUAL MEETING OF STOCKHOLDERS--Votes Required; Quorum." THE ANNUAL MEETING OF STOCKHOLDERS ANNUAL MEETING: Our Annual Meeting will be held on July 15, 2005 at 11:00 a.m. Pacific Daylight Time, at the offices of Stubbs Alderton & Markiles, LLP, 15821 Ventura Blvd., Suite 525, Encino, CA 91436. The purpose of the Annual Meeting is to consider and vote on the following: 1. the election of six directors; 2. a proposal to adopt the Agreement and Plan of Merger, dated as of December 14, 2004, as amended, by and among us, AIC Merger Corporation (our direct wholly-owned subsidiary), and Alpha Innotech Corporation, pursuant to which AIC Merger Corporation will be merged with and into Alpha Innotech Corporation, with Alpha Innotech Corporation as the surviving corporation in the Merger; 3. a proposal to amend our Certificate of Incorporation to effect a reverse stock split pursuant to which ten shares of our outstanding common stock will be exchanged for one new share of common stock immediately prior to the consummation of the Merger; 4. a proposal to amend our Certificate of Incorporation to 3 change the name of our corporation to Alpha Innotech Corp. upon successful completion of the Merger; and 5. any other matters that properly come before the Annual Meeting or any adjournments or postponements of the Annual Meeting. Holders of record of our common stock at the close of business on May 25, 2005 will be entitled to notice of and to vote at the Annual Meeting. Each share of our common stock is entitled to one vote for each share held of record upon each matter properly presented to the stockholders for a vote at the Annual Meeting. See "THE ANNUAL MEETING OF STOCKHOLDERS - Votes Required," "- Quorum" and "- Voting of Proxies." For additional information relating to the Annual Meeting, see "THE ANNUAL MEETING OF STOCKHOLDERS." OPINION OF FINANCIAL In connection with the proposed Merger, our Board ADVISORS of Directors received an opinion from The Mentor Group, Inc. as to the fairness of the Merger with Alpha Innotech to the existing holders of our common stock, from a financial point of view. The full text of The Mentor Group's written opinion, dated April 21, 2005, is attached to this proxy statement as APPENDIX B. We encourage you to read the opinion carefully in its entirety for a description of the assumptions made, procedures followed, matters considered and limitations on the review undertaken. THE MENTOR GROUP'S OPINION DOES NOT CONSTITUTE A RECOMMENDATION TO YOU AS TO HOW YOU SHOULD VOTE OR ACT ON ANY MATTERS RELATING TO THE MERGER. See also "OPINION OF FINANCIAL ADVISORS." RECOMMENDATIONS OF THE Our Board of Directors unanimously approved the BOARD OF DIRECTORS: Merger Agreement and the transactions contemplated thereby. The members of the Board of Directors unanimously believe that the Merger and the transactions contemplated by the Merger Agreement are fair to, and in the best interests of, our stockholders and unanimously recommend a vote "FOR" the Merger. The conclusion of the Board of Directors with respect to the Merger was based upon a number of factors. See "THE MERGER AGREEMENT - Board of Directors' Reasons for the Merger" 4 THE ANNUAL MEETING OF STOCKHOLDERS DATE, TIME, PLACE This Proxy Statement is furnished in connection with the solicitation by our Board of Directors of proxies representing our common stock to be voted at the Annual Meeting to be held on July 15, 2005 at 11:00 a.m. Pacific Daylight Time, at the offices of Stubbs Alderton & Markiles, LLP, 15821 Ventura Blvd., Suite 525, Encino, CA 91436. MATTERS TO BE CONSIDERED At the Annual Meeting, holders of our common stock will consider and vote upon (1) the election of six directors; (2) the approval of the Merger pursuant to the Merger Agreement; (3) the amendment of our Certificate of Incorporation to effect a 1-for-10 reverse stock split effective immediately prior to the Merger; (4) the amendment of our Certificate of Incorporation to change our name, pursuant to the Merger Agreement; and (5) such other matters as may properly come before the Annual Meeting. RECORD DATE; STOCK ENTITLED TO VOTE The Board of Directors has fixed the close of business on May 25, 2005, as the record date for the Annual Meeting. Only holders of record of shares of our common stock are entitled to notice of and to vote at the Annual Meeting. As of the Record Date, there were [16,533,269] shares of our common stock outstanding and entitled to vote. Each holder of record as of the record date of common stock is entitled to cast one vote per share. VOTES REQUIRED The six nominees for election to the board of directors who receive the greatest number of votes will be elected. The affirmative vote of the holders of a majority of the total number of outstanding shares of our common stock entitled to vote at the Annual Meeting is required to approve the Merger pursuant to the Merger Agreement, and any amendment to our Certificate of Incorporation. Abstentions and broker non-votes will be counted toward the tabulation of votes cast on the proposals 2, 3 and 4 and will have the same effect as negative votes. Broker non-votes occur when a broker holding customer securities in street name has not received voting instructions from the customer on certain non-routine matters and, therefore, is barred by the rules of the applicable securities exchange from exercising discretionary authority to vote those securities. Action by the stockholders on any other matter that properly comes before the Annual Meeting will be approved if the number of votes cast in favor of the action exceeds the number of votes cast in opposition to the action. QUORUM The holders of a majority of the stock issued and outstanding and entitled to vote thereat, present in person or represented by proxy, constitutes a quorum at the Annual Meeting. Abstentions and broker non-votes will be included in the number of shares present at the Annual Meeting for determining the presence of a quorum. If a quorum is not present or represented at the Annual Meeting, the stockholders entitled to vote thereat, present in person or represented by proxy, shall have power to adjourn the meeting from time to time, without notice other than announcement at the meeting, until a quorum shall be present or represented. At such adjourned meeting at which a quorum shall be present or represented 5 all proxies will be voted in the same manner as such proxies would have been voted at the original convening of the Annual Meeting and any business may be transacted which might have been transacted at the Annual Meeting as originally notified. VOTING OF PROXIES This Proxy Statement is being furnished to our stockholders in connection with the solicitation of proxies by and on behalf of the Board of Directors for use at the Annual Meeting, and is accompanied by a form of proxy. All shares of our common stock that are entitled to vote and are represented at the Annual Meeting by properly executed proxies received prior to or at the Annual Meeting, and not revoked, will be voted at the Annual Meeting in accordance with the instructions indicated on such proxies. If no instructions are indicated, such proxies will be voted for approval of the Merger and the Merger Agreement. If any other matters are properly presented at the Annual Meeting for consideration, including, among other things, consideration of a motion to adjourn the Annual Meeting to another time and/or place (including, without limitation, for the purposes of soliciting additional proxies or allowing additional time for the satisfaction of conditions of the Merger), the persons named in the enclosed forms of proxy and acting thereunder will have discretion to vote on such matters in accordance with their best judgment. REVOCABILITY OF PROXIES Any proxy given pursuant to this solicitation may be revoked by the person giving it at any time before it is voted. Proxies may be revoked by (1) filing with our Secretary, at or before the taking of the vote at the Annual Meeting, a written notice of revocation bearing a later date than the proxy originally filed, (2) duly executing a later dated proxy relating to the same shares and delivering it to our Secretary before the taking of the vote at the Annual Meeting or (3) attending the Annual Meeting and voting in person (although attendance at the Annual Meeting will not in and of itself constitute a revocation of a proxy). Any written notice of revocation or subsequent proxy should be sent to us at P.O. Box 688, Sedalia, Colorado 80135, Attention: Secretary, or hand delivered to our Secretary at or before the taking of the vote at the Annual Meeting. SOLICITATION OF PROXIES All expenses of our solicitation of proxies, including the cost of mailing this Proxy Statement to our stockholders, will be borne by us. In addition to solicitation by use of the mails, proxies may be solicited from stockholders by our directors, officers and employees in person or by telephone or other means of communication. Such directors, officers and employees will not be additionally compensated, but may be reimbursed for reasonable out-of-pocket expenses in connection with such solicitation. We may retain a proxy solicitation firm for assistance in connection with the solicitation of proxies for the Annual Meeting. Arrangements will also be made with brokerage houses, custodians, nominees and fiduciaries for the forwarding of proxy solicitation materials to beneficial owners of shares held of record by such brokerage houses, custodians, nominees and fiduciaries, and we will reimburse such brokerage houses, custodians, nominees and fiduciaries for their reasonable expenses incurred in connection therewith. BOARD RECOMMENDATIONS THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS THAT THE XTRANA STOCKHOLDERS VOTE "FOR" THE PERSONS NOMINATED FOR ELECTION AS DIRECTORS. 6 FOR THE REASONS SET FORTH HEREIN, THE BOARD OF DIRECTORS HAS UNANIMOUSLY CONCLUDED THAT THE MERGER IS IN THE BEST INTERESTS OF XTRANA AND THE XTRANA STOCKHOLDERS AND UNANIMOUSLY RECOMMENDS THAT THE XTRANA STOCKHOLDERS VOTE "FOR" THE APPROVAL OF THE MERGER AGREEMENT AND THE TRANSACTIONS CONTEMPLATED THEREIN, INCLUDING THE AMENDMENT OF OUR CERTIFICATE OF INCORPORATION TO CHANGE OUR NAME AND EFFECT A 1-FOR-10 REVERSE STOCK SPLIT. 7 PROPOSAL NO. 1: ELECTION OF DIRECTORS Our Board of Directors currently consists of six members. At each annual meeting of our stockholders, directors are elected for a one-year term. At the 2005 Annual Meeting, each director will be elected for a term expiring at the 2006 Annual Meeting. The Board of Directors proposes the six nominees named below. If the Merger (as described in more detail in Proposal No. 2) is successfully completed, then director nominees Douglas Ayer, John Gerdes, James Mahoney and Price Paschall will resign as directors upon the closing of the Merger. However, if the Merger is not approved by the stockholders or is not completed for any other reason, then all of the nominees listed below are currently expected to serve a term expiring at the 2006 Annual Meeting. Unless marked otherwise, proxies received will be voted FOR the election of the each of the nominees named below. If any such person is unable or unwilling to serve as a nominee for the office of director at the date of the Annual Meeting or any postponement or adjournment thereof, the proxies may be voted for a substitute nominee, designated by the proxy holders or by the present Board of Directors to fill such vacancy. The Board of Directors has no reason to believe that any such nominee will be unwilling or unable to serve if elected a director. The Board of Directors proposes the election of the following nominees as members of the Board of Directors: Michael D. Bick, Ph.D. James H. Chamberlain Douglas L. Ayer John C. Gerdes, Ph.D. James B. Mahony, Ph.D. N. Price Paschall THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS THAT STOCKHOLDERS VOTE FOR EACH OF THE DIRECTOR NOMINEES. INFORMATION WITH RESPECT TO EACH DIRECTOR, NOMINEE AND CERTAIN OFFICERS The following table sets forth certain information, as of April 29, 2005, with respect to each of our directors, nominees and executive officers. DIRECTOR NAME AGE CURRENT POSITION SINCE ---- --- ---------------- -------- Michael D. Bick, Ph.D. 60 Chairman of the Board and Director 1991 James H. Chamberlain 57 Chief Executive Officer and Chief 1998 Financial Officer and Director Douglas L. Ayer 67 Director 1993 John C. Gerdes, Ph.D. 56 Director 2004 James B. Mahony 55 Director 2002 N. Price Paschall 56 Director 1997 All officers are appointed by and serve at the discretion of the Board of Directors. There are no family relationships between any of our directors or officers. MICHAEL D. BICK, PH.D., previously has served as Chairman of Board since July 1993. Dr. Bick also served as Chief Executive Officer from August 1991 until August 2000 and President from January 1996 until August 2000. In 1988, Dr. Bick founded the Company's former subsidiary, MeDiTech, and 8 was President and Chief Executive Officer thereof until it was acquired by Biopool in January 1992. Prior to that date, he was co-founder and president of a privately held medical device firm for ten years. Dr. Bick received a Ph.D. in molecular biology from the University of Southern California in 1971 and was affiliated with the Harvard Medical School and Children's Hospital Medical Center in Boston carrying out research in human genetics from 1971 to 1974. Dr. Bick was a staff member of the Roche Institute of Molecular Biology from 1974 to 1978. Dr. Bick has served on the Board of Counselors of the School of Pharmacy, University of Southern California, is a Charter Member of the Keiretsu Forum of Southern California and a Director of VCBio. JAMES H. CHAMBERLAIN was appointed as our interim Chief Executive Officer and Chief Financial Officer in March 2004. Mr. Chamberlain was the founder of BioSource International, Inc., a California-based, Nasdaq National Market System company dedicated to the research, development, manufacturing, and marketing of biomedical products to the diagnostic and research markets. Mr. Chamberlain founded BioSource in 1989, and retired as a director of BioSource and as its Chairman, President, and Chief Executive Officer in 2000. Prior to BioSource, Mr. Chamberlain was the Manager of Business Development for Amgen, Inc. Mr. Chamberlain also serves on the Board of Directors of EcoSoil Systems, Inc., an agricultural biotechnology firm. Mr. Chamberlain received a B.S. degree in biology and chemistry from West Virginia University in 1969 and completed an MBA Executive Program at Pepperdine University in 1981. DOUGLAS L. AYER is currently President and Managing Partner of International Capital Partners of Stamford, CT. Mr. Ayer was previously Chairman and Chief Executive Officer of Cametrics, a manufacturer of precision metal components, and has held executive positions at Paine Webber and McKinsey & Co., Inc. Mr. Ayer also serves as a director of a number of private companies, largely in the information technology sector. JOHN C. GERDES, PH.D., became a director and Chief Scientific Officer of our company concurrent with the merger with Xtrana in 2000. Dr. Gerdes served as Chief Scientific Officer until August 2004. In 2003, Dr. Gerdes resigned as a director of the Company due, in part, to his desire to submit an offer for the purchase of the Company's intellectual property. Dr. Gerdes was reappointed to the Board of Directors in March 2004. In 1996, he conceived of a unique point of care approach for DNA diagnostics, the development of which resulted in the formation of Xtrana. From 1988 to 1998, he was the Director of Paternity Analysis and Clinical Director at IAD where he supervised clinical testing and introduced PCR and other nucleic acid based clinical tests. He has twenty-one publications primarily focused on molecular methods of virus detection. Dr. Gerdes received a B.S. in Microbiology from the University of Wyoming in 1970, and a Ph.D. in Microbial Genetics from the University of California at Los Angeles (UCLA) in 1974. After completing a four-year post-doctoral fellowship in Virology, again at UCLA, he spent four years as an assistant professor at the University of Colorado Health Sciences Center in Denver before accepting a position at Immunological Associates of Denver (IAD), a specialty reference testing laboratory. JAMES B. MAHONY, PH.D., began his career with the University of Toronto's Department of Microbiology and Parasitology, and has held numerous positions with McMaster University, including serving as the Director of the University's Regional Virology and Chlamydiology Laboratory at St. Joseph's Hospital. Dr. Mahony has authored 140 publications, many of which deal with either chlamydia or gonorrhea. He has also published 49 articles in books, several discussing sexually transmitted diseases and chlamydia. His laboratory frequently conducts and publishes validation studies of new methods for detection of sexually transmitted disease infectious agents. Dr. Mahony is currently a Professor in the Department of Pathology and Molecular Medicine at McMaster University in Hamilton, Ontario, Canada, and also serves as a member of the Professional Staff of Hamilton Health Sciences Corporation, Laboratory Medicine. In addition, Dr. Mahony is President Elect of the Pan American Society of Clinical Virology. 9 N. PRICE PASCHALL is the founder and Managing Partner of Context Capital Group (formerly HealthCare Capital Advisors) since 1993. Context Capital Group provides merger and acquisition advice to middle market companies, focusing on the medical service industry. Prior to Context Capital Group, Mr. Paschall was a Vice Chairman and founder of Shea, Paschall and Powell-Hambros Bank (SPP Hambros & Co.), a firm specializing in mergers and acquisitions. Mr. Paschall holds a degree in business administration from California Polytechnic University in Pomona. Since 1994, Mr. Paschall has served on the Board of Directors and provided certain corporate financial services to Advanced Materials Group, a manufacturer and fabricator of specialty foams, foils, films and pressure-sensitive adhesive components. BOARD AND COMMITTEE MEETINGS Our Board of Directors held 9 formal meetings during the fiscal year ending December 31, 2004. The Board of Directors has an Audit Committee and a Compensation Committee. AUDIT COMMITTEE. The Audit Committee is responsible for the engagement of the independent registered public accounting firm, reviews the scope of the audit to be conducted by the independent registered public accounting firm, and periodically meets with the independent registered public accounting firm and the Chief Financial Officer to review matters relating to our financial statements, our accounting principles and our system of internal accounting controls, and reports its recommendations as to the approval of the financial statements to the Board of Directors. The Audit Committee currently consists of Messrs. Bick, Paschall and Ayer. The Audit Committee held one formal meeting during fiscal 2004. AUDIT COMMITTEE FINANCIAL EXPERT. The Board of Directors has determined that Mr. Ayer is an audit committee financial expert, as defined in Item 401(e)(2) of Regulation S-B, and is independent within the meaning of Item 401(e)(1)(ii) of Regulation S-B. COMPENSATION COMMITTEE. The Compensation Committee currently consists of Messrs. Ayer, Paschall and Mahoney. The Compensation Committee is responsible for considering and making recommendations to the Board of Directors regarding executive compensation and is responsible for administering the Company's stock option and executive incentive compensation plans. The Compensation Committee held one meeting during fiscal 2004. NOMINATING COMMITTEE. We do not have a standing nominating committee or committee performing similar functions, in part, because the our common stock is traded on the Over-The-Counter Bulletin Board and the Company is not subject to the listing requirements of any securities exchange or Nasdaq requiring a nominating committee. As a result, the entire Board of Directors fulfills the role of a nominating committee. In carrying out its function to nominate candidates for election to the Board of Directors, the directors consider the mix of skills, experience, character, commitment, and diversity of background, all in the context of the requirements of the Board of Directors at that point in time. The Board of Directors believes that each candidate should be an individual who has demonstrated integrity and ethics in such candidate's personal and professional life, has an understanding of elements relevant to the success of a publicly-traded company and has established a record of professional accomplishment in such candidate's chosen field. Each candidate should be prepared to participate fully in board activities, including attendance at, and active participation in, meetings of the Board of Directors, and not have other personal or professional commitments that would, in the nominating committee's judgment, interfere with or limit such candidate's ability to do so. The Board of Directors has no stated specific, minimum qualifications that must be met by a candidate for a position as a director. 10 The directors' methods for identifying candidates for election to the Board of Directors (other than those proposed by our stockholders, as discussed below) include the solicitation of ideas for possible candidates from a number of sources--members of the Board of Directors; our executives; individuals personally known to the members of the Board of Directors; and other research. The Board of Directors may also from time to time retain one or more third-party search firms to identify suitable candidates. Any of our stockholders may nominate one or more persons for election as a director at an annual meeting of stockholders if the stockholder complies with the notice, information and consent provisions contained in the Company's Bylaws. In addition, the notice must be made in writing and include (A) the name, age, business address and residence address of such person, (B) the principal occupation or employment of such person, (C) the class and number of shares of the corporation which are beneficially owned by such person, (D) a description of all arrangements or understandings between the stockholder and each nominee and any other person or persons (naming such person or persons) pursuant to which the nominations are to be made by the stockholder, and (E) any other information relating to such person that is required to be disclosed in solicitations of proxies for election of directors, or is otherwise required, in each case pursuant to Regulation 14A under the Securities Exchange Act of 1934 (including without limitation such person's written consent to being named in the proxy statement, if any, as nominee and to serving as a director if elected). The recommendation should be addressed to our Secretary. All of our directors attended 75% or more of all the meetings of the Board of Directors and those committees on which he served in fiscal 2004. INFORMATION REGARDING STOCKHOLDER COMMUNICATION WITH THE BOARD OF DIRECTORS; ATTENDANCE OF BOARD MEMBERS AT THE ANNUAL MEETING Stockholders may send inquiries, comments and suggestions directly to our Board of Directors via mail or telephone to the Chairman of the Board at the Company's address. We strongly encourage, but do not require, Board members to attend the Company's Annual Meeting of Stockholders. At the 2003 Annual Stockholders' Meeting, there were two members of the Board present. COMPENSATION OF DIRECTORS Non-employee directors receive $6,000 per calendar year, plus $1,000 for each in person Board of Directors meeting attended and $250 for each telephonic Board of Directors meeting attended. The Company pays all out-of-pocket fees of attendance. CODE OF ETHICS DISCLOSURE We have adopted a Code of Ethical Conduct which is applicable to all of its officers, directors and employees, including our principal executive officer, principal financial officer, principal accounting officer and persons performing similar functions. A copy of the Code of Ethical Conduct is filed as an exhibit to our Annual Report on Form 10-KSB. AUDIT RELATED MATTERS REPORT OF THE AUDIT COMMITTEE OF THE BOARD OF DIRECTORS The Audit Committee assists the Board in fulfilling its responsibility for oversight of the quality and integrity of the accounting, auditing and financial reporting practices of the Company. Because our common stock is quoted on the OTC Bulletin Board(R) (OTCBB), we are not subject to the listing 11 requirements of any securities exchange or Nasdaq regarding the membership of our Audit Committee. However, each member of the Audit Committee is independent as defined in Rule 4200(a)(15) for the listing standards of the Nasdaq Stock Market. The Audit Committee does not have a written charter. During fiscal 2004, the Audit Committee held one formal meeting. In discharging its responsibility for oversight of the audit process, the Audit Committee obtained from our independent registered public accounting firm, Hein & Associates LLP, a formal written statement describing any relationships between the auditors and the Company that might bear on the auditors' independence consistent with the Independent Standards Board Standard No. 1, "Independence Discussions with Audit Committees," discussed with the auditors any relationships that might impact the auditors' objectivity and independence and satisfied itself as to the auditors' independence. The Audit Committee discussed and reviewed with the independent auditors the communications required by generally accepted auditing standards, including those described in Statement on Auditing Standards No. 61, as amended, "Communication with Audit Committees" and discussed and reviewed the results of the independent auditors' examination of the financial statements for fiscal 2004. The Audit Committee reviewed and discussed the audited financial statements of the Company as of and for Fiscal 2004, with management and the independent auditors. Management has the responsibility for preparation of the Company's financial statements and the independent auditors have the responsibility for examination of those statements. Based upon the above-mentioned review and discussions with management and the independent auditors, the Audit Committee recommended to the Board that the Company's audited financial statements be included in its Annual Report on Form 10-KSB for the fiscal year ended December 31, 2004, for filing with the Securities and Exchange Commission. AUDIT COMMITTEE Michael D. Bick, PhD N. Price Paschall Douglas L. Ayer SERVICES PROVIDED BY THE INDEPENDENT AUDITORS The audit committee of our Board of Directors is responsible for the appointment, compensation, retention and oversight of the work of the independent auditors. Accordingly, the audit committee has appointed Hein & Associates LLP to perform audit and other services for the Company and its subsidiaries. The following table sets forth fees for services paid to Hein & Associates LLP, our independent public accounting firm, for the fiscal years ended December 31, 2003 and 2004: 2004 2003 ------- ------- Audit Fees (1) ........................... $39,170 $25,562 Audit-related fees (2) ................... 0 0 Tax fees (3) ............................. 8,140 5,150 All other fees (4) ....................... 0 0 ------- ------- Total ........................... $47,310 $30,712 ======= ======= - ---------- (1) Represents fees for professional services provided in connection with the audit of our annual financial statements and review of our quarterly financial statements. (2) Represents fees for services provided for assurance and related services reasonably related to the performance of the audit or review of our financial statements (other than those reported under Audit Fees above). (3) Represents fees in connection with preparation of our federal and state tax returns. (4) During 2004 and 2003, we did not incur any other fees related to other services provided. The audit committee approved all of the foregoing services provided by Hein & Associates LLP. 12 POLICY REGARDING PRE-APPROVAL OF SERVICES PROVIDED BY THE INDEPENDENT AUDITORS The audit committee has established a general policy requiring it's pre-approval of all audit services and permissible non-audit services provided by the independent auditors, along with the associated fees for those services. For both types of pre-approval, the audit committee considers whether the provision of a non-audit service is consistent with the SEC's rules on auditor independence, including whether provision of the service (i) would create a mutual or conflicting interest between the independent auditors and the Company, (ii) would place the independent auditors in the position of auditing its own work, (iii) would result in the independent auditors acting in the role of management or as an employee of the Company, or (iv) would place the independent auditors in a position of acting as an advocate for the Company. Additionally, the audit committee considers whether the independent auditors are best positioned and qualified to provide the most effective and efficient service, based on factors such as the independent auditors' familiarity with our business, personnel, systems or risk profile and whether provision of the service by the independent auditors would enhance our ability to manage or control risk or improve audit quality or would otherwise be beneficial to us. EXECUTIVE COMPENSATION The following tables set forth certain information as to our Chief Executive Officer and Chief Financial Officer and former Chief Scientific Officer (the "Named Executive Officers"). No other executive officer of the Company had compensation in excess of $100,000 during the period: SUMMARY COMPENSATION TABLE
ANNUAL COMPENSATION SECURITIES ------------------------------ UNDERLYING OTHER NAME AND PRINCIPAL POSITION YEAR SALARY BONUS OTHER(1) OPTIONS COMPENSATION - ---------------------------- ---- --------- ------- -------- ---------- ------------ James H. Chamberlain (2) 2004 $ 45,000 -- $31,300 -- -- Chief Executive Officer & -- Chief Financial Officer -- Timothy J. Dahltorp (3) 2004 $ 80,343 -- -- -- $200,000 Chief Executive Officer 2003 $200,000 -- -- -- -- 2002 $200,000 20,000 -- -- -- John C. Gerdes, Ph.D. (4) 2004 $106,400 -- $ 9,495 -- $ 36,400 Chief Scientific Officer 2003 $145,600 -- -- -- -- 2002 $145,600 -- -- -- -- - ---------- (1) Consists of director fees and reimbursement of expenses incurred as a director. (2) Mr. Chamberlain was appointed CEO and CFO effective as of March 19, 2004. (3) Mr. Dahltorp resigned from the Company, effective as of March 19, 2004. Other compensation in 2004 consists of severance payments. (4) Dr. Gerdes employment with the Company terminated effective as of August 15, 2004. Other compensation in 2004 consists of severance payments.
OPTION GRANTS IN LAST FISCAL YEAR No stock options were issued to the Names Executive Officers during the fiscal year ended December 31, 2004. 13 AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR AND FISCAL YEAR-END OPTION VALUES The following table sets forth, for each of the Named Executive Officers, certain information regarding the number of shares of common stock underlying stock options held at fiscal year-end and the value of options held at fiscal year-end based upon the last reported sales price of the underlying securities on the OTCBB ($0.19 per share) on December 30, 2004, the last trading day of fiscal 2004, as reported by the OTCBB. No options were exercised by the Named Executive Officers during fiscal 2004.
VALUE OF UNEXERCISED NUMBER OF UNEXERCISED OPTIONS IN-THE-MONEY AT YEAR-END OPTIONS AT YEAR-END(1) ----------------------------- --------------------------- NAME EXERCISABLE / UNEXERCISABLE EXERCISABLE / UNEXERCISABLE - --------------------------- ----------------------------- --------------------------- James H. Chamberlain....... 170,000 / 0 $ 0 / 0 Timothy J. Dahltorp (2).... 0 / 0 --/-- John C. Gerdes, Ph.D....... 0 / 0 --/-- - ---------- (1) Determined as the difference between the closing trade price on December 30, 2004 ($0.19/share) and the aggregate price of the options covering such shares. (2) Mr. Dahltorp resigned from the Company effective March 19, 2004. All options held by Mr. Dahltorp terminated 90 days following the date of his resignation.
EMPLOYMENT AGREEMENTS WITH EXECUTIVE OFFICERS In March 2004, we entered into a consulting agreement with Mr. James Chamberlain, a member of the Board of Directors, pursuant to which we have engaged Mr. Chamberlain as our interim Chief Executive Officer and interim Chief Financial Officer. The agreement stipulates payments of $5,000 per month until the Merger is complete. SECTION 16(A) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE Section 16(a) of the Securities Exchange Act of 1934, requires our executive officers, directors, and persons who own more than ten percent of a registered class of our equity securities to file reports of ownership and changes in ownership with the Securities and Exchange Commission. Executive officers, directors and greater-than-ten percent stockholders are required by Securities and Exchange Commission regulations to furnish us with all Section 16(a) forms they file. Based solely on our review of the copies of the forms received by us and written representations from certain reporting persons that they have complied with the relevant filing requirements, we believe that, during the year ended December 31, 2004, all our executive officers, directors and greater-than-ten percent stockholders complied with all Section 16(a) filing requirements. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS Other than as described below, there are no proposed transactions or series of related transactions, nor were there any transactions or series of related transactions during fiscal 2003 and 2004, to which the Company was a party, in which the amount involved exceeded or will exceed $60,000 and in which any director, executive officer, holder of more than 5% of our common stock or any member of the immediate family of any of the foregoing persons had or will have a direct or indirect material interest. In March 2004, we entered into a consulting agreement with Mr. James Chamberlain, a member of the Board of Directors, pursuant to which we have engaged Mr. Chamberlain as or interim Chief Executive Officer and interim Chief Financial Officer. The agreement stipulates payments of $5,000 per month until the Merger is complete. 14 PROPOSAL NO. 2: THE MERGER GENERAL Our Board of Directors has unanimously approved the Merger Agreement and the Merger pursuant thereto. Pursuant to the Merger Agreement, our wholly-owned subsidiary will merge with and into Alpha Innotech Corporation, the stockholders of Alpha Innotech Corporation will become stockholders of Xtrana, Inc., and Alpha Innotech Corporation will become our direct wholly-owned subsidiary. Alpha Innotech Corporation's address is 2401 Merced St. San Leandro, California 94577. Although stockholder approval is not required under Delaware corporate law or our corporate charter documents, our Board of Directors is submitting the proposal to approve the Merger to the stockholders for approval at the Annual Meeting in order to comply with the requirements of the Merger Agreement. If the stockholders do not approve the Merger of AIC Merger Corporation into Alpha Innotech Corporation, we will not be able to complete the Merger. If the proposal is approved by the stockholders, the Board of Directors reserves the right to abandon the Merger. BACKGROUND OF THE MERGER In 2004, we divested ourselves of substantially all of our intellectual property pursuant to an Assignment Agreement with Applera Corporation through its Applied Biosystems Group. Pursuant to the Assignment Agreement, we sold substantially all of our intellectual property, including all patents and know-how (but excluding our trademarks and trade names), to Applera for total consideration of $4,000,000. The sale of our intellectual property pursuant to the Assignment Agreement resulted in receipt of net proceeds of approximately $3,357,000, after payment of all expenses associated with the transaction. Our Board of Directors considered distribution of that cash as a dividend to our stockholders as part of liquidation, after satisfaction of all of our liabilities and payment of all costs associated with the liquidation. Our Board of Directors believed however, that we could attract interest from other businesses that might benefit from access to those funds, as well as our status as a public company with a clean reporting history. Such interest could result in us merging or otherwise joining together with an existing business that could create much greater long-term stockholder value than simply liquidating the Company. Our Board of Directors began to pursue this strategy in early 2004, and after complying with the requirements of the Assignment Agreement to provide consulting services, in August, 2004 we terminated all of our remaining employees and our existing lease pursuant to an early termination agreement. Since that time we have had limited overhead costs of operation, but remained a reporting company under the rules and regulations of the Securities and Exchange Commission. During the first half of 2004, we evaluated various potential businesses in diverse industries. In June, 2004 we entered into a non-binding letter of intent to merge with Aduromed Corporation. However, we ended negotiations and terminated the non-binding letter of intent with Aduromed as result of our due diligence investigation of Aduromed and its business. In evaluating each potential operating business, the Board of Directors considered all or a majority of the following factors: - strength of the operating business model; 15 - growth potential of the operating business and the industry in which it operates; - costs associated with effecting a merger; - respective equity interest in the combined company; - financial strength as displayed by historical and projected margins; - scalability of the business; - capital requirements of the operating business; - competitive position of the operating business; - stage of development of the product, process or service of the operating business; - degree of current or potential market acceptance of the product, process or service of the operating business; and - proprietary features and degree of intellectual property or other protection of the product, process or service of the operating business. Following termination of discussions with Aduromed Corporation, the Board of Directors continued to explore other potential businesses, including Alpha Innotech Corporation, interested in merging with our company. James Chamberlain is a director of a private biosciences company of which William Snider, an Alpha Innotech director, is also a director. Mr. Chamberlain was initially introduced to Alpha Innotech through discussions with Mr. Snider. After we expressed interest in a potential transaction, Mr. Snider introduced Mr. Chamberlain and other member of our board to Alpha Innotech management, and the parties began initial discussions and due diligence in the third quarter of 2004. The Board of Directors determined that Alpha Innotech provided the best potential for long-term value to the Xtrana stockholders of any of the potential opportunities identified by the Board of Directors and met the criteria established by the Board of Directors in its review of potential merger partners. In late September 2004, we began negotiations with Alpha Innotech Corporation on a definitive agreement and engaged in a more detailed due diligence investigation. In early December 2004, the last remaining items of due diligence were completed by both parties and their respective legal counsel and independent auditors, and our financial advisors. The Board of Directors of both companies unanimously approved the Merger Agreement. The Merger Agreement and related agreements were executed and delivered by the parties on December 14, 2004. On December 14, 2004, we issued a press release announcing the execution of the Merger Agreement. In April 2004, we entered into an amendment to the Merger Agreement with Alpha Innotech, which was entered into to clarify the parties' intent with respect to certain provisions of the Merger Agreement and to make certain amendments to the closing conditions for the Merger and the payment of certain deferred compensation owed to Alpha Innotech officers. THE MERGER AGREEMENT The following brief description of the terms of the Merger Agreement contains summaries of certain provisions of the Merger Agreement. This summary description does not purport to be complete and is qualified in its entirety by the full text of the Merger Agreement, which is incorporated into this Proxy Statement by reference and is attached as APPENDIX A. 16 MERGER. Pursuant to the Merger Agreement, our wholly-owned subsidiary, AIC Merger Corporation will merge with and into Alpha Innotech. Each share of Alpha Innotech outstanding prior to the Merger will convert into Xtrana common stock, and all shares of AIC Merger Corporation outstanding prior to the Merger will convert into one share of Alpha Innotech common stock. Specifically, at the effective time of the Merger the following will occur: (1) each issued and outstanding share of Alpha Innotech common stock will be converted into the right to receive 0.1142909 shares of our common stock, subject to adjustment; (2) each issued and outstanding share of Alpha Innotech Series A Preferred Stock will be converted into the right to receive 0.3033634 shares of our common stock, subject to adjustment; (3) each issued and outstanding share of Alpha Innotech Series A-1 Preferred Stock will be converted into the rights to receive 0.3033634 shares of our common stock, subject to adjustment; (4) each issued and outstanding Alpha Innotech option and warrant will be assumed by us or replaced with options and warrants to purchase our common stock on substantially identical terms and subject to proportionate adjustment of the underlying shares and the exercise price based on the applicable exchange ratio; and (5) each issued and outstanding share of AIC Merger Corporation will be converted into one (1) share of Alpha Innotech. The shares of our common stock issued to the holders of Alpha Innotech equity securities upon the Merger is referred to herein as the ("Merger Consideration"). ESCROW. Of the Merger Consideration, 500,000 shares of our common stock will be issued and placed in an escrow account for a period of 12 months following the closing, and may be cancelled if Alpha Innotech suffers any liabilities under the indemnification provisions of the Merger Agreement (the "Holdback Shares"). An additional 500,000 shares of our common stock will be issued and placed in escrow for a period of 12 months following the closing and may be released to Alpha Innotech stockholders if we suffer any liability under the indemnification provisions set forth in the Merger Agreement (the "AIC Indemnification Shares"). EFFECTIVE TIME. The Merger will occur on the date and at the time of the closing. It is anticipated that the effective time of the Merger will occur on or about July 18, 2005, or as soon as practicable following stockholder approval and satisfaction of the other conditions to closing. EXCHANGE OF ALPHA INNOTECH STOCK CERTIFICATES. As soon as practicable after the consummation of the Merger, we will mail to each holder of record of Alpha Innotech stock immediately prior to the effective time a letter of transmittal and instructions for surrendering the Alpha Innotech stock certificates in exchange for Xtrana stock certificates. CONDUCT OF BUSINESS PRIOR TO THE MERGER. From the date of the Merger Agreement until the effective time of the Merger, we and Alpha Innotech each agreed (unless otherwise mutually agreed in writing), among other things, not to: o amend their certificates of incorporation or bylaws other than pursuant to the Merger Agreement; o make changes in accounting practices; 17 o engage in any transaction or create any lien or other encumbrance upon any of its assets which will not be discharged in full prior to the effective date of the Merger, except in the normal and ordinary course of business; o sell, exchange, lease assign, or otherwise transaction any of its assets, or cancel or compromise any debts or claims related to their assets, other than for fair value in the ordinary course of business and consistent with past practice; o authorize or issue additional capital stock; o declare dividends on or redeem or repurchase its capital stock; o pay, discharge, settle or satisfy any claims or liabilities outside the ordinary course of business; o form any subsidiary; o take certain actions with respect to employee benefit plans; o cancel or allow to expire any insurance policy listed in the schedules to the Merger Agreement; o make any expenditure or enter into any commitment or transaction exceeding $30,000 other than in the ordinary course of business consistent with past practices; or o enter into an agreement not in the ordinary course of business. REPRESENTATIONS AND WARRANTIES. The provisions of the Merger Agreement contain customary representations and warranties of both us and AIC Merger Corp. and Alpha Innotech relating to, among other things: o organization and similar corporate matters; o capital structure; o authorization, execution, delivery, performance and enforceability of the Merger Agreement and related matters; o licenses, permits and authorizations required for Merger; and o compliance with laws; o absence of breaches or defaults under any agreements we are a party to; o financial statements and absence of undisclosed liabilities; o absence of undisclosed litigation; o employment matters; o taxes; and o required compliance, consents or approvals, and violations of any agreements or laws. 18 COVENANTS. We agreed to seek stockholder approval of the Merger by conducting a meeting of our stockholders. We also agreed to conduct our operations in the ordinary course of the business during the period leading up to the closing and to comply in all material respects with our obligations under the Merger Agreement. In addition, we agreed to use our commercially reasonable efforts to prepare and file with the California Commissioner of Corporations a Permit Application and to obtain the permit of the California Commissioner of Corporation in order to perfect the exemption from registration for the shares of our common stock and other equity securities to be issued pursuant to the Merger Agreement provided by Section 3(a)(10) of the Securities Act of 1933. CONDITIONS OF THE MERGER. Our obligations and Alpha Innotech Corporation's obligations to consummate the Merger are subject to certain conditions, or waiver of those conditions including, without limitation: o we shall have obtained the affirmative vote of the holders of a majority of shares of our common stock in favor of the Merger; o we shall have been issued a permit from the California Department of Corporations following a fairness hearing with respect to the issuance of our Common Stock pursuant to the Merger Agreement; o we shall have implemented a 1-for-10 reverse stock split; o we shall have procured the resignations of the members of our Board of Directors not continuing as directors following the Merger and all of our executive officers; o Alpha Innotech shall have obtained the affirmative vote of the holders of at least 90% of the issued and outstanding shares of its capital stock in favor of the Merger; o no Alpha Innotech shareholders shall have dissented to the Merger or be entitled to exercise dissenters' rights in connection with the Merger; o Alpha Innotech's aggregate obligations for deferred compensation shall not be more than $550,000; o neither party shall be subject to any order, decree or injunction of a court that would delay or prevent total completion of the Merger; and o the parties shall confirm the truth of the representations and warranties of each party contained in the Merger Agreement as of the date of the Merger. ALPHA INNOTECH LOAN FROM ALEXANDRIA. Pursuant to the Merger Agreement amendment entered into in April 6, 2005, the Merger Agreement was amended to add as a condition to closing of the Merger that Alpha Innotech obtain additional financing in the amount of at least $1,500,000. On April 8, 2005, Alpha Innotech secured a loan in the amount of $1,500,000 from Alexandria Finance, LLC. The loan bears interest at the rate of 12.5% per annum and the outstanding principal amount of the loan is due and payable in 30 equal monthly installments beginning on November 1, 2005. The obligations under the loan are secured by a second priority lien and security interest in substantially all assets of Alpha Innotech. Alpha Innotech has issued a seven-year warrant to purchase 900,000 shares of its Common Stock at a purchase price of $0.20 per share in connection with this loan financing. A firm in which William Snider, a director of Alpha Innotech who would also be a director of the Company following completion of the Merger, has an ownership interest received compensation for arranging the financing transaction with Alexandria Finance, LLC. 19 TERMINATION; TERMINATION FEE. The Merger Agreement may be terminated, and the Merger abandoned, at any time prior to the closing: o by mutual written consent of the parties; o by either party if any governmental entity issues an order restraining the consummation of the Merger, o by either Alpha Innotech or us if the closing has not occurred by July 31, 2005 (unless the failure to close is the result of a terminating party's failure to act), o by either party in the event other party breaches its representations under the Merger Agreement; o by either party if our stockholders fail to approve the Merger, and o by either party if a material adverse change with respect to the business of other party has occurred prior to the closing. In the event that the Merger Agreement is terminated because the closing has not occurred by July 31, 2005, or by Alpha Innotech because of an adverse change in our business, or a breach of our representations and warranties, or by Alpha Innotech because our stockholders do not approve the Merger, then we will be obligated to pay Alpha Innotech $100,000 by offset against the obligations of Alpha Innotech pursuant to a $500,000 promissory note issued by Alpha Innotech to us pursuant to the terms of the Merger Agreement. Upon termination of the Merger Agreement for any reason, the $500,000 promissory note issued by Alpha Innotech to us will become due and payable six months from the termination date. INDEMNIFICATION. Until March 31, 2006, each of us and Alpha Innotech are obligated to indemnify each other, for any loss arising from (a) a breach of any representations and warranties in the Merger Agreement, (b) a failure to perform or comply in any material respect with any covenant contained in the Merger Agreement, (c) any claim by any person for brokerage or finders fees in connection with the Merger or (d) any litigation, action or investigation arising out of our business prior to the Merger. Our indemnification obligations include any claim by Applera Corporation, Applied Biosystems Group against us for indemnification pursuant to that certain Assignment Agreement between us and Applied Biosystems dated January 26, 2004. No claims are payable by either party unless the damages exceed $100,000. Our sole remedy for any indemnification claims against Alpha Innotech or its shareholders is a right to set off any damages against the Holdback Shares. Alpha Innotech's sole remedy for any indemnifications claims against us is a right to receive additional shares of our common stock out of the AIC Indemnification Shares. The value of the Holdback Shares or AIC Indemnification Shares is deemed, by the terms of the Merger Agreement, to be the average of the closing bid and asked prices for our common stock, as reported on the OTCBB, for the ten (10) trading day period commencing on the date of the Merger (adjusted as necessary for the reverse stock split). EXPENSES. We and Alpha Innotech will each pay all of our own costs and expenses incurred in connection with the transactions contemplated hereby including, without limitation, all fees and expenses of attorneys, accountants and financial advisors, except that we agreed to pay certain accounting expenses of Alpha Innotech. 20 MANAGEMENT AND OPERATIONS FOLLOWING THE MERGER Alpha Innotech will be the surviving corporation in the Merger and become our wholly-owned subsidiary, and at the effective time of the Merger AIC Merger Corp. will cease to exist as a separate corporate entity. AIC Merger Corp.'s Certificate of Incorporation and Bylaws will be the certificate of incorporation and bylaws of the combined corporation. The Merger will result in a change of control of the Company, with the existing shareholders of Alpha Innotech owning approximately 83% of our outstanding shares immediately following completion of the Merger. Pursuant to the Merger Agreement, at the effective time Haseeb Chaudhry will become our Chief Executive Officer and Darryl Ray, Ph.D. will become our President, Acting Chief Accounting Officer and Chief Operating Officer. In addition, the Board of Directors has agreed to take all actions necessary such that, immediately following the effective date of the Merger, our board of directors will consist of the following individuals: Nagesh Mhatre, Ph.D. Haseeb Chaudhry Darryl Ray, Ph.D. William Snider Michael Bick, Ph.D. James Chamberlain MERGER CONSIDERATION Upon consummation of the Merger, we will issue an aggregate of approximately 8,072,482 shares of our common stock (taking into account the reverse split) in exchange for all the issued and outstanding shares of Alpha Innotech common stock and Alpha Innotech preferred stock. As a result of the Merger, Alpha Innotech stockholders will hold approximately 83% of our issued and outstanding common stock and stockholders who held our common stock immediately prior to the Merger will hold approximately 17% of our issued and outstanding common stock (excluding options and warrants). No fractional shares of our common stock will be issued. Instead, any fractional share amounts of 0.5 or higher will be rounded up to a full share of common stock and fractional share amounts of less than 0.5 will be rounded down to the next whole share. According to the Merger Agreement, all shares of Alpha Innotech common and preferred stock will automatically be cancelled and shall cease to exist. Pursuant to the Merger Agreement, of the total Merger consideration, 500,000 shares of our common stock will be issued and deposited in escrow to satisfy Alpha Innotech's indemnification obligations, and 500,000 additional shares of our common stock will be issued and deposited in escrow to satisfy our indemnification obligations as described above. BOARD OF DIRECTORS' REASONS FOR THE MERGER Our Board of Directors identified and investigated a number of potential opportunities for merger partners. The Board of Directors believes that Alpha Innotech provides the best potential for long-term value to our stockholders of the potential opportunities we identified. The Board of Directors determined that Alpha Innotech met the primary criteria established by the Board of Directors in its review of potential merger partners. In particular, Alpha Innotech: o is a revenue producing company; o has established products in the marketplace; and o new products expected to be introduced into the marketplace in 2005. 21 The decision of our Board of Directors to enter into the Merger Agreement was based on an analysis of a number of factors including, but not limited to, the following: o a review of our and Alpha Innotech's results of operations and financial condition; o review of potential benefits and opportunities of the combined business including a greater customer base, greater resources and increased operating efficiencies; o the Board of Director's belief that combined resources and capital of us and Alpha Innotech will serve as a foundation for the surviving company to become an increasingly aggressive and effective competitor in all aspects of the industry; o the opinion of our financial advisor that the Merger is fair to our stockholders from a financial point of view; o Xtrana's strategic alternatives and alternatives for enhancement of stockholder value; and o the terms and conditions of the Merger Agreement and all related transactions. Our Board of Directors also considered certain risks attendant to the Merger, including the risk that the benefits sought in the Merger would not be fully achieved, the risks that new products would not be accepted by the market, and the other risks. Our Board of Directors believes that these risks were outweighed by the potential significant benefits to be gained by the Merger. The foregoing discussion of material factors considered by the Board of Directors is not intended to be exhaustive. In reaching the determination to approve and recommend approval and adoption of the Merger pursuant to the Merger Agreement, in view of the wide variety of factors considered in connection with its evaluation thereof, the Board of Directors did not assign any relative or specific weights to the factors set forth above, and individual directors may have given differing weights to the different factors. MATERIAL FEDERAL INCOME TAX CONSEQUENCES OF THE MERGER TO STOCKHOLDERS There are no direct income tax consequences to our stockholders as a result of the Merger. REGULATORY APPROVALS We are not aware of any material governmental or regulatory approval required for completion of the Merger, other than the filing of a certificate of merger with the California Secretary of State and compliance with applicable corporate law of the State of Delaware and the State of California. We have agreed to obtain a permit for the issuance of our securities in the Merger to the Alpha Innotech shareholders from the California Department of Corporations after a fairness hearing. INTEREST OF CERTAIN PERSONS IN THE MERGER No director, executive officer or associate of any director or executive officer has any substantial interest, direct or indirect, by security holdings or otherwise, in the proposed Merger which are not shared by all other stockholders on the basis of their respective share holdings. If the Merger is completed, Dr. Bick and Mr. Chamberlain will remain on the Board of Directors, all other director nominees named in Proposal No. 1 of this Proxy Statement will resign from the Board. VOTE REQUIRED FOR APPROVAL OF THE MERGER The affirmative vote of a majority of the outstanding shares of our common stock entitled to vote is required to approve the Merger pursuant to the Merger Agreement. 22 OPINION OF FINANCIAL ADVISOR TO THE BOARD OF DIRECTORS GENERAL We retained The Mentor Group, Inc. ("Mentor") to render an opinion to the Board of Directors that the Transaction (defined below) pursuant to the terms and conditions of the Merger Agreement (defined below) dated December 14, 2004 and the amendment to the Merger Agreement dated April 6, 2005 relating to the Transaction, is fair, from a financial point of view, to the pre-Transaction common shareholders of Xtrana. The Consideration was determined through negotiations between Xtrana, Inc. and Alpha Innotech Corporation. The Board retained Mentor based upon Mentor's qualifications, expertise and reputation. Mentor is a nationally recognized valuation firm that is continually engaged in providing financial advisory services in connection with mergers and acquisitions, leveraged buyouts, business and securities valuations for a variety of regulatory and planning purposes, recapitalizations, financial restructurings, and private placements of debt and equity securities. As compensation to Mentor for its services in connection with the Transaction, we agreed to pay Mentor an aggregate fee of $25,000 plus Mentor's related expenses. No portion of Mentor's fee is contingent upon the successful completion of the Transaction, any other related transaction, or the conclusions reached in the Mentor opinion. No limitations were imposed by the Board on Mentor with respect to the investigations made or procedures followed by them in rendering its opinion. Xtrana also agreed to indemnify Mentor and related persons against certain liabilities, including liabilities under federal securities laws that arise out of the engagement of Mentor. On December 14, 2004, Xtrana, AIC Merger Corporation, a California corporation and a wholly-owned subsidiary of Xtrana, and Alpha Innotech entered into the Merger Agreement pursuant to which Xtrana Sub will be merged with and into Alpha Innotech, with Alpha Innotech continuing after the Merger as the surviving corporation and a wholly-owned subsidiary of Xtrana. The common shareholders of Xtrana and Alpha Innotech will own 17 percent and 83 percent, respectively, of the outstanding shares of Xtrana (excluding options and warrants) upon the consummation of the Merger. Xtrana will also deliver cash of approximately $2.2 million at the closing of the Merger. In addition, pursuant to the Merger Agreement Xtrana has previously advanced Alpha Innotech $500,000 pursuant to the terms of a secured promissory note. The Merger Agreement has been approved by the Board of Directors of both Xtrana and Alpha Innotech. We further understand that on April 6, 2005, Xtrana, Xtrana Sub, and Alpha Innotech, entered into an amendment to the Merger Agreement. The amendment to the Merger Agreement was entered into to clarify the parties with respect to certain provisions of the Merger Agreement and to make certain amendments to the closing conditions for the Merger and the payment of certain deferred compensation owed to Alpha Innotech officers. The material terms of the transactions contemplated by the Merger provide, among others, that pursuant to the Merger Agreement, at the effective time of the Merger, each share of Alpha Innotech common stock will be converted into approximately 0.1142909 shares of Xtrana common stock and each share of Alpha Innotech Series A Preferred Stock and Series A-1 Preferred Stock will be converted into approximately 0.3033634 shares of Xtrana common stock, in each case as such ratios may be adjusted as provided in the Merger Agreement. These exchange ratios take into account a contemplated 1-for-10 reverse stock split of Xtrana's common stock to be effected immediately prior to the Merger, and the Merger Agreement provides that in no event shall the number of shares of Xtrana common stock issued to the Alpha Innotech shareholders exceed 83 percent of the outstanding shares of Xtrana common stock immediately following the closing of the Merger. All options to purchase shares of common stock of Alpha Innotech and warrants to purchase shares of common stock or preferred stock of Alpha Innotech outstanding at the effective time of the Merger will be assumed or replaced by options, or warrants to purchase Xtrana common stock, with proportional adjustment to the number of underlying shares and 23 exercise price of each option and warrant based upon the relevant exchange ratios identified above. All existing common stockholders of the Company prior to the Merger are referred to herein as the "Public Stockholders." The transactions described above and all related transactions are referred to collectively herein as the "Transaction." Mentor delivered its written opinion, dated as of April 21, 2005, to the Board to the effect that, as of that date, based on and subject to the assumptions, limitations and qualifications set forth in its written opinion, the Transaction pursuant to the Merger Agreement was fair to the Public Shareholders and to the Company, from a financial point of view. THE FULL TEXT OF MENTOR'S WRITTEN OPINION DATED APRIL 21, 2005, WHICH SETS FORTH THE ASSUMPTIONS MADE, MATTERS CONSIDERED AND LIMITATIONS ON REVIEW UNDERTAKEN, IS ATTACHED TO THIS PROXY STATEMENT AS ANNEX B AND IS INCORPORATED IN THIS PROXY STATEMENT BY REFERENCE. YOU ARE URGED TO READ MENTOR'S OPINION IN ITS ENTIRETY. MENTOR'S OPINION IS DIRECTED TO THE BOARD AND ADDRESSES THE FAIRNESS OF THE TRANSACTION TO THE PUBLIC STOCKHOLDERS OF XTRANA AND TO THE COMPANY FROM A FINANCIAL POINT OF VIEW. MENTOR'S OPINION DOES NOT ADDRESS THE UNDERLYING DECISION OF XTRANA TO ENGAGE IN THE TRANSACTION AND DOES NOT CONSTITUTE A RECOMMENDATION TO THE BOARD OF DIRECTORS, OR TO ANY STOCKHOLDER OF XTRANA AS TO HOW SUCH STOCKHOLDER SHOULD VOTE OR AS TO ANY OTHER ACTON SUCH STOCKHOLDER SHOULD TAKE IN CONNECTION WITH THE TRANSACTION. THE SUMMARY OF THE WRITTEN OPINION OF MENTOR SET FORTH IN THIS PROXY STATEMENT IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO THE FULL TEXT OF THE OPINION. Mentor's opinion is for the sole use and benefit of the Board of Directors in its evaluation of the Transaction and should not be used, quoted or distributed by any other person without the prior written consent of Mentor in each instance. The opinion of Mentor and its presentation to the Board constituted only one of a number of factors taken into consideration by the Board of Directors in making their respective determinations to approve the Transaction. SUMMARY OF FINANCIAL ANALYSES PERFORMED BY MENTOR WITH RESPECT TO THE TRANSACTION Generally, the presentation of a fairness opinion is a complex analytic process. This process involves various determinations and judgments concerning the financial and operating characteristics of a business and other factors, including, but not limited to the most appropriate and relevant methods of financial analyses and the application of those methods to the particular circumstances that could affect the acquisition, public trading or other values of the companies or transactions being analyzed. Therefore, such opinions are not readily susceptible to partial or summary description. No company or transaction used in the analyses as a comparison is identical to Xtrana, Alpha Innotech or the Transaction, nor is an evaluation of the results of analyses entirely mathematical. The estimates contained in analyses resulting from any particular analysis are not necessarily indicative of actual values or predictive of future results or values, which may be significantly more or less favorable than those suggested by the analyses. In addition, analyses relating to the value of the business or securities do not purport to be appraisals or to reflect the prices at which businesses, companies or securities actually may be sold. Accordingly, such analyses and estimates are inherently subject to substantial uncertainty. In arriving at its opinion, Mentor made qualitative judgments as to the significance and relevance of each analysis and factor considered by it. Accordingly, Mentor believes that its analyses must be considered as a whole and that selecting 24 portions of its analyses, without considering all analyses and factors, could create an incomplete view of the processes underlying the analyses and its opinion. In arriving at its opinion with respect to the Transaction, Mentor made its determination as to the fairness, from a financial point of view, of the Transaction to the Public Stockholders of Xtrana on the basis of a variety of financial and comparative analyses, including those described below. Mentor's opinion does not address the fairness of the Transaction to creditors or any security holders of Xtrana, either debt or equity, other than to the Public Stockholders of Xtrana in the Transaction. The summary of analyses performed by Mentor, as set forth below, does not purport to be a complete description of the analyses and procedures underlying Mentor's opinion, the judgments made or the conclusions reached by Mentor or a complete description of its presentation. Mentor believes, and has so advised the Board of Directors, that its analyses must be considered as a whole and that selecting portions of its analyses and of the factors considered by it, without considering all factors and analyses, could result in an incomplete and inaccurate view of the process underlying its analyses and opinion. In connection with the preparation of its opinion dated as of April 21, 2005, among other things, Mentor did the following: 1. met with certain members of the senior management of Xtrana and Alpha Innotech to discuss the operations, financial condition, future prospects and projected operations and performance of the Company and Alpha Innotech; 2. visited certain facilities and business offices of Alpha Innotech in San Leandro, California; 3. reviewed audited financial statements for Alpha Innotech for the fiscal years ended December 31, 2000, 2001, 2002, 2003 and 2004; 4. reviewed the unaudited financial information, internally prepared by management of Alpha Innotech, relating to the operations of Alpha Innotech, including: (i) the unaudited consolidated balance sheet of Alpha Innotech and its subsidiaries, as of March 31, 2004 and March 31, 2005, and the related consolidated statements of operations, stockholders' equity and cash flows for the three months ended March 31, 2004 and March 31, 2005, which Alpha Innotech's management has represented and warranted as the most current financial statements available; 5. reviewed certain financial projections provided by Alpha Innotech's management relating to Alpha Innotech for the fiscal years ending December 31, 2005, 2006, 2007, 2008 and 2009; 6. reviewed: (i) Xtrana's Form 10-KSB for the fiscal years ended December 31, 2002, 2003 and 2004, including the audited consolidated balance sheet of Xtrana and its subsidiaries, as of December 31, 2002, 2003 and 2004, and the related consolidated statements of operations, stockholders' equity and cash flows for the fiscal years ended December 31, 2002, 2003 and 2004; and (ii) certain other publicly available business and financial information related to Xtrana, which we deemed to be relevant; 7. reviewed the unaudited financial information, internally prepared by management of Xtrana, relating to the operations of Xtrana, including: (i) the unaudited consolidated balance sheet of Xtrana and its subsidiaries, as of March 31, 2004 and March 31, 2005, and the related consolidated statements of operations, stockholders' equity and cash flows for the three months ended March 31, 2004 and March 31, 2005, which the Company's management has represented and warranted as the most current financial statements available; 25 8. reviewed the following documents and agreements: (i) the Merger Agreement among Xtrana, Xtrana Sub and Alpha Innotech dated December 14, 2004; and (ii) the Amendment No. 1 to the Merger Agreement among Xtrana, Xtrana Sub and Alpha Innotech dated April 6, 2005; 9. reviewed certain other publicly available financial data for certain companies that we deem comparable to Xtrana; and 10. conducted such other studies, analyses and inquiries as we have deemed appropriate for purposes of this opinion. The Mentor opinion does not address the underlying business decision of the Xtrana to engage in the Transaction and does not constitute a recommendation to the Board of Directors, or to any stockholder of the Xtrana as to how such shareholder should vote or as to any other action such stockholder should take in connection with the Transaction. Mentor did not, and was not requested by Xtrana or any other person to, solicit third party proposals or evaluate any specific third party proposals in acquiring all or any part of Xtrana or to make any recommendations as to the form or amount of consideration in connection with the Transaction. Further, Mentor did not participate in the negotiations with respect to the Transaction or advise Xtrana with respect to alternatives to it. Mentor was not asked to opine and does not express any opinion as to: (i) the tax consequences of the Transaction, including, but not limited to, tax or legal consequences to Xtrana or the stockholders of Xtrana in the United States or in any other jurisdiction; (ii) the realizable value of Xtrana's common stock price or the prices at which Xtrana's common stock may trade in the future following the Transaction; or (iii) the fairness of any aspect of the Transaction not expressly addressed in its fairness opinion. This opinion does not give consideration to the tax effect of the proposed Transaction on Xtrana or the stockholders of Xtrana in the United States or in any other jurisdiction. In preparing this opinion, Mentor assumed and relied on the truth, accuracy and completeness of all information supplied or otherwise, including, without limitation, any financial information, forecasts or projections, made available to Mentor, discussed with or reviewed by or for Mentor, or publicly available. In addition, where appropriate, Mentor relied upon publicly available information that Mentor believed to be reliable, accurate, and complete; however, Mentor cannot guarantee the reliability, accuracy, or completeness of any such publicly available information. Mentor did not independently verify the accuracy and completeness of the information provided to it and has not assumed and expressly disclaims any responsibility for independently verifying such information or undertaken any independent evaluation or appraisal of any of the assets or liabilities of Xtrana and Alpha Innotech or was furnished with any such evaluation or appraisal. In addition, Mentor did not conduct, and has not assumed any obligation to conduct, any physical inspection of the properties or facilities of Xtrana and Alpha Innotech. Mentor expresses no opinion regarding the liquidation value of any entity. Without limiting the generality of the foregoing, Mentor has undertaken no independent analysis of any pending or threatened litigation, possible unasserted claims or other contingent liabilities, to which Xtrana and Alpha Innotech or any of their respective affiliates is a party or may be subject and, at Xtrana's direction and with Xtrana's consent, Mentor's opinion makes no assumption concerning, and therefore does not consider, the possible assertions of claims, outcomes or damages arising out of any such matters. Mentor assumed that the financial forecast information furnished to or discussed with Mentor, by Xtrana and Alpha Innotech, was prepared in a reasonable manner and reflected the best currently available estimates and judgment of the Xtrana's management and Alpha Innotech's management as to the expected future financial performance of Xtrana and Alpha Innotech, and that there had been no material change in the assets, financial condition, business or prospects of Xtrana and Alpha Innotech since the date of the most recent financial statements made available to Mentor. This opinion expresses no view with respect to how the projections were obtained, the reasonableness of such projections, or the assumptions on which they were based. Further, Mentor has relied upon the representations of 26 management of Xtrana and Alpha Innotech that management and Alpha Innotech's management is not aware of any facts or circumstances that would make any such forecasts inaccurate or misleading. Mentor's opinion is necessarily based upon market, economic and other conditions as they exist and can be evaluated, and on the information made available to it, as of the date of this opinion. Any subsequent change in such conditions could materially affect the assumptions used in the opinion and would require a reevaluation of such opinion. Although subsequent developments may affect this opinion, Mentor has assumed no obligation to update, revise or reaffirm such opinion, and Mentor expressly disclaims any obligation to do so. ANALYSES Mentor used several methodologies to assess the fairness, from a financial point of view, of to the Public Stockholders in connection with the Transaction. These methodologies provided an estimate as to the aggregate enterprise value of Alpha Innotech and Xtrana. The following is a summary of the material financial analyses used by Mentor in connection with providing its opinion. This summary is qualified in its entirety by reference to the full text of such opinion, which is attached as Annex B to this Proxy Statement. You are urged to read the full text of the Mentor opinion carefully and in its entirety. Mentor used the following valuation methodologies in order to determine the estimated market value of Alpha Innotech: (i) a public company market multiple approach; (ii) an income approach; and (iii) a comparable transaction approach. The analyses required studies of the overall market, economic and industry conditions in which Alpha Innotech operates and the historical operating results of Alpha Innotech. PUBLIC COMPANY MARKET MULTIPLE APPROACH. Mentor reviewed certain financial information of publicly traded comparable companies (the "Comparables"), selected solely by Mentor, that provide life sciences tools, such as instruments, reagents and software, to research and development departments of pharmaceutical companies, biotechnology companies, and other life sciences research and development companies. The Comparables included Caliper Life Sciences, Inc., Cepheid, Ciphergen Biosystems, Inc., Illumina, Inc., Luminex Corporation, Molecular Devices Corporation, Nanogen, Inc., Sequenom, Inc., and Third Wave Technologies, Inc. Mentor calculated certain financial ratios, including the multiples of: (i) Enterprise Value ("EV") to Latest Twelve Months ("LTM") revenues; and (ii) EV to Next Fiscal Year ("NFY") revenues and Equity Value to NFY net income, of the Comparables based on the most recent publicly available information. "Enterprise Value" is defined as the market value of a company's issued and outstanding common stock and common stock equivalents (collectively, "Equity Value") plus the market value of issued and outstanding indebtedness, preferred stock and minority interests minus cash and cash equivalents. No company utilized in the public company market multiple approach is identical to Alpha Innotech. In selecting and evaluating the comparable companies, Mentor made certain judgments and assumptions with regard to industry performance, general business, economic, market and financial conditions, and other matters. Mathematical analysis, such as determining the average or median, of certain financial ratios of the comparable companies is not in itself a meaningful method of using comparable company data. The analysis showed that the multiples of EV to LTM revenues exhibited by the Comparables ranged from 0.9x to 6.5x with a median multiple of 2.4x. In addition, the analysis showed that the multiples of EV to NFY revenues exhibited by the Comparables ranged from 0.9x to 3.4x with a median multiple of 1.4x, and the multiples of Equity Value to NFY net income exhibited by the Comparables ranged from 16.9x to 34.8x with a median multiple of 24.5x, respectively. After reviewing these trading multiples of the Comparables and various other factors including, but not limited to, size, growth and profitability, analyst coverage and stock liquidity, Mentor selected EV to LTM revenue multiples in the 27 range of 1.3x to 1.8x; EV to NFY revenue multiples in the range of 1.0x to 1.1x; and Equity Value to NFY net income multiples in the range of 6.6x to 7.5x. Mentor derived an indication of the Enterprise Value of Alpha Innotech by applying selected revenue and net income multiples to Alpha Innotech's representative levels of revenue and net income for the LTM period ended March 31, 2005 and certain projected results of Alpha Innotech for the fiscal year ending December 31, 2005. Based on the above, the resulting indications of the Enterprise Value of Alpha Innotech ranged from approximately $14.3 million to $32.0 million. INCOME APPROACH. Mentor utilized certain financial projections prepared by the management of Alpha Innotech for the fiscal years ending December 31, 2005, 2006, 2007, 2008 and 2009 to perform a discount cash flow analysis of Alpha Innotech. To determine Alpha Innotech's Enterprise Value, Mentor used the projected unlevered cash flows of Alpha Innotech from December 31, 2005, 2006, 2007, 2008, and 2009, and applied assumed risk-adjusted discount rates ranging from 34 percent to 36 percent and long-term growth rates ranging from 4.9 percent to 6.9 percent. Based on management's estimates and this analysis the resulting indications of the Enterprise Value of Alpha Innotech ranged from approximately $17.2 million to $19.5 million. COMPARABLE TRANSACTION APPROACH. This analysis involves a review of the valuations reflected in acquisition transactions when there is a change of control, whether through merger, stock purchase or asset purchase, involving companies operating in industries and with a business strategy similar to Alpha Innotech's operations and strategies. The comparable transaction approach may yield the widest value range, due to the varying importance of an acquisition to a buyer, differences in the transaction process and the qualitative differences among target or acquired companies. Furthermore, information is typically not disclosed for transactions involving a private seller, even when the buyer is a public company, unless the acquisition is deemed to be significant to the acquirer. As a result, the pool of transactions reviewed in connection with a comparable transaction analysis is limited to transactions involving two public companies or acquisitions by public companies of large private companies. Mentor identified and selected thirteen transactions (collectively, the "Transaction Comparables") involving target companies in the life sciences tools industry that provide instruments, reagents and software to companies engaged in the life sciences research and development industry over the last five years. These transactions, along with the date completed in parentheses, were the acquisition of: (i) Atto Bioscience, Inc. by Becton, Dickinson and Company (7/1/2004); (ii) Axon Instruments Ltd. by Molecular Devices Corp (7/1/2004); (iii) Molecular Probes Inc by Invitrogen Corp. (8/20/2003); (iv) Zymark Corp. by Caliper Life Sciences, Inc. (7/15/2003); (v) PanVera LLC by Invitrogen Corp. (3/31/2003); (vi) Genomic Instrumentation Services, Inc. (d/b/a GeneMachines) by Harvard Bioscience, Inc. / Genomic Solutions Inc. (3/12/2003); (vii) Genomic Solutions Inc. by Harvard Bioscience, Inc. (10/25/2002); (viii) Packard Bioscience Co. by PerkinElmer Inc. (11/13/2001); (ix) Aurora Biosciences Corp. by Vertex Pharmaceuticals Inc. (7/18/2001); (x) PanVera LLC by Aurora Biosciences Corp. (3/1/2001); (xi) Life Technologies Inc. by Invitrogen Corp. (9/14/2000); (xii) NEN Life Sciences Inc. by PerkinElmer Inc. (7/31/2000); and (xiii) Thermo BioAnalysis Corp. by Thermo Electron Corp. (4/20/2000). While some attributes of the acquired companies were similar to Alpha Innotech, none of the transactions identified were identical to the proposed merger and many may have occurred at times when the economic conditions were different than at the time of Mentor's analysis. Based on the publicly available information with respect to these transactions, Mentor calculated and compared multiples for each transaction based on LTM revenue. The analysis showed that the multiples of EV to LTM revenues exhibited by the Transaction Comparables ranged from 1.2x to 8.4x with a median multiple of 3.5x. After reviewing these trading multiples of the Transaction Comparables 28 and various other factors including, but not limited to, size, growth and profitability, completion date of the transaction and description of the transaction, Mentor selected EV to LTM revenue multiples in the range of 1.1x to 1.5x. Mentor derived an indication of the Enterprise Value of Alpha Innotech by applying selected revenue multiples to the Alpha Innotech's representative levels of revenue for the LTM ended March 31, 2005. Based on the above, the resulting indications of the Enterprise Value of Alpha Innotech ranged from approximately $12.1 million to $16.5 million. The aforementioned Public Company Market Multiple, Income and Comparable Transaction Approaches provided Mentor with an indication of the Enterprise Value of Alpha Innotech that ranged from approximately $18.0 million to $22.1 million. Mentor used the following valuation methodology in order to determine the estimated market value of Xtrana: (i) the asset approach. The analyses required studies of the overall market, economic and industry conditions in which Xtrana operates and the historical operating results of Alpha Xtrana. ASSET APPROACH. Mentor utilized the balance sheet prepared by the Xtrana's management as of March 31, 2005 and, based on discussions with Xtrana management, adjusted the individual asset and liability values from this balance sheet to market value. Based on discussions with Xtrana management, management's estimates and this analysis the resulting indications of the Enterprise Value of Xtrana ranged from approximately $2.3 million to $2.8 million. CONCLUSION In rendering this opinion, Mentor assumed that the proposed Transaction would be consummated substantially on the terms discussed in the Merger Agreement, without any waiver of any material terms or conditions by any party thereto. Without limiting the generality of the foregoing, for the purpose of this opinion, Mentor has assumed that Xtrana and Alpha Innotech are not a party to any pending transaction, including external financings, recapitalizations, asset sales, acquisitions or merger discussions, other than the Transaction or in the ordinary course of business. Mentor has also assumed that all the necessary regulatory approvals and consents required for the Transaction will be obtained in a manner that will not change the consideration to be received by the Company. In connection with its review, Mentor considered financial projections for Alpha Innotech for the fiscal years ending December 31, 2005, 2006, 2007, 2008 and 2009. These financial projections were prepared by the management of Alpha Innotech under market conditions as they existed as of approximately April 15, 2005 and the management of Alpha Innotech does not intend to provide Mentor with any updated or revised projections in connection with the Transaction. The projections do not take into account any circumstances or events occurring after the date they were prepared. In addition, factors such as industry performance, general business, economic, regulatory, market and financial conditions, as well as changes to the business, financial condition or results of operations of Alpha Innotech, may cause the projections or the underlying assumptions to be inaccurate. In its analysis, Mentor made numerous assumptions with respect to Xtrana and Alpha Innotech, the Transaction, industry performance, economic, market and financial conditions and other matters, many of which are beyond the control of the respective entities. The estimates contained in such analyses are not necessarily indicative of actual values or predictive of future results or values, which may be more or less favorable than suggested by such analyses. In arriving at its fairness opinion, Mentor reviewed key economic and market indicators, including, but not limited to, growth in gross domestic product, inflation rates, interest rates, consumer 29 spending levels, manufacturing productivity levels, unemployment rates and general stock market performance. Mentor's opinion is based on the market, economic and other conditions as they existed as of April 21, 2005 and on the projected financial information provided to Mentor as of such date. The summary set forth above describes the material points of more detailed analyses performed by Mentor in arriving at its fairness opinion. DESCRIPTION OF XTRANA CAPITAL STOCK COMMON STOCK. We are authorized to issue 50,000,000 shares of common stock, par value $0.01 per share. As of May 1, 2005, we had issued and outstanding 16,533,269 shares of common stock. The holders of common stock are entitled to one vote for each share held of record on all matters on which the holders of common stock are entitled to vote. The holders of common stock are entitled to receive dividends in proportion to their ownership when, as and if declared by the board of Directors out of legally available funds. In the event of our liquidation, dissolution or winding up, the holders of common stock are entitled, subject to the rights of holders of preferred stock issued by us, if any, to share proportionally in all assets remaining available for distribution to them after payment of liabilities and after provision is made for each class of stock, if any, having preference over the common stock. The holders of common stock have no preemptive or conversion rights, and they are not liable for further calls or assessments by us. There are no redemption or sinking fund provisions applicable to the common stock. The outstanding shares of common stock are, and the common stock issuable in the Merger will be, when issued, fully paid and nonassessable. OPTIONS As of May 1, 2005, we had issued and outstanding options covering an aggregate of 1,071,634 shares of our common stock WARRANTS. As of May 1, 2005, we had issued and outstanding warrants for the purchase of an aggregate of 674,755 shares of our common stock. XTRANA BUSINESS AND FINANCIAL INFORMATION Business and financial information about us and information concerning the Board of Directors, management and significant stockholders may be found in our Annual Report on Form 10-KSB for the year ended December 31, 2004 and our Quarterly Report on Form 10-QSB for the quarter ended March 31, 2005, which are being mailed to you with this Proxy Statement, and are incorporated herein by reference. Any future filings we make with the SEC under Sections 13(a), 13(c), 14 or 15(d) of the Securities Exchange Act of 1934, as amended, until the date of the Annual Meeting of Stockholders shall be deemed to be incorporated herein by reference. We file annual, quarterly and special reports, proxy statements and other information with the SEC. Our SEC filings are available to the public over the Internet at the SEC's web site at http://www.sec.gov. You may also read and copy any document we file at the SEC's public reference rooms in Washington, D.C., New York, New York and Chicago, Illinois. Please call the SEC at 1-800-SEC-0330 for additional information on the public reference rooms. Our common stock currently trades on the OTCBB. Our periodic reports, proxy statements and other information can be inspected at the offices of Nasdaq at 1735 K Street, NW, Washington, DC, 20006. 30 ALPHA INNOTECH BUSINESS AND FINANCIAL INFORMATION OVERVIEW Alpha Innotech develops, manufactures and markets digital imaging and detection systems for the life science research and drug discovery markets. Alpha Innotech's goal is to combine instruments, reagents and bioinformatics software to offer integrated modular technology platforms for the electrophoresis, functional genomics, proteomics and cell analysis markets. Alpha Innotech Corporation, a privately held company, was incorporated in California in 1992. Alpha Innotech maintains its corporate offices at 2401 Merced Street, San Leandro, California 94577 and its telephone number is (510) 483-9620. MARKET OPPORTUNITY Alpha Innotech believes that international trade in scientific instruments in general, and the research and development budgets of customers in certain pharmaceutical and biotechnology companies in particular, have risen since 2002 and will continue to rise this year. Alpha Innotech intends to capture a share of this rise with its product mix comprising instruments, software and reagents for the gel imaging, microarray, and array of arrays markets. Alpha Innotech believes the human genome project, genome studies of other organisms, and large scale gene expression studies have identified and will continue to identify many target genes. Alpha Innotech believes there is and will be an increasing need for efficient tools and methods to further study this multitude of target genes. Many genomic and some proteomics studies are currently conducted using the microarray (slide) format. Alpha Innotech believes multiplexed arrays or "array of arrays" (microtitre well) format will increasingly be adopted by the life science research and drug discovery markets for proteomics and cell analysis studies. TECHNOLOGY Alpha Innotech is the assignee of two United States patents and eleven United States patent applications pending, as well as related patent applications pending in the United States, Europe and Asia. Alpha Innotech is licensee of four United States patents and related patents and patent applications pending in the United States, Canada, Europe and Asia. Alpha Innotech's proprietary instrument designs and software are also protected under state and federal trade secret and copyright law. PRODUCTS Alpha Innotech's products address two segments of life science research market: Gel Documentation and MicroArray/Multiplexed Arrays. Alpha Innotech's digital imaging systems for gel documentation are used to detect, archive, and analyze fluorescent, chemiluminescent and visible signals from biological samples such as DNA, proteins and bacterial colonies. Alpha Innotech markets three "families" of gel imaging instruments (FluorChem(TM), AlphaImager(R), and AlphaDigiDoc(TM)), three software packages (AlphaEase(R) software for image capture AND analysis, Alpha PART 11 Ease(TM) software for 21 C.F.R. Part 11 compliance, and Alpha GelFox(TM) software for 2D Gel analysis), and two reagent products (ChemiGlow(TM) chemiluminescent substrate and AlphaQuant(TM) molecular ladders). Alpha Innotech's products for MicroArray/Multiplexed Arrays market segment include the NovaRay(R) reader and ArrayEase(R) analysis software. CUSTOMERS Alpha Innotech's customers include pharmaceutical and biotechnology companies, universities, medical centers, government research institutes and agencies worldwide. 31 DISTRIBUTION In the United Sates Alpha Innotech's products are sold through a network of direct sales representative and independent manufactures representatives. Internationally, its products are sold through distributors. FACILITIES Headquarters, manufacturing, and research and development are housed in 35,000 feet of leased space in San Leandro, California. This lease expires in December 2011. FINANCIAL INFORMATION Certain audited financial information of Alpha Innotech for the years ended December 31, 2004 and 2003, and unaudited financial information for the quarters ended March 31, 2005 and 2004, is attached to this Proxy Statement as APPENDIX C. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION FOR THE FISCAL YEAR ENDED DECEMBER 31, 2004 AND QUARTER ENDED MARCH 31, 2005 The following Management's Discussion and Analysis of Financial Condition and Results of Operations contains forward-looking statements that involve risks and uncertainties, such as statements of our plans, objectives, expectations and intentions. Any statements that are not statements of historical fact are forward-looking statements. When used, the words "anticipate," "believe," "estimate," "expect," "intend," "plan," and similar expressions identify certain of these forward-looking statements. These forward-looking statements are subject to risks and uncertainties that could cause actual results or events to differ materially from those expressed or implied by the forward-looking statements in this Proxy Statement. Alpha Innotech does not undertake any obligation to update forward-looking statements to reflect events or circumstances occurring after the date of this Proxy Statement. CRITICAL ACCOUNTING POLICIES Alpha Innotech's financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America. The preparation of these financial statements requires it to make estimates and judgments that affect the reported amounts of its assets, liabilities, revenue and expenses. Alpha Innotech bases its estimates on historical experience and on various other assumptions that it believes to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates under different assumptions or conditions. Alpha Innotech's critical accounting policies are set forth below. REVENUE RECOGNITION Alpha Innotech's revenue is primarily derived from the sale of digital imaging systems, net of returns and allowances and is generally recognized when a contract is executed, all delivery obligations have been met, the fee is fixed and determinable, and collectibility is probable. All products are sold with a 1-year standard warranty agreement and Alpha Innotech records an associated reserve for estimated warranty costs. For products sold where software is deemed to be more than incidental, Alpha Innotech follows Statement of Position ("SOP") 97-2, "Software Revenue Recognition," as amended. Revenue earned on 32 software arrangements involving multiple elements is allocated to each element based on vendor-specific objective evidence, which is based on the price charged when the same element is sold separately. Revenue allocated to maintenance and support is recognized ratably over the maintenance term (typically one year). Revenue is recorded net of estimated returns. Alpha Innotech's management makes estimates of potential future product returns related to current period revenue. Alpha Innotech analyzes historical returns, current economic trends and changes in its customer demand and acceptance of its product when evaluating the adequacy of its allowance for sales returns and other allowances, such as allowance for bad debts, in any accounting period. As of March 31, 2005 and December 31, 2004, Alpha Innotech's allowance for sales returns was $56,092 and $35,003, respectively, and its allowance for doubtful accounts was $47,378 and $47,378, respectively. INVENTORY Alpha Innotech records inventories at the lower of cost or market value, with cost generally determined on a first-in, first-out basis. Alpha Innotech performs periodic valuation assessments based on projected sales forecasts and analyzing upcoming changes in future configurations of its products and record inventory write-downs for excess and obsolete inventory. Although Alpha Innotech strives to ensure the accuracy of its forecasts, it periodically is faced with uncertainties. As of March 31, 2005 and December 31, 2004, Alpha Innotech's allowance for excess and obsolete inventory was $80,394 and $80,781, respectively. DEFERRED TAXES VALUATION ALLOWANCE Alpha Innotech believes that sufficient uncertainties exist regarding the future realization of deferred tax assets, and, accordingly a full valuation allowance is required and amounted to $4.5 million at December 31, 2004. In subsequent periods when Alpha Innotech generates pre-tax income, a tax expense will not be recorded to the extent that the remaining valuation allowance can be used to offset that expense. Once a consistent pattern of pre-tax income is established or other events occur that indicate that the deferred tax assets will be realized, additional portions or all of the remaining valuation allowance will be reversed back to income. Should Alpha Innotech generate pre-tax losses in subsequent periods, a tax benefit will not be recorded and the valuation allowance will be increased. Despite the valuation allowance, Alpha Innotech retains the ability to utilize the benefits of net operating loss carryforwards and research and development credits. The following Management's Discussion and Analysis of Financial Condition and Results of Operations should be read in conjunction with Alpha Innotech's financial statements and the related notes thereto. This discussion contains forward-looking statements based upon current expectations that involve risks and uncertainties, such as Alpha Innotech's plans, objectives, expectations and intentions. Alpha Innotech's actual results and the timing of events could differ materially from those anticipated in these forward-looking statements as a result of several factors. COMPARISON OF THREE MONTHS ENDED MARCH 31, 2005 AND 2004 REVENUES Alpha Innotech's revenues are primarily derived from sale of instruments, software, consumables, and service contracts. Revenues for the three months ended March 31, 2005 increased $0.6 million or 31.4%, to $2.5 million, from $1.9 million for the three months ended March 31, 2004. There was not any material growth in the mix of revenue between software, consumables, or service contracts, in the number 33 of units sold, or sales prices. However, the number of units sold for instrument sales increased, with no material change in price, due to improvements in the gel imaging product line. Revenues outside of the United States represented 36% of our total revenues for the three months ended March 31, 2005 and 27% of our total revenues for the three months ended March 31, 2004. Due to emerging markets, especially in Asia, we anticipate our international revenue to grow and account for increasing percentage of the total revenue. COST OF GOODS SOLD Cost of goods sold includes direct material, labor and manufacturing overhead. Cost f goods sold for the three months ended March 31, 2005 increased $0.4 million or 38.4%, to $1.4 million, from $1.0 million for the three months ended March 31, 2004. GROSS PROFIT Gross profit for the three months ended March 31, 2005 increased $0.2 million or 23.4%, to $1.1 million, from $0.9 million for three months ended March 31, 2004. The gross profit as a percent of revenues declined from 46.7% for the three months ended March 31, 2004 to 43.9% for the three months ended March 31, 2005. There were no significant changes in cost of labor or overhead. However, material costs did increase due to the upgrading of some components which increased material costs. SALES AND MARKETING EXPENSES Sales and marketing expenses for the three months ended March 31, 2005 increased $0.2 million or 29.0%, to $1.0, from $0.8 million for the three months ended March 31, 2004. The sales and marketing expenses as a percentage of revenues decreased from 43.1% for the three months ended March 31, 2004 to 42.3% for the three months March 31, 2004. The increase of sales and marketing expenses were primarily due to cost associated with increasing international revenues, investment in business development, and replacement of Director of Sales with Vice President of Sales and Marketing. RESEARCH AND DEVELOPMENT EXPENSES Research and development expenses for the three months ended March 31, 2005 decreased $0.1 million or 18.7%, to $0.4 million, from $0.5 million for the three months ended March 31, 2004. The research and development expenses as a percentage of revenues decreased from 25.6% for the three months ended March 31, 2004 to 15.9% for the three months March 31, 2005. The decrease is in general a result of significant product improvements for the gel imaging product line that were made in 2004, that did not occur in 2005, as the product was introduced in the second half of 2004. Alpha Innotech continues to fund the new NovaRay system. GENERAL AND ADMINISTRATIVE EXPENSES General and administrative expenses for three months ended March 31, 2005 and 2004 were $0.3 million. The general and administrative expenses as a percentage of revenues decreased from 17.1% for the three months ended March 31, 2004 to 11.4% for the year ended December 31, 2004. 34 COMPARISON OF YEARS ENDED DECEMBER 31, 2003 TO 2004 REVENUES Alpha Innotech's revenues are primarily derived from sale of instruments, software, consumables, and service contracts. Revenues for the years ended December 31, 2004 and 2003 were $10.5 million and $10.5 million, respectively. There was not any material growth in the mix of revenue between instruments, software, consumables, or service contracts, in the number of units sold, or sales prices. Revenues outside of the United States represented 39% of Alpha Innotech's total revenues for the year ended December 31, 2004 and 30% of its total revenues for the year ended December 31, 2003. Due to emerging markets, especially in Asia, Alpha Innotech anticipates our international revenue to grow and account for increasing percentage of the total revenue. COST OF GOODS SOLD Cost of goods sold includes direct material, labor and manufacturing overhead. The cost of goods sold for the year ended December 31, 2004 was $5.4 million as compared to $5.3 million for the year ended December 31, 2003. GROSS PROFIT The gross profit declined from $5.2 million for the year ended December 31, 2003 to $5.1 million for the year ended December 31, 2004. The gross profit as a percent of revenues declined from 49.2% for the year ended December 31, 2003 to 48.8% for the year ended December 31, 2004. SALES AND MARKETING EXPENSES Sales and marketing expenses for the year ended December 31, 2004 increased $0.3 million or 9.9%, to $3.9 million, from $3.6 million for the year ended December 31, 2003. The sales and marketing expenses as a percentage of revenues increased from 34.0% for the year ended December 2003 to 37.3% for the year ended December 31, 2004. The increase of sales and marketing expenses were primarily due to cost associated with increasing international revenues, investment in business development, higher sales meeting cost, and replacement of Alpha Innotech's Director of Sales with Vice President of Sales and Marketing. RESEARCH AND DEVELOPMENT EXPENSES Research and development expenses for the year ended December 31, 2004 increased $0.3 million or 18.1%, to $2.0 million, from $1.7 million for the year ended December 31, 2003. The research and development expenses as a percentage of revenues increased from 15.8% for the year ended December 2003 to 18.7% for the year ended December 31, 2004. Alpha Innotech continues to fund the new NovaRay system. In addition, Alpha Innotech made significant product improvements for the gel imaging product line that was introduced in second half of 2004. GENERAL AND ADMINISTRATIVE EXPENSES General and administrative expenses for year ended December 31, 2004 increased $0.4 million or 19.3%, to $2.0 million, from $1.6 million for the year ended December 31, 2003. The general and administrative expenses as a percentage of revenues increased from 15.2% for the year ended December 2003 to 18.7% for the year ended December 31, 2004. The increase in general and administrative 35 expenses was attributed to higher legal costs related to Series A-1 Preferred Stock financing, the Merger Agreement, and expense related to issuance of warrants to senior executive. OTHER INCOME (EXPENSE) Interest expense for the year ended December 31, 2004 was $0.6 million as compared to $0.3 million for the year ended December 31, 2003. The increase in interest expense was due to an increase in the redeemable convertible preferred stock offset by the general reduction in debt. LIQUIDITY AND CAPITAL RESOURCES To date, Alpha Innotech has funded its operations primarily through private sales of equity securities and borrowings. As of March 31, 2005, Alpha Innotech had raised a total of $2.20 million in convertibles notes that were converted into redeemable convertible preferred stock in 2004, a total of $2.18 million, net of offering costs, from the issuance of redeemable convertible preferred stock, and a total of $0.67 million, net of offering costs, from the issuance of common stock. As of March 31, 2005, Alpha Innotech's resources of liquidity consisted of $0.1 million in cash and it had a negative working capital of $2.7 million. At March 31, 2005, Alpha Innotech had the following available to it: BFI BUSINESS FINANCE LINE OF CREDIT - In connection with funding of operations and development of new products on March 9, 2004, Alpha Innotech established a line of credit with BFI Business Finance ("BFI"), in which BFI uses Alpha Innotech's accounts receivable as collateral to obtain advances from BFI up to 80% of Alpha Innotech's accounts receivable balance at the time of the borrowing, but with principal advances not to exceed $1 million. The interest rate of the line of credit is variable, and bears interest at a rate of 3% over prime. The interest rate as of March 31, 2005 was 8.75% plus 6% administrative fee BFI BUSINESS TERM LOAN - In connection with funding of operations and development of new products on August 27, 2004, Alpha Innotech executed a note in the amount of $300,000 payable to the BFI Business Finance ("BFI"). The interest rate applicable to the note was variable, and bore interest at a rate of 3% over prime. The interest rate as of March 31, 2005 was 8.75% plus 6% administrative fee. The loan matured and principal payments were due to BFI on December 31, 2004. However, in December 2004, BFI and Alpha Innotech agreed to extend the note for an additional 90 days to March 31, 2005, for a fee of $20,000. The loan was repaid on April, 5, 2005. XTRANA TERM LOAN AGREEMENT - On December 14, 2004, Alpha Innotech and Xtrana entered into a merger agreement, pursuant to which a wholly owned subsidiary of Xtrana will be merged with and into Alpha Innotech, with Alpha Innotech continuing after the merger as the surviving corporation and a wholly-own subsidiary of Xtrana. Pursuant to the terms of the merger agreement, Xtrana made a loan to Alpha Innotech in the amount of $500,000 on December 16, 2004. The obligations under the loan are secured by a second priority lien and security interest in substantially all assets of Alpha Innotech. The loan bears interest at the rate of 6% per annum. Cash provided by operating activities was $0.1 million for the three months ended March 31, 2005 compared to cash used in operating activities of $0.1 million for the three months ended March 31, 2004. In the three months ended March 31, 2005, the primary source of cash provided by operating activities were $0.2 million of depreciation and amortization, $0.4 million decrease in accounts receivable, $0.1 million decrease in prepaid expenses and other current asset, and $0.2 million increase in accounts payable, offset by $0.7 million net loss and $0.1 decrease in accrued expenses. In the three months ended March 31, 2004, the primary source of cash used in operating activities was $0.8 million 36 net loss, $0.3 million decrease in accounts payable, and $0.1 million decrease in deferred revenue, offset by $0.2 million of depreciation, $0.6 million decrease in accounts receivable, $0.2 million decrease in inventories, and $0.1 million increase in accrued liabilities. Cash used in investing activities was $0.0 million and $0.1 million for the three months ended March 31, 2005 and 2004, respectively. Uses of cash flows for investing activities included capital expenditures for property and equipment. Cash provided by financing activities was $0.0 million and $0.1 million for the three months ended March 31, 2005 and 2004, respectively. In the three months ended March 31, 2004, $0.5 million was provided from borrowing of debt obligations and $0.3 million from issuance of convertible notes, offset by $0.7 million of repayments of debt obligation. Alpha Innotech's net cash flow used in operating activities was $1.3 million for the year ended December 31, 2004. Use of cash was primarily to fund net losses. Working capital was a source of cash for the year ended December 31, 2004. In 2004, accounts receivable increased by $0.7 due to increase in sales by $0.7K in December 2004 compared to December 2003. In 2004, Alpha Innotech reduced inventory by $0.5 million as Alpha Innotech continued to concentrate on increasing its inventory turnover rate. In 2004, Alpha Innotech continued to extend general creditors to manage cash and accounts payable and accrued liabilities increased $0.4 million and $0.2 million, respectively. Alpha Innotech's net cash flow used in investing activities was $0.4 million for the year ended December 31, 2004. Uses of cash flow for investing activities included capital expenditures for property and equipment. Alpha Innotech's net cash flow provided by financing activities was $1.5 million for the year ended December 31, 2004. In 2004, cash from financing activities primarily consisted of net proceeds from issuance of convertible notes and proceeds from debt borrowings, offset in part by repayments of debt obligations. Alpha Innotech rents its office facilities under an operating lease, which expires on December 2011. The following presents our prospective future lease payments under this agreement: Year ending December 31: 2005........................................... $ 440,766 2006........................................... 449,766 2007........................................... 458,955 2008........................................... 468,338 2009........................................... 477,918 Thereafter..................................... 945,218 ------------ Total minimum lease obligations................ $ 3,240,960 ============ Alpha Innotech believes that subsequent to the reverse merger it will have sufficient cash and available borrowings to meet its operating and capital requirements for at least the next twelve months. Long-term, Alpha Innotech may require additional funds to support our working capital requirements or for other purposes and may seek to raise additional funds through public or private equity or debt financing or from other sources. Alpha Innotech cannot assure you that additional financing will be available on acceptable terms, or at all. If adequate funds are not available to satisfy either short- or long-term capital requirements, Alpha Innotech might be required to limit its operations significantly and its business might fail. 37 QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK Alpha Innotech does not use derivative financial instruments in its investment portfolio and has no foreign exchange contracts. Its financial instruments consist of cash and cash equivalents, trade accounts receivable, accounts payable and long-term obligations. Alpha Innotech considers investments in highly liquid instruments purchased with a remaining maturity of 90 days or less at the date of purchase to be cash equivalents. Alpha Innotech's exposure to market risk for changes in interest rates relates primarily to its short-term investments and short-term obligations; thus, fluctuations in interest rates would not have a material impact on the fair value of these securities. At March 31, 2005, Alpha Innotech had $142,000 in cash and cash equivalents. A hypothetical 10% increase or decrease in interest rates would not have a material impact on its earnings or loss, or the fair market value or cash flow of these instruments. EFFECTS OF RECENT ACCOUNT PRONOUNCEMENTS In December 2004, the FASB issued SFAS No. 123 (revised 2004), SHARE-BASED PAYMENT ("SFAS 123(R)"). This is a revision of SFAS No. 123, ACCOUNTING FOR STOCK-BASED COMPENSATION, and supercedes APB No. 25, ACCOUNTING FOR STOCK ISSUED TO EMPLOYEES ("APB 25"). As noted in Alpha Innotech's stock based compensation accounting policy described above, Alpha Innotech generally does not record compensation expense for employee stock options. Under SFAS 123(R), Alpha Innotech will be required to measure the cost of employee services received in exchange for stock compensation, based on the grant date fair value (with limited exceptions). That cost will be recognized over the period during which an employee is required to provide service in exchange for the award (usually the vesting period). The fair value for stock options will be estimated using an option-pricing model. Excess tax benefits, as defined in SFAS 123(R), will be recognized as an addition to paid-in capital. Under SFAS 123(R), measurement and recognition of compensation expense related to Alpha Innotech's restricted stock will be the same as APB 25. On April 14, 2005, the Securities and Exchange Commission ("SEC") announced the adoption of a rule that defers the required effective date of SFAS 123(R). The SEC rule provides that SFAS 123(R) is now effective for registrants as of the beginning of the first fiscal year beginning after June 15, 2005, instead of at the beginning of the first quarter after June 15, 2005. Therefore, the required effective date of SFAS 123(R) for calendar year-end public companies is January 1, 2006. Alpha Innotech is currently evaluating the impact of this statement on its consolidated financial statements. In November 2004, FASB issued SFAS 151, INVENTORY COST. This statement amends Accounting Research Bulletin No. 43, Chapter 4, INVENTORY PRICING, to clarify the accounting for abnormal amounts of idle facility expense, freight, handling costs and wasted material (spoilage). The provision of the statement is effective for inventory costs incurred during fiscal years beginning after June 15, 2005. Alpha Innotech is currently evaluating the impact of this statement on its consolidated financial statements. In January 2003, the FASB issued FASB Interpretation No. 46 ("FIN 46"), "Consolidation of Variable Interest Entities, an Interpretation of ARB No. 51." FIN 46 requires certain variable interest entities to be consolidated by the primary beneficiary of the entity if the equity investors in the entity do not have the characteristics of a controlling financial interest or do not have sufficient equity at risk for the entity to finance its activities without additional subordinated financial support from other parties. FIN 46 is effective immediately for all new variable interest entities created or acquired after January 31, 2003. For variable interest entities created or acquired prior to February 1, 2003, the provisions of FIN 46 must be applied for the first interim or annual period beginning after June 15, 2003. Alpha Innotech does not have any ownership in any variable interest entities as of December 31, 2003. Alpha Innotech will apply the consolidation requirement of FIN 46 in future periods if it should own any interest in a variable interest entity. 38 In May 2003, the FASB issued SFAS No. 150, "Accounting for Certain Financial Instruments with Characteristics of both Liabilities and Equity." SFAS No. 150 establishes standards for how an issuer classifies and measures financial instruments with characteristics of both debt and equity and requires an issuer to classify the following instruments as liabilities in its balance sheet: (1) a financial instrument issued in the form of shares that is mandatorily redeemable and embodies an unconditional obligation that requires the issuer to redeem it by transferring its assets at a specific or determined date or upon an event that is certain to occur; (2) a financial instrument, other than an outstanding share, that embodies an obligation to replace the issuer's equity shares, or is indexed to such obligation, and requires the issuer to settle the obligation by transferring assets; and (3) a financial instrument that embodies an unconditional obligation that the issuer must settle by issuing a variable number of equity shares if the monetary value of the obligation is based solely or predominantly on (a) a fixed monetary amount, (b) variations in something other than fair value of the issuer's equity shares, or (c) variations inversely related to changes in the fair value of the issuer's equity shares. In November 2003, the FASB issued FASB Staff Position No. 150-3, which deferred the effective dates of applying certain provisions of SFAS No. 150 related to mandatorily redeemable financial instruments of certain nonpublic entities and certain mandatorily redeemable noncontrolling interests for public and nonpublic entities. For public entities, SFAS No. 150 is effective for mandatorily redeemable financial instruments entered into or modified after May 31, 2003 and is effective for all other financial instruments as of the first interim period beginning after June 15, 2003. For mandatorily redeemable noncontrolling interests that would not have to be classified as liabilities by a subsidiary under the exception in paragraph 9 of SFAS No. 150, but would be classified as liabilities by the parent, the classification and measurement provisions of SFAS No. 150 are deferred indefinitely. For other mandatorily redeemable noncontrolling interests that were issued before November 5, 2003, the measurement provisions of SFAS No. 150 are deferred indefinitely. For those instruments, the measurement guidance for redeemable shares and noncontrolling interests in other literature shall apply during the deferral period. The adoption of SFAS No. 150 did not have any impact on Alpha Innotech's consolidated financial statements. 39 UNAUDITED PRO FORMA FINANCIAL STATEMENTS The following unaudited pro forma consolidated financial statements give effect to the reverse acquisition of Alpha Innotech by Xtrana and are based on the estimates and assumptions set forth herein and in the notes to such statements. On December 14, 2004, Xtrana and Alpha Innotech entered into the Merger Agreement. Pursuant to the Merger Agreement and proposed corporate resolutions the following will occur: o Immediately prior to the completion of the proposed reverse acquisition, Xtrana will effect a reverse stock split pursuant to which ten shares of Xtrana's outstanding common stock will be exchanged for one new share of common stock resulting in approximately 1,653,000 shares being outstanding. o Each share of Alpha Innotech common and preferred stock issued and outstanding at the closing of the merger will be converted into shares of the newly issued Xtrana common stock (approximately 8,072,000 shares). o Xtrana's wholly-owned subsidiary AIC Merger Corporation will merge with and into Alpha Innotech. o Alpha Innotech will be the surviving corporation. o The separate existence of Xtrana and AIC Merger Corporation will end. o Immediately after the completion of the proposed reverse acquisition Xtrana will change it's name to Alpha Innotech Corp. The transaction is being accounted for as a reverse acquisition and a recapitalization. Alpha Innotech is the acquirer for accounting purposes. The following unaudited pro forma consolidated financial information gives effect to the above. The unaudited pro forma financial information was prepared from (1) Xtrana's audited historical financial statements included in Xtrana's Form 10-KSB for the year ended December 31, 2004, (2) Xtrana's unaudited historical financial statement included in Xtrana's 10-QSB for the period ended March 31, 2005, (3) Alpha Innotech's audited historical financial statements for the year ended December 31, 2004 included elsewhere in this Proxy Statement, and (4) Alpha Innotech's unaudited historical financial as of and for the three months ended March 31, 2005 included elsewhere in this Proxy Statement. The unaudited pro forma consolidated balance sheet at March 31, 2005 assumes the effects of the above took place as of March 31, 2005. The unaudited pro forma consolidated statement of operations combines the historical statement of operations of Xtrana and Alpha Innotech for the twelve months ended December 31, 2004. The unaudited pro forma consolidated statement of operations combines the historical statement of operations of Xtrana and Alpha Innotech for the three months ended March 31, 2005. The unaudited pro forma consolidated statements of operations assume that the effects of the above took place as of January 1, 2004. The unaudited pro forma consolidated financial information is presented for illustrative purposes only and is not necessarily indicative of the operating results or financial position that would have occurred if the transaction had been consummated at the dates indicated, nor is it necessarily indicative of the future operating results of financial position of the consolidated companies. 40 UAUDITED PRO FORMA CONSOLIDATED BALANCE SHEET AS OF MARCH 31, 2005
Historical Pro Forma ------------------- ---------------------------------------- Alpha Conversion Innotech Xtrana, of Restate Corporation Inc. Preferred Merger Capital Combined ------- ------- ------- ------- ------- ------- (in thousands) ASSETS Current assets: Cash and cash equivalents ...................... 142 2,270 -- -- -- 2,412 Accounts receivable, net ....................... 1,571 -- -- -- -- 1,571 Inventory, net ................................. 718 -- -- -- -- 718 Prepaid expenses and other current assets ...... 108 55 -- -- -- 163 ------- ------- ------- ------- ------- ------- Total current assets ....................... 2,539 2,325 -- -- -- 4,864 Property and equipment, net .......................... 1,292 -- -- -- -- 1,292 Other assets ......................................... 80 -- -- -- -- 80 ------- ------- ------- ------- ------- ------- Total assets ............................... 3,911 2,325 -- -- -- 6,236 ======= ======= ======= ======= ======= ======= LIABILITIES, REDEEMABLE CONVERTIBLE PREFERRED STOCK AND SHAREHOLDERS' EQUITY Current liabilities: Accounts payable ............................... 1,833 16 -- -- -- 1,849 Accrued liabilities ............................ 1,037 100 -- -- -- 1,137 Debt ........................................... 1,609 -- -- (500) -- 1,109 Deferred revenue ............................... 579 -- -- -- -- 579 Other liabilities .............................. 189 -- -- -- -- 189 ------- ------- ------- ------- ------- ------- Total current liabilities .................. 5,247 116 -- (500) -- 4,863 ------- ------- ------- ------- ------- ------- Commitments and contingencies ........................ -- -- -- -- -- -- ------- ------- ------- ------- ------- ------- Redeemable convertible preferred stock: Series A preferred stock ....................... 10,445 -- (10,445) -- -- -- Series A-1 preferred stock ..................... 2,226 -- (2,226) -- -- -- ------- ------- ------- ------- ------- ------- Total redeemable convertible preferred stock 12,671 -- (12,671) -- -- -- ------- ------- ------- ------- ------- ------- Shareholders' equity: Common stock ................................... 1,147 165 12,671 (165) (13,770) 48 Additional paid-in capital ..................... -- 19,446 -- (16,737) 13,770 16,479 Accumulated deficit ............................ (15,154) (18,574) -- 18,574 -- (15,154) Retained earnings during development stage ..... -- 1,172 -- (1,172) -- -- ------- ------- ------- ------- ------- ------- Total shareholders' equity ................. (14,007) 2,209 12,671 500 -- 1,373 ------- ------- ------- ------- ------- ------- Total liabilities, redeemable convertible preferred stock and shareholders' equity ................................. 3,911 2,325 -- -- -- 6,236 ======= ======= ======= ======= ======= =======
41 UNAUDITED PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS FOR THE THREE MONTHS ENDED MARCH 31, 2005
Historical Pro Forma ------------------- ---------------------------------------- Alpha Conversion Innotech Xtrana, of Restate Corporation Inc. Preferred Merger Capital Combined ------- ------- ------- ------- ------- ------- (in thousands) Revenue: Products ................................. 2,505 -- -- -- -- 2,505 ------- ------- ------- ------- ------- ------- Total revenue ........................ 2,505 -- -- -- -- 2,505 ------- ------- ------- ------- ------- ------- Cost of sales: Products ................................. 1,405 -- -- -- -- 1,405 ------- ------- ------- ------- ------- ------- Total cost of sales .................. 1,405 -- -- -- -- 1,405 ------- ------- ------- ------- ------- ------- Gross profit ..................... 1,100 -- -- -- -- 1,100 ------- ------- ------- ------- ------- ------- Operating expenses: Sales and marketing ...................... 1,061 -- -- -- -- 1,061 Research and development ................. 397 -- -- -- -- 397 General and administrative ............... 285 95 -- (95) -- 285 ------- ------- ------- ------- ------- ------- Total operating expenses ............. 1,743 95 -- (95) -- 1,743 ------- ------- ------- ------- ------- ------- Loss from operations ............. (643) (95) -- 95 -- (643) ------- ------- ------- ------- ------- ------- Other income (expense): Interest expense ......................... (43) -- -- -- -- (43) Other income (expense), net .............. (2) 9 -- (9) -- (2) ------- ------- ------- ------- ------- ------- Total other income (expense) ......... (45) 9 -- (9) -- (45) ------- ------- ------- ------- ------- ------- Net loss ......................... (688) (86) -- 86 -- (688) Accretions on preferred stock .................. (217) -- 217 -- -- -- ------- ------- ------- ------- ------- ------- Net loss applicable to common stockholders (905) (86) 217 86 0 (688) ======= ======= ======= ======= ======= ======= Basic and diluted net loss per share ........... (0.11) (0.05) -- -- -- (0.07) ======= ======= ======= ======= ======= ======= Number of shares used in computing basic and diluted net loss per share ............... 8,072 1,653 -- -- -- 9,725 ======= ======= ======= ======= ======= =======
42 UNAUDITED PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS FOR THE YEAR ENDED DECEMBER 31, 2004
Historical Pro Forma ------------------- ---------------------------------------- Alpha Conversion Innotech Xtrana, of Restate Corporation Inc. Preferred Merger Capital Combined ------- ------- ------- ------- ------- ------- (in thousands) Revenue: Products ................................. 10,511 -- -- -- -- 10,511 Grants ................................... -- 102 -- (102) -- -- ------- ------- ------- ------- ------- ------- Total revenue ........................ 10,511 102 -- (102) -- 10,511 ------- ------- ------- ------- ------- ------- Cost of sales: Products ................................. 5,378 -- -- -- -- 5,378 Grants ................................... -- 79 -- (79) -- -- ------- ------- ------- ------- ------- ------- Total cost of sales .................. 5,378 79 -- (79) -- 5,378 ------- ------- ------- ------- ------- ------- Gross profit ..................... 5,133 23 -- (23) -- 5,133 ------- ------- ------- ------- ------- ------- Operating expenses: Sales and marketing ...................... 3,925 -- -- -- -- 3,925 Research and development ................. 1,963 99 -- (99) -- 1,963 General and administrative ............... 1,968 1,492 -- (1,492) -- 1,968 ------- ------- ------- ------- ------- ------- Total operating expenses ............. 7,856 1,591 -- (1,591) -- 7,856 ------- ------- ------- ------- ------- ------- Loss from operations ............. (2,723) (1,568) -- 1,568 -- (2,723) ------- ------- ------- ------- ------- ------- Other income (expense): Interest expense ......................... (574) -- -- -- -- (574) Other income (expense), net .............. (1) 16 -- (16) -- (1) Reserve for loss on note receivable ...... -- (500) -- 500 -- -- Gain on sale of intellectual property .... -- 3,310 -- (3,310) -- -- ------- ------- ------- ------- ------- ------- Total other income (expense) ......... (575) 2,826 -- (2,826) -- (575) ------- ------- ------- ------- ------- ------- Net loss ......................... (3,298) 1,258 -- (1,258) -- (3,298) Accretions on preferred stock .................. (704) -- 704 -- -- -- ------- ------- ------- ------- ------- ------- Net loss applicable to common stockholders (4,002) 1,258 704 (1,258) -- (3,298) ======= ======= ======= ======= ======= ======= Basic and diluted net loss per share ........... (0.50) 0.76 -- -- -- (0.34) ======= ======= ======= ======= ======= ======= Number of shares used in computing basic and diluted net loss per share ............... 8,072 1,653 -- -- -- 9,725 ======= ======= ======= ======= ======= =======
43 NOTE TO UNAUDITED PRO FORMA CONSOLIDATED FINANCIAL INFORMATION 1. Adjustments to unaudited pro forma consolidated balance sheet The adjustments to the unaudited pro forma consolidated balance sheet as of March 31, 2005 have been calculated as if the reverse acquisition occurred on that date and are as follows: o To reflect the conversion of Alpha Innotech's preferred stock in to Xtrana's common stock. o To reflect the conversion of Alpha Innotech's common stock in to Xtrana's commons stock, the elimination of intercompany transactions, and the reverse acquisition. o To reflect the revised amounts for common stock and additional paid-in capital subsequent to the reverse acquisition. 2. Adjustments to the unaudited pro forma consolidated statements of operations The adjustments to the unaudited pro forma consolidated statements of operations for the periods ended December 31, 2004 and March 31, 2005 have been calculated as if the merger occurred as of January 1, 2004 and are as follows: o To eliminate accretion on preferred stock. o To eliminate the operations of Xtrana which will not be supported after the reverse merger. 44 MANAGEMENT OF THE SURVIVING CORPORATION DIRECTORS AND EXECUTIVE OFFICERS The following table sets forth information, as of March 15, 2005, regarding those individuals who will serve as directors and executive officers of the surviving corporation after the Merger. NAME AGE POSITION ---- --- -------- Michael D. Bick, Ph.D. 60 Director James H. Chamberlain 57 Director Nagesh Mhatre, Ph.D. 72 Director Haseeb Chaudhry 39 Chief Executive Officer and Director Darryl Ray, Ph.D. 53 President, Acting Chief Accounting Officer, Chief Operating Officer and Director William Snider 35 Director For biographical information of our current directors and executive officers, see "PROPOSAL NO. 1: ELECTION OF DIRECTORS; Information with Respect to each Director, Nominee and Certain Officers." HASEEB CHAUDHRY, co-founded Alpha Innotech and became its director and Chief Executive Officer in 1992. Mr. Chaudhry has over 14 years of experience in strategic planning, business development, sales and marketing and managing technology and application development. Prior to founding Alpha Innotech, Mr. Chaudhry was involved with a start-up biotech company, American Synthesis, where he sold and marketed customized oligonucleotides, reagents, chemicals and scientific instruments. Mr. Chaudhry has participated in various start-up ventures in retail, industrial services and international training. He holds a BA in Genetics from the University of California, Berkeley. DARRYL RAY, PHD, co-founded Alpha Innotech and became its director, President and Chief Operations Officer in 1992 and Acting Chief Accounting Officer in 2005. Prior to founding Alpha Innotech, Dr. Ray was Director of Technical Affairs at American Synthesis, overseeing development, manufacturing, and Quality Assurance of the oligonucleotides manufacturing facility and development of a variety of new instruments for Life Science research. Prior to American Synthesis, Dr. Ray was involved in the development of diagnostic, R&D, and research instruments at American Bionetics (ABN) and Hoefer Scientific Instruments (now Harvard Bioscience). Dr. Ray received his PhD in Cell Biology from the University of California, Santa Barbara. NAGESH S. MHATRE, PH.D. has been a director of Alpha Innotech and the Executive Chairman since 2001. Dr. Mhatre is currently an executive chairman of BioImagene. Dr. Mhatre has over 40 years of senior management experience in international medical technology companies, including Miles Laboratories (Bayer, AG.) and Becton Dickinson & Company. While at Becton Dickinson, he served for 13 years as corporate vice president and president of its Immunocytometry Systems Division. Prior to this, he was for three years President of Becton Dickinson Laboratory Products, Europe, in Grenoble, France. At Miles Laboratories, he served for four years as managing director, Miles-Yeda, in Rehovot, Israel, a joint venture with the Weizmann Institute of Science. Dr. Mhatre has been a member of the Boards of Governors of Silicon Valley Capital Club, Heidelberg International Club, San Francisco, CA. and Friends of Weizmann Institute of Science. He serves as a Trustee on the Board of World Affairs Council, San Francisco. Dr. Mhatre is a charter member and membership chair (1998-9) of The Indus Entrepreneur-TiE Silicon Valley. Dr. Mhatre received his B.S. degree from Bombay University, India, an MS degree from Oregon State University and a Ph.D. in biochemistry/microbiology from Rutgers University. 45 WILLIAM SNIDER, CFA has been a member of Alpha Innotech's board of directors since 2002. Mr. Snider is a general partner and co-founder of Emerging Technology Partners, LLC. Prior to ETP he was a mutual fund portfolio manager at T. Rowe Price. Mr. Snider joined T. Rowe Price in 1991 after attending the Wharton School. Shortly thereafter he became the youngest vice president and portfolio manager in the firm's 60+ year history. His responsibilities included managing $2 billion of mutual fund and institutional client portfolios. BOARD OF DIRECTORS AND COMMITTEES The board of directors will consist of seven members immediately following the consummation of the Merger. The board of directors will maintain an audit committee and a compensation committee. The audit committee will oversee the work of the surviving corporation's auditors with respect to financial and accounting matters. The function of the compensation committee will be to review and make recommendations with respect to compensation of executive officers and key employees. MARKET PRICE AND DIVIDEND INFORMATION XTRANA Our common stock currently trades on the OTCBB under the symbol XTRN. The following sets forth the high and low trade prices for our common stock for the periods indicated as reported by the OTCBB. The quotations provided by the OTCBB reflect inter-dealer prices, without retail mark-up, markdown or commission and may not represent actual transactions. We have not paid any dividends since our inception and do not contemplate payment of dividends in the foreseeable future. 2004 2003 ----------------- ----------------- HIGH LOW HIGH LOW ------- ------- ------- ------- First quarter ........ $ 0.220 $ 0.090 $ 0.210 $ 0.100 Second quarter ....... 0.220 0.110 0.300 0.090 Third quarter ........ 0.220 0.160 0.220 0.100 Fourth quarter ....... 0.230 0.150 0.180 0.090 (a) On May 11, 2005, the closing trade price of our common stock, as reported by the OTCBB, was $0.15. (b) As of March 16, 2005, we had 223 holders of record of our common stock. A large number of shares are held in nominee name. Based upon information provided by our transfer agent, American Stock Transfer and Trust Company, we had approximately 2,492 beneficial stockholders on the same date. DIVIDENDS We have never paid dividends on our common stock. We intend to retain any future earnings for use in our business. 46 ALPHA INNOTECH The securities of Alpha Innotech have not been admitted to trading on a securities exchange and no market exists for such securities. Alpha Innotech has not paid any cash dividends since inception and has no present plans to do so. Based on information supplied by Alpha Innotech, as of May 12, 2005, Alpha Innotech had approximately 34 stockholders of record. 47 PROPOSAL NO. 3: TO AMEND THE COMPANY'S CERTIFICATE OF INCORPORATION TO PROVIDE FOR A REVERSE STOCK SPLIT In connection with the Merger, our Board of Directors has unanimously approved a proposal to amend our Certificate of Incorporation to effect a one-for-ten (1-for-10) reverse stock split of our common stock subject to the approval of such action by the stockholders. A copy of the proposed amendment to our Certificate of Incorporation is attached hereto as APPENDIX D (the "Certificate of Amendment"). The proposed reverse stock split will take effect, if at all, only after it is approved by you, after the Board of Directors determines that we are prepared to consummate the Merger, and the Certificate of Amendment is accepted for filing by the Secretary of State of the State of Delaware. We expect that, if the proposal is approved by you, the Certificate of Amendment will be filed immediately prior the effective time of the Merger. If the Merger is not approved by the stockholders at the Annual Meeting or is not completed for any other reason, then the Certificate of Amendment will not be filed and the reverse stock split will not be effected. In addition, our Board of Directors may elect not to file, or to delay the filing of, the Certificate of Amendment if they determine that filing the Certificate of Amendment would not be in the best interest of our stockholders. If the reverse stock split is approved by the stockholders and implemented by the Board of Directors, each ten shares of our outstanding common stock on the effective date (the "Old Common Stock") of the reverse stock split (the "Reverse Split Effective Date") will be automatically changed into and will become one share of our New Common Stock (the "New Common Stock"). Any resulting fractional shares will not be issued. Stockholders entitled to receive a fractional share as a result of the reverse split will instead receive from the Company a whole share of New Common Stock. The reverse stock split will not change the current per share par value of our common stock or change the current number of our authorized shares of common stock. The Reverse Split Effective Date will be the date the Certificate of Amendment is accepted for filing by the Delaware Secretary of State, provided in any event that the Reverse Split Effective Date will be prior to the closing of the Merger as described in Proposal No. 2, if any. Following the reverse stock split, we will have approximately 1,653,400 shares of our common stock outstanding, excluding shares to be issued in the Merger with Alpha Innotech and assuming there is no further issuance of our common shares prior to the Effective Date. The price of any options to purchase our common stock that are outstanding on the Reverse Split Effective Date will be adjusted in proportion to the reverse split. This proposal is a condition to the Merger as described more specifically under Proposal Number 3. As such, if the proposal is not approved the Merger may not be completed. Conversely, if the Merger does not proceed, then the reverse stock split will not occur. REASON FOR THE REVERSE STOCK SPLIT Pursuant to the terms of the Merger Agreement, we will be issuing shares of our common stock as consideration for the Merger. Our Board of Directors has reviewed our current business and financial performance and the recent trading range of our common stock, as well as the current business and financial performance of Alpha Innotech. Based on that review the Board then determined that a reverse stock split was desirable in order to achieve the following benefits following the Merger, each of which is described below in more detail: - encourage greater investor interest in our common stock by making the stock price more attractive to the many investors who refrain from investing in lower-priced stocks; and 48 - reduce trading fees and commissions incurred by stockholders, since these costs are based to some extent on the number of shares traded. ENCOURAGE GREATER INVESTOR INTEREST IN OUR COMMON STOCK The Board of Directors believes that the reverse stock split will encourage greater interest in our common stock by the investment community. The Board of Directors believes that the current market price of our common stock may impair its acceptability to institutional investors, professional investors and other members of the investing public. Many institutional and other investors look upon stock trading at low prices as unduly speculative in nature and, as a matter of policy, avoid investing in such stocks. Further, various brokerage house policies and practices tend to discourage individual brokers from dealing in low-priced stocks. If effected, the reverse stock split would reduce the number of outstanding shares of our common stock, and the Board of Directors anticipates that the trading price of our common stock would increase. The Board of Directors believes that raising the trading price of our common stock will increase the attractiveness of the common stock to the investment community and possibly promote greater liquidity for our existing stockholders. REDUCE TRADING FEES AND COMMISSIONS INCURRED BY STOCKHOLDERS Because broker commissions on low-priced stocks generally represent a higher percentage of the stock price than commissions on higher-priced stocks, the current share price of our common stock, in the absence of the reverse stock split, may continue to result in individual stockholders paying transaction costs (commissions, markups or markdowns) which are a higher percentage of their total share value than would be the case if the stock price was substantially higher. This factor may further limit the willingness of institutions to purchase our common stock at its current market price. In addition, the reverse stock split could result in more stockholders holding odd lots of shares. Trading in odd lots generally increases brokerage fees for such trades, and therefore the reverse stock split could have the effect of increased brokerage fees. Our Board of Directors also took into consideration a number of negative factors associated with reverse stock splits, such as the negative perception of reverse stock splits held by many investors, analysts and other stock market participants. For example, in recent years many companies whose shares are listed on national stock exchanges have implemented reverse splits in order to increase their per share trading price and therefore continuing their listing, to avoid classification as a penny stock, or to simply make their stock more attractive to institutional investors. As a result some participants in the market may view a reverse stock split in a negative light. This perception could reduce the demand for the shares and thereby reduce the value of the shares held by the stockholders. The Board, however, determined that these negative factors were outweighed by the intended benefits described above. There can be no assurance that the reverse stock split will result in the benefits described above. Specifically, there can be no assurance that the market price of our common stock immediately after the effective date of the proposed reversed stock split would be maintained for any period of time or that such market price would approximate ten times the market price of our common stock before the reverse stock split. There can also be no assurance that the reverse stock split will not further adversely impact the market price of our common stock. PENNY STOCK STATUS Our common stock currently trades for less than $5.00 per share and therefore it is considered a "penny stock" under the rules and the regulations of the Securities Act of 1933. The regulatory requirements relating to penny stocks generally requires market makers to provide additional disclosure to buyers at the time of purchase. This process can effectively reduce the liquidity of Penny Stocks. In addition, higher fees are generally charged by broker-dealers in connection with the purchase and sale of penny stocks. Despite the reverse stock split management expects our common stock to retain its 49 classification as a penny stock immediately following the reverse stock split and the other transactions discussed herein, assuming the approval of all proposals presented at the meeting. SHARE CERTIFICATES AND FRACTIONAL SHARES The reverse split will occur on the filing of the Certificate of Amendment with the Delaware of State without any further action on the part of our stockholders and without regard to the date or dates on which certificates representing shares of old common stock are actually surrendered by each holder thereof for certificates representing the number of shares of the New Common Stock that the stockholder is entitled to receive as a consequence of the reverse split. On the effective date of the amendment, the certificates held by the stockholders will be deemed to represent one share of New Common Stock for each two shares of old common stock indicated on such certificate. As described more fully in the paragraph below under the heading Exchange of Stock Certificates, certificates representing shares of New Common Stock will be issued in due course as old certificates are tendered for exchange or transferred to the transfer agent. FRACTIONAL SHARES No fractional shares of common stock will be issued as a result of the reverse stock split. In lieu of receiving fractional shares, all such fractions shall be rounded up so that you will receive one whole share for each fractional share to which you would otherwise be entitled. EXCHANGE OF STOCK CERTIFICATES As soon as practicable after the effectiveness of the proposed amendment, holders of our common stock will be notified and requested to surrender their certificates representing shares of Old Common Stock to our corporate secretary and transfer agent in exchange for certificates representing New Common Stock. Beginning on the date the proposed amendment becomes effective, each certificate representing shares of our Old Common Stock will be deemed for all corporate purposes to evidence ownership of as many shares of New Common Stock after applying the split and otherwise making adjustments for fractional shares described above. Until surrendered to the Transfer Agent, old certificates retained by stockholders will be deemed for all purposes including voting and payment of dividends, if any, to represent the number of whole shares of New Common Stock to which its stockholders are entitled as a result of the reverse split. You should not send your old certificate(s) to the transfer agent until after you are notified that the reverse split is effective. Shares of Old Common Stock surrendered after the effective date will be replaced by certificates representing shares of New Common Stock as soon as practicable after the surrender. No service charge will be paid by existing stockholders for the exchange of the shares and the Company will pay all expenses of the exchange and issuance of new certificates. The following table provides additional information regarding the estimated number of shares of common stock of the Company before and after the reverse stock split, assuming that 16,533,269 shares of our common stock are outstanding immediately prior to the Merger: 50 REVERSE STOCK SPLIT ---------------------- BEFORE AFTER ---------- --------- Number of Shares Issued and Outstanding .............. 16,533,269 1,653,327 Number of shares reserved for issuance for a specific purpose ..................................... 1,746,389 174,639 Number of shares that will be issued and Outstanding assuming all other proposals are consummated ......... * 9,725,826 Number of shares that will be reserved for issuance if all other proposals contained herein are consummated .......................................... * 2,662,767 Number of authorized but unissued and unreserved shares if all the other proposals contained herein are consummated ...................................... * 37,611,407 * No shares will be issued pursuant to the other proposals contained herein unless and until the reverse stock split is effected. FEDERAL INCOME TAX CONSEQUENCES OF THE REVERSE SPLIT The following description of the material federal income tax consequences of the reverse stock split is based upon the Internal Revenue Code, the applicable Treasury Regulations promulgated thereunder, judicial authority and current administrative rulings and practices all as in effect on the date of this proxy statement. Changes to these laws could alter the tax consequences described below, possibly with retroactive effect. We have not sought and will not seek an opinion of counsel or a ruling from the Internal Revenue Service regarding the federal income tax consequences of the reverse stock split. This discussion is for general information only and does not consider consequences which may apply to special classes of taxpayers (for example, foreign persons, dealers in securities, tax-exempt organizations, broker-dealers or insurance companies) and does not discuss the tax consequences under the laws of any foreign, state or local jurisdictions. Stockholders are urged to consult their own tax advisors to determine the particular tax consequences to them. We believe that because the reverse stock split is not part of a plan to increase any stockholder's proportionate interest in our assets or earnings and profits, the reverse stock split will likely have the following federal income tax effects: Stockholders who receive New Common Stock solely in exchange for their Old Common Stock will not recognize gain or loss on the exchange. Consequently, the holding period of shares of New Common Stock will include your holding period for the shares of Old Common Stock, provided that the shares of common stock are held by you as a capital asset at the time of the exchange. In addition, your aggregate basis of the New Common Stock will be the same as your aggregate basis of the shares of Old Common Stock exchanged. YOU SHOULD CONSULT WITH YOUR OWN TAX ADVISOR ABOUT THE TAX CONSEQUENCES OF THE REVERSE SPLIT IN LIGHT OF YOUR PARTICULAR CIRCUMSTANCES, INCLUDING THE APPLICATION OF ANY STATE, LOCAL OR FOREIGN TAX LAW. NO APPRAISAL RIGHTS Under Delaware law, you are not entitled to dissenter's rights of appraisal with respect to the amendment of the Certificate of Incorporation and the reverse stock split. 51 AMENDMENT TO THE CERTIFICATE OF INCORPORATION Article IV of our Certificate of Incorporation will be amended as set forth in the Certificate of Amendment attached as APPENDIX D to affect the reverse split. At the effective date, without further action on the part of the Company or the holders, each share of common stock will be converted into one-tenth (1/10) of a share of common stock. The Certificate of Amendment will be filed with the Secretary of State of Delaware and will become effective on the date of the filing. RECOMMENDATION OF THE BOARD OF DIRECTORS For the above reasons, we believe that the reverse stock split is in our best interests and in the best interests of our stockholders. There can be no guarantee, however, that the market price of our common stock after the reverse stock split will be equal to the market price before the reverse stock split multiplied by the split number, or that the market price following the reverse stock split will either exceed or remain in excess of the current market price. REQUIRED VOTE The affirmative vote of a majority of the outstanding shares of our common stock entitled to vote is required to approve the proposal to approve the 1-for-10 reverse stock split. THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS THAT STOCKHOLDERS APPROVE THE AMENDMENT TO OUR CERTIFICATE OF INCORPORATION TO EFFECT A 1-FOR-10 REVERSE STOCK SPLIT. 52 PROPOSAL NO. 4: TO APPROVE THE AMENDMENT TO OUR CERTIFICATE OF INCORPORATION TO CHANGE OUR NAME Our Board of Directors has approved a proposal to amend our Certificate of Incorporation to change our name from "Xtrana, Inc.", to "Alpha Innotech Corp." following a successful completion of the Merger described in Proposal No. 2. This proposal was approved by the Board of Directors in conjunction with the approval of the Merger described under the heading Proposal No. 2, and this proposal is a condition to that Merger. We expect that, if the proposal is approved by you, the name change will be filed at the effective time of the Merger. If the corporate name change is approved by our stockholders, a new trading symbol will be assigned to us by the OTC Bulletin Board. If the Merger is not approved by the stockholders at the Annual Meeting or is not completed for any other reason, then the name change will not be implemented. In addition, our Board of Directors may elect not to file, or to delay the filing of, the corporate name change if they determine that it would not be in the best interest of our stockholders. The Board of Directors has also approved the Merger described in Proposal No. 2 and they have recommended that the stockholders approve that Merger. As a result of the Merger, if approved by our stockholders, we will be engaging in business activities unrelated to those that we engaged in immediately prior to the Merger. Our Board of Directors believes that the new name, "Alpha Innotech Corp.", will more accurately reflect our new business activities. REQUIRED VOTE The affirmative vote of a majority of the outstanding shares of our common stock entitled to vote is required to approve the proposal to change our corporate name. THE BOARD OF DIRECTORS RECOMMENDS A VOTE "FOR" THE PROPOSAL TO AMEND OUR CERTIFICATE OF INCORPORATION TO CHANGE OUR NAME. 53 BENEFICIAL OWNERSHIP OF COMMON STOCK The following table sets forth as of April 29, 2005, certain information regarding the ownership of our common stock by (i) each person known by us to be the beneficial owner of more than 5% of the outstanding shares of common stock, (ii) each of our directors, (iii) each of our executive officers, and (iv) all of our executive officers and directors as a group. Unless otherwise indicated, the address of each person shown is c/o Xtrana, Inc., P.O. Box 688, Sedalia, Colorado 80135. References to options to purchase common stock are either currently exercisable or will be exercisable within 60 days of April 19, 2005. NUMBER OF SHARES PERCENT OF CLASS BENEFICIALLY OWNED BENEFICIALLY OWNED (1) (2) ------------------ ------------------ DIRECTORS: John C. Gerdes, Ph.D.................. 1,430,068 8.6% Michael D. Bick, Ph.D................. 1,092,950 (3) 6.7 Price Paschall........................ 460,000 (4) 2.7 Doug Ayer............................. 332,884 (5) 2.0 James H. Chamberlain.................. 174,000 (6) 1.0 James Mahoney, Ph.D................... 110,000 (5) * 5% HOLDERS: Jay Gottlieb.......................... 1,640,000(7) 9.9 Jack Wheeler.......................... 1,143,544 6.9 Diane Kozwich......................... 1,135,002 6.9 All directors and executive officers as 3,599,902(8) 20.4% a group (six persons).............. - ---------- * Less than 1%. (1) Under Rule 13d-3, certain shares may be deemed to be beneficially owned by more than one person (if, for example, persons share the power to vote or the power to dispose of the shares). In addition, shares are deemed to be beneficially owned by a person if the person has the right to acquire the shares (for example, upon exercise of an option) within 60 days of the date as of which the information is provided. In computing the percentage ownership of any person, the amount of shares outstanding is deemed to include the amount of shares beneficially owned by such person (and only such person) by reason of these acquisition rights. As a result, the percentage of outstanding shares of any person as shown in this table does not necessarily reflect the person's actual ownership or voting power with respect to the number of shares of common stock actually outstanding at December 31, 2003. (2) Percentage ownership is based on 16,533,269 shares of common stock outstanding as of April 29, 2005. (3) Consists of 70,000 shares of common stock subject to options that are currently exercisable or that will become exercisable within 60 days of April 29, 2005, and 1,022,950 shares held in the Bick Family Trust. (4) Consists of 275,000 shares of common stock subject to currently exercisable warrants and 185,000 shares of common stock subject to options that are currently exercisable or that will become exercisable within 60 days of April 29, 2005. 54 (5) Consists of shares of common stock subject to options that are currently exercisable or that will become exercisable within 60 days of April 29, 2005. (6) Includes 170,000 shares of common stock subject to options that are currently exercisable or that will become exercisable within 60 days of April 29, 2005. (7) Information obtained from a Schedule 13D/A filed by Jay Gottlieb on December 10, 2004. (8) Includes 867,884 shares of common stock subject to options that are currently exercisable or that will become exercisable within 60 days of April 29, 2005, and 275,000 shares of common stock subject to currently exercisable warrants. The information as to shares beneficially owned has been individually furnished by the respective directors, named executive officers, and other stockholders of the company, or taken from documents filed with the Securities and Exchange Commission. PROPOSALS OF STOCKHOLDERS A proper proposal submitted by a stockholder for presentation at our 2006 Annual Meeting that was received at our executive offices no later than January 31, 2006, will be included in our proxy statement and form of proxy relating to our 2006 Annual Meeting. In addition, in the event a stockholder proposal is not received by us by April 14, 2006, the proxy to be solicited by the Board of Directors for our 2006 Annual Meeting will confer discretionary authority on the holders of the proxy to vote the shares if the proposal is presented at our 2006 Annual Meeting without any discussion of the proposal in the proxy statement for such meeting. Securities and Exchange Commission rules and regulations provide that if the date of the our 2006 Annual Meeting is advanced or delayed more than 30 days from the date of the 2005 Annual Meeting, stockholder proposals intended to be included in the proxy materials for the 2006 Annual Meeting must be received by us within a reasonable time before we begin to print and mail the proxy materials for the 2006 Annual Meeting. Upon determination by us that the date of the 2006 Annual Meeting will be advanced or delayed by more than 30 days from the date of the 2005 Annual Meeting, we will disclose such change in the earliest possible Quarterly Report on Form 10-QSB. OTHER MATTERS We know of no other matters to be submitted to the Annual Meeting. If any other matters properly come before the meeting, it is the intention that the persons named in the enclosed form of proxy vote the proxies in accordance with their judgment. INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM Hein & Associates LLP, independent registered public accounting firm, was selected by the Board of Directors to serve as the independent registered public accounting firm of the Company for fiscal 2004. Representatives of Hein & Associates LLP are expected to be present at the Annual Meeting, and will be afforded the opportunity to make a statement if they desire to do so, and will be available to respond to appropriate questions from stockholders. 55 INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE We are subject to the information and periodic reporting requirements of the Securities Exchange Act of 1934 and, in accordance with those requirements, will continue to file periodic reports, proxy statements and other information with the SEC. These periodic reports, proxy statements and other information will be available for inspection and copying at the SEC's public reference rooms and the SEC's website referred to above. You may read and copy any document we file at the SEC's public reference room at 450 Fifth Street, N.W., Washington, D.C. 20549. Please call the SEC at 1-800-SEC-0330 for further information on the public reference room. Our SEC filings are also available to the public from the SEC's website at www.sec.gov. The SEC allows us to "incorporate by reference" the information we file with them. This Proxy Statement incorporates important business and financial information about us, which may not be included in or delivered with this Proxy Statement. The information incorporated by reference is an important part of this Proxy Statement, and information that we file later with the SEC will automatically update and supersede this information. We incorporate by reference: (1) Our Annual Report on Form 10-KSB for the fiscal year ended December 31, 2004 as filed with the SEC on March 31, 2005 and amended by the Form 10-KSB/A filed on May 2, 2005; (2) Our Quarterly Report on Form 10-QSB for the quarterly period ended March 31, 2005; (3) Our Current Reports on Form 8-K, filed with the SEC on January 5, 2005 and April 12, 2005; and (4) Future filings we make with the SEC under Sections 13(a) or 15(d) of the Securities Exchange Act until the date of the Annual Meeting. You may obtain a copy of these filings without charge by writing or calling us at: Xtrana, Inc. P.O. Box 668, Sedalia, CO 80135 Attention: Corporate Secretary (303) 466-4424 A copy of our Annual Report on Form 10-KSB for the year ended December 31, 2004 and Quarterly Report on Form 10-QSB for the quarter ended March 31, 2005 are being delivered to the stockholders along with this Proxy Statement. You should rely only on the information incorporated by reference or provided in this Proxy Statement. We have not authorized anyone else to provide you with different information. You should not assume that the information in this Proxy Statement or the documents we have incorporated by reference is accurate as of any date other than the date on the front of those documents. ON BEHALF OF THE BOARD OF DIRECTORS Michael D. Bick, PhD Chairman of the Board of Directors May __, 2005 56 APPENDIX A AGREEMENT AND PLAN OF MERGER BY AND AMONG XTRANA, INC., AIC MERGER CORPORATION AND ALPHA INNOTECH CORPORATION DATED AS OF DECEMBER 14, 2004 AGREEMENT AND PLAN OF MERGER This AGREEMENT AND PLAN OF MERGER ("AGREEMENT") made this 14th day of December, 2004 is entered into by and among Xtrana, Inc., a Delaware corporation ("XTRANA"), AIC Merger Corporation, a California corporation and wholly-owned subsidiary of Xtrana ("MERGERCO"), and Alpha Innotech Corporation, a California corporation ("AIC"). Xtrana, MergerCo and AIC are sometimes referred to herein individually as a "PARTY" and collectively as the "PARTIES." RECITALS: A. The Parties intend to effect the acquisition of AIC by Xtrana through the statutory merger of MergerCo with and into AIC in accordance with this Agreement and the CGCL, upon the consummation of which MergerCo will cease to exist as a separate entity and AIC will survive as a wholly-owned subsidiary of Xtrana. B. The respective Boards of Directors of each of the Parties have (i) determined that this Agreement and the transactions contemplated hereby, including the Merger (as defined below), are advisable and in the best interests of their respective stockholders and (ii) adopted this Agreement and the transactions contemplated hereby. C. In connection with the execution and delivery of this Agreement, Xtrana has agreed to make a loan to AIC in the amount of $500,000 pursuant to the terms of the Promissory Note (as defined below), upon completion of the Note Conversion. D. It its contemplated that prior to the Effective Time Xtrana will effect a one-for-ten reverse split of its Common Stock. E. The Parties desire to make certain representations, warranties, covenants and agreements in connection with the Merger and also to prescribe various conditions to the Merger. AGREEMENT: NOW, THEREFORE, in consideration of the representations, warranties, covenants and agreements contained in this Agreement, and for other good and valuable consideration, the receipt and sufficient of which are hereby acknowledged, the parties hereto agree as follows: 1. DEFINITIONS. 1.1 CERTAIN DEFINITIONS. The following terms used herein, as used in this Agreement, shall have the following meanings: "AFFILIATE" of any specified Person means any other Person directly or indirectly Controlling or Controlled by or under direct or indirect common Control with such specified Person. "AIC COMMON EXCHANGE RATIO" means 0.1136072, as adjusted to reflect appropriately the effect of any stock split, reverse stock split, stock dividend (including any A-2 dividend or distribution of securities convertible into Xtrana Common Stock), reorganization, recapitalization, reclassification or other like change with respect to Xtrana Common Stock occurring on or after the date hereof and prior to the Effective Time, other than the Reverse Stock Split. "AIC COMMON STOCK" means the Common Stock of AIC. "AIC INDEMNIFICATION SHARES" means 500,000 additional shares of Xtrana Common Stock (as adjusted to reflect appropriately the effect of any stock split, reverse stock split, stock dividend (including any dividend or distribution of securities convertible into Xtrana Common Stock), reorganization, recapitalization, reclassification or other like change with respect to Xtrana Common Stock occurring on or after the date hereof and prior to the Effective Time except for the Reverse Stock Split), which shares shall be deposited at Closing in escrow, to be held pursuant to the terms and conditions of this Agreement and the Escrow Agreement for the purpose of satisfying Xtrana's indemnification obligations, if any, set forth in SECTION 9 of this Agreement. For avoidance of doubt, the foregoing number has been adjusted to reflect to the anticipated Reverse Stock Split. "AIC INDEMNIFIED PARTIES" means AIC and its Affiliates, and each of their respective officers, directors, agents and representatives and each of the heirs, executors, successors and assigns of any of the foregoing. "AIC POST-MERGER REPRESENTATIVE" means William Snider or such other individual as may be selected by the AIC Shareholders immediately prior to the Effective Time, and who shall act as the agent of the AIC Indemnified Parties for purposes of representing and protecting their interests under this SECTION 9. "AIC SERIES A PREFERRED EXCHANGE RATIO" means 0.2868318, as adjusted to reflect appropriately the effect of any stock split, reverse stock split, stock dividend (including any dividend or distribution of securities convertible into Xtrana Common Stock), reorganization, recapitalization, reclassification or other like change with respect to Xtrana Common Stock occurring on or after the date hereof and prior to the Effective Time, other than the Reverse Stock Split. "AIC SERIES A-1 PREFERRED EXCHANGE RATIO" means 0.2868318, as adjusted to reflect appropriately the effect of any stock split, reverse stock split, stock dividend (including any dividend or distribution of securities convertible into Xtrana Common Stock), reorganization, recapitalization, reclassification or other like change with respect to Xtrana Common Stock occurring on or after the date hereof and prior to the Effective Time, other than the Reverse Stock Split. "AIC SERIES A PREFERRED STOCK" means the Series A Preferred Stock of AIC. "AIC SERIES A-1 PREFERRED STOCK" means the Series A-1 Preferred Stock of AIC. "AIC SHARES" means, collectively, the AIC Common Stock, AIC Series A Preferred Stock and AIC Series A-1 Preferred Stock. A-3 "AIC SHAREHOLDERS" means, collectively, the holders of the AIC Common Stock, AIC Series A Preferred Stock and AIC Series A-1 Preferred Stock. "BENEFIT PLAN" means any collective bargaining agreement or any bonus, pension, profit sharing, deferred compensation, incentive compensation, stock ownership, stock purchase, phantom stock, retirement, vacation, severance, disability, death benefit, hospitalization, medical or other plan, arrangement or understanding (whether or not legally binding) under which a Party to this Agreement currently has an obligation to provide benefits to any current or former employee, officer or director of such Party. "CGCL" means the California General Corporation Law. "CODE" means the Internal Revenue Code of 1986, as amended. "CONTROL," when used with respect to any specified Person, means the power to direct the management and policies of such Person, directly or indirectly, whether through the ownership of voting securities, by contract or otherwise. "EFFECTIVE TIME" means the date and time the Merger becomes effective as specified in the Certificate of Merger or as otherwise provided in accordance with the CGCL. "ENVIRONMENTAL LAWS" means all applicable laws, statutes, by-laws and regulations of any Governmental Entity relating to protection of the environment, pollution control, product registration and Hazardous Materials. "ESCROW AGREEMENT" means the Escrow Agreement to be entered into by and among Xtrana, the AIC Post-Merger Representative, the Xtrana Post-Merger Representative and a mutually acceptable escrow agent, substantially in the form attached hereto as EXHIBIT B. "ESCROW SHARES" means, collectively, the Holdback Shares and the AIC Indemnification Shares. "EXCHANGE ACT" means the Securities Exchange Act of 1934, as amended. "GAAP" means generally accepted accounting principles as applied in the United States of America. "GOVERNMENTAL ENTITY" means any national, state, municipal, or other government or any court, administrative or regulatory agency or commission or other governmental authority or agency, domestic or foreign. "HAZARDOUS MATERIALS" means any waste, pollutant, contaminant, hazardous substance, toxic, ignitable, reactive or corrosive substance, hazardous waste, special waste, industrial substance, by-product, process intermediate product or waste, petroleum or petroleum-derived substance or waste, chemical liquids or solids, liquid or gaseous products, or any constituent of any such substance or waste, the use, handling or disposal of which by the Company is in any way governed by or subject to any applicable Environmental Law. A-4 "HOLDBACK SHARES" means, out of Xtrana Common Stock constituting the Merger Consideration, 500,000 shares of Xtrana Common Stock (as adjusted to reflect appropriately the effect of any stock split, reverse stock split, stock dividend (including any dividend or distribution of securities convertible into Xtrana Common Stock), reorganization, recapitalization, reclassification or other like change with respect to Xtrana Common Stock occurring on or after the date hereof and prior to the Effective Time except for the Reverse Stock Split), which shares shall be deposited at Closing in escrow, to be held pursuant to the terms and conditions of this Agreement and the Escrow Agreement for the purpose of satisfying AIC's indemnification obligations, if any, set forth in SECTION 9 of this Agreement. For avoidance of doubt, the foregoing number has been adjusted to reflect to the anticipated Reverse Stock Split. "INTELLECTUAL PROPERTY" means any and all United States and foreign: (i) patent registrations and patent applications (including all reissues, divisions, continuations, continuations-in-part, extensions and reexaminations) and all rights therein and all improvements to the inventions disclosed in each such registration or application, (ii) trademarks, service marks, trade dress, trade names and corporate names, whether or not registered, including but not limited to all common law rights, and registrations and applications for registration thereof, (iii) copyrights (including but not limited to copyrights on designs) (registered or otherwise) and registrations and applications for registration thereof, (iv) computer software, including, without limitation, source code, operating systems and specifications, data, data bases, files, documentation and other materials related thereto, data and documentation, (v) trade secrets and confidential technical and business information (including but not limited to formulas, compositions, and inventions reduced to practice, whether or not patentable), (vi) confidential technology (including know-how and show-how), manufacturing and production processes and techniques, research and development information, drawings, specifications, designs, plans, proposals, technical data, copyrightable works, financial, marketing and business data, pricing and cost information, business and marketing plans and customer and supplier lists and information, (vii) any right arising under any law providing protection to industrial or other designs, (viii) all rights to obtain and rights to apply for patents, and to register trademarks and copyrights, and (ix) all rights to sue or recover and retain damages and costs and attorneys fees for present and past infringement of any of the foregoing. "LICENSES" means all notifications, licenses, permits (including, without limitation, environmental, construction and operation permits), franchises, certificates, approvals, exemptions, classifications, registrations and other similar documents and authorizations issued by a Governmental Entity, and applications therefor. "LIENS" mean all mortgages, liens, pledges, security interests, charges, claims, restrictions and encumbrances of any nature whatsoever, other than Permitted Liens. "MARKET PRICE" means the average of the closing bid and asked prices for the Xtrana Common Stock, as reported on the Over-the-Counter Bulletin Board, for the ten (10) trading day period commencing on the Closing Date and as adjusted for the Reverse Stock Split. "MATERIAL ADVERSE CHANGE" or "MATERIAL ADVERSE EFFECT" means, when used in connection with AIC or Xtrana, any change or effect that either individually or in the aggregate with all other such changes or effects is materially adverse to the business, assets, properties, A-5 condition (financial or otherwise) or results of operations of such Party and its Subsidiaries taken as a whole. "MERGER" means the merger of MergerCo with and into AIC pursuant to this Agreement and the CGCL. "MERGERCO COMMON STOCK" means the Common Stock of MergerCo. "MERGER CONSIDERATION" means that number of shares of Xtrana Common Stock computed using the following formula: MC = (OS/0.17) - OS WHERE: MC = the number of shares of Xtrana Common Stock constituting the Merger Consideration. OS = the number of shares of Xtrana Common Stock issued and outstanding immediately prior the Effective Time. "MINIMUM CLOSING DATE CASH" means an amount equal to $2,950,000 LESS (i) the Audit Fees, and (ii) all other out-of-pocket costs and expenses incurred by Xtrana on or after January 1, 2005 and through the Closing Date which would not have otherwise been incurred by Xtrana but for delay in consummation of the Merger resulting from the necessity of such audit of the AIC financial statements, including, but not limited to, the consulting fees of $5,000 per month payable to James Chamberlain for serving as interim Chief Executive Officer and interim Chief Financial Officer of Xtrana, the director fees incurred by Xtrana (consistent with past practice and policy), consulting fees for the services of Dennis Lineberry, and similar direct costs incurred after January 1, 2005 and through the Closing Date, but not exceeding in the aggregate $15,000 per month, unless otherwise agreed in writing between AIC and Xtrana. "PERMITTED LIENS" means (i) liens for taxes, assessments, governmental charges, or claims that are being contested in good faith by appropriate proceedings and only to the extent that a reserve or other appropriate provision, if any, has been made on the face of the AIC Financial Statements in an amount equal to the liability for which the lien is asserted, (ii) statutory liens of landlords and warehousemen's, carriers', mechanics', suppliers', materialmen's, repairmen's, or other like liens (including contractual landlords' liens) arising in the ordinary course of business and with respect to amounts not yet delinquent or being contested in good faith by appropriate proceedings, only to the extent that a reserve or other appropriate provision, if any, has been made on the face of the AIC Financial Statements in an amount equal to the liability for which the lien is asserted; and (iii) liens incurred or deposits made in the ordinary course of business in connection with workers' compensation, unemployment insurance and other similar types of social security. A-6 "PERSON" means any individual, corporation, partnership, limited liability company, joint venture, trust, unincorporated organization, government or any agency or political subdivision thereof or other entity. "POST-MERGER REPRESENTATIVES" means the AIC Post-Merger Representative and the Xtrana Post-Merger Representative. "PROMISSORY NOTE" means that certain Secured Promissory Note in the principal amount of $500,000 to be made by AIC in favor of Xtrana, in the form attached hereto as EXHIBIT A. "SEC" means the United States Securities and Exchange Commission. "SECURITIES ACT" means the Securities Act of 1933, as amended. "SUBSIDIARY" of any Person means another Person, an amount of the voting securities, other voting ownership or voting partnership interests of another Person, which are sufficient to elect at least a majority of such other Person's board of directors or other governing body (or, if there are no such voting interests, fifty percent (50%) or more of such other Person's equity interests). "TAXES" means all taxes, assessments, charges, duties, fees, levies or other governmental charges (including interest, penalties or additions associated therewith), including income, franchise, capital stock, real property, personal property, tangible, withholding, employment, payroll, social security, social contribution, unemployment compensation, disability, transfer, sales, use, excise, gross receipts, value-added and all other taxes of any kind for which a Person may have any liability imposed by any Governmental Entity, whether disputed or not, and any charges, interest or penalties imposed by any Governmental Entity. "TAX RETURN" means any report, return, declaration or other information required to be supplied to a Governmental Entity in connection with Taxes, including estimated returns and reports of every kind with respect to Taxes. "XTRANA COMMON STOCK" means the Common Stock, par value $0.01 per share, of Xtrana. "XTRANA INDEMNIFIED PARTIES" means Xtrana and its Affiliates, and each of their respective officers, directors, agents and representatives and each of the heirs, executors, successors and assigns of any of the foregoing. "XTRANA POST-MERGER REPRESENTATIVE" means James H. Chamberlain or such other individual as may be selected by the holders of Xtrana Common Stock immediately prior to the Effective Time, and who shall act as the agent of the Xtrana Indemnified Parties for purposes of representing and protecting their interests under this SECTION 9. 1.2 OTHER DEFINITIONS. The following terms are defined in the following sections of this Agreement: A-7 DEFINED TERM SECTION ------------ ------- ABI.............................................. 4.17 ABI Agreements................................... 4.17 AIC.............................................. Preamble AIC Audited Financial Statements................. 6.2 AIC Contracts.................................... 3.17 AIC Disclosure Schedule.......................... 3 AIC Financial Statements......................... 3.6 AIC Intellectual Property........................ 3.21 AIC Shareholders' Approval....................... 3.33 AIC Subsidiaries................................. 3.2 Agreement........................................ Preamble Assumed Options and Warrants..................... 2.9.8 Audit Fees....................................... 6.2 Certificate of Merger............................ 2.3 Certificates..................................... 2.10.1 Claims Deadline.................................. 9.2 Closing.......................................... 2.2 Closing Date..................................... 2.2 Damages.......................................... 9.3.1 Deferred Compensation............................ 6.11 Hearing Notice................................... 6.3 Hearing Request.................................. 6.3 Indemnification Termination Period............... 9.4 Indemnitee....................................... 9.4 Independent Accountants.......................... 6.2 Letter of Transmittal............................ 2.10.1 MergerCo......................................... Preamble Merger Share Certificate......................... 2.10.2 NIST Agreement................................... 4.17 Note Conversion.................................. 3.3 Notice Materials................................. 6.3 Party(ies)....................................... Preamble Permit........................................... 6.3 Proxy Statement.................................. 4.8 Reverse Stock Split.............................. 6.4.2 Secretary of State............................... 2.3 Surviving Corporation............................ 2.1 Terminated Xtrana Contracts...................... 4.18 Notice Materials................................. 6.3 US Army Agreement................................ 4.17 Xtrana Contracts................................. 4.18 Xtrana Disclosure Schedule....................... 4 Xtrana SEC Documents............................. 4.6.1 Xtrana Stockholders' Approval.................... 4.15 Xtrana Stockholders' Meeting..................... 6.4.2 A-8 2. THE MERGER. 2.1 THE MERGER. Upon the terms and subject to the conditions set forth in this Agreement, and in accordance with the CGCL, MergerCo shall be merged with and into AIC at the Effective Time. At the Effective Time, the separate existence of MergerCo shall cease, and AIC shall continue as the surviving corporation following the Merger (the "SURVIVING CORPORATION"). The corporate existence of AIC, with all its purposes, rights, privileges, franchises, powers and objects, shall continue unaffected and unimpaired by the Merger and, as the Surviving Corporation, it shall be governed by the laws of the State of California. As a result of the Merger, the outstanding shares of capital stock of AIC and MergerCo shall be converted or cancelled in the manner provided in SECTION 2.9. 2.2 CLOSING. Unless this Agreement shall have been terminated and the transactions herein contemplated shall have been abandoned pursuant to SECTION 8.1 and subject to the satisfaction or waiver (where applicable) of the conditions set forth in SECTION 7, the closing of the Merger (the "CLOSING") will take place at 10:00 a.m. on the first business day after satisfaction of the conditions set forth in SECTION 7 (or as soon as practicable thereafter following satisfaction or waiver of the conditions set forth in SECTION 7) (the "CLOSING DATE"), at the offices of Stubbs Alderton & Markiles, LLP, unless another date, time or place is agreed to in writing by the parties hereto. 2.3 ACTIONS AND DELIVERIES AT CLOSING. An agreement of merger in the form attached hereto as EXHIBIT C (the "CERTIFICATE OF MERGER") shall be duly prepared and executed, and shall be filed with the Secretary of State of the State of California (the "SECRETARY OF STATE") in accordance with the CGCL on the Closing Date. The Merger shall become effective upon the filing of the Certificate of Merger with the Secretary of State, or at such other time as is permissible in accordance with the CGCL and as Xtrana and AIC shall agree should be specified in the Certificate of Merger. In addition, at the Closing, 2.3.1 AIC will deliver to Xtrana: (a) An officers' certificate, substantially in the form of EXHIBIT D, duly executed on AIC's behalf, as to whether each condition specified in SECTIONS 7.2.1 through 7.2.7 has been satisfied in all respects. (b) A Secretary's certificate, substantially in the form of EXHIBIT E, duly executed on AIC's behalf. (c) The Escrow Agreement, duly executed by the AIC Post-Merger Representative. (d) A legal opinion of counsel to AIC, substantially in the form of EXHIBIT F hereto. A-9 2.3.2 Xtrana will deliver to AIC: (a) An officers' certificate, substantially in the form of EXHIBIT G, duly executed on Xtrana and MergerCo's behalf, as to whether each condition specified in SECTIONS 7.3.1 through 7.3.5 has been satisfied in all respects. (b) A Secretary's certificate, substantially in the form of EXHIBIT H, duly executed on each of Xtrana's and MergerCo's behalf. (c) The Escrow Agreement, duly executed by Xtrana and the Xtrana Post-Merger Representative. (d) A legal opinion of counsel to Xtrana, substantially in the form of EXHIBIT I hereto. 2.3.3 Xtrana will deliver the Escrow Shares to the escrow agent pursuant to the Escrow Agreement. 2.4 EFFECTS OF THE MERGER. Subject to the foregoing, the effects of the Merger shall be as provided in the applicable provisions of the CGCL. At the Effective Time all MergerCo's property, rights, privileges, powers, and franchises will vest in the Surviving Corporation, and all debts, liabilities, and duties of MergerCo will become the Surviving Corporation's debts, liabilities, and duties. 2.5 GOVERNING DOCUMENTS OF THE SURVIVING CORPORATION. As of the Effective Time, by virtue of the Merger and without any action on the part of Parties: 2.5.1 ARTICLES OF INCORPORATION. The Articles of Incorporation of the Surviving Corporation shall be amended and restated in its entirety to read as set forth on EXHIBIT J hereto; and 2.5.2 BYLAWS. The Bylaws of AIC, as in effect immediately prior to the Effective Time, will be the Surviving Corporation's Bylaws until thereafter amended. 2.6 DIRECTORS OF THE SURVIVING CORPORATION. At the Effective Time, the Board of Directors of the Surviving Corporation shall consist of Haseeb Chaudhry and Darryl Ray, who shall serve as the directors of the Surviving Corporation, each of such directors to hold office, subject to the applicable provisions of the Articles of Incorporation and Bylaws of the Surviving Corporation, in each case, until their respective successors shall have been elected and qualified or until otherwise provided by law. All other directors of MergerCo immediately prior to the Effective Time shall resign, effective as of the Effective Time. 2.7 OFFICERS OF THE SURVIVING CORPORATION. At the Effective Time the officers of MergerCo immediately prior to the Effective Time shall resign, effective as of the Effective Time, and shall be replaced by the following individuals: Haseeb Chaudhry................ President and Chief Executive Officer Darryl Ray, Ph.D............... Chief Financial Officer and Secretary A-10 who shall serve as officers of the Surviving Corporation subject to the applicable provisions of the Articles of Incorporation and Bylaws of the Surviving Corporation, in each case, until their respective successors shall have been duly appointed or until otherwise provided by law. 2.8 EFFECT ON CAPITAL STOCK OF MERGERCO. At the Effective Time, by virtue of the Merger and without any action on the part of the holder thereof, each share of MergerCo Common Stock issued and outstanding immediately prior to the Effective Time shall automatically be converted into and become one validly issued, fully paid and nonassessable share of Common Stock of the Surviving Corporation. 2.9 EFFECT ON CAPITAL STOCK OF AIC. At the Effective Time, by virtue of the Merger and without any action on the part of the holder thereof: 2.9.1 AGGREGATE CONSIDERATION TO BE RECEIVED BY AIC SHAREHOLDERS AND ESCROW. The aggregate merger consideration issued at the Effective Time to AIC Shareholders will be that number of fully paid, nonassessable shares of Xtrana Common Stock constituting the Merger Consideration, which number includes the Holdback Shares). To the extent necessary, the Parties shall make appropriate adjustment to the AIC Common Exchange Ratios, AIC Series A Preferred Exchange Ratio and AIC Series A-1 Preferred Ratio, as applicable, to ensure that the shares issued at the Effective Time to the AIC Shareholders (including the Holdback Shares) shall not exceed the Merger Consideration. Of the total Merger Consideration, that number of shares of Xtrana Common Stock constituting the Holdback Shares shall be deposited at Closing in escrow, along with the AIC Indemnification Shares which shall be deposited in escrow at Closing by Xtrana, to be held pursuant to the terms and conditions of this Agreement and the Escrow Agreement until released for distribution to the AIC Shareholders or for cancellation. 2.9.2 CONVERSION OF AIC COMMON STOCK. Each issued and outstanding share of AIC Common Stock (other than shares of AIC Common Stock, if any, that are held by Xtrana or MergerCo) shall be converted into the right to receive that number of fully paid and nonassessable shares of Xtrana Common Stock equal to the AIC Common Exchange Ratio, subject in all respects to SECTION 2.9.1 and the Escrow Agreement. 2.9.3 CONVERSION OF AIC SERIES A PREFERRED STOCK. Each issued and outstanding share of AIC Series A Preferred Stock (other than shares of AIC Series A Preferred Stock, if any, that are held by Xtrana or MergerCo) shall be converted into the right to receive that number of fully paid and nonassessable shares of Xtrana Common Stock equal to the AIC Series A Preferred Exchange Ratio, subject in all respects to SECTION 2.9.1 and the Escrow Agreement. 2.9.4 CONVERSION OF AIC SERIES A-1 PREFERRED STOCK. Each issued and outstanding share of AIC Series A-1 Preferred Stock (other than shares of AIC Series A-1 Preferred Stock, if any, that are held by Xtrana or MergerCo) shall be converted into the right to receive that number of fully paid and nonassessable shares of Xtrana Common Stock equal to the AIC Series A-1 Preferred Exchange Ratio, subject in all respects to SECTION 2.9.1 and the Escrow Agreement. A-11 2.9.5 CANCELLATION OF TREASURY SHARES AND SHARES HELD BY XTRANA. Any and all AIC Shares owned by Xtrana or MergerCo or held in the treasury of AIC shall be cancelled and cease to exist at the Effective Time, and no consideration shall be paid with respect thereto. 2.9.6 NO FRACTIONAL SHARES. No fractional shares of Xtrana Common Stock shall be issued in the Merger. If the number of shares a holder of AIC Shares holds immediately prior to the Closing multiplied by the applicable exchange ratio would result in the issuance of a fractional share of Xtrana Common Stock, that product will be rounded down to the nearest whole number of shares of Xtrana Common Stock if it is less than the fraction of one-half (.5) of one share of Xtrana Common Stock or round up to the nearest whole number of shares of Xtrana Common Stock if the said product is equal to or greater than the fraction of one-half (.5) of one share of Xtrana Common Stock. 2.9.7 CANCELLATION AND RETIREMENT OF AIC SHARES. As of the Effective Time, all AIC Shares issued and outstanding immediately prior to the Effective Time shall no longer be outstanding and shall automatically be cancelled and retired and shall cease to exist, and each holder of a certificate representing any such AIC Shares shall cease to have any rights with respect thereto, except the right to receive the Merger Consideration per share upon the surrender of such certificate in accordance with SECTION 2.10, without any interest thereon, subject to any applicable withholding tax. 2.9.8 STOCK OPTIONS AND WARRANTS. At the Effective Time, all options to purchase shares of AIC Common Stock then outstanding and all warrants to purchase shares of AIC Common Stock or AIC Preferred Stock then outstanding, in each case whether vested or unvested, shall be assumed by Xtrana or replaced with Xtrana options and warrants on substantially identical terms (the "ASSUMED OPTIONS AND WARRANTS") in accordance with this SECTION 2.9.8, provided that warrants to purchase shares of AIC Preferred Stock will be exercisable into shares of Xtrana Common Stock based on the relevant Exchange Ratio. Each Assumed Option and Warrant will continue to have, and be subject to, the same terms and conditions of such options immediately prior to the Effective Time (including, without limitation, any repurchase rights or vesting provisions and provisions regarding the acceleration of vesting on certain transactions), except that (i) each Assumed Option and Warrant will be exercisable (or will become exercisable in accordance with its terms) for that number of whole shares of Xtrana Common Stock equal to the product of the number of shares of AIC Common Stock that were issuable upon exercise of such AIC option or warrant immediately prior to the Effective Time multiplied by the AIC Common Exchange Ratio, and (ii) the per share exercise price for the shares of Xtrana Common Stock issuable upon exercise of each Assumed Option and Warrant will be equal to the quotient determined by dividing the exercise price per share of AIC Common Stock at which such AIC option or warrant was exercisable immediately prior to the Effective Time by the AIC Common Exchange Ratio. 2.10 EXCHANGE OF CERTIFICATES. 2.10.1 EXCHANGE PROCEDURES. As soon as reasonably practicable after the Effective Time, Xtrana shall deliver to each holder of record of a certificate or certificates which, immediately prior to the Effective Time represented outstanding shares of AIC Shares (the A-12 "CERTIFICATES") whose shares are converted pursuant to SECTION 2.9 into the right to receive Merger Consideration: (i) a letter of transmittal (the "LETTER OF TRANSMITTAL") (which shall specify that delivery shall be effected, and risk of loss and title to the Certificates shall pass, only upon delivery of the Certificates to Xtrana or its designated agent and shall be in such form and have such other customary provisions as Xtrana may reasonably specify) and (ii) instructions for use in effecting the surrender of the Certificate in exchange for the Merger Consideration allocable to the AIC Shares formerly represented thereby. 2.10.2 MERGER SHARE CERTIFICATES. Upon surrender of a Certificate for cancellation to Xtrana, or to any agent or agents as may be appointed by Xtrana, together with the Letter of Transmittal, duly completed and executed in accordance with its terms and such other documents as Xtrana or its agent or agents, the holder of such Certificate shall be entitled to receive in exchange therefore, a certificate ("MERGER SHARE CERTIFICATE") representing the number of shares of Xtrana Common Stock which such holder has the right to receive pursuant to the provisions of SECTION 2.9 less such holder's pro rata portion of the Holdback Shares (calculated as that percentage of the total number of shares issuable as Merger Consideration that such holder has the right to receive pursuant to SECTION 2.9) and the Certificate so surrendered shall forthwith be cancelled. If any certificate for such Xtrana Common Stock is to be issued in a name other than that in which the certificate for AIC Shares surrendered for exchange is registered, it shall be a condition of such exchange that the certificate so surrendered shall be properly endorsed, with signature guaranteed, or otherwise in proper form for transfer and that the Person requesting such exchange shall pay to Xtrana or its transfer agent any transfer or other taxes or other costs required by reason of the issuance of certificates for such Xtrana Common Stock in a name other than that of the registered holder of the certificate surrendered, or establish to the satisfaction of Xtrana or its transfer agent that all taxes have been paid. Until surrendered as contemplated by this SECTION 2.10.2, each Certificate shall be deemed at any time after the Effective Time to represent only the right to receive upon such surrender the Merger Consideration as contemplated by SECTION 2.9. 2.10.3 LOST CERTIFICATES. If any Certificate has been lost, stolen or destroyed, upon the making of an affidavit of that fact by the Person claiming such Certificate to be lost, stolen or destroyed and, if required by Xtrana, the posting by such Person of a bond in such reasonable amount as Xtrana may direct as indemnity against any claim that may be made against it with respect to such Certificate, Xtrana shall issue in exchange for such lost, stolen or destroyed Certificate, the Merger Consideration due to such Person a provided in SECTION 2.9. 2.10.4 DISTRIBUTIONS WITH RESPECT TO UNEXCHANGED SHARES. No dividends or other distributions with respect to Xtrana Common Stock with a record date after the Effective Time shall be paid to the holder of any unsurrendered certificate for AIC Shares with respect to the shares of Xtrana Common Stock, the right to receive which is represented thereby, until the surrender of such certificate in accordance with this SECTION 2.10. 2.10.5 NO FURTHER OWNERSHIP RIGHTS IN AIC SHARES. All shares of Xtrana Common Stock issued upon the surrender of the Certificates in accordance with the terms of this SECTION 2 and placed in escrow pursuant to SECTION 2.9.1, shall be deemed to have been issued (and paid) in full satisfaction of all rights pertaining to AIC Shares theretofore represented by such certificates. A-13 2.10.6 NO LIABILITY. None of the Parties shall be liable to any Person in respect of any shares of Xtrana Common Stock (or dividends or distributions with respect thereto) delivered to a public official pursuant to any applicable abandoned property, escheat or similar law. If any certificates representing AIC Shares shall not have been surrendered prior to the first (1st) anniversary of the Closing, any such shares, dividends or distributions in respect of such certificate shall, to the extent permitted by applicable law, become the property of Xtrana, free and clear of all claims or interests of any Person previously entitled thereto. 3. REPRESENTATIONS AND WARRANTIES OF AIC. Except as set forth in the disclosure schedule delivered by AIC to Xtrana at the time of execution of this Agreement and attached hereto (the "AIC DISCLOSURE SCHEDULE") and arranged in section corresponding to the numbered subsections contained in this SECTION 3, AIC represents and warrants to Xtrana as follows: 3.1 ORGANIZATION, STANDING AND CORPORATE POWER. AIC is a corporation duly organized, validly existing and in good standing under the laws of the State of California and has the requisite corporate power and authority to carry on its business as now being conducted and currently contemplated to be conducted. AIC is duly qualified or licensed to do business and is in good standing in each jurisdiction in which the nature of its business or the ownership or leasing of its properties makes such qualification or licensing necessary, other than in such jurisdictions where the failure to be so qualified or licensed (individually or in the aggregate) would not have a Material Adverse Effect on AIC. 3.2 SUBSIDIARIES. The only direct or indirect Subsidiaries of AIC are listed in the AIC Disclosure Schedule (the "AIC SUBSIDIARIES"). All the outstanding shares of capital stock of each AIC Subsidiary which is a corporation have been validly issued and are fully paid and nonassessable and, except as set forth in the AIC Disclosure Schedule, are owned (of record and beneficially) by AIC, free and clear of all Liens. Except for the capital stock of the AIC Subsidiaries, which are corporations, AIC does not own, directly or indirectly, any capital stock or other ownership interest in any corporation, partnership, business association, joint venture or other entity. 3.3 CAPITAL STRUCTURE. The authorized capital stock of AIC consists of 70,000,000 shares of AIC Common Stock, 14,000,000 shares of AIC Series A Preferred Stock and 10,000,000 shares of AIC Series A-1 Preferred Stock, of which 23,177,526 shares of AIC Common Stock, 10,533,334 shares of AIC Series A Preferred Stock and no shares of AIC Series A-1 Preferred Stock are issued and outstanding. In addition, the AIC Board of Directors has approved the issuance of approximately 7,343,418 shares of AIC Series A-1 Preferred Stock in exchange for the conversion of all outstanding principal, accrued interest or other obligations under all convertible notes or other convertible debt obligations of AIC outstanding as of the date hereof (the "NOTE CONVERSION"). Except as set forth above, no shares or other equity securities of AIC are issued, reserved for issuance or outstanding. All outstanding shares of AIC are duly authorized, validly issued, fully paid and nonassessable and not subject to preemptive rights. There are no outstanding bonds, debentures, notes or other indebtedness or other securities of AIC having the right to vote (or convertible into, or exchangeable for, securities having the right to vote) on any matters on which shareholders of AIC may vote. The AIC Disclosure Schedule A-14 sets forth the outstanding capitalization of AIC, including a list of all holders of AIC Shares and their respective holdings. Except as set forth on the AIC Disclosure Schedule, there are no outstanding securities, options, warrants, calls, rights, commitments, agreements, arrangements or undertakings of any kind to which AIC is a party or by which it is bound obligating AIC to issue, deliver or sell, or cause to be issued, delivered or sold, additional shares or other equity or voting securities of AIC or obligating AIC to issue, grant, extend or enter into any such security, option, warrant, call, right, commitment, agreement, arrangement or undertaking. There are no outstanding contractual obligations, commitments, understandings or arrangements of AIC or any AIC Subsidiaries to repurchase, redeem or otherwise acquire or make any payment in respect of any securities of AIC. There are no agreements or arrangements pursuant to which AIC is or could be required to register AIC Common Stock or other securities under the Securities Act, or other agreements or arrangements with or among any security holders of AIC with respect to securities of AIC. 3.4 AUTHORITY. AIC has the requisite corporate and other power and authority to enter into this Agreement and, subject to obtaining the AIC Shareholders' Approval (as defined in SECTION 3.33), to perform its obligations hereunder and to consummate the transactions contemplated hereby. The execution and delivery of this Agreement by AIC and the consummation by AIC of the transactions contemplated hereby have been duly authorized by the Board of Directors of AIC; the Board of Directors has recommended adoption of this Agreement by the shareholders of AIC; and no other corporate proceedings on the part of AIC or its shareholders are necessary to authorize the execution, delivery and performance of this Agreement by AIC and the consummation by AIC of the transaction contemplated hereby, other than obtaining the AIC Shareholders' Approval. This Agreement has been duly executed and delivered by AIC and constitutes a valid and binding obligation of AIC, enforceable against AIC in accordance with its terms, subject to applicable bankruptcy, insolvency and other similar laws affecting the enforceability of creditors' rights generally, general equitable principles and the discretion of courts in granting equitable remedies. 3.5 NON-CONTRAVENTION. The execution and delivery of this Agreement do not, and the consummation of the transactions contemplated by this Agreement and compliance with the provisions hereof will not, conflict with, or result in any breach or violation of, or default (with or without notice or lapse of time, or both) under, or give rise to a right of termination, cancellation or acceleration of or "put" right with respect to any obligation or to loss of a material benefit under, or result in the creation of any Lien upon any of the properties or assets of AIC under, (i) the Articles of Incorporation or Bylaws of AIC, (ii) any loan or credit agreement, note, bond, mortgage, indenture, lease or other agreement, instrument, permit, concession, franchise or license applicable to AIC, its properties or assets, or (iii) subject to the governmental filings and other matters referred to in the following sentence, any judgment, order, decree, statute, law, ordinance, rule, regulation or arbitration award applicable to AIC, its properties or assets, other than, in the case of clauses (ii) and (iii), any such conflicts, breaches, violations, defaults, rights, losses or Liens that individually or in the aggregate would not have either a Material Adverse Effect on AIC or would not prevent, hinder or delay the ability of AIC to consummate the transactions contemplated by this Agreement. No consent, approval, order or authorization of, or registration, declaration or filing with, or notice to, any Governmental Entity is required by or with respect to AIC in connection with the execution and delivery of this Agreement by AIC or the consummation by AIC of the transactions contemplated hereby, A-15 except, with respect to this Agreement, for the filing of the Certificate of Merger and other appropriate merger documents required by the CGCL with the Secretary of State and appropriate documents with the relevant authorities of other states in which AIC is qualified to do business. 3.6 FINANCIALS STATEMENTS. Set forth on the AIC Disclosure Schedule are the following financial statements (collectively the "AIC FINANCIAL STATEMENTS"): (a) unaudited consolidated balance sheets and statements of income, changes in shareholders' equity, and cash flow as of and for the fiscal years ended December 31, 2002 and 2003 for AIC and (b) unaudited consolidated balance sheets and statements of income, changes in shareholders' equity, and cash flow as of and for the ten months ended October 31, 2004 for AIC. The AIC Financial Statements have been prepared in accordance with GAAP applied on a consistent basis throughout the periods covered thereby, present fairly the financial condition of AIC as of such dates and the results of operations of AIC for such periods, are correct and complete, and are consistent with the books and records of AIC; PROVIDED, HOWEVER, that the unaudited interim financial statements are subject to normal year-end adjustments (which will not be material individually or in the aggregate) and lack footnotes and other presentation items. Since September 30, 2004, AIC has not effected any change in any method of accounting or accounting practice, except for any such change required because of a concurrent change in GAAP. 3.7 NO UNDISCLOSED LIABILITIES. AIC does not have any liabilities or obligations (whether absolute, contingent or otherwise), which are not adequately reflected or provided for in the AIC Financial Statements, except for liabilities and obligations (i) that have been incurred since the date of the most recent balance sheet included in the AIC Financial Statements in the ordinary course of business and are not (singly or in the aggregate) material to AIC's business, and (ii) not due and payable or to be performed or satisfied after the date hereof under AIC Contracts in accordance with their terms, in each case which are not (singly or in the aggregate) material to AIC's business. 3.8 ABSENCE OF CERTAIN CHANGES OR EVENTS. Since October 31, 2004, AIC has conducted its business only in the ordinary course consistent with past practice, and there is not and has not been: (i) any Material Adverse Change with respect to AIC; (ii) any condition, event or occurrence which individually or in the aggregate could reasonably be expected to have a Material Adverse Effect or give rise to a Material Adverse Change with respect to AIC; (iii) any event which, if it had taken place following the execution of this Agreement, would not have been permitted by SECTION 5.1 without prior consent of Xtrana; or (iv) any condition, event or occurrence which could reasonably be expected to prevent, hinder or materially delay the ability of AIC to consummate the transactions contemplated by this Agreement. 3.9 LEGAL PROCEEDINGS. There is no suit, action, claim, arbitration, proceeding or investigation pending or, to the knowledge of AIC, threatened against, relating to or involving AIC, or real or personal property of AIC, before any Governmental Entity or other third party. To the knowledge of AIC, there is no basis for any such suit, action, proceeding or investigation. 3.10 COMPLIANCE WITH LAW. AIC is compliance in all material respects with all applicable laws (including, without limitation, applicable laws relating to zoning, environmental matters and the safety and health of employees), ordinances, regulations and orders of all A-16 Governmental Entities. AIC has not been charged with and, to the knowledge of AIC, is not now under investigation with respect to, a violation of any applicable law, regulation, ordinance, order or other requirement of a Governmental Entity. AIC is not a party to or bound by any order, judgment, decree or injunction of any Governmental Entity. AIC has filed all reports and has all Licenses required to be filed with any Governmental Entity on or before the date hereof the failure to file or to obtain would result in a Material Adverse Effect on AIC. 3.11 OFFICERS AND EMPLOYEES. AIC has made available to Xtrana a schedule containing a true and complete list of all of the employees (whether full-time, part-time or otherwise) and independent contractors of AIC as of the date hereof, specifying with respect to each such individual his or her position, status, annual salary and hourly wages, including consulting or other independent contractor fees. AIC is not a party to or bound by any employment agreement. AIC has not made any verbal commitments to any such officers, employees or former employees, consultants or independent contractors with respect to compensation, promotion, retention, termination, severance or similar matters in connection with the transactions contemplated by this Agreement or otherwise. 3.12 EMPLOYEE RELATIONS. To the knowledge of AIC, no executive, key employee, or group of employees has any plans to terminate employment with AIC. AIC is not a party to or bound by any collective bargaining agreement, nor has AIC experienced any strikes, grievances, claims of unfair labor practices or other collective bargaining disputes. AIC has not committed any unfair labor practice (as determined under any applicable law). There is no organizational effort currently being made or threatened by or on behalf of any labor union with respect to any of AIC's employees. 3.13 BENEFIT PLANS. The AIC Disclosure Schedule contains a true and complete list of each Benefit Plan currently sponsored, maintained or contributed to by AIC. Any special tax status enjoyed by such plan is noted on such schedule. With respect to each Benefit Plan identified the AIC Disclosure Schedule, AIC has heretofore delivered or made available to Xtrana true and complete copies of the plan documents and any amendments thereto (or, if the plan is not written, a written description thereof). AIC's records accurately reflect its employees' employment histories, including their hours of service, and all such data is maintained in a usable form. 3.14 CERTAIN EMPLOYEE PAYMENTS. AIC is not a party to any employment agreement which could result in the payment to any current, former or future director or employee of AIC of any money or other property or rights or accelerate or provide any other rights or benefits to any such employee or director as a result of the transactions contemplated by this Agreement, whether or not (i) such payment, acceleration or provision would constitute a "parachute payment" (within the meaning of Section 280G of the Code), or (ii) some other subsequent action or event would be required to cause such payment, acceleration or provision to be triggered. 3.15 TAX RETURNS AND TAX PAYMENTS. AIC is not subject to any liabilities or claims for Taxes, including Taxes relating to prior periods, other than those set forth or adequately reserved against in the AIC Financial Statements or those incurred since the date of the most recent balance sheet included in the AIC Financial Statements in the ordinary course of A-17 business. AIC has duly filed when due all Tax Returns in connection with and in respect of its business, assets and employees, and has timely paid and discharged all amounts shown as due thereon. AIC has made available to Xtrana accurate and complete copies of all of its Tax Returns for all periods, except those periods for which returns are not yet due. AIC has not received any notice of any Tax deficiency outstanding, proposed or assessed against or allocable to it, and has not executed any waiver of any statute of limitations on the assessment or collection of any Tax or executed or filed with any Governmental Entity any contract or other agreement now in effect extending the period for assessment or collection of any Taxes against it. There are no Liens for Taxes upon, pending against or threatened against, any asset of AIC. AIC is not subject to any Tax allocation or sharing agreement. 3.16 ENVIRONMENTAL MATTERS. Except as set forth on the AIC Disclosure Schedule, (i) AIC is in compliance with all Environmental Laws in connection with owning, using, maintaining or operating its business or assets; (ii) each location at which AIC operates, or has operated, its business is in compliance with all Environmental Laws; and (iii) there are no pending or, to AIC's knowledge, threatened allegations by any Person that AIC's properties or assets is not, or that its businesses has not been conducted, in compliance with all Environmental Laws. No material expenditures are or will be required in order for AIC to comply with any applicable Environmental Law. AIC has not received any written or oral notice, report or other information regarding any actual or alleged violation of Environmental Laws or any liabilities, including any investigatory, remedial or corrective liabilities, relating to AIC, or its facilities arising under Environmental Laws. Neither AIC nor any of its predecessors or Affiliates has, either expressly or by operation of law, assumed or undertaken any liability, including any obligation for corrective or remedial action, of any other Person relating to Environmental Laws. 3.17 CONTRACTS AND COMMITMENTS. The AIC Disclosure Schedule contains a true, complete and accurate list of each of the following written, and to AIC's knowledge, oral, contracts, agreements, understandings or other obligations to which AIC is a party or by which any of its assets or properties are bound (together the "AIC CONTRACTS"): 3.17.1 all bonds, debentures, notes, loans, credit or loan agreements or loan commitments, mortgages, indentures, guarantees or other contracts relating to the borrowing of money or binding upon any properties or assets (real, personal or mixed, tangible or intangible) of AIC; 3.17.2 all rental or use agreements, contracts, covenants or obligations which may involve the payment by or to AIC of more than $25,000; 3.17.3 any contract, agreement, commitment or obligation to make any capital expenditures in excess of $25,000; 3.17.4 contracts, agreements, commitments or other obligations with any Person containing any provision or covenant limiting the ability of AIC to engage in any line of business or to compete with or to obtain products or services from any Person or limiting the ability of any Person to compete with or to provide products or services to, or obtain products or services from, AIC, or covering indemnification of another Person other than in the ordinary course of business; A-18 3.17.5 any profit-sharing or similar contract, agreement, understanding or obligation with any Person; 3.17.6 contracts, agreements, commitments or other obligations with respect to the purchase or sale by or to AIC of any product, equipment, facility, or similar item that by their respective terms do not expire or terminate or are not terminable by AIC, without penalty, premium or other liability within 30 days or may involve the payment by or to AIC of more than $25,000; 3.17.7 contracts, agreements, commitments or other obligations to provide services or facilities by or to AIC or to or by another Person which is not terminable by AIC within 30 days without penalty, premium or other liability or involving payment by AIC or the other Person of more than $25,000; 3.17.8 any contract that provides for an increased payment or benefit, or accelerated vesting, upon the execution of this Agreement or in connection with the transactions contemplated hereby; 3.17.9 any contract or agreement granting any Person a Lien on all or any part of any asset of AIC; 3.17.10 any contract providing for the indemnification or holding harmless by AIC of any of its shareholders, officers, directors, employees or representatives; 3.17.11 all other contracts, agreements, commitments or other obligations whether or not made in the ordinary course of business which may involve the expenditure by AIC of funds in excess of $25,000 per commitment (or under a group of similar commitments), or are otherwise material to AIC; or 3.17.12 all other contracts, agreements, commitments, or other obligations of any kind that involve or relate to any AIC Shareholder, officer, director, employee or consultant of AIC or any Affiliate or relative thereof. True, correct and complete copies of all AIC Contracts have been made available to Xtrana. To the knowledge of AIC, the AIC Contracts are legal, valid, binding and enforceable in accordance with their respective terms with respect to AIC and each other party to such AIC Contracts. There are no existing defaults or breaches of AIC under any AIC Contract (or events or conditions which, with notice or lapse of time or both would constitute a default or breach) and, to the knowledge of AIC, there are no such defaults (or events or conditions which, with notice or lapse of time or both, would constitute a default or breach) with respect to any third party to any AIC Contract. Except as set forth on the AIC Disclosure Schedule, AIC is not participating in any discussions or negotiations regarding modification of or amendment to any AIC Contract or entry in any new material contract applicable to AIC or the real or personal property of AIC. The AIC Disclosure Schedule specifically identifies each AIC Contract set forth therein that requires the consent of or notice to the other party thereto to avoid any breach, default or violation of such contract, agreement or other instrument in connection with the transactions contemplated by this Agreement. A-19 3.18 RECEIVABLES. All of the receivables of AIC are enforceable, represent BONA FIDE transactions, and arose in the ordinary course of business of AIC, and are reflected properly in its books and records. All of AIC's receivables are reasonably believed by AIC to be collectible in accordance with past practice and the terms of such receivables, without set off or counterclaims except to the extent of reserves therefor set forth in the most recent balance sheet included in the AIC Financial Statements or, for receivables arising subsequent to September 30, 2004, as reflected on the books and records of AIC. No customer or supplier of AIC has any reasonable basis to believe that it has or would be entitled to any payment terms other than terms in the ordinary course of business, including any prior course of conduct. 3.19 PERSONAL PROPERTY. AIC has good, clear and marketable title to all the tangible properties and tangible assets reflected in AIC's latest balance sheet as being owned by AIC or acquired after the date thereof which are, individually or in the aggregate, material to AIC's business (except properties sold or otherwise disposed of since the date thereof in the ordinary course of business), free and clear of all Liens. All equipment and other items of tangible personal property and assets of AIC (a) are in good operating condition and in a state of good maintenance and repair, ordinary wear and tear excepted, and (b) are usable in the regular and ordinary course of AIC's business. 3.20 REAL PROPERTY. AIC does not own any real property. The AIC Disclosure Schedule sets forth all real property leases to which AIC is a party. AIC has a valid leasehold interest in such leased real property, and such leases are in full force and effect. The improvements and fixtures on such real property leased by AIC are in good operating condition and in a state of good maintenance and repair, ordinary wear and tear excepted. 3.21 INTELLECTUAL PROPERTY RIGHTS. AIC owns, or is licensed or otherwise has the valid rights to use, all Intellectual Property used in the conduct of its business (the "AIC INTELLECTUAL PROPERTY"). The AIC Disclosure Schedule contains an accurate and complete list of all: (a) Intellectual Property owned by AIC, (b) Intellectual Property licensed to AIC, including a list of all agreements related thereto, and (c) licenses granted by AIC to others to use AIC's Intellectual Property, including a list of all agreements related thereto (in each case excluding licenses available in consumer retail stores or subject to "shrink-wrap" license agreements), in each case that is the subject of an application, certificate, filing or registration with a Governmental Entity. AIC owns all right, title and interest in and to the Intellectual Property owned by it, free and clear of any Liens. AIC has the sole and exclusive right to use AIC Intellectual Property licensed to it, and the consummation of the transaction contemplated hereby will not alter or impair any such rights. No claims have been asserted by any Person challenging or questioning the validity or effectiveness of any licenses or agreements related to the Intellectual Property licensed by, or licensed to, AIC, and to the knowledge of AIC, there is no valid basis for any such claim. To the knowledge of AIC, the use by AIC of any Intellectual Property owned or licensed to it does not violate or infringe the rights of any Person. To the knowledge of AIC, neither AIC nor any other Person is in default under any license or other agreement relating to any AIC Intellectual Property, and all such licenses and agreements are valid, in full force and effect and enforceable. AIC has taken reasonable steps to safeguard and maintain the secrecy and confidentiality of, and its proprietary rights in, AIC Intellectual Property. No present or former employee or consultant of AIC owns or has any proprietary, A-20 financial or other interest, direct or indirect (other than through ownership of AIC Common Stock), in whole or in part, in any AIC Intellectual Property. 3.22 TRANSACTIONS WITH RELATED PARTIES. AIC is not a party to any contract, lease, license, commitment or arrangement, written or oral, which, were AIC a "registrant" under the Exchange Act, would be required to be disclosed pursuant to Item 404(a) or (c) of Regulation S-B as promulgated by the SEC, and there are no loans outstanding to or from any Person specified in Item 404(a) of Regulation S-B from or to AIC. 3.23 NO GUARANTIES. None of the obligations or liabilities of AIC incurred in connection with the operation of its business is guaranteed by or subject to a similar contingent obligation of any other Person. AIC has not guaranteed or become subject to a similar contingent obligation in respect of the obligations or liabilities of any other Person. There are no outstanding letters of credit, surety bonds or similar instruments of AIC or any of its Affiliates. 3.24 INSURANCE. The AIC Disclosure Schedule contains a complete and correct list of all insurance policies carried by or for the benefit of AIC. AIC delivered to Xtrana schedules specifying the insurer, amount of and nature of coverage, the risk insured against, the deductible amount (if any) and the date through which coverage will continue by virtue of premiums already paid of each such insurance policies. AIC is insured by insurers of recognized financial responsibility against such losses and risks and in such amounts as are prudent and customary in the businesses in which AIC is engaged. AIC does not have any reason to believe that it will not be able to renew its existing insurance coverage as and when such coverage expires or to obtain similar coverage from similar insurers as may be necessary to continue its business without a significant increase in cost. 3.25 CUSTOMER RELATIONS. The AIC Disclosure Schedule contains a complete and accurate list of the names and addresses of each customer that generated more than $40,000 in revenue for AIC during since January 1, 2003. Except as set forth in the AIC Disclosure Schedule no such customer (or former customer) during the last twelve (12) months has canceled, terminated or, to the knowledge of AIC, made any threat to cancel or otherwise terminate its contract or to decrease its usage of AIC's services or products. AIC has not received any notice or has any knowledge to the effect that any current customer or supplier may terminate or materially alter its business relations with AIC, either as a result of the transactions contemplated by this Agreement or otherwise. 3.26 PRODUCT OR SERVICE DEFECTS; LIABILITY. AIC is not aware of any material defects in any of its products or the design thereof, nor in any of the services it provides. AIC has not received any customer complaints or third party reports concerning alleged defects in its products, the design thereof or its services that, if true, could have a Material Adverse Effect on AIC, nor has AIC had any of its products returned by a purchaser thereof other than for minor, nonrecurring warranty problems. AIC has no liabilities (and, to the knowledge of AIC, there is no basis for any present or future action against AIC giving rise to any liability) arising out of any injury to individuals or property as a result of ownership, possession or use of any product designed, manufactured, sold, leased or delivered by AIC. A-21 3.27 PRODUCT WARRANTY. Each product manufactured, sold, leased or delivered by AIC has been manufactured, sold, leased or delivered, as the case may be, in conformity in all material respects with all applicable law, all contracts to which AIC is a party, and all express and implied warranties, and AIC does not have any liability (and, to the knowledge of AIC, there is no basis for any present or future actions against AIC giving rise to any such liability) for replacement or repair thereof or other damages in connection therewith, subject only to the reserve for product warranty claims set forth on the face of the Financial Statements (rather than in any notes thereto) as adjusted for the passage of time through the Effective Time in accordance AIC's ordinary course of business, consistent with GAAP. No product designed, manufactured, sold, leased or delivered by AIC is subject to any guaranty, warranty or other indemnity or similar liability beyond the applicable standard terms and conditions of sale or lease. 3.28 LICENSES. AIC owns or possesses all of the material Licenses which are necessary to enable it to carry on its business as presently conducted. All such Licenses are valid, binding, and in full force and effect. The execution, delivery, and performance of this Agreement and the consummation of the transactions contemplated hereby will not adversely affect any such License. 3.29 RECORDS. The books of account, corporate records and minute books of AIC are complete and correct in all material respects. Complete and accurate copies of all such books of account, corporate records and minute books and of the stock register of AIC have been provided to Xtrana. 3.30 NO BROKERS OR FINDERS. AIC has not, and its Affiliates, officers, directors or employees have not, employed any broker or finder or incurred any liability for any brokerage or finder's fee or commissions or similar payment in connection with any of the transactions contemplated hereby. 3.31 BOARD RECOMMENDATION. The Board of Directors of AIC has unanimously determined that the terms of the Merger are fair to and in the best interests of the AIC Shareholders and recommended that the AIC Shareholders approve the Merger. 3.32 DISCLOSURE. AIC has disclosed to Xtrana all facts material to AIC's business, operations, assets, liabilities, prospects, properties, condition (financial or otherwise) and results of operations. Neither this Agreement, nor any Schedule or Exhibit to this Agreement, nor any other statements, documents or certificates made or delivered in connection herewith or therewith contains any untrue statement of a material fact or omits to state a material fact necessary to make the statements contained herein and therein not misleading in light of the circumstances under which such statements were made. None of the information supplied by AIC in connection with the solicitation by Xtrana of the Xtrana Stockholders' Approval contained any untrue statement of a material fact or omitted to state any material fact required to be stated therein or necessary in order to make the statements therein, in light of the circumstances under which they are made, not misleading. 3.33 REQUIRED AIC VOTE. The affirmative votes of (a) the holders of a majority of the shares of AIC Shares voting together as one class on an as-converted basis and (b) the A-22 holders of AIC Series A Preferred Stock and AIC Series A-1 Preferred Stock, voting together as one class, are the only votes of the holders of any class or series of AIC's securities necessary to approve the Merger (the "AIC SHAREHOLDERS' APPROVAL"). 4. REPRESENTATIONS AND WARRANTIES OF XTRANA AND MERGERCO. Except as set forth in the disclosure schedule delivered by Xtrana to AIC at the time of execution of this Agreement and attached hereto (the "XTRANA DISCLOSURE SCHEDULE"), Xtrana and MergerCo, jointly and severally, represent and warrant to AIC as follows: 4.1 ORGANIZATION, STANDING AND CORPORATE POWER. Xtrana is duly organized, validly existing and in good standing under the laws of the State of Delaware, and has the requisite corporate power and authority to carry on its business as now being conducted. MergerCo is duly organized, validly existing and in good standing under the laws of the State of California, and has the requisite corporate power and authority to carry on its business as now being conducted. 4.2 NO SUBSIDIARIES. Other than MergerCo, Xtrana does not currently own, directly or indirectly, any capital stock or other equities, securities or interests in any other corporation or in any limited liability company, partnership, joint venture or other association. 4.3 CAPITAL STRUCTURE. 4.3.1 The authorized capital stock of Xtrana consists of 50,000,000 shares of Xtrana Common Stock, $0.01 par value, of which 16,533,269 shares of Xtrana Common Stock are issued and outstanding as of the date of this Agreement. All outstanding shares of capital stock of Xtrana are, and all shares which may be issued pursuant to this Agreement will be, when issued, duly authorized, validly issued, fully paid and nonassessable and, not subject to preemptive rights, and issued in compliance with all applicable state and federal laws concerning the issuance of securities. There are no outstanding bonds, debentures, notes or other indebtedness or other securities of Xtrana having the right to vote (or convertible into, or exchangeable for, securities having the right to vote) on any matters on which holders of Xtrana Common Stock may vote. Except as set forth on the Xtrana Disclosure Schedule, there are no outstanding securities, options, warrants, calls, rights, commitments, agreements, arrangements or undertakings of any kind to which Xtrana is a party or by which any of them is bound obligating Xtrana to issue, deliver or sell, or cause to be issued, delivered or sold, additional shares of capital stock or other equity securities of Xtrana or obligating Xtrana to issue, deliver or sell, or cause to be issued, delivered or sold, additional shares of capital stock or other equity securities of Xtrana or obligating Xtrana to issue, grant, extend or enter into any such security, option, warrant, call, right, commitment, agreement, arrangement or undertaking. There are no outstanding contractual obligations, commitments, understandings or arrangements of Xtrana to repurchase, redeem or otherwise acquire or make any payment in respect of any shares of capital stock of Xtrana. There are no agreements or arrangements pursuant to which Xtrana is or could be required to register shares of Xtrana Common Stock or other securities under the Securities Act or other agreements or arrangements with or among any holder of Xtrana securities with respect to securities of Xtrana. A-23 4.3.2 The authorized capital stock of MergerCo consists of 1,000 shares of Common Stock, all of which are issued and outstanding as of the date of this Agreement and held by Xtrana. All outstanding shares of capital stock of MergerCo are duly authorized, validly issued, fully paid and nonassessable. There are no outstanding bonds, debentures, notes or other indebtedness or other securities of MergerCo having the right to vote (or convertible into, or exchangeable for, securities having the right to vote) on any matters on which holders of MergerCo Common Stock may vote. Other than as provided in this Agreement, there are no outstanding securities, options, warrants, calls, rights, commitments, agreements, arrangements or undertakings of any kind to which MergerCo is a party or by which any of them is bound obligating MergerCo to issue, deliver or sell, or cause to be issued, delivered or sold, additional shares of capital stock or other equity securities of MergerCo or obligating MergerCo to issue, deliver or sell, or cause to be issued, delivered or sold, additional shares of capital stock or other equity securities of MergerCo or obligating MergerCo to issue, grant, extend or enter into any such security, option, warrant, call, right, commitment, agreement, arrangement or undertaking. 4.4 AUTHORITY. Each of Xtrana and MergerCo has the requisite corporate and other power and authority to enter into this Agreement and, subject to obtaining the Xtrana Stockholders' Approval (as defined in SECTION 4.15), to perform its obligations hereunder and to consummate the transactions contemplated hereby. The execution and delivery of this Agreement by each Xtrana and MergerCo and the consummation by Xtrana and MergerCo of the transactions contemplated hereby have been duly authorized by the Board of Directors of Xtrana; the Board of Directors has recommended adoption of this Agreement by the stockholders of Xtrana; and no other corporate proceedings on the part of Xtrana or its stockholders are necessary to authorize the execution, deliver and performance of this Agreement by Xtrana and the consummation by Xtrana of the transaction contemplated hereby, other than obtaining the Xtrana Stockholders' Approval. This Agreement has been duly executed and delivered by each of Xtrana and MergerCo and constitutes a valid and binding obligation of each of Xtrana and MergerCo, enforceable against such Party in accordance with its terms, subject to applicable bankruptcy, insolvency and other similar laws affecting the enforceability of creditors' rights generally, general equitable principles and the discretion of courts in granting equitable remedies. 4.5 NON-CONTRAVENTION. The execution and delivery of this Agreement do not, and the consummation of the transactions contemplated by this Agreement and compliance with the provisions hereof will not, conflict with, or result in any breach or violation of, or default (with or without notice or lapse of time, or both) under, or give rise to a right of termination, cancellation or acceleration of or "put" right with respect to any obligation or to loss of a material benefit under, or result in the creation of any Lien upon any of the properties or assets of either Xtrana or MergerCo under, (i) the Certificate or Articles of Incorporation or Bylaws of Xtrana or MergerCo, (ii) any loan or credit agreement, note, bond, mortgage, indenture, lease or other agreement, instrument, permit, concession, franchise or license applicable to Xtrana or MergerCo, their respective properties or assets, or (iii) subject to the governmental filings and other matters referred to in the following sentence, any judgment, order, decree, statute, law, ordinance, rule, regulation or arbitration award applicable to Xtrana or MergerCo, their respective properties or assets, other than, in the case of clauses (ii) and (iii), any such conflicts, breaches, violations, defaults, rights, losses or Liens that individually or in the aggregate could not have either a Material Adverse Effect on Xtrana or MergerCo or could not prevent, hinder or A-24 delay the ability of Xtrana or MergerCo to consummate the transactions contemplated by this Agreement. No consent, approval, order or authorization of, or registration, declaration or filing with, or notice to, any Governmental Entity is required by or with respect to Xtrana or MergerCo in connection with the execution and delivery of this Agreement by Xtrana or MergerCo or the consummation by Xtrana and MergerCo of the transactions contemplated hereby, except, with respect to this Agreement, for the filing of the Certificate of Merger and other appropriate merger documents required by the CGCL with the Secretary of State and appropriate documents with the relevant authorities of other states in which Xtrana is qualified to do business. 4.6 SEC DOCUMENTS; UNDISCLOSED LIABILITIES. 4.6.1 For all periods subsequent to January 1, 2000, Xtrana has filed all reports, schedules, forms, statements and other documents as required by the SEC in a timely basis (or has received a valid extension of such time of filing and has filed any such reports or other documents prior to the expiration of any such extension), and Xtrana has delivered or made available to AIC all reports, schedules, forms, statements and other documents filed with the SEC during such period (collectively, and in each case including all exhibits and schedules thereto and documents incorporated by reference therein, the "XTRANA SEC DOCUMENTS"). As of their respective dates (or, if amended, supplemented or superseded by a filing prior to the date hereof, then as of the date of such amendment, supplement or superseding filing) the Xtrana SEC Documents complied in all material respects with the requirements of the Securities Act or the Exchange Act, as the case may be, and the rules and regulations of the SEC promulgated thereunder applicable to such Xtrana SEC Documents, and none of the Xtrana SEC Documents (including any and all consolidated financial statements included therein) as of such date contained any untrue statement of a material fact or omitted to state a material fact required to be stated therein or necessary in order to make the statements therein, in light of the circumstances under which they were made, not misleading. The consolidated financial statements of Xtrana included in such Xtrana SEC Documents comply as to form in all material respects with applicable accounting requirements and the published rules and regulations of the SEC with respect thereto, have been prepared in accordance with GAAP (except, in the case of unaudited consolidated quarterly statements, as permitted by Form 10-QSB of the SEC) applied on a consistent basis during the periods involved (except as may be indicated in the notes thereto) and fairly and accurately present the consolidated financial position of Xtrana as of the dates thereof and the consolidated results of operations and changes in cash flows for the periods covered thereby (subject, in the case of unaudited quarterly statements, to normal year-end audit adjustments as determined by Xtrana's independent accountants). Except as set forth in the Xtrana SEC Documents, at the date of the most recent financial statements of Xtrana included in the Xtrana SEC Documents, Xtrana did not have, and since such date Xtrana has not incurred, any liabilities or obligations of any nature (whether accrued, absolute, contingent or otherwise) except for liabilities and obligations that have been incurred since the date of the most recent balance sheet included in the Xtrana Financial Statements in the ordinary course of business and are not (singly or in the aggregate) material to Xtrana's business. 4.6.2 The Xtrana SEC Documents include all certifications and statements required of it, if any, by (i) Rule 13a-14 or 15d-14 under the Exchange Act, and (ii) 18 U.S.C. Section 1350 (Section 906 of the Sarbanes-Oxley Act of 2002), and each of such certifications and statements contain no qualifications or exceptions to the matters certified A-25 therein other than a knowledge qualification, permitted under such provision, and have not been modified or withdrawn and neither Xtrana nor any of its officers has received any notice from the SEC or any other Governmental Entity questioning or challenging the accuracy, completeness, form or manner of filing or submission of such certifications or statements. 4.6.3 Xtrana is in compliance in all material respects with all of the provisions of the Sarbanes-Oxley Act of 2002, and the provisions of the Exchange Act and the Securities Act relating thereto which under the terms of such provisions (including the dates by which such compliance is required) have become applicable to Xtrana. 4.7 ABSENCE OF CERTAIN CHANGES OR EVENTS. Except as disclosed in the Xtrana SEC Documents, since the date of the most recent financial statements included in the Xtrana SEC Documents, Xtrana has conducted its business only in the ordinary course consistent with past practice in light of its current business circumstances, and there is not and has not been: (i) any Material Adverse Change with respect to Xtrana; (ii) any condition, event or occurrence which, individually or in the aggregate, could reasonably be expected to have a Material Adverse Effect or give rise to a Material Adverse Change with respect to Xtrana; (iii) any event which, if it had taken place following the execution of this Agreement, would not have been permitted by SECTION 5.1 without the prior consent of AIC; or (iv) any condition, event or occurrence which could reasonably be expected to prevent, hinder or materially delay the ability of Xtrana to consummate the transactions contemplated by this Agreement. 4.8 INFORMATION SUPPLIED. None of the information included or incorporated by reference in the proxy statement relating to the Xtrana Stockholders' Meeting (as defined in SECTION 6.4.2), as amended or supplemented from time to time (as so amended and supplemented, the "PROXY STATEMENT"), and any other documents to be filed by Xtrana with the SEC or any other Governmental Entity in connection with the Merger and the other transactions contemplated hereby will, on the date of its filing or, in the case of the Proxy Statement, at the date it is mailed to stockholders of Xtrana and at the time of the Xtrana Stockholders' Meeting, contain any untrue statement of a material fact or omit to state any material fact required to be stated therein or necessary in order to make the statements therein, in light of the circumstances under which they are made, not misleading or necessary to correct any statement in any earlier communication with respect to any solicitation of proxies for the Xtrana Stockholders' Meeting which shall have become false or misleading, except that no representation is made by Xtrana with respect to information supplied in writing by or on behalf of AIC for inclusion therein. The Proxy Statement filed by Xtrana with the SEC under the Exchange Act relating to the Xtrana Stockholders' Meeting, and any other documents to be filed with the SEC in connection with the Merger, will comply as to form in all material respects with the Exchange Act. 4.9 CERTAIN EMPLOYEE PAYMENTS. Xtrana is not a party to any employment agreement which could result in the payment to any current, former or future director or employee of Xtrana of any money or other property or rights or accelerate or provide any other rights or benefits to any such employee or director as a result of the transactions contemplated by this Agreement, whether or not (i) such payment, acceleration or provision would constitute a "parachute payment" (within the meaning of Section 280G of the Code), or (ii) some other subsequent action or event would be required to cause such payment, acceleration or provision to be triggered. A-26 4.10 TAX RETURNS AND TAX PAYMENTS. Xtrana is not subject to any liabilities or claims for Taxes, including Taxes relating to prior periods, other than those set forth or adequately reserved against in the financial statements included in the Xtrana SEC Documents or those incurred since the date of the most recent balance sheet included in the Xtrana SEC Documents in the ordinary course of business. Xtrana has duly filed when due all Tax Returns in connection with and in respect of its business, assets and employees, and has timely paid and discharged all amounts shown as due thereon. Xtrana has made available to AIC accurate and complete copies of all of its Tax Returns for all periods, except those periods for which returns are not yet due. Xtrana has not received any notice of any Tax deficiency outstanding, proposed or assessed against or allocable to it, and has not executed any waiver of any statute of limitations on the assessment or collection of any Tax or executed or filed with any Governmental Entity any contract or other agreement now in effect extending the period for assessment or collection of any Taxes against it. There are no Liens for Taxes upon, pending against or threatened against, any asset of Xtrana. Xtrana is not subject to any Tax allocation or sharing agreement. 4.11 RECORDS. The books of accounts, corporate records and minute books of Xtrana and MergerCo are complete and correct in all material respects. Complete and accurate copies of all such books of account, corporate records and minute books of Xtrana and MergerCo have been provided to AIC. 4.12 MERGERCO. MergerCo has been formed for the sole purpose of effecting the Merger and, except as contemplated by this Agreement, MergerCo has not conducted any business activities and does not have any material liabilities. 4.13 NO BROKERS OR FINDERS. Neither Xtrana, MergerCo, nor their respective Affiliates, officers, directors or employees have, employed any broker or finder or incurred any liability for any brokerage or finder's fee or commissions or similar payment in connection with any of the transactions contemplated hereby. 4.14 BOARD RECOMMENDATION. The Board of Directors of Xtrana has unanimously determined that the terms of the Merger are fair to and in the best interests of the Stockholders of Xtrana and recommended that the holders of Xtrana Common Stock approve the Merger. 4.15 REQUIRED XTRANA VOTE. The affirmative vote of the holders of a majority of shares of Xtrana Common Stock is the only vote of the holders of any class or series of Xtrana's securities necessary to approve the Merger (the "XTRANA STOCKHOLDERS' APPROVAL"). 4.16 LEGAL PROCEEDINGS. There is no suit, action, claim, arbitration, proceeding or investigation pending or, to the knowledge of Xtrana, threatened against, relating to or involving Xtrana, or real or personal property of Xtrana, before any Governmental Entity or other third party. To the knowledge of Xtrana, there is no basis for any such suit, action, proceeding or investigation. 4.17 TRANSACTIONS WITH APPLERA CORPORATION. Xtrana provided to AIC true and complete copies of all agreements, instruments, certificates and other documents entered or A-27 delivered in connection with the Assignment Agreement dated as of January 26, 2004 by and between Xtrana and Applera Corporation, through its Applied Biosystems Group ("ABI"), as amended by the First Amendment to Assignment Agreement dated as of March 31, 2004, between Xtrana and ABI (as amended, the "ASSIGNMENT AGREEMENT"), including all amendments, supplements, exhibits and ancillary agreements related thereto (collectively, the "ABI AGREEMENTS"). Other than breaches or potential breaches that have been waived, all representations warranties made by Xtrana in the Assignment Agreement were true and correct on the date of the Assignment Agreement and on the closing of the transactions under the Assignment Agreement. Xtrana is in compliance in all material respects with and has not breached, violated or defaulted under in any material respect, or received notice that it has breached, violated or defaulted under, any of the terms or conditions of the ABI Agreements, nor has there occurred any event or condition that could reasonably constitute such a breach, violation or default with the lapse of time, giving of notice or both, and Xtrana is not aware of any legitimate basis for any indemnification claim against Xtrana under the ABI Agreements. The ABI Agreements and the consummation of the transactions contemplated thereby did not breach or caused a default under the Cooperation Agreement No. 70NANB5H1109 between Xtrana and the National Institutes of Standards and Technology (the "NIST AGREEMENT") or under Contract DAMB 17-00-C-001 between Xtrana and the U.S. Army (the "US ARMY AGREEMENT"). Xtrana has at all times complied with all terms and conditions of the NIST Agreement and the US Army Agreement, and except pursuant to the Confirmatory Licenses dated February 18, 2004 and February 20, 2004, true and complete copies of which were delivered to AIC, Xtrana has no obligations under the NIST Agreement or the US Army Agreement required to be performed after the date of this Agreement. 4.18 CONTRACTS AND COMMITMENTS. The Xtrana Disclosure Schedule contains a true, complete and accurate list of each of the following written, and to Xtrana's knowledge, oral, contracts, agreements, understandings or other obligations to which Xtrana is a party or by which any of its assets or properties are bound (together the "XTRANA CONTRACTS"): 4.18.1 all bonds, debentures, notes, loans, credit or loan agreements or loan commitments, mortgages, indentures, guarantees or other contracts relating to the borrowing of money or binding upon any properties or assets (real, personal or mixed, tangible or intangible) of Xtrana; 4.18.2 all rental or use agreements, contracts, covenants or obligations which may involve the payment by or to Xtrana of more than $25,000; 4.18.3 any contract, agreement, commitment or obligation to make any capital expenditures in excess of $25,000; 4.18.4 contracts, agreements, commitments or other obligations with any Person containing any provision or covenant limiting the ability of Xtrana to engage in any line of business or to compete with or to obtain products or services from any Person or limiting the ability of any Person to compete with or to provide products or services to, or obtain products or services from, Xtrana, or covering indemnification of another Person other than in the ordinary course of business; A-28 4.18.5 any profit-sharing or similar contract, agreement, understanding or obligation with any Person; 4.18.6 contracts, agreements, commitments or other obligations with respect to the purchase or sale by or to Xtrana of any product, equipment, facility, or similar item that by their respective terms do not expire or terminate or are not terminable by Xtrana, without penalty, premium or other liability within 30 days or may involve the payment by or to Xtrana of more than $25,000; 4.18.7 contracts, agreements, commitments or other obligations to provide services or facilities by or to Xtrana or to or by another Person which is not terminable by Xtrana within 30 days without penalty, premium or other liability or involving payment by Xtrana or the other Person of more than $25,000; 4.18.8 any contract that provides for an increased payment or benefit, or accelerated vesting, upon the execution of this Agreement or in connection with the transactions contemplated hereby; 4.18.9 any contract or agreement granting any Person a Lien on all or any part of any asset of Xtrana; 4.18.10 any contract providing for the indemnification or holding harmless by Xtrana of any of its shareholders, officers, directors, employees or representatives; 4.18.11 all other contracts, agreements, commitments or other obligations whether or not made in the ordinary course of business which may involve the expenditure by Xtrana of funds in excess of $25,000 per commitment (or under a group of similar commitments), or are otherwise material to Xtrana; or 4.18.12 all other contracts, agreements, commitments, or other obligations of any kind that involve or relate to any holder of Xtrana Common Stock, officer, director, employee or consultant of Xtrana or any Affiliate or relative thereof. True, correct and complete copies of all Xtrana Contracts have been made available to AIC. To the knowledge of Xtrana, the Xtrana Contracts are legal, valid, binding and enforceable in accordance with their respective terms with respect to Xtrana and each other party to such Xtrana Contracts. There are no existing defaults or breaches of Xtrana under any Xtrana Contract (or events or conditions which, with notice or lapse of time or both would constitute a default or breach) and, to the knowledge of Xtrana, there are no such defaults (or events or conditions which, with notice or lapse of time or both, would constitute a default or breach) with respect to any third party to any Xtrana Contract. Except as set forth on the Xtrana Disclosure Schedule, Xtrana is not participating in any discussions or negotiations regarding modification of or amendment to any Xtrana Contract or entry in any new material contract applicable to Xtrana or the real or personal property of Xtrana. The Xtrana Disclosure Schedule specifically identifies each Xtrana Contract set forth therein that requires the consent of or notice to the other party thereto to avoid any breach, default or violation of such contract, agreement or other instrument in connection with the transactions contemplated by this Agreement. A-29 The Xtrana Disclosure Schedule contains a true, complete and accurate list of each written contract, agreement, understanding or other obligation to which Xtrana was a party or by which any of its assets or properties was bound that was terminated by Xtrana since May 14, 2004 (together the "TERMINATED XTRANA Contracts"). True, correct and complete copies of all Terminated Xtrana Contracts have been made available to AIC. Each of the Terminated Xtrana Contracts was terminated in full compliance with its terms or with the written consent of the other party to such Terminated Xtrana Contract, in each case without any liability to Xtrana. 4.19 INSURANCE. The Xtrana Disclosure Schedule contains a complete and correct list of all insurance policies carried by or for the benefit of Xtrana, specifying the insurer, amount of and nature of coverage, the risk insured against, the deductible amount (if any) and the date through which coverage will continue by virtue of premiums already paid. 4.20 PRODUCT OR SERVICE DEFECTS; LIABILITY. Xtrana is not aware of any material defects in any of its products (including products developed and sold prior to completion of the transactions under the ABI Agreements) or the design thereof, nor in any of the services it provides. Xtrana has not received any customer complaints or third party reports concerning alleged defects in its products, the design thereof or its services that, if true, could have a Material Adverse Effect on Xtrana, nor has Xtrana had any of its products returned by a purchaser thereof other than for minor, nonrecurring warranty problems. Xtrana has no liabilities (and, to the knowledge of Xtrana, there is no basis for any present or future action against Xtrana giving rise to any liability) arising out of any injury to individuals or property as a result of ownership, possession or use of any product designed, manufactured, sold, leased or delivered by Xtrana. 4.21 PRODUCT WARRANTY. Each product manufactured, sold, leased or delivered by Xtrana has been manufactured, sold, leased or delivered, as the case may be, in conformity in all material respects with all applicable law, all contracts to which Xtrana is a party, and all express and implied warranties, and Xtrana does not have any liability (and, to the knowledge of Xtrana, there is no basis for any present or future actions against Xtrana giving rise to any such liability) for replacement or repair thereof or other damages in connection therewith, subject only to the reserve for product warranty claims set forth on the face of the financial statements included in the Xtrana SEC Documents (rather than in any notes thereto) as adjusted for the passage of time through the Effective Time in accordance Xtrana's ordinary course of business, consistent with GAAP. No product designed, manufactured, sold, leased or delivered by Xtrana is subject to any guaranty, warranty or other indemnity or similar liability beyond the applicable standard terms and conditions of sale or lease. 4.22 BENEFIT PLANS. The Xtrana Disclosure Schedule contains a true and complete list of each Benefit Plan currently sponsored, maintained or contributed to by Xtrana as well as any "employee benefit plan" as defined in Section 3(3) of ERISA of Xtrana. Any special tax status enjoyed by such plan is noted on such schedule. With respect to each Benefit Plan and "employee benefit plan" identified on the Xtrana Disclosure Schedule, Xtrana has heretofore delivered or made available to AIC true and complete copies of the plan documents and any amendments thereto (or, if the plan is not written, a written description thereof). Xtrana has performed in all material respects all obligations required to be performed by it under each Benefit Plan and "employee benefit plan" identified on the Xtrana Disclosure Schedule, and each A-30 such Benefit Plan has been established and maintained in all material respects in accordance with its terms and in compliance with all applicable laws, statutes, orders, rules and regulations, including but not limited to ERISA or the Code. Xtrana's records accurately reflect its employees' employment histories, including their hours of service, and all such data is maintained in a usable form. Xtrana has taken all actions required to terminate the Xtrana, Inc. 401(k) Plan. 4.23 DISCLOSURE. None of the information supplied by Xtrana in connection with the solicitation by AIC of the AIC Shareholders' Approval contained any untrue statement of a material fact or omitted to state any material fact required to be stated therein or necessary in order to make the statements therein, in light of the circumstances under which they are made, not misleading. 5. COVENANTS RELATING TO CONDUCT OF BUSINESS PRIOR TO MERGER. 5.1 CONDUCT OF AIC, XTRANA AND MERGERCO. Except as expressly permitted by this Agreement, between the date of this Agreement and the Effective Time, each of Xtrana and AIC shall conduct its business only in the ordinary course in substantially the same manner as heretofore conducted, and use all its reasonable efforts to preserve intact its present business organization and employees and to preserve the goodwill of Persons with which it has business relations. Without limiting the generality of the foregoing, except as otherwise expressly provided in this Agreement, between the date of this Agreement and the Effective Time, (i) each of Xtrana and AIC shall pay accounts payable and pay and perform other obligations of its business when they become due and payable in the ordinary course of business consistent with past practice, or when required to be performed, as the case may be, and (ii) each of Xtrana, MergerCo and AIC shall (unless otherwise mutually agreed to in writing): 5.1.1 not amend or alter its certificate or articles of incorporation, bylaws, or similar charter documents (except as required to effect the Reverse Stock Split (as defined in SECTION 6.4.2 below) and the Note Conversion); 5.1.2 not engage in any transaction, except in the normal and ordinary course of business, or create or suffer to exist any Lien or other encumbrance upon any of its assets or which will not be discharged in full prior to the Effective Time; 5.1.3 not sell, exchange, lease, assign or otherwise transfer any of its assets, or cancel or compromise any debts or claims relating to their assets, other than for fair value, in the ordinary course of business, and consistent with past practice; 5.1.4 not, other than in connection with the Reverse Stock Split, with respect to Xtrana, and the Note Conversion, with respect to AIC, (i) declare, set aside or pay any dividends on or make other distributions in respect of any of its capital shares, (ii) split, combine, reclassify or take similar action with respect to any of its capital shares or issue or authorize or propose the issuance of any other securities in respect of, in lieu of or in substitution for its capital shares (other than the Reverse Stock Split), (iii) adopt a plan of complete or partial liquidation or resolutions providing for or authorizing such liquidation or a dissolution, merger, A-31 consolidation, restructuring, recapitalization or other reorganization, or (iv) directly or indirectly redeem, repurchase or otherwise acquire any capital shares or any option with respect thereto, except for repurchases in connection with an existing option plan that result from a participant's use of such Party's Common Stock to exercise options or pay withholding taxes in connection with such exercise; 5.1.5 not sell, issue, grant or authorize the issuance or grant of any capital stock, other security (including the sale, transfer or grant of any treasury shares) or any obligation convertible or exchangeable for capital stock or any other security, except that (i) AIC may issue up to 7,343,418 shares of AIC Series A-1 Preferred Stock pursuant to the Note Conversion, (ii) AIC may issue AIC Common Stock upon the valid exercise of stock options and warrants outstanding as of the date of this Agreement and (iii) AIC may grant options to purchase shares of AIC Common Stock at fair market value in the ordinary course of business consistent with past practice to its employees, officers, directors and consultants; 5.1.6 not fail to use reasonable efforts to preserve intact its present business organizations, keep available the services of its employees (except as expressly provided herein) and preserve its material relationships with customers, suppliers, licensors, licensees, distributors and others, to the end that its good will and on-going business not be impaired prior to the Effective Time; 5.1.7 not organize any subsidiary or acquire any capital stock or other equity securities of any Person or any equity or ownership interest in any business; 5.1.8 not enter into any instrument which would constitute an AIC Contract, as applicable, or enter into any material amendment, supplement or waiver in respect of any AIC Contract, in each case except in the ordinary course of business consistent with past practice; 5.1.9 not incur any severance pay obligation by reason of this Agreement or the transactions contemplated hereby; 5.1.10 not grant or extend any power of attorney other than in the ordinary course of business which does not affect a material part of its business; 5.1.11 keep in full force and effect insurance comparable in amount and scope of coverage to insurance now carried by it; 5.1.12 not make any material change with respect to their business in accounting or bookkeeping methods, principles or practices, except as required by GAAP; 5.1.13 promptly advise the other Party in writing of any Material Adverse Effect with respect to it; 5.1.14 not agree or otherwise commit, whether in writing or otherwise, to do, or take any action or omit to take any action that would result in, any of the foregoing; A-32 5.1.15 not acquire or agree to acquire, by merging or consolidating with, by purchasing an equity interest in or a portion of the assets of, by licensing or by any other manner, any business or any corporation, partnership, association or other business organization or division thereof, or otherwise acquire or agree to acquire any assets of any other Person, except for the purchase of assets from suppliers or vendors in the ordinary course of business; or 5.1.16 not make any expenditure or enter into any commitment or transaction exceeding $30,000 other than purchases in the ordinary course of business consistent with past practices. 5.2 ADVICE OF CHANGES. Each Party shall promptly advise the other Party in writing of (a) any event occurring subsequent to the date of this Agreement that would render any representation or warranty of AIC contained in SECTION 3 or Xtrana contained in SECTION 4 untrue or inaccurate such that the condition set forth in SECTIONS 7.2 or 7.3 would not be satisfied, (b) any breach of any covenant or obligation of AIC or Xtrana pursuant to this Agreement such that the condition set forth in SECTIONS 7.2 and 7.3 would not be satisfied, (c) any Material Adverse Change or Effect in AIC or Xtrana, or (d) any change, event, circumstance, condition or effect that would reasonably be expected to result in a Material Adverse Change or Effect on AIC or Xtrana or cause any of the conditions set forth in SECTIONS 7.2 or 7.3 not to be satisfied, including any communication related to the ABI Agreements; PROVIDED, HOWEVER, that the delivery of any notice pursuant to this SECTION 5.2 shall not be deemed to amend or supplement the AIC or Xtrana Disclosure Schedule. 5.3 SEC REPORTS. Xtrana shall use commercially reasonable efforts to (a) cause the forms, reports, schedules, statements and other documents required to be filed with the SEC by Xtrana between the date of this Agreement and the Effective Time to be filed in a timely manner and (b) remain a "reporting person" for purposes of the Exchange Act. 6. ADDITIONAL AGREEMENTS. 6.1 PROMISSORY NOTE. As soon as reasonably practicable, but in any event within two (2) business days, following the completion by AIC of the Note Conversion and delivery of evidence satisfactory to Xtrana and its counsel that all obligations under all convertible promissory notes of AIC outstanding as of the date hereof have been satisfied in full, Xtrana shall make a loan to AIC in the amount of $500,000, in exchange for execution and delivery of the Promissory Note and the Security Agreement (as defined in the Promissory Note) by AIC to Xtrana. The issuance of the Promissory Note, the borrowing of the amounts thereunder and the grant of the liens contemplated by the Promissory Note and the Security Agreement by AIC are expressly consented to by the Parties an shall not constitute a breach of SECTION 5.1 of this Agreement. 6.2 AIC AUDIT. As soon as practicable following the execution and delivery of this Agreement but in no event later March 31, 2005, AIC shall cause its consolidated financial statements for the fiscal years ended December 31, 2004 and 2003 to be audited (the "AIC AUDITED FINANCIAL STATEMENTS") by a firm of independent certified public accountants (the "INDEPENDENT ACCOUNTANTS") and the Independent Accountants shall have consented to the inclusion of the AIC Audited Financial Statements, including the Independent Accountants' A-33 report thereon, in the Proxy Statement to be filed by Xtrana with the SEC and delivered to the Xtrana stockholders. The AIC Audited Financial Statements shall comply with all applicable requirements of the Exchange Act and the rules and regulations of the SEC so that they may be included by Xtrana in the Proxy Statement and any other filings required to be made by Xtrana with the SEC. Xtrana will pay the fees and expenses of the Independent Accountants for the audit of the AIC Audited Financial Statements and providing their consent for inclusion of the AIC Audited Financial Statements in the Proxy Statement (the "AUDIT FEES") upon submission of invoices by AIC. 6.3 FAIRNESS HEARING. Promptly after execution of this Agreement, the Parties will use commercially reasonable efforts to take, or cause to be taken, all actions and to do, or cause to be done, all things, including preparation and filing with the California Commissioner of Corporations of the documents required by the California Corporations Code, including but not limited to any required Permit Application, request for a hearing ("HEARING REQUEST") or notice of a hearing ("HEARING NOTICE") pursuant to Sections 25121 and 25142 of the California Corporations Code (collectively the "NOTICE MATERIALS"), in connection with the Merger and the issuance of the Merger Consideration and the assumption or replacement of the Assumed Options and Warrants, in order to perfect the exemption from registration provided by Section 3(a)(10) of the Securities Act. Each Party will use commercially reasonable efforts to have the Permit Application, Hearing Request and Hearing Notice declared effective and to obtain the permit of the California Commissioner of Corporation under the California Corporations Code (the "PERMIT") as promptly as practicable after such filing. Each of the Parties will promptly provide all information relating to their respective business and operations necessary for inclusion in the Notice Materials to satisfy all requirements of applicable state and federal securities laws. Each of the Parties will be solely responsible for any statement, information or omission in the Notice Materials relating to it or its Affiliates upon the written information furnished by it or its representatives. 6.4 STOCKHOLDER APPROVALS. 6.4.1 AIC SHAREHOLDERS' APPROVAL. AIC shall, as promptly as practicable following obtaining the Permit, duly submit this Agreement and the transactions contemplated by this Agreement to the AIC Shareholders for approval and adoption. In connection with the Merger, this Agreement and the other transactions contemplated hereby, the Board of Directors of AIC shall (i) recommend to the AIC Shareholders that they consent to, and use all commercially reasonable efforts to obtain the approvals by the AIC Shareholders, of the Merger, this Agreement and the other transactions contemplated hereby, and (ii) otherwise comply with all requirements of applicable law and AIC's Articles of Incorporation and Bylaws in connection with obtaining the AIC Shareholders' Approval. AIC shall prepare and distribute to the AIC Shareholders a consent solicitation disclosure statement in connection with the solicitation of consents to obtain the AIC Shareholders' Approval, and shall provide Xtrana a reasonable period of time to review the disclosure statement prepared in connection with such consent solicitation prior to the delivery of such disclosure statement to the AIC Shareholders. 6.4.2 XTRANA STOCKHOLDERS' MEETING. Xtrana shall, as promptly as practicable following the delivery of the AIC Audited Financial Statements, duly call, give notice of, convene and hold a meeting of its stockholders (the "XTRANA STOCKHOLDERS' MEETING") A-34 for the purpose of approving (a) the Merger pursuant to this Agreement and the other transactions contemplated by this Agreement, (b) the change of its corporate name to Alpha Innotech Corp., and (c) the authorization of a one-for-ten reverse split of the Xtrana Common Stock to effected immediately prior the Effective Time (the "REVERSE STOCK SPLIT"). In connection with the Merger, this Agreement and the other transactions contemplated hereby, the Board of Directors of Xtrana shall (i) recommend to the stockholders of Xtrana that they consent to, and use all commercially reasonable efforts to obtain the approvals by the stockholders of Xtrana, of the Merger, this Agreement and the other transactions contemplated hereby, and (ii) otherwise comply with all requirements of applicable law and Xtrana's Certificate of Incorporation and Bylaws in connection with obtaining the Xtrana Shareholders' Approval. 6.5 BOARD OF DIRECTORS AND OFFICERS FOLLOWING CLOSING. 6.5.1 BOARD OF DIRECTORS. Xtrana covenants and agrees to take all actions necessary such that, immediately following the Closing, the Board of Directors of Xtrana shall consist of the following individuals: Nagesh Mhatre, Ph.D. William Snider Haseeb Chaudhry Michael Bick, Ph.D. Darryl Ray, Ph.D. James Chamberlain who shall serve as the directors of Xtrana, each of such directors to hold office, subject to the applicable provisions of the Certificate of Incorporation and Bylaws of Xtrana, in each case, until their respective successors shall have been elected and qualified or until otherwise provided by law. All other directors of Xtrana immediately prior to the Effective Time shall resign, effective as of the Effective Time. 6.5.2 OFFICERS. Each of the Parties covenants and agrees to take all actions necessary such that, immediately following the Closing, the officers of Xtrana immediately prior to the Effective Time shall resign and shall be replaced by the following individuals: Haseeb Chaudhry........... Chief Executive Officer Darryl Ray, Ph.D.......... President, Chief Financial Officer and Chief Operating Officer who shall serve as officers of Xtrana subject to the applicable provisions of the Certificate of Incorporation and Bylaws of Xtrana, in each case, until their respective successors shall have been duly appointed or until otherwise provided by law. 6.6 ACCESS TO INFORMATION; CONFIDENTIALITY. 6.6.1 ACCESS. Each of Xtrana and AIC shall, and shall (a) cause its officers, employees, counsel, financial advisors and other representatives to, afford to the other Party and its representatives reasonable access during normal business hours during the period prior to the Effective Time to its properties, books, contracts, commitments, personnel and records and (b) during such period, cause its officers, employees and representatives to, furnish A-35 promptly to the other Party all information concerning its business, properties, financial condition, operations and personnel as such other Party may from time to time reasonably request. Except as required by law, each of AIC and Xtrana will hold, and will cause its respective directors, officers, employees, accountants, counsel, financial advisors and other representatives and Affiliates to hold, any nonpublic information in strict confidence and in accordance with the provisions of the Nondisclosure Agreement dated August 30, 2004 between AIC and Xtrana. 6.6.2 LIMITATIONS. No investigation pursuant to this SECTION 6.6 shall affect any representations or warranties of the parties herein or the conditions to the obligations of the parties hereto. 6.7 COMMERCIALLY REASONABLE EFFORTS. Upon the terms and subject to the conditions set forth in this Agreement, each of the parties agrees to use its commercially reasonable efforts to take, or cause to be taken, all actions, and to do, or cause to be done, and to assist and cooperate with the other parties in doing, all things necessary, proper or advisable to consummate and make effective, in the most expeditious manner practicable, the Merger and the other transactions contemplated by this Agreement. Xtrana and AIC will use their commercially reasonable efforts and cooperate with one another (i) in promptly determining whether any filings are required to be made or consents, approvals, waivers, permits or authorizations are required to be obtained (or, which if not obtained, would result in an event of default, termination or acceleration of any agreement or any put right under any agreement) under any applicable law or regulation or from any Governmental Entities or third parties, including parties to loan agreements or other debt instruments and including such consents, approvals, waivers, permits or authorizations as may be required to transfer the assets and related liabilities of AIC to the Surviving Corporation in the Merger, in connection with the transactions contemplated by this Agreement, and (ii) in promptly making any such filings, in furnishing information required in connection therewith and in timely seeking to obtain any such consents, approvals, permits or authorizations. 6.8 PUBLIC ANNOUNCEMENTS. No party will issue any press release or other statements to any third party (other than to their respective agents) with respect to the transactions contemplated by this Agreement without the express written consent of the other parties, except as may be advised by counsel is necessary under applicable securities laws. 6.9 PREPARATION OF PROXY STATEMENT. Xtrana shall prepare and file with the SEC promptly after receiving the AIC Audited Financial Statement, the Proxy Statement with such assistance from AIC as may be required. If at any time prior to the Effective Time of the Merger any event shall occur that should be set forth in an amendment or a supplement to the Proxy Statement, Xtrana shall prepare and file with the SEC such amendment or supplement as soon thereafter as is reasonably practicable. Xtrana and AIC shall cooperate with each other in the preparation of the Proxy Statement, and Xtrana shall notify AIC of the receipt of any comments of the SEC with respect to the Proxy Statement and of any requests by the SEC for any amendment or supplement thereto or for additional information, and shall provide to AIC promptly copies of all correspondence between the Xtrana or any representative of Xtrana and the SEC with respect to the Proxy Statement. Xtrana shall give AIC and its counsel reasonable opportunity to review the Proxy Statement and all responses to requests for additional A-36 information by and replies to comments of the SEC before their being filed with, or sent to, the SEC. Each of Xtrana and AIC agrees to use commercially reasonable efforts, after consultation with the other parties hereto, to respond promptly to all such comments of and requests by the SEC and to cause the Proxy Statement to be mailed to the holders of Xtrana Common Stock entitled to vote at the Xtrana Stockholders' Meeting at the earliest practicable time. 6.10 AMENDING SCHEDULES. From time to time prior to the Closing, the Parties shall promptly supplement or amend AIC Disclosure Schedules or Xtrana Disclosure Schedules, as applicable, hereto with respect to any matter arising after the date of this Agreement which, if existing or occurring at the date of this Agreement, would have been required to have been set forth in AIC Disclosure Schedules or Xtrana Disclosure Schedules, as applicable. Such supplement or amendment shall have the effect of curing any related misrepresentation or breach of warranty made in connection with the transactions contemplated by this Agreement; PROVIDED, HOWEVER, each Party shall have a five (5) business days following receipt of any supplemented or amended AIC Disclosure Schedules or Xtrana Disclosure Schedules, as applicable, which supplement or amend the AIC Disclosure Schedules or Xtrana Disclosure Schedules, as applicable, in a material respect to elect (a) to terminate this Agreement without any further liability to any other Party hereunder, or (b) in such non-amending Party's sole discretion, to elect to waive such breach and consummate the transactions contemplated by this Agreement. 6.11 DEFERRED COMPENSATION. At the Closing, AIC's aggregate obligations for all deferred compensation shall be not more than $550,000 (the "DEFERRED COMPENSATION"). A schedule of the Deferred Compensation will be delivered by AIC to Xtrana prior the Closing and will be attached to this Agreement as SCHEDULE 6.11. At or promptly following the Closing, the Surviving Corporation or Xtrana may pay up to a total of $100,000 of the Deferred Compensation. Following the Closing, the Surviving Corporation and Xtrana shall be permitted to pay up to a total $30,000 of the Deferred Compensation per month; PROVIDED, HOWEVER, that no payment of any Deferred Compensation shall be permitted to the extent such payment would result in Xtrana having less than $1.7 million in cash following the payment. Notwithstanding the foregoing, all remaining Deferred Compensation may be paid by the Surviving Corporation or Xtrana at any time after June 30, 2006. 6.12 EXPENSES. Except as expressly provided in this Agreement, all costs and expenses incurred in connection with this Agreement and the transactions contemplated hereby shall be paid by the Party incurring such expenses. 6.13 NO SOLICITATION. Except as previously agreed to in writing by the other Party, neither AIC nor Xtrana nor any of their respective officers, directors, agents, representatives, or advisors shall solicit, initiate or encourage or take any action to facilitate the submission of inquiries, proposals or offers from any Person relating to any matter concerning any merger, consolidation, business combination, acquisition of all or any material part of the assets, business or stock, recapitalization or similar transaction involving AIC or Xtrana, respectively, other than the transaction contemplated by this Agreement or any other transaction the consummation of which would or could reasonably be expected to impede, interfere with, prevent or delay the Merger or which would or could be expected to dilute the benefits to AIC of the transactions contemplated hereby. AIC or Xtrana will immediately cease and cause to be A-37 terminated any existing activities, discussions and negotiations with any parties conducted heretofore with respect to any of the foregoing. 6.14 DILUTIVE FINANCINGS. From the Effective Date and for a period of twelve (12) months thereafter, Xtrana shall not, directly or indirectly, without the unanimous approval of the Xtrana Board of Directors, offer or sell any shares of Xtrana Common Stock, securities convertible, exercisable or exchangeable for Xtrana Common Stock or other equity securities of Xtrana at a price per share of Xtrana Common Stock issued (or issuable upon exercise, conversion or exchange of such other securities) less than one hundred ten percent (110%) of the Market Price; PROVIDED, HOWEVER, that the foregoing restriction shall not apply to shares of Xtrana Common Stock (or options to purchase such shares of Xtrana Common Stock) issued or issuable at not less than fair market value to officers, employees, or directors of, or consultants to, Xtrana pursuant to any stock purchase or option plan or other employee stock bonus arrangement or other similar agreement as approved by Xtrana Board of Directors or upon exercise or conversion of any securities convertible, exercisable or exchangeable for Xtrana Common Stock outstanding on the Closing Date. 6.15 TAX REPORTING. Consistent with the intent of the parties hereto, each of AIC and Xtrana shall treat, and cause its Affiliates to so treat, the Merger as a reorganization under Section 368(a) with respect to all Tax Returns, to the extent consistent with law. 6.16 FURTHER ASSURANCES. Each of Xtrana and AIC shall, and shall cause its Subsidiaries to, execute such further actions as may reasonably be requested by the other in order to consummate the Merger and other transaction contemplated by this Agreement and to use commercially reasonable efforts to take or cause to be taken all actions, and to do or cause to be done all things, necessary, proper or advisable under applicable laws and regulations to consummated and make effective the Merger and the other transactions contemplated hereby, including fully cooperating with the other in obtaining required statutory approvals and authorization of any Governmental Entities necessary or advisable to consummate the transactions contemplated hereby. 7. CONDITIONS PRECEDENT. 7.1 CONDITIONS TO EACH PARTY'S OBLIGATION TO EFFECT THE MERGER. The respective obligations of each Party to effect the Merger is subject to the satisfaction or waiver on or prior to the Closing Date of the following conditions: 7.1.1 STOCKHOLDER APPROVAL. The Xtrana Stockholders' Approval shall have been obtained. 7.1.2 FAIRNESS HEARING. Xtrana shall have been issued a permit from the California Department of Corporations with respect to the issuance of Xtrana Common Stock pursuant to this Agreement, and such permit shall be in full force and effect. 7.1.3 NO INJUNCTIONS OR RESTRAINTS. No temporary restraining order, preliminary or permanent injunction or other order issued by any court of competent jurisdiction or other legal restraint or prohibition preventing the consummation of the Merger shall be in effect. A-38 7.1.4 REVERSE STOCK SPLIT. Xtrana shall have effected the Reverse Stock Split. 7.2 CONDITIONS TO OBLIGATIONS OF XTRANA. The obligations of Xtrana to effect the Merger are further subject to the following conditions: 7.2.1 REPRESENTATIONS AND WARRANTIES. The representations and warranties of AIC set forth in this Agreement shall be true and correct in all material respects, in each case as of the date of this Agreement and as of the Closing Date as though made on and as of the Closing Date, unless made as of another date, in which case they shall be true and correct in all material respects as of such date. 7.2.2 PERFORMANCE OF OBLIGATIONS OF AIC. AIC shall have performed in all material respects all obligations required to be performed by it under this Agreement at or prior to the Closing Date. 7.2.3 NO MATERIAL ADVERSE CHANGE. Since the date hereof there must have been no event, series of events or the lack of occurrence thereof which, singularly or in the aggregate, could reasonably be expected to have a Material Adverse Effect on AIC. 7.2.4 CONSENTS, ETC. Xtrana shall have received evidence, in form and substance reasonably satisfactory to it, that such licenses, permits, consents, approvals, authorizations, qualifications and orders of Governmental Entities and other third parties as necessary in connection with the transactions contemplated hereby have been obtained. 7.2.5 SHAREHOLDER APPROVAL. The AIC Shareholders' Approval shall have been obtained by a vote of holders at least 90% of the issued and outstanding AIC Shares. 7.2.6 NO DISSENTERS. No AIC Shareholders shall have dissented to the Merger or be entitled to exercise dissenters' rights in connection with the Merger. 7.2.7 NO LITIGATION. There shall not be pending or threatened by any Governmental Entity any suit, action or proceeding (or by any other Person any suit, action or proceeding which has a reasonable likelihood of success) challenging or seeking to restrain or prohibit the consummation of the Merger. 7.2.8 CONVERSION OF CONVERTIBLE NOTES. All convertible notes or other convertible debt obligations of AIC shall have been converted into equity securities of AIC prior the Closing. 7.2.9 DEFERRED COMPENSATION. AIC's aggregate obligations for all deferred compensation shall be not more than $550,000. 7.2.10 LEGAL OPINION. Xtrana shall have received the legal opinion of counsel to AIC, in substantially the form of EXHIBIT F hereto. 7.2.11 OFFICER'S CERTIFICATE. Xtrana shall have received an officer's certificate, substantially in the form of EXHIBIT D, duly executed on AIC's behalf. A-39 7.2.12 SECRETARY'S CERTIFICATE. Xtrana shall have received a Secretary's certificate, substantially in the form of EXHIBIT E, duly executed on AIC's behalf. 7.2.13 TERMINATION OF AIC SHAREHOLDER AGREEMENTS. Each of (a) that certain Alpha Innotech Corporation Amended and Restated Information and Registration Rights Agreement among AIC and the persons listed on Exhibit A thereto and (b) that certain Alpha Innotech Corporation Amended and Restated Voting Agreement among AIC and the AIC Shareholders (in each case, as such agreements may be amended in connection with the Note Conversion or otherwise), shall have been terminated or shall automatically terminate at the Effective Time. 7.3 CONDITIONS TO OBLIGATION OF AIC. The obligation of AIC to effect the Merger is further subject to the following conditions: 7.3.1 REPRESENTATIONS AND WARRANTIES. The representations and warranties of Xtrana set forth in this Agreement shall be true and correct in all material respects, in each case as of the date of this Agreement and as of the Closing Date as though made on and as of the Closing Date, unless made as of another date, in which case they shall be true and correct in all material respects as of such date. 7.3.2 PERFORMANCE OF OBLIGATIONS OF XTRANA. Xtrana shall have performed in all material respects all obligations required to be performed by it under this Agreement at or prior to the Closing Date. 7.3.3 NO MATERIAL ADVERSE CHANGE. Since the date hereof there must have been no event, series of events or the lack of occurrence thereof which, singularly or in the aggregate, could reasonably be expected to have a Material Adverse Effect on Xtrana. 7.3.4 CONSENTS, ETC. AIC shall have received evidence, in form and substance reasonably satisfactory to it, that such licenses, permits, consents, approvals, authorizations, qualifications and orders of Governmental Entities and other third parties as necessary in connection with the transactions contemplated hereby have been obtained. 7.3.5 NO LITIGATION. There shall not be pending or threatened by any Governmental Entity any suit, action or proceeding (or by any other Person any suit, action or proceeding which has a reasonable likelihood of success) challenging or seeking to restrain or prohibit the consummation of the Merger. 7.3.6 RESIGNATIONS. Xtrana shall deliver to AIC written resignations of the members of the Xtrana Board of Directors not continuing as directors following the Effective Time and of all of the officers of Xtrana, as required by SECTION 6.5. 7.3.7 NAME CHANGE. Xtrana shall have changed its corporate name, as of the Closing, to "Alpha Innotech Corp.". 7.3.8 LEGAL OPINION. AIC shall have received the legal opinion of counsel to Xtrana, in substantially the form of EXHIBIT I hereto. A-40 7.3.9 OFFICER'S CERTIFICATE. AIC shall have received an officer's certificate, substantially in the form of EXHIBIT G, duly executed on Xtrana's behalf. 7.3.10 SECRETARY'S CERTIFICATE. AIC shall have received a Secretary's certificate, substantially in the form of EXHIBIT H, duly executed on Xtrana's behalf. 7.3.11 CASH AND CASH EQUIVALENTS. The cash and cash equivalents less current liabilities of Xtrana on the Closing Date shall be not less than the Minimum Closing Date Cash and AIC shall have received a certificate from Xtrana to such effect signed by a duly authorized officer. 8. TERMINATION. 8.1 TERMINATION. This Agreement may be terminated and abandoned at any time prior to the Effective Time: 8.1.1 by mutual written consent of Xtrana and AIC; 8.1.2 by either Xtrana or AIC if any Governmental Entity shall have issued an order, decree or ruling or taken any other action permanently enjoining, restraining or otherwise prohibiting the Merger and such order, decree, ruling or other action shall have become final and nonappealable; 8.1.3 by either Xtrana or AIC if the Merger shall not have been consummated on or before July 31, 2005 (other than as a result of the failure of the Party seeking to terminate this Agreement to perform its obligations under this Agreement required to be performed at or prior to the Effective Time); 8.1.4 by Xtrana, if a Material Adverse Change shall have occurred relative to AIC; 8.1.5 by Xtrana, if AIC materially breaches any of its representations and warranties contained in this Agreement or willfully fails to perform in any material respect any of its material obligations under this Agreement, which failure or breach is not cured within ten (10) days after Xtrana has notified AIC of its or their intent to terminate this Agreement pursuant to this SECTION 8.1.5; 8.1.6 by Xtrana, if the AIC Shareholders do not approve and adopt the Merger and the transactions contemplated by this Agreement under the CGCL; 8.1.7 by AIC, if a Material Adverse Change shall have occurred relative to Xtrana; 8.1.8 by AIC, if Xtrana materially breaches any of its representations and warranties contained in this Agreement willfully fails to perform in any material respect any of its material obligations under this Agreement, in each case, which failure or breach is not cured within ten (10) days after AIC has notified Xtrana of its or their intent to terminate this Agreement pursuant to this SECTION 8.1.7; and A-41 8.1.9 by AIC, if the stockholders of Xtrana vote to reject the approval and adoption of the Merger and the transactions contemplated by this Agreement under the CGCL and the Delaware General Corporation Code. 8.2 TERMINATION FEE. 8.2.1 If this Agreement is terminated by: (i) AIC pursuant to SECTIONS 8.1.3, 8.1.7, 8.1.8 or 8.1.9 or (ii) Xtrana pursuant to SECTION 8.1.3, then Xtrana shall pay $100,000 to AIC by offset against the obligations of AIC to Xtrana pursuant to the Promissory Note, in each case to compensate AIC for, among other things, its expenses and management time in pursuing the transactions contemplated by this Agreement and for lost opportunity costs. 8.2.2 If this Agreement is terminated for any reason, then the Promissory Note shall become due and payable on the date that is six months from the date of such termination and in accordance with its terms. 8.3 EFFECT OF TERMINATION. In the event of termination of this Agreement by either AIC or Xtrana as provided in SECTION 8.1, this Agreement shall forthwith become void and have no effect, without any liability or obligation on the part of Xtrana or AIC, other than the provisions of the last sentence of SECTION 6.6.1, SECTION 8.2, SECTION 8.4, SECTION 10 and this SECTION 8.3. Nothing contained in this Section shall relieve any Party for any breach of the representations, warranties, covenants or agreements set forth in this Agreement. 8.4 RETURN OF DOCUMENTS. In the event of termination of this Agreement for any reason, Xtrana and AIC will return to the other Party all of the other Party's documents, work papers, and other materials (including copies) relating to the transactions contemplated in this Agreement, whether obtained before or after execution of this Agreement. Xtrana and AIC will not use any information so obtained from the other Party for any purpose and will take all reasonable steps to have such other Party's information kept confidential. 9. INDEMNIFICATION AND RELATED MATTERS. 9.1 SURVIVAL. All representations, warranties, covenants and agreements of contained in this Agreement or in any certificate delivered pursuant to this Agreement shall survive the Closing for a period ending on March 31, 2006. 9.2 TIME LIMITATIONS. Neither Xtrana nor AIC shall have any liability (for indemnification or otherwise) with respect to any representation or warranty, or agreement to be performed and complied with prior to the Effective Time, unless on or before March 31, 2006 (the "CLAIMS DEADLINE"), the indemnifying party is given written notice of a claim with respect thereto, in accordance with SECTION 9.5, specifying the factual basis therefor in reasonable detail to the extent then known by the party claiming indemnification hereunder. 9.3 INDEMNIFICATION. 9.3.1 BY XTRANA. Subject to SECTION 9.4, Xtrana shall indemnify and hold harmless the AIC Indemnified Parties, and shall reimburse the AIC Indemnified Parties for, any loss, liability, claim, damage, expense (including, but not limited to, costs of investigation A-42 and defense and reasonable attorneys' fees) or diminution of value (collectively, "DAMAGES") arising from or in connection with (a) any inaccuracy, in any material respect, in any of the representations and warranties of Xtrana in this Agreement or in any certificate delivered by Xtrana to AIC pursuant to this Agreement, (b) any failure by Xtrana to perform or comply in any material respect with any agreement in this Agreement, (c) any claim by any Person for brokerage for finder's fees or commissions or similar payments based upon any agreement or understanding alleged to have been made by any such Person with Xtrana (or any Person acting on their behalf) in connection with any of the transactions contemplated by this Agreement, or (d) any litigation, action, claim, proceeding or investigation by any third party relating to or arising out of the business or operations of Xtrana, or the actions of Xtrana, its officers or directors or any holder of Xtrana capital stock prior to the Effective Time, including any Damages relating to or arising out of a claim by ABI, against Xtrana for indemnification pursuant to the Assignment Agreement to the extent is relates to a breach occurring prior to the Effective Time; PROVIDED, HOWEVER, AIC shall not be entitled to indemnification from Xtrana hereunder for any Damages arising from or in connection with a claim by ABI against Xtrana for indemnification under the Assignment Agreement for a breach of any covenant contained in the Assignment Agreement occurring after the Effective Time or for recovery of any costs incurred by ABI as a result of a any such breach. After the Effective Time the Xtrana Post-Merger Representative shall act as the agent of the Xtrana Indemnified Parties for purposes of representing and protecting their interests under this SECTION 9. The Parties shall cooperate with Xtrana's Post-Merger Representative in connection with the reasonable performance of its responsibilities hereunder, including by providing it with access to information about Xtrana and the Surviving Corporation that is reasonably necessary for it to determine whether a claims for indemnification hereunder should be made. 9.3.2 BY AIC. Subject to SECTION 9.4, AIC shall indemnify and hold harmless the Xtrana Indemnified Parties, and shall reimburse the Xtrana Indemnified Parties for, any Damages arising from or in connection with (a) any inaccuracy, in any material respect, in any of the representations and warranties of AIC in this Agreement or in any certificate delivered by AIC to Xtrana pursuant to this Agreement, (b) any failure by AIC to perform or comply in any material respect with any agreement in this Agreement, (c) any claim by any Person for brokerage for finder's fees or commissions or similar payments based upon any agreement or understanding alleged to have been made by any such Person with AIC (or any Person acting on their behalf) in connection with any of the transactions contemplated by this Agreement, or (d) any litigation, action, claim, proceeding or investigation by any third party relating to or arising out of the business or operations of AIC, or the actions of AIC its officers or directors or any holder of AIC capital stock prior to the Effective Time, including without limitation any Damages relating to or arising out of any claim for patent infringement by or on behalf of Oxford Gene Technology (relating to U.S. Patents Nos. 5,436,327, 6,054,270, 5,700,637 and 6,307,039), Perkin-Elmer Life Science (relating to U.S. Patent No. 4,874,492), or Clare Chemical Research, Inc. (relating to U.S. Patents No. 6,512,236 and 6,198,107). After the Effective Time the AIC Post-Merger Representative shall act as the agent of the AIC Indemnified Parties for purposes of representing and protecting their interests under this SECTION 9. The Parties shall cooperate with AIC's Post-Merger Representative in connection with the reasonable performance of its responsibilities hereunder, including by providing it with access to information about Xtrana or the Surviving Corporation that is reasonably necessary for it to determine whether a claims for indemnification hereunder should be made. A-43 9.4 LIMITATION ON CLAIMS. No claims shall be payable under this SECTION 9 with respect to any Damages unless and until the aggregate Damages owing under this SECTION 9 in respect of any Indemnitee (as defined below) exceed $100,000, in which case the Indemnitee shall be entitled to indemnification from the indemnifying party for all Damages without regard to such threshold. As used herein, an "INDEMNITEE" means one or more of the AIC Indemnified Parties or the Xtrana Indemnified Parties to the extent that such parties seek indemnification from the other pursuant to this SECTION 9. The Xtrana Indemnified Parties' sole and exclusive remedy for indemnification claims against AIC under this Agreement shall consist of its right to set off any Damages against the Holdback Shares and the AIC Indemnified Parties' sole and exclusive remedy for indemnification claims against Xtrana under this Agreement shall consist of their right to receive additional shares of Xtrana Common Stock out of the AIC Indemnification Shares, in either case pursuant to the procedure described in SECTION 9.5 hereof. No claims shall be payable with respect to any representation or warranty unless such claim is asserted in writing within twelve (12) months after the Closing Date (the "INDEMNIFICATION TERMINATION PERIOD"). For the purposes of this SECTION 9.4 a month shall be deemed to elapse at 5:00 p.m. California time on the day of the month on which the Closing Date occurred. (For example, if the Effective Time occurs on March 15, 2005, the sixth month would be deemed to elapse at 5:00 p.m. California time on September 15, 2005.) All Holdback Shares not then subject to indemnification claims under SECTION 9.3.2 hereof shall be released to the AIC's pre-Merger shareholders pursuant to the terms of the Escrow Agreement upon the expiration of the Indemnification Termination Period. All AIC Indemnification Shares not then subject to indemnification claims under SECTION 9.3.1 hereof shall be released from escrow and permanently cancelled pursuant to the Escrow Agreement upon the expiration of the Indemnification Termination Period. 9.5 COMPENSATION FOR INDEMNIFIED LOSSES. 9.5.1 NOTICE OF CLAIM. Losses for which Indemnitees are entitled to indemnification under this SECTION 9 shall, after the Merger, be reimbursed as determined pursuant to this SECTION 9.5. To initiate a claim, the Indemnitee shall deliver a notice of claim to the Xtrana Post-Merger Representative or the AIC Post-Merger Representative, as applicable. The notice shall include a description in reasonable detail of the amount and nature of any Damages that the Indemnitee claims have been suffered and the amount thereof sought to be indemnified. If the party from which indemnification is sought decides to dispute the claim, it shall, within thirty (30) days after receipt of the notice or claim, give counter-notice to the Indemnitee setting forth in reasonable detail the basis for disputing the claim. If, within thirty (30) days after the giving of a counter-notice by party form which indemnification is sought, the parties have not reached agreement as to the indemnification claim in question, then the claim for indemnification shall be submitted to and be settled by arbitration as provided below. If the AIC Post-Merger Representative submitted the claim, and no counter-notice is given, the AIC Indemnified Party shall receive such number of AIC Indemnification Shares that when multiplied by the Market Price is equal to the amount of the award, up to a maximum of the number of AIC Indemnification Shares not previously issued pursuant to this SECTION 9.5. If Xtrana's Post-Merger Representative submitted the claim, and no counter-notice is given, the number of Holdback Shares shall be permanently reduced by that number of shares, that when multiplied by the Market Price is equal to the amount of the award, up to a maximum of the A-44 number of Holdback Shares not previously cancelled and removed from escrow as a result of indemnification awards pursuant to this SECTION 9. 9.5.2 INDEMNIFICATION AWARDS. If an AIC Indemnified Party is entitled to an indemnification award, such party shall receive such number of AIC Indemnification Shares that when multiplied by the Market Price is equal to the amount of the award, up to a maximum of the number of AIC Indemnification Shares not previously issued pursuant to this SECTION 9. If an Xtrana Indemnified Party is entitled to an indemnification award, it shall permanently reduce the number of Holdback Shares by that number of Holdback Shares, that when multiplied by the Market Price is equal to the amount of the award, up to a maximum of the number of Holdback Shares not previously cancelled and removed from escrow as a result of indemnification awards pursuant to this SECTION 9. 9.6 SOLE REMEDY. Other than claims based on fraud or for specific performance, injunctive or other equitable relief, the indemnity provided in this SECTION 9 shall be the sole and exclusive remedy of the parties hereto at law or equity for any matter covered by SECTION 9.3. 9.7 INDEMNIFICATION OF POST-MERGER REPRESENTATIVES. Each of the Post-Merger Representatives shall be indemnified and held harmless by Xtrana and the Surviving Corporation for all actions taken in connection with this SECTION 9 to the fullest extent permitted by applicable law. 10. GENERAL PROVISIONS. 10.1 POST-MERGER REPRESENTATIVES. 10.1.1 AIC POST-MERGER REPRESENTATIVE. By approval of this Agreement, each of the AIC Shareholders appoints the AIC Post-Merger Representative as the true and lawful agent and attorney-in-fact of such Person with full powers of substitution to act in the name, place and stead of such Person with respect to the performance on behalf of such Person under terms and provisions of this Agreement and the Escrow Agreement, as the same may be from time to time amended, and to do or refrain from doing all such further acts and things, and to execute all such documents, as the AIC Post-Merger Representative shall deem necessary or appropriate in connection with any of the transactions contemplated under this Agreement and the Escrow Agreement. 10.1.2 XTRANA POST-MERGER REPRESENTATIVE. By approval of this Agreement, each of the stockholders of Xtrana approving this Agreement and the Merger appoints the Xtrana Post-Merger Representative as the true and lawful agent and attorney-in-fact of such Person with full powers of substitution to act in the name, place and stead of such Person with respect to the performance on behalf of such Person under terms and provisions of this Agreement and the Escrow Agreement, as the same may be from time to time amended, and to do or refrain from doing all such further acts and things, and to execute all such documents, as the Xtrana Post-Merger Representative shall deem necessary or appropriate in connection with any of the transactions contemplated under this Agreement and the Escrow Agreement. A-45 10.1.3 RELIANCE ON EXPERTS; LIMITATION OF LIABILITY. Each of the Post-Merger Representative shall act for the AIC Shareholders or Xtrana stockholders, as applicable, on all of the matters set forth in this Agreement and the Escrow Agreement in the manner such Post-Merger Representative believes to be in the best interest of such Persons; PROVIDED, HOWEVER, that (i) such Post-Merger Representative shall be entitled to rely on the advice of counsel, public accountants or other independent experts experienced in the matter at issue, and any error in judgment or other act or omission of such Post-Merger Representative pursuant to such advice will not subject such Post-Merger Representative to liability to any such Person, and (ii) such Post-Merger Representative shall not be responsible to any such Person for any loss or damage any such Person may suffer by reason of the performance by such Post-Merger Representative of such Person's duties under this Agreement or the Escrow Agreement, other than loss or damage arising from willful misconduct in the performance of such Post-Merger Representative's duties under this Agreement or the Escrow Agreement. 10.2 AMENDMENT. This Agreement may not be amended except by an instrument in writing signed on behalf of each of the Parties. 10.3 EXTENSION; WAIVER. The Parties may (a) extend the time for the performance of any of the obligations or other acts of the other Parties, (b) waive any inaccuracies in the representations and warranties contained in this Agreement or in any document delivered pursuant to this Agreement, or (c) waive compliance with any of the agreements or conditions contained in this Agreement. Any agreement on the part of a Party to any such extension or waiver shall be valid only if set forth in an instrument in writing signed on behalf of such Party. The failure of any Party to assert any of its rights under this Agreement or otherwise shall not constitute a waiver of such rights. 10.4 NOTICES. All notices, requests, claims, demands and other communications under this Agreement shall be in writing and shall be deemed given if delivered Personally or sent by facsimile, electronic mail, or overnight courier (providing proof of delivery) to the parties at the following addresses (or at such other address for a Party as shall be specified by like notice): if to AIC, to: Alpha Innotech Corporation 2401 Merced St. San Leandro, CA 94577 Attn: Chief Executive Officer Fax: 510-483-3227 with a copy to (which shall not constitute notice): Heller Ehrman White & McAuliffe LLP 4350 La Jolla Village Drive, 7th Floor San Diego, CA 92122 Attn: Stephen Ferruolo, Esq. Fax: (858) 450-8499 A-46 if to Xtrana or MergerCo, to: Xtrana, Inc. c/o James H. Chamberlain, CEO 733 Spruce Meadow Place Thousand Oaks, CA 91362 Fax: (805) 494-0832 with a copy to (which shall not constitute notice): Stubbs Alderton & Markiles, LLP 15821 Ventura Blvd., Suite 525 Encino, CA 91436 Attn: Scott Alderton, Esq. Fax: (818) 444-4520 10.5 INTERPRETATION. When a reference is made in this Agreement to a Section, Exhibit or Schedule, such reference shall be to a Section of, or an Exhibit or Schedule to, this Agreement unless otherwise indicated. The headings contained in this Agreement are for reference purposes only and shall not affect in any way the meaning or interpretation of this Agreement. Whenever the words "include", "includes" or "including" are used in this Agreement, they shall be deemed to be followed by the words "without limitation". 10.6 ENTIRE AGREEMENT; NO THIRD-PARTY BENEFICIARIES. This Agreement and the other agreements referred to herein constitute the entire agreement, and supersede all prior agreements and understandings, both written and oral, among the parties with respect to the subject matter of this Agreement. Except as expressly provided herein, this Agreement is not intended to confer upon any Person other than the parties any rights or remedies. 10.7 GOVERNING LAW. This Agreement shall be governed by, and construed in accordance with, the laws of the State of Delaware, regardless of the laws that might otherwise govern under applicable principles of conflicts of laws thereof. 10.8 ASSIGNMENT. Neither this Agreement nor any of the rights, interests or obligations under this Agreement shall be assigned, in whole or in part, by operation of law or otherwise by any of the parties without the prior written consent of the other parties. Subject to the preceding sentence, this Agreement will be binding upon, inure to the benefit of, and be enforceable by, the parties and their respective successors and assigns. 10.9 ENFORCEMENT. The parties agree that irreparable damage may occur in the event that any of the provisions of this Agreement were not performed in accordance with their specific terms or were otherwise breached. It is accordingly agreed that the parties shall be entitled to seek an injunction or injunctions to prevent breaches of this Agreement and to enforce specifically the terms and provisions of this Agreement in any federal or state court located in the State of Delaware, this being in addition to any other remedy to which they are entitled at law or in equity. In addition, each of the parties hereto (a) consents to submit itself to the personal jurisdiction of any court sitting in the State of Delaware in the event any dispute arises out of this A-47 Agreement or any of the transactions contemplated by this Agreement to the extent such courts would have subject matter jurisdiction with respect to such dispute and (b) agrees that it will not attempt to deny or defeat such personal jurisdiction or venue by motion or other request for leave from any such court. 10.10 SEVERABILITY. Whenever possible, each provision or portion of any provision of this Agreement will be interpreted in such manner as to be effective and valid under applicable law but if any provision or portion of any provision of this Agreement is held to be invalid, illegal or unenforceable in any respect under any applicable law or rule in any jurisdiction, such invalidity, illegality or unenforceability will not affect any other provision or portion of any provision in such jurisdiction, and this Agreement will be reformed, construed and enforced in such jurisdiction as if such invalid, illegal or unenforceable provision or portion of any provision had never been contained herein. 10.11 SCHEDULES AND EXHIBITS. The Schedules and Exhibits to this Agreement are hereby incorporated into this Agreement and are hereby made a part of this Agreement as if set out in full in this Agreement. 10.12 COUNTERPARTS. This Agreement may be executed in one or more identical counterparts, all of which shall be considered one and the same instrument and shall become effective when one or more such counterparts shall have been executed by each of the parties and delivered to the other parties. Delivery of a copy of this Agreement bearing an original signature by facsimile transmission, by electronic mail in "portable document format" (".pdf") form, or by any other electronic means intended to preserve the original graphic and pictorial appearance of a document, will have the same effect as physical delivery of the paper document bearing the original signature. [SIGNATURE PAGE FOLLOWS.] A-48 IN WITNESS WHEREOF, the undersigned have caused their duly authorized officers to execute this Agreement as of the date first above written. ALPHA INNOTECH CORPORATION By: /s/ Haseeb Chaudhry ---------------------------------------- Name: Haseeb Chaudhry Title: Chief Executive Officer XTRANA, INC. By: /s/ James H. Chamberlain ---------------------------------------- Name: James H. Chamberlain Title: Chief Executive Officer AIC MERGER CORPORATION By: /s/ James H. Chamberlain ---------------------------------------- Name: James H. Chamberlain Title: President A-49 INDEX OF SCHEDULES AND EXHIBITS* SCHEDULES: AIC Disclosure Schedule Xtrana Disclosure Schedule Schedule 6.11: Deferred Compensation EXHIBITS: Exhibit A: Secured Promissory Note Exhibit B: Form of Escrow Agreement Exhibit C: Form of Certificate of Merger Exhibit D: Form of AIC Officer's Certificate Exhibit E: Form of AIC Secretary's Certificate Exhibit F: Form of Opinion of AIC Counsel Exhibit G: Form of Xtrana Officer's Certificate Exhibit H: Form of Xtrana Secretary's Certificate Exhibit I: Form of Opinion of Xtrana Counsel Exhibit J: Articles of Incorporation of Surviving Corporation * Schedules and exhibits are omitted and will be provided to the Securities and Exchange Commission upon request. A-50 AMENDMENT NO. 1 TO AGREEMENT AND PLAN OF MERGER This AMENDMENT NO. 1 TO AGREEMENT AND PLAN OF MERGER (the "AMENDMENT"), made this 6th day of April, 2005 is entered into by and among Xtrana, Inc., a Delaware corporation ("XTRANA"), AIC Merger Corporation, a California corporation and wholly-owned subsidiary of Xtrana ("MERGERCO"), and Alpha Innotech Corporation, a California corporation ("AIC"). Xtrana, MergerCo and AIC are sometimes referred to herein individually as a "PARTY" and collectively as the "PARTIES." RECITALS: A. The Parties have entered into that certain Agreement and Plan of Merger dated December 14, 2004 (the "AGREEMENT"), which provides for the merger of AIC with and into MergerCo on the term and conditions set forth in the Agreement. Capitalized terms used herein and not otherwise defined shall have the meanings assigned thereto in the Agreement. B. In order to clarify the Parties intended definition of "Minimum Closing Date Cash" and in light of changes to the business and financial condition of AIC and in order to clarify the parties, the Parties desire to amend the provisions of the Agreement on the terms and conditions set forth herein. AGREEMENT: NOW, THEREFORE, in consideration of the representations, warranties, covenants and agreements contained in this Amendment, and for other good and valuable consideration, the receipt and sufficient of which are hereby acknowledged, the parties hereto agree as follows: 1. AMENDMENT TO DEFINITION OF "MINIMUM CLOSING DATE CASH." The definition of "Minimum Closing Date Cash" set forth in Section 1.1 of the Agreement is hereby amended to read as follows: ""MINIMUM CLOSING DATE CASH" means an amount equal to $2,950,000 LESS the sum of (i) the aggregate amount advanced to AIC by Xtrana pursuant to the Promissory Note, (ii) the Audit Fees, and (iii) all other out-of-pocket costs and expenses incurred by Xtrana on or after January 1, 2005 and through the Closing Date which would not have otherwise been incurred by Xtrana but for delay in consummation of the Merger resulting from the necessity of such audit of the AIC financial statements, including, but not limited to, the consulting fees of $5,000 per month payable to James Chamberlain for serving as interim Chief Executive Officer and interim Chief Financial Officer of Xtrana, the director fees incurred by Xtrana (consistent with past practice and policy), consulting fees for the services of Dennis Lineberry, and similar direct costs incurred after January 1, 2005 and through the Closing Date, but not exceeding in the aggregate A-51 $15,000 per month, unless otherwise agreed in writing between AIC and Xtrana." 2. AMENDMENT TO EXCHANGE RATIO DEFINITIONS. The definitions of each of the terms "AIC Common Exchange Ratio," "AIC Series A Preferred Exchange Ratio" and "AIC Series A-1 Preferred Ratio" set forth in Section 1.1 of the Agreement are hereby amended to add the following sentence to the end of each such definition: "The foregoing exchange ratio shall be subject to further adjustment as provided in SECTION 2.9.1." 3. AMENDMENT TO SECTION 6.11. Section 6.11 of the Agreement is hereby amended in its entirety to read as follows: "6.11 DEFERRED COMPENSATION. At the Closing, AIC's aggregate obligations for all deferred compensation shall be not more than $550,000 (the "DEFERRED COMPENSATION"). A schedule of the Deferred Compensation will be delivered by AIC to Xtrana prior the Closing and will be attached to this Agreement as SCHEDULE 6.11. At or promptly following the Closing, the Surviving Corporation or Xtrana shall pay up to a total of $100,000 of the Deferred Compensation. Notwithstanding the foregoing, all remaining Deferred Compensation shall be paid by the Surviving Corporation or Xtrana by June 30, 2006." 4. CLOSING CONDITIONS. Section 7.2 of the Agreement is hereby amended to add the following new Section 7.2.14 and Section 7.2.15: "7.2.14 AIC shall have received additional financing of at least $1,500,000 on terms and conditions reasonably acceptable to Xtrana, and such financing shall not result in any dilution to the Xtrana stockholders' percentage ownership of the issued outstanding shares of capital stock of the Surviving Entity at the Effective Time. 7.2.15 Each of Haseeb Chaudhry and Darryl Ray shall have entered into an amendment to his Employment Agreement (together, the "EMPLOYMENT AGREEMENT AMENDMENTS"), which Employment Agreement Amendments shall provide, among other things, for a reduction in annual base salary to $100,000 effective as of January 1, 2005 and shall otherwise be in form and substance acceptable to Xtrana, and the Employment Agreement Amendments shall be in full force and effect as of the Closing." 5. RATIFICATION OF REMAINING TERMS. Except as set forth above, the remaining terms and conditions of the Agreement shall not be amended by this Amendment and shall remain in full force and effect, and binding in accordance with their respective terms. A-52 6. COUNTERPARTS. This Amendment may be executed in two or more counterparts, each of which shall constitute an original, but all of which, when taken together, shall constitute one and the same instrument. [REMAINDER OF PAGE INTENTIONALLY LEFT BLANK] A-53 IN WITNESS WHEREOF, the parties hereto have executed this Amendment as of the date set forth in the first paragraph. ALPHA INNOTECH CORPORATION By: /s/ Haseeb Chaudhry ---------------------------------------- Name: Haseeb Chaudhry Title: Chief Executive Officer XTRANA, INC. By: /s/ James H. Chamberlain ---------------------------------------- Name: James H. Chamberlain Title: Chief Executive Officer AIC MERGER CORPORATION By: /s/ James H. Chamberlain ---------------------------------------- Name: James H. Chamberlain Title: President A-54 APPENDIX B OPINION OF FINANCIAL ADVISORS April 21, 2005 Board of Directors Xtrana, Inc. P.O. Box 668 Sedalia, Colorado 80135 Members of the Board: You have advised us that on December 14, 2004, Xtrana, Inc., a Delaware corporation ("Xtrana" or the "Company"), AIC Merger Corporation, a California corporation and a wholly-owned subsidiary of Xtrana ("Xtrana Sub"), and Alpha Innotech Corporation, a California corporation ("Alpha Innotech") entered into an Agreement and Plan of Merger (the "Merger Agreement") pursuant to which Xtrana Sub will be merged with and into Alpha Innotech (the "Merger"), with Alpha Innotech continuing after the Merger as the surviving corporation and a wholly-owned subsidiary of Xtrana. The common shareholders of Xtrana and Alpha Innotech will own 17 percent and 83 percent, respectively, of the outstanding shares of Xtrana (excluding options and warrants) upon the consummation of the Merger. Xtrana will also deliver cash of approximately $2.2 million at the closing of the Merger. In addition, pursuant to the Merger Agreement Xtrana has previously advanced Alpha Innotech $500,000 pursuant to the terms of a secured promissory note. The Merger Agreement has been approved by the Board of Directors of both Xtrana and Alpha Innotech. We further understand that on April 6, 2005, Xtrana, Xtrana Sub, and Alpha Innotech, entered into an amendment to the Merger Agreement (as amended, the "Merger Agreement"). The amendment to the Merger Agreement was entered into to clarify the parties with respect to certain provisions of the Merger Agreement and to make certain amendments to the closing conditions for the Merger and the payment of certain deferred compensation owed to Alpha Innotech officers. The material terms of the transactions contemplated by the Merger provide, among others, that pursuant to the Merger Agreement, at the effective time of the Merger, each share of Alpha Innotech common stock will be converted into approximately 0.1136072 shares of Xtrana common stock and each share of Alpha Innotech Series A Preferred Stock and Series A-1 Preferred Stock will be converted into approximately 0.2868318 shares of Xtrana common stock, in each case as such ratios may be adjusted as provided in the Merger Agreement. These exchange ratios take into account a contemplated 1-for-10 reverse stock split of Xtrana's common stock to be effected immediately prior to the Merger, and the Merger Agreement provides that in no event shall the number of shares of Xtrana common stock issued to the Alpha Innotech shareholders exceed 83 percent of the outstanding shares of Xtrana common stock immediately following the closing of the Merger. All options to purchase shares of common stock of Alpha Innotech and warrants to purchase shares of common stock or preferred stock of Alpha Innotech outstanding at the effective time of the Merger will be assumed or replaced by options, or warrants to B-1 Board of Directors Xtrana, Inc. April 21, 2005 purchase Xtrana common stock, with proportional adjustment to the number of underlying shares and exercise price of each option and warrant based upon the relevant exchange ratios identified above. All existing common stockholders of the Company prior to the Merger are referred to herein as the "Public Stockholders." The transactions described above and all related transactions are referred to collectively herein as the "Transaction." You have requested us to render an opinion (the "Opinion") as to the fairness, from a financial point of view, to the Public Stockholders, of the Transaction pursuant to the terms and conditions of the Merger Agreement relating to the Transaction. We will receive a fee for providing this Opinion. The opinion fee is not contingent upon the consummation of the Transaction. The Company has also agreed to indemnify us against certain liabilities in connection with our services. This Opinion does not, with your express approval, address the fairness of the Transaction to creditors or any security holders of the Company, either debt or equity, other than the Public Stockholders, and we expressly disclaim any obligation to do so. Further, this Opinion does not address the Company's underlying business decision to effect the Transaction. You did not request us to, nor did we, either solicit third party indications of interest or evaluate any specific third party proposals relating to the acquisition of all or a part of the Company. We did not participate in the negotiations with respect to the Transaction or advise you with respect to alternatives to it. In connection with this Opinion, we have made such reviews, analyses and inquiries, as we have deemed necessary and appropriate under the circumstances. Among other things, we have: 1. met with certain members of the senior management of the Company and Alpha Innotech to discuss the operations, financial condition, future prospects and projected operations and performance of the Company and Alpha Innotech; 2. visited certain facilities and business offices of Alpha Innotech in San Leandro, California; 3. reviewed audited financial statements for Alpha Innotech for the fiscal years ended December 31, 2000, 2001, 2002, 2003 and 2004; 4. reviewed the unaudited financial information, internally prepared by management of Alpha Innotech, relating to the operations of Alpha Innotech, including: (i) the unaudited consolidated balance sheet of Alpha Innotech and its subsidiaries, as of March 31, 2004 and March 31, 2005, and the related consolidated statements of operations, stockholders' equity and cash flows for the three months ended March 31, 2004 and March 31, 2005, which Alpha Innotech's management has represented and warranted as the most current financial statements available; B-2 Board of Directors Xtrana, Inc. April 21, 2005 5. reviewed certain financial projections provided by Alpha Innotech's management relating to the Company for the fiscal years ending December 31, 2005, 2006, 2007, 2008 and 2009; 6. reviewed: (i) the Company's Form 10-KSB for the fiscal years ended December 31, 2002, 2003 and 2004, including the audited consolidated balance sheet of the Company and its subsidiaries, as of December 31, 2002, 2003 and 2004, and the related consolidated statements of operations, stockholders' equity and cash flows for the fiscal years ended December 31, 2002, 2003 and 2004; and (ii) certain other publicly available business and financial information related to the Company, which we deemed to be relevant; 7. reviewed the unaudited financial information, internally prepared by management of the Company, relating to the operations of the Company, including: (i) the unaudited consolidated balance sheet of the Company and its subsidiaries, as of March 31, 2004 and March 31, 2005, and the related consolidated statements of operations, stockholders' equity and cash flows for the three months ended March 31, 2004 and March 31, 2005, which the Company's management has represented and warranted as the most current financial statements available; 8. reviewed the following documents and agreements: (i) the Merger Agreement among the Company, Xtrana Sub and Alpha Innotech dated December 14, 2004; and (ii) the Amendment No. 1 to the Merger Agreement among the Company, Xtrana Sub and Alpha Innotech dated April 6, 2005; 9. reviewed certain other publicly available financial data for certain companies that we deem comparable to the Company; and 10. conducted such other studies, analyses and inquiries as we have deemed appropriate for purposes of this Opinion. In preparing this Opinion, we assumed and relied on, with your express permission, the truth, accuracy and completeness of all information supplied or otherwise, including, without limitation, any financial information, forecasts or projections, made available to us, discussed with or reviewed by or for us, or publicly available. In addition, where appropriate, we relied upon publicly available information that we believed to be reliable, accurate, and complete; however, we cannot guarantee the reliability, accuracy, or completeness of any such publicly available information. We did not independently verify the accuracy and completeness of the information provided to us and have not assumed and expressly disclaim any responsibility for independently verifying such information or undertaken any independent evaluation or appraisal of any of the assets or liabilities of the Company or been furnished with any such evaluation or appraisal. In addition, we did not conduct, and have not assumed any obligation to conduct, any physical inspection of the properties or facilities of the Company and Alpha Innotech. We express no opinion regarding the liquidation value of any entity. Without limiting the generality of the foregoing, we have undertaken no independent analysis of any pending or threatened litigation, possible unasserted claims or B-3 Board of Directors Xtrana, Inc. April 21, 2005 other contingent liabilities, to which the Company or any of its affiliates is a party or may be subject and, at the Company's direction and with its consent, our Opinion makes no assumption concerning, and therefore does not consider, the possible assertions of claims, outcomes or damages arising out of any such matters. We assumed, with your and Alpha Innotech's express permission, that the financial forecast information furnished to or discussed with us by the Company and Alpha Innotech, was prepared in a reasonable manner and reflected the best currently available estimates and judgment of the Company's management and Alpha Innotech's management as to the expected future financial performance of the Company and Alpha Innotech, and that there had been no material change in the assets, financial condition, business or prospects of the Company and Alpha Innotech since the date of the most recent financial statements made available to us. This Opinion expresses no view with respect to how the projections were obtained, the reasonableness of such projections, or the assumptions on which they were based. Further, we have relied, with your express permission, upon the certifications, representations and warranties of management of the Company and Alpha Innotech that the Company's management and Alpha Innotech's management is not aware of any facts or circumstances that would make any such forecasts inaccurate or misleading. This Opinion is necessarily based upon market, economic and other conditions as they exist and can be evaluated, and on the information made available to us, as of the date of this Opinion. Any subsequent change in such conditions could materially affect the assumptions used in the Opinion and would require a reevaluation of such Opinion. Although subsequent developments may affect this Opinion, we have assumed no obligation to update, revise or reaffirm such opinion, and we expressly disclaim any obligation to do so. In rendering this Opinion, we assumed, with your permission, that the proposed Transaction would be consummated substantially on the terms discussed in the Merger Agreement, without any waiver of any material terms or conditions by any party thereto. Without limiting the generality of the foregoing, for the purpose of this Opinion, we have assumed that the Company and Alpha Innotech are not a party to any pending transaction, including external financings, recapitalizations, asset sales, acquisitions or merger discussions, other than the Transaction or in the ordinary course of business. We have also assumed that all the necessary regulatory approvals and consents required for the Transaction will be obtained in a manner that will not change the consideration to be received by the Company. This Opinion expresses no opinion as to the price at which the Company's Common Stock will trade in the future. This Opinion does not give consideration to the tax effect of the proposed Transaction on the Company and Alpha Innotech or the shareholders of the Company and Alpha Innotech in the United States or in any other jurisdiction. This Opinion does not address the underlying decision of the Company to engage in the Transaction and does not constitute a recommendation to the Board of Directors, or to any shareholder of the Company as to how such shareholder should vote or as to any other action such shareholder should take in connection with the Transaction. B-4 Board of Directors Xtrana, Inc. April 21, 2005 Based upon the foregoing, and in reliance thereon, it is our opinion that the Transaction, is fair, from a financial point of view, to the Public Stockholders, pursuant to the terms and conditions of the Merger Agreement. This Opinion is for the use and benefit of the Company's Board of Directors in its evaluation of the Transaction and shall not be used by any other person without our prior written consent. This Opinion is delivered to the Company's Board of Directors subject to the conditions, scope of engagement, limitations and understandings set forth in this Opinion and our engagement letter, and subject to the understanding that the obligations of The Mentor Group, Inc. ("TMG") in the Transaction are solely corporate obligations, and no officer, director, employee, agent, shareholder or controlling person of TMG shall be subjected to any personal liability whatsoever to any person, nor will any such claim be asserted by or on behalf of you or your affiliates. Except with respect to the use of this Opinion in connection with the Proxy Statement relating to the Transaction, this Opinion shall not be published or otherwise used, nor shall any public references to us be made, without our prior written approval. THE MENTOR GROUP, INC. B-5 APPENDIX C ALPHA INNOTECH CORPORATION UNAUDITED FINANCIAL INFORMATION FOR THE THREE MONTHS ENDED MARCH 31, 2005 ALPHA INNOTECH CORPORATION TABLE OF CONTENTS PAGE ---- Consolidated Balance Sheets ............................................. C-3 Consolidated Statements of Operations ................................... C-4 Consolidated Statements of Changes in Shareholders' Deficit ............. C-5 Consolidated Statements of Cash Flows ................................... C-6 Notes to Consolidated Financial Statements .............................. C-7 C-2 ALPHA INNOTECH CORPORATION CONDENSED CONSOLIDATED BALANCE SHEETS AS OF MARCH 31, 2005 AND DECEMBER 31, 2004 (Unaudited)
MARCH 31, DECEMBER 31, 2005 2004 ------------ ------------ ASSETS Current assets: Cash and cash equivalents ..................... $ 141,743 $ 40,174 Accounts receivable, net ...................... 1,570,746 1,975,554 Inventory, net ................................ 718,068 724,591 Prepaid expenses and other current assets ..... 108,643 170,038 ------------ ------------ Total current assets ...................... 2,539,200 2,910,357 Property and equipment, net ........................ 1,292,590 1,433,679 Other assets ....................................... 79,670 79,670 ------------ ------------ Total assets .................................. $ 3,911,460 $ 4,423,706 ============ ============ LIABILITIES, REDEEMABLE CONVERTIBLE PREFERRED STOCK AND SHAREHOLDERS' DEFICIT Current liabilities: Accounts payable .............................. $ 1,833,294 $ 1,616,771 Accrued liabilities ........................... 1,037,072 1,088,545 Debt .......................................... 1,608,718 1,610,046 Deferred revenue .............................. 578,651 575,044 Other liabilities ............................. 189,119 181,369 ------------ ------------ Total current liabilities ................. 5,246,854 5,071,775 ------------ ------------ Commitments and contingencies ...................... -- -- ------------ ------------ Redeemable Convertible Preferred stock, no par value, authorized 24,000,000 shares: Series A, issued and outstanding 10,533,334 and 10,533,334 shares ....... 10,445,293 10,273,256 Series A-1, issued and outstanding 7,343,418 and 7,343,418 shares ......... 2,226,200 2,180,733 ------------ ------------ Total redeemable convertible preferred stock ............... 12,671,493 12,453,989 ------------ ------------ Shareholders' deficit: Common stock, Series A, no par value per share: Authorized 60,000,000 shares Issued and outstanding 23,179,287 and 23,177,526 shares ...................... 1,147,403 1,146,945 Accumulated deficit ........................... (15,154,290) (14,249,003) ------------ ------------ Total shareholders' deficit ............... (14,006,887) (13,102,058) ------------ ------------ Total liabilities, redeemable convertible preferred stock and shareholders' deficit ............. $ 3,911,460 $ 4,423,706 ============ ============
The accompanying notes are an integral part of these condensed consolidated financial statements. C-3 ALPHA INNOTECH CORPORATION CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS FOR THE THREE MONTHS ENDED MARCH 31, 2005 AND 2004 (Unaudited) 2005 2004 ----------- ----------- Revenue ...................................... $ 2,505,360 $ 1,906,672 Cost of goods sold ........................... 1,405,295 1,015,390 ----------- ----------- Gross profit ............................ 1,100,065 891,282 ----------- ----------- Operating expenses: Sales and marketing ..................... 1,060,509 822,129 Research and development expenses ....... 397,488 488,815 General and administrative expenses ..... 285,337 326,225 ----------- ----------- Total operating expenses ............ 1,743,334 1,637,169 ----------- ----------- Loss from operations ........... (643,269) (745,887) Other income (expense): Interest expense ........................ (43,006) (61,904) Other income (expense), net ............. (1,508) (454) ----------- ----------- Total other income (expense) ........ (44,514) (62,358) ----------- ----------- Net loss ....................... $ (687,783) $ (808,245) =========== =========== The accompanying notes are an integral part of these condensed consolidated financial statements. C-4 ALPHA INNOTECH CORPORATION CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' DEFICIT FOR THE THREE MONTHS ENDED MARCH 31, 2005 (Unaudited)
Redeemable Convertible Preferred Stock --------------------------------------------------------- Series A Series A-1 --------------------------- -------------------------- Number Number of Shares Value of Shares Value ------------ ------------ ------------ ------------ Balance at January 1, 2005 ...... 10,533,334 $ 10,273,256 7,343,418 $ 2,180,733 Accretion of preferred stock to redemption value ............. -- 14,037 -- 1,406 Accretion of cumulative preferred dividend ..................... -- 158,000 -- 44,061 Exercise of stock option for cash -- -- -- -- Net loss ........................ -- -- -- -- ------------ ------------ ------------ ------------ Balance at March 31, 2005 ....... 10,533,334 $ 10,445,293 7,343,418 $ 2,226,200 ============ ============ ============ ============ Common Stock --------------------------- Number Accumulated of Shares Value Deficit Total ------------ ------------ ------------ ------------ Balance at January 1, 2005 ...... 23,177,526 $ 1,146,945 $(14,249,003) $(13,102,058) Accretion of preferred stock to redemption value ............. -- -- (15,443) (15,443) Accretion of cumulative preferred dividend ..................... -- -- (202,061) (202,061) Exercise of stock option for cash 1,761 458 -- 458 Net loss ........................ -- -- (687,783) (687,783) ------------ ------------ ------------ ------------ Balance at March 31, 2005 ....... 23,179,287 $ 1,147,403 $(15,154,290) $(14,006,887) ============ ============ ============ ============
The accompanying notes are an integral part of these condensed consolidated financial statements. C-5 ALPHA INNOTECH CORPORATION CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS FOR THE THREE MONTHS ENDED MARCH 31, 2005 AND 2004 (Unaudited)
2005 2004 --------- --------- Cash flows from operating activities: Net loss ............................................................ $(687,783) $(808,245) Adjustments to reconcile net income to net cash provided by (used in) operating activities: Depreciation ............................................... 172,970 197,201 Allowance for sales returns and doubtful accounts .......... 21,088 1,316 Allowance for excess and obsolete inventory ................ (387) 7,515 Amortization of deferred stock-based compensation .......... -- 921 Change in operating assets and liabilities: Accounts receivables ................................... 383,720 572,914 Inventories ............................................ 6,910 209,162 Prepaid expenses and other current assets .............. 61,395 23,523 Other assets ........................................... -- (2,420) Accounts payable ....................................... 216,523 (282,306) Accrued liabilities .................................... (51,473) 54,926 Other current liabilities .............................. 7,750 13,892 Deferred revenue ....................................... 3,607 (56,902) --------- --------- Net cash provided by (used in) operating activities 134,320 (68,501) --------- --------- Cash flows from investing activities: Purchase of property and equipment .................................. (31,881) (98,745) --------- --------- Net cash used in investing activities ........................... (31,881) (98,745) --------- --------- Cash flows from financing activities: Proceeds from borrowing of debt obligation .......................... -- 461,929 Repayment of debt obligation ........................................ (1,328) (740,504) Proceeds from issuance of convertible notes ......................... -- 337,247 Proceeds from exercise of common stock options ...................... 458 2,967 --------- --------- Net cash provided by (used in) financing activities ............. (870) 61,639 --------- --------- Net increase (decrease) in cash and cash equivalents ....... 101,569 (105,608) Cash and cash equivalents at the beginning of the period ................. 40,174 172,497 --------- --------- Cash and cash equivalents at the end of the period .................. $ 141,743 $ 66,889 ========= ========= Supplemental disclosures of cash flow information: Interest paid during the year ....................................... $ 43,006 $ 61,904 ========= ========= Income taxes paid during the year ................................... $ -- $ -- ========= ========= Supplemental disclosure of non-cash investing and financing activities: Accretion of preferred stock to redemption value .................... $ 217,504 $ 176,101 ========= =========
The accompanying notes are an integral part of these condensed consolidated financial statements. C-6 ALPHA INNOTECH CORPORATION NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS 1. FORMATION AND BUSINESS OF THE COMPANY GENERAL - Alpha Innotech Corporation and subsidiary (the "company") was incorporated and began operations in June, 1992, in the state of California, with facilities in San Leandro, California. The Company develops and markets digital imaging systems for image documentation, quantitative analysis, and image archiving. These systems are used with electrophoresis samples (gel, blots, autoradiographs, etc), microscopy applications, and general imaging from insects to culture plates. The Company has a wholly owned subsidiary, Alpha Innotech Limited, which is located in the UK and commenced sales operation in September 2001. This office location closed its operations in August 2003. The Company obtained an additional convertible notes payable financing offering totaling $674,494 during March and September of 2004. However, the Company continues to incur losses. For the three months ended March 31, 2005, the Company incurred a loss from operations of $687,783 and positive cash flows from operations of $134,320, and has a working capital deficiency as of March 31, 2005. Management expects operating losses to continue for the foreseeable future because of additional costs and expenses related to research and development activities. Failure to generate sufficient revenues, raise additional capital or reduce certain discretionary spending could have a material adverse effect on the Company's ability to achieve its intended business objectives. GOING CONCERN - The accompanying condensed consolidated financial statements have been prepared on a going concern basis that contemplates the realization of assets and discharge of liabilities in the normal course of business. From inception, the Company has incurred recurring losses from operation totaling approximately $15 million and has been unable to generate positive cash flow from operations. These conditions raise substantial doubts about the Company's ability to continue as a going concern. The Company has been able to fund its operating losses to date primarily through the sale of preferred stock. The ability of the Company to manage its operating expenses to a level that can be financed by existing cash is critical to the Company's ability to continue as a going concern. Management plans to manage expenses and obtain additional funds through a reverse merge with a public company. The condensed consolidated financial statements do not include any adjustments to reflect the possible future effects on the recoverability and classification of assets or the amounts and classification of liabilities that may result from the outcome of this uncertainty. 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES BASIS OF PRESENTATION - The accompanying interim condensed consolidated financial statements do not include all disclosures included in the consolidated financial statements for the year ended December 31, 2004, and therefore, these consolidated financial statements should be read in conjunction with the interim condensed consolidated financial statements included in this proxy. In the opinion of management, these interim condensed consolidated financial statements reflect all adjustments necessary for a fair presentation of the financial position, results of operations, and cash flows for the interim periods and dates presented. STOCK-BASED COMPENSATION - The Company has adopted the interim disclosure provisions of SFAS No. 148, "ACCOUNTING FOR STOCK-BASED COMPENSATION-TRANSITION AND DISCLOSURES." Related interim disclosures are as follows. C-7 ALPHA INNOTECH CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) The Company measures compensation expense for its employee stock-based compensation awards using the intrinsic value method and provides pro forma disclosures of net loss and loss per share as if a fair value method has been applied. Therefore, compensation cost for employee stock awards is measured as the excess, if any, of the fair value of our common stock at the grant date or remeasurement date over the amount an employee must pay to acquire the stock and is amortized over the related service periods using the straight-line method. Compensation expense previously recorded for unvested employee stock-based compensation awards that are forfeited upon the employee termination is reversed in the period of forfeiture. Had compensation cost for the Company's stock option plans been determined based on the fair market value at the grant dates for stock options granted consistent with the provision of SFAS 123, the expense, net of the related tax effect, would have been immaterial to the Company's net loss. 3. BALANCE SHEET COMPONENTS March 31, December 31, 2005 2004 ----------- ----------- ACCOUNTS RECEIVABLE, NET Accounts receivable ......................... $ 1,674,216 $ 2,057,935 Less allowance for sales returns ............ (56,092) (35,003) Less allowance for doubtful accounts ........ (47,378) (47,378) ----------- ----------- Accounts receivable, net ................ $ 1,570,746 $ 1,975,554 =========== =========== INVENTORY, NET Raw material ................................ $ 727,064 $ 774,425 Finished Goods .............................. 42,206 17,900 Inventory in transit ........................ 29,192 13,047 Less allowance for excess and obsolete inventory ................................ (80,394) (80,781) ----------- ----------- Inventory, net .......................... $ 718,068 $ 724,591 =========== =========== PROPERTY AND EQUIPMENT Machinery and equipment ..................... $ 353,108 $ 353,108 Furniture and fixtures ...................... 203,265 203,265 Leasehold improvements ...................... 1,507,500 1,507,500 Loaner and demonstration units .............. 1,112,743 1,109,707 Computers ................................... 299,733 299,733 Software .................................... 87,477 87,477 ----------- ----------- Property and equipment .................. 3,563,826 3,560,791 Less accumulated depreciation and amortization ... (2,271,236) (2,127,111) ----------- ----------- Property and equipment, net ............. $ 1,292,590 $ 1,433,679 =========== =========== C-8 ALPHA INNOTECH CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) 3. BALANCE SHEET COMPONENTS March 31, December 31, 2005 2004 ---------- ---------- ACCRUED LIABILITIES Payroll and related ..... $ 610,099 $ 626,489 Warranty ................ 112,510 100,717 Audit and tax accrual ... 41,056 72,750 Finder's fee ............ 175,000 175,000 Other ................... 98,407 113,589 ---------- ---------- Accrued liabilities . $1,037,072 $1,088,545 ========== ========== 4. XTRANA MERGER On December 14, 2004, Xtrana, Inc., a Delaware corporation ("Xtrana"), AIC Merger Corporation, a California corporation and a wholly-owned subsidiary of Xtrana ("Xtrana Sub"), and the Company entered into an Agreement and Plan of Merger pursuant to which Xtrana Sub will be merged with and into the Company, with the Company continuing after the Merger as the surviving corporation and a wholly-owned subsidiary of Xtrana. This plan of merger has yet to be completed. 5. SUBSEQUENT EVENT On April 8, 2005, the Company secured a loan in the amount of $1,500,000 from Alexandria Finance, LLC. The loan bears interest at the rate of 12.5% per annum and the outstanding principal amount of the loan is due and payable in 30 equal monthly installments beginning on November 1, 2005. The obligations under the loan are secured by a second priority lien and security interest in substantially all assets of the Company. The Company has issued a seven-year warrant to purchase 900,000 shares of its Common Stock at a purchase price of $0.20 per share in connection with this loan financing. C-9 ALPHA INNOTECH HISTORICAL FINANCIAL STATEMENTS ALPHA INNOTECH CORPORATION CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEARS ENDED DECEMBER 31, 2004 AND 2003 WITH REPORT OF INDEPENDENT AUDITORS C-10 ALPHA INNOTECH CORPORATION TABLE OF CONTENTS PAGE ---- Report of Independent Auditors .......................................... C-12 Consolidated Balance Sheets ............................................. C-13 Consolidated Statements of Operations ................................... C-14 Consolidated Statements of Changes in Shareholders' Deficit ............. C-15 Consolidated Statements of Cash Flows ................................... C-16 Notes to Consolidated Financial Statements .............................. C-17 C-11 REPORT OF INDEPENDENT AUDITORS To Board of Directors and Shareholders of Alpha Innotech Corporation We have audited the accompanying consolidated balance sheets of Alpha Innotech Corporation and its subsidiary as of December 31, 2004 and 2003, and the related consolidated statements of operations, changes in shareholders' deficit, and cash flows for the years then ended. These consolidated financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these consolidated financial statements based on our audits. We conducted our audits in accordance with auditing standards generally accepted in the United States of America. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the consolidated financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall consolidated financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of Alpha Innotech Corporation and its subsidiary as of December 31, 2004 and 2003, and the results of their operations and their cash flows for the years then ended in conformity with accounting principles generally accepted in the United States of America. The accompanying consolidated financial statements have been prepared assuming that Alpha Innotech Corporation and its subsidiary will continue as a going concern. As discussed in Note 1 to the consolidated financial statements, Alpha Innotech Corporation and its subsidiary has incurred losses from operations that raise substantial doubt about its ability to continue as a going concern. Management's plans in regard to these matters are also described in Note 1. The financial statements do not include any adjustments that might result from the outcome of this uncertainty. As discussed in Note 11 to the consolidated financial statements, an error resulting in the omission of deferred revenue being recorded as of December 31, 2002 was discovered by management of Alpha Innotech Corporation subsequent to the issuance of the prior auditors' report on those statements dated March 24, 2004. Accordingly, an adjustment has been made to accumulated deficit as of January 1, 2003 to correct the error. San Francisco, California March 4, 2005 C-12 ALPHA INNOTECH CORPORATION CONSOLIDATED BALANCE SHEETS AS OF DECEMBER 31, 2004 AND 2003 2004 2003 ------------ ------------ ASSETS Current assets: Cash and cash equivalents ................. $ 40,174 $ 172,497 Accounts receivable, net .................. 1,975,554 1,313,652 Inventory, net ............................ 724,591 1,276,431 Prepaid expenses and other current assets . 170,038 169,157 ------------ ------------ Total current assets .................. 2,910,357 2,931,737 Property and equipment, net .................... 1,433,679 1,835,664 Other assets ................................... 79,670 79,751 ------------ ------------ Total assets .............................. $ 4,423,706 $ 4,847,152 ============ ============ LIABILITIES, REDEEMABLE CONVERTIBLE PREFERRED STOCK AND SHAREHOLDERS' DEFICIT Current liabilities: Accounts payable .......................... $ 1,616,771 $ 1,178,613 Accrued liabilities ....................... 1,088,545 1,042,242 Debt ...................................... 1,610,046 2,044,381 Deferred revenue .......................... 575,044 524,883 Other liabilities ......................... 181,369 261,627 ------------ ------------ Total current liabilities ............. 5,071,775 5,051,746 ------------ ------------ Commitments and contingencies .................. -- -- ------------ ------------ Redeemable Convertible Preferred stock, no par value, authorized 24,000,000 shares: Series A, issued and outstanding 10,533,334 and 10,533,334 shares .. 10,273,256 9,568,853 Series A-1, issued and outstanding 7,343,418 and none shares ......... 2,180,733 -- ------------ ------------ Total redeemable convertible preferred stock ................... 12,453,989 9,568,853 ------------ ------------ Shareholders' deficit: Common stock, Series A, no par value per share: Authorized 60,000,000 shares Issued and outstanding 23,170,344 and 23,177,526 shares ................. 1,146,945 477,082 Deferred stock-based compensation ......... -- (3,684) Accumulated deficit ....................... (14,249,003) (10,246,845) ------------ ------------ Total shareholders' deficit ........... (13,102,058) (9,773,447) ------------ ------------ Total liabilities, redeemable convertible preferred stock and shareholders' deficit ............. $ 4,423,706 $ 4,847,152 ============ ============ The accompanying notes are an integral part of these consolidated financial statements. C-13 ALPHA INNOTECH CORPORATION CONSOLIDATED STATEMENTS OF OPERATIONS FOR THE YEARS ENDED DECEMBER 31, 2004 AND 2003 2004 2003 ------------ ------------ Revenue ...................................... $ 10,511,334 $ 10,492,745 Cost of goods sold ........................... 5,377,952 5,331,406 ------------ ------------ Gross profit ............................ 5,133,382 5,161,339 ------------ ------------ Operating expenses: Sales and marketing ..................... 3,924,775 3,570,872 Research and development expenses ....... 1,962,857 1,662,324 General and administrative expenses ..... 1,968,638 1,600,065 ------------ ------------ Total operating expenses ............ 7,856,270 6,833,261 ------------ ------------ Loss from operations ........... (2,722,888) (1,671,922) Other income (expense): Interest expense ........................ (573,500) (320,745) Other income (expense), net ............. (1,367) (7,799) ------------ ------------ Total other income (expense) ........ (574,867) (328,544) ------------ ------------ Net loss ....................... $ (3,297,755) $ (2,000,466) ============ ============ The accompanying notes are an integral part of these consolidated financial statements. C-14 ALPHA INNOTECH CORPORATION CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' DEFICIT FOR THE YEARS ENDED DECEMBER 31, 2004 AND 2003
Redeemable Convertible Preferred Stock --------------------------------------------------------- Series A Series A-1 --------------------------- --------------------------- Number Number of Shares Value of Shares Value ------------ ------------ ------------ ------------ Balance at December 31, 2002 ............... 10,533,334 $ 8,864,450 -- $ -- Prior year retained earnings adjustment .... -- -- -- -- ------------ ------------ ------------ ------------ Balance at December 31, 2002 - restated .... 10,533,334 8,864,450 -- -- Accretion of preferred stock to redemption value ................................... -- 72,403 -- -- Accretion of cumulative preferred dividend . -- 632,000 -- -- Issuance of stock options for consulting services ................................ -- -- -- -- Amortization of deferred stock-based compensation ............................ -- -- -- -- Exercise of stock option for cash .......... -- -- -- -- Net loss ................................... -- -- -- -- ------------ ------------ ------------ ------------ Balance at December 31, 2003 ............... 10,533,334 9,568,853 -- -- Accretion of preferred stock to redemption value ................................... -- 72,403 -- -- Accretion of cumulative pref ............... -- 632,000 -- -- Accretion of cumulative pref ............... -- -- -- (632,000) Issuance of Series A-1 convertible preferred share for cash, net of issuance costs of $22,295 ............... -- -- 7,343,418 2,180,733 Issuance of common stock warrants in connection with convertible notes payable -- -- -- -- Issuance of common stock warrants with convertible notes payable ............... -- -- -- -- Issuance of common stock warrants in lieu of compensation ......................... -- -- -- -- Amortization of deferred stock-based compensation ............................ -- -- -- -- Exercise of stock option for cash .......... -- -- -- -- Net loss ................................... -- -- -- -- ------------ ------------ ------------ ------------ Balance at December 31, 2004 ............... 10,533,334 $ 10,273,256 7,343,418 $ 2,180,733 ============ ============ ============ ============ Common Stock ---------------------------- Deferred Number Stock-Based Accumulated of Shares Value Compensation Deficit Total ------------ ------------ ------------ ------------ ------------ Balance at December 31, 2002 ............... 23,108,625 $ 455,805 $ (25,719) $ (6,903,496) $ (6,473,410) Prior year retained earnings adjustment .... -- -- -- (638,480) (638,480) ------------ ------------ ------------ ------------ ------------ Balance at December 31, 2002 - restated .... 23,108,625 455,805 (25,719) (7,541,976) (7,111,890) Accretion of preferred stock to redemption value ................................... -- -- -- (72,403) (72,403) Accretion of cumulative preferred dividend . -- -- -- (632,000) (632,000) Issuance of stock options for consulting services ................................ -- 3,672 (3,672) -- -- Amortization of deferred stock-based compensation ............................ -- -- 25,707 -- 25,707 Exercise of stock option for cash .......... 61,719 17,605 -- -- 17,605 Net loss ................................... -- -- -- (2,000,466) (2,000,466) ------------ ------------ ------------ ------------ ------------ Balance at December 31, 2003 ............... 23,170,344 477,082 (3,684) (10,246,845) (9,773,447) Accretion of preferred stock to redemption value ................................... -- -- -- (72,403) (72,403) Accretion of cumulative pref ............... Accretion of cumulative pref ............... (632,000) Issuance of Series A-1 convertible preferred share for cash, net of issuance costs of $22,295 ............... -- -- -- -- -- Issuance of common stock warrants in connection with convertible notes payable -- 240,000 -- -- 240,000 Issuance of common stock warrants with convertible notes payable ............... -- 65,036 -- -- 65,036 Issuance of common stock warrants in lieu of compensation ......................... -- 363,224 -- -- 363,224 Amortization of deferred stock-based compensation ............................ -- -- 3,684 -- 3,684 Exercise of stock option for cash .......... 7,182 1,603 -- -- 1,603 Net loss ................................... -- -- -- (3,297,755) (3,297,755) ------------ ------------ ------------ ------------ ------------ Balance at December 31, 2004 ............... 23,177,526 $ 1,146,945 $ -- $(14,249,003) $(13,102,058) ============ ============ ============ ============ ============
The accompanying notes are an integral part of these consolidated financial statements. C-15 ALPHA INNOTECH CORPORATION CONSOLIDATED STATEMENTS OF CASH FLOWS FOR THE YEARS ENDED DECEMBER 31, 2004 AND 2003
2004 2003 ----------- ----------- Cash flows from operating activities: Net loss ............................................................ $(3,297,755) $(2,000,466) Adjustments to reconcile net income to net cash provided by operating activities: Depreciation ............................................... 762,073 721,567 Allowance for sales returns and doubtful accounts .......... 7,381 (160,000) Allowance for excess and obsolete inventory ................ 28,397 (141,446) Provision for demo equipment ............................... 6,000 29,000 Loss on disposal of property and equipment ................. (9,518) -- Interest on convertible notes payable ...................... 387,554 171,640 Warrants issued in lieu of compensation .................... 363,224 -- Amortization of deferred stock-based compensation .......... 3,684 25,707 Change in operating assets and liabilities: Accounts receivables ................................... (669,283) 1,138,657 Inventories ............................................ 523,443 220,063 Prepaid expenses and other current assets .............. (881) (60,238) Other assets ........................................... 81 (1,340) Accounts payable ....................................... 438,158 (373,243) Accrued liabilities .................................... 188,442 175,021 Other liabilities ...................................... (80,258) 62,367 Deferred revenue ....................................... 50,161 (167,990) ----------- ----------- Net cash used in operating activities .............. (1,299,097) (360,701) ----------- ----------- Cash flows from investing activities: Purchase of property and equipment .................................. (356,570) (556,051) ----------- ----------- Net cash used in investing activities ........................... (356,570) (556,051) ----------- ----------- Cash flows from financing activities: Proceeds from borrowing of debt obligation .......................... 1,610,046 200,000 Repayment of debt obligation ........................................ (740,504) (80,371) Proceeds from issuance of convertible notes ......................... 652,199 -- Proceeds from exercise of common stock options ...................... 1,603 17,605 ----------- ----------- Net cash provided by (used in) financing activities ............. 1,523,344 137,234 ----------- ----------- Net decrease in cash and cash equivalents .................. (132,323) (779,518) Cash and cash equivalents at the beginning of the year ................... 172,497 952,015 ----------- ----------- Cash and cash equivalents at the end of the year .................... $ 40,174 $ 172,497 =========== =========== Supplemental disclosures of cash flow information: Interest paid during the year ....................................... $ 185,946 $ 38,347 =========== =========== Income taxes paid during the year ................................... $ -- $ -- =========== =========== Supplemental disclosure of non-cash investing and financing activities: Accretion of preferred stock to redemption value .................... $ 704,403 $ 704,403 =========== =========== Issuance of stock options for consulting services ................... $ -- $ 3,672 =========== =========== Conversion of convertible promissory notes into preferred stock ..... $ 1,978,371 $ -- =========== =========== Conversion of interest payable into preferred stock ................. $ 242,657 $ -- =========== ===========
The accompanying notes are an integral part of these consolidated financial statements. C-16 ALPHA INNOTECH CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEARS ENDED DECEMBER 31, 2004 AND 2003 1. FORMATION AND BUSINESS OF THE COMPANY GENERAL - Alpha Innotech Corporation and subsidiary (the "company") was incorporated and began operations in June, 1992, in the state of California, with facilities in San Leandro, California. The Company develops and markets digital imaging systems for image documentation, quantitative analysis, and image archiving. These systems are used with electrophoresis samples (gel, blots, autoradiographs, etc), microscopy applications, and general imaging from insects to culture plates. The Company has a wholly owned subsidiary, Alpha Innotech Limited, which is located in the UK and commenced sales operation in September 2001. This office location closed its operations in August 2003. The Company obtained an additional convertible notes payable financing offering totaling $674,494 during March and September of 2004. However, the Company has incurred substantial losses and negative cash flows from operations. For the year ended December 31, 2004, the Company incurred a loss from operations of $3,297,755 and negative cash flows from operations of $1,299,097 and has a working capital deficiency as of December 31, 2004. Management expects operating losses to continue for the foreseeable future because of additional costs and expenses related to research and development activities. Failure to generate sufficient revenues, raise additional capital or reduce certain discretionary spending could have a material adverse effect on the Company's ability to achieve its intended business objectives. GOING CONCERN - The accompanying consolidated financial statements have been prepared on a going concern basis that contemplates the realization of assets and discharge of liabilities in the normal course of business. From inception, the Company has incurred recurring losses from operation totaling approximately $14 million and has been unable to generate positive cash flow from operations. These conditions raise substantial doubts about the Company's ability to continue as a going concern. The Company has been able to fund its operating losses to date primarily through the sale of preferred stock. The ability of the Company to manage its operating expenses to a level that can be financed by existing cash is critical to the Company's ability to continue as a going concern. Management plans to manage expenses and obtain additional funds through a reverse merge with a public company. The consolidated financial statements do not include any adjustments to reflect the possible future effects on the recoverability and classification of assets or the amounts and classification of liabilities that may result from the outcome of this uncertainty. 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES BASIS OF PRESENTATION - The accompanying consolidated financial statements have been prepared in accordance with principles generally accepted in the United States of America. PRINCIPLES OF CONSOLIDATION - The consolidated financial statements include the financial statements of the Company and its wholly owned subsidiary Alpha Innotech Limited. All significant transactions and balances between the Company and its subsidiary have been eliminated in consolidation. USE OF ESTIMATES - The preparation of consolidated financial statements requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosures of contingent assets and liabilities at the date of the consolidated financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. FOREIGN CURRENCIES - The United States dollar is the reporting currency for the Company. The functional currency used by the subsidiary is the local currency. Assets and liabilities recorded in foreign currencies are translated at the exchange rate on the balance sheet date. Revenue and expenses are translated at average rates of exchange prevailing during the year. Translation adjustments resulting from this process are charged or credited to other comprehensive income. C-17 ALPHA INNOTECH CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) FAIR VALUE OF FINANCIAL INSTRUMENTS - The fair value of the Company's cash and cash equivalents, accounts receivable, and accounts payable approximate their carrying value due to the short maturity or market rate structure of those instruments. The fair value of the Company's debt approximates the carrying value due to the debt's short-term maturity. CASH AND CASH EQUIVALENTS - The Company considers investments that are highly liquid, that are readily convertible to cash, and that mature within three months from the date of purchase to be cash equivalents. Cash and cash equivalents include money market funds and various deposit accounts. INVENTORIES - Inventories are stated at the lower of cost or market, cost being determined using the first-in, first out ("FIFO") method. Reserves are established for excess or obsolete inventories. PROPERTY AND EQUIPMENT - Property and equipment are stated at cost less accumulated depreciation and are depreciated over their estimated useful lives of the related assets principally using the straight-line method: 18 months for demo and loaner equipment, 3 years for computer hardware and software, 5 to 7 years for furniture, fixture and equipment. Leasehold improvements are recorded at cost. Amortization is provided using the straight-line method over the shorter of their estimated useful lives or the term of the lease. Upon retirement or sale, the cost and related accumulated depreciation are removed from the balance sheet and the resulting gain or loss is reflected in other income and expense. Maintenance and repairs are charged to operations as incurred. INCOME TAXES - The provision for income taxes includes federal, state, and foreign taxes currently payable, deferred taxes arising from temporary differences between income for financial accounting and tax purposes, and the effects of net operating loss carryforwards. Deferred tax assets and liabilities are recognized for the estimated future tax effects attributable to temporary differences and carryforwards. Deferred tax assets and liabilities shall be classified as current or noncurrent based on the classification of the related asset or liability. A deferred tax asset or liability that is not related to an asset or liability shall be classified according to the expected reversal date of the temporary difference. These temporary differences result primarily from different accounting methods used for financial accounting and tax purposes for depreciation, state taxes, inventory costs, and employee compensation. A valuation allowance is established for the portion of a deferred tax asset for which it is more likely than not that a tax benefit will not be realized. IMPAIRMENT OF LONG-LIVED ASSETS - The Company evaluates its long-lived assets for indications of possible impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. Recoverability is measured by comparison of the carrying amounts to the future net undiscounted cash flows, which the assets are expected to generate. Should an impairment exist, the impairment would measured by the amount by which the carrying amount of the assets exceeds the projected discounted future cash flows arising from the asset. There have been no such impairments of long-lived assets through December 31, 2004. REVENUE RECOGNITION - The Company's revenue is primarily derived from the sale of digital imaging systems, net of returns and allowances and is generally recognized when a contract is executed, all delivery obligations have been met, the fee is fixed and determinable, and collectibility is probable. All products are sold with a 1-year warranty agreement and the Company records an associated reserve for estimated warranty costs. For products sold where software is deemed to be more than incidental, the Company follows Statement of Position ("SOP") 97-2, "Software Revenue Recognition," as amended. Revenue earned on software arrangements involving multiple elements is allocated to each element based on vendor-specific objective evidence, which is based on the price charged when the same element is sold separately. Revenue allocated to maintenance and support is recognized ratably over the maintenance term (typically one year). C-18 ALPHA INNOTECH CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) ADVERTISING EXPENSES - The Company expenses advertising costs as incurred. Advertising expenses for the years ended December 31,2004 and 2003 were $77,444 and $102,695. RESEARCH AND DEVELOPMENT - Research and development costs are charged to operations as incurred. SOFTWARE DEVELOPMENT COSTS - Software development costs are included in research and development and are expensed as incurred. After technological feasibility is established, material software development costs are capitalized until the product is available for general release. The capitalized cost is then amortized on the straight-line basis over the estimated product life, or on the ration of current revenues to total projected project revenues, whichever is greater. To date, the period between achieving technological feasibility, which the Company has defined as the establishment of a working model and the point at which the product is ready for general release has been short and software development costs qualifying for capitalization have been insignificant. Accordingly, the Company has not capitalized any software development costs. STOCK-BASED COMPENSATION - The Company grants stock options for a fixed number of shares to employees with an exercise price equal to the fair value of the shares at the date of grant. The Company accounts for stock option grants in accordance with APB Opinion No. 25, ACCOUNTING FOR STOCK ISSUED TO EMPLOYEES ("APB 25") and related Interpretations. Under APB 25, because the exercise price of the Company's employee stock options equals the market price of the underlying stock on the date of grant, no employee stock options equal the market price of the underlying stock on the date of grant, no compensation expense is recognized. As permitted by Statement of Financial Accounting Standards No. 123, ACCOUNTING FOR STOCK-BASED COMPENSATION ("SFAS 123"), the Company has adopted the "disclosure only" alternative described in SFAS No. 123 for its employee stock option plan. The Company has two stock-based employee compensation plans. As all options have been granted with exercise prices equal to the deemed fair value of the shares at the grant date, no stock-based employee compensation cost has been recognized under these stock-based employee compensation plans. Had compensation cost for the Company's stock option plans been determined based on the fair market value at the grant dates for stock options granted consistent with the provision of SFAS 123, the expense, net of the related tax effect, would have been immaterial to the Company's net loss. The weighted average fair value of options granted in 2004 and 2003 is $0.29 per share both years. COMPREHENSIVE LOSS - The Company has adopted the provisions to Statement of Financial Accounting Standards No. 130, COMPREHENSIVE INCOME ("SFAS No. 130"). SFAS No. 130 establishes standards for reporting and display of comprehensive income and its components for general purpose financial statements. For all periods presented, there were no differences between net loss and comprehensive loss. CONCENTRATION OF CREDIT RISK - Financial instruments, which potentially subject the Company to concentration of credit risk, consist principally of trade receivables and holdings of cash. The Company's credit risk is managed by investing its cash in high-quality money market instruments. The receivables credit risk is controlled through credit approvals, credit limits, monitoring procedures, and establishment of a reserve for doubtful accounts. C-19 ALPHA INNOTECH CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) RECENT ACCOUNT PRONOUNCEMENTS - In December 2004, the FASB issued SFAS No. 123 (revised 2004), SHARE-BASED PAYMENT ("SFAS 123(R)"). This is a revision of SFAS No. 123, ACCOUNTING FOR STOCK-BASED COMPENSATION, and supercedes APB No. 25, ACCOUNTING FOR STOCK ISSUED TO EMPLOYEES ("APB 25"). As noted in our stock based compensation accounting policy described above, the Company generally does not record compensation expense for employee stock options. Under SFAS 123(R), the Company will be required to measure the cost of employee services received in exchange for stock compensation, based on the grant date fair value (with limited exceptions). That cost will be recognized over the period during which an employee is required to provide service in exchange for the award (usually the vesting period). The fair value for stock options will be estimated using an option-pricing model. Excess tax benefits, as defined in SFAS 123(R), will be recognized as an addition to paid-in capital. Under SFAS 123(R), measurement and recognition of compensation expense related to the Company's restricted stock will be the same as APB 25. The provisions of SFAS 123(R) are effective as of the beginning of the first interim or annual reporting period that begins after June 15, 2005. The Company is currently evaluating the impact of this statement on its consolidated financial statements. In November 2004, FASB issued SFAS 151, INVENTORY COST. This statement amends Accounting Research Bulletin No. 43, Chapter 4, INVENTORY PRICING, to clarify the accounting for abnormal amounts of idle facility expense, freight, handling costs and wasted material (spoilage). The provision of the statement is effective for inventory costs incurred during fiscal years beginning after June 15, 2005. The Company is evaluating the impact of this statement on its consolidated financial statements. In January 2003, the FASB issued FASB Interpretation No. 46 ("FIN 46"), "Consolidation of Variable Interest Entities,, an Interpretation of ARB No. 51. FIN 46 requires certain variable interest entities to be consolidated by the primary beneficiary of the entity if the equity investors in the entity do not have the characteristics of a controlling financial interest or do not have sufficient equity at risk for the entity to finance its activities without additional subordinated financial support from other parties. FIN 46 is effective immediately for all new variable interest entities created or acquired after January 31, 2003. For variable interest entities created or acquired prior to February 1, 2003, the provisions of FIN 46 must be applied for the first interim or annual period beginning after June 15, 2003. The Company does not have any ownership in any variable interest entities as of December 31, 2003. The Company will apply the consolidation requirement of FIN 46 in future periods if it should own any interest in a variable interest entity. In May 2003, the FASB issued SFAS No. 150, "Accounting for Certain Financial Instruments with Characteristics of both Liabilities and Equity." SFAS No. 150 establishes standards for how an issuer classifies and measures financial instruments with characteristics of both debt and equity and requires an issuer to classify the following instruments as liabilities in its balance sheet: (1) a financial instrument issued in the form of shares that is mandatorily redeemable and embodies an unconditional obligation that requires the issuer to redeem it by transferring its assets at a specific or determined date or upon an event that is certain to occur; (2) a financial instrument, other than an outstanding share, that embodies an obligation to replace the issuer's equity shares, or is indexed to such obligation, and requires the issuer to settle the obligation by transferring assets; and (3) a financial instrument that embodies an unconditional obligation that the issuer must settle by issuing a variable number of equity shares if the monetary value of the obligation is based solely or predominantly on (a) a fixed monetary amount, (b) variations in something other than fair value of the issuer's equity shares, or (c) variations inversely related to changes in the fair value of the issuer's equity shares. C-20 ALPHA INNOTECH CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) In November 2003, The FASB issued FASB Staff Position No. 150-3, which deferred the effective dates of applying certain provisions of SFAS No. 150 related to mandatorily redeemable financial instruments of certain nonpublic entities and certain mandatorily redeemable noncontrolling interests for public and nonpublic entities. For public entities, SFAS No. 150 is effective for mandatorily redeemable financial instruments entered into or modified after May 31, 2003 and is effective for all other financial instruments as of the first interim period beginning after June 15, 2003. For mandatorily redeemable noncontrolling interests that would not have to be classified as liabilities by a subsidiary under the exception in paragraph 9 of SFAS No. 150, but would be classified as liabilities by the parent, the classification and measurement provisions of SFAS No. 150 are deferred indefinitely. For other mandatorily redeemable noncontrolling interests that were issued before November 5, 2003, the measurement provisions of SFAS No. 150 are deferred indefinitely. For those instruments, the measurement guidance for redeemable shares and noncontrolling interests in other literature shall apply during the deferral period. The adoption of SFAS No. 150 did not have any impact on the Company's consolidated financial statements. 3. BALANCE SHEET COMPONENTS December 31, December 31, 2004 2003 ----------- ----------- ACCOUNTS RECEIVABLE, NET Accounts receivable ................ $ 2,057,935 $ 1,388,652 Less allowance for sales returns ... (35,003) (25,000) Less allowance for doubtful accounts (47,378) (50,000) ----------- ----------- Accounts receivable, net ....... $ 1,975,554 $ 1,313,652 =========== =========== INVENTORY, NET Raw material ....................... $ 774,425 $ 1,245,315 Finished Goods ..................... 17,900 -- Inventory in transit ............... 13,047 83,500 Less allowance for excess and obsolete inventory .............. (80,781) (52,384) ----------- ----------- Inventory, net ................. $ 724,591 $ 1,276,431 =========== =========== C-21 ALPHA INNOTECH CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) 3. BALANCE SHEET COMPONENTS (CONTINUED) December 31, December 31, 2004 2003 ----------- ----------- PROPERTY AND EQUIPMENT Machinery and equipment ....... $ 353,108 $ 311,526 Furniture and fixtures ........ 203,265 203,265 Leasehold improvements ........ 1,507,500 1,507,500 Loaner and demonstration units 1,109,709 1,034,091 Computers ..................... 299,733 296,543 Software ...................... 87,477 83,851 ----------- ----------- Property and equipment .... 3,560,791 3,436,775 Less accumulated depreciation and amortization .................. (2,127,111) (1,601,111) ----------- ----------- Property and equipment, net $ 1,433,679 $ 1,835,664 =========== =========== In 2002, the Company entered into a capital lease agreement for production equipment. As of December 31, 2004 and 2003, property and equipment included $4,756 and $4,756 of equipment under capital lease and accumulated amortization of assets under capital lease was $2,705 and $1,648. December 31, December 31, 2004 2003 ---------- ---------- ACCRUED LIABILITIES Payroll and related ........... $ 626,489 $ 452,370 Warranty ...................... 100,717 120,182 Audit and tax accrual ......... 72,750 49,035 Finder's fee .................. 175,000 175,000 Interest on convertible notes . -- 142,165 Other ......................... 113,589 103,490 ---------- ---------- Accrued liabilities ....... $1,088,545 $1,042,242 ========== ========== 4. DEBT December 31, December 31, 2004 2003 ---------- ---------- DEBT BFI Business Finance line of credit $ 810,046 $ -- BFI Business term loan ............ 300,000 -- Xtrana term loan agreement ........ 500,000 -- Comerica revolving line of credit . -- 700,000 California Economic Development Lending Initiative "CEDLI" Loan Agreement, repaid in 2004 -- 40,504 Convertible promissory notes, converted in 2004 ............. -- 1,303,877 ---------- ---------- Total debt .................... $1,610,046 $2,044,381 ========== ========== C-22 ALPHA INNOTECH CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) 4. DEBT (CONTINUED) BFI BUSINESS FINANCE LINE OF CREDIT - In connection with funding of operations and development of new products on March 9, 2004, the Company established a line of credit with BFI Business Finance ("BFI"), in which the Company uses its accounts receivable as collateral and obtains advances from BFI up to 80% of the Company's accounts receivable balance at the time of the borrowing, but with principal advances not to exceed $1 million. The interest rate of the line of credit is variable, and bears interest at a rate of 3% over prime. The interest rate as of December 31, 2004 was 8.25%. Interest expense on the line of credit for the year ended December 31, 2004 was $106,568. BFI BUSINESS TERM LOAN - In connection with funding of operations and development of new products on August 27, 2004, the Company assumed a loan in the amount of $300,000 payable to the BFI Business Finance ("BFI"). The interest rate applicable to the note is variable, and bears interest at a rate of 3% over prime. The interest rate as of December 31, 2004 was 8.25%. The loan matured and principal payments were due to BFI on December 31, 2004. However, in December 2004, BFI and the Company agreed to extend the note for an additional 90 days to March 31, 2005, for a fee of $20,000. Interest expense on the BFI loan for the year ended December 31, 2004 was $64,635. XTRANA TERM LOAN AGREEMENT - On December 14, 2004, Xtrana, Inc. ("Xtrana") and the Company entered into a merger agreement, to which Xtrana will be merged with and into the Company, with the Company continuing after the merger as the surviving corporation and a wholly-own subsidiary of Xtrana. Pursuant to the terms of the merger agreement, Xtrana made a loan to the Company in the amount of $500,000 on December 16, 2004. The obligations under the loan are secured by a second priority lien and security interest in substantially all assets of the Company. The loan bears interest at the rate of 6% per annum. COMERICA REVOLVING LINE OF CREDIT - In connection with funding of operations and development of new products on August 11, 2000, the Company established a $2 million revolving line of credit with Comerica bank. The line of credit limit was reduced to $1 million during fiscal 2002. The interest rate of the revolving line is the base bank rate plus 0.75%. The interest rate as of December 31, 2003 was 5.25%. The Company repaid the entire outstanding balance and closed the revolving line of credit in March 2004. Interest expense on the line of credit for the years ended December 31, 2004 and 2003 was $9,065 and $29,326. CEDLI LOAN AGREEMENT - In connection with funding of operations and development of new products on June 28,1999, the Company assumed a loan in the amount of $400,000 payable to the CEDLI. The interest rate applicable to the note is variable, and bears interest at a rate of 2% over prime. The interest rate as of December 31, 2003 was 6%. Payments are made in monthly installments of $6,667 each until August 2004. The Company repaid the entire outstanding balance of the loan in March 2004. Interest expense on the CEDLI loan for the years ended December 31, 2004 and 2003 was $650 and $ 5,298. CONVERTIBLE NOTES - In August and December of 2002, the Company issued $1,303,815 in convertible promissory notes. These notes are convertible into Series A preferred stock. The notes bear interest of 8% per annum till March of 2004, and were adjusted to 6% thereafter. On December 13, 2004, the convertible promissory notes were converted into Series A-1 preferred stock. The outstanding principal amount and interest accrued on the notes totaled $1,516,946 at the date of conversion. Interest expense on the convertible notes for the years ended December 31, 2004 and 2003 was $70,931 and $110,821. In March and September of 2004, the Company issued $674,494 in convertible promissory notes. These notes are convertible into Series A preferred stock. The notes issued in March bear interest of 6% per annum. In addition, common stock warrants were issued in connection with the convertible notes (see Note 8, Common Stock). On December 13, 2004, the 2004 convertible promissory notes were converted into Series A-1 preferred stock. The outstanding principal amount and interest accrued on the notes totaled $686,082 at the date of conversion. Interest expense on the convertible notes for the year ended December 31, 2004 was $11,587. C-23 ALPHA INNOTECH CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) 5. COMMITMENTS AND CONTINGENCIES The Company rents its office facilities under an operating lease, which expires on December 2011. Under the terms of the lease, the Company is responsible for taxes, insurance and maintenance expenses. Rent expense for the years ended December 31, 2004 and 2003 was $444,788 and $414,068. At December 31, 2004, total future minimum facility lease payments are as follows: Year ending December 31: 2005 $ 440,766 2006 449,766 2007 458,955 2008 468,338 2009 477,918 Thereafter 945,218 ------------ Total minimum lease obligations: $ 3,240,960 ============ Under the terms of the 2001 facility lease agreement, the Company is obligated to provide the lessor with a security deposit of $66,500, which is included in other assets. 6. INCOME TAXES No provision or benefit for income taxes has been recognized for the years ended December 31, 2004 and 2003 as the Company has incurred net operating losses for income tax purposes and had no loss carryback potential. The tax effects of temporary differences that give rise to significant portions of the deferred tax assets and deferred tax liabilities are as follows: December 31, December 31, 2004 2003 ----------- ----------- DEFERRED TAXES Net operating loss carryforwards $ 3,234,662 $ 2,121,197 Research and development credits 539,121 409,121 Reserves and accruals .......... 759,546 732,759 ----------- ----------- Total ...................... 4,533,329 3,263,077 Less valuation allowance ....... (4,533,329) (3,263,077) ----------- ----------- Deferred taxes ............. $ -- $ -- =========== =========== The net change in the valuation allowance for the years ended December 31, 2004 and 2003 was $1,270,252 and $637,805. Management believes that sufficient uncertainty exists regarding the future realization of deferred tax assets, and, accordingly a full valuation allowance is required. The difference between the expected provision for income taxes (based on the U.S. federal statutory tax rate of 34%) to the Company's actual income tax provison (effective tax rate of 0%) primarily relates to a full valuation allowance. C-24 ALPHA INNOTECH CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) 6. INCOME TAXES (CONTINUED) At December 31, 2004, the Company had federal and state net operating loss carryforwards of approximately $8,400,000 and $6,300,000. The federal and state net operating loss carryforwards will expire in various periods through 2024. At December 31, 2003, the Company had federal and state research and development tax credits of approximately $300,000. The federal research credits expire in various periods through 2024 and the California research credits can be carried forward indefinitely. Utilization of net operating loss carryforwards may be subject to substantial annual limitation due to the ownership change limitations provided by the Internal Revenue Code of 1986 and similar state provisions. The annual limitation may result in the expiration of net operating losses and tax credits before utilization. 7. REDEEMABLE CONVERTIBLE PREFERRED STOCK The following table summarizes the Company's redeemable convertible preferred stock:
December 31, December 31, December 31, 2004 2004 2003 --------------------------------------- ----------- ----------- Issued and Liquidation Redemption Redemption Authorized Outstanding Amount Value Value ----------- ----------- ----------- ----------- ----------- Series A preferred shares ("Preferred Stock") .. 14,000,000 10,533,334 $ 7,900,001 $10,273,256 $ 9,568,853 Series A-1 preferred shares ("Preferred Stock") .. 10,000,000 7,343,418 2,203,027 2,180,733 -- ----------- ----------- ----------- ----------- ----------- Total redeemable preferred stock 24,000,000 17,876,752 $10,103,028 $12,453,989 $ 9,568,853 =========== =========== =========== =========== ===========
The rights, preferences, privileges and restrictions thereof are summarized as follows: VOTING - Each share of Preferred Stock has voting rights equal to an equivalent number of shares of common stock into which it is convertible and votes together as one class with the common stock. As long as at least 3,000,000 shares of convertible Preferred Stock remain outstanding, the Company must obtain approval from a majority of holders of convertible Preferred Stock in order to alter the Article of Incorporation as related to convertible Preferred Stock, change the authorized number of shares of convertible Preferred Stock, repurchase any shares of common stock other than shares subject to the right of repurchase by the Company, change the authorized number of Directors, authorize a dividend for any class or series other than convertible Preferred Stock. The holders of Preferred Stock, voting as a separate class, shall be entitled to elect two members to the Board of Directors. Likewise, the holders of common stock shall be entitled to elect two members to the Board of Directors. The remaining members of the Board of Directors shall be elected by the holders of preferred and common stock voting as a single class. REDEMPTIONS - The Preferred Stock Series A may be redeemed beginning May 11, 2005. The Preferred Stock Series A-1 may be redeemed beginning December 13, 2008. The Company will redeem a third the outstanding shares upon written request of the holders. An additional third are redeemable on each of the subsequent anniversaries. C-25 ALPHA INNOTECH CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) 7. REDEEMABLE CONVERTIBLE PREFERRED STOCK (CONTINUED) Since the redemption is not within the control of the Company, the company is accreting Preferred Stock to its expected redemption value. During the years ended December 31, 2004 and 2003, the Company recorded accretion of $704,403 and $704,403 to increase the Preferred Stock from the carrying amount to its expected redemption value. DIVIDENDS - Holders of Preferred Stock, are entitled to receive a cumulative dividend at the annual rate of 8% per share. The Company has accrued for dividends as the dividends are payable upon a redemption. Such dividends are payable in preference to any dividends for common stock declared by the Board of Directors. The Company has declared no dividend to date. LIQUIDATION - In the event of liquidation, holders of Preferred Stock are entitled to a per share distribution in preference to the holders of common stock. This per share distribution is equal to the original issue price of $0.75 per share of Series A preferred stock, plus any accrued unpaid dividends, and $0.30 per share of Series A-1 preferred stock, plus any accrued unpaid dividends. In the event funds are insufficient to make a complete distribution to the holders of Preferred Stock as described above, the assets will be distributed ratably among the holders of each series in proportion to the full amounts to which they would otherwise be respectively entitled. After payment of the full liquidation preferred of Preferred Stock, as set forth above, the remaining assets of the Company available for distribution, if any, shall be distributed ratably to the holders of the common stock and the Preferred Stock as described in the section "Conversion," below. A merger, consolidation or sale of all or substantially all of the assets of the Company in which the stockholders of the Company immediately prior to the transaction possess less than 50% of the voting power of the surviving entity (or its parent) immediately after the transaction shall be deemed a liquidation, dissolution or winding up of the Company. CONVERSION - Shares of Series A and A-1 preferred stock are convertible into one share of common stock at the option of the holder, subject to adjustments. The adjusted conversion rate at December 31, 2004 for each series of preferred stock is as follows: o Series A current conversion rate after adjustment is 1 to 1.103, and all outstanding shares of Series A preferred stock are convertible into an aggregate of 11,618,267 shares of common stock. o Series A-1 current conversion rate after adjustment is 1 to 1, and all outstanding shares of Series A-1 preferred stock are convertible into an aggregate of 7,343,418 shares of common stock. Such conversion is automatic upon the effective date of a public offering of common stock for which the aggregate proceeds are at least $25 million, with a public offering price per share not less than $3.75 per share or upon the vote of at least 66-2/3% of the outstanding shares of Preferred Stock. A total of 24,000,000 shares of common stock have been reserved for issuance upon the conversion of Preferred Stock. SERIES A PREFERRED STOCK WARRANTS - In 2001, in conjunction with the Comerica line of credit agreement, the Company issued a warrant to Comerica to purchase 25,000 shares of Series A preferred stock with an exercise price of $1.96 per share. The warrant remain exercisable at December 31, 2004 and will expire on October 2006. In 2000, in conjunction with the Comerica line of credit agreement, the Company issued a warrant to Comerica to purchase 71,429 shares of Series A preferred stock with an exercise price of $1.96 per share. The warrants remain exercisable and outstanding at December 31, 2004 and expire on August 2005. C-26 ALPHA INNOTECH CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) 7. REDEEMABLE CONVERTIBLE PREFERRED STOCK (CONTINUED) During 2000, the Company issued warrants to purchase an aggregate of 333,334 shares of Series A preferred stock with an exercise price of $0.75 per share as additional consideration for the convertible notes payable. The warrants remain exercisable at December 31, 2003 and will expire in October of 2006. The following table summarizes information concerning outstanding and exercisable Series A preferred stock warrants as of December 31, 2004:
Warrants Exercisable at Warrants Outstanding at December 31, 2004 December 31, 2004 --------------------------------------------- -------------------------- Weighted Average Weighted Weighted Range of Remaining Average Average Exercise Number Contractual Exercise Number Exercise Price Outstanding Life (in Years) Price Outstanding Price - ---------- ------------- -------------- ---------- ------------- ---------- $ 0.75 333,334 1.75 $ 0.75 333,334 $ 0.75 1.96 96,429 0.08 1.96 96,429 1.96 ------------- ------------ 429,763 429,763 ============= ============
8. COMMON STOCK At December 31, 2004 and 2003, the Company had reserved sufficient shares of common stock for issuance upon conversion of preferred stock and exercise of stock options. Common stockholders are entitled to dividends as and when declared by the Board of Directors subject to the prior rights of the preferred stockholders. The holders of each share of common stock are entitled to on vote. WARRANTS FOR COMMON STOCK - During 2004, the Company issued warrants to its shareholders to purchase an aggregate of 1,000,000 shares of common stock with an exercise price of $0.01 per share as additional consideration for the shareholders' investment in the Company. Using the Black-Scholes pricing model and the following assumption: estimated volatility of 70%, a contractual life of five years, a zero dividend rate, 3.83%-4.13% rate of return, and fair value of the common stock of $0.30 per share, the Company determined the allocated fair value of the warrants was $240,000 at the date of grant. The warrants were recorded as a discount to notes payable. The Company accreted $240,000 of the discount to interest expense for the year ended December 31, 2004. During 2004, the Company issued warrants to its officers to purchase an aggregate of 1,695,057 shares of common stock with an exercise price of $0.01 per share in connection with the officers' forfeiture of $363,224 of salary. The warrants remain exercisable at December 31, 2004 and will expire in December 2009. During March and September of 2004, the Company issued warrants to purchase an aggregate of 269,797 shares of common stock at the price of $0.01 per share as additional consideration for the notes payable financing (see Note 4, debt). The warrants remained exercisable at December 31, 2004 and will expire in March 2009. C-27 ALPHA INNOTECH CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) 8. COMMON STOCK (CONTINUED) During March and September of 2004, the Company issued warrants to purchase an aggregate of 269,797 shares of common stock at the price of $0.01 per share as additional consideration for the notes payable financing (see Note 4, debt). Using the Black-Scholes pricing model and the following assumption: estimated volatility of 70%, a contractual life of five years, a zero dividend rate, 3.83%-4.13% rate of return, and fair value of the common stock of $0.30 per share, the Company determined the allocated fair value of the warrants was $65,036 at the date of grant. The warrants were recorded as a discount to notes payable. The Company accreted $65,036 of the discount to interest expense for the year ended December 31, 2004. The warrants remained exercisable at December 31, 2004 and will expire in March 2009. During August and December of 2002, the Company issued warrants to purchase an aggregate of 869,253 shares of common stock at the price of $0.01 per share as additional consideration for the notes payable financing (see Note 4, debt). Using the Black-Scholes pricing model and the following assumption: estimated volatility of 70%, a contractual life of five years, a zero dividend rate, 2.93%-3.25% rate of return, and fair value of the common stock of $0.30 per share, the Company determined the allocated fair value of the warrants was $212,280 at the date of grant. The warrants were recorded as a discount to notes payable. The Company accreted $0 and $171,577 of the discount to interest expense for the years ended December 31, 2004 and 2003. The warrants remained exercisable at December 31, 2004 and will expire in August and December of 2007. The following table summarizes information concerning outstanding and exercisable common stock warrants as of December 31, 2004:
Warrants Exercisable at Warrants Outstanding at December 31, 2004 December 31, 2004 --------------------------------------------- -------------------------- Weighted Average Weighted Weighted Range of Remaining Average Average Exercise Number Contractual Exercise Number Exercise Price Outstanding Life (in Years) Price Outstanding Price - ---------- ------------- -------------- ---------- ------------- ---------- $ 0.01 3,834,107 4.39 $ 0.01 3,834,107 $ 0.01 ============= =============
STOCK OPTION PLAN - In 1999, the Company adopted the 1999 Stock Plan (the "Plan"). Under the Plan, the Company may issue options to purchase common stock to employees, directors and consultants. Options granted under the Plan may be incentive stock options or non-qualified stock options. Stock purchase rights may also be granted under the Plan. Incentive stock options ("ISO") may be granted only to Company employees, which includes officers and directors of the Company. Non-qualified stock options ("NSO") and stock purchase rights may be granted to employees and consultants. The Board of Directors has the authority to determine to whom options will be granted, the number of options, and the terms and the exercise price. Options are to be granted at an exercise price not less than fair market value for an ISO or 85% of fair value for an NSO. For individual holding more than 10% of the voting rights of all classes stock, the exercise price of an option will not be less than 110% of fair market value. Options become exercisable at least 20% per year over five years from the date of grant. C-28 ALPHA INNOTECH CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) 8. COMMON STOCK (CONTINUED) The following tables summarize information concerning outstanding and exercisable stock options as of December 31, 2004:
Weighted - Shares Average Available Options Exercise Aggregate For Grant Outstanding Price Share Price ----------- ----------- ----------- ----------- Balance, December 31, 2002 ... 2,173,400 2,567,975 $ 0.29 $ 752,780 Granted ...................... (1,392,000) 1,392,000 0.30 417,600 Exercised .................... -- (61,719) 0.28 (17,431) Cancelled .................... 68,339 (68,339) 0.28 (18,823) Expired ...................... 14,991 (14,991) 0.26 (3,907) ----------- ----------- ----------- ----------- Balance, December 31, 2003 864,730 3,814,926 -- 1,130,219 Exercised .................... -- (7,182) 0.22 (1,580) Cancelled .................... 121,435 (121,435) 0.30 (36,430) Expired ...................... 83,517 (83,517) 0.29 (24,220) ----------- ----------- ----------- ----------- Balance, December 31, 2004 1,069,682 3,602,792 -- $ 1,067,989 =========== =========== =========== ===========
Options Exercisable at Options Outstanding at December 31, 2004 December 31, 2004 --------------------------------------------- -------------------------- Weighted Average Weighted Weighted Range of Remaining Average Average Exercise Number Contractual Exercise Number Exercise Price Outstanding Life (in Years) Price Outstanding Price - ---------- ------------- -------------- ---------- ------------- ---------- $ 0.16 312,300 5.51 $ 0.16 311,101 $ 0.16 0.30 2,240,492 7.88 0.30 1,152,305 0.30 0.33 1,050,000 6.41 0.33 735,000 0.33 ------------- ------------- 3,602,792 2,198,406 ============= =============
During 2004 and 2003, the Company granted none and 15,000 options to purchase common stock to outside consultants for services rendered. These stock options were granted at an exercise price equal to the then estimated fair value of the common stock, for which expense of $0 and $3,672 was recorded as deferred stock-based compensation during 2004 and 2003 and is being amortized to general and administrative expense over the vesting period. $3,684 and $25,707 was recognized and recorded to general and administrative expense in 2004 and 2003. C-29 ALPHA INNOTECH CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) 8. COMMON STOCK (CONTINUED) For these options, the Company calculated the fair value of each option on the date of grant using the Black-Scholes option pricing model as prescribed in SFAS No. 123 using the following assumptions: December 31, 2003 ------------------ Risk-free interest rate ...................... 4.05% Expected life (in years) ..................... 10 Dividend yield ............................... -- Expected volatility .......................... 70% 9. EMPLOYEE BENEFIT PLAN The Company offers the Alpha Innotech Corporation 401(k) Retirement Plan ("401(k) Plan"), a qualified voluntary contributory saving plan, available to substantially all the Company's employees. Eligible employees may contribute up to 15% of their pretax annual compensation, up to the amount allowed pursuant to the Internal Revenue Code. In 2004 and 2003, the Company did not match its employees contributions. The Company's cost of the 401(k) Plan for the years ended December 31, 2004 and 2003 was $0 and $0. 10. XTRANA MERGER On December 14, 2004, Xtrana, Inc., a Delaware corporation ("Xtrana"), AIC Merger Corporation, a California corporation and a wholly-owned subsidiary of Xtrana ("Xtrana Sub"), and the Company entered into an Agreement and Plan of Merger pursuant to which Xtrana Sub will be merged with and into the Company, with the Company continuing after the Merger as the surviving corporation and a wholly-owned subsidiary of Xtrana. This plan of merger has yet to be completed. 11. PRIOR PERIOD ADJUSTMENT The Company made a prior period adjustment due to the determination that as of December 31, 2002, a balance totaled $638,480 in deferred revenue was omitted from the financial statements. The management of the Company restated accumulated deficit as of January 1, 2003. The effect of the restatement is to increase deferred revenue and accumulated deficit by $638,480. C-30 RECORD OF ISSUANCE Name of Client Alpha Innotech Corporation --------------------------------------------------------------- Client Number 11643-000 --------------------------------------------------------------- Description of Report Document: Financial Statements for 2004 and 2003 ----------------------------------------------- Date of Report: March 4, 2005 ----------------------------------------------- Date Report Issued April 5, 2005 ----------------------------------------------- Mailed to: Mr. Bhavna Desai --------------------------------------------------------------- Address: Alpha Innotech Corporation --------------------------------------------------------------- 2401 Merced St. --------------------------------------------------------------- San Leandro, CA 94577 --------------------------------------------------------------- Number of copies issued to client: 15 (10 bound, 5 unbound) ----------------------------------------- Number of copies issued to this office: 4 -------------------------------------- Partner/Director: M. Kelly ------------------------------------------------------ Manager: ------------------------------------------------------ Accountant in charge: D. Zhu ----------------------------------------------- Review of Working Papers: M. Kelly ----------------------------------------------- Primary Review: ----------------------------------------------- Overriding Review ----------------------------------------------- Special Review: ----------------------------------------------- Report: INITIALS DATE Report drafted by : D. Zhu 3/05 ----------------------------------------- References checked by: M. Kelly 3/05 ----------------------------------------- Primary review of report by: ----------------------------------------- Manager: ----------------------------------------- Partner/Director: M. Kelly 3/05 ----------------------------------------- Concurring review by: B. Rowbotham 3/05 ----------------------------------------- Final report document checked by: C. Quintos 3/05 ----------------------------------------- Report signed by: M. Kelly 3/05 ----------------------------------------- Client's representative(s) with whom the report was reviewed, date of review, and by whom: Bhavna Desai by Mark Kelly 3/05 - -------------------------------------- ----------------------------------------- I have reviewed this Record of Issuance for reports, and I am satisfied that all necessary reviews have been completed prior to the issuance of this report. Signature: Date: --------------------------- -------------------------------- C-31 APPENDIX D AMENDMENT TO CERTIFICATE OF INCORPORATION CERTIFICATE OF AMENDMENT OF AMENDED AND RESTATED CERTIFICATE OF INCORPORATION OF XTRANA, INC. The undersigned, Michael D. Bick, Chairman of the Board of Directors of Xtrana, Inc. (the "Corporation"), a corporation organized and existing by virtue of the General Corporation Law (the "GCL") of the State of Delaware, does hereby certify pursuant to Section 103 of the GCL as to the following: 1. The name of the Corporation is Xtrana, Inc. The original Certificate of Incorporation was filed with the Secretary of State of the State of Delaware on January 7, 1987. 2. The terms and provisions of this Certificate of Amendment (i) have been approved by the Board of Directors of the Corporation in a resolution setting forth and declaring advisable the amendment contained herein and (ii) have been duly approved by the required number of shares of outstanding stock of the Corporation, in each case pursuant to and in accordance with Section 242 of the General Corporation Law of the State of Delaware. 3. Article IV of the Corporation's Amended and Restated Certificate of Incorporation is hereby amended and restated as follows: "The total number of shares of stock which the Corporation is authorized to issue is Fifty Million (50,000,000), all of which shall be Common Stock, par value $0.01 per shares. Simultaneously with the effective date of the filing of this amendment to the Amended and Restated Certificate of Incorporation (the "Effective Date"), each share of Common Stock of the Corporation issued and outstanding or held as treasury shares immediately prior to the Effective Date (the "Old Common Stock") shall automatically be reclassified and continued (the "Reverse Split"), without any action on the part of the holder thereof, as one-tenth on one share (0.1) of Common Stock. The Corporation shall not issue fractional shares on account of the Reverse Split. Holders of Old Common Stock who would otherwise be entitled to a fraction of a share on account of the Reverse Split shall receive, upon surrender of the stock certificates formerly representing shares of the Old Common Stock, in lieu of such fractional share, one whole share of Common Stock. The Corporation's authorized shares of Common Stock, each having a par value of $0.01 per share, shall not be changed. The Corporation's stated capital shall be reduced by an amount equal to the aggregate par value of the shares of Common Stock issued prior to the effectiveness of this Certificate of Amendment which, as a result of the Reverse Split provided for herein, are no longer issued shares of Common Stock." IN WITNESS WHEREOF, the undersigned has executed this Certificate of Amendment of Amended and Restated Certificate of Incorporation as of the __ day of ______________, 2005. __________________________________ Michel D. Bick, PhD Chairman of the Board of Directors D-1 XTRANA, INC. PROXY FOR ANNUAL MEETING OF STOCKHOLDERS THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS The undersigned, a stockholder of XTRANA, INC., a Delaware corporation (the "Company"), hereby nominates, constitutes and appoints Michael D. Bick, Ph.D. and James H. Chamberlain, or either one of them, as proxy of the undersigned, each with full power of substitution, to attend, vote and act for the undersigned at the Annual Meeting of Stockholders of the Company, to be held on July 15, 2005, and any postponements or adjournments thereof, and in connection therewith, to vote and represent all of the shares of the Company which the undersigned would be entitled to vote with the same effect as if the undersigned were present, as follows: A VOTE FOR ALL PROPOSALS IS RECOMMENDED BY THE BOARD OF DIRECTORS: Proposal 1. To elect the Board of Directors' six nominees as directors: Michael D. Bick, Ph.D. Nagesh Mhatre, Ph.D. Darryl Ray, Ph.D. James H. Chamberlain Haseeb Chaudhry William Snider |_| FOR ALL NOMINEES LISTED ABOVE (except as marked to the contrary below) |_| WITHHELD for all nominees listed above (INSTRUCTION: To withhold authority to vote for any individual nominee, write that nominee's name in the space below:) ----------------------------------------------------------------------- The undersigned hereby confer(s) upon the proxies, and each of them, discretionary authority with respect to the election of directors in the event that any of the above nominees is unable or unwilling to serve. Proposal 2. To adopt the Agreement and Plan of Merger, dated as of December 14, 2004, as amended, by and among Xtrana, Inc., AIC Merger Corporation, a direct wholly-owned subsidiary of Xtrana, Inc. and Alpha Innotech Corporation, pursuant to which AIC Merger Corporation will be merged with and into Alpha Innotech Corporation, with Alpha Innotech Corporation as the surviving corporation in the merger. |_| FOR |_| AGAINST |_| ABSTAIN Proposal 3. To amend our Certificate of Incorporation to effect a reverse stock split pursuant to which ten shares of the Company's outstanding common stock will be exchanged for one new share of common stock immediately prior to the consummation of the proposed merger. |_| FOR |_| AGAINST |_| ABSTAIN Proposal 4. To amend our Certificate of Incorporation to change the name of our corporation to Alpha Innotech Corp. following a successful completion of the proposed merger. |_| FOR |_| AGAINST |_| ABSTAIN The undersigned hereby revokes any other proxy to vote at the Annual Meeting, and hereby ratifies and confirms all that said attorneys and proxies, and each of them, may lawfully do by virtue hereof. With respect to matters not known at the time of the solicitation hereof, said proxies are authorized to vote in accordance with their best judgment. THIS PROXY WILL BE VOTED IN ACCORDANCE WITH THE INSTRUCTIONS SET FORTH ABOVE OR, TO THE EXTENT NO CONTRARY DIRECTION IS INDICATED, WILL BE TREATED AS A GRANT OF AUTHORITY TO VOTE FOR ALL PROPOSALS. IF ANY OTHER BUSINESS IS PRESENTED AT THE ANNUAL MEETING, THIS PROXY CONFERS AUTHORITY TO AND SHALL BE VOTED IN ACCORDANCE WITH THE RECOMMENDATIONS OF THE PROXIES. The undersigned acknowledges receipt of a copy of the Notice of Annual Meeting and accompanying Proxy Statement dated May __, 2005, relating to the Annual Meeting. Dated:___________________________, 2005 Signature:_____________________________ Signature:_____________________________ Signature(s) of Stockholder(s) (See Instructions Below) The Signature(s) hereon should correspond exactly with the name(s) of the Stockholder(s) appearing on the Share Certificate. If stock is held jointly, all joint owners should sign. When signing as attorney, executor, administrator, trustee or guardian, please give full title as such. If signer is a corporation, please sign the full corporation name, and give title of signing officer. |_| Please indicate by checking this box if you anticipate attending the Annual Meeting. PLEASE MARK, SIGN, DATE AND RETURN THE PROXY CARD PROMPTLY USING THE ENCLOSED ENVELOPE -----END PRIVACY-ENHANCED MESSAGE-----