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 (AMENDMENT NO. 3)
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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.
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(Name of Registrant as Specified in Its Charter)
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(Name of Person(s) Filing Proxy Statement, if Other Than the Registrant)
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|X| No Fee Required
|_| Fee computed on table below per Exchange Act Rules 14a-6(i)(1) and
0-11.
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(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
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|X| Fee paid previously with preliminary materials:
$2,422 fee paid in connection with Preliminary Proxy Statement filed on May 16,
2005.
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|_| 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
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statement number, or the form or schedule and the date of its filing.
(1) Amount previously paid:
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(4) Date filed:
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XTRANA, INC.
P.O. BOX 688
SEDALIA, COLORADO 80135
(303) 466-4424
August __, 2005
Dear Stockholders:
I am pleased to invite you to attend Xtrana, Inc.'s Annual Meeting of
Stockholders to be held October 3, 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. To approve a proposal to grant our management the
discretionary authority to adjourn the Annual Meeting to a
later date in order to enable our management and Board of
Directors to continue to solicit additional proxies in favor
of Proposals No. 2, 3 and 4 above.
6. 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 OCTOBER 3, 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 October 3,
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 approve a proposal to grant our management the
discretionary authority to adjourn the Annual Meeting to a
later date in order to enable our management and Board of
Directors to continue to solicit additional proxies in favor
of Proposals No. 2, 3 and 4 above.
6. 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 August 12,
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. The approval of the matters to be
voted upon in connection with Proposal number 5 requires the approval of a
majority of the votes cast on that proposal.
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: August __, 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
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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 October 3, 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 August 12, 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 beginning on August 12, 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, (5) approve a proposal to grant
our management the discretionary authority to adjourn the Annual Meeting to a
later date in order to enable our management and Board of Directors to continue
to solicit additional proxies in favor of the prior three proposals, and (6)
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.
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THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS THAT THE XTRANA
STOCKHOLDERS VOTE "FOR" THE PERSONS NOMINATED FOR ELECTION AS DIRECTORS.
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, CHANGE OUR CORPORATE NAME AND "FOR" THE
ADJOURNMENT PROPOSAL.
* * *
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.............................................6
PROPOSAL NO. 1: ELECTION OF DIRECTORS..........................................9
PROPOSAL NO. 2: MERGER........................................................17
PROPOSAL NO. 3: REVERSE STOCK SPLIT...........................................68
PROPOSAL NO. 4: NAME CHANGE...................................................73
PROPOSAL NO. 5: ADJOURNMENT PROPOSAL..........................................74
BENEFICIAL OWNERSHIP OF COMMON STOCK..........................................75
PROPOSALS OF STOCKHOLDERS.....................................................76
OTHER MATTERS.................................................................76
INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM.................................76
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE...............................77
APPENDIX A: AGREEMENT AND PLAN OF MERGER (INCLUDING AMENDMENTS NO. 1 & 2)....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.
See page 39, "PROPOSAL NO. 2 MERGER - Xtrana
Business and Financial Information"
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.
See page 40, "PROPOSAL NO. 2 MERGER - Alpha
Innotech Business and Financial Information"
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 page 17, "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 until March 31, 2006,
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 until March 31, 2006 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.
It is a condition to the closing that we have a
specified minimum amount of cash and cash
equivalents at the closing of the Merger, which
amount is $2,450,000 less certain expenses incurred
by us in connection with the Merger. In addition,
in accordance with the Merger Agreement, we have
previously advanced Alpha Innotech $500,000
pursuant to secured promissory note.
See page 27, "PROPOSAL NO. 2 MERGER - Merger
Consideration"
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 cash and cash equivalents at
the closing in amount equal to $2,450,000
less certain expenses incurred in
connection with the Merger;
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."
See page 25, "PROPOSAL NO. 2 MERGER--Conditions of
the Merger"
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 September 30,
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;
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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
September 30, 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.
See page 25, "PROPOSAL NO. 2 MERGER--Termination;
Termination Fee"
FEDERAL INCOME TAX The Merger is intended to be a tax-free
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 page 28, "PROPOSAL NO. 2
MERGER--Material Federal Income Tax Consequences to
Stockholders"
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
laws of the State of California and the
State of Delaware; and
o compliance with any applicable state
securities laws.
See page 29, "PROPOSAL NO. 2 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.
See page 24, "PROPOSAL NO. 2 MERGER--Covenants"
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 page 6, "THE ANNUAL MEETING OF STOCKHOLDERS--
Votes Required; Quorum."
THE ANNUAL MEETING OF STOCKHOLDERS
ANNUAL MEETING: Our Annual Meeting will be held on October 3, 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:
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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 change the name of our
corporation to Alpha Innotech Corp. upon
successful completion of the Merger;
5. a proposal to grant our management the
discretionary authority to adjourn the
Annual Meeting to a later date in order to
enable our management and Board of
Directors to continue to solicit
additional proxies in favor of Proposals
No. 2, 3 and 4 above; and
6. 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 August 12, 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 page 6, "THE ANNUAL MEETING OF STOCKHOLDERS -
Votes Required; Quorum; and Voting of Proxies."
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 page 30, "PROPOSAL NO. 2 MERGER--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
4
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 page 27, "PROPOSAL NO. 2 MERGER--Board of
Directors' Reasons for the Merger"
5
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 October 3, 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; (5) to grant our management
the discretionary authority to adjourn the Annual Meeting to a later date in
order to enable our management and Board of Directors to continue to solicit
additional proxies in favor of Proposals No. 2, 3 and 4 above and (6) 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 August 12,
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.
The approval of the matters to be voted upon in connection with
adjournment proposal requires the approval of a majority of the votes cast on
the proposal. Broker non-votes and abstentions will have no effect on
the outcome of the vote on the adjournment proposal. Additionally, no proxy that
is specifically marked "AGAINST" approval of the Merger, reverse stock split
and/or the corporate name change will be voted in favor of the adjournment
proposal, unless it is specifically marked "FOR" the discretionary authority to
adjourn the Annual Meeting to a later date.
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.
6
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 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, the reverse stock split, the corporation name
change and the adjournment proposal.
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.
7
BOARD RECOMMENDATIONS
THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS THAT THE XTRANA
STOCKHOLDERS VOTE "FOR" THE PERSONS NOMINATED FOR ELECTION AS DIRECTORS.
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 AND "FOR" THE ADJOURNMENT
PROPOSAL.
8
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 June 30,
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 68 Director 1993
John C. Gerdes, Ph.D. 56 Director 2004
James B. Mahony 56 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
9
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. Since November 2000, Mr.
Chamberlain has served as a director of the West Virginia University Foundation.
Mr. Chamberlain was the founder of. Mr. Chamberlain founded BioSource
International, Inc., a Nasdaq National Market System company dedicated to the
research, development, manufacturing, and marketing of biomedical products to
the diagnostic and research markets, in 1989. Mr. Chamberlain 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 Boards of
Directors of Marligen and Cerionx, both private companies in the biotechnology
industry. 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 has served as President and Managing Partner of
International Capital Partners of Stamford, CT, since 1989. Mr. Ayer was
previously Chairman and Chief Executive Officer of Cametrics, a manufacturer of
precision metal components from 1977 to 1988. Prior to that, Mr. Ayer 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 in 1979, 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 from 1994 to the present. 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
10
Hamilton Health Sciences Corporation, Laboratory Medicine. In addition, Dr.
Mahony is President Elect of the Pan American Society of Clinical Virology.
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 we are 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. We do not maintain a charter for the director nomination
process.
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
11
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.
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.
12
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
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.
13
(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.
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.
14
OPTION GRANTS IN LAST FISCAL YEAR
No stock options were issued to the Names Executive Officers during the
fiscal year ended December 31, 2004.
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 provided for payments of $5,000 per month until
the earlier of September 2004 or the closing of a merger transaction. While the
consulting agreement has terminated, we are continuing to pay Mr. Chamberlain a
monthly fee of $5,000 for his services.
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
15
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 our interim Chief Executive Officer and interim Chief
Financial Officer. The agreement provided for payments of $5,000 per month until
the earlier of September 2004 or the closing of a merger transaction. While the
consulting agreement has terminated, we are continuing to pay Mr. Chamberlain a
monthly fee of $5,000 for his services.
16
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.
In addition, it is a condition to the Merger that our stockholders
approve Proposal No. 3 and Proposal No. 4 below. The proposed reverse stock
split described in Proposal No. 3 and the proposed corporate name change
described in Proposal No. 4 will take effect, if at all, only after Proposals
No. 2, 3 and 4 are approved by the stockholders, and after the Board of
Directors determines that we are prepared to consummate 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 a 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. The Board of Directors conducted an informal
search for potential merger candidates. This process involved the directors
utilizing their contacts and knowledge of various industries to solicit and
identify private companies that would benefit from our status as public company
and available cash. While the search
17
was not limited to companies in specific industries or geographic regions, we
focused on companies in the biotechnology and medical industries. The directors
began this process in January 2004, soon after we reached agreement with Applied
Biosystems for the sale of substantially all our assets.
In January and February of 2004, the Board of Directors considered
whether to engage an investment banking firm to conducts the search for a merger
candidate. The directors weighed the significant fees that would be charged by
investment bankers against the potential benefits of having bankers to manage
the search for and execution of a transaction. After deliberations, the
directors determined that Xtrana and its stockholders would benefit by having
the directors manage the process themselves rather than incur investment banking
fees in connection with the search. In reaching this determination, the Board of
Directors placed importance on conserving as much of our cash, our primary
remaining asset, as possible.
On February 4, 2004, the entire Board of Directors met in Los Angeles,
California to explore a possible transaction with a medical imaging company and
conduct initial due diligence. Also in attendance was a representative of Stubbs
Alderton & Markiles, LLP, our corporate counsel. The directors met with members
of the potential merger partner's management team and engaged in preliminary
negotiations. The Board of Directors met again on February 6, 2004 to discuss
the results of the earlier meeting and determined that the private company
believed its value was too high relative to the valuation it would assign to
Xtrana in a proposed transaction. As a result, the Board of Directors determined
not to pursue this transaction any further and to explore other merger
candidates.
In March and April 2004, members of the Board of Directors continued to
explore a potential merger with various private companies. Board members held
meetings with at least four potential merger candidates. These candidates were
all private companies producing products for the biotechnology or medical
industries. Of the candidates identified, the Board of Directors determined in
May 2004 that Aduromed Corporation, a Connectucut-based manufacturer of waste
sterilization systems and provider of waste disposal services for the medical
community, presented the best opportunity for Xtrana and its stockholders. This
determination was based primarily on Aduromed's existing products sales and
potential for new products under development as compared to the prospects of the
other candidates.
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;
- 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;
18
- 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.
In June, 2004, after conducting preliminary due diligence, we entered
into a non-binding letter of intent to merge with Aduromed Corporation. However,
in September 2004, we announced that we had ended negotiations and terminated
the non-binding letter of intent with Aduromed as result of our due diligence
investigation of Aduromed and its business. Our decision to terminate discussion
with Adorumed was a result of a change in Aduromed's financial position
following execution of the letter of intent, lack of experience of Adorumed's
management team in operating a public company and delays in negotiations of the
definitive agreements.
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 on or
about August 25, 2004. In this initial discussion, Mr. Snider described Alpha
Innotech's general business and current financial condition, Mr. Chamberlain
outlined Xtrana's status and search for a merger partner, and they discussed
potential benefits to both parties of a business combination. After we expressed
interest in a potential transaction, Mr. Chamberlain contacted Mr. Snider and
the parties began initial discussions and due diligence investigations, as
described in more detail below.
On August 30, 2004, James Chamberlain and Michael Bick visited Alpha
Innotech and met with members of Alpha Innotech's management team and directors,
including Haseeb Chaudhry (CEO), Darryl Ray (President) and Nagesh Mahtre
(Chairman). At the meeting, Alpha Innotech gave Mr. Chamberlain and Dr. Bick a
presentation regarding Alpha Innotech's business and operations. In addition,
the parties discussed proposed terms of a merger transaction in which the Xtrana
stockholder would retain 15% of the outstanding shares of the combined company
and receive additional warrants to purchase common stock. The consideration was
determined by arms-length negotiations between the parties and based upon the
relative values attributed by the parties to Alpha Innotech's business and
Xtrana's status of a public company and available cash. In connection with these
negotiations, the Xtrana Board of Directors believed that the value of Xtrana
was approximately $3.2 to $3.3 million, consisting primarily of our cash at the
time of $3 million and an additional $0.2 to $0.3 million attributable to our
status as a public company. Our Board of Directors believed that the enterprise
value of Alpha Innotech was in the range of approximately $14 million to $16
million, which valuation was based on a multiple of approximately 1.4 to 1.5 of
Alpha Innotech's revenues for 2003. The Board of Directors assumed this revenue
multiple figure by taking into account revenue multiple of comparable companies
that had recently been acquired of 2 to 4 times twelve month revenues, and
applying a lower multiple to Alpha Innotech due to factors such as Alpha
Innotech's smaller size and the fact that Alpha Innotech was incurring net
losses.
On September 7, 2004, James Chamberlain and John Gerdes visited Alpha
Innotech and met further senior members of Alpha Innotech's management team. At
this meeting, Dr. Gerdes reviewed and analyzed Alpha Innotech's technology and
intellectual property rights.
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 primary criteria
established by the Board of Directors in its review of potential merger
partners, including established products in the marketplace, revenue production
and a management team
19
in place. In addition, the Board of Directors considered the markets for Alpha
Innotech's existing products and products in development as compared to those of
other merger candidates. The Board of Directors determination to pursue the
transaction with Alpha Innotech was also based on the proposed terms of the
transaction with Alpha Innotech, including the percentage of the combined
company that would be owned by Xtrana stockholders following completion, which
the directors determined provided the most value to the Xtrana stockholders as
compared to the terms offered by other candidates.
On September 24, 2004, our Board of Directors held a meeting and, based
on the factors described above, approved the proposed terms of a transaction
with Alpha Innotech and authorized us to negotiate a definite merger agreement.
Following that meeting, we began negotiations with Alpha Innotech Corporation on
a definitive agreement and engaged in a more detailed due diligence
investigation. In the course of negotiation of the definitive agreement, we
agreed with Alpha Innotech that the Xtrana stockholders would retain 17%
ownership of the combined company immediately following the closing, but that no
warrants would be issued the Xtrana stockholders so as to simplify the structure
of the transaction while maintaining roughly the same relative values of the
companies in the transaction. In order to assist Alpha Innotech with its cash
flow requirements, we also agreed to advance $500,000 to Alpha Innotech pursuant
to a secured promissory note following execution of a definitive agreement.
In early December 2004, the last remaining items of due diligence were
completed by both parties and their respective legal counsel and independent
auditors. Our Board of Directors met on December 2, 2004 to review the
definitive Merger Agreement and other transaction documents, including the form
of $500,000 secured promissory note. The Board unanimously approved the merger
transaction with Alpha Innotech pursuant to the Merger Agreement and other terms
and conditions of the transaction. In approving the transaction, the Board of
Directors determined that the Merger was fair to, and in the best interests of,
Xtrana and stockholders, and recommended that the stockholders approve the
Merger. Our Board of Directors also approved the formal engagement of The Mentor
Group, Inc. to render an opinion as to the fairness, from a financial point of
view, of the Merger to our existing stockholders.
In determining to approve the transaction, the Board of Directors
primarily relied upon its due diligence review of Alpha Innotech, its
consideration of the terms of the transaction with respect to the Company and
its stockholders and discussions between James Chamberlain and the Board's
financial advisors. The due diligence review included, without limitation, Alpha
Innotech's audited annual and unaudited interim financial information, the
results of the legal, technical and business due diligence investigations of
Alpha Innotech conducted by the Company and its advisors, and discussions and
meetings with Alpha Innotech management as described above.
In addition, James Chamberlain, a member of the Board of Directors,
consulted our financial advisor, The Mentor Group, Inc. prior to the Board of
Directors approving the Merger Agreement. Mr. Chamberlain first met with The
Mentor Group on or about November 17, 2004 to discuss the possible engagement of
The Mentor Group to render a fairness opinion. In this meeting, Mr. Chamberlain
outlined the basic structure of the potential transaction, without identifying
Alpha Innotech by name. The Mentor Group also discussed with the Mr. Chamberlain
the amount of its fees for the proposed engagement.
Mr. Chamberlain subsequently talked to The Mentor Group by telephone on
or about November 30, 2004. In this discussion, Mr. Chamberlain described to The
Mentor Group the terms of the proposed transaction and Alpha Innotech's business
and financial condition, and asked The Mentor Group for its initial thoughts on
the likelihood of the transaction being determined as fair to our stockholders
from a financial point of view. While The Mentor Group had not yet conducted its
own independent due diligence investigation, based on the information provided
to the The Mentor Group by us, The Mentor Group indicated to Mr. Chamberlain
that there was a high likelihood that the it would determine the
20
transaction to be fair to our stockholders from a financial point of view. Mr.
Chamberlain subsequently described these conversations with The Mentor Group to
the other directors. This indication by The Mentor Group was based upon the
description of the material terms and conditions of the transaction, the
description of the Alpha Innotech business and products and the Alpha Innotech
financial information provided to The Mentor Group by us, as well as The Mentor
Group's understanding of values of comparable companies. Based on this
information available to The Mentor Group at the time, it conducted a
preliminary analyses of enterprise valuation of Alpha Innotech based upon
revenue multiples for comparable companies and compared this to the value of
Xtrana based upon its asset value. The Mentor Group's indication in these
discussions with the board was subject to completion of its own due diligence
investigation, financial analyses and the delivery of its opinion letter.
On December 10, 2004, the Alpha Innotech Board of Directors held a
meeting and 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 2005, we entered into an amendment to the Merger Agreement
with Alpha Innotech. The amendment was negotiated and executed in light of Alpha
Innotech's needs for additional cash prior the closing of the Merger and to
clarify the parties' intent with respect to certain provisions of the Merger
Agreement. The amendment included the following changes to the Merger Agreement:
- amending the definition of "Minimum Closing Date Cash" to
clarify the parties' intent that the $500,000 would reduce the
amount cash Xtrana is required to have at closing;
- remove the covenant from the Merger Agreement that permitted
to company to pay accrued deferred compensation following the
closing of the Merger to certain Alpha Innotech management
only out of available cash over a specified minimum cash
reserve;
- add a condition to closing of the Merger that Alpha Innotech
obtain at least $1.5 in additional financing, on terms
reasonably acceptable to Xtrana, prior the closing; and
- add a condition to closing that each of Haseeb Chaudhry and
Darryl Ray enter into amendments to their employment
agreements with Alpha Innotech to reduce their annual base
salaries to $100,000.
Alpha Innotech subsequently obtained a $1.5 million loan from
Alexandria Finance, LLC, as described below in further detail, and Messrs.
Chaudhry and Ray have executed the employment agreement amendments required by
the Merger Agreement amendment.
On April 21, 2005, The Mentor Group, Inc. delivered its opinion to our
Board of Directors that the Merger was fair, from a financial point of view, to
our stockholders. The full text of The Mentor Group's written opinion 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. For further information, see "Opinion of Financial Advisors,"
beginning on page 28 of this proxy statement.
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On June 15, 2005, we were informed by the California Department of
Corporations that our request for a fairness hearing on the issuance of
securities in the Merger had been denied due to a newly implemented Department
policy. As a result, we entered into a second amendment to the Merger Agreement
with Alpha Innotech on July 1, 2005. This second amendment included the
following changes to the Merger Agreement:
- memorializing the adjusted exchange ratios for the Merger,
which were adjusted pursuant to the terms of the Merger
Agreement to ratios described in this Proxy Statement;
- elimination of the requirement for a fairness hearing before
the California Department of Corporations as a condition to
closing of the Merger;
- the addition as a closing condition that the Alpha Innotech
execute and delivery investment representation letters in
connection with their acquisition of our shares of common
stock in the Merger;
- the addition of a covenant of the combined to register for
resale the shares issued to the Alpha Innotech shareholders in
the event that the company becomes eligible for use of Form
S-3 for such registration;
- an extension of the termination date for the Merger Agreement
from July 31, 2005 to September 30, 2005, as a result of the
delays in connection with the SEC's review of this Proxy
Statement; and
- change in the date of termination of the escrow and
indemnification period to March 31, 2006.
As a result of the amendment, we agreed with Alpha Innotech that the
shares of our common stock issued in the Merger would be issued pursuant to an
exemption from registration under Regulation D and/or Section 4(2) of the
Securities Act of 1933, that such shares would be "restricted securities" under
the Securities Act in the hands of the Alpha Innotech shareholders and that the
company would agree to register such shares for resale by the Alpha Innotech
shareholders if and when we become eligible for us Form S-3 for such
registration.
THE MERGER AGREEMENT
The following description of the terms of the Merger Agreement
summarizes the material terms and conditions of the Merger Agreement. This
summary description 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.
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;
22
(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"). In addition, it is a condition to the closing that we have a
specified minimum amount of cash and cash equivalents at the closing of the
Merger, which amount is $2,450,000 less certain expenses incurred by us in
connection with the Merger. In accordance with the Merger Agreement, we have
previously advanced Alpha Innotech $500,000 pursuant to secured promissory note.
ESCROW. Of the Merger Consideration, 500,000 shares of our common stock
will be issued and placed in an escrow account until March 31, 2006, and may be
cancelled if Alpha Innotech is liable for damages 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 until
March 31, 2006 and may be released to Alpha Innotech stockholders if we are
liable for damages 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
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;
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;
23
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;
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.
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.
24
CONDITIONS OF THE MERGER. Our obligations and Alpha Innotech
Corporation's obligations to consummate the Merger are subject to certain
conditions, any of which may be waived, 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 cash and cash equivalents at the closing in
amount equal to $2,450,000 less certain expenses incurred in
connection with the Merger;
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 to Alexandria
Finance LLC in connection with this loan financing. ETP Finance LLC, an entity
in which William Snider (a director of Alpha Innotech who would also be a
director of the Company following completion of the Merger) owns an 80%
beneficial interest, received 20% of the loan origination fee and 20% of the
warrants issued to Alexandria Finance LLC as compensation for arranging the
financing transaction with Alexandria Finance, LLC. In addition, ETP Finance LLC
will receive a percentage of profits received by Alexandria Finance, LLC over
the life of the loan as additional consideration for its services.
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,
25
o by either Alpha Innotech or us if the closing has not occurred
by September 30, 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 September 30, 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.
The Merger Agreement does not provide for Alpha Innotech to pay a specific
termination fee to us under any circumstances. However, 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.
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.
26
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.
It is a condition to the Merger that we have a minimum amount of cash
and cash equivalents at the closing of the Merger, which amount is equal to
$2,450,000 less certain expenses incurred by us in connection with the Merger.
The cash will be available for the operations and expenses of the combined
company following the completion of the Merger, and will not be paid as
additional consideration to the Alpha Innotech shareholders. In addition, in
accordance with the Merger Agreement, we have previously advanced Alpha Innotech
$500,000 pursuant to secured promissory note. If the Merger is not completed for
any reason, all obligations under this note will become due and payable six
months following the termination of the Merger Agreement.
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.
27
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 discussions between a member of our Board of Directors and our
financial advisor, as described below;
o Xtrana's strategic alternatives, including a liquidation of
the company, and alternatives for enhancement of stockholder
value;
o the fact that our stockholders will have the opportunity to
vote upon the proposed issuance of Xtrana common stock in the
Merger;
o reports of management, legal and financial advisors as to the
results of the due diligence investigation of Alpha Innotech;
o the fact that Xtrana would have board representation of the
combined company; and
o the terms and conditions of the Merger Agreement and all
related transactions.
Our Board of Directors also identified and considered a variety of
potential negative factors in its deliberations concerning the Merger,
including, but not limited to:
o the risk that the benefits sought in the Merger would not be
fully achieved;
o the risk that, notwithstanding the long-term benefits of the
Merger, our stock price might decline in the short term;
o the possibility that the Merger might not be completed or that
completion might be unduly delayed, and the effect of the
public announcement of the Merger on our stock price;
o the expenses and costs to be incurred by us in pursuing
completion of the Merger;
o the fact that Alpha Innotech has not been profitable;
o the risks that new Alpha Innotech products would not be
accepted by the marketplace;
o the likelihood that Alpha Innotech would require additional
capital to develop its products;
o the risk of collection of the $500,000 promissory note issued
to us by Alpha Innotech should the Merger not be completed;
and
o other risks associated with the business of Alpha Innotech
described in the Section entitled "Risk Factors" beginning on
page 40 of this proxy statement.
Our Board of Directors believes that these negative factors could be
managed or mitigated by Xtrana or the combined company or were unlikely to have
a material impact on the Merger or combined company, and that, overall, the
potentially negative factors associated with the Merger were outweighed by the
potential significant benefits to be gained by the Merger. For example, the
Board of Directors believed, after considering the potential benefits and
negative factors associated with the Merger, that:
o the Merger could be completed on the proposed terms and in a
timely manner;
o the potential long-term value to our stockholders of the
Merger was greater than the available alternatives, including
a liquidation of the company;
o costs related to the Merger would be exceeded by the proposed
benefits of the Merger;
o the combined would benefit from our available cash and provide
the Alpha Innotech business with the capital necessary to fuel
its growth;
o integration risks and costs would be minimal since Xtrana has
already ceased substantially all operations; and
28
o our Board of Directors' and management team's experience with
prior acquisitions created confidence that the Merger could be
completed successfully.
In addition, James Chamberlain, a member of the Board of Directors,
consulted our financial advisor, The Mentor Group, Inc. prior to the Board of
Directors approving the Merger Agreement. Mr. Chamberlain first met with The
Mentor Group on or about November 17, 2004 to discuss the possible engagement of
The Mentor Group to render a fairness opinion. In this meeting, Mr. Chamberlain
outlined the basic structure of the potential transaction, without identifying
Alpha Innotech by name. The Mentor Group also discussed with the Mr. Chamberlain
the amount of its fees for the proposed engagement.
Mr. Chamberlain subsequently talked to The Mentor Group by telephone on
or about November 30, 2004. In these discussions, Mr. Chamberlain described to
The Mentor Group the terms of the proposed transaction and Alpha Innotech's
business and financial condition, and asked The Mentor Group for its initial
thoughts on the likelihood of the transaction being determined as fair to our
stockholders from a financial point of view. While The Mentor Group had not yet
conducted its own independent due diligence investigation, based on the
information provided to the The Mentor Group by us, The Mentor Group indicated
to Mr. Chamberlain that there was a high likelihood that the it would determine
the transaction to be fair to our stockholders from a financial point of view.
Mr. Chamberlain subsequently described these conversations with The Mentor Group
to the other directors. This indication by The Mentor Group was based upon the
description of the material terms and conditions of the transaction, the
description of the Alpha Innotech business and products and the Alpha Innotech
financial information provided to The Mentor Group by us, as well as The Mentor
Group's understanding of values of comparable companies. Based on this
information available to The Mentor Group at the time, it conducted a
preliminary analyses of enterprise valuation of Alpha Innotech based upon
revenue multiples for comparable companies and compared this to the value of
Xtrana based upon its asset value. The Mentor Group's indication in these
discussions with the board was subject to completion of its own due diligence
investigation, financial analyses and the delivery of its opinion letter.
The foregoing discussion of material factors considered by the Board of
Directors is not intended to be exhaustive, but does set forth the principal
factors considered by the Board of Directors. In reaching the unanimous
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.
The Board of Directors believes that the Merger is advisable, and is
fair to and in the best interests of Xtrana and its stockholders.
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. The issuance
of Xtrana common stock in the Merger is intended to be a transaction exempt from
registration under Regulation D of the Securities Act of 1933, as amended. If
the Merger is completed, Xtrana will file a Form D with the Securities and
Exchange Commission in order to comply with Form D and will undertake any other
actions and/or filings required by any applicable state securities laws.
29
INTEREST OF CERTAIN PERSONS IN THE MERGER
Except as described below, 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.
Each of our directors holds options to purchase shares of our common
stock. The Compensation Committee of our Board of Directors has adopted
resolutions providing for amendment of all outstanding options, effective as of
and contingent upon the occurrence of the closing of the Merger, to provide that
regardless of the termination of the optionee's service, the options shall
continue to be exercisable by the optionee for a period of time equal to the
lesser of five years from the closing date of the Merger and the remaining term
of such option.
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.
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.
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 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
30
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 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 as set forth in its written opinion
(which is attached to this Proxy Statement as APPENDIX B and incorporated hereby
by this reference) and in the discussion that follows, 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 APPENDIX 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
31
THIS PROXY STATEMENT IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO THE FULL TEXT
OF THE OPINION.
Mentor's opinion is addressed to the Board of Directors in its
evaluation of the Transaction and, except for the inclusion of the option in
this Proxy Statement, 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 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;
32
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;
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.
In performing its analyses, Mentor relied upon the accuracy and
completeness of the foregoing information, and did not assume any responsibility
for and did not conduct any independent verification of such information. In
addition, it did not conduct any independent valuation or appraisal of the
assets or liabilities of Alpha Innotech or Xtrana or any of their respective
subsidiaries, or concerning the solvency or value of any of the foregoing
entities, and was not furnished with any such valuation or appraisal. With
respect to financial forecasts and projections, Mentor assumed that such
forecasts and projections were reasonably prepared on bases reflecting the best
currently available estimates and judgments of the management of Alpha Innotech
as to the future financial performance of Alpha Innotech, and it also assumed
that such forecasts and projections will be realized in the amounts and at the
times contemplated thereby. Mentor assumed no responsibility for and expressed
no view as to any such forecasts and projections or the assumptions on which
they were based.
In rendering this opinion, Mentor assumed, with Xtrana's 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
33
generality of the foregoing, for the purpose of this opinion, Mentor 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 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 Xtrana.
Pursuant to the conditions, scope of its engagement, and limitations
and understandings described in the foregoing paragraphs, Mentor's opinion
addresses the fairness of the Transaction from a financial point of view to the
pre-Transaction common stockholders of Xtrana. Mentor's opinion does not address
the fairness of the Transaction to creditors or any security holders of the
Company, either debt or equity, other than the pre-Transaction common
stockholders of Xtrana, and Mentor expressly disclaims any obligation to do so.
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. While Mentor considered the liquidation
value of Xtrana in its analysis, 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
34
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 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 APPENDIX 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 similar categories of
products as Alpha Innotech to a similar customer base, specifically 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") projected revenues and Equity Value to NFY projected 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. Specifically, Mentor assumed in its analysis that the industry
performance, general business, economic, market and financial conditions would
remain generally similar on an ongoing basis as at of the date of its opinion.
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.
35
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 projected 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 projected 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 range of 1.3x to 1.8x; EV to NFY projected revenue
multiples in the range of 1.0x to 1.1x; and Equity Value to NFY projected net
income multiples in the range of 6.6x to 7.5x. Mentor selected a range of
multiples for Alpha Innotech that were below median multiple of the Comparables
in order to reflect Alpha Innotech's greater company-specific risks compared
with that of the Comparables. The risks relate to, among other factors, Alpha
Innotech's smaller size, lower growth rate, more limited distribution channels,
lower profitability, and less diversification of products and markets relative
to the Comparables.
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 discounted 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. Mentor used the Capital Asset Pricing Model ("CAPM") to
calculate a risk-adjusted discount rate for Alpha Innotech of 35 percent. The
CAPM provides a discount rate that is the sum of the rate of return on a risk
free investment, rate of return on a risky equity investment and an additional
rate of return required to compensate a hypothetical investor for specific risks
pertaining to the subject company. The selected range of the assumed
risk-adjusted discount rates is plus or minus one percent of the discount rate
resulting from the application of CAPM for Alpha Innotech. 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") during the last five years 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
36
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 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 selected a range of multiples for Alpha
Innotech that were below median multiple of the Transaction Comparables in order
to reflect Alpha Innotech's greater company-specific risks compared with that of
the Transaction Comparables. The risks relate to, among other factors, Alpha
Innotech's smaller size, more limited distribution channels, lower
profitability, and less diversification of products and markets relative to the
Transaction Comparables.
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 Xtrana. Mentor did
not rely on the liquidation value of Xtrana in its analysis because Mentor
valued Xtrana as a going concern and Mentor ascertained that the liquidation
value of Xtrana would have resulted in the Xtrana common stockholders receiving
less than what they could receive if the Company was valued, pursuant to the
asset approach described herein, as a going concern.
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. The only item on Xtrana's balance sheet at March 31, 2005
that was adjusted was the carrying or book value of the note receivable from
Alpha Innotech, which was increased in value by $500,000 compared to its balance
sheet or book value of $0. 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.
37
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 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 Mentor Group arrived at its conclusion by evaluating and comparing
the Enterprise Value of Xtrana as determined under the "Asset Approach" of $2.3
million to $2.8 million to the Enterprise Value of the 17% interest in Alpha
Innotech that is to be attributable to Xtrana's stockholders at the closing of
the transaction pursuant to the terms of the Merger Agreement. The transaction
with Alpha Innotech valued Xtrana's 17% interest in the post-merger entity
(based on The Mentor Group's concluded Enterprise Value range of $18.0 million
to $22.1 million for Alpha Innotech) between approximately $3.1 million and $3.8
million, reflecting a premium over The Mentor Group's range of Xtrana's
Enterprise Values.
The summary set forth above describes the material points of more
detailed analyses performed by Mentor in arriving at its fairness opinion.
38
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 June 30, 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 June 30, 2005, we had issued and outstanding options
covering an aggregate of 1,040,634 shares of our common stock. These options
expire at various dates from December 2005 through April 2012 and have exercises
prices ranging from $0.23 to $1.88 per share. The term of the options may not be
extended under the terms of the applicable option plans. The Compensation
Committee of our Board of Directors has adopted resolutions providing for
amendment of all outstanding options, effective as of and contingent upon the
occurrence of the closing of the Merger, to provide that regardless of the
termination of the optionee's service, the options shall continue to be
exercisable by the optionee for a period of time equal to the lesser of five
years from the closing date of the Merger and the remaining term of such option.
WARRANTS. As of June 30, 2005, we had issued and outstanding warrants
for the purchase of an aggregate of 674,755 shares of our common stock. These
warrants expire at various dates from August 2005 through May 2010 and have
exercises prices ranging from $0.01 to $2.50 per share. The term of each warrant
may be extended by mutual agreement of Xtrana and the warrant holder.
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.
39
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. Alpha Innotech's corporate web site is located at
www.alphainnotech.com.
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 represents a small segment of a life science research
tool market. This market includes a wide range of technologies such as various
types of instruments, reagents, consumables and software. Given the complexities
and focus of these tools for specific applications, Alpha Innotech is not aware
of any objective and accurate third party reports on various life science market
segments that can be used to determine Alpha Innotech's market share in this
market. While Alpha Innotech may not have an accurate third party quantitative
measure of market size for its specific products, Alpha Innotech management
estimates the target market for Alpha Innotech's products is approximately $675
million with a projected growth rate of over 20% annually.
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. The Alpha Innotech NovaRay array
reader was developed for and useful in both microarray and array of arrays
formats.
TECHNOLOGY
Alpha Innotech patent portfolio consists of three issued U.S. patents
and nine U.S. patent applications relating to its proprietary NovaRay(R) and Gel
Imaging technology. These patents expire in 2018, 2022 and 2024.
Under the terms of an agreement between Digital Optical Imaging
Corporation ("DigiOpt") and Alpha Innotech, Alpha Innotech received certain
exclusive rights to make and sell products incorporating the inventions
disclosed in four of DigiOpt's United States patents. These patents describe the
use of micro-optical-electrical-mechanical components such as digital micro
mirror devices for controlling both excitation and emission light in ways that
can improve the performance of instruments like the NovaRay(R). The licenses
remain in effect until the last underlying patent or patent application has
expired or is abandoned. The latest to expire patent covered by this agreement
is scheduled to expire in 2021. Alpha Innotech committed to pay certain patent
prosecution fees and costs; to date these costs have been minimal. Alpha
Innotech committed to pay DigiOpt guaranteed minimum royalties of $40,000 over
the
40
five-year period following the earlier of the first commercial sale of a product
incorporating the technology, or August 2006. Alpha Innotech has not made any
royalty payments to date. DigiOpt may convert the exclusive license rights to
non-exclusive if Alpha Innotech does not make a first commercial sale by August
2006, or terminate them outright if Alpha Innotech does not make a first
commercial sale by February 2007.
Alpha Innotech's proprietary instrument designs and software are also
protected under state and federal trade secret and copyright law.
PRODUCTS
Alpha Innotech sells instruments, software and consumables used in life
science research laboratories for the study of nucleic acids (DNA and RNA) and
proteins used to discover and develop new pharmaceuticals. Alpha Innotech's
products address two segments of the life science research market: Gel
Documentation and Microarray/Multiplexed Arrays.
GEL DOCUMENTATION. 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. For example, in a common laboratory procedure
called electrophoresis, DNA molecules being analyzed are loaded into one end of
a "gel" and driven toward the other end by an electric charge. Molecules of
different lengths and electrical charges travel at different speeds through the
gel. After electrophoresis, comparing the location of an unknown DNA molecule
with the location of known standardized DNA samples such as AlphaQuant(TM)
molecular ladders will provide important information to the researcher about the
size of unknown sample DNA molecules. However, the DNA samples are usually
invisible to the naked eye. To determine their locations, a chemical such as
ethidium bromide is added. The ethidium bromide binds to double stranded DNA and
"fluoresces", that is, it absorbs light energy of one wavelength ("excitation")
and emits a different wavelength ("emission"). The researcher may then place the
sample gel into any of Alpha Innotech's gel imaging instruments (the
FluorChem(TM), AlphaImager(R), or AlphaDigiDoc(TM)) which bathes the sample in
excitation light energy (in this example, ultraviolet radiation) and captures
the emission light energy with a scientific grade CCD camera. The researcher may
then use the analysis features of AlphaEase(R) software for image capture and
analysis to determine the size of the unknown DNA sample molecule. The
researcher may also determine the quantity of the unknown molecules with
AlphaEase(TM) by comparing signal intensities of the unknown with the standard.
Other Alpha Innotech products in the Gel Documentation group include
software for analysis of "2-D" protein gels (Alpha GelFox(TM) software for 2D
gel analysis), reagents for use in chemiluminescent applications (ChemiGlow(TM)
chemiluminescent substrate), and software packages for electronic document
security (Alpha PART 11 Ease(TM) software for 21 C.F.R. Part 11 compliance).
MICROARRAY/MULTIPLEXED ARRAYS. Alpha Innotech's other major product
group is for the Microarray/Multiplexed Arrays market, in which researchers
analyze slides or multi-well microplates "printed" with genomic or proteomic
information, and in some cases, live cell cultures. The NovaRay(R) includes a
patented combination of a broad source lamp with multiple filter sets to provide
researchers maximum flexibility in their choice of fluorescent labels when
analyzing biochips such as microarrays. The NovaRay(R) reader provides
additional flexibility to the researcher by accommodating both the microplate
and the slide formats. The researcher can then analyze the emissions from the
samples using ArrayEase(R) analysis software. The NovaRay(R) has been placed
with select early-access customers. The NovaRay(R) is scheduled for broader
market launch in the fourth quarter of 2005.
PRODUCTS UNDER DEVELOPMENT. Alpha Innotech intends to introduce in the
third quarter of 2005 a laser-based microarray reader targeted at customers who
use the single slide format. Alpha Innotech
41
intends also to offer as early as the fourth quarter of 2005 other array
analysis software. Alpha Innotech is also evaluating printing devices that
customers could use to create their own microarrays (both slide and microplate
format) in-house; no product release date has been set.
CUSTOMERS
Alpha Innotech's customers include pharmaceutical and biotechnology
companies, universities, medical centers, government research institutes and
agencies worldwide.
DISTRIBUTION
In the United Sates Alpha Innotech's products are sold through a
network of direct sales representative and independent manufactures
representatives. Internationally, Alpha Innotech's products are sold through a
network of 41 independent distributors in 43 countries worldwide. No distributor
accounts for more than 6.5% of Alpha Innotech's revenues. Alpha Innotech's
independent distributors generally have exclusive distribution rights for their
respective territories and perform sales, marketing and technical support
functions for their local customers.
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.
RISK FACTORS
You should carefully consider the following risk factors and all other
information contained in this report. An investment in Alpha Innotech involves a
high degree of risk. If any of the following events or outcomes actually occurs,
our business, operating results, and financial condition would likely suffer.
ALPHA INNOTECH HAS A HISTORY OF OPERATING LOSSES AND MAY INCUR FUTURE LOSSES.
Alpha Innotech has not been profitable since 1999. Alpha Innotech's
losses were $3.3 million, $2.0 million and $2.6 million for fiscal years 2004,
2003 and 2002, respectively and Alpha Innotech had an accumulated deficit of
$14.2 million as of December 31, 2004 and $15.2 million as of March 31, 2005.
Alpha Innotech's losses have resulted principally from costs incurred in
research and development, manufacturing and from selling, general and
administrative costs associated with its operations.
Alpha Innotech's ability to generate significant revenues and maintain
profitability is dependent in large part on its ability to expand its customer
base, increase sales of its current products to existing customers, manage its
expense growth, and enter into additional supply, license and collaborative
arrangements as well as on its ability to successfully manufacture and
commercialize products incorporating its technologies in new applications and in
new markets.
ADDITIONAL FINANCING MAY BE REQUIRED FOR ALPHA INNOTECH'S FUTURE BUSINESS AND
OPERATIONS.
Alpha Innotech will require additional capital resources in order to
conduct its operations and develop its products. While Alpha Innotech estimates
that upon completion of the Merger, its capital resources will be sufficient to
fund its current level of operations for at least the next year based on current
business plans, it cannot guarantee that this will be the case. Additional funds
may be required to implement Alpha Innotech's business plan. Alpha Innotech's
management may not be successful in raising such additional capital on favorable
terms or at all.
42
ALPHA INNOTECH'S BUSINESS DEPENDS ON RESEARCH AND DEVELOPMENT SPENDING LEVELS
FOR PHARMACEUTICAL AND BIOTECHNOLOGY COMPANIES AND ACADEMIC AND GOVERNMENTAL
RESEARCH INSTITUTIONS.
Alpha Innotech expects that its revenues in the foreseeable future will
be derived primarily from products and services provided to pharmaceutical and
biotechnology companies and academic, governmental and other research
institutions. Alpha Innotech's success will depend upon their demand for and use
of its products and services. Alpha Innotech's operating results may fluctuate
substantially due to reductions and delays in research and development
expenditures by these customers. For example, reductions in capital expenditures
by these customers may result in lower than expected instrumentation sales.
These reductions and delays may result from factors that are not within Alpha
Innotech's control, such as:
o changes in economic conditions;
o changes in government programs that provide funding to
companies and research institutions;
o changes in the regulatory environment affecting life sciences
companies and life sciences research;
o market-driven pressures on companies to consolidate and reduce
costs; and
o other factors affecting research and development spending.
ALPHA INNOTECH MUST SPEND A SIGNIFICANT AMOUNT OF TIME AND RESOURCES TO DEVELOP
PRODUCTS, AND IF THESE PRODUCTS DO NOT ACHIEVE COMMERCIAL ACCEPTANCE, ITS
OPERATING RESULTS MAY SUFFER.
Alpha Innotech expects to spend a significant amount of time and
resources to develop new products and refine existing products. In light of the
long product development cycles inherent in its industry, these expenditures
will be made well in advance of the prospect of deriving revenues from the sale
of new products. Alpha Innotech's ability to commercially introduce and
successfully market new products is subject to a wide variety of challenges
during this development cycle that could delay introduction of these products.
If it does not achieve market acceptance of new products, its operating results
will suffer.
ALPHA INNOTECH DEPENDS ON A LIMITED NUMBER OF SUPPLIERS AND IT WILL FACE DELAYS
IN MANUFACTURING OF ITS PRODUCTS IF SHIPMENTS FROM THESE SUPPLIERS ARE DELAYED
OR INTERRUPTED.
Alpha Innotech depends on its vendors to provide components of its
products in required volumes, at appropriate quality and reliability levels, and
in compliance with regulatory requirements. If supplies from these vendors were
delayed or interrupted for any reason, Alpha Innotech would not be able to
produce or sell products in a timely fashion or in sufficient quantities or
under acceptable terms.
ALPHA INNOTECH'S DEPENDENCE ON CONTRACT MANUFACTURING AND OUTSOURCING OTHER
PORTIONS OF ITS SUPPLY CHAIN MAY ADVERSELY AFFECT ITS ABILITY TO BRING PRODUCTS
TO MARKET.
As part of Alpha Innotech's efforts to streamline operations and to cut
costs, it has been outsourcing and will continue to evaluate additional
outsourcing. If Alpha Innotech's contract manufacturers or other outsourcers
fail to perform their obligations in a timely manner or at satisfactory quality
levels, Alpha Innotech's ability to timely bring products to market could
suffer.
43
IF ALPHA INNOTECH IS UNABLE TO MAINTAIN ITS RELATIONSHIPS WITH COLLABORATIVE
PARTNERS, IT MAY HAVE DIFFICULTY DEVELOPING AND SELLING ITS PRODUCTS AND
SERVICES.
Alpha Innotech believes that its success in penetrating its target
markets depends in part on its ability to develop and maintain collaborative
relationships with key companies as well as with key academic researchers. Alpha
Innotech considers DigiOpt to be one such key collaborative relationship.
Relying on these or other collaborative relationships is risky to its future
success because:
o its partners may develop technologies or components
competitive with its products;
o some of its agreements may terminate prematurely due to
disagreements between it and its partners;
o its partners may not devote sufficient resources to the
development and sale of its products;
o its partners may be unable to provide the resources required
for it to progress in the collaboration on a timely basis;
o its collaborations may be unsuccessful; or
o it may not be able to negotiate future collaborative
arrangements on acceptable terms.
ALPHA INNOTECH'S CURRENT SALES, MARKETING AND TECHNICAL SUPPORT ORGANIZATION MAY
LIMIT ITS ABILITY TO SELL ITS NEWER PRODUCTS.
Alpha Innotech believes that the market for microplate format arrays
and their readers is still evolving, and that initial sales for these readers
will requires significant support from its in-house applications scientists.
Alpha Innotech may not have sufficient in-house resources to support worldwide
sales of these products.
ALPHA INNOTECH FACES INTENSE COMPETITION FROM OTHER COMPANIES.
Alpha Innotech's products face competition from other companies,
including Bio Rad, Kodak, Fuji, UVP, Perkin Elmer, Molecular Devices and Tecan,
that have more financial resources, technical staff and manufacturing and
marketing capabilities than it does. It may be difficult for Alpha Innotech to
compete with larger companies investing greater resources in development,
marketing and distribution of their products.
DUE TO THE INTERNATIONAL NATURE OF ALPHA INNOTECH'S BUSINESS, POLITICAL OR
ECONOMIC CHANGES OR OTHER FACTORS COULD HARM ITS BUSINESS.
A significant amount of Alpha Innotech's revenue is currently generated
from sales outside the United States. Though such transactions are denominated
in U.S. dollars, Alpha Innotech's future revenue, gross margin, expenses and
financial condition are still affected by such factors as changes in foreign
currency exchange rates, unexpected changes in, or impositions of, legislative
or regulatory requirements, including export and trade barriers and taxes;
longer payment cycles and greater difficulty in accounts receivable collection.
Alpha Innotech is also subject to general geopolitical risks in connection with
international operations, such as political, social and economic instability,
potential hostilities and changes in diplomatic and trade relationships. Alpha
Innotech cannot assure investors that one or more of the foregoing factors will
not have a material adverse effect on its business, financial condition and
operating results or require it to modify its current business practices.
44
THIRD PARTIES MAY CLAIM THAT ALPHA INNOTECH IS INFRINGING THEIR INTELLECTUAL
PROPERTY, AND IT COULD SUFFER SIGNIFICANT LITIGATION OR LICENSING EXPENSES OR BE
PREVENTED FROM SELLING PRODUCTS.
While Alpha Innotech does not believe that any of its products infringe
the valid intellectual property rights of third parties, it may be unaware of
intellectual property rights of others that may cover some of its technology,
products or services. Any litigation regarding patents or other intellectual
property could be costly and time-consuming and could divert its management and
key personnel from its business operations. The complexity of the technology
involved and the uncertainty of intellectual property litigation increase these
risks. Claims of intellectual property infringement might also require it to
enter into costly license agreements. However, it may not be able to obtain
license agreements on terms acceptable to it, or at all. Alpha Innotech also may
be subject to significant damages or injunctions against development and sale of
certain of its products.
THIRD PARTIES MAY INFRINGE ALPHA INNOTECH'S INTELLECTUAL PROPERTY, AND IT MAY
EXPEND SIGNIFICANT RESOURCES ENFORCING ITS RIGHTS OR SUFFER COMPETITIVE INJURY.
Alpha Innotech's success depends in large part on its proprietary
technology. Alpha Innotech relies on a combination of patents, copyrights,
trademarks, trade secrets, confidentiality provisions and licensing arrangements
to establish and protect its proprietary rights. If it fails to successfully
enforce its intellectual property rights, its competitive position could suffer,
which could harm its operating results.
Alpha Innotech's pending patent and trademark registration applications
may not be allowed, or competitors may challenge the validity or scope of its
patents, copyrights or trademarks. In addition, its patents may not provide us a
significant competitive advantage.
Alpha Innotech may be required to spend significant resources to
monitor and police its intellectual property rights. It may not be able to
detect infringement and its competitive position may be harmed before it does
so. In addition, competitors may design around its technology or develop
competing technologies. Intellectual property rights and Alpha Innotech's
ability to enforce them may also be unavailable or limited in some foreign
countries, which could make it easier for competitors to capture market share
and result in lost revenues.
IF ALPHA INNOTECH LOSES ITS KEY PERSONNEL OR IS UNABLE TO ATTRACT AND RETAIN
ADDITIONAL SKILLED PERSONNEL, ITS BUSINESS MAY SUFFER.
Alpha Innotech depends substantially on the principal members of its
management, including Haseeb Chaudhry, Chief Executive Officer and Darryl Ray,
Chief Operating Officer and President Any officer or employee can terminate his
or her relationship with Alpha Innotech at any time and work for one of our
competitors. Alpha Innotech's ability to operate successfully and manage its
potential future growth depends significantly upon retaining key research,
technical, sales, marketing, managerial and financial personnel, and attracting
and retaining additional highly qualified personnel in these areas. Alpha
Innotech faces intense competition for such personnel from numerous companies in
the highly competitive northern California business area. The inability to
attract and retain these personnel could result in delays in the research,
development and commercialization of its potential products.
INTEGRATING ACQUIRED TECHNOLOGIES MAY BE COSTLY AND MAY NOT RESULT IN
TECHNOLOGICAL ADVANCES.
Alpha Innotech has licensed in certain technologies and is working with
collaborators to integrate those technologies into future products. However,
market advances resulting from the integration of technologies may not be
achieved as successfully or rapidly as anticipated, if at all.
45
IF ALPHA INNOTECH LOSES SOME OR ALL RIGHTS TO THE DIGITAL OPTICAL IMAGING
PATENTS, ITS BUSINESS MAY SUFFER.
Under the terms of an agreement between Digital Optical Imaging
Corporation ("DigiOpt") and Alpha Innotech, Alpha Innotech received certain
exclusive rights to make and sell products incorporating the inventions
disclosed in four United States patents. Alpha Innotech is working with
strategic partners to incorporate these technologies into future products. Under
the terms of the agreement, Alpha Innotech is obligated to pay certain patent
prosecution costs and maintenance fees. Failure to pay these costs and fees as
they arise may lead to abandonment of the rights. Furthermore, under the terms
of the agreement, DigiOpt may convert the exclusive license to non-exclusive if
Alpha Innotech does not make its first commercial sale of a product
incorporating the licensed technology by August 4, 2006, and may terminate the
license if Alpha Innotech does not make its first commercial sale of a product
incorporating the licensed technology by February 4, 2007. Loss of these
exclusive rights by abandonment, conversion, or termination would impair Alpha
Innotech's ability to develop and market new products.
IF ALPHA INNOTECH SUFFERS LOSS TO ITS FACTORIES, FACILITIES OR DISTRIBUTION
SYSTEM DUE TO CATASTROPHE, ITS OPERATIONS COULD BE SERIOUSLY HARMED.
Alpha Innotech's factories, facilities and distribution system are
subject to catastrophic loss due to fire, flood, terrorism or other natural or
man-made disasters. In particular, its production facilities and headquarters in
California could be subject to a catastrophic loss caused by earthquake. If
these facilities were to experience a catastrophic loss, it could disrupt Alpha
Innotech's operations, delay production, shipments and revenue and result in
large expenses to repair or replace the facility. Although Alpha Innotech
carries insurance for property damage and business interruption, we do not carry
insurance or financial reserves for interruptions or potential losses arising
from earthquakes.
ALPHA INNOTECH 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.
46
SELECTED FINANCIAL DATA AND SELECTED SUMMARY PRO FORMA FINANCIAL INFORMATION
The following selected financial data is qualified in its entirety by,
and should be read in conjunction with, the other information and financial
statements, including the notes thereto, appearing elsewhere in the Proxy
Statement and/or incorporated herein by reference.
SELECTED FINANCIAL DATA
Three Months
Year Ended December 31, Ended March 31,
--------------------------------------------------- ------------------
2000 2001 2002 2003 2004 2004 2005
------- ------- ------- ------- ------- ------- -------
(in thousands, except per share data)
Statement of Operations Data:
Revenues ........................................... 13,198 14,275 13,802 10,493 10,511 1,907 2,505
Cost of goods sold ................................. 6,604 7,563 7,157 5,331 5,378 1,016 1,405
------- ------- ------- ------- ------- ------- -------
Gross profit .................................. 6,594 6,712 6,645 5,162 5,133 891 1,100
------- ------- ------- ------- ------- ------- -------
Operating expenses:
Sales and marketing ........................... 5,635 4,882 4,522 3,571 3,925 822 1,061
Research and development ...................... 1,521 2,288 2,585 1,662 1,963 489 397
General and administrative expenses ........... 366 1,548 2,069 1,600 1,968 326 285
------- ------- ------- ------- ------- ------- -------
Total operating expenses .................. 7,522 8,718 9,176 6,833 7,856 1,637 1,743
------- ------- ------- ------- ------- ------- -------
Loss from operations .................. (928) (2,006) (2,531) (1,671) (2,723) (746) (643)
------- ------- ------- ------- ------- ------- -------
Other income (expenses):
Interest expense .............................. (232) (300) (127) (321) (574) (62) (43)
Other income (expense), net ................... 32 (44) 54 (8) (1) -- (2)
------- ------- ------- ------- ------- ------- -------
Total other income (expense) .............. (200) (344) (73) (329) (575) (62) (45)
------- ------- ------- ------- ------- ------- -------
Loss before provision for income taxes (1,128) (2,350) (2,604) (2,000) (3,298) (808) (688)
Provision for income taxes ......................... 178 -- -- -- -- -- --
------- ------- ------- ------- ------- ------- -------
Net loss ...................................... (1,306) (2,350) (2,604) (2,000) (3,298) (808) (688)
Accretions on redeemable convertible preferred stock -- (396) (704) (704) (704) (176) (218)
------- ------- ------- ------- ------- ------- -------
Net loss applicable to common stockholders .... (1,306) (2,746) (3,308) (2,704) (4,002) (984) (906)
======= ======= ======= ======= ======= ======= =======
Net loss per share - basic and diluted ............. (0.06) (0.12) (0.14) (0.12) (0.17) (0.04) (0.04)
======= ======= ======= ======= ======= ======= =======
Weighted average shares outstanding -
basic and diluted ............................. 23,000 23,002 23,056 23,169 23,174 23,172 23,178
======= ======= ======= ======= ======= ======= =======
Proforma net loss (1) .............................. (3,298) (688)
======= =======
Proforma net loss per share (1) .................... (0.34) (0.07)
======= =======
Shares used in computing pro forma net loss
per share (1) ................................. 9,725 9,725
======= =======
As of March 31,
As of December 31, ------------------
--------------------------------------------------- 2005 2005
2000 2001 2002 2003 2004 Actual Proforma(2)
------- ------- ------- ------- ------- ------- -------
(in thousands)
Balance Sheet Data:
Cash and cash equivalents ............ 229 2,821 952 172 40 142 2,412
Working capital ...................... (1,646) 3,541 (315) (2,120) (2,161) (2,708) 1
Total assets ......................... 5,331 7,722 6,817 4,847 4,424 3,911 6,236
Total indebtedness ................... 3,281 951 1,753 2,044 1,610 1,609 1,109
Redeemable Convertible Preferred stock -- 8,160 8,864 9,569 12,454 12,671 --
Total shareholders' deficit .......... (1,258) (4,086) (7,112) (9,773) (13,102) (14,007) 1,373
(1) See unaudited proforma consolidated statement of operations for the
year ended December 31, 2004 and the three months ended March 31, 2005.
(2) See unaudited proforma consolidated balance sheet as of March 31, 2005.
47
EARNINGS PER SHARE
Three Months
Year Ended December 31, Ended March 31,
--------------------------------------------------------------------- --------------------------
2000 2001 2002 2003 2004 2004 2005
----------- ----------- ----------- ----------- ----------- ----------- -----------
Net loss .................... (1,306,253) (2,350,190) (2,604,419) (2,000,466) (3,297,755) (808,245) (687,783)
Acretions on redeemable
convertible preferred stock -- (395,655) (704,403) (704,403) (704,403) (176,101) (217,504)
----------- ----------- ----------- ----------- ----------- ----------- -----------
(1,306,253) (2,745,845) (3,308,822) (2,704,869) (4,002,158) (984,346) (905,287)
=========== =========== =========== =========== =========== =========== ===========
Net loss per share .......... -0.06 -0.12 -0.14 -0.12 -0.17 -0.04 -0.04
=========== =========== =========== =========== =========== =========== ===========
Weighted average shares
outstanding .............. 23,000,000 23,001,500 23,055,813 23,139,485 23,173,935 23,172,140 23,178,407
=========== =========== =========== =========== =========== =========== ===========
QUARTERLY RESULTS OF OPERATIONS
The following table sets forth the unaudited quarterly results of
operations data of Alpha Innotech Corporation for the nine most recent quarters
ended March 31, 2005. The information in the table below should be read in
conjunction with their consolidated financial statements and notes thereto
included elsewhere in this proxy. This information has been prepared on the same
basis as the consolidated financial statements and the information includes all
adjustments that they consider necessary for a fair statement of our financial
position and operating results for the quarters presented. Their quarterly
operating results have varied substantially in the past and may vary
substantially in the future. You should not draw any conclusions about their
future results of operations for any particular quarter.
Three Months Ended
--------------------------------------------------------------------------------------
March 31, June 30, Sept. 30, Dec. 31, March 31, June 30, Sept. 30, Dec. 31, March 31,
2003 2003 2003 2003 2004 2004 2004 2004 2005
------ ------ ------ ------ ------ ------ ------ ------ ------
(in thousands, except per share data)
Statement of Operations Data:
Revenues ....................... 2,404 2,483 3,050 2,556 1,907 2,903 2,549 3,152 2,505
Cost of goods sold ............. 1,248 1,316 1,497 1,270 1,016 1,510 1,333 1,519 1,405
------ ------ ------ ------ ------ ------ ------ ------ ------
Gross profit .............. 1,156 1,167 1,553 1,286 891 1,393 1,216 1,633 1,100
------ ------ ------ ------ ------ ------ ------ ------ ------
Operating expenses:
Sales and marketing ....... 781 871 999 920 816 1,123 904 1,082 1,060
Research and development .. 378 423 452 409 489 549 489 436 398
General and administrative
expenses ............... 323 410 431 436 325 337 372 934 286
------ ------ ------ ------ ------ ------ ------ ------ ------
Total operating expenses 1,482 1,704 1,882 1,765 1,630 2,009 1,765 2,452 1,744
------ ------ ------ ------ ------ ------ ------ ------ ------
Loss from operations (326) (537) (329) (479) (739) (616) (549) (819) (644)
------ ------ ------ ------ ------ ------ ------ ------ ------
Other income (expenses):
Interest expense .......... (79) (81) (80) (81) (61) (81) (110) (322) (43)
Other income (expense), net 2 0 (8) (2) (2) (1) (1) 3 (1)
------ ------ ------ ------ ------ ------ ------ ------ ------
Total other income
(expense) ........... (77) (81) (88) (83) (63) (82) (111) (319) (44)
------ ------ ------ ------ ------ ------ ------ ------ ------
Loss before provision
for income taxes . (403) (618) (417) (562) (802) (698) (660) (1,138) (688)
Provision for income taxes ..... -- -- -- -- -- -- -- -- --
------ ------ ------ ------ ------ ------ ------ ------ ------
Net loss .................. (403) (618) (417) (562) (802) (698) (660) (1,138) (688)
Accretions on redeemable
convertible preferred stock . (176) (176) (176) (176) (176) (176) (176) (176) (218)
------ ------ ------ ------ ------ ------ ------ ------ ------
Net loss applicable to
common stockholders .... (579) (794) (593) (738) (978) (874) (836) (1,314) (906)
====== ====== ====== ====== ====== ====== ====== ====== ======
Net loss per share - basic and
diluted ..................... (0.03) (0.03) (0.03) (0.03) (0.04) (0.04) (0.04) (0.06) (0.04)
====== ====== ====== ====== ====== ====== ====== ====== ======
48
DISCUSSION OF QUARTERLY RESULTS OF OPERATIONS
Revenues do not follow a seasonal pattern. There has not been any
material growth in the mix of revenue or sales prices; however, revenues do
fluctuate between quarters based on the number of units sold.
There were no significant changes in cost of labor or overhead.
However, material costs have been increasing due to the upgrading of some
components. This has resulted in a general increase in material costs.
Sales and marketing costs have increased primarily due to cost
associated with increasing international revenues, investment in business
development, and the replacement of a Director of Sales with a Vice President of
Sales and Marketing.
Research and development costs in 2004 were incurred and resulted in
improvements to the gel imaging product line. This product was introduced in the
second half of 2004. In addition Alpha Innotech continues to fund additional
research and development related to NovaRay system into 2005.
The increase in general and administrative expenses for the quarter
ended December 31, 2004 was attributed to one time costs associated with legal
costs, merger related costs, and increased executive costs.
The increase in interest expense for the quarter ended December 31,
2004 was attributed the additional debt and redeemable convertible preferred
stock outstanding during that period.
49
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 derived from the sale of digital imaging
systems, net of returns and allowances and is 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 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. When a digital imaging system is sold, the multiple elements
are software and maintenance and support. Revenue allocated to software is
recognized when a contract is executed, all delivery obligations have been met,
the fee is fixed and determinable, and collection is probable. Revenue allocated
to maintenance and support is recognized as deferred revenue when a contract is
executed, all delivery obligations have been met, the fee is fixed and
determinable, and collection is probable. Deferred revenue for maintenance and
support is recognized ratably over the maintenance term (typically for a period
of one year, beginning when a digital imaging system is considered sold or an
extended maintenance and support contract is signed).
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.
50
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 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 Alpha
Innotech's total revenues for the three months ended March 31, 2005 and 27% of
Alpha Innotech's total revenues for the three months ended March 31, 2004. Due
to emerging markets, especially in Asia, Alpha Innotech anticipates its
international revenue to grow and account for an 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.
51
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.
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 its international revenue to grow
and account for an 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.
52
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 23.0% 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
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:
53
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.
LOAN FROM ALEXANDRIA - On April 8, 2005, Alpha Innotech secured a loan
in the amount of $1,500,000. See "ALPHA INNOTECH LOAN FROM ALEXANDRIA" on page
24 of this proxy statement.
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. Operating losses were a
use of cash and working capital was a source of cash for Alpha Innotech for the
three months ended March 31, 2005 and 2004. Cash was provided by operating
activities for the three months ended March 31, 2005 primarily due to Alpha
Innotech's continued management of cash. Alpha Innotech was able to offset cash
used to fund its operating losses by increasing cash collections from its
customers and deferring cash payments to its vendors. Cash is being used to fund
operating losses due the cash flows from gross margin being inadequate to cover
expenditures for sales and marketing, research and development, and general and
administrative expenses. 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 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. Cash has been used
in investing activities to purchase property and equipment needed to support our
operations.
Cash provided by financing activities was $0.0 million and $0.1 million
for the three months ended March 31, 2005 and 2004, respectively, with borrowing
being primarily offset by repayments. In
54
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.
Cash flow used in operating activities was $1.3 million for the year
ended December 31, 2004. Operating losses were a use of cash and working capital
was a source of cash for us for the year ended December 31, 2004. Cash was used
by operating activities for the year ended December 31, 2004 primarily due to
operating losses not being funded by an increase in working capital. Cash is
being used to fund operating losses due the cash flows from gross margin being
inadequate to cover expenditures for sales and marketing, research and
development, and general administrative expenses. While Alpha Innotech continued
to manage cash by deferring cash payments to its vendors and reducing inventory
levels needed to support its sales, this increase in cash flows from working
capital was offset by a use of cash due to the increase in accounts receivable.
In 2004, accounts receivable increased by $0.7 due to an increase in sales of
$0.7K in December 2004 compared to December 2003. In 2004, Alpha Innotech
reduced inventory by $0.5 million as it continued to concentrate on increasing
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.
Cash flow used in investing activities was $0.4 million for the year
ended December 31, 2004. Cash has been used in investing activities to purchase
property and equipment needed to support our operations.
Cash flow provided by financing activities was $1.5 million for the
year ended December 31, 2004 with borrowings being offset by repayments. 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's ability to increase its sales and gross margins and
manage its operating expenses to a level that can be financed by existing cash
is critical to its ability to continue as a going concern. Alpha Innotech
intends to continue its expenditure levels on marketing and research and
development and introduce new products to the market in 2005. If Alpha Innotech
does not achieve market acceptance its cash flows will suffer. Alpha Innotech
plans to continue to manage expenses and working capital and obtain additional
funds through the proposed reverse merger with Xtrana, Inc.
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.
55
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.
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
56
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.
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.
57
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.
58
UAUDITED PRO FORMA CONSOLIDATED BALANCE SHEET
AS OF MARCH 31, 2005
Historical Pro Forma
------------------- --------------------------------------------
Alpha Conversion
Innotech Xtrana, of Restate Consoli-
Corporation Inc. Preferred Merger Capital dated
------- ------- ------- ------- ------- -------
(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 -- --(2) (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 --(1) (10,445) -- -- --
Series A-1 preferred stock ..................... 2,226 --(1) (2,226) -- -- --
------- ------- ------- ------- ------- -------
Total redeemable convertible preferred stock 12,671 -- (12,671) -- -- --
------- ------- ------- ------- ------- -------
Shareholders' equity:
Common stock ................................... 1,147 165(1) 12,671(2) (165)(3) (13,271) 97
Additional paid-in capital ..................... -- 19,446 --(2) (16,737)(3) 13,271 16,430
Accumulated deficit ............................ (15,154) (18,574) --(2) 18,574 -- (15,154)
Retained earnings during development stage ..... -- 1,172 --(2) (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
======= ======= ======= ======= ======= =======
59
UNAUDITED PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS
FOR THE THREE MONTHS ENDED MARCH 31, 2005
Historical Pro Forma
------------------- ----------------------------------------
Alpha Conversion
Innotech Xtrana, of Restate Consoli-
Corporation Inc. Preferred Merger Capital dated
------- ------- ------- ------- ------- -------
(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 --(2) (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 --(2) (9) -- (2)
------- ------- ------- ------- ------- -------
Total other income (expense) ......... (45) 9 -- (9) -- (45)
------- ------- ------- ------- ------- -------
Net loss ......................... (688) (86) -- 86 -- (688)
Accretions on preferred stock .................. (217) --(1) 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
======= ======= ======= ======= ======= =======
60
UNAUDITED PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 2004
Historical Pro Forma
------------------- ----------------------------------------
Alpha Conversion
Innotech Xtrana, of Restate Consoli-
Corporation Inc. Preferred Merger Capital dated
------- ------- ------- ------- ------- -------
(in thousands)
Revenue:
Products ................................. 10,511 -- -- -- -- 10,511
Grants ................................... -- 102 --(2) (102) -- --
------- ------- ------- ------- ------- -------
Total revenue ........................ 10,511 102 -- (102) -- 10,511
------- ------- ------- ------- ------- -------
Cost of sales:
Products ................................. 5,378 -- -- -- -- 5,378
Grants ................................... -- 79 --(2) (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 --(2) (99) -- 1,963
General and administrative ............... 1,968 1,492 --(2) (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 --(2) (16) -- (1)
Reserve for loss on note receivable ...... -- (500) --(2) 500 -- --
Gain on sale of intellectual property .... -- 3,310 --(2) (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) --(1) 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
======= ======= ======= ======= ======= =======
61
NOTE TO UNAUDITED PRO FORMA CONSOLIDATED FINANCIAL INFORMATION
1. Accounting treatment applied as a result of this merger
The transaction is being accounted for as a reverse acquisition and
recapitalization. Alpha Innotech is the acquirer for accounting purposes. Xtrana
is the issuer. The historical financial statements for periods prior to the
acquisition become those of acquirer. In a recapitalization, historical
stockholders' equity of the acquirer prior to the merger is retroactively
restated for the equivalent number of shares received in the merger after giving
effect to any difference in par value of the issuer's and acquirer's stock with
an offset to additional paid-in capital. Accumulated deficit of the acquirer is
carried forward after the acquisition. Operations prior to the merger are those
of the accounting acquirer. Earnings per share for the periods prior to the
merger are restated to reflect the equivalent number of shares outstanding.
2. Shares issued and outstanding prior to the merger, as of March 31,
2005, were as follows:
Xtrana:
Common Stock 16,533,269
Alpha Innotech Corporation:
Series A Redeemable Convertible Preferred Stock 10,533,334
Series A-1 Redeemable Convertible Preferred Stock 7,343,418
Common Stock 23,179,286
3. The following is a reconciliation of the shares used in calculating the
per share information as of March 31, 2005:
Type Original Number
Of Shares Conversion Of
Entity Stock Outstanding Factor Shares
------------------- ------------ ----------- ---------- -----------
Xtrana Common 16,533,269 .10 1,653,327
-----------
Alpha Innotech Series A 10,533,334 .3033634 3,195,428
Alpha Innotech Series A-1 7,343,418 .3033634 2,227,724
Alpha Innotech Common 23,179,287 .1142909 2,649,182
-----------
Alpha Innotech 8,072,334
-----------
Total 9,725,661
===========
62
4. The following is a reconciliation of the shares used in calculating the
per share information as of December 31, 2004:
Type Original Number
Of Shares Conversion Of
Entity Stock Outstanding Factor Shares
------------------- ------------ ----------- ---------- -----------
Xtrana Common 16,533,269 .10 1,653,327
-----------
Alpha Innotech Series A 10,533,334 .3033634 3,195,428
Alpha Innotech Series A-1 7,343,418 .3033634 2,227,724
Alpha Innotech Common 23,177,526 .1142909 2,648,980
-----------
Alpha Innotech 8,072,132
-----------
Total 9,725,459
===========
5. 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:
(1) To reflect the conversion of Alpha Innotech's preferred stock
in to Xtrana's common stock.
(2) 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.
(3) To reflect the revised amounts for common stock and additional
paid-in capital subsequent to the reverse acquisition.
6. 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:
(1) To eliminate accretion on preferred stock.
(2) To eliminate the operations of Xtrana, which will not be
supported after the reverse merger.
63
BOOK VALUE PER SHARE
The following table sets forth the book value per share data of
Alpha Innotech Corporation and Xtrana at the dates set forth. The information in
the table below should be read in conjunction with the Alpha Innotech and Xtrana
consolidated financial statements and pro forma financial statements and notes
thereto included elsewhere in this proxy statement or incorporated herein by
reference.
December 31, March 31,
2004 2005
-------- --------
Xtrana - Historical
------------------------------------------------
Total stockholders' equity ..................... $ 2,295 $ 2,209
Shares outstanding ............................. 16,533 16,533
Book value per share .................. $ 0.14 $ 0.13
Alpha Innotech - Historical
------------------------------------------------
Total stockholders' equity ..................... $(13,102) $(14,007)
Shares outstanding ............................. 23,178 23,179
Book value per share .................. $ (0.57) $ (0.60)
Xtrana and Alpha Innotech - Pro Forma
------------------------------------------------
Total stockholders' equity ..................... $ 2,147 $ 1,373
Shares outstanding ............................. 9,725 9,726
Book value per share .................. $ 0.22 $ 0.14
64
MANAGEMENT OF THE SURVIVING CORPORATION
DIRECTORS AND EXECUTIVE OFFICERS
The following table sets forth information, as of June 30, 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.
65
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 June 30, 2005, the closing trade price of our common stock, as
reported by the OTCBB, was $0.155.
(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.
66
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 June 30, 2005, Alpha
Innotech had approximately 34 stockholders of record.
67
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. We are currently authorized to issue
50,000,000 shares of common stock. If the Merger is completed and the reverse
stock split effected, there would be approximately 9,725,809 shares of our
common stock outstanding immediately following these transactions.
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:
68
- 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
- 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
69
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 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:
70
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 ................................... 1,715,389 171,539
Number of shares that will be issued and Outstanding
assuming all other proposals are consummated ....... --(1) 9,725,809(2)
Number of shares that will be reserved for issuance
if all other proposals contained herein are
consummated ........................................ --(1) 1,798,620
Number of authorized but unissued and unreserved
shares if all the other proposals contained herein
are consummated .................................... --(1) 38,475,571
(1) No shares will be issued pursuant to the other proposals contained
herein unless and until the reverse stock split is effected.
(2) Consists of 1,653,327 outstanding shares of Xtrana common stock plus
the following shares issuable in the Merger: (i) 2,649,330 Xtrana
shares issuable in exchange for 23,180,587 outstanding shares of Alpha
Innotech Common Stock, (ii) 3,195,428 Xtrana shares issuable in
exchange for 10,533,334 outstanding shares of Alpha Innotech Series A
Preferred Stock and (iii) 2,227,724 Xtrana shares issuable in exchange
for 7,343,418 outstanding shares of Alpha Innotech Series A-1 Preferred
Stock.
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.
71
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.
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.
72
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.
73
PROPOSAL NO. 5:
ADJOURNMENT OF THE ANNUAL MEETING
If at the Annual Meeting, the number of shares of our common stock
present or represented and voting in favor of approval of the Merger and the
reverse stock split and corporate name change proposals is insufficient to
approve the those proposals under Delaware law, our management may move to
adjourn the Annual Meeting in order to enable our board to continue to solicit
additional proxies in favor of the Proposals No. 2, 3 and 4. In that event, we
will ask our stockholders to vote only upon the election of directors and this
Proposal No. 5 to grant our management the discretionary authority to adjourn
the Annual Meeting to a later date in order to enable our management and Board
of Directors to continue to solicit additional proxies in favor of Proposals No.
2, 3 and 4 above (the "Adjournment Proposal"), and not Proposals No. 2, 3 and/or
4, as may be applicable.
In this proposal, we are asking you to authorize the holder of any
proxy solicited by our board to have the discretionary authority to vote in
favor of adjourning the Annual Meeting, and any later adjournments, to a later
date in order to enable our board to solicit additional proxies in favor of the
Merger, the reverse stock split and the corporate name change. If the
stockholders approve this Adjournment Proposal, we could adjourn the Annual
Meeting, and any adjourned session of the Annual Meeting, to a later date and
use the additional time to solicit additional proxies in favor of the Merger,
reverse stock split and corporate name change, including the solicitation of
proxies from stockholders that have previously voted against any of those
proposals. Among other things, approval of the Adjournment Proposal could mean
that, even if we had received proxies representing a sufficient number of votes
against the Merger, reverse stock split and/or corporate name change to defeat
those proposals, we could adjourn the Annual Meeting without a vote on the
Merger, reverse stock split and/or corporate name change proposals for up to 8
days and seek during that period to convince the holders of those shares to
change their votes to votes in favor of the Merger, reverse stock split and/or
corporate name change. If we adjourn the meeting for more than 8 days, or if we
set a new record date for the adjourned meeting, a notice of the adjourned
meeting shall be given to each stockholder of record entitled to vote at that
meeting.
The Adjournment Proposal requires the approval of a majority of the
votes cast on the proposal. Broker non-votes and abstentions will have no affect
on the outcome of the vote on the Adjournment Proposal. No proxy that is
specifically marked "AGAINST" approval of the Merger, reverse stock split and/or
corporate name change will be voted in favor of the Adjournment Proposal, unless
it is specifically marked "FOR" the discretionary authority to adjourn the
Annual Meeting to a later date. The board believes that if the number of our
shares of common stock present or represented at the Annual Meeting and voting
in favor of the Merger, reverse stock split and/or corporate name change is
insufficient to approve those proposals, it is in the best interests of our
stockholders to enable management and the board, for a limited period of time,
to continue to seek to obtain a sufficient number of additional votes in favor
of the Merger, reverse stock split and/or corporate name change to bring about
its approval.
OUR BOARD OF DIRECTORS BELIEVES THAT THE TERMS OF THE ADJOURNMENT PROPOSAL ARE
FAIR TO AND IN THE BEST INTERESTS OF US AND OUR STOCKHOLDERS AND RECOMMENDS THAT
STOCKHOLDERS VOTE "FOR" THE PROPOSAL TO AUTHORIZE THE HOLDER OF ANY PROXY
SOLICITED BY OUR BOARD TO HAVE THE DISCRETIONARY AUTHORITY TO VOTE TO ADJOURN
THE ANNUAL MEETING TO A LATER DATE.
74
BENEFICIAL OWNERSHIP OF COMMON STOCK
The following table sets forth as of June 30, 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 June 30, 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............................. 310,384 (5) 1.8
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 3,577,402 (8) 20.3%
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 June 30, 2005.
(2) Percentage ownership is based on 16,533,269 shares of common
stock outstanding as of June 30, 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 June 30, 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 June 30, 2005.
75
(5) Consists of shares of common stock subject to options that are
currently exercisable or that will become exercisable within
60 days of June 30, 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 June 30, 2005.
(7) Information obtained from a Schedule 13D/A filed by Jay
Gottlieb on December 10, 2004. (8) Includes 845,384 shares of
common stock subject to options that are currently exercisable
or that will become exercisable within 60 days of June 30,
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
April 17, 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 June 29, 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.
76
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 and the Form
10-KSB/A filed on July 8, 2005 (File No. 001-14257);
(2) Our Quarterly Report on Form 10-QSB for the quarterly period
ended March 31, 2005 (File No. 001-14257);
(3) Our Current Reports on Form 8-K, filed with the SEC on January
5, 2005, April 12, 2005 and July 11, 2005 (File No.
001-14257); 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
August __, 2005
77
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
A-1
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.
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"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.
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"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,
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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.
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"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:
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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
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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.
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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
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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.
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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
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"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.
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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
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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,
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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
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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
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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;
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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.
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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,
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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.
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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
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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.
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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
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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
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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.
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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
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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;
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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.
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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
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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,
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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;
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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'
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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")
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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
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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
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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
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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.
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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.
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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.
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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
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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
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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.
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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
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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.
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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
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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
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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.]
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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
EXHIBIT A
SECURED PROMISSORY NOTE
$500,000.00 December 16, 2004
FOR VALUE RECEIVED, the undersigned, ALPHA INNOTECH CORPORATION, a
California corporation (the "MAKER"), hereby promise to pay to XTRANA, INC., a
Delaware corporation (the "PAYEE" and, together with the Maker, the "PARTIES"),
in lawful money of the United States of America, the principal sum of FIVE
HUNDRED THOUSAND DOLLARS AND NO CENTS ($500,000.00). Except as provided in
Paragraph 1.2 below, no interest shall accrue on this Note.
This Note has been executed and delivered in connection with the
Agreement and Plan of Merger, dated as December 14, 2004, by and among Maker,
Payee and AIC Merger Corporation (the "MERGER AGREEMENT"). The Parties agree
that, in the event that Payee becomes obligated to pay Maker a termination fee
pursuant to Section 8.2.1 of the Merger Agreement, such termination fee shall be
deemed to reduce the principal amount of this Note as of the date of
termination.
1. PAYMENT
1.1 MATURITY DATE. Upon any termination of the Merger Agreement
pursuant to Section 8.1 thereof, to the extent outstanding and subject to
Section 5 hereof, the entire unpaid principal balance of this Note and any
accrued but unpaid interest thereon shall become due and payable on the date
which is six (6) months following the date of such termination.
1.2 INTEREST. In the event of any termination of the Merger
Agreement pursuant to Section 8.1 of the Merger Agreement, interest will accrue
on the unpaid principal balance from time to time outstanding, retroactive from
the date of issuance of this Note until the principal balance is paid in full,
at a rate of eight percent (8%) per annum (the "INTEREST RATE"). In addition
(but without duplication), from and after the occurrence of an Event of Default
(as defined below) interest will accrue on the unpaid principal balance from
time to time outstanding, from the date of such occurrence of such Event of
Default until the date when such Event of Default is cured or until the
principal balance is paid in full, whichever is earlier, at the Interest Rate.
Interest at the Interest Rate will be calculated on the basis of a year of 365
or 366 days, as applicable, and charged for the actual number of days elapsed.
1.3 PREPAYMENT; APPLICATION OF PAYMENTS. Maker will have the right
to prepay all or any portion of the outstanding principal amount without premium
or penalty. All payments on this Note will be applied first to the payment of
accrued interest (if any) before being applied to the payment of principal.
1.4 MANNER OF PAYMENT. Principal, interest, and all other amounts
due under this Note will be payable, in U.S. dollars, by electronic wire
transfer of immediately available funds pursuant to written instructions
provided to Maker by Payee. If any payment of principal or interest on this Note
is due on a day that is not a Business Day, such payment will be due on the next
succeeding Business Day. "BUSINESS DAY" means any day other than a Saturday,
Sunday or legal holiday in the State of California. All amounts due from Maker
to Payee under this Note will be made without benefit of any setoff,
counterclaim or other defense.
2. DEFAULTS
2.1 EVENTS OF DEFAULT. The occurrence of any one or more of the
following events with respect to Maker will constitute an event of default
hereunder ("EVENT OF DEFAULT"):
(a) If Maker fails to pay when due any payment of
principal or interest on this Note and such failure continues for five
(5) days after such payment becomes due;
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(b) If Maker is in material breach of any other provision
of this Note or any provision of the Merger Agreement, which breach is
not cured within ten (10) days after written notice from Payee of such
breach;
(c) If Maker shall default in the performance or
observance of any obligation or condition with respect to indebtedness
in excess of $100,000 or any other event shall occur or condition
exist, if the effect of such default, event or condition is to
accelerate the maturity of such indebtedness or is such indebtedness
shall become or be declared to be due and payable prior to its stated
maturity as a result of the foregoing; or
(d) If Maker, under the laws of any jurisdiction: (i)
consents to the appointment of a trustee, receiver, assignee,
liquidator or similar official; (ii) makes a general assignment for the
benefit of its creditors; or (iii) institutes a proceeding, or has an
involuntary proceeding instituted against it, seeking a judgment of
insolvency, bankruptcy, or any other similar relief under any
bankruptcy, insolvency, or other similar law affecting creditors'
rights that is not dismissed within ninety (90) days thereafter.
2.2 NOTICE BY MAKER. Maker will notify Payee in writing within
five (5) days after the occurrence of any Event of Default of which Maker
acquires knowledge. If Payee is not so notified, said failure to notify is, in
and of itself, a default.
2.3 REMEDIES. Subject to the provisions of Paragraph 4.2 hereof,
upon the occurrence of an Event of Default hereunder (unless waived in writing
by Payee), Payee may, at its option, (a) by written notice to Maker, declare the
entire unpaid principal balance of this Note, together with all accrued interest
thereon, immediately due and payable or (b) exercise any and all rights and
remedies available to it under applicable law, including the right to collect
from Maker all sums due under this Note. Maker will pay all costs and expenses
incurred by or on behalf of Payee in connection with Payee's exercise of any or
all of its rights and remedies under this Note, including attorneys' fees.
3. SECURITY AGREEMENT.
Maker's obligations under this Note are secured by the collateral set
forth in that certain Security Agreement, dated as of the date hereof, between
Maker and Payee (the "SECURITY AGREEMENT"). Concurrently with the termination of
this Note pursuant to Paragraph 5 below, the Security Agreement shall terminate
and be of no further force and effect (other than the Parties' obligations to
execute and deliver such documents as be necessary or appropriate to release any
lien upon or security interest in the collateral secured thereby). The security
interest of Maker in the Collateral is, and at all times shall be, junior and
subordinate to the security interest of Senior Lender.
4. SENIOR SUBORDINATION
4.1 DEFINITION OF SENIOR INDEBTEDNESS. For purposes of this Note,
the term "SENIOR INDEBTEDNESS" shall mean the principal of and premium, if any,
and interest on indebtedness of Maker under that certain Loan and Security
Agreement, dated March 9, 2004, between Maker and BFI Business Finance ("BFI")
or its assigns ("SENIOR LENDER") and money borrowed from other commercial banks,
equipment lessors, or other financial institutions under a secured or unsecured
line of credit, term loan or equipment lease approved by BFI.
4.2 SUBORDINATION TO SENIOR INDEBTEDNESS. The payment of principal
and interest on this Note is subordinated in right of payment to the prior
payment in full of all Senior Indebtedness of Maker, whether outstanding on this
date or thereafter. In the event of any insolvency or bankruptcy proceedings, or
any receivership, liquidation, reorganization, or other similar proceedings
relative to Maker, or to its property, or in the event of any proceedings for
voluntary liquidation, dissolution, or other winding up of Maker, then the
holders of Senior Indebtedness will be entitled to receive payment in full of
all principal and interest on all Senior Indebtedness before Maker is entitled
to receive any payment on account of principal or interest on this Note.
NOTWITHSTANDING THE FOREGOING, Maker may make scheduled payments of principal
and interest under this Note as provided in Section 1 hereof, as and when such
payments are due and payable, UNLESS AND UNTIL Payee and Maker have received
written notice from the Senior Lender that an event of default has occurred or
been declared under either (i) the Secured
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Promissory Note dated August 26, 2004 in the principal amount of $300,000.00
issued by Maker to Senior Lender (unless Maker has paid in full all of its
obligations under such Secured Promissory Note) or (ii) that certain Loan and
Security Agreement, dated March 9, 2004, between Maker and BFI.
4.3 SENIOR TO OTHER INDEBTEDNESS. Subject to the prior payment in
full of the Senior Indebtedness, Payee shall receive payments from Maker, prior
to any other creditors, until the obligations related to this Note are satisfied
in full, PROVIDED, HOWEVER, that the foregoing will not apply to Permitted
Indebtedness (as defined below). Notwithstanding any subordination to Senior
Indebtedness as described above, Maker will cooperate with Payee to ensure that
payment on this Note is (to the extent commercially practicable and permitted by
applicable law) senior to all other existing and future debt of Maker. For the
purpose of this Paragraph 4.3, "PERMITTED INDEBTEDNESS" shall mean indebtedness
to trade creditors incurred in the ordinary course of business.
4.4 NO IMPAIRMENT. This Paragraph 4 is not intended to impair, as
between Maker, its creditors (other than with respect to the holders of Senior
Indebtedness) and Payee, the unconditional obligation of Maker to pay the
principal of and interest on this Note. Nothing in this Note shall prevent Payee
from exercising all remedies otherwise permitted by applicable law upon default
of this Note, subject to the rights, if any, of the holders of the Senior
Indebtedness in respect to cash, property, or securities of Maker received upon
exercise of any such remedies.
5. TERMINATION
This Note, and the rights and obligations under this Note, shall
automatically terminate upon the Closing (as defined in the Merger Agreement).
6. MISCELLANEOUS
6.1 WAIVER. Maker hereby waives presentment, demand, protest, and
notice of dishonor and protest.
6.2 ASSIGNMENT. Neither Party shall assign or transfer this Note
or any of its rights or obligations under this Note without express prior
written consent of the other Party, which consent shall not be unreasonably
withheld, conditioned or delayed, provided that Payee may assign this Note to
any person or entity which acquires all or substantially all of the assets of
Payee without the written consent of Payee.
6.3 SUCCESSORS. All of the terms, agreements, covenants,
representations, warranties, and conditions of this Note are binding upon, and
inure to the benefit of and are enforceable by, the Parties and their respective
successors. If the principal business, operations or a majority or substantial
portion of the assets of Maker are assigned, conveyed, allocated, or otherwise
transferred, including by sale, merger, consolidation, amalgamation, conversion,
or similar transactions, such receiving person or persons will automatically
become bound by and subject to the provisions of this Note, and Maker, subject
to satisfaction of the provisions of Paragraph 6.2 above will cause the
receiving person or persons to expressly assume its obligations hereunder.
6.4 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 Maker, to:
Alpha Innotech Corporation
2401 Merced St.
San Leandro, CA 94577
Attn: Chief Executive Officer
Fax: 510-483-3227
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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
if to Payee, 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
6.5 TIME. Time is of the essence in the performance of this Note.
6.6 HEADINGS. The article and section headings contained in this
Note are inserted for convenience only and will not affect in any way the
meaning or interpretation of this Note.
6.7 GOVERNING LAW. This Note and the performance of the
obligations of the Parties hereunder will be governed by and construed in
accordance with the laws of the State of California, without giving effect to
any choice of law principles.
6.8 AMENDMENTS AND WAIVERS. No amendment, modification,
replacement, termination, or cancellation of any provision of this Note will be
valid, unless the same will be in writing and signed by the each Party. No
waiver by any Party of any default, Event of Default, misrepresentation, or
breach of warranty or covenant hereunder, whether intentional or not, may be
deemed to extend to any prior or subsequent default, misrepresentation, or
breach of warranty or covenant hereunder or affect in any way any rights arising
because of any prior or subsequent such occurrence.
6.9 SEVERABILITY. The provisions of this Note will be deemed
severable and the invalidity or unenforceability of any provision will not
affect the validity or enforceability of the other provisions hereof; provided
that any provision of this Note that is invalid or unenforceable in any
situation or in any jurisdiction will not affect the enforceability of the
remaining terms and provisions hereof or the enforceability of the offending
term or provision in any other situation or in any other jurisdiction.
6.10 EXPENSES. Except as otherwise expressly provided in this Note,
each Party will bear its own costs and expenses incurred in connection with the
preparation, execution and performance of this Note, including all fees and
expenses of agents, representatives, financial advisors, legal counsel, and
accountants. This paragraph shall not affect attorneys' fees which may be
incurred in connection with collection of late payments or resulting from any
Event of Default, as described above.
6.11 ATTORNEYS' FEES. If there exists an Event of Default, Maker
agrees to pay all costs and expenses of collection, including attorneys' fees,
incurred by Payee in connection therewith, whether or not suit is filed.
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6.12 CONSTRUCTION. The Parties have participated jointly in the
negotiation and drafting of this Note. If an ambiguity or question of intent or
interpretation arises, this Note will be construed as if drafted jointly by the
Parties and no presumption or burden of proof will arise favoring or disfavoring
any Party because of the authorship of any provision of this Note. Any reference
to any federal, state, local, or foreign law will be deemed also to refer to
such law as amended and all rules and regulations promulgated thereunder, unless
the context requires otherwise. The words "include," "includes," and "including"
will be deemed to be followed by "without limitation." Pronouns in masculine,
feminine, and neuter genders will be construed to include any other gender, and
words in the singular form will be construed to include the plural and vice
versa, unless the context otherwise requires. The words "this Note," "herein,"
"hereof," "hereby," "hereunder," and words of similar import refer to this Note
as a whole and not to any particular subdivision unless expressly so limited.
The Parties intend that each representation, warranty, and covenant contained
herein will have independent significance. If any Party has breached any
representation, warranty, or covenant contained herein in any respect, the fact
that there exists another representation, warranty or covenant relating to the
same subject matter (regardless of the relative levels of specificity) which the
Party has not breached will not detract from or mitigate the fact that the Party
is in breach of the first representation, warranty, or covenant.
6.13 REMEDIES. Except as expressly provided herein, the rights,
obligations and remedies created by this Note are cumulative and in addition to
any other rights, obligations or remedies otherwise available at law or in
equity. Except as expressly provided herein, nothing herein will be considered
an election of remedies.
IN WITNESS WHEREOF, Maker has executed and delivered this Note as of
the date first above written.
MAKER:
ALPHA INNOTECH CORPORATION
--------------------------------------------
By:
Its:
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EXHIBIT B
[FORM OF] ESCROW AGREEMENT
THIS ESCROW AGREEMENT (this "ESCROW AGREEMENT") is made and entered
into as of this _____ day of _______, 200_, by and among [ALPHA INNOTECH CORP.],
a Delaware corporation formerly known as Xtrana, Inc. ("Xtrana"),
[_____________________], as escrow agent (the "ESCROW AGENT"), [_____________],
as representative for the former stockholders of Alpha Innotech Corporation, a
California corporation ("AIC"), (the "AIC Representative"), and [_____________],
as representative of the stockholders of Xtrana immediately prior the Merger (as
defined below) (the "XTRANA REPRESENTATIVE").
RECITALS
A. Pursuant to the Agreement and Plan of Merger, dated __________,
2004, by and among Xtrana, AIC Merger Corporation, a California corporation and
subsidiary of Xtrana ("MERGERCO"), and AIC (the "MERGER Agreement"), MergerCo
was merged with and into AIC with AIC surviving as a wholly-owned subsidiary of
Xtrana (the "MERGER"). In connection with the closing of the Merger, Xtrana
changed its corporate name from Xtrana, Inc. to [ALPHA INNOTECH CORP.]
B. Pursuant to the Merger Agreement, the parties to the Merger
Agreement have agreed that (i) of the Merger Consideration, [__________] shares
of Common Stock, par value $0.01 per share, of Xtrana (the "COMMON STOCK") will
be deposited in escrow in accordance with the terms of this Escrow Agreement to
secure AIC's indemnification obligations under Section 9 of the Merger Agreement
(such shares are referred to as the "HOLDBACK SHARES") and (ii) an additional
[___________] treasury shares of Common Stock will be deposited in escrow in
accordance with the terms of this Escrow Agreement to secure Xtrana's
indemnification obligations under Section 9 of the Merger Agreement (such shares
are referred to the "AIC INDEMNIFICATION SHARES" and together with the Holdback
Shares, the "ESCROW SHARES").
AGREEMENT
NOW, THEREFORE, in consideration of the premises and the mutual
promises herein made, and in consideration of the representations, warranties,
and covenants contained herein and in the Merger Agreement, it is hereby agreed
as follows:
1. MERGER AGREEMENT. Capitalized terms used herein and not defined herein
shall have the meanings given such terms in the Merger Agreement. The Escrow
Agent hereby acknowledges receipt of a copy of the Merger Agreement, but, except
for referring to definitions of certain undefined capitalized terms herein, the
Escrow Agent is not charged with any duties or responsibilities under the Merger
Agreement.
2. DEPOSIT IN ESCROW.
2.1 Xtrana has instructed its transfer agent (the "TRANSFER
AGENT") to deliver (a) certificate(s) representing the Holdback Shares,
registered in the name of "_______________, as Escrow Agent under agreement
dated ___________," to the Escrow Agent deposited with the Escrow Agent, to be
held and administered as provided herein for the benefit of the AIC Shareholders
and (b) certificate(s) representing the AIC Indemnification Shares, registered
in the name of Xtrana, accompanied by an executed stock assignment separate from
certificate, to the Escrow Agent along to be held and administered as provided
herein. The Escrow Shares shall be held by the Escrow Agent in accordance with
the terms set forth in this Escrow Agreement.
2.2 This Escrow Agreement has been executed and delivered, and the
deposit of the Escrow Shares will be made, for the purpose of reimbursing and
providing compensation for those Damages that any Indemnitee incurs in
connection with any claim for Damages arising under the Merger Agreement for
which such Indemnitee is entitled to indemnification under Section 9 of the
Merger Agreement. Nothing herein will limit any noncontractual remedy for fraud.
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2.3 For all purposes under this Escrow Agreement, the Escrow
Shares shall be valued a per share value equal to the Market Price as defined in
the Merger Agreement, which share value shall be subject to adjustment for stock
splits, reverse stock splits and stock dividends.
2.4 Any shares or other property to be distributed to all of the
AIC Shareholders on a pro rata basis pursuant to this Escrow Agreement shall be
allocated among the AIC Shareholders in proportion to their relative ownership
on an as-converted basis of the capital stock of AIC immediately prior to the
Merger as set forth on Schedule I to this Escrow Agreement.
3. DISTRIBUTIONS ON AND VOTING OF SHARES.
3.1 If the Escrow Agent receives any securities in respect of or
in exchange for any of the Escrow Shares it holds, whether by way of dividends,
share splits, recapitalizations, liquidations, mergers, consolidations,
split-ups, spin-offs, redemptions, exchanges or conversions of shares and the
like, the Escrow Agent will hold in escrow such securities as Escrow Shares, to
be held and distributed by it in the same manner as, and constitute a part of,
the Escrow Shares. All cash dividends or other taxable distributions paid by
Xtrana with respect to the Holdback Shares will be paid directly to the AIC
Shareholders and the Escrow Agent will have no responsibility of any kind with
respect to such dividends or distributions. No cash dividends will be paid by
Xtrana with respect to the AIC Indemnification Shares so long as they remain in
escrow pursuant to this Escrow Agreement and maintain their status as treasury
shares.
3.2 Unless and until such time as the Holdback Shares or any
portion thereof are distributed to Xtrana for cancellation as provided herein,
the AIC Shareholders shall have the full right to vote the Holdback Shares.
Unless and until such time as the AIC Indemnification Shares or any portion
thereof are distributed to the AIC Shareholders as provided herein, the AIC
Indemnification Shares shall constitute treasury shares of Xtrana and shall not
have any voting rights.
4. TAXES AND CHARGES ON SHARES. The AIC Shareholders may not create any
liens or encumbrances on the Holdback Shares and shall be liable for, and shall
from time to time pay and discharge when due and payable, all taxes, assessments
and governmental charges lawfully imposed on the Holdback Shares or resulting
from any distribution on or other income arising from the Holdback Shares and
not then being contested in good faith. The AIC Shareholders shall report all
such distributions or other income in its income tax returns for the year in
which such distributions or other income are paid as if such distributions or
other income had been made or paid directly to the AIC Shareholders. Xtrana may
not create any liens or encumbrances on the AIC Indemnification Shares and shall
be liable for, and shall from time to time pay and discharge when due and
payable, all taxes, assessments and governmental charges lawfully imposed on the
AIC Indemnification Shares or resulting from any distribution on or other income
arising from the AIC Indemnification Shares and not then being contested in good
faith.
5. DISTRIBUTION OF ESCROW SHARES.
5.1 Upon the delivery of written instructions to the Escrow Agent
signed by both the AIC Representative and the Xtrana Representative, the Escrow
Agent shall promptly deliver the Escrow Shares (together with any proceeds
earned from the investment thereof), or any portion thereof, to one or more
accounts designated in writing by the AIC Representative and Xtrana
Representative and otherwise in accordance with the terms of such written
instructions.
5.2 Thirty (30) days after the AIC Representative gives the Xtrana
Representative, Xtrana and the Escrow Agent a written notice (a "CLAIM NOTICE")
of a claim for Damages pursuant to the Merger Agreement, which notice makes
specific reference to this Section 5.2 and is accompanied by a copy of this
Escrow Agreement, and specifies the basis therefor, the amount due to the party
claiming a right to indemnification (the "INDEMNITEE") by reason thereof (the
"CLAIM AMOUNT") and the number of AIC Indemnification Shares determined pursuant
to Section 2.3 to have an aggregate value equal to the Claim Amount, the Escrow
Agent shall transfer to the Transfer Agent certificate(s) representing the AIC
Indemnification Shares together with the Claim Notice, and it shall be the
responsibility of the Transfer Agent to distribute the certificates representing
the number of AIC Indemnification Shares specified in the Claim Notice to the
Indemnitee and to issue a certificate to the Escrow
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Agent, registered in the name of Xtrana, representing the remaining AIC
Indemnification Shares, if any, to remain in escrow pursuant to this Escrow
Agreement; provided, however, that the Escrow Agent shall not release any Escrow
Shares pursuant to this Section 5.2 in accordance with a Claim Notice if within
twenty-five (25) days of delivery of the Claim Notice, the Xtrana
Representative, gives a written notice of denial (a "CLAIM DENIAL") to the AIC
Representative, Xtrana and the Escrow Agent denying the validity in whole or in
part of the claim made by the AIC Representative in the Claim Notice.
5.3 Thirty (30) days after the Xtrana Representative gives the AIC
Representative, Xtrana and the Escrow Agent a Claim Notice for Damages pursuant
to the Merger Agreement, which notice makes specific reference to this Section
5.3 and is accompanied by a copy of this Escrow Agreement, and specifies the
basis therefor, the Claim Amount due to the Indemnitee and the number of
Holdback Shares determined pursuant to Section 2.3 to have an aggregate value
equal to the Claim Amount, the Escrow Agent shall transfer to the Transfer Agent
the certificate(s) representing the Holdback Shares together with the Claim
Notice, and it shall be the responsibility of the Transfer Agent to distribute
the certificates representing the number of Holdback Shares specified in the
Claim Notice to Xtrana for cancellation and to issue a certificate to the Escrow
Agent representing the remaining Holdback Shares, if any, to remain in escrow
pursuant to this Escrow Agreement; provided, however, that the Escrow Agent
shall not release any Escrow Shares pursuant to this Section 5.3 in accordance
with a Claim Notice if within twenty-five (25) days of delivery of the Claim
Notice, the AIC Representative, gives a Claim Denial to the Xtrana
Representative, Xtrana and the Escrow Agent denying the validity in whole or in
part of the claim made by the Xtrana Representative in the Claim Notice.
5.4 If any party gives a Claim Denial in accordance with Section
5.2 or 5.3, then the Indemnitee and the Xtrana Representative or AIC
Representative, as appropriate, may submit to the party making the Claim Denial
such evidence as it wishes to present to support the claim made by it in the
Claim Notice. During the ten (10) day period following any such submission of
evidence, the AIC Representative and the Xtrana Representative in good faith
shall attempt to reach agreement (it being understood that neither the AIC
Representative nor the Xtrana Representative shall be required to reach such an
agreement) on an amount due (the "RESOLVED CLAIM AMOUNT") (or that no amount is
due) with respect to the claim specified in the Claim Notice and denied in the
Claim Denial and report such agreement in writing to Xtrana and the Escrow Agent
(it being understood that such writing will be executed by both the AIC
Representative and the Xtrana Representative). After its receipt of any such
written report, if applicable, the Escrow Agent shall promptly deliver to the
Transfer Agent all Holdback Shares or AIC Indemnification Shares, as applicable,
and it shall be the responsibility of Xtrana and the Transfer Agent to issue and
distribute the appropriate certificate(s) having a value equal to the Resolved
Claim Amount and as has been agreed to in such report to Xtrana for cancellation
or to the AIC Shareholders, as appropriate, and to issue and deliver to the
Escrow Agent a certificate representing the balance of the Holdback Shares or
AIC Indemnification Shares (provided that any such remaining AIC Indemnification
Shares shall be registered in the name of Xtrana), if any, to remain in escrow
pursuant to this Escrow Agreement. If the AIC Representative and Xtrana
Representative do not reach such agreement within said ten (10) day period, then
they may pursue any other legal remedy permitted by the Merger Agreement as may
then be available to determine the disposition of the Claim Amount which is
specified in the Claim Notice which is the subject of the Claim Denial, with the
Escrow Shares continuing to be held by the Escrow Agent subject to the
provisions of Section 5.5 and 5.6.
5.5 Subject to Section 5.6 below, on March 31, 2006 (the
"TERMINATION DATE"): (a) the Escrow Agent shall deliver to the Transfer Agent
the certificate(s) representing such number of Holdback Shares as remain in
escrow pursuant to this Escrow Agreement on such date and it shall be the
responsibility of Xtrana and the Transfer Agent to issue and distribute such
remaining Holdback Shares to each of the AIC Shareholders, pursuant to written
instructions to be provided to Xtrana and the Transfer Agent by the AIC
Representative, such AIC Shareholder's pro rata portion of such remaining
Holdback Shares (determined as provided in Section 2.4); and (b) the Escrow
Agent shall deliver to the Transfer Agent the certificate(s) representing such
number of AIC Indemnification Shares as remain in escrow pursuant to this Escrow
Agreement on such date and Xtrana covenants and agrees to take all actions
necessary, and cause the Transfer Agent to take all actions necessary, to
permanently cancel all such remaining AIC Indemnification Shares.
5.6 Any distribution of Holdback Shares or AIC Indemnification
Shares required by Section 5.5 above shall be reduced by the aggregate amount of
Holdback Shares or AIC Indemnification Shares, respectively, (if any) which has
been distributed in accordance with Section 5.1 hereof pursuant to mutual
agreement
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of the AIC Representative and Xtrana Representative or pursuant to Section 5.2,
5.3 or Section 5.4 hereof pursuant to Claim Notices and such Escrow Shares (if
any) which are then subject to a pending Claim Notice (whether or not a Claim
Denial has been given with respect thereto). Any Escrow Shares that are not
released from escrow hereunder on the Termination Date because they are subject
to a pending Claim Notice shall be distributed (x) in accordance with the
written agreement of the AIC Representative and Xtrana Representative, or (y)
pursuant to an effective and final, nonappealable order of a court of competent
jurisdiction in the event such an agreement cannot be reached. Until such time,
such Escrow Shares shall remain subject to this Escrow Agreement.
5.7 If the Escrow Agent is holding Escrow Shares in its name as
nominee, the Escrow Agent is authorized to execute stock powers for the purpose
of transferring and to transfer such Escrow Shares as provided in this Escrow
Agreement. For any Holdback Shares held by the Escrow Agent which are issued in
the name of the AIC Shareholders, such stockholders hereby transfer any such
Escrow Shares as provided in this Escrow Agreement and authorize the Escrow
Agent and Xtrana to take any and all action which they deem necessary or
appropriate to accomplish same.
5.8 The Escrow Shares released from escrow by the Escrow Agent and
delivered to the Transfer Agent for distribution to the AIC Shareholders or to
Xtrana for cancellation, as applicable, pursuant to this Escrow Agreement shall
no longer be subject to the terms and conditions of this Escrow Agreement and
shall (so far as this Escrow Agreement is concerned) be and become the sole
property of the person receiving the same free and clear of all liens and
encumbrances. Notwithstanding anything to the contrary contained herein, the
Escrow Agent shall not be required to make distributions in excess of the amount
of the Escrow Shares from time to time held hereunder.
6. ESCROW AGENT PROVISIONS.
6.1 The Escrow Agent shall neither be responsible for or under,
nor chargeable with knowledge of, the terms and conditions of any other
agreement, instrument or document executed between/among the parties hereto,
except for the Escrow Agreement and the Merger Agreement. This Escrow Agreement
sets forth all of the obligations of the Escrow Agent, and no additional
obligations shall be implied from the terms of this Escrow Agreement or any
other agreement, instrument or document.
6.2 Each of the parties, jointly and severally, agrees to
reimburse the Escrow Agent on demand for, and to indemnify and hold the Escrow
Agent harmless against and with respect to, any and all loss, liability, damage
or expense (including, but without limitation, attorneys' fees, costs and
disbursements) that the Escrow Agent may suffer or incur in connection with this
Escrow Agreement and its performance hereunder or in connection herewith, except
to the extent such loss, liability, damage or expense arises from its willful
misconduct of gross negligence as adjudicated by a court of competent
jurisdiction. The Escrow Agent shall have the further right at any time and from
time to time to charge, and reimburse itself from, the property held in escrow
hereunder.
6.3 The Escrow Agent shall be entitled to rely and shall be
protected in acting in reliance upon any instructions or directions furnished to
it in writing mutually by the AIC Representative and Xtrana Representative or
pursuant to any provisions of this Escrow Agreement and shall be entitled to
treat as genuine, and as the document it purports to be, any letter, paper or
other document furnished to it by the AIC Representative and Xtrana
Representative and believed by it to be genuine and to have been signed and
presented by the proper party or parties.
6.4 The Escrow Agent may consult with legal counsel of its
selection in the event of any dispute or question as to the meaning or
construction of any of the provisions hereof or its duties hereunder, and it
shall incur no liability and shall be fully protected in acting in accordance
with the opinion and instructions of such counsel. Each of the parties, jointly
and severally, agrees to reimburse the Escrow Agent on demand for such legal
fees, disbursements and expenses and in addition, the Escrow Agent shall have
the right to reimburse itself for such fees, disbursements and expenses from the
property held in escrow hereunder.
6.5 The Escrow Agent shall be under no duty to give the property
held in escrow by it hereunder any greater degree of care than it gives its own
similar property.
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6.6 The Escrow Agent shall receive the fees provided in Schedule
II to this Escrow Agreement. Such fees shall be paid by Xtrana. In the event
that such fees are not paid to the Escrow Agent within 60 days of presentment to
Xtrana, then the Escrow Agent may pay itself such fees from the property held in
escrow hereunder.
6.7 In the event of any disagreement between/among any of the
parties of this Escrow Agreement, or between/among them or either or any of them
and any other person, resulting in adverse claims or demands being made in
connection with the subject matter of the escrow, or in the event that the
Escrow Agent, in good faith, be in doubt as to what action it should take
hereunder, the Escrow Agent may, at its option, refuse to comply with any claims
or demands on it, or refuse to take any other action hereunder, so long as such
disagreement continues or such doubt exists, and in any such event, the Escrow
Agent shall not become liable in any way or to any person for its failure or
refusal to act, and the Escrow Agent shall be entitled to continue so to refrain
from acting until:
(a) the rights of all parties shall have been fully and
finally adjudicated by a court of competent jurisdiction; or
(b) all differences shall have been adjusted and all
doubt resolved by agreement among all of the interested persons, and
the Escrow Agent shall have been notified thereof in writing signed by
all such persons.
The Escrow Agent shall have the option, after thirty (30) days notice
to the other parties of its intention to do so, to file an action in
interpleader requiring the parties to answer and litigate any claims and rights
among themselves. The rights of the Escrow Agent under this paragraph are
cumulative of all other rights which it may have by law or otherwise.
6.8 The provisions of this Section 6 shall survive the termination
of the escrow arrangement contemplated hereby.
7. NOTICES. All notices and other communications hereunder shall be in
writing and shall be deemed given when hand delivered or delivered by certified
or registered mail (return receipt requested) or by facsimile, in every case
addressed as follows (or at such other address for a person as shall be
specified by like notice):
(a) If to Xtrana, to:
Alpha Innotech Corporation
2401 Merced St.
San Leandro, CA 94577
Attn: Chief Executive Officer
Fax: 510-483-3227
(b) If to the AIC Representative, to:
(c) If to the Xtrana Representative, to
(d) If to the Escrow Agent, to:
8. RESIGNATION. The Escrow Agent may, in its sole discretion, resign and
terminate its position hereunder at any time following thirty (30) days written
notice to the parties to the Escrow Agreement herein. Any such resignation shall
terminate all obligations and duties of the Escrow Agent hereunder. On the
effective date of such resignation, the Escrow Agent shall deliver this Escrow
Agreement together with the Escrow Shares and any and all related instruments or
documents to any successor Escrow Agent agreeable to the parties, subject to
this Escrow Agreement herein. If a successor Escrow Agent has not been appointed
prior to the expiration of thirty (30) days following the date of the notice of
such resignation, the then acting Escrow Agent may petition any court of
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competent jurisdiction for the appointment of a successor Escrow Agent, or other
appropriate relief. Any such resulting appointment shall be binding upon all of
the parties to this Escrow Agreement.
9. MISCELLANEOUS.
9.1 Successors and Assigns. This Escrow Agreement shall inure to
the benefit of and be binding upon the parties hereto and their respective
successors and assigns.
9.2 Headings. The captions set forth in this Escrow Agreement are
for convenience only and shall not be considered as part of this Escrow
Agreement or as in any way limiting or amplifying the terms and provisions
hereof.
9.3 Counterparts. This Escrow Agreement may be executed in two or
more counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same agreement.
9.4 Governing Law. THE TERMS OF THIS ESCROW AGREEMENT SHALL BE
GOVERNED BY AND CONSTURED IN ACCORDANCE WITH THE LAWS OF THE STATE OF CALIFORNIA
APPLICABLE TO CONTRACTS MADE WITHIN SUCH STATE.
9.5 Time of Essence. Time is of the essence with respect to this
Escrow Agreement and the time deadlines are specified herein.
9.6 Severability. Whenever possible, each provision or portion of
any provision of this Escrow 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 Escrow 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
Escrow 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.
9.7 Entire Agreement; No Third-Party Beneficiaries. This Escrow
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 Escrow
Agreement. Except as expressly provided herein, this Escrow Agreement is not
intended to confer upon any Person other than the parties any rights or
remedies.
9.8 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
Escrow Agreement or in any document delivered pursuant to this Escrow Agreement,
or (c) waive compliance with any of the agreements or conditions contained in
this Escrow 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 Escrow Agreement or otherwise shall not constitute a waiver of
such rights.
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IN WITNESS WHEREOF, this Escrow Agreement has been executed in
counterparts to be effective on the date first set forth above.
XTRANA: ESCROW AGENT:
Xtrana, Inc., [______________]
a Delaware corporation
By: By:
--------------------------- --------------------------
Name: Name:
--------------------------- --------------------------
Title: Title:
--------------------------- --------------------------
AIC REPRESENTATIVE: XTRANA REPRESENTATIVE:
------------------------------------ -----------------------------------
Name: Name:
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EXHIBIT C
[FORM OF]
AGREEMENT OF MERGER
This Agreement of Merger (the "AGREEMENT") is entered into by and between Alpha
Innotech Corporation, a California corporation (herein after referred to as
"SURVIVOR"), and AIC Merger Corporation, a California corporation (herein after
referred to as "MERGECO").
1. The authorized capital stock of MergeCo consists of 1,000 shares of
stock, all of which have been designated Common Stock (the "MERGECO
COMMON STOCK").
2. The authorized capital stock of MergerCo consists of 1,000 shares of
Common Stock. There are issued and outstanding 1,000 shares of Survivor
Common Stock. The authorized capital stock of Survivor consists of
70,000,000 shares of Common Stock ("SURVIVOR COMMON STOCK"), 14,000,000
shares of Series A Preferred Stock ("SURVIVOR SERIES A STOCK") and
10,000,000 shares of Series A-1 Preferred Stock ("SURVIVOR SERIES A-1
STOCK"), of which [___________] shares of Survivor Common Stock,
[___________] shares of Survivor Series A Stock and [________] shares
of Survivor Series A-1 Stock are issued and outstanding.
3. MergeCo, Survivor, and Xtrana, Inc., a Delaware corporation and parent
corporation of MergeCo ("Parent"), are parties to that certain
Agreement and Plan of Merger dated as of December __, 2004 (the
"PLAN").
4. Pursuant to Section 2.1 of the Plan, MergeCo shall be merged with and
into Survivor (the "MERGER") and Survivor shall be the surviving entity
in the Merger (the surviving entity is hereinafter referred to as the
"SURVIVING CORPORATION").
5. At the effective time of the Merger, the Amended and Restated Articles
of Incorporation attached hereto as Exhibit "A" (the "SURVIVOR ARTICLES
OF INCORPORATION") shall become the Articles of Incorporation of the
Surviving Corporation.
6. Pursuant to Section 2.7 of the Plan, at the closing of the transactions
contemplated by the Plan:
a. each outstanding share of Survivor Common Stock shall be
converted into ________ shares of the Common Stock of Parent,
as more fully set forth in the Plan;
b. each outstanding share of Survivor Series A Stock shall be
converted into ________ shares of the Common Stock of Parent,
as more fully set forth in the Plan;
c. each outstanding share of Survivor Series A-1 Stock shall be
converted into ________ shares of the Common Stock of Parent,
as more fully set forth in the Plan;
d. each outstanding option to purchase Survivor Common Stock, or
warrant to purchase Survivor Common Stock or Survivor Series A
Stock, in each case whether vested or unvested, shall be
assumed by Parent or replaced with options and warrants to
purchase the Common Stock of Parent on substantially identical
terms, provided that any warrants to purchase shares of
Survivor Series A Stock will be exercisable for that number of
shares of Common Stock into which the underlying Survivor
Series A Stock would be convertible upon exercise of such
warrants; and
e. all of the outstanding shares of MergeCo Common Stock shall be
converted into one (1) share of Survivor Common Stock.
7. MergeCo shall from time to time, as and when requested by the Survivor
or Parent, execute and deliver all such documents and instruments and
take all such action necessary or desirable to evidence or carry out
this Merger.
8. The effect of the Merger and the effective date of the Merger are as
prescribed by law.
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EXHIBIT D
FORM OF AIC OFFICERS' CERTIFICATE
OFFICERS' CERTIFICATE
We certify that we are the duly elected, qualified, and acting Chief
Executive Officer and Chief Financial Officer, respectively, of Alpha Innotech
Corporation, a California corporation ("AIC"), and that, as such, we are
familiar with the facts herein certified and are duly authorized to certify the
same and do hereby certify as follows:
1. Each of us has carefully reviewed the Agreement and Plan of
Merger dated as of ___________, 2004, by and among Xtrana, Inc., a Delaware
corporation, AIC Merger Corporation, a California corporation, and AIC (the
"MERGER AGREEMENT"), and the Schedules and exhibits thereto. This Certificate is
being delivered on AIC's behalf pursuant to SECTION 2.3.1(A) of the Merger
Agreement. Undefined capitalized terms herein are defined in the Merger
Agreement.
2. Each representation and warranty set forth in SECTION 3 of the
Merger Agreement was true and complete in all material respects as of the date
of the Merger Agreement, and is true and complete in all material respects as of
the hereof, as if made on the date hereof, unless made as of another date, in
which case they are true and correct in all material respects as of such date.
3. AIC has performed and complied in all material respects with
all of its obligations and covenants to be performed or complied with at or
prior to Closing (singularly and in the aggregate).
4. Since the date of the Merger Agreement there has 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.
5. As of the Closing, AIC has obtained all licenses, permits,
consents, approvals, authorizations, qualifications and orders of Governmental
Entities and other third parties as necessary in connection with the
transactions contemplated by the Agreement.
6. The AIC Shareholders' Approval has been obtained and the
Merger Agreement and the Merger have been approved by a vote of at least 90% of
the issued and outstanding AIC Shares by vote, or written consent in lieu of a
meeting, in compliance in all respects with AIC's Articles of Incorporation and
Bylaws and California law. No AIC Shareholders have exercised or are entitled to
exercise dissenters' rights in connection with the Merger.
7. There is no 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.
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IN WITNESS WHEREOF, we have executed this certificate on _____________.
By:
--------------------------------------------------
Name:
------------------------------------------------
Title: Chief Executive Officer
By:
--------------------------------------------------
Name:
------------------------------------------------
Title: Chief Financial Officer
A-64
EXHIBIT E
FORM OF AIC'S SECRETARY'S CERTIFICATE
SECRETARY'S CERTIFICATE
I certify that I am the duly elected, qualified, and acting Secretary
of Alpha Innotech Corporation corporation ("AIC"), and that, as such, I am
familiar with the facts herein certified and am duly authorized to certify the
same and do hereby certify as follows:
1. This Certificate is being delivered on AIC's behalf pursuant
to SECTION 2.3.1(B) of the Agreement and Plan of Merger dated as of ___________,
2004, by and among Xtrana, Inc., a Delaware corporation, AIC Merger Corporation,
a California corporation, and AIC (the "MERGER AGREEMENT"). Undefined
capitalized terms herein are defined in the Merger Agreement.
2. Attached as EXHIBIT A is a true, correct, and complete copy of
AIC's Amended and Restated Articles of Incorporation, certified by the Secretary
of State of the State of California, which is in full force and effect as of
today.
3. Attached as EXHIBIT B is a true, correct, and complete copy of
AIC's Bylaws, which are in full force and effect as of today.
4. Attached as EXHIBIT C is a true, correct, and complete copy of
the resolutions of AIC's Board of Directors approving the Merger Agreement and
the transactions contemplated thereby. Such resolutions have not been rescinded
or modified in any way and are in full force and effect on the date hereof.
5. Attached as EXHIBIT D is a true, correct, and complete copy of
all the resolutions of AIC's shareholders approving the Merger Agreement and the
transactions contemplated thereby. Such resolutions have not been rescinded or
modified in any way and are in full force and effect on the date hereof.
6. Attached as EXHIBIT E are true, correct, and complete copies
of recent certificates of existence and good standing for AIC, issued by the
Secretary of State of the State of California and by the California Franchise
Tax Board.
7. Attached as EXHIBIT F is a true, correct, and complete copy of
a recent certificate of foreign qualification or good standing for AIC in each
jurisdiction in which it is required to be so qualified or in good standing, as
issued by the Secretary of State of such jurisdiction.
8. I have examined the signatures of AIC's officers signing the
Merger Agreement and the exhibits and other documents delivered in connection
therewith, and such signatures are their true signatures. As of the date hereof
(and the date of such signatures), such officers are (were) duly elected,
qualified, and acting officers of AIC, holding the office specified beside their
names.
IN WITNESS WHEREOF, I have executed this certificate on [MONTH DAY,
YEAR].
By:
--------------------------------------------------
Name:
------------------------------------------------
Title: Secretary
A-65
EXHIBIT F
LEGAL OPINION (MERGER CLOSING)
________, 200_
Xtrana, Inc.
733 Spruce Meadow Place
Thousand Oaks, CA 91362
Ladies and Gentlemen:
We have acted as counsel for Alpha Innotech Corporation, a California
corporation (the "Company"), in connection with the negotiation, execution and
delivery by the Company of the Agreement and Plan of Merger dated as of December
__, 2004 (the "Merger Agreement") by and among the Company, Xtrana, Inc. (the
"Acquiror") and AIC Merger Corporation, a California corporation and wholly
owned subsidiary of Acquiror (the "MergerCo"). This opinion is given to you
pursuant to Section 2.3.1(d) of the Merger Agreement. Unless defined herein,
capitalized terms have the meanings given them in the Merger Agreement.
In rendering this opinion, we have examined such matters of law as we considered
necessary for the purpose of rendering this opinion. As to matters of fact
material to the opinions expressed herein, we have relied upon the
representations and warranties as to factual matters contained in and made by
the Company pursuant to the Merger Agreement and the Opinion Certificate
(defined below) and upon certificates and statements of government officials and
of officers of the Company. In addition, we have examined originals or copies of
documents, corporate records and other writings that we consider relevant for
the purposes of this opinion. In such examination, we have assumed that the
signatures on documents and instruments examined by us are authentic, that each
is what it purports to be, and that all documents and instruments submitted to
us as copies or facsimiles conform with the originals, which facts we have not
independently verified.
In making our examination of documents, we have further assumed that (i) each
party to such documents (other than the Company in connection with the Merger
Agreement) had the power, legal competence and capacity to enter into and
perform all of such party's obligations thereunder, (ii) each party to such
documents (other than the Company in connection with the Merger Agreement) has
duly authorized, executed and delivered such documents, (iii) each of such
documents is enforceable against and binding upon the parties to thereto (other
than the Merger Agreement against the Company), and (iv) there is no fact or
circumstance relating to you or your business that might prevent you from
enforcing any of the rights provided for in the Merger Agreement. We have also
assumed that there are no extrinsic agreements or understandings among the
parties to the Merger Agreement, or Contractual Obligations (as defined below),
that would modify or interpret the terms of the Merger Agreement or the
Contractual Obligations or the respective rights or obligations of the parties
thereunder.
As used in this opinion, the expression "to our knowledge" or "known to us" with
reference to matters of fact refers to the current actual knowledge of attorneys
within the firm principally responsible for handling current matters for the
Company. Except to the extent expressly set forth herein we have not undertaken
any independent investigation to determine the existence or absence of any other
facts, and no inference as to our knowledge of the existence or absence of any
such facts should be drawn from our representation of the Company or the
rendering of the opinions set forth below.
We express no opinion as to matters governed by any laws other than the laws of
the State of California and the federal law of the United States of America. We
express no opinion as to whether the laws of any particular jurisdiction apply,
and no opinion to the extent that the laws of any jurisdiction other than those
identified above are applicable to the Merger Agreement or the transactions
contemplated thereby.
In rendering the opinion set forth in paragraph (a) below as to the good
standing of the Company and as to its qualification to do business in
California, we have relied exclusively on certificates of public officials dated
as of _______.
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In rendering the opinion set forth in paragraph (d) below relating to the fully
paid status of all of the issued shares of capital stock of the Company, we have
relied without independent verification on the certificate of Haseeb Chaudhry,
the Chief Executive Officer of the Company (the "Opinion Certificate"), to the
effect that the Company has received the consideration approved by its Board of
Directors for all of the issued shares of capital stock of the Company.
In rendering the opinion set forth in paragraph (d) relating to the status of
the capitalization of the Company, we have relied without further investigation
on (i) the Company's Amended and Restated Articles of Incorporation (the
"Restated Articles"), (ii) minute books relating to meetings and written actions
of the Board of Directors and shareholders of the Company and stock records in
our possession, and (iii) statements in the Opinion Certificate relating to the
capitalization of the Company. The Company has represented to us that these
records completely and accurately describe all of the Company's issuances of
shares of its capital stock, options, warrants, conversion privileges or other
rights to purchase shares of its capital stock. Although we have no knowledge
that the information as to outstanding stock, options, warrants, conversion
privileges and other rights provided by the Company and reflected in paragraph
(d) is incorrect, based on the examination referred to above, we are not in a
position to verify its accuracy or completeness, other than to say that our
records are not inconsistent with such information.
We note that the parties to the Merger Agreement have designated the laws of the
State of Delaware as the laws governing the Merger Agreement. Our opinion in
paragraph (e) below as to the validity, binding effect and enforceability of the
Merger Agreement is premised upon the result that would be obtained if a
California court were to apply the internal laws of the State of California to
the interpretation and enforcement of the Merger Agreement (notwithstanding the
designation therein of the laws of the State of Delaware). We express no opinion
as to whether the laws of any particular jurisdiction apply, and no opinion to
the extent that the laws of any jurisdiction other than those identified above
are applicable to the subject matter hereof.
In rendering the opinion in paragraph (f) below, the term "Contractual
Obligations" shall mean only those contracts to which the Company is a party and
which are expressly identified on Section 3.17 of the AIC Disclosure Schedule.
We have further assumed that the governing law (exclusive of California laws
relating to conflicts of laws) of each such Contractual Obligation is
California. We have not, however, reviewed the covenants in the Contractual
Obligations that contain financial ratios and other similar financial
restrictions, and no opinion is provided with respect thereto. We also do not
express any opinion on parol evidence bearing on interpretation or construction
of such Contractual Obligations, or on any oral modifications to such
Contractual Obligations made by the parties thereto.
In rendering the opinion in paragraph (f) relating to violations of United
States federal or California laws, rules or regulations applicable to the
Company, such opinion is limited to such laws, rules or regulations that in our
experience are typically applicable to a transaction of the nature contemplated
by the Merger Agreement.
In addition to the foregoing, the opinions expressed below are specifically
subject to the following limitations, exceptions, qualifications and
assumptions:
(i) We express no opinion as to the effect of bankruptcy, insolvency,
reorganization, moratorium and other similar laws relating to or affecting the
relief of debtors or the rights and remedies of creditors generally, including
without limitation the effect of statutory or other law regarding fraudulent
conveyances, preferential transfers and equitable subordination;
(ii) Our opinions are qualified by the limitations imposed by general
principles of equity upon the availability of equitable remedies for the
enforcement of provisions of the Merger Agreement, and by the effect of judicial
decisions which have held that certain provisions are unenforceable when their
enforcement would violate the implied covenant of good faith and fair dealing,
or would be commercially unreasonable, or where their breach is not material;
(iii) We express no opinion as to the effect of Section 1670.5 of the
California Civil Code or any other California law, United States federal or
Delaware law or equitable principle which provides that a court may refuse
A-67
to enforce, or may limit the application of, a contract or any clause thereof
which the court finds to have been unconscionable at the time it was made or
contrary to public policy;
(iv) We express no opinion as to compliance with any United States federal
or state antitrust statutes, rules or regulations, including without limitation
the Hart-Scott-Rodino Antitrust Improvements Act of 1976;
(v) We express no opinion as to compliance with applicable antifraud
statutes, rules or regulations of applicable United States federal or state laws
concerning the issuance or sale of securities;
(vi) We express no opinion as to the enforceability of provisions of the
Merger Agreement expressly or by implication waiving broadly or vaguely stated
rights or unknown future rights, or waiving rights granted by law where such
waivers are against public policy;
(vii) We express no opinion as to the enforceability of any provision of the
Merger Agreement purporting to (a) waive rights to trial by jury, service of
process or objections to the laying of venue or to forum in connection with any
litigation arising out of or pertaining to the Merger Agreement, (b) exclude
conflict of law principles under California law, (c) establish particular courts
as the forum for the adjudication of any controversy relating to the Merger
Agreement, (d) establish the laws of any particular state or jurisdiction for
the adjudication of any controversy relating to the Merger Agreement, (e)
establish evidentiary standards or make determinations conclusive or (f) provide
for arbitration of disputes;
(viii) We express no opinion as to the effect of judicial decisions that may
permit the introduction of extrinsic evidence to modify the terms or the
interpretation of the Merger Agreement;
(ix) We express no opinion as to the enforceability of any provisions of the
Merger Agreement providing that (a) rights or remedies are not exclusive, (b)
rights or remedies may be exercised without notice, (c) every right or remedy is
cumulative and may be exercised in addition to or with any other right or
remedy, (d) the election of a particular remedy or remedies does not preclude
recourse to one or more other remedies or (e) the failure to exercise, or any
delay in exercising, rights or remedies available under the Merger Agreement
will not operate as a waiver of any such right or remedy;
(x) We note that a requirement that provisions of the Merger Agreement may
only be waived in writing may not be binding or enforceable if an oral agreement
has been created modifying any such provision or an implied agreement by trade
practice or course of conduct has given rise to a waiver;
(xi) We express no opinion as to whether the members of the Company's Board
of Directors have complied with their fiduciary duties in connection with the
authorization and performance of the Merger Agreement; and
(xii) We have assumed that the Merger Agreement, and the transactions
contemplated thereby, were fair and reasonable to the Company at the time of
their authorization by the Company's Board of Directors and stockholders within
the meaning of Section 144 of the Delaware General Corporation Law and Section
310 of the California General Corporations Code. Based upon and subject to the
foregoing, we are of the opinion that:
(a) The Company is a corporation duly incorporated, validly existing and in
good standing under the laws of the State of California, and has all corporate
power and authority necessary to own its properties and to conduct its business
as, to our knowledge, it is presently conducted.
(b) The Company has the requisite corporate power and authority to execute,
deliver and perform its obligations under the Merger Agreement.
(c) All corporate action on the part of the Company, its directors and
shareholders necessary for the authorization, execution, delivery and
performance of the obligations under the Merger Agreement by the Company has
been taken.
A-68
(d) The authorized capital stock of the Company consists of 70,000,000
shares of Common Stock, 23,177,526 of which are issued and outstanding prior to
the Closing, and 22,000,000 shares of Preferred Stock, 14,000,000 shares of
which have been designated Series A Preferred Stock, 10,533,334 of which are
issued and outstanding prior to the Closing, and 8,000,000 shares of which have
been designated Series A-1 Preferred Stock, 7,343,418 of which are issued and
outstanding prior to the Closing. All of such issued and outstanding shares are
duly authorized and validly issued, and to our knowledge, fully paid and
nonassessable. To our knowledge, except as described in the AIC Disclosure
Schedule, there are no other presently outstanding preemptive rights, options,
warrants, conversion privileges or rights to purchase from the Company any of
the authorized but unissued stock of the Company other than the conversion
privileges of the Company's Preferred Stock.
(e) The Merger Agreement constitutes the valid and binding obligation of
the Company enforceable against the Company in accordance with its terms. The
Merger Agreement has been duly executed and delivered by the Company.
(f) The execution, delivery and performance of the Merger Agreement has not
resulted and will not, as of the Closing, result in (i) a violation of the
Company's Restated Articles or Bylaws, (ii) a violation of any statute, rule or
regulation of United States federal or California law applicable to the Company,
(iii) a violation of any judgment or order specifically identified on the AIC
Disclosure Schedule, if any, or otherwise known to us or (iv) a default by the
Company under any Contractual Obligation.
(g) No consent, approval or authorization of or designation, declaration or
filing with, any governmental authority on the part of the Company is required
in connection with the valid execution, delivery and performance of the Merger
Agreement, except the filing of the Agreement of Merger with the Secretary of
State of the State of California.
In addition to the foregoing, we supplementally inform you that, to our
knowledge, there is no action, suit, proceeding or investigation pending or
threatened against the Company that (i) questions the validity of the Merger
Agreement or the right of the Company to enter into the Merger Agreement or (ii)
if determined adversely, would be likely to result in a material adverse change
in the financial condition or business of the Company. In this regard, please
note that we have not conducted a docket search in any jurisdiction with respect
to litigation that may be pending against the Company or any of its officers or
directors, nor have we undertaken any further inquiry whatsoever.
This opinion is rendered as of the date first written above solely for your
benefit in connection with the Merger Agreement and may not be relied on by, nor
may copies be delivered to, any other person without our prior written consent.
Our opinion is expressly limited to the matters set forth above and we render no
opinion, whether by implication or otherwise, as to any other matters relating
to the Company. We assume no obligation to inform you of any facts,
circumstances, events or changes in the law that may hereafter be brought to our
attention that may alter, affect or modify the opinions expressed herein.
A-69
EXHIBIT G
FORM OF XTRANA'S OFFICERS' CERTIFICATE
I certify that I am the duly elected, qualified, and acting interim
Chief Executive Officer and interim Chief Financial Officer of Xtrana, Inc., a
Delaware corporation ("XTRANA"), and the duly elected, qualified and acting
President of AIC Merger Corporation, a California corporation ("MERGERCO"), and
that, as such, I am familiar with the facts herein certified and are duly
authorized to certify the same and do hereby certify as follows:
1. I have carefully reviewed the Agreement and Plan of Merger
dated as of ___________, 2004, by and among Xtrana, MergerCo and Alpha Innotech
Corporation, a California corporation (the "MERGER AGREEMENT"), and the
Schedules and exhibits thereto. This Certificate is being delivered on behalf of
Xtrana and MergerCo pursuant to SECTION 2.3.2(A) of the Merger Agreement.
Undefined capitalized terms herein are defined in the Merger Agreement.
2. Each representation and warranty set forth in SECTION 4 of the
Merger Agreement was true and complete in all material respects as of the date
of the Merger Agreement, and is true and complete in all material respects as of
the hereof, as if made on the date hereof, unless made as of another date, in
which case they are true and correct in all material respects as of such date.
3. Each of Xtrana and MergerCo has performed and complied in all
material respects with all of its obligations and covenants to be performed or
complied with at or prior to Closing (singularly and in the aggregate).
4. There is no 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.
5. Since the date of the Merger Agreement there has 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.
6. As of the Closing, Xtrana has obtained all licenses, permits,
consents, approvals, authorizations, qualifications and orders of Governmental
Entities and other third parties as necessary in connection with the
transactions contemplated by the Agreement.
7. The cash and cash equivalents less current liabilities of
Xtrana on the Closing Date is not less than the Minimum Closing Date Cash.
IN WITNESS WHEREOF, we have executed this certificate on _____________.
By:
-------------------------------------------------
Name: James H. Chamberlain
Title: Chief Executive Officer and Chief Financial
Officer of Xtrana, Inc. and President of
AIC Merger Corporation
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EXHIBIT H
FORM OF XTRANA'S SECRETARY'S CERTIFICATE
We certify that we are the duly elected, qualified, and acting
Secretary of Xtrana, Inc., a Delaware corporation ("XTRANA") and AIC Merger
Corporation, a California corporation ("MERGERCO"), respectively, and that, as
such, we are familiar with the facts herein certified and are duly authorized to
certify the same and do hereby certify as follows:
1. This Certificate is being delivered on behalf of Xtrana and
MergerCo pursuant to SECTION 2.3.2(B) of the Agreement and Plan of Merger dated
as of ___________, 2004, by and among Xtrana, MergerCo and Alpha Innotech
Corporation, a California corporation (the "MERGER AGREEMENT"). Undefined
capitalized terms herein are defined in the Merger Agreement.
2. Attached as EXHIBIT A is a true, correct, and complete copy of
Xtrana's Certificate of Incorporation, as amended, certified by the Secretary of
State of the State of Delaware, which is in full force and effect as of today.
3. Attached as EXHIBIT B is a true, correct, and complete copy of
Xtrana's Bylaws, which are in full force and effect as of today.
4. Attached as EXHIBIT C is a true, correct, and complete copy of
the resolutions of Xtrana's Board of Directors approving the Merger Agreement
and the transactions contemplated thereby. Such resolutions have not been
rescinded or modified in any way, and are in full force and effect on the date
hereof.
5. Attached as EXHIBIT D is a true, correct, and complete copy of
a recent certificate of existence and good standing for Xtrana, issued by the
Secretary of State of the State of Delaware.
6. Attached as EXHIBIT E is a true, correct, and complete copy of
MergerCo's Articles of Incorporation, certified by the Secretary of State of the
State of California, which is in full force and effect as of today.
7. Attached as EXHIBIT F is a true, correct, and complete copy of
MergerCo's Bylaws, which are in full force and effect as of today.
8. Attached as EXHIBIT G is a true, correct, and complete copy of
the resolutions of MergerCo's Board of Directors approving the Merger Agreement
and the transactions contemplated thereby. Such resolutions have not been
rescinded or modified in any way, and are in full force and effect on the date
hereof.
9. Attached as EXHIBIT H is a true, correct, and complete copy of
the resolutions of the sole shareholder of MergerCo approving the Merger
Agreement and the transactions contemplated thereby. Such resolutions have not
been rescinded or modified in any way, and are in full force and effect on the
date hereof.
10. Attached as EXHIBIT I is a true, correct, and complete copy of
a recent certificate of existence and good standing for MergerCo, issued by the
Secretary of State of the State of California.
11. I have examined the signatures of Xtrana's and MergerCo's
respective officers signing the Merger Agreement and the exhibits and other
documents delivered in connection therewith, and such signatures are their true
signatures. As of the date hereof (and the date of such signatures), such
officers are (were) duly elected, qualified, and acting officers of Xtrana or
MergerCo, as applicable, holding the office specified beside their names.
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IN WITNESS WHEREOF, I have executed this certificate on [MONTH DAY,
YEAR].
By:
--------------------------------------------------
Name:
------------------------------------------------
Title: Secretary of Xtrana, Inc.
By:
--------------------------------------------------
Name:
------------------------------------------------
Title: Secretary of AIC Merger Corporation
A-72
EXHIBIT I
FORM OF OPINION OF XTRANA COUNSEL
[Date]
Alpha Innotech Corporation
2401 Merced St.
San Leandro, CA 94577
Re: Xtrana, Inc.
Ladies and Gentlemen:
We have acted as counsel to Xtrana, Inc. (the "Company"), in connection with the
merger of AIC Merger Corporation, a California corporation and wholly-owned
subsidiary of the Company ("MergerCo"), with and into Alpha Innotech
Corporation, a California corporation ("AIC"), pursuant to that Agreement and
Plan of Merger dated [__________], 2004 (the "Agreement") by and among the
Company, MergerCo and AIC. This opinion is rendered at the request of the
Company pursuant to Section 7.3.8 of the Agreement. All capitalized terms used
in this letter, without definition, have the meanings assigned to them in the
Agreement.
In connection with this letter, we have examined executed originals or copies of
executed originals of each of the following documents, each of which is dated
the date hereof or as of the date hereof, unless otherwise noted (collectively,
the "Transaction Documents"): (a) the Agreement, (b) the Escrow Agreement by and
among the Company, [______], [______] and [_______], and (c) the Agreement of
Merger, executed by MergerCo and AIC, to be filed with the California Secretary
of State (the "Agreement of Merger"). In addition, we have examined the
following documents (collectively, the "Due Diligence Documents"): (a) the
Certificate of Incorporation of the Company, (b) the Bylaws of the Company, (c)
the Articles of Incorporation of MergerCo, (d) the Bylaws of MergerCo, (e)
resolutions of the board of directors of the Company with respect to the
transactions contemplated under the Agreement, (f) minutes of the [_______]
meeting of the stockholders of the Company with respect to the transactions
contemplated under the Agreement, (g) resolutions of the board of directors and
sole shareholder of MergerCo with respect to the transactions contemplated under
the Agreement, (h) certificates of the State agencies or officials set forth on
Schedule 1 hereto (the "Good Standing Certificates"), (i) an officer's
certificate from each of the Company and MergerCo (the "Officer's
Certificates"), and (j) the agreements and instruments to which the Company is
party listed on Section 4.18 of the Xtrana Disclosure Schedule (the "Reviewed
Agreements").
We have examined originals or certified copies of such corporate records of the
Company and MergerCo and other certificates and documents of officials of the
Company, MergerCo, public officials and others, as we have deemed appropriate
for purposes of this letter, except where a statement is qualified as to
knowledge or awareness, in which case we have made limited inquiry, as specified
below. As to various questions of fact relevant to this letter, we have relied,
without independent investigation, upon the Due Diligence Documents and
certificates of public officials, certificates of officers of the Company and
MergerCo and representations and warranties of the Company and MergerCo in the
Transaction Documents, all of which we assume to be true, correct and complete.
We have made no investigation or review of any matters relating to the Company,
MergerCo or any other Person other than as expressly listed herein. We wish to
inform you that our knowledge is necessarily limited due to the limited scope of
our review. In addition, we have made no inquiry of the Company, MergerCo or any
other Person (including Governmental Entities) regarding, and no review of, any
judgments, orders, decrees, franchises, licenses, certificates, permits or other
public records or agreements to which the Company or MergerCo is a party other
than the Due Diligence Documents, and our "knowledge" of any such matters is
accordingly limited.
We have assumed the genuineness of all signatures, the authenticity of all
documents submitted to us as originals, the conformity to authentic original
documents of all copies submitted to us as conformed, certified or reproduced
copies and that the certificates for the Xtrana Common Stock conform to the
specimen thereof we have reviewed and will be duly countersigned and registered
by a transfer agent. We have also assumed the legal capacity of natural persons,
the corporate or other power and due authorization of each person not a natural
person other than the Company and MergerCo to execute and deliver the
Transaction Documents and to consummate the transactions
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contemplated by the Transaction Documents, due execution and delivery of the
Transaction Documents by all parties thereto other than the Company and
MergerCo, and that the Transaction Documents constitute the legal, valid and
binding obligations of each party thereto other than the Company and MergerCo,
enforceable against such party in accordance with its terms.
Based upon the foregoing and subject to the assumptions, exceptions,
qualifications and limitations set forth hereinafter, we are of the opinion
that:
1. The Company is validly existing as a corporation in good standing under
the laws of the State of Delaware, the jurisdiction of its organization.
MergerCo is validly existing as a corporation in good standing under the laws of
the State of California, the jurisdiction of its organization. Each of the
Company and MergerCo has corporate power to enter into the Transaction
Documents.
2. The execution and delivery of the Transaction Documents by the Company
and MergerCo and the performance of their respective obligations thereunder have
been duly authorized by all necessary corporate action on the part of the
Company and MergerCo.
3. The Transaction Documents have been duly executed and delivered by the
Company and MergerCo. Each Transaction Document to which they are a party
constitutes valid and binding obligation of the Company and MergerCo,
enforceable against the Company and MergerCo in accordance with its terms.
4. The execution and delivery of the Transaction Documents by the Company
and MergerCo do not, and the performance of their respective obligations
thereunder will not, result in any violation of any law, rule or regulation of
any Included Law (defined below).
5. The execution and delivery of the Transaction Documents by the Company
and MergerCo do not, and the performance of their respective obligations
thereunder will not, result in any violation of any order, writ, judgment or
decree known to us.
6. The execution and delivery of the Transaction Documents by the Company
and MergerCo do not, and the performance of their respective obligations
thereunder will not, (a) result in a violation of the Certificate of
Incorporation or Bylaws of the Company or the Articles of Incorporation or
Bylaws of MergerCo; or (b) breach or result in a default under any of the
Reviewed Agreements.
7. No authorization or approval or other action by, and no notice to or
filing with, any governmental authority or regulatory body (each, a "Filing") is
required under any of the Included Laws for the due execution and delivery of
the Transaction Documents by the Company and MergerCo and performance of their
respective obligations thereunder except for (a) the filing of the Agreement of
Merger with the California Secretary of State of the State of California, (b)
Filings required under Federal and state securities laws as contemplated by the
Agreement and (c) such Filings as have been obtained or made.
8. The authorized capital stock of the Company consists of 50,000,000
shares of common stock, par value $0.01 per share. As of [______], there were
[______] shares of common stock issued and outstanding. The shares of Xtrana
Common Stock to be issued pursuant to the Agreement have been duly authorized
and, when issued and delivered pursuant to the terms of the Agreement, will be
validly issued, fully paid and nonassessable.
9. The offer and sale of the shares of Xtrana Common Stock to be issued
pursuant to the Agreement are exempt from the registration and prospectus
delivery requirements of the Securities Act of 1933, as amended.
10. To our actual knowledge, the Company is not a party to any adversarial
action, suit, or proceeding pending or threatened overtly by a written
communication, at law or in equity, or before any Federal, state, municipal or
other governmental department, commission, board, bureau, agency or
instrumentality.
The opinions and other matters in this letter are qualified in their entirety
and subject to the following:
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A. We express no opinion as to the laws of any jurisdiction other than the
Included Laws. We have made no special investigation or review of any published
constitutions, treaties, laws, rules or regulations or judicial or
administrative decisions ("Laws"), other than a review of (i) the Laws of the
State of California, (ii) the General Corporation Law of the State of Delaware
and (ii) the Federal Laws of the United States of America. For purposes of this
opinion, the term "Included Laws" means the items described in clauses (i)
through (iii) of the preceding sentence that are, in our experience, normally
applicable to transactions of the type contemplated in the Agreement. The term
Included Laws specifically excludes (a) Laws of any counties, cities, towns,
municipalities and special political subdivisions and any agencies thereof and
(b) Laws relating to land use, zoning and building code issues, taxes,
environmental issues, intellectual property Laws, antitrust issues, and Federal
Reserve Board margin regulation issues.
B. When used in this letter, the phrases "known to us", "to our actual
knowledge" and similar phrases (i) mean the conscious awareness of facts or
other information by (a) the lawyer in our firm who signed this letter, (b) any
lawyer in our firm actively involved in handling current matters for the Company
and (c) solely as to information relevant to a particular opinion, issue or
confirmation regarding a particular factual matter, any lawyer in our firm who
is primarily responsible for providing the response concerning that particular
opinion, issue or confirmation, and (ii) do not require or imply (a) any
examination of this firm's, such lawyer's or any other person's or entity's
files, (b) that any inquiry be made of the client, any lawyer (other than the
lawyers described above), or any other person or entity, or (c) any review or
examination of any agreements, documents, certificates, instruments or other
papers other than the Transaction Documents and the Due Diligence Documents.
C. This letter and the matters addressed herein are as of the date hereof
or such earlier date as is specified herein, and we undertake no, and hereby
disclaim any, obligation to advise you of any change in any matter set forth
herein, whether based on a change in the law, a change in any fact relating to
the Company, MergerCo or any other Person, or any other circumstance. This
opinion letter is limited to the matters expressly stated herein and no opinions
are to be inferred or may be implied beyond the opinions expressly set forth
herein.
D. For purposes of this letter, the phrase "transactions contemplated by
the Agreement" and similar phrases mean the merger of MergerCo with and into the
Company pursuant to the Agreement and the other transactions contemplated by the
Agreement.
E. The opinions expressed in the first two sentences of paragraph 1 herein
are given solely on the basis of certificates of the Good Standing Certificate
and speak only as of the dates indicated therein rather than the date hereof.
The opinions are limited to the meaning ascribed to such certificates by each
applicable State agency and applicable law.
F. The matters expressed in this letter are subject to and qualified and
limited by (i) applicable bankruptcy, insolvency, fraudulent transfer and
conveyance, reorganization, moratorium and similar laws affecting creditors'
rights and remedies generally; (ii) general principles of equity, including
principles of commercial reasonableness, good faith and fair dealing (regardless
of whether enforcement is sought in a proceeding at law or in equity); (iii)
commercial reasonableness and unconscionability and an implied covenant of good
faith and fair dealing; (iv) the power of the courts to award damages in lieu of
equitable remedies; and (v) securities laws and public policy underlying such
laws with respect to rights to indemnification and contribution.
G. With respect to the opinions expressed in paragraph 8 herein with
respect to the number of issued and outstanding shares of the Company's capital
stock, we have relied, without any further inquiry, upon our examination of the
Company's Certificate of Incorporation, a statement from American Stock Transfer
& Trust Company, the Company's transfer agent, and the Officer's Certificate
from the Company. With respect to the opinions expressed in paragraph 8 herein
as to the shares of Xtrana Common Stock to be issued pursuant to the Agreement
being validly issued, fully paid and nonassessable when issued and delivered
pursuant to the terms of the Agreement, we assume that the price per share of
such issuance will be at least equal to the par value per share of the Xtrana
Common Stock.
H. With respect to the opinion expressed in paragraph 9 herein, we assume
that the Company will not issue any securities after the date hereof that will
be integrated with the offer and issuance of the Xtrana Common Stock pursuant to
the Agreement under applicable Federal and state securities laws.
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I. We note that the choice of law provisions in Section 10.7 of the
Agreement select the laws of Delaware to apply to the Agreement. As explained in
paragraph A above, we are not expressing an opinion as to the Laws of that
jurisdiction other the Delaware General Corporation Law. Accordingly, with
respect to the opinions expressed in paragraph 2 and paragraph 4 of this letter,
we have assumed, with your concurrence, that the Laws of the State of California
had been selected in such choice of law provisions to be the governing law of
the Agreement. We note that this assumption is directly in conflict with
specific terms of the Agreement.
J. We express no opinion as to (i) the compliance of the transactions
contemplated by the Transaction Documents with any regulations or governmental
requirements applicable to any party other than the Company and MergerCo; (ii)
the financial condition or solvency of the Company or MergerCo; (iii) the
ability (financial or otherwise) of the Company, MergerCo or any other party to
meet their respective obligations under the Transaction Documents; (iv) the
compliance of the Transaction Documents or the transactions contemplated thereby
with, or the effect of any of the foregoing with respect to, the antifraud
provisions of the Federal and state securities laws, rules and regulations; (v)
the value of any security provided to secure the payment of obligations
contemplated by the Transaction Documents; and (vi) the conformity of the
Transaction Documents to any term sheet or commitment letter.
K. This letter is solely for your benefit, and no other person or entity
shall be entitled to rely upon this letter. Without our prior written consent,
this letter may not be quoted in whole or in part or otherwise referred to in
any document and may not be furnished or otherwise disclosed to or used by any
other Person, except for (i) delivery of copies hereof to counsel for the
addressees hereof, (ii) inclusion of copies hereof in a closing file, and (iii)
use hereof in any legal proceeding arising out of the transactions contemplated
by the Agreement filed by an addressee hereof against this law firm or in which
any addressee hereof is a defendant.
L. This law firm is a registered limited liability partnership organized
under the laws of the State of California.
Very truly yours,
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EXHIBIT J
ARTICLE I
The name of this corporation is Alpha Innotech Corporation (the
"CORPORATION").
ARTICLE II
The purpose of the Corporation is to engage in any lawful act or
activity for which a corporation may be organized under the General Corporation
Law of California other than the banking business, the trust company business or
the practice of a profession permitted to be incorporated by the California
Corporations Code.
ARTICLE IV
The Corporation is authorized to issue only one class of shares of
stock, to be designated Common Stock; and the total number of shares which the
Corporation is authorized to issue is 1,000 no par value.
ARTICLE V
(a) The liability of the directors of the Corporation for monetary
damages shall be eliminated to the fullest extent permissible under California
law.
(b) The Corporation is authorized to provide indemnification of
agents (as defined in Section 317 of the California Corporations Code) to the
fullest extent permissible under California law.
(c) Any amendment, repeal or modification of the foregoing
provisions of this Article V by the shareholders of the corporation shall not
adversely affect any right or protection of a director or agent of the
corporation existing at the time of such amendment repeal or modification.
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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-78
$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.
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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]
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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-81
AMENDMENT NO. 2
TO
AGREEMENT AND PLAN OF MERGER
This AMENDMENT NO. 2 TO AGREEMENT AND PLAN OF MERGER (the "AMENDMENT"),
made as of the 6th day of July, 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, as amended by Amendment No. 1 to Agreement
and Plan of Merger dated April 6, 2005 (as amended, 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. 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. ADJUSTMENT TO EXCHANGE RATIO DEFINITIONS. Pursuant to the
terms of the Agreement, the Parties hereby acknowledge and agree that,
notwithstanding anything to the contrary set forth in the Agreement, as of the
date hereof, (a) the AIC Common Exchange Ratio shall be 0.1142909; (b) the AIC
Series A Preferred Exchange Ratio shall be 0.3033634; and (c) the AIC Series A-1
Preferred Ratio shall be 0.3033634.
2. AMENDMENT TO SECTION 6.4. The first sentence of Section 6.4 of
the Agreement is hereby stricken from the Agreement and replaced with the
following:
"As soon as reasonably practicable, AIC shall submit this
Agreement and the transactions contemplated by this Agreement to the
AIC Shareholders for approval and adoption."
3. REGISTRATION COVENANT. The Agreement is hereby amended to add
the following new Section 6.17:
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"6.17 REGISTRATION ON FORM S-3. In case Xtrana shall at any
time after the Closing become eligible to use Form S-3 for the
registration of resale of securities by its stockholders and receives
from any holder or holders of Registrable Securities (as defined below)
a written request or requests that Xtrana effect a registration on Form
S-3 with respect to all or a part of the Registrable Securities owned
by such holder or holders, then Xtrana will: (a) promptly give written
notice of the proposed registration and to all other holders of
Registrable Securities; and (b) as soon as practicable, use
commercially reasonable efforts to effect such registration as would
permit or facilitate the sale and distribution of all or such portion
of such holders or holders' Registrable Securities as are specified in
such request, together with all or such portion of the Registrable
Securities of any other holder of Registrable Securities joining in
such request as are specified in a written request given within twenty
(20) days after Xtrana provides the notice contemplated by clause (a).
Notwithstanding the foregoing, Xtrana shall not be obligated to effect
any such registration, qualification or compliance pursuant to this
SECTION 6.17 (i) if Form S-3 is not available for such offering by the
holders; (ii) if the holders, together with the holders of any other
securities of Xtrana entitled to inclusion in such registration,
propose to sell Registrable Securities and such other securities (if
any) at an aggregate price to the public of less than $1,000,000; (iii)
if the Xtrana shall furnish to the holders a certificate signed by the
President or Chief Executive Officer of Xtrana stating that in the good
faith judgment of the Board of Directors of Xtrana, it would be
materially detrimental to Xtrana and its stockholders for such Form S-3
registration to be effected at such time, in which event the Company
shall have the right to defer the filing of the Form S-3 registration
statement no more than once during any twelve month period for a period
of not more than ninety (90) days after receipt of the request of the
holder or holders under this SECTION 6.17; (iii) if Xtrana has already
effected a registration on Form S-3 pursuant to this SECTION 6.17; or
(iv) in any particular jurisdiction in which Xtrana would be required
to qualify to do business or to execute a general consent to service of
process in effecting such registration, qualification or compliance.
For purposes hereof, the term "REGISTRABLE SECURITIES" means: (1) any
Xtrana Common Stock held by an AIC Shareholder and issued to such AIC
Shareholder pursuant to this Agreement and (2) any shares of Xtrana
Common Stock held by an AIC Shareholder and issued as a dividend or
other distribution with respect to, or in exchange for or in
replacement of, any shares of Xtrana Common Stock described in clause
(1) of this definition; PROVIDED, HOWEVER, that "Registrable
Securities" shall exclude any Registrable Securities sold in a public
offering, whether sold pursuant to Rule 144 promulgated under the
Securities Act, or in a registered offering, or otherwise or securities
which can be sold in accordance with Rule 144(k) promulgated under the
Securities Act."
4. AMENDMENT TO SECTION 7.1.2. Section 7.1.2 of the Agreement is
hereby amended in its entirety to read as follows:
"7.1.2 REPRESENTATION LETTERS. At or prior to Closing, each
AIC Shareholder shall have delivered to Xtrana an executed investment
representation
A-83
letter containing such representations as required to comply with
applicable provisions of the Securities Act and otherwise in form and
substance reasonably acceptable to Xtrana."
5. AMENDMENT TO SECTION 8.1.3. Section 8.1.3 of the Agreement is
hereby amended in its entirety to read as follows:
"by either Xtrana or AIC if the Merger shall not have been
consummated on or before September 30, 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);"
6. AMENDMENT TO SECTION 9.4. Section 9.4 of the Agreement is
hereby amended in its entirety to read as follows:
"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 on or before 5:00 p.m. Pacific Standard
Time on March 31, 2006 (the "INDEMNIFICATION TERMINATION PERIOD"). 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."
7. 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-84
8. 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.
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-85
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
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;
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;
B-2
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 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
B-3
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.
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.
/s/ THE MENTOR GROUP, INC.
B-4
APPENDIX C
ALPHA INNOTECH CORPORATION
UNAUDITED FINANCIAL INFORMATION
FOR THE THREE MONTHS ENDED MARCH 31, 2005
PAGE
----
Consolidated Balance Sheets ............................................. C-2
Consolidated Statements of Operations ................................... C-3
Consolidated Statements of Changes in Shareholders' Deficit ............. C-4
Consolidated Statements of Cash Flows ................................... C-5
Notes to Consolidated Financial Statements .............................. C-6
C-1
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
(liquidation value of $7,900,001 at
March 31, 2005 and December 31, 2005) .. 10,445,293 10,273,256
Series A-1, issued and outstanding
7,343,418 and 7,343,418 shares
(liquidation value of $2,203,027 at
March 31, 2005 and December 31, 2005) .. 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-2
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-3
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-4
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 and amortization .............................. 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-5
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-6
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-7
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-8
ALPHA INNOTECH CORPORATION
CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2004 AND 2003
WITH REPORT OF INDEPENDENT AUDITORS
TABLE OF CONTENTS
PAGE
----
Report of Independent Auditors .......................................... C-10
Consolidated Balance Sheets ............................................. C-11
Consolidated Statements of Operations ................................... C-12
Consolidated Statements of Changes in Shareholders' Deficit ............. C-13
Consolidated Statements of Cash Flows ................................... C-14
Notes to Consolidated Financial Statements .............................. C-15
C-9
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.
/s/ Rowbotham & Company LLP
---------------------------
San Francisco, California
March 4, 2005
C-10
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
(liquidation value of $7,900,001
at December 31, 2004 and 2003) .... 10,273,256 9,568,853
Series A-1, issued and outstanding
7,343,418 and none shares
(liquidation value of $2,203,027
at December 31, 2004 and 2003) .... 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-11
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-12
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-13
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 and amortization .............................. 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-14
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
C-15
ALPHA INNOTECH CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
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.
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
C-16
ALPHA INNOTECH CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
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 derived from the sale of
digital imaging systems, net of returns and allowances and is
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. When a digital
imaging system is sold, the multiple elements are software and
maintenance and support. Revenue allocated to software is recognized
when a contract is executed, all delivery obligations have been met,
the fee is fixed and determinable, and collection is probable. Revenue
allocated to maintenance and support is recognized as deferred revenue
when a contract is executed, all delivery obligations have been met,
the fee is fixed and determinable, and collection is probable. Deferred
revenue for maintenance and support is recognized ratably over the
maintenance term (typically for a period of one year, beginning when a
digital imaging system is considered sold or an extended maintenance
and support contract is signed).
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.
C-17
ALPHA INNOTECH CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
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.
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.
C-18
ALPHA INNOTECH CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
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.
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.
C-19
ALPHA INNOTECH CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
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
=========== ===========
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
========== ==========
C-20
ALPHA INNOTECH CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
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
========== ==========
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.
The unused portion of the line of credit available at December 31, 2004
was $189,954.
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.
C-21
ALPHA INNOTECH CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
4. DEBT (CONTINUED)
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.
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.
C-22
ALPHA INNOTECH CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
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.
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.
C-23
ALPHA INNOTECH CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
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.
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.
C-24
ALPHA INNOTECH CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
7. REDEEMABLE CONVERTIBLE PREFERRED STOCK (CONTINUED)
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 remains 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-25
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
the holders of its convertible promissory notes to purchase an
aggregate of 1,000,000 shares of common stock with an exercise price of
$0.01 per share as additional consideration to the holders of the
convertible promissory notes. 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 the
convertible promissory notes. The Company accreted the $240,000
discount to interest expense for the year ended December 31, 2004 due
to the conversion of the convertible promissory notes into Series A-1
preferred stock in 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 cash
payments for salaries. Using the Black-Scholes pricing model and the
following assumption: estimated volatility of 70%, a contractual life
of five years, a zero dividend rate, 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 $363,224 at the date of
grant. This amount has been recorded as salary expense for the year
ended December 31, 2004. The warrants remain exercisable at December
31, 2004 and will expire in December 2009.
C-26
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-27
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-28
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
Revenue allocated to maintenance and support is deferred and recognized
ratably over the maintenance term (typically one year). In 2005, while
reviewing the deferred revenue schedule for maintenance and support,
the Company determined that there was a formula error in the schedule
that resulted in deferred revenue as recorded in the general ledger
being understated at December 31, 2000 by $638,480. This error did not
have an effect on revenue as previously recognized for any period
subsequent to December 31, 2000. The Company has made a prior period
adjustment due to this error. The effect of the prior period adjustment
was to increase the amount previously recorded for deferred revenue by
$638,480 and increase the amount previously recorded for accumulated
deficit by $638,480.
C-29
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 October 3, 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. Douglas L. Ayer John C. Gerdes, Ph.D.
James H. Chamberlain James B. Mahony, Ph.D. N. Price Paschall
|_| 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
Proposal 5. To approve a proposal to grant our management the discretionary
authority to adjourn the Annual Meeting to a later date in order to
enable our management and Board of Directors to continue to solicit
additional proxies in favor of proposals 2, 3 and 4 above.
|_| 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.
The undersigned acknowledges receipt of a copy of the Notice of Annual
Meeting and accompanying Proxy Statement dated August __, 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