DEFM14A
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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

 

SCHEDULE 14A

PROXY STATEMENT PURSUANT TO SECTION 14(a) OF THE

SECURITIES EXCHANGE ACT OF 1934

(AMENDMENT NO.    )

 

 

Filed by the Registrant  þ                             Filed by a Party other than the Registrant  ¨

Check the appropriate box:

 

¨   Preliminary Proxy Statement
¨   Confidential, For Use of the Commission Only (as permitted by Rule 14a-6(e)(2))
þ   Definitive Proxy Statement
¨   Definitive Additional Materials
¨   Soliciting Material Pursuant to § 240.14a-12

MEDISTEM INC.

(Name of Registrant as Specified in its Charter)

 

(Name of Person(s) Filing Proxy Statement, if other than the Registrant)

Payment of Filing Fee (Check the appropriate box):

 

þ   No fee required.
¨   Fee computed on table below per Exchange Act Rules 14a-6(i)(l) and 0-11.
  (1)  

Title of each class of securities to which transaction applies:

 

     

  (2)  

Aggregate number of securities to which transaction applies:

 

     

  (3)  

Per unit price or other underlying value of transaction computed pursuant to Exchange Act Rule 0-11 (set forth the amount on which the filing fee is calculated and state how it was determined):

 

     

  (4)  

Proposed maximum aggregate value of transaction:

 

     

  (5)  

Total fee paid:

 

     

¨   Fee paid previously with preliminary materials.
¨   Check box if any part of the fee is offset as provided by Exchange Act Rule 0-11(a)(2) and identify the filing for which the offsetting fee was paid previously. Identify the previous filing by registration statement number, or the Form or Schedule and the date of its filing.
  (1)  

Amount Previously Paid:

 

     

  (2)  

Form, Schedule or Registration Statement No.:

 

     

  (3)  

Filing Party:

 

     

  (4)  

Date Filed:

 

     

 

 

 


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Proxy statement/prospectus

 

 

LOGO

MERGER PROPOSED — YOUR VOTE IS VERY IMPORTANT

Dear Shareholder:

As previously announced, on December 19, 2013, Medistem Inc. entered into a merger agreement with Intrexon Corporation, under which a wholly owned subsidiary of Intrexon will merge with Medistem, with Medistem continuing as the surviving corporation. Medistem will continue as a wholly owned subsidiary of Intrexon. We refer to this transaction as the merger. If the merger is consummated, Medistem will no longer be a publicly held corporation.

The merger requires the approval of holders of a majority of the outstanding shares of Medistem common stock, and we are asking you to vote to adopt and approve the merger agreement and, thereby, to approve the transactions contemplated by the merger agreement, including the merger. If the merger agreement is approved by Medistem shareholders and the merger is completed, you will be entitled to receive for each share of Medistem common stock that you hold (other than shares with respect to which dissenter’s rights are properly exercised or shares owned by Intrexon, any of its subsidiaries or Medistem) consideration equal to $1.35, payable as (i) $0.27 in cash, without interest and subject to applicable withholding tax, and (ii) $1.08 worth of shares of Intrexon common stock, based on the volume-weighted average price of Intrexon common stock, as reported on the New York Stock Exchange, for the 20 trading days immediately preceding the last trading day prior to the date of the closing of the merger, in each case subject to calculation and adjustment as described in this proxy statement/prospectus. In no event, however, will the total consideration paid to Medistem shareholders exceed $26.0 million in the aggregate.

The following table sets forth the closing sale prices per share of Intrexon common stock and Medistem common stock as of December 19, 2013, the last trading day prior to the public announcement of the proposed merger, and as of February 10, 2014, the most recent practicable trading day prior to the date of this proxy statement/prospectus.

 

     

Intrexon

Common Stock

     Medistem
Common Stock
 

 

 

December 19, 2013

   $ 20.12       $ 0.86   

February 10, 2014

   $ 29.33      $ 1.10  

 

 

Medistem common stock is listed on the OTC Markets Group’s OTCQB marketplace under the symbol “MEDS.” Intrexon common stock is listed on the New York Stock Exchange under the symbol “XON.” The market prices of shares of Medistem common stock and Intrexon common stock are subject to fluctuation. As a result, you are urged to obtain current market quotations.

Your vote is very important. The record date for determining the shareholders entitled to receive notice of, and to vote at, the special meeting is January 31, 2014. We cannot complete the merger unless Medistem shareholders holding a majority of the outstanding shares of Medistem common stock as of the close of business on the record date vote in favor of the adoption and approval of the merger agreement at the special meeting. Whether or not you expect to attend the Medistem special meeting in person, if you are the record holder of shares, please vote your shares as promptly as possible by (a) accessing the Internet website specified on your proxy card, (b) calling the toll-free number specified on your proxy card or (c) signing and returning all proxy cards that you receive in the postage-paid envelope provided, so that your shares may be represented and voted at the Medistem special meeting. If your shares are registered in the name of a broker, bank or other holder of record, please follow the voting instructions you receive from the holder of record to vote your shares. If your shares are registered in the name of a broker, bank or other holder of record and you plan to attend the special meeting in person, please bring to the special meeting a letter, account statement or other evidence of your beneficial ownership as of the record date. A failure to vote your shares, or to provide instructions to your broker, bank or nominee as to how to vote your shares, is the equivalent of a vote against the merger.

In addition, at the special meeting you also will be asked to approve the adjournment of the special meeting under certain circumstances and to approve, on a non-binding, advisory basis, the compensation payable to Medistem’s named executive officers that is based on or otherwise relates to the merger.

The Medistem board of directors has unanimously determined that the merger agreement and the transactions contemplated thereby, including the merger, are advisable, fair to, and in the best interests of, Medistem and its shareholders; adopted the merger agreement and approved the transactions contemplated thereby, including the merger; and unanimously recommends that you vote “FOR” the adoption and approval of the merger agreement, “FOR” the approval, on a non-binding, advisory basis, of the compensation payable to Medistem’s named executive officers that is based on or otherwise relates to the merger and “FOR” the adjournment of the special meeting, if necessary to solicit additional proxies.

The obligations of Intrexon and Medistem to complete the merger are subject to the satisfaction or waiver of several conditions set forth in the merger agreement. More information about Intrexon, Medistem, the merger agreement and the transactions contemplated thereby, including the merger, is contained in this proxy statement/prospectus.

For a discussion of risk factors that you should consider in evaluating the transaction, see the section entitled “Risk Factors” beginning on page 24 of this proxy statement/prospectus.

We urge you to read the attached proxy statement/prospectus carefully and in its entirety.

Sincerely,

Alan J. Lewis, Ph.D.

Chief Executive Officer

Medistem Inc.

Neither the Securities and Exchange Commission nor any state securities commission has approved or disapproved of the securities to be issued under this proxy statement/prospectus or determined that this proxy statement/prospectus is truthful or complete. Any representation to the contrary is a criminal offense.

This proxy statement/prospectus is dated February 11, 2014, and is first being mailed to Medistem shareholders on or about February 12, 2014.


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LOGO

Notice of special meeting of shareholders

to be held on March 4, 2014

Dear Shareholder:

You are cordially invited to attend a special meeting of shareholders of Medistem Inc. (“Medistem”), which will be held on March 4, 2014, at 9:00 a.m., local time, at the offices of Jones Day, 12265 El Camino Real, Suite 300, San Diego, California 92130. Shareholders of record who owned Medistem common stock at the close of business on January 31, 2014, are entitled to vote at the special meeting. At the special meeting we will ask you to consider and vote upon:

 

 

a proposal to adopt and approve the Agreement and Plan of Merger, dated as of December 19, 2013, as amended by the First Amendment to the Agreement and Plan of Merger, by and among Medistem, Intrexon Corporation, and XON Cells, Inc., which is referred to herein as the merger agreement, pursuant to which Medistem will merge with and into XON Cells, Inc., a wholly owned subsidiary of Intrexon, as more fully described in the accompanying proxy statement/prospectus. A copy of the merger agreement is attached as Annex A to the accompanying proxy statement/prospectus;

 

 

a proposal to approve, on a non-binding, advisory basis, the compensation payable to Medistem’s named executive officers that is based on or otherwise relates to the merger; and

 

 

a proposal to adjourn the Medistem special meeting, if necessary or appropriate, to solicit additional proxies in favor of the proposal to adopt and approve the merger agreement, if there are not sufficient votes at the time of such adjournment to adopt and approve the merger agreement proposal.

At the special meeting, Medistem may also conduct any other business properly brought before the special meeting and any adjournment or postponement thereof.

The Medistem board of directors has unanimously determined that the merger agreement and the transactions contemplated thereby, including the merger, are advisable, fair to, and in the best interests of, Medistem and its shareholders; adopted the merger agreement and approved the transactions contemplated thereby, including the merger; and unanimously recommends that you vote “FOR” the adoption and approval of the merger agreement, “FOR” the approval, on a non-binding, advisory basis, of the compensation payable to Medistem’s named executive officers that is based on or otherwise relates to the merger and “FOR” the adjournment of the special meeting, if necessary or appropriate, to solicit additional proxies.

To assure your representation at the special meeting, you are urged to submit your proxy as promptly as possible. Registered shareholders may vote by Internet, by telephone or by completing, signing, dating and returning the enclosed proxy card as promptly as possible in the enclosed postage prepaid envelope. Your shares will be voted in accordance with your instructions. You may attend the special meeting and vote in person even if you have previously returned your proxy card or voted by Internet or telephone.

A list of Medistem shareholders of record entitled to vote at the Medistem special meeting will be available during regular business hours at Medistem’s executive offices and principal place of business at 9255 Towne Centre Drive, #450, San Diego, CA 92121 for inspection by shareholders of record of Medistem for any purpose germane to the special meeting. The list will also be available at the special meeting.


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If your shares are registered in the name of a broker, bank or other holder of record, please follow the voting instructions you receive from the holder of record to vote your shares. If your shares are registered in the name of a broker, bank or other holder of record and you plan to attend the special meeting in person, please bring a letter, account statement or other evidence of your beneficial ownership as of the record date to the special meeting.

Medistem shareholders who do not vote in favor of the merger proposal and follow certain procedural steps will be entitled to dissenters’ rights under Chapter 92A.300-500, inclusive, of the Nevada Revised Statutes (“NRS”), provided they take the steps required to perfect their rights under Chapter 92A.300-500, inclusive, of the NRS. For more information regarding dissenters’ rights, see the section entitled “Dissenters’ Rights.”

Your vote is very important. Adoption and approval of the merger agreement requires the affirmative vote of holders of a majority of the shares of Medistem common stock issued and outstanding as of the close of business on the record date. A failure to vote your shares, or to provide instructions to your broker, bank or nominee as to how to vote your shares, is the equivalent of a vote against the merger. Please vote using one of the methods above to ensure that your vote will be counted. Your proxy may be revoked at any time before the vote at the special meeting by following the procedures outlined in this proxy statement/prospectus.

By Order of the Board of Directors,

Alan J. Lewis, Ph.D.

Chief Executive Officer

Medistem Inc.

San Diego, California

February 11, 2014

Additional information

This proxy statement/prospectus incorporates important business and financial information about Medistem from other documents filed with the U.S. Securities and Exchange Commission, referred to as the SEC, that are not included in or delivered with this proxy statement/prospectus. For a listing of documents incorporated by reference into this proxy statement/prospectus, please see the section entitled “Where You Can Find More Information.” This information is available to you without charge upon your request. This information is available for you to review at the SEC’s public reference room located at 100 F Street, N.E., Room 1580, Washington, DC 20549, and through the SEC’s website at www.sec.gov. You can also obtain the documents incorporated by reference into this proxy statement/prospectus by requesting them in writing or by telephone from Medistem at the following address and telephone number:

Medistem Inc.

9255 Towne Centre Drive, #450, San Diego, CA 92121 (858) 352-7071 Attn: Investor Relations

Investors may also consult Medistem’s and Intrexon’s websites for more information concerning Medistem, Intrexon and the merger described in this proxy statement/prospectus. Medistem’s website is www.medisteminc.com and Intrexon’s website is www.dna.com. Information included on these websites is not incorporated by reference into this proxy statement/prospectus.

If you would like to request documents, please do so by February 25, 2014, in order to receive them before the special meeting.


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About this document

This document, which forms part of a Registration Statement on Form S-4 filed by Intrexon with the SEC, constitutes a prospectus of Intrexon under Section 5 of the Securities Act of 1933, as amended, which is referred to herein as the Securities Act, with respect to the shares of Intrexon common stock to be issued to Medistem shareholders pursuant to the merger agreement. This document also constitutes a proxy statement of Medistem under Section 14(a) of the Securities Exchange Act of 1934, as amended, which is referred to herein as the Exchange Act, with respect to the Medistem special meeting at which Medistem shareholders will be asked to vote upon, among other things, the proposal to adopt and approve the merger agreement.

You should rely only on the information contained or incorporated by reference into this proxy statement/prospectus. No one has been authorized to provide you with information that is different from that contained in, or incorporated by reference into, this proxy statement/prospectus. You should not assume that the information contained in, or incorporated by reference into, this proxy statement/prospectus is accurate as of any date other than the date of this proxy statement/prospectus or the date of the SEC filing incorporated by reference herein, as applicable. Neither the mailing of this proxy statement/prospectus to Medistem shareholders nor the issuance by Intrexon of common stock in connection with the merger will create any implication to the contrary.

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

All references in this proxy statement/prospectus to: “Medistem” refer to Medistem Inc., a Nevada corporation, and its subsidiaries; “Intrexon” refer to Intrexon Corporation, a Virginia corporation, and its subsidiaries; “Merger Sub” refer to XON Cells, Inc., a Nevada corporation and a wholly owned subsidiary of Intrexon formed solely for the purpose of effecting the merger as described in this proxy statement/prospectus; and the “combined company” refer to Intrexon and each of its subsidiaries, including Medistem, immediately following completion of the transactions contemplated by the merger agreement.

All references in this proxy statement/prospectus to the “merger agreement” refer to the Agreement and Plan of Merger, dated as of December 19, 2013, by and among Intrexon, Merger Sub and Medistem, a copy of which is included as Annex A to this proxy statement/prospectus, as it may be amended from time to time, and all references to the “merger” refer to the merger of Merger Sub with and into Medistem, with Medistem continuing as the surviving corporation.

Although Nevada law generally refers to the term “stockholders” and Virginia law generally refers to the term “shareholders” to specify holders of the capital stock of a corporation, for convenience such holders are referred to in this proxy statement/prospectus as “shareholders” in accordance with the Virginia law terminology.


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Table of contents

 

     Page  

Questions and answers about the special meeting

     1   

Summary

     9   

Intrexon selected historical financial and other data

     20   

Certain historical and per share information

     23   

Comparative per share market price and dividend information

     25   

Risk factors

     27   

Cautionary statement regarding forward-looking statements

     71   

The Medistem special meeting

     73   

The companies

     79   

The merger

     81   

Opinion of Griffin Securities, Inc.

     93   

The merger agreement

     110   

Voting agreements

     127   

Description of Intrexon capital stock

     129   

Comparison of rights of shareholders of Intrexon and Medistem

     137   

Dissenters’ rights

     153   

Description of Intrexon’s business

     156   

Intrexon management’s discussion and analysis of financial condition and results of operations

     185   

Intrexon management

     223   

Intrexon executive compensation

     233   

Certain relationships and related party
transactions of Intrexon

     247   

Intrexon security ownership of certain beneficial owners and management

     260   

Description of Medistem business

     262   

Medistem management’s discussion and analysis of financial condition and results of operations

     278   

Medistem management

     287   

Medistem executive compensation

     292   

Medistem certain relationships and related transactions, and director independence

     295   

Medistem security ownership of certain beneficial owners and management

     298   

Advisory vote on merger-related compensation

     299   

Adjournment of the meeting

     301   

Legal matters

     302   

Experts

     302   

Future shareholder proposals

     303   

Other matters

     303   

Where you can find more information

     304   

ANNEXES

 

  Annex A      

   Agreement and Plan of Merger by and among Intrexon Corporation, XON Cells, Inc. and Medistem Inc. dated as of December 19, 2013, as amended by the First Amendment to the Agreement and Plan of Merger
  Annex B      

   Chapter 92A.300-500 of the Nevada Revised Statutes
  Annex C      

   Text of Griffin Securities, Inc. Opinion, dated December 18, 2013
  Annex D      

   Form of Voting Agreement
  Annex E      

   Form of Proxy Card of Medistem Inc.


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Questions and answers about the special meeting

 

Q:   Why am I receiving this proxy statement/prospectus?

 

A:   Intrexon and Medistem have agreed to the acquisition of Medistem by Intrexon under the terms of the merger agreement that is described in this proxy statement/prospectus. A copy of the merger agreement is attached to this proxy statement/prospectus as Annex A. You are receiving this proxy statement/prospectus because you have been identified as a shareholder of Medistem as of the close of business on the record date for the special meeting, which is January 31, 2014. This document serves as both a proxy statement of Medistem, used to solicit proxies for the special meeting of Medistem shareholders, and as a prospectus of Intrexon, used to offer shares of Intrexon common stock to Medistem shareholders in exchange for shares of Medistem common stock pursuant to the terms of the merger agreement. This document contains important information about the merger, the shares of Intrexon common stock to be issued pursuant to the merger and the special meeting of Medistem shareholders, and you should read it carefully.

 

Q:   What am I being asked to vote on?

 

A:   In order to complete the merger, Medistem shareholders must vote in favor of a proposal to adopt and approve the merger agreement, which is referred to herein as the merger proposal, and all other conditions to the merger must be satisfied or waived. Medistem will hold a special meeting to obtain this approval, which is referred to herein as the special meeting. The enclosed proxy materials allow you to vote your shares without attending the special meeting.

 

       In addition, you are being asked to vote on a proposal to approve, on a non-binding, advisory basis, the compensation payable to Medistem’s named executive officers that is based on or otherwise relates to the merger, which is referred to herein as the merger-related compensation payments proposal.

 

       You are also being asked to vote on a proposal to adjourn the Medistem special meeting, if necessary or appropriate, to solicit additional proxies in favor of the merger proposal if there are not sufficient votes at the time of such adjournment to adopt and approve the merger proposal.

 

       Your vote is important. We encourage you to vote as soon as possible.

 

Q:   What consideration will I receive in connection with the merger?

 

A:  

At the effective time of the merger, each share of Medistem common stock issued and outstanding immediately prior to the effective time of the merger (other than shares with respect to which dissenter’s rights are properly exercised or shares owned by Intrexon, any of its subsidiaries or Medistem) will be converted into the right to receive $1.35, payable as (i) $0.27 in cash without interest and subject to applicable withholding tax, which is referred to herein as the cash consideration and (ii) $1.08 worth of shares of Intrexon common stock, determined as the number of shares represented by $1.08 divided by the volume-weighted average price of Intrexon common stock, as reported on the New York Stock Exchange, which is referred to herein as the NYSE, for the 20 trading days immediately preceding the last trading day prior to the date of the closing of the merger, which price is referred to

 

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herein as the Intrexon stock value, and which consideration paid in shares of Intrexon common stock is referred to herein as the stock consideration, in each case subject to adjustment as described below under the question “Why is the merger consideration subject to adjustment?” The cash consideration together with the stock consideration is referred to herein as the merger consideration. In no event, however, will the total merger consideration paid to Medistem shareholders exceed $26.0 million in the aggregate.

 

       Medistem shareholders will not receive any fractional shares of Intrexon common stock in the merger. Instead, any shareholder who would otherwise be entitled to a fractional share of Intrexon common stock will be entitled to receive an amount in cash (rounded down to the nearest whole cent), without interest, equal to the product of such fraction multiplied by the volume-weighted average price of Intrexon common stock, as reported on NYSE, for the 20 trading days immediately preceding the last trading day prior to the date of the closing of the merger, which is referred to herein as the Intrexon stock value.

 

Q:   Will the merger consideration I receive in the merger increase if the results of operations of Intrexon improve or if the market price of Intrexon common stock increases?

 

A:   No. The merger consideration payable for each share of Medistem common stock at closing is fixed at (i) $0.27 in cash without interest and subject to applicable withholding tax, which is referred to herein as the cash consideration and (ii) $1.08 worth of shares of Intrexon common stock, determined as the number of shares represented by $1.08 divided by the volume-weighted average price of Intrexon common stock, as reported on the NYSE, for the 20 trading days immediately preceding the last trading day prior to the date of the closing of the merger. The payment received at closing will not change regardless of the results of operations of Intrexon or the price of publicly traded common stock of Intrexon.

 

Q:   How will the merger affect Medistem options to purchase common stock, restricted stock units, warrants and convertible promissory notes?

 

A:   In connection with the merger, each outstanding Medistem stock option, restricted stock unit and warrant will vest fully and may be exercised for a period of at least 15 days prior to the consummation of the merger. Any stock option or warrant that is not exercised and remains outstanding at the consummation of the merger will be converted into the right to receive cash and Intrexon common stock. As of the effective time of the merger, each outstanding Medistem stock option shall be canceled in exchange for the right to receive a combination of cash and shares of Intrexon common stock as described below, (i) $1.35 minus the exercise price of such stock option divided by (ii) $1.35 (the “Net Option Share Amount”), which shall be paid in (A) a cash amount equal to the product of the Net Option Share Amount multiplied by $0.27 and (B) the number of whole and fractional shares of Intrexon common stock equal to the quotient of (1) the product of the Net Option Share Amount multiplied by $1.08, divided by (2) the Intrexon stock value. If the exercise price per share of any such stock option is equal to or greater than $1.35, such stock option shall be canceled without any payment or other consideration being made in respect thereof.

 

      

As of the effective time of the merger, each outstanding warrant to purchase Medistem common stock shall be canceled in exchange for the right to receive a combination of cash and shares of Intrexon common stock as described below, (i) $1.35 minus the exercise price of

 

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such warrant divided by (ii) $1.35 (the “Net Warrant Share Amount”), which shall be paid in (A) a cash amount equal to the product of the Net Warrant Share Amount multiplied by $0.27 and (B) the number of whole and fractional shares of Intrexon common stock equal to the quotient of (1) the product of the Net Warrant Share Amount multiplied by $1.08, divided by (2) the Intrexon stock value. If the exercise price per share of any such warrant is equal to or greater than $1.35, such warrant shall be canceled without any payment or other consideration being made in respect thereof.

 

       As of the effective time of the merger, each outstanding promissory note convertible into Medistem common stock shall be canceled in exchange for the right to receive a combination of cash and shares of Intrexon common stock as described below, the total number of shares of Medistem common stock to which such promissory note was convertible immediately prior to the effective time of the merger (the “Net Note Share Amount”), which shall be paid in (i) a cash amount equal to the product of the Net Note Share Amount multiplied by $0.27 and (ii) the number of whole and fractional shares of Intrexon common stock equal to the quotient of (A) the product of the Net Note Share Amount multiplied by $1.08, divided by (B) the Intrexon stock value. If the conversion price per share of any such promissory note is equal to or greater than $1.35, the outstanding principal balance of such promissory note, together with all accrued but unpaid interest thereon, shall instead be paid in full.

 

       Notwithstanding the foregoing, the aggregate number of shares of Intrexon common stock issued or issuable in the merger may not exceed 19.9% of the number of shares of Intrexon common stock outstanding immediately prior to the effective time of the merger.

 

Q:   What happens if the merger is not completed?

 

A:   If the merger proposal is not approved by Medistem’s shareholders or if the merger is not completed for any other reason, you will not receive any payment for your shares of Medistem common stock in connection with the merger. Instead, Medistem will remain an independent public company and its common stock will continue to be listed and traded on the OTC Markets Group’s OTCQB marketplace as long as it continues to meet the requirements for such listing and trading. If the merger agreement is terminated in certain circumstances, Medistem would be required to pay Intrexon a termination fee of either $750,000 or $1.0 million and would be required to repay the outstanding principal balance on the loans made to Medistem by Intrexon pursuant to two promissory notes in the aggregate amount of $700,000 in connection with the proposed merger. In other circumstances, if the merger agreement is terminated, Intrexon would be required to pay Medistem a termination fee of $150,000. See the section entitled “The Merger Agreement —Termination Fees.”

 

Q:   When and where will the meeting be held?

 

A:   The Medistem special meeting will be held at 9:00 a.m., local time, on March 4, 2014, at the offices of Jones Day, 12265 El Camino Real, Suite 300, San Diego, California 92130.

 

Q:   What do I need to do now?

 

A:  

Carefully read and consider the information contained in and incorporated by reference into this proxy statement/prospectus, including its annexes. After you carefully read this proxy

 

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statement/prospectus, follow the voting instructions below. In order to assure that your shares are voted, please submit your proxy as instructed on your proxy or voting instruction card even if you currently plan to attend the special meeting in person.

 

Q:   How do I vote?

 

A:   You may vote “For,” “Against” or “Abstain” on any proposal. Votes will be counted by the inspector of elections appointed for the special meeting. The procedures for voting are as follows:

Voting by Proxy

 

       Registered shareholders may vote by mail, by telephone or by Internet:

 

   

To vote by mail, please complete, sign, date and mail your proxy card in the postage prepaid envelope provided. Proxies should be mailed sufficiently in advance to ensure receipt prior to the special meeting.

 

   

To vote by telephone, call toll-free 1-800-690-6903 from any touch-tone telephone and follow the instructions. Have your proxy card available when you call. If you vote by phone, you do not need to mail your proxy card. Telephone voting is available until 11:59 p.m., Eastern Time, on March 3, 2014.

 

   

You can vote on the Internet at www.proxyvote.com. Have your proxy card in hand when going online and follow the online instructions. If you vote by the Internet, you do not need to mail your proxy card. Internet voting is available up until 11:59 p.m., Eastern Time, on March 3, 2014.

 

       If your shares are held of record in the name of a bank, broker or other nominee you should follow the separate instructions that the nominee provides to you. Although most banks and brokers now offer telephone and Internet voting, availability and specific processes will depend on their voting arrangements.

 

       If the special meeting is postponed or adjourned for any reason, at any subsequent reconvening of the special meeting all proxies will be voted in the same manner as the proxies would have been voted at the original convening of the special meeting, except for any proxies that have at that time effectively been revoked or withdrawn, even if the proxies had been effectively voted on the same or any other matter at a previous meeting.

Voting in Person at the Special Meeting

 

       If you are a registered holder and attend the special meeting and wish to vote in person, you may request a ballot when you arrive. If your shares are held of record in the name of your bank, broker or other nominee and you would like to vote in person at the special meeting, you must bring to the special meeting a letter, account statement or other evidence from the nominee indicating that you were the beneficial owner of the shares on the record date for the special meeting and a legal proxy from the nominee.

 

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Q:   How does the Medistem board of directors recommend that I vote?

 

A:   The Medistem board of directors reviewed and considered the terms and conditions of the merger agreement and the transactions contemplated thereby, including the merger, and, after careful consideration, has unanimously:

 

   

determined that the merger agreement and the transactions contemplated thereby, including the merger, are advisable, fair to, and in the best interests of, Medistem and its shareholders;

 

   

adopted the merger agreement and approved the transactions contemplated thereby, including the merger; and

 

   

resolved to recommend the adoption and approval of the merger agreement to Medistem’s shareholders.

 

       The Medistem board of directors unanimously recommends that Medistem’s shareholders vote “FOR” the merger proposal, “FOR” the approval, on a non-binding, advisory basis, of the merger-related compensation payments proposal and “FOR” the adjournment of the special meeting, if necessary to solicit additional proxies.

 

Q:   What vote is required to approve each proposal?

 

A:   The voting requirements to approve the proposals are as follows:

 

   

The approval of the merger proposal requires the affirmative vote of the shareholders of record as of the record date holding a majority of all outstanding shares of Medistem’s common stock on that date.

 

   

The approval, on a non-binding, advisory basis, of compensation payable to Medistem’s named executive officers that is based on or otherwise relates to the merger requires that the votes cast in favor of this proposal exceed the votes cast against this proposal, provided a quorum is present.

 

   

The approval of the adjournment of the special meeting, to solicit additional proxies in favor of the merger proposal if there are not sufficient votes at the time of such adjournment to approve the merger proposal, requires the affirmative vote of the holders of a majority of the shares of Medistem common stock present, in person or by proxy, at the special meeting and entitled to vote thereon, if a quorum is not present. If a quorum is present, the approval of the adjournment of the special meeting, to solicit proxies in favor of the merger proposal if there are not sufficient votes at the time of such adjournment to approve the merger proposal, requires that the votes cast in favor of the adjournment proposal exceed the votes cast against the adjournment proposal.

 

Q:   How are the officers and directors of Medistem going to vote in the merger?

 

A:  

In connection with entering into the merger agreement, each of the directors and executive officers of Medistem and their respective permitted transferees, as applicable, in their individual capacities, each of whom are referred to herein as a supporting shareholder, entered into a voting agreement pursuant to which the supporting shareholder agreed to, among other things, vote his shares of Medistem common stock (i) in favor of the merger

 

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proposal and (ii) against an acquisition proposal other than the merger, subject to any termination of the voting agreement in accordance with its terms. In addition, the supporting shareholders agreed not to directly or indirectly transfer their respective shares of Medistem common stock during the term of the voting agreement, subject to certain limited exceptions. The voting agreements may be terminated by the supporting shareholders if the Medistem board of directors has withdrawn or changed its recommendation in favor of a competing transaction. As of the record date, the supporting shareholders as a group owned and were entitled to vote 9,243,218 shares of Medistem common stock, or approximately 64% of the outstanding shares of Medistem common stock on that date.

 

Q:   What constitutes a quorum?

 

A:   Shareholders who hold at least a majority of the issued and outstanding Medistem common stock as of the close of business on the record date and who are entitled to vote must be present or represented by proxy in order to constitute a quorum to conduct the special meeting.

 

Q:   What will happen if I return my proxy card without indicating how to vote?

 

A:   If you sign and return your proxy card without indicating how to vote on any particular proposal, the Medistem common stock represented by your proxy will be voted in favor of that proposal.

 

Q:   What will happen if I fail to vote or I abstain from voting?

 

A:   If you are a shareholder of record and do not vote by completing your proxy card, by telephone, through the Internet, or in person at the special meeting, your shares will not be voted. This will have the same effect as voting against the merger proposal but will have no effect on the outcome of the other two proposals. If your shares are held in “street name” by a bank, brokerage firm or other nominee, and you do not provide your bank, brokerage firm or other nominee with instructions as to how to vote your shares, your shares will not be voted at the special meeting. This will have the same effect as voting against the merger proposal but will have no effect on the outcome of the other two proposals.

 

Q:   How many votes do I and others have?

 

A:   Each Medistem shareholder is entitled to one vote for each share of Medistem common stock owned as of the record date. As of the close of business on the record date, there were 14,454,288 issued and outstanding shares of Medistem common stock. As of the record date, the directors and executive officers and their affiliates as a group owned and were entitled to vote 9,243,218 shares of Medistem common stock, or approximately 64% of the outstanding shares of Medistem common stock on that date.

 

Q:   If my shares are held in street name by my broker, bank or other nominee, will my broker, bank or nominee vote my shares for me?

 

A:  

If you hold your shares through a broker, bank or other nominee, you must provide your broker, bank or nominee with instructions on how to vote your shares. Please follow the voting instructions provided by your broker, bank or nominee. Please note that you may not

 

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vote shares held in street name by returning a proxy card directly to Medistem or by voting in person at the special meeting unless you provide a “legal proxy,” which you must obtain from your broker, bank or other nominee. Brokers, banks and other nominees who hold shares of Medistem common stock on behalf of their customers may not vote such shares or give a proxy to Medistem to vote those shares without specific instructions from their customers.

 

Q:   Am I entitled to dissenters’ rights?

 

A:   Yes. Medistem shareholders who do not vote in favor of the merger proposal and follow certain procedural steps will be entitled to dissenters’ rights under Chapter 92A.300-500 of the Nevada Revised Statutes, which is referred to herein as the NRS, provided they take the steps required to perfect their rights under chapter 92A.300-500 of the NRS. For more information regarding dissenters’ rights, see the section entitled “Dissenters’ Rights.” In addition, a copy of Chapter 92A.300-500 of the NRS is attached as Annex B to this proxy statement.

 

Q:   Can I change my vote after I have returned a proxy or voting instruction card?

 

A:   Yes. If you are a registered holder and give your proxy card to Medistem or vote by telephone or the Internet, you have the power to revoke your proxy or change your vote by taking any of the following actions before your proxy is voted at the special meeting:

 

   

voting again by telephone or Internet any time prior to 11:59 p.m., Eastern Time, on March 3, 2014;

 

   

notifying the Secretary of Medistem in writing no later than the beginning of the special meeting of your revocation;

 

   

delivering to the Secretary of Medistem no later than the beginning of the special meeting a revised signed proxy card bearing a later date; or

 

   

attending the special meeting and voting in person, which will automatically cancel any proxy previously given, or revoking your proxy in person, but your attendance alone will not revoke any proxy that you have previously given.

 

       If your shares are held in street name by your broker, bank or other nominee, you should contact them to change your vote.

 

Q:   When do you expect the merger to be completed?

 

A:   Intrexon and Medistem expect to complete the merger during the first quarter of 2014 if the approval of the merger proposal is obtained, assuming the other conditions that are set forth in the merger agreement to the consummation of the merger are satisfied or waived. However, it is possible that the merger will not be consummated within that timeframe.

 

Q:   Do I need to do anything with my Medistem common stock certificates now?

 

A:  

No. After the merger is completed, if you held certificates representing shares of Medistem common stock prior to the merger, Intrexon’s exchange agent will send you a letter of

 

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transmittal and instructions for exchanging your shares of Medistem common stock for the merger consideration. Upon surrender of the certificates for cancellation along with the executed letter of transmittal and other required documents described in the instructions, you will receive the merger consideration. The shares of Intrexon common stock you receive in the merger will be issued in book-entry form. DO NOT SEND ANY STOCK CERTIFICATES WITH YOUR PROXY.

 

Q:   Do I need identification to attend the Medistem special meeting in person?

 

A:   Yes. Please bring proper identification, together with proof that you are a record owner of Medistem common stock. If your shares are held of record in the name of your bank, broker or other nominee and you would like to vote in person at the special meeting, you must bring to the special meeting a letter, account statement or other evidence from the nominee indicating that you were the beneficial owner of the shares on the record date for the special meeting.

 

Q:   Who can help answer my questions?

 

A:   If you have questions about the merger agreement, the merger or the merger proposal or the other matters to be voted on at the special meeting or desire additional copies of this proxy statement/prospectus or additional proxy cards, you should contact Medistem, 9255 Towne Centre Drive, #450, San Diego, CA 92121 (858) 352-7071 Attn: Investor Relations.

 

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Summary

This summary highlights selected information contained or incorporated by reference in this proxy statement/prospectus and may not contain all of the information that is important to you. This summary is not intended to be complete and reference is made to, and this summary is qualified in its entirety by, the more detailed information contained or incorporated by reference in this proxy statement/prospectus and the annexes attached to this proxy statement/prospectus. You may obtain the information incorporated by reference into this proxy statement/prospectus without charge by following the instructions in the section entitled “Where You Can Find More Information.” Page references have been included parenthetically to direct you to a more complete description of the topics presented in this summary.

The companies (see page 79)

Intrexon Corporation

Intrexon believes it is a leader in the field of synthetic biology, an emerging and rapidly evolving discipline that applies engineering principles to biological systems. Using its suite of proprietary and complementary technologies, Intrexon designs, builds and regulates gene programs, or sequences of DNA that control cellular function, and cellular systems, or activities that take place within a cell and the interaction of those systems in the greater cellular environment, to enable the development of new and improved products and manufacturing processes across a variety of end markets, including healthcare, food, energy and environmental sciences. Intrexon’s synthetic biology capabilities include the ability to precisely control the amount, location and modification of biological molecules to control the function and output of living cells and optimize for desired results at an industrial scale.

Working with its collaborators, Intrexon seeks to create more effective, less costly and more sustainable solutions than can be provided through current industry practices. Intrexon believes its approach to synthetic biology can enable new and improved biotherapeutics, increase the productivity and quality of food crops and livestock, create sustainable alternative energy sources and chemical feedstocks and provide for enhanced environmental remediation. Intrexon’s business model is to commercialize its technologies through exclusive channel collaborations, or ECCs, with collaborators that have industry expertise, development resources and sales and marketing capabilities to bring new and improved products and processes to market.

Intrexon’s common stock is traded on the NYSE under the symbol “XON.” The principal executive offices of Intrexon are located at 222 Lakeview Avenue, Suite 1400, West Palm Beach, Florida 33401, and its telephone number is (561) 410-7000.

For more information regarding Intrexon’s business, see the section entitled “Description of Intrexon’s Business.”

Medistem Inc.

Medistem is focused on the development of the Endometrial Regenerative Cell (ERC), a universal donor adult stem cell product. ERCs possess specialized abilities to stimulate new blood vessel growth and can differentiate into lung, liver, heart, brain, bone, cartilage, fat and pancreatic tissue. These unique properties have applications for treatment of critical limb ischemia (CLI), congestive heart failure (CHF), neurodegenerative diseases, liver failure, kidney failure, and diabetes.

 

 

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Since September 7, 2013, shares of Medistem common stock have traded on the OTC Markets Group’s OTCQB marketplace under the stock symbol “MEDS.” Prior to that time, shares of Medistem common stock traded on the OTCPink marketplace. The principal executive offices of Medistem are located at 9255 Towne Centre Drive, #450, San Diego, CA 92121, and its telephone number is (858) 352-7071.

For more information regarding Medistem’s business, see the section entitled “Description of Medistem’s Business.”

XON Cells, Inc.

XON Cells, Inc., a wholly owned subsidiary of Intrexon, is a Nevada corporation formed solely for the purpose of effecting the merger and is referred to herein as Merger Sub.

Merger Sub has not conducted any activities other than those incidental to its formation and the matters contemplated by the merger agreement, including the preparation of applicable regulatory filings in connection with the merger. The principal executive offices of Merger Sub are located at 20374 Seneca Meadows Parkway, Germantown, Maryland 20876, and its telephone number is (301) 556-9900.

The merger (see page 81)

Pursuant to the terms and subject to the conditions of the merger agreement, at the closing of the proposed transactions contemplated by the merger agreement, Merger Sub will be merged with and into Medistem, and Medistem will continue as the surviving corporation of the merger and as a wholly owned subsidiary of Intrexon. Following the merger, Medistem will no longer be a publicly traded corporation. In the event that any shareholder of Medistem exercises dissenters’ rights and does not withdraw or settle such exercise prior to the closing of the merger, then immediately following the closing, Medistem will be merged with and into a newly formed limited liability company that is a wholly owned subsidiary of Intrexon.

Merger consideration (see page 109)

At the effective time of the merger, each share of Medistem common stock (other than shares with respect to which dissenter’s rights are properly exercised or shares owned by Intrexon, any of its subsidiaries or Medistem), will be converted into the right to receive consideration equal to $1.35, payable in (i) $0.27 in cash, without interest and subject to applicable withholding tax, referred to as the cash consideration, and (ii) $1.08 worth of shares of Intrexon common stock, referred to as the stock consideration, determined as the number of shares represented by $1.08 divided by the volume-weighted average price of Intrexon common stock, as reported on the New York Stock Exchange, for the 20 trading days immediately preceding the last trading day prior to the date of the closing of the merger, in each case subject to calculation and adjustment as described in this proxy statement/prospectus. In no event will the total consideration paid to Medistem shareholders exceed $26.0 million in the aggregate.

Medistem shareholders will not receive any fractional shares of Intrexon common stock in the merger. Instead, any shareholder who would otherwise be entitled to a fractional share of Intrexon common stock will be entitled to receive an amount in cash (rounded down to the nearest whole cent), without interest, equal to the product of such fraction multiplied by the Intrexon stock value.

 

 

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Treatment of Medistem equity awards, warrants and convertible promissory notes (see page 110)

In connection with the merger, as of the effective time of the merger, each outstanding Medistem stock option shall be canceled in exchange for the right to receive a combination of cash and shares of Intrexon common stock as described below, (i) $1.35 minus the exercise price of such stock option divided by (ii) $1.35 (the “Net Option Share Amount”), which shall be paid in (A) a cash amount equal to the product of the Net Option Share Amount multiplied by $0.27 and (B) the number of whole and fractional shares of Intrexon common stock equal to the quotient of (1) the product of the Net Option Share Amount multiplied by $1.08, divided by (2) the Intrexon stock value. If the exercise price per share of any such stock option is equal to or greater than $1.35, such stock option shall be canceled without any payment or other consideration being made in respect thereof.

As of the effective time of the merger, each outstanding warrant to purchase Medistem common stock shall be canceled in exchange for the right to receive a combination of cash and shares of Intrexon common stock as described below, (i) $1.35 minus the exercise price of such warrant divided by (ii) $1.35 (the “Net Warrant Share Amount”), which shall be paid in (A) a cash amount equal to the product of the Net Warrant Share Amount multiplied by $0.27 and (B) the number of whole and fractional shares of Intrexon common stock equal to the quotient of (1) the product of the Net Warrant Share Amount multiplied by $1.08, divided by (2) the Intrexon stock value. If the exercise price per share of any such warrant is equal to or greater than $1.35, such warrant shall be canceled without any payment or other consideration being made in respect thereof.

As of the effective time of the merger, each outstanding promissory note convertible into Medistem common stock shall be canceled exchange for the right to receive a combination of cash and shares of Intrexon common stock as described below, the total number of shares of Medistem common stock to which such promissory note was convertible immediately prior to the effective time of the merger (the “Net Note Share Amount”), which shall be paid in (i) a cash amount equal to the product of the Net Note Share Amount multiplied by $0.27 and (ii) the number of whole and fractional shares of Intrexon common stock equal to the quotient of (A) the product of the Net Note Share Amount multiplied by $1.08, divided by (B) the Intrexon stock value. If the conversion price per share of any such promissory note is equal to or greater than $1.35, the outstanding principal balance of such promissory note, together with all accrued but unpaid interest thereon, shall instead be paid in full.

Notwithstanding the foregoing, the aggregate number of shares of Intrexon common stock issued or issuable in the merger may not exceed 19.9% of the number of shares of Intrexon common stock outstanding immediately prior to the effective time of the merger.

Recommendations of the Medistem board of directors (see page 73)

The Medistem board of directors unanimously recommends that Medistem’s shareholders vote “FOR” the merger proposal, “FOR” the approval, on a non-binding, advisory basis, of the merger-related compensation payments proposal and “FOR” the adjournment of the special meeting, if necessary to solicit additional proxies.

 

 

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Medistem’s reasons for the merger (see page 89)

In the course of reaching its decision to adopt the merger agreement and to recommend that Medistem shareholders vote to approve the merger proposal, Medistem’s board of directors consulted with its senior management, financial advisor and legal counsel, reviewed a significant amount of information and considered a number of factors, including, among others, those contained in the section entitled “The Merger — Medistem’s Reasons for the Merger and Recommendation of the Medistem Board of Directors.”

Opinion of Griffin Securities, Inc. (see page 93)

The Board received an opinion, dated December 18, 2013, from Griffin Securities, Inc., referred to herein as “Griffin”, that, as of that date and based on and subject to assumptions made, matters considered and limitations on the scope of review undertaken by Griffin as set forth therein, the merger consideration was fair, from a financial point of view, to the holders of the shares of Medistem common stock entitled to receive such consideration. The full text of Griffin’s written opinion, which sets forth, among other things, the procedures followed, assumptions made, matters considered and limitations on the scope of review undertaken by Griffin in rendering its opinion is attached as Annex C to this proxy statement/prospectus. The opinion was delivered to the Medistem board of directors and addresses only the fairness, from a financial point of view, of the merger consideration to the holders of shares of Medistem common stock entitled to receive such consideration. The opinion does not address any other aspect of the proposed merger and does not constitute a recommendation to the Medistem board of directors or to any other persons in respect of the proposed merger, including as to how any holder of shares of Medistem common stock should vote or act in respect of the proposed merger.

Interests of Medistem’s directors and executive officers in the merger (see page 98)

In considering the recommendation of the Medistem board of directors to approve the merger proposal, Medistem shareholders should be aware that Medistem’s directors and executive officers may have interests in the merger that are different from, or in addition to, the interests of shareholders generally. The Medistem board of directors was aware of and considered these interests, among other matters, in adopting the merger agreement and approving the merger, and in recommending that the merger agreement be approved by shareholders. These interests include accelerated vesting of certain outstanding Medistem equity awards held by directors and executive officers of Medistem in connection with the merger, potential continued employment of executive officers following the merger, the continuation, for a period of six years following the closing of the merger, of indemnification and insurance coverage of directors and executive officers, and the advancement of expenses in the form of a loan or loans to Medistem by Intrexon for advancement to Medistem’s directors and officers for claims in excess of existing Medistem insurance coverage, up to an aggregate of $2.0 million of loans outstanding at any time, related to directors’ and officers’ actions in fulfilling their fiduciary duties in connection with Medistem’s entry into the merger agreement for the period from the date the merger agreement was signed until consummation of the merger.

 

 

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Voting agreements (see page 126)

In connection with entering into the merger agreement, each of the directors and executive officers of Medistem and their respective permitted transferees, as applicable, in their individual capacities, each of whom are referred to herein as a supporting shareholder, entered into a voting agreement pursuant to which the supporting shareholder agreed to, among other things, vote his shares of Medistem common stock (i) in favor of the merger proposal and (ii) against an acquisition proposal other than the merger, subject to any termination of the voting agreement in accordance with its terms. In addition, the supporting shareholders agreed not to directly or indirectly transfer their respective shares of Medistem common stock during the term of the voting agreement, subject to certain limited exceptions. The voting agreements may be terminated by the supporting shareholders if the Medistem board of directors has withdrawn or changed its recommendation in favor of a competing transaction. As of the record date, the supporting shareholders as a group owned and were entitled to vote 9,243,218 shares of Medistem common stock, or approximately 64% of the outstanding shares of Medistem common stock on that date.

Litigation relating to the merger (see page 107)

In connection with the merger, four purported class action lawsuits brought on behalf of all Medistem shareholders were filed; one in the Eighth Judicial District Court in Clark County, Nevada: Iden v. Medistem, et al., No. A-13-693813-C, filed December 31, 2013; and three in the Superior Court of California in San Diego County, California: Bachand v. Medistem, et al., No. 37-2013-00081729-CU-SL-CTL, filed December 31, 2013; Parent v. Medistem, et al., No. 37-2014-00083393-CU-SL-CTL, filed January 14, 2014; and Raymond v. Medistem, et al., No. 37-2014-00083495-CU-SL-CTL, filed January 15, 2014. The complaints in the pending lawsuits are similar. Each complaint names Medistem, members of Medistem’s board of directors, Intrexon, and Merger Sub as defendants. The complaints allege, among other things, that Medistem’s board of directors breached its fiduciary duties to its shareholders by failing to maximize shareholder value or to engage in a fair sale process before approving the proposed acquisition of Medistem by Intrexon. The complaints further allege that Medistem, Intrexon and Merger Sub aided and abetted the Medistem board of directors in its breaches of fiduciary duty. The plaintiffs seek relief that includes an injunction prohibiting the consummation of the merger, rescission to the extent the merger terms have already been implemented, damages for the breaches of fiduciary duty, payment of plaintiffs’ attorneys’ fees and costs and, in the Nevada action, a contingent monetary award in an unspecified amount. Medistem and its board of directors believe that these allegations are without merit and intend to defend the lawsuits vigorously. There can be no assurance, however, with regard to the outcome of these lawsuits.

Dissenters’ rights (see page 152)

Medistem shareholders who do not vote in favor of the adoption and approval of the merger agreement and follow certain procedural steps will be entitled to dissenters’ rights under Chapter 92A.300-500 of the NRS, provided they take the steps required to perfect their rights under Chapter 92A.300-500 of the NRS.

 

 

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The merger agreement (see page 109)

A copy of the merger agreement, as amended, is attached as Annex A to this proxy statement/prospectus. You are encouraged to read the entire merger agreement carefully because it is the principal legal document governing the merger.

Conditions to completion of the merger (see page 121)

Mutual conditions

Each party’s obligation to complete the merger is subject to the satisfaction or waiver of certain conditions, including:

 

 

the registration statement shall have been declared effective by the SEC and a stop order suspending the effectiveness of the registration shall not have been issued or a proceeding initiated or threatened for such purpose and not have been withdrawn;

 

 

the merger agreement shall have been adopted by the affirmative vote of the holders of a majority of the outstanding shares of Medistem’s common stock;

 

 

no federal or state court of competent jurisdiction or other governmental entity shall have enacted, adopted, issued, promulgated, enforced or entered any law, order, decree, judgment, injunction or other ruling, which prevents or prohibits consummation of the merger; and

 

 

the shares of Intrexon’s common stock issuable to Medistem’s shareholders in the merger shall have been approved for listing on NYSE.

Conditions to the obligations of Medistem

The obligations of Medistem to complete the merger are subject to the satisfaction or waiver of certain additional conditions, including:

 

 

the representations and warranties of Intrexon shall be, with certain exceptions, true and correct in all respects, as of the closing date of the merger as though made on such date. The truth and accuracy of the representation and warranties shall be deemed to be satisfied so long as any failure of such representations and warranties to be true and correct would not be reasonably expected to have or result in, individually or in the aggregate, a material adverse effect with respect to Intrexon. Medistem shall have received a certificate of the chief executive officer or chief financial officer of Intrexon to that effect;

 

 

Intrexon shall have performed in all material respects the covenants and agreements (except for certain of the conduct of business covenants, which shall be subject to a material adverse effect standard) required to be performed by it under the merger agreement, and Medistem shall have received a certificate signed on behalf of Intrexon by its chief executive officer or chief financial officer to such effect; and

 

 

Medistem shall have received an opinion of counsel, dated as of the closing date, that the merger will qualify for United States federal income tax purposes as a “reorganization” within the meaning of Section 368(a) of the Code.

 

 

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Conditions to the obligations of Intrexon and merger sub

The obligations of Intrexon and Merger Sub to complete the merger are subject to the satisfaction or waiver of certain additional conditions, including

 

 

the representations and warranties of Medistem shall be, with certain exceptions, true and correct in all respects, as of the closing date of the merger as though made on such date. The truth and accuracy of the representation and warranties shall be deemed to be satisfied so long as any failure of such representations and warranties to be true and correct would not be reasonably expected to have or result in, individually or in the aggregate, a material adverse effect with respect to Medistem. Intrexon shall have received a certificate of the chief executive officer or chief financial officer of Medistem to that effect;

 

 

Medistem shall have performed in all material respects the covenants and agreements (except for certain of the conduct of business covenants, which shall be subject to a material adverse effect standard) required to be performed by it under the merger agreement, and Intrexon shall have received a certificate signed on behalf of Medistem by its chief executive officer or chief financial officer to such effect;

 

 

Medistem shall have obtained all of the consents required pursuant to the merger agreement;

 

 

Intrexon shall have received an opinion of counsel, dated as of the closing date, that the merger will qualify for United States federal income tax purposes as a “reorganization” within the meaning of Section 368(a) of the Code;

 

 

holders of no more than 7.5% of the outstanding shares of Medistem’s common stock shall have validly exercised, or remained entitled to exercise, their dissenters’ rights under Section 92A.440 of the NRS;

 

 

Intrexon shall have received the promissory note set forth in the merger agreement duly executed by Medistem;

 

 

Intrexon shall have completed, to its satisfaction in its sole discretion, its business, financial and legal due diligence investigation of Medistem; provided that this condition was no longer applicable on and after January 16, 2014;

 

 

the aggregate number of shares of Intrexon common stock issuable in the merger shall not be equal to or greater than 19.9% of the shares of Intrexon’s common stock outstanding as of immediately prior to the effective time of the merger;

 

 

Thomas E. Ichim, Ph.D. shall have executed and delivered an employment agreement with Intrexon or Medistem, dated as of the closing date of the merger, and in a form to be mutually agreed by Intrexon and Medistem; and

 

 

each current employee, officer and consultant of Medistem and each its subsidiaries shall have executed a proprietary information and inventions assignment agreement in the form presented by Intrexon.

Medistem’s ability to solicit other offers (see page 118)

Under the terms of the merger agreement, until 11:59 p.m., California time, on January 9, 2014 (referred to herein as the “go shop period”), Medistem was permitted to (i) solicit inquiries or

 

 

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proposals or offers to acquire Medistem or (ii) participate in discussions or negotiations regarding proposals or offers to acquire Medistem. On December 23, 2013, Medistem initiated a go shop outreach to 16 candidate biopharmaceutical companies based in Australia, Europe, Japan, Korea, and the U.S. Of these candidates, 12 indicated they had no interest and two candidates did not respond. One candidate responded that they had an interest in a regional collaboration. One candidate requested access to Medistem’s manufacturing trade secrets. Given that the candidate is a direct competitor, management deemed that it was in the best interest of Medistem and its shareholders to decline the request and proceed with the merger.

Termination of the merger agreement (see page 123)

The merger agreement may be terminated under certain circumstances, including:

 

 

by mutual written consent of Intrexon and Medistem;

 

 

by either party if the merger is not consummated on or before March 12, 2014 (unless the SEC elects to review the registration statement, in which case such date shall be extended to the earlier of May 31, 2014 or 45 days after the date that Intrexon files its annual report on Form 10-K that includes Intrexon’s audited financial statements for the year ended December 31, 2013);

 

 

by either party if a federal or state court of competent jurisdiction or other governmental entity shall made a ruling which prevents or prohibits consummation of the merger;

 

 

by either party if Medistem shall have failed to obtain the requisite affirmative vote of its shareholders;

 

 

by Intrexon, if the board of directors of Medistem shall have effected a change in recommendation, or if Medistem shall have entered into an acquisition proposal other than the merger;

 

 

by Medistem, if prior to the approval of the merger by the shareholders of Medistem, in order to accept a superior proposal, provided that Medistem complied with the go shop provisions of the merger agreement and shall have paid Intrexon the termination fee discussed below;

 

 

by either party if there shall have been a breach of any of the covenants or agreements or any of the representations or warranties by the other party that is not cured as set forth in the merger agreement, which breach or misrepresentation would constitute the failure of any of the conditions to closing, provided that neither party shall have the right to terminate pursuant to this provision if it is in breach of this agreement such that any of the conditions to closing would not be satisfied;

 

 

by Medistem, if Intrexon has not loaned the amount to Medistem payable by the promissory note set forth in the merger agreement; or

 

 

by Intrexon, if the results of its diligence investigation are unsatisfactory, as determined by Intrexon in its sole and absolute discretion; provided that this termination right was no longer applicable and/or exercisable by Intrexon on and after January 16, 2014.

 

 

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Termination fees

Medistem shall pay Intrexon a termination fee of $1.0 million, if the merger agreement is terminated:

 

 

by Medistem, prior to the approval of the merger by the shareholders of Medistem, in order to accept a superior proposal;

 

 

by Intrexon, because the board of directors of Medistem shall have effected a change in recommendation, or because Medistem shall have entered into an acquisition proposal other than the merger;

 

 

by Medistem because the merger is not consummated on or before March 12, 2014 under the conditions described above; or

 

 

by Intrexon or Medistem because Medistem shall have failed to obtain the requisite affirmative vote of its shareholders, and (i) an acquisition proposal has been publicly announced prior to the occurrence of the events giving rise to the right to terminate and not withdrawn prior to the date of such termination and (ii) within six months of such termination Medistem enters into a definitive agreement or consummates such acquisition proposal.

Medistem shall pay Intrexon a termination fee of $750,000, if the merger agreement is terminated by Medistem prior to the approval of the merger by the shareholders of Medistem in order to accept a superior proposal, if such termination occurs prior to (i) January 10, 2014, the start of the no-shop period as further described in this proxy statement/prospectus, during which Medistem may no longer solicit acquisition proposals (the “no-shop period”), or (ii) after the start of the no-shop period to enter into an alternative acquisition agreement with an excluded party, as further described in the merger agreement.

Intrexon shall pay Medistem a termination fee of $150,000, if the merger agreement is terminated by Intrexon or Medistem (i) pursuant to any mutual termination right, any termination right exclusive to Medistem or pursuant to Intrexon’s due diligence termination right and (ii) no termination fee is payable to Intrexon as a result of such termination.

In addition, if the merger agreement is terminated in certain circumstances, Medistem would be required to repay the outstanding principal balance on the loans made to Medistem by Intrexon pursuant to two promissory notes in the aggregate amount of $700,000 in connection with the proposed merger.

Ownership of Intrexon after the merger

Based on the number of Medistem shares of common stock outstanding as of January 31, 2014, Intrexon expects to issue approximately 599,542 shares of its common stock to Medistem shareholders in the merger. The actual number of shares of Intrexon common stock to be issued in the merger will be determined at the completion of the merger based on the number of Medistem shares outstanding at the time of the consummation of the merger, subject to adjustment as described herein. Immediately after the consummation of the merger, and based on the number of shares of Intrexon common stock outstanding as of December 31, 2013, it is expected that former Medistem shareholders will own approximately 0.6% of the 97,653,254 shares of Intrexon common stock then outstanding.

 

 

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Directors and management after the merger (see page 103)

Upon completion of the merger, the board of directors and executive officers of Intrexon are expected to remain unchanged.

Material U.S. federal income tax consequences of the merger (see page 103)

It is intended, and each of Intrexon and Medistem expect, the merger will qualify as a “reorganization” within the meaning of Section 368(a) of the Internal Revenue Code of 1986, as amended. If the merger so qualifies as a reorganization, a U.S. holder of Medistem common stock receiving Intrexon common stock and cash in exchange for Medistem common stock in the merger generally will recognize gain equal to the lesser of (i) the amount of cash received by the U.S. holder (excluding any cash received in lieu of fractional shares) and (ii) the excess of the “amount realized” by the U.S. holder over the U.S. holder’s tax basis in the Medistem common stock. The “amount realized” by the U.S. holder will equal the sum of the fair market value of the Intrexon common stock and the amount of cash received by the U.S. holder. Losses will not be permitted to be recognized.

Tax matters are very complicated, and the tax consequences of the merger to a particular Medistem shareholder will depend in part on such shareholder’s circumstances. Accordingly, you should consult your own tax advisor for a full understanding of the tax consequences of the merger to you, including the applicability and effect of federal, state, local and foreign income

and other tax laws.

Accounting treatment (see page 106)

In accordance with accounting principles generally accepted in the United States, Intrexon will account for the merger using the acquisition method of accounting for business combinations.

Procedure for receiving the merger consideration

Intrexon has appointed American Stock Transfer & Trust Company, LLC as its exchange agent, to coordinate the payment of the cash and stock merger consideration following the merger. If you own shares of Medistem common stock that are held in “street name” by your broker, bank or other nominee, you will receive instructions from your broker, bank or other nominee as to how to surrender your “street name” shares and receive cash and stock for those shares. If you hold certificated shares, the exchange agent will send you written instructions for surrendering your certificates and obtaining the cash and stock merger consideration at or about the date on which Medistem completes the merger. Do not send in your share certificates now.

Comparison of Intrexon and Medistem shareholder rights (see page 136)

The rights of Intrexon shareholders are currently governed by the Virginia Stock Corporation Act, which is referred to herein as the VSCA, and the articles of incorporation and bylaws of Intrexon. The rights of Medistem shareholders are currently governed by the Nevada Revised Statutes, which is referred to herein as the NRS, and the articles of incorporation and bylaws of Medistem. Upon completion of the merger, Medistem shareholders will become Intrexon shareholders. Accordingly, Medistem shareholders will have different rights as shareholders of Intrexon than as shareholders of Medistem, because the VSCA and the articles of incorporation and bylaws of Intrexon contain provisions that are different from the provisions contained in the NRS and the articles of incorporation and bylaws of Medistem.

 

 

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Proposal to approve the merger-related compensation for named executive officers (see page 73)

As required by Section 14A of the Exchange Act and the applicable SEC rules issued thereunder, which were enacted pursuant to the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010, or the Dodd-Frank Act, Medistem is required to submit a proposal to Medistem shareholders for a non-binding, advisory vote to approve the payment of certain compensation to the named executive officers of Medistem that is based on or otherwise relates to the merger. This proposal, commonly known as “say-on-golden parachute” vote and which is referred to herein as the merger-related compensation payments proposal, gives Medistem shareholders the opportunity to express their views on the compensation that Medistem’s named executive officers may be entitled to receive that is based on or otherwise relates to the merger.

Risk factors (see page 27)

The merger (including the possibility that the merger may not be consummated) poses a number of risks to Medistem shareholders. In addition, Medistem shareholders will be receiving shares of Intrexon common stock in the merger. Intrexon is subject to various risks associated with its business and a number of risks exist with respect to an investment in Intrexon common stock.

 

 

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Intrexon selected historical financial and other data

The following table sets forth Intrexon’s selected consolidated financial data for the periods and as of the dates indicated. You should read the following selected consolidated financial data in conjunction with its audited and unaudited consolidated financial statements and the related notes thereto included elsewhere in this prospectus and the “Intrexon Management’s Discussion and Analysis of Financial Condition and Results of Operations” section of this prospectus.

The consolidated statement of operations data for the years ended December 31, 2012 and 2011, and the consolidated balance sheet data as of December 31, 2012 and 2011, are derived from its audited consolidated financial statements included elsewhere in this prospectus. The consolidated statement of operations data for the nine months ended September 30, 2013 and 2012, and the consolidated balance sheet data as of September 30, 2013 are derived from its unaudited consolidated financial statements and the related notes thereto included elsewhere in this prospectus and have been prepared on the same basis as the audited consolidated financial statements. In the opinion of management, the unaudited financial information includes all adjustments, consisting of normal recurring adjustments, necessary for the fair statement of its financial position and results of operations for these periods. All previously reported share and per share amounts of its common stock, including shares of common stock underlying stock options and warrants, throughout this prospectus have been retroactively adjusted to reflect its 1-for-1.75 reverse stock split of its shares of common stock effective on July 26, 2013. Intrexon’s audited and unaudited consolidated financial statements have been prepared in U.S. dollars in accordance with U.S. GAAP.

 

 

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Intrexon’s historical results for any prior period are not necessarily indicative of results to be expected in any future period, and its results for any interim period are not necessarily indicative of results to be expected for a full fiscal year.

 

     Nine months ended September 30,     Years ended December 31,  
    2013     2012     2012     2011  

 

 
    (in thousands, except share and per share amounts)  

Statement of Operations Data:

       

Revenues:

       

Collaboration revenues

  $ 16,566      $ 7,163      $ 13,706      $ 5,118   

Other revenues

    324        106        219        3,053   
 

 

 

 

Total revenues

    16,890        7,269        13,925        8,171   
 

 

 

 

Operating expenses:

       

Research and development

    35,867        50,984        64,185        70,386   

General and administrative

    21,320        19,139        24,897        18,300   

Other operating expenses

                         1,912   
 

 

 

 

Total operating expenses

    57,187        70,123        89,082        90,598   
 

 

 

 

Loss from operations

    (40,297     (62,854     (75,157     (82,427
 

 

 

 

Total other income (expense), net

    12,797        11,917        (6,443     (2,853

Equity in net loss of affiliate

    (390            (274       
 

 

 

 

Net loss

  $ (27,890   $ (50,937   $ (81,874   $ (85,280
 

 

 

 

Net loss attributable to noncontrolling interest

    1,114                        
 

 

 

 

Net loss attributable to Intrexon

  $ (26,776   $ (50,937   $ (81,874   $ (85,280
 

 

 

 

Accretion of dividends on redeemable convertible preferred stock, not declared

    (18,391     (16,291     (21,994     (13,868
 

 

 

 

Net loss attributable to Intrexon common shareholders

  $ (45,167   $ (67,228   $ (103,868   $ (99,148
 

 

 

 

Net loss attributable to Intrexon common shareholders per share, basic and diluted

  $ (2.05   $ (12.21   $ (18.77   $ (18.92
 

 

 

 

Weighted average shares outstanding, basic and diluted

    22,056,396        5,506,043        5,533,690        5,240,647   

Unaudited Pro forma information(1)(2)

       

Pro forma net loss attributable to common shareholders

  $ (26,776     $ (81,874  

Pro forma net loss per share, basic and diluted

  $ (0.32     $ (1.17  

Pro forma shares used in computation of pro forma net loss per share, basic and diluted

    83,738,320          70,055,471     

 

 

 

(1)   Pro forma net loss attributable to common shareholders and pro forma net loss per share, basic and diluted have been calculated as of December 31, 2012 after giving effect to (i) the conversion of 112,906,464 shares of its preferred stock outstanding as of December 31, 2012 into 64,517,977 shares of common stock upon completion of its initial public offering on August 13, 2013; and (ii) upon the completion of its initial public offering the conversion of aggregate cumulative dividends on its preferred stock of $50.5 million into 3,153,723 shares of its common stock, assuming for this purpose that the closing of its initial public offering occurred on December 31, 2012 at the initial public offering price of $16.00 per share.

 

(2)   Pro forma net loss attributable to common shareholders and pro forma net loss per share, basic and diluted have been calculated as of September 30, 2013 after giving effect to (i) the conversion of 112,906,464 shares of its preferred stock outstanding on January 1, 2013 into 64,517,977 shares of common stock upon the completion of its initial public offering; (ii) the issuance of 19,047,619 shares of Series F preferred stock issued between January 1, 2013 and April 30, 2013 and the conversion of those shares into 10,884,353 shares of its common stock upon the completion of its initial public offering; and (iii) the conversion upon the completion of its initial public offering of aggregate cumulative dividends on its preferred stock of $68.8 million into 4,302,800 shares of its common stock at the initial public offering price of $16.00 per share.

 

 

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September 30,

2013(3)

     December 31,  
        2012(2)     2011  

 

  

 

 

    

 

 

   

 

 

 
     (In thousands, except share
and per share amounts)
 

Balance Sheet Data:

       

Cash and cash equivalents

   $ 61,222       $ 10,403      $ 19,628   

Other current assets

     145,013         3,130        3,350   

Equity securities

     107,567         83,116        39,097   

Other long-term assets

     160,396         54,997        52,753   

Total assets

     474,198         151,646        114,828   

Accounts payable, accrued expenses and other current liabilities, excluding current portion of deferred revenue

     12,319         6,754        16,197   

Deferred revenue, current and non-current

     67,392         58,636        16,921   

Other long-term liabilities(1)

     3,279         1,150        1,288   

Redeemable convertible preferred stock

             406,659        301,681   

Total Intrexon shareholders’ equity (deficit)

     377,133         (321,553     (221,259
  

 

 

 

Noncontrolling interest

     14,075                  
  

 

 

 

Total equity (deficit)

     391,208         (321,553     (221,259

 

  

 

 

    

 

 

   

 

 

 

 

(1)   Other long-term liabilities includes $16, $42 and $97 related to capital leases as of September 30, 2013 and December 31, 2012 and 2011, respectively, and $2,305 of long term debt as of September 30, 2013.

 

(2)   We acquired four businesses in 2011: Agarigen, Inc. on January 26, 2011; Neugenesis Corporation on April 18, 2011; GT Life Sciences, Inc. on October 5, 2011; and Immunologix, Inc. on October 21, 2011.

 

(3)   On March 15, 2013, we acquired 18,714,814 additional shares of AquaBounty Technologies, Inc. common stock increasing our ownership in AquaBounty Technologies, Inc. to 53.82 percent, resulting in us gaining control over AquaBounty. As such AquaBounty Technologies, Inc. was consolidated in our results of operations and financial position on March 15, 2013.

 

 

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Certain historical and per share information

The following table sets forth certain Intrexon common stock and Medistem common stock historical, pro forma combined and pro forma combined equivalent per share financial information. The pro forma combined and pro forma combined equivalent income per share data reflect the merger as if it had been effective on January 1, 2012. The pro forma combined and pro forma combined equivalent book value per share reflect the merger as if it had been effective as of September 30, 2013.

The pro forma data in the table assume that the merger is accounted for using the acquisition method of accounting and represents a current estimate based on available information of the combined company’s results of operations for the periods presented. As of the date of this document, Intrexon has not completed the detailed valuation studies necessary to arrive at the required estimates of the fair value of the Medistem assets to be acquired and liabilities to be assumed and the related allocations of purchase price, nor has it identified all the adjustments necessary to conform Medistem’s data to Intrexon’s accounting policies. However, Intrexon has made certain adjustments to the historical book values of the assets and liabilities of Medistem as of September 30, 2013 to reflect certain preliminary estimates of the fair values necessary to prepare the unaudited pro forma combined and pro forma combined equivalent data. The fair value adjustments included in the unaudited pro forma combined and pro forma combined equivalent data represent management’s estimate of these adjustments based upon currently available information. The preliminary purchase price allocation assigned value to certain identifiable intangible assets, including Medistem’s developed technology and know-how. Actual results may differ from this pro forma combined data once Intrexon has determined the final purchase price for Medistem and has completed the detailed valuation studies necessary to finalize the pro forma combined amounts included in this section, although these amounts represent management’s best estimates as of the date of this proxy statement/prospectus.

The pro forma combined and pro forma combined equivalent data is provided for illustrative purposes only and does not purport to represent what the actual consolidated results of operations or the consolidated financial position of Intrexon would have been had the merger occurred on the dates assumed, nor are they necessarily indicative of future consolidated results of operations or consolidated financial position.

 

 

 

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      Nine months ended
September 30, 2013
    Year ended
December 31, 2012
 

 

  

 

 

   

 

 

 

Intrexon historical data:

    

Net loss attributable to common shareholders per share, basic and diluted

   $ (2.05   $ (18.77

Book value per common share(1)

   $ 3.89     

Medistem historical data:

    

Net loss per common share, basic and diluted

   $ (0.06   $ (0.09

Book value per common share(1)

   $ (0.04  

Pro forma combined data(2):

    

Net loss attributable to common shareholders per share, basic and diluted (3)(4)

   $ (0.35   $ (1.21

Book value per common share(1)

   $ 4.06     

Pro forma combined equivalent data(5):

    

Net loss attributable to common shareholders per share, basic and diluted

   $ (0.01   $ (0.04

Book value per common share(1)

   $ 0.13     

 

  

 

 

   

 

 

 

 

(1)   The historical book value per common share is computed by dividing shareholders' equity (deficit) by the number of shares of common stock outstanding as of September 30, 2013. The pro forma combined book value per share is computed by dividing the pro forma combined shareholders' equity (deficit) by the pro forma number of shares of Intrexon common stock outstanding as of September 30, 2013, assuming the merger had occurred as of that date.

 

(2)   The pro forma combined amounts for the nine months ended September 30, 2013 have been developed from the (i) the Intrexon unaudited consolidated financial statements as of and for the nine months ended September 30, 2013 included elsewhere in this proxy statement/prospectus and (ii) the Medistem financial statements as of and for the nine months ended September 30, 2013 included elsewhere in this proxy statement/prospectus. The pro forma combined amounts for the year ended December 31, 2012 were derived from (i) the Intrexon audited consolidated financial statements as of and for the year ended December 31, 2012 included elsewhere in this proxy statement/prospectus and (ii) the Medistem audited financial statements as of and for the year ended December 31, 2012 included elsewhere in this proxy statement/prospectus.

 

(3)   Pro forma combined net loss attributable to common shareholders per share, basic and diluted have been calculated as of December 31, 2012 after giving effect to (i) the conversion of 112,906,464 shares of Intrexon's preferred stock outstanding as of December 31, 2012 into 64,517,977 shares of common stock upon completion of its initial public offering on August 13, 2013; (ii) upon completion of Intrexon's initial public offering the conversion of aggregate cumulative dividends on its preferred stock of $50.5 million into 3,153,723 shares of its common stock, assuming for this purpose that the closing of its initial public offering occurred on December 31, 2012 at the initial public offering price of $16.00 per share; and (iii) the issuance of 599,542 shares assumed to be issued in the merger, assuming for this purpose that the total consideration paid to Medistem shareholders is $24.6 million, of which $19.7 million is the total stock consideration, and using Intrexon's closing price on January 30, 2014 as reported on the New York Stock Exchange.

 

(4)   Pro forma combined net loss attributable to common shareholders per share, basic and diluted have been calculated as of September 30, 2013 after giving effect to (i) the conversion of 112,906,464 shares of Intrexon's preferred stock outstanding as on January 1, 2013 into 64,517,977 shares of common stock upon completion of its initial public offering on August 13, 2013; (ii) the issuance of 19,047,619 shares of Intrexon's Series F preferred stock issued between January 1, 2013 and April 30, 2013 and the conversion of those shares into 10,884,353 shares of its common stock upon the completion of its initial public offering; (iii) the conversion upon the completion of Intrexon's initial public offering of aggregate cumulative dividends on its preferred stock of $68.8 million into 4,302,800 shares of its common stock at the initial public offering price of $16.00; and (iv) the issuance of 599,542 shares assumed to be issued in the merger, assuming for this purpose that the total consideration paid to Medistem shareholders is $24.6 million, of which $19.7 million is the total stock consideration, and using Intrexon's closing price on January 30, 2014 as reported on the New York Stock Exchange.

 

(5)   The pro forma combined equivalent data is calculated by multiplying the pro forma combined data amounts by an exchange ratio of 0.033 shares of Intrexon common stock for each share of Medistem common stock. The exchange ratio uses Intrexon's closing price on January 30, 2014 as reported on the New York Stock Exchange.

 

 

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Comparative per share market price and dividend information

Intrexon common stock is listed and traded on the NYSE under the symbol “XON,” and since September 7, 2013 Medistem common stock is listed and traded on the OTC Markets Group’s OTCQB marketplace under the symbol “MEDS.” Prior to that date, shares of Medistem common stock traded on the OTCPink marketplace. The following table sets forth, for the respective periods of Intrexon and Medistem indicated, the high and low sale prices per share of Intrexon common stock and Medistem common stock. Medistem does not consider quotations during these periods to reflect an “established public market.” Such prices are based on inter-dealer bid and ask prices, without markup, markdown, commissions, or adjustments and may not represent actual transactions. Further, established public markets generally result in lower price volatility and more efficient execution of buy and sell orders. The absence of an established public market reduces the liquidity of Medistem’s common stock. Trading in Medistem’s common stock on the OTCQB has been limited and sporadic, with an average trading volume of less than 3,800 shares per day during the period from September 7, 2013, the day Medistem’s common stock began trading on the OTCQB, through December 18, 2013, the last day before the merger agreement was entered. As a result of the lack of trading activity, the quoted price for Medistem’s common stock on the OTCQB is not necessarily a reliable indicator of its fair market value.

 

      Intrexon      Medistem  
     High      Low      Dividend      High      Low      Dividend  

 

 

Year Ended December 31, 2014

                 

First Quarter (through January 30, 2014)

   $ 38.50       $ 22.75              $ 1.32       $ 1.08          

Year Ended December 31, 2013

                 

Fourth Quarter

   $ 25.95       $ 17.52              $ 2.30       $ 0.80          

Third Quarter(1)(2)

   $ 31.44       $ 20.65              $ 2.80       $ 1.00         

Second Quarter

                        $ 1.51       $ 0.80          

First Quarter

                        $ 2.00       $ 0.87          

Year Ended December 31, 2012

                 

Fourth Quarter

                        $ 1.50       $ 1.00          

Third Quarter

                        $ 1.90       $ 0.90          

Second Quarter

                        $ 2.50       $ 0.68          

First Quarter

                        $ 3.00       $ 0.28          

Year Ended December 31, 2011

                 

Fourth Quarter

                        $ 0.50       $ 0.25          

Third quarter

                        $ 0.60       $ 0.16          

Second quarter

                        $ 0.40       $ 0.16          

First quarter

                        $ 0.52       $ 0.21          

 

 

 

(1)   Intrexon’s stock commenced trading on the NYSE on August 8, 2013.

 

(2)   Medistem’s stock commenced trading on the OTCQB on September 7, 2013 and prior to that time it traded on the OTCPink marketplace.

 

 

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The following table sets forth the closing sale prices per share of Intrexon common stock and Medistem common stock as of December 19, 2013, the last trading day prior to the public announcement of the proposed merger, and as of January 30, 2014 the most recent practicable trading day prior to the date of this proxy statement/prospectus. The table also includes the market value of Medistem common stock on an equivalent price per share basis, as determined by reference to the value of merger consideration to be received in respect of each share of Medistem common stock in the merger. These equivalent prices per share reflect the fluctuating value of the Intrexon common stock that Medistem shareholders would receive in exchange for each share of Medistem if the merger was completed on either of these dates, applying an exchange ratio of 0.033 shares of Intrexon common stock for each share of Medistem common stock. The exchange ratio uses Intrexon’s closing price on January 30, 2014 as reported on the New York Stock Exchange.

 

     

Intrexon

Common Stock

     Medistem
Common
Stock
     Equivalent Value
of Medistem
Common Stock
 

 

    

 

 

 

December 19, 2013

   $ 20.12       $ 0.86      $ 0.66   

January 30, 2014

   $ 32.85      $ 1.17      $ 1.08   

 

    

 

 

 

The market prices of shares of Medistem common stock and Intrexon common stock are subject to fluctuation. As a result, you are urged to obtain current market quotations.

Dividend policy

Intrexon has never declared or paid any cash dividends on its capital stock. Intrexon currently intends to retain earnings, if any, to finance the growth and development of its business. Intrexon does not expect to pay any cash dividends on its common stock in the foreseeable future. Payment of future dividends, if any, will be at the discretion of Intrexon’s board of directors and will depend on Intrexon’s financial condition, results of operations, capital requirements, restrictions contained in current or future financing instruments, provisions of applicable law and other factors that Intrexon’s board of directors deems relevant.

Medistem has never declared or paid cash dividends on its capital stock. Medistem currently intends to retain any future earnings and does not expect to declare or pay any dividends in the foreseeable future. Any further determination to pay dividends on its capital stock will be at the discretion of Medistem’s board of directors and will depend on its financial condition, results of operations, capital requirements and other factors that Medistem’s board of directors considers relevant.

 

 

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Risk factors

In addition to the other information included or incorporated by reference in this proxy statement/prospectus, including the matters addressed in the section entitled “Cautionary Statement Regarding Forward-Looking Statements”, you should carefully consider the following risks described below in evaluating whether to vote to approve the merger proposal. In addition, you should read and consider the risks associated with the businesses of each of Intrexon and Medistem because these risks will also affect the combined company. You should also read and consider the other information in this proxy statement/prospectus and the other documents incorporated by reference into this proxy statement/prospectus. See “Where You Can Find More Information.”

Risks related to the merger

Failure to complete the merger could negatively impact the stock price and the future business and financial results of Medistem.

The merger agreement contains a number of customary conditions to closing, including the accuracy of Medistem’s representations and warranties to varying standards, the performance of Medistem’s covenants, the absence of any legal prohibitions to closing, the adoption and approval of the merger agreement by Medistem shareholders and certain other conditions. Many of the conditions to closing are not within either Intrexon’s or Medistem’s control and neither company can predict when or if these conditions will be satisfied.

If any condition to the merger is not satisfied or waived, it is possible that the merger will not be consummated in the expected time frame or at all. In addition, Intrexon and Medistem may terminate the merger agreement under certain circumstances even if the merger is adopted and approved by Medistem shareholders, including if the merger has not been completed, subject to certain conditions, on or before March 12, 2014. If the merger is not completed for any reason, the ongoing business of Medistem may be adversely affected and Medistem will be subject to several risks, including the following:

 

 

having to pay all of the fees and expenses incurred by Medistem in connection with the proposed merger;

 

 

having to pay, under certain circumstances, a termination fee of up to $1.0 million; and

 

 

focusing Medistem’s management on the proposed merger instead of on pursuing other opportunities that could be beneficial to Medistem, without realizing any of the benefits of having the proposed merger completed.

In addition, failure to complete the merger could result in a decrease in the market price of Medistem common stock to the extent that the current market price of those shares reflects a market assumption that the merger will be completed. In addition, neither company would realize any of the expected benefits of having completed the merger. Further, failure to complete the merger could result in damage to Medistem’s reputation and business relationships.

If the merger is not consummated, such failure to consummate the merger could materially and adversely affect Medistem’s business, financial results and stock price.

 

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The merger could be challenged under antitrust laws or on anticompetitive grounds.

Any state or applicable foreign country could take action to enjoin the merger under the antitrust laws as it deems necessary or desirable in the public interest or any private party could seek to enjoin the merger on anti-competitive grounds. Although the parties believe that completion of the merger would not violate U.S. antitrust law, there can be no assurance that a challenge to the merger on antitrust grounds will not be made or, if a challenge is made, what the result will be.

Under the merger agreement, Intrexon and Medistem have agreed to use their reasonable best efforts to obtain all regulatory clearances necessary to complete the merger; however, Intrexon, among other things, is not required to litigate or contest any administrative or judicial action or proceeding or any decree, judgment, injunction or other order or to divest any business, assets or property of Intrexon or its subsidiaries or affiliates in connection with obtaining any such regulatory clearance. See “The Merger — Regulatory Approvals Required for the Merger.”

If the merger is consummated, Intrexon may not realize the anticipated business opportunities and growth prospects from the merger.

The success of the Medistem acquisition, if completed, will depend, in part, on Intrexon’s ability to realize the anticipated business opportunities and growth prospects from combining Intrexon’s businesses with those of Medistem. Integrating operations will be complex and will require significant efforts and expenditures on the part of both Intrexon and Medistem. Intrexon’s management might have its attention diverted while trying to integrate operations and corporate and administrative infrastructures. Intrexon might experience increased competition that limits its ability to expand its business, and Intrexon might fail to capitalize on expected business opportunities, including retaining current customers.

Medistem will continue to operate independently of Intrexon until the closing of the acquisition, which is expected to take place in the first quarter of 2014. The integration process could result in the loss of key employees, the disruption of each company’s ongoing businesses, tax costs or inefficiencies, or inconsistencies in standards, controls, information technology systems, procedures and policies, any of which could adversely affect Intrexon’s and Medistem’s ability to maintain relationships with customers, employees or other third parties or Intrexon’s ability to achieve the anticipated benefits of the Medistem acquisition and could harm Intrexon’s financial performance.

If Intrexon is unable to successfully or timely integrate the operations of Medistem’s business into Intrexon’s business, Intrexon may be unable to realize the revenue growth and other anticipated benefits resulting from the proposed acquisition and its business and results of operations could be adversely affected.

The pendency of the merger could adversely affect the business and operations of each of Intrexon and Medistem.

Some customers and collaborators of each of Intrexon and Medistem may delay or defer decisions because of uncertainties or lack of understanding about the merger’s potential effect on their businesses, which could negatively impact the revenues, earnings, cash flows and expenses of Intrexon and/or Medistem, regardless of whether the merger is completed. Similarly, current and prospective employees of Intrexon and Medistem may experience uncertainty about their roles with the combined company following the merger, which may materially adversely

 

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affect the ability of each of Intrexon and Medistem to attract, retain and motivate key personnel during the pendency of the merger and which may materially adversely divert attention from the daily activities of Intrexon and Medistem’s existing employees.

Intrexon will incur significant transaction costs as a result of the merger.

Intrexon expects to incur significant one-time transaction costs related to the merger. These transaction costs include legal and accounting fees and expenses and filing fees, printing expenses and other related charges. Intrexon may also incur additional unanticipated transaction costs in connection with the merger. A portion of the transaction costs related to the merger will be incurred regardless of whether the merger is completed. Additional costs will be incurred in connection with integrating the two companies’ businesses. Costs in connection with the merger and integration may be higher than expected. These costs could adversely affect Intrexon’s financial condition, operating results or prospects of the combined business.

The merger agreement and the voting agreements limit Medistem’s ability to pursue alternatives to the merger.

Intrexon generally has an opportunity to offer to modify the terms of the proposed merger in response to any competing acquisition proposal that may be made before the Medistem board of directors may withdraw or change its recommendation to Medistem’s shareholders in favor of Intrexon’s merger proposal. Under the merger agreement, Medistem agreed not to, beginning on the date that is 21 days after the date of the Merger Agreement, (i) solicit proposals relating to alternative Acquisition Proposals or (ii) engage or participate in discussions or negotiations with, or provide non-public information to, any person relating to any such alternative Acquisition Proposal, subject to certain limited exceptions.

In connection with entering into the merger agreement, each of the directors and executive officers of Medistem and their respective permitted transferees, as applicable, in their individual capacities, each of whom are referred to herein as a supporting shareholder, entered into a voting agreement pursuant to which the supporting shareholder agreed to, among other things, vote his shares of Medistem common stock (i) in favor of the merger proposal and (ii) against an acquisition proposal other than the merger, subject to any termination of the voting agreement in accordance with its terms. In addition, the supporting shareholders agreed not to directly or indirectly transfer their respective shares of Medistem common stock during the term of the voting agreement, subject to certain limited exceptions. The voting agreements may be terminated by the supporting shareholders if the Medistem board of directors has withdrawn or changed its recommendation in favor of a competing transaction. As of the record date, the supporting shareholders as a group owned and were entitled to vote 9,243,218 shares of Medistem common stock, or approximately 64% of the outstanding shares of Medistem common stock on that date.

If the merger agreement is terminated in certain circumstances, Medistem would be required to pay Intrexon a termination fee of up to $1.0 million. See “The Merger Agreement — Limitation on the Solicitation, Negotiation and Discussion of Other Acquisition Proposals by Medistem” and “The Merger Agreement — Termination Fees.”

While Medistem believes these provisions are reasonable and not preclusive of other offers, the provisions could discourage a third party that might have an interest in acquiring all or a significant part of Medistem from considering or proposing such an acquisition, even if it were prepared to pay consideration with a higher per share cash or market value than that market

 

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value proposed to be received or realized in the merger, or might result in a third party proposing to pay a lower price than it might otherwise have proposed to pay because of the added expense of the termination fee that becomes payable in certain circumstances.

If the merger agreement is terminated and Medistem decides to seek another business combination, it may not be able to negotiate a transaction with another party on terms comparable to, or better than, the terms of the merger.

Under the terms of the merger agreement, Medistem is subject to certain restrictions on its business activities.

The merger agreement generally requires Medistem to operate its business in the ordinary course pending consummation of the merger, and restricts Medistem from taking certain specified actions until the merger is completed. These restrictions may prevent Medistem from making desirable expenditures, including with regard to capital expenditures, pursuing otherwise attractive business opportunities and making other changes to its business prior to completion of the merger or termination of the merger agreement. See “The Merger Agreement — Covenants — Interim Conduct of Medistem’s Business.”

Certain executive officers and directors of Medistem may have interests in the merger that may differ from, or are in addition to, the interests of Medistem shareholders.

When considering the recommendation of the Medistem board of directors to approve the merger proposal, Medistem shareholders should be aware that Medistem’s directors and executive officers may have interests in the merger that are different from, or in addition to, the interests of shareholders. The Medistem board of directors was aware of and considered these interests, among other matters, in adopting the merger agreement and approving the merger, and in recommending that the merger agreement be approved by shareholders. These interests include accelerated vesting of certain outstanding Medistem equity awards held by directors and one executive officer of Medistem in connection with the merger, certain cash payments payable to Medistem’s chief executive officer in the event of a qualifying termination of employment, potential continued employment of an executive officer following the merger, the continued indemnification and for a period of six years following the closing of the merger, insurance coverage of directors and executive officers and the advancement of expenses in the form of a loan or loans to Medistem by Intrexon for advancement to Medistem’s directors and officers for claims in excess of existing Medistem insurance coverage, up to an aggregate of $2.0 million of loans outstanding at any time, related to directors’ and officers’ actions in fulfilling their fiduciary duties in connection with Medistem’s entry into the merger agreement for the period from the date the merger agreement was signed until consummation of the merger. See “The Merger — Interests of Medistem’s Directors and Executive Officers in the Merger.”

The market price of Intrexon common stock after the merger may be affected by factors different from those affecting the shares of Medistem currently.

Upon completion of the merger, holders of Medistem common stock will become holders of Intrexon common stock. Intrexon’s business differs from that of Medistem, and, accordingly, the financial condition and operating results of the combined company and the market price of Intrexon common stock after the completion of the merger may be affected by factors different from those currently affecting the financial condition and operating results of Medistem.

 

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The issuance of Intrexon common stock in connection with the merger could decrease the market price of Intrexon common stock.

At the completion of the merger, Intrexon expects to issue up to approximately 599,542 shares of Intrexon common stock, or approximately 0.6% of the number of shares of Intrexon common stock outstanding as of December 31, 2013, to Medistem shareholders in the merger. The issuance of the Intrexon common stock may result in fluctuations in the market price of Intrexon common stock, including a stock price decline.

The shares of Intrexon common stock to be received by Medistem shareholders as a result of the merger will have different rights from the shares of Medistem common stock.

Upon completion of the merger, Medistem stockholders will become Intrexon stockholders and their rights as stockholders will be governed by Intrexon’s articles of incorporation and bylaws. Certain of the rights associated with Medistem common stock are different from, and may be viewed as less favorable than, the rights associated with Intrexon common stock. See “Comparison of Rights of Shareholders of Intrexon and Medistem” for a discussion of the different rights associated with Intrexon common stock.

Medistem shareholders who become shareholders of Intrexon will have their rights as shareholders governed by Intrexon’s articles of incorporation, bylaws and other corporate governance documents.

As a result of the completion of the merger, Medistem shareholders will become Intrexon shareholders and their rights as Intrexon shareholders will be governed by Intrexon’s corporate governance documents, including Intrexon’s amended and restated articles of incorporation and Intrexon’s amended and restated bylaws. As a result, there will be material differences between the current rights of Medistem shareholders and the rights they can expect to have as Intrexon shareholders. Please see the section entitled “Comparison of Rights of Shareholders of Intrexon and Medistem.”

Legal proceedings in connection with the merger, the outcomes of which are uncertain, could delay or prevent the completion of the merger.

Since December 19, 2013, four putative class action complaints have been filed on behalf of Medistem shareholders. The complaints seek, among other things, (1) declarations that they are maintainable as class actions, (2) an order preliminarily and permanently enjoining the defendants from completing the merger until certain conditions are satisfied, (3) in the Nevada action, a contingent monetary award in an unspecified amount and (4) attorneys’ fees and costs. Such legal proceedings could delay or prevent the merger from becoming effective. See “Litigation Relating to the Merger.”

Medistem shareholders will have a reduced ownership and voting interest in Intrexon as compared with their interest in Medistem and will exercise less influence over management.

Medistem shareholders currently have the right to vote in the election of directors of Medistem and on certain other matters affecting Medistem. Based on the number of Medistem shares of common stock outstanding as of January 31, 2014, Intrexon expects to issue approximately 599,542 shares of its common stock to Medistem shareholders in the merger. The actual number of shares of Intrexon common stock to be issued in the merger will be determined at the completion of the merger based on the number of Medistem shares outstanding at the time of the consummation of the merger, subject to adjustment as described herein. Immediately after the consummation of the merger, and based on the number of shares of Intrexon common stock outstanding as of December 31, 2013, it is expected that former Medistem shareholders will own

 

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approximately 0.6% of the 97,653,254 shares of Intrexon common stock then outstanding. Because of this, Medistem’s shareholders will have substantially less influence on the management and policies of Intrexon than they now have with respect to the management and policies of Medistem.

If the proposed merger is not completed, Medistem will have incurred substantial costs that could adversely affect Medistem’s financial results and operations and the market price of Medistem common stock.

Medistem has incurred and will incur substantial costs in connection with the proposed merger. These costs are primarily associated with the fees of financial advisors, attorneys, accountants and consultants. In addition, Medistem has diverted significant management resources in an effort to complete the merger and is subject to restrictions contained in the merger agreement on the conduct of its business. If the merger is not completed, Medistem will receive little or no benefit for these costs and will be obligated to repay Intrexon the accrued principal and interest under its $700,000 promissory note to Intrexon. If the merger agreement is terminated, Medistem, in certain specified circumstances, may also be required to pay a termination fee of up to $1,000,000 to Intrexon. In addition, if the merger is not consummated, Medistem may experience negative reactions from the financial markets and Medistem’s collaborative partners, customers and employees. Each of these factors may adversely affect the trading price of Medistem common stock and Medistem’s financial results and operations.

The integration of Medistem and other acquired businesses may present significant challenges to Intrexon.

Achieving the anticipated benefits of the merger will depend in part upon whether Medistem and Intrexon can integrate their businesses in an efficient and effective manner. The integration of Medistem and any future businesses that Intrexon may acquire involves a number of risks, including, but not limited to:

 

 

the diversion of management’s attention from the management of daily operations to the integration of operations;

 

 

higher integration costs than anticipated;

 

 

failure to achieve synergies and costs savings;

 

 

difficulties in the assimilation and retention of employees;

 

 

difficulties in the assimilation of different cultures and practices, as well as in the assimilation of broad and geographically dispersed personnel and operations; and

 

 

difficulties in the integration of departments, systems, including accounting systems, technologies, books and records, and procedures, as well as in maintaining uniform standards, controls, including internal control over financial reporting required by the Sarbanes-Oxley Act of 2002 and related procedures and policies.

If Intrexon cannot successfully integrate Medistem, Intrexon may experience material negative consequences to its business, financial condition or results of operations. Successful integration of Medistem will depend on Intrexon’s ability to manage these operations, to realize opportunities for revenue growth presented by offerings and, to some degree, to eliminate redundant and excess costs. Because of difficulties in combining geographically distant operations, Intrexon may not be able to achieve the benefits that it hopes to achieve as a result of the merger.

 

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Risks related to Intrexon and its business

Risks related to Intrexon’s financial position, operating results and need for additional capital

Intrexon has a history of net losses, and it may not achieve or maintain profitability.

Intrexon has incurred net losses since its inception, including losses of $81.9 million and $85.3 million in 2012 and 2011, respectively, and it incurred a net loss of $26.8 million for the nine months ended September 30, 2013. As of September 30, 2013, it had an accumulated deficit of $364.2 million. It may incur losses and negative cash flow from operating activities for the foreseeable future. To date, Intrexon has derived a substantial portion of its revenues from exclusive channel collaborations, or ECCs, and expect to derive a substantial portion of its revenues from these and additional ECCs for the foreseeable future. If Intrexon’s existing collaborators terminate their ECCs with Intrexon or Intrexon is unable to enter into new ECCs, its revenues could be adversely affected. In addition, certain of its ECCs provide for milestone payments, future royalties and other forms of contingent consideration, the payment of which are uncertain as they are dependent on its collaborators’ abilities and willingness to successfully develop and commercialize products. Intrexon expects a significant period of time will pass before the achievement of contractual milestones and the realization of royalties on products commercialized under its ECCs. As a result, Intrexon expects that its expenses will exceed revenues for the foreseeable future, and Intrexon may not achieve profitability. If Intrexon fails to achieve profitability, or if the time required to achieve profitability is longer than it anticipates, Intrexon may not be able to continue its business. Even if Intrexon does achieve profitability, it may not be able to sustain or increase profitability on a quarterly or annual basis.

Intrexon may need substantial additional capital in the future in order to fund its business.

Intrexon expects its future capital requirements will be substantial, particularly as it continues to develop its business and expand its synthetic biology technology platform. Although Intrexon believes that its existing cash and cash equivalents and short-term and long-term investments, the proceeds received from its initial public offering in August 2013 and cash expected to be received from its current collaborators will enable Intrexon to fund its operating expenses and capital expenditure requirements for at least the next 12 months, Intrexon may need additional capital if its current plans and assumptions change. Its need for additional capital will depend on many factors, including:

 

 

the commercial success of its ECCs;

 

 

whether Intrexon is successful in obtaining payments from its collaborators;

 

 

whether Intrexon can enter into additional ECCs;

 

 

the progress and scope of the collaborative and independent research and development projects performed by Intrexon and its collaborators;

 

 

whether an existing obligation under its ECC with ZIOPHARM Oncology, Inc. is triggered that could require Intrexon to make a further investment in their securities of up to $19 million, the timing of which is not within its control;

 

 

the effect of any acquisitions of other businesses or technologies that Intrexon may make in the future;

 

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whether Intrexon decides to develop internal development or manufacturing capabilities;

 

 

the costs associated with being a public company; and

 

 

the filing, prosecution and enforcement of its intellectual property.

If its capital resources are insufficient to meet its capital requirements, and Intrexon is unable to enter into or maintain ECCs with collaborators that are able or willing to fund development efforts or commercialize products enabled by its technologies, Intrexon will have to raise additional funds to continue the development of its technologies and complete the commercialization of products, if any, resulting from its technologies. If future financings involve the issuance of equity securities, its existing shareholders would suffer dilution. If Intrexon raises debt financing, it may be subject to restrictive covenants that limit its ability to conduct its business. Intrexon may not be able to raise sufficient additional funds on terms that are favorable to us, if at all. If Intrexon fails to raise sufficient funds and continue to incur losses, its ability to fund its operations, take advantage of strategic opportunities, develop products or technologies, or otherwise respond to competitive pressures could be significantly limited. If this happens, Intrexon may be forced to delay or terminate research or development programs or the commercialization of products resulting from its technologies, curtail or cease operations or obtain funds through ECCs or other collaborative and licensing arrangements that may require Intrexon to relinquish commercial rights, or grant licenses on terms that are not favorable to us. If adequate funds are not available, Intrexon will not be able to successfully execute its business plan or continue its business.

Intrexon’s quarterly and annual operating results may fluctuate in the future. As a result, Intrexon may fail to meet or exceed the expectations of research analysts or investors, which could cause its stock price to decline.

Intrexon’s financial condition and operating results have varied significantly in the past and may continue to fluctuate from quarter to quarter and year to year in the future due to a variety of factors, many of which are beyond its control. Factors relating to its business that may contribute to these fluctuations include the following factors, as well as other factors described elsewhere in this prospectus:

 

 

Intrexon’s ability to achieve or maintain profitability;

 

 

Intrexon’s relationships, and the associated exclusivity terms, with collaborators in its target end markets;

 

 

Intrexon’s ability to develop and maintain technologies that its collaborators continue to use and that new collaborators are seeking;

 

 

Intrexon’s ability to enter into ECCs;

 

 

the feasibility of producing and commercializing products enabled by Intrexon’s technologies;

 

 

obligations to provide resources to Intrexon’s collaborators or to the collaborations themselves pursuant to the terms of the relevant ECC;

 

 

Intrexon’s ability to manage its growth;

 

 

the outcomes of research programs, clinical trials, or other product development and approval processes conducted by Intrexon’s collaborators;

 

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the ability of Intrexon’s collaborators to develop and successfully commercialize products enabled by its technologies;

 

 

risks associated with the international aspects of Intrexon’s business;

 

 

Intrexon’s ability to integrate any businesses or technologies it may acquire with Intrexon’s business;

 

 

potential issues related to Intrexon’s ability to accurately report its financial results in a timely manner;

 

 

Intrexon’s dependence on, and the need to attract and retain, key management and other personnel;

 

 

Intrexon’s ability to obtain, protect and enforce its intellectual property rights;

 

 

Intrexon’s ability to prevent the theft or misappropriation of its intellectual property, know-how or technologies;

 

 

potential advantages that Intrexon’s competitors and potential competitors may have in securing funding or developing competing technologies or products;

 

 

Intrexon’s ability to obtain additional capital that may be necessary to expand its business;

 

 

Intrexon’s collaborators’ ability to obtain additional capital that may be necessary to develop and commercialize products under its ECCs;

 

 

Intrexon’s exposure to the volatility associated with recording the fair value of securities of its collaborators held by Intrexon;

 

 

business interruptions such as power outages and other natural disasters;

 

 

public concerns about the ethical, legal and social ramifications of genetically engineered products and processes;

 

 

Intrexon’s ability to use its net operating loss carryforwards to offset future taxable income; and

 

 

the results of Intrexon’s consolidated subsidiaries.

Due to the various factors mentioned above, and others, the results of any prior quarterly or annual periods should not be relied upon as indications of Intrexon’s future operating performance.

Intrexon has a limited operating history, which may make it difficult to evaluate its current business and predict its future performance.

Intrexon has been in existence since 1998. From 1998 until 2010, its operations focused primarily on organizing and staffing its company and developing its technologies. Intrexon’s current business model has not been tested. In January 2011, Intrexon recognized its first revenues from its first ECC. Because its revenue growth has occurred in recent periods, Intrexon’s limited operating history may make it difficult to evaluate its current business and predict its future

 

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performance. Any assessments of its current business and predictions made about its future success or viability may not be as accurate as they could be if Intrexon had a longer operating history. Intrexon has encountered and will continue to encounter risks and difficulties frequently experienced by growing companies in rapidly changing industries. If Intrexon does not address these risks successfully, its business will be harmed. If Intrexon engages in any acquisitions, it will incur a variety of costs and may potentially face numerous risks that could adversely affect its business and operations.

Intrexon may pursue strategic acquisitions and investments which could have an adverse impact on its business if they are unsuccessful.

Intrexon has made acquisitions in the past and, if appropriate opportunities become available, Intrexon may acquire additional businesses, assets, technologies or products to enhance its business in the future. In connection with any future acquisitions, Intrexon could:

 

 

issue additional equity securities, which would dilute its current shareholders;

 

 

incur substantial debt to fund the acquisitions; or

 

 

assume significant liabilities.

Although Intrexon conducts due diligence reviews of its acquisition targets, such processes may fail to reveal significant liabilities. Acquisitions involve numerous risks, including:

 

 

problems integrating the purchased operations, technologies or products;

 

 

unanticipated costs and other liabilities;

 

 

diversion of management’s attention from its core businesses;

 

 

adverse effects on existing business relationships with current and/or prospective collaborators, customers and/or suppliers;

 

 

risks associated with entering markets in which Intrexon has no or limited prior experience; and

 

 

potential loss of key employees.

Acquisitions also may require Intrexon to record goodwill and non-amortizable intangible assets that will be subject to impairment testing on a regular basis and potential periodic impairment charges, incur amortization expenses related to certain intangible assets, and incur large and immediate write-offs and restructuring and other related expenses, all of which could harm its operating results and financial condition. In addition, Intrexon may acquire companies that have insufficient internal financial controls, which could impair its ability to integrate the acquired company and adversely impact its financial reporting. If Intrexon fails in its integration efforts with respect to any of its acquisitions and are unable to efficiently operate as a combined organization, its business and financial condition may be adversely affected.

Intrexon owns equity interests in several of its collaborators and has exposure to the volatility and liquidity risks inherent in holding their common stock.

In connection with its ECCs, Intrexon generally receives technology access fees. Because several of its collaborators are private companies or public corporations with limited capital, Intrexon allows them to pay its access fee in stock. As a result, Intrexon owns equity interests in several of

 

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its collaborators. Intrexon may continue to provide this alternative to its collaborators. Owning equity in its collaborators further increases its exposure to the risks of its collaborators’ businesses beyond its dependence on these collaborators to provide market and product development expertise, as well as sales, marketing and regulatory capabilities. Intrexon’s equity ownership in its collaborators exposes Intrexon to volatility and the potential for negative returns. In many cases, its equity position is a minority position which exposes Intrexon to further risk as Intrexon is not able to exert control over the companies in which it holds securities.

Intrexon selects collaborators based on a variety of factors such as their capabilities, capacity and expertise in a defined field. As described above, Intrexon may allow the collaborator to pay its access fee in cash or equity securities. As a result, the process by which Intrexon obtains equity interests in its collaborators and the factors it considers in deciding whether to acquire, hold or dispose of these equity positions may differ significantly from those that an independent investor would consider when purchasing equity interests in the collaborator. One significant factor would include Intrexon’s own expectation as to the success of its efforts to assist the collaborator in developing products enabled by its technologies.

Intrexon owns common stock of several publicly traded companies and the values of those equity interests are subject to market price volatility. For each collaborator where Intrexon owns equity securities, it makes an accounting policy election to present them at either the fair value at the end of each reporting period or using the cost or equity method depending on Intrexon’s level of influence. Intrexon has adopted the fair value method of accounting for certain of these securities, and therefore, have recorded them at fair value at the end of each reporting period with the unrealized gain or loss recorded as a separate component of other expense, net for the period. As of September 30, 2013 and December 31, 2012, the aggregate original cost basis of these securities was $110.8 million and $92.1 million, respectively, and the market value was $107.6 million and $83.1 million, respectively. The fair value of these securities is subject to fluctuation in the future due to the volatility of the stock market, changes in general economic conditions and changes in the financial conditions of one or more collaborators.

The common stock of its collaborators may not be publicly traded, and if it is traded publicly, the trading market could be limited or have low trading volume. In some cases, Intrexon could hold unregistered shares and may not have demand registration rights with respect to those shares. Intrexon evaluates whether any discounts for trading restrictions or other basis for lack of marketability should be applied to the fair value of the securities at inception of the ECC. In the event Intrexon concludes that a discount should be applied, the fair value of the securities is adjusted at inception of the ECC and re-evaluated at each reporting period thereafter. In all of these instances, Intrexon has substantial liquidity risk related to these holdings, and Intrexon may not be able to sell, or sell quickly, all or part of these equity interests.

In connection with future ECCs, Intrexon may, from time to time, receive from collaborators, both public and private, warrants, rights and/or options, all of which involve special risks. To the extent Intrexon receives warrants or options in connection with future ECCs, it would be exposed to risks involving pricing differences between the market value of underlying securities and its exercise price for the warrants or options, a possible lack of liquidity and the related inability to close a warrant or options position, all of which could ultimately have an adverse effect.

 

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Intrexon relies on its collaborators and other third parties to deliver timely and accurate information in order to accurately report its financial results in the time frame and manner required by law.

Intrexon needs to receive timely, accurate and complete information from a number of third parties in order to accurately report its financial results on a timely basis. Intrexon relies on its collaborators to provide it with complete and accurate information regarding revenues, expenses and payments owed to or by it on a timely basis. In addition, Intrexon intends to rely on current and future collaborators under its ECCs to provide Intrexon with product sales and cost saving information in connection with royalties, if any, owed to Intrexon. If the information that Intrexon receives is not accurate, its consolidated financial statements may be materially incorrect and may require restatement, and Intrexon may not receive the full amount of consideration to which it is entitled under its ECCs. Although Intrexon has audit rights with these parties, performing such an audit could be expensive and time consuming and may not be adequate to reveal any discrepancies in a timeframe consistent with its reporting requirements. Intrexon owns a significant equity position in several of its ECC collaborators, including a majority position in two of its ECC collaborators, AquaBounty Technologies, Inc., or AquaBounty, and Biological & Popular Culture, Inc., or BioPop. In March 2013, Intrexon began to consolidate the financial statements of AquaBounty into its consolidated financial statements. In the future, Intrexon may need to consolidate the financial statements of one or more other collaborators into its consolidated financial statements. Although Intrexon has contractual rights to receive information and certifications allowing it to do this, such provisions may not ensure that Intrexon receives information that is accurate or timely. As a result, Intrexon may have difficulty completing accurate and timely financial disclosures, which could have an adverse effect on its business.

Intrexon’s ability to use its net operating loss carryforwards and certain other tax attributes may be limited.

As of September 30, 2013 and December 31, 2012, Intrexon had net operating loss carryforwards of approximately $235.1 million and $207.0 million, respectively, for U.S. federal income tax purposes available to offset future taxable income and U.S. federal and state research and development tax credits of $6.6 million and $5.8 million, respectively, prior to consideration of annual limitations that may be imposed under Section 382 of the Internal Revenue Code of 1986, as amended, or Section 382. These carryforwards begin to expire in 2022. Intrexon’s past issuances of stock and mergers and acquisitions have resulted in ownership changes within the meaning of Section 382. As a result, the utilization of portions of its net operating losses may be subject to annual limitations. As of each of September 30, 2013 and December 31, 2012, approximately $16.4 million of its net operating losses generated prior to 2008 are limited by Section 382 to annual usage limits of approximately $1.5 million. As of each of September 30, 2013 and December 31, 2012, approximately $14.8 million of net operating losses were inherited via acquisition and are limited based on the value of the target at the time of the transaction. Future changes in stock ownership may also trigger an ownership change and, consequently, a Section 382 limitation.

 

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Risks related to Intrexon’s technologies and business operations

Ethical, legal and social concerns about synthetic biologically engineered products and processes could limit or prevent the use of products or processes using Intrexon’s technologies and limit its revenues.

Intrexon’s technologies involve the use of synthetic biologically engineered products or synthetic biological technologies. Public perception about the safety and environmental hazards of, and ethical concerns over, genetically engineered products and processes could influence public acceptance of its technologies, products and processes. If Intrexon and its collaborators are not able to overcome the ethical, legal and social concerns relating to synthetic biological engineering, products and processes using its technologies may not be accepted. These concerns could result in increased expenses, regulatory scrutiny, delays or other impediments to its programs or the public acceptance and commercialization of products and processes dependent on its technologies or inventions. The ability of its collaborators to develop and commercialize products, or processes using its technologies could be limited by public attitudes and governmental regulation.

The subject of genetically modified organisms has received negative publicity, which has aroused public debate. This adverse publicity could lead to greater regulation and trade restrictions on imports of genetically altered products. Further, there is a risk that products produced using its technologies could cause adverse health effects or other adverse events, which could also lead to negative publicity.

The synthetic biological technologies that Intrexon develops may have significantly enhanced characteristics compared to those found in naturally occurring organisms, enzymes or microbes. While Intrexon produces its synthetic biological technologies only for use in a controlled laboratory and industrial environment, the release of such synthetic biological technologies into uncontrolled environments could have unintended consequences. Any adverse effect resulting from such a release could have a material adverse effect on its business and financial condition, and Intrexon may have exposure to liability for any resulting harm.

Intrexon may become subject to increasing regulation in the future.

Intrexon’s ongoing research and development relies on evaluations in animals, which may become subject to bans or additional regulations, and, as described above, its research operations are subject to various environmental regulations. However, most of the laws and regulations concerning synthetic biology relate to the end products produced using synthetic biology, but that may change. For example, the Presidential Commission for the Study of Bioethical Issues in December 2010 recommended that the federal government oversee, but not regulate, synthetic biology research. The Presidential Commission also recommended that the government lead an ongoing review of developments in the synthetic biology field and that the government conduct a reasonable risk assessment before the field release of synthetic organisms. Synthetic biology may become subject to additional government regulations as a result of the recommendations, which could require Intrexon to incur significant additional capital and operating expenditures and other costs in complying with these laws and regulations.

To date, no commercial products have been enabled by Intrexon’s technologies and even if its technologies prove to be effective, they still may not lead to commercially viable products.

To date, none of Intrexon’s collaborators has received marketing approval or has commercialized any products enabled by its technologies. There is no guarantee that Intrexon or its collaborators

 

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will be successful in creating products enabled by its technologies. Even if its collaborators are successful in using its technologies, they may not be able to commercialize the resulting products or may decide to use other methods competitive with its technologies that do not utilize synthetic biology.

The FDA has not yet approved any gene therapies for use in humans or animals.

The U.S. Food and Drug Administration, or FDA, has not yet approved any gene therapies for use in humans or animals. The field of gene therapies is experimental and has not yet proven successful in many clinical trials. Clinical trials with gene therapies have encountered a multitude of significant technical problems in the past, including unintended integration with host DNA leading to serious adverse events, poor levels of protein expression, transient protein expression, viral overload, immune reactions to either viral capsids utilized to deliver DNA, DNA itself, proteins expressed or cells transfected with DNA. There can be no assurance that its development efforts or those of its collaborators will be successful, that Intrexon or they will receive the regulatory approvals necessary to initiate clinical trials, where applicable, or that Intrexon will ever be able to successfully commercialize a product enabled by its technologies. To the extent that Intrexon or its collaborators utilize viral constructs or other systems to deliver gene therapies and the same or similar delivery systems demonstrate unanticipated and/or unacceptable side effects in preclinical or clinical trials conducted by Intrexon or others, Intrexon may be forced to, or elect to, discontinue development of such products.

If Intrexon loses key personnel, including key management personnel, or is unable to attract and retain additional personnel, it could delay its product development programs, harm its research and development efforts, and Intrexon may be unable to pursue collaborations or develop its own products.

Intrexon’s business involves complex operations across a variety of markets and requires a management team and employee workforce that is knowledgeable in the many areas in which Intrexon operates. The loss of any key members of its management, including its Chief Executive Officer, Randal J. Kirk, its Chief Operating Officer, Krish S. Krishnan, or its Chief Science Officer, Thomas D. Reed, or the failure to attract or retain other key employees who possess the requisite expertise for the conduct of its business, could prevent Intrexon from developing and commercializing its products for its target markets and entering into collaborations or licensing arrangements to execute on its business strategy. Intrexon currently maintains key man insurance on Dr. Reed in the amount of $25.0 million; however, that coverage would likely be inadequate to compensate for the loss of his services. In addition, the loss of any key scientific staff, or the failure to attract or retain other key scientific employees, could prevent Intrexon from developing its technologies for its target markets and entering into collaborations or licensing arrangements to execute on its business strategy. Intrexon may not be able to attract or retain qualified employees in the future due to the intense competition for qualified personnel among biotechnology, synthetic biology and other technology-based businesses, or due to the unavailability of personnel with the qualifications or experience necessary for its business. If Intrexon is not able to attract and retain the necessary personnel to accomplish its business objectives, Intrexon may experience staffing constraints that will adversely affect its ability to meet the demands of its collaborators and customers in a timely fashion or to support its internal research and development programs. In particular, its product and process development programs are dependent on its ability to attract and retain highly skilled scientists. Competition for experienced scientists and other technical personnel from numerous companies and academic

and other research institutions may limit its ability to attract and retain such personnel on

 

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acceptable terms. All of its employees are at-will employees, which means that either the employee or Intrexon may terminate their employment at any time.

Intrexon’s planned activities will require additional expertise in specific industries and areas applicable to the products and processes developed through its technologies or acquired through strategic or other transactions, especially in the end markets that Intrexon seeks to penetrate. These activities will require the addition of new personnel, and the development of additional expertise by existing personnel. The inability to attract personnel with appropriate skills or to develop the necessary expertise could impair its ability to grow its business.

Intrexon may encounter difficulties managing its growth, which could adversely affect its business.

Currently, Intrexon is working simultaneously on multiple projects targeting several market sectors, including activities in human therapeutics, protein production, animal sciences, agricultural biotechnology and industrial products. These diversified operations place increased demands on its limited resources and require Intrexon to substantially expand the capabilities of its administrative and operational resources and to attract, train, manage and retain qualified management, technicians, scientists and other personnel. As its operations expand domestically and internationally, Intrexon will need to continue to manage multiple locations and additional relationships with various customers, collaborators, suppliers and other third parties. Intrexon’s ability to manage its operations, growth and various projects effectively will require it to make additional investments in its infrastructure to continue to improve its operational, financial and management controls and its reporting systems and procedures and to attract and retain sufficient numbers of talented employees, which Intrexon may be unable to do effectively. As a result, Intrexon may be unable to manage its expenses in the future, which may negatively impact its gross margins or operating margins in any particular quarter. In addition, Intrexon may not be able to successfully improve its management information and control systems, including its internal control over financial reporting, to a level necessary to manage its growth.

Competitors and potential competitors may develop products and technologies that make Intrexon’s obsolete or garner greater market share than those of Intrexon.

Intrexon does not believe that it has any direct competitors who provide comparable technologies of similar depth and breadth which to the same extent enable the commercialization of products developed using synthetic biology across a broad spectrum of biologically based industries. However, there are companies that have competing technologies for individual pieces of its proprietary suite of complementary technologies. One portion of its proprietary technology related to DNA synthesis and assembly includes the ability to synthesize new DNA. Intrexon believes the following companies engage in the manufacture of DNA components: DNA 2.0, Inc., Blue Heron Biotech, LLC and Life Technologies Corporation. Another portion of its proprietary technology includes development of fully human monoclonal antibodies. Intrexon’s technology utilizes advanced methods of stimulating antibody production in naïve human B-cells in vitro, or in a test tube, and specifically selecting those cells which produce antibodies that can bind a desired target, such as human toxins, tumor cells and microbial pathogens. Intrexon believes the following companies engage in the manufacture of human or human-like monoclonal antibodies: AbD SeroTec (a Bio-Rad Laboratories, Inc. company), Alexion Pharmaceuticals, Inc., XOMA Corporation, Genmab US, Inc., MorphoSys AG, NovImmune SA, Société Des Systèmes Biologiques, or BIOTEM, Adimab, LLC, ProMab Biotechnologies, Inc., Abpro, Inc., AIIM Therapeutics, Inc. and Open Monoclonal Technology, Inc.

 

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The synthetic biologics industry and each of the commercial sectors Intrexon has targeted are characterized by rapid technological change and extensive competition. Intrexon’s future success will depend on its ability to maintain a competitive position with respect to technological advances. Academic institutions also are working in this field. Technological development by others may result in its technologies, as well as products developed by its collaborators using its technologies, becoming obsolete.

Intrexon’s ability to compete successfully will depend on its ability to develop proprietary technologies that can be used by its collaborators to produce products that reach the market in a timely manner and are technologically superior to and/or are less expensive than other products on the market. Certain of its competitors may benefit from local government subsidies and other incentives that are not available to Intrexon or its collaborators. As a result, its competitors may be able to develop competing and/or superior technologies and processes, and compete more aggressively and sustain that competition over a longer period of time than Intrexon or its collaborators can. As more companies develop new intellectual property in its markets, a competitor could acquire patent or other rights that may limit products using its technologies, which could lead to litigation.

Intrexon may be sued for product liability.

Each of Intrexon’s ECCs requires the collaborator to indemnify Intrexon for liability related to products produced pursuant to the ECC and to obtain insurance coverage related to product liability in amounts considered standard for the industry. Intrexon believes that these industry-standard coverage amounts range from $15.0 million to $40.0 million in the aggregate. Even so, Intrexon may be named in product liability suits relating to products that are produced by its collaborators using its technologies. These claims could be brought by various parties, including other companies who purchase products from its collaborators or by the end users of the products. Intrexon cannot guarantee that its collaborators will not breach the indemnity and insurance coverage provisions of the ECCs. Further, insurance coverage is expensive and may be difficult to obtain, and may not be available to Intrexon or to its collaborators in the future on acceptable terms, or at all. Intrexon cannot assure you that its collaborators will have adequate insurance coverage against potential claims. In addition, although Intrexon currently maintains product liability insurance for its technologies in amounts Intrexon believes to be commercially reasonable, if the coverage limits of these insurance policies are not adequate, a claim brought against us, whether covered by insurance or not, could have a material adverse effect on its business, results of operations, financial condition and cash flows. This insurance may not provide adequate coverage against potential losses, and if claims or losses exceed its liability insurance coverage, Intrexon may go out of business. If Intrexon cannot successfully defend itself against product liability claims, Intrexon may incur substantial liabilities or be required to limit commercialization of its product candidates. Regardless of the merits or eventual outcome, liability claims may result in:

 

 

reduced resources of its management to pursue its business strategy;

 

 

decreased demand for products enabled by its technologies;

 

 

injury to Intrexon or its collaborators’ reputation and significant negative media attention;

 

 

withdrawal of clinical trial participants;

 

 

initiation of investigations by regulators;

 

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product recalls, withdrawals or labeling, marketing or promotional restrictions;

 

 

significant costs to defend resulting litigation;

 

 

substantial monetary awards to trial participants or patients;

 

 

loss of revenue; and

 

 

the inability to commercialize any products using its technologies.

Intrexon depends on sophisticated information technology and infrastructure.

Intrexon relies on various information systems to manage its operations. These systems are complex and include software that is internally developed, software licensed from third parties and hardware purchased from third parties. These products may contain internal errors or defects, particularly when first introduced or when new versions or enhancements are released. Failure of these systems could have an adverse effect on its business, which in turn may materially adversely affect its operating results and financial condition.

Intrexon may incur significant costs complying with environmental, health and safety laws and regulations, and failure to comply with these laws and regulations could expose Intrexon to significant liabilities.

Intrexon uses hazardous chemicals and radioactive and biological materials in its business and is subject to a variety of federal, state, local and international laws and regulations governing, among other matters, the use, generation, manufacture, transportation, storage, handling, disposal of, and human exposure to these materials both in the United States and overseas, including regulation by governmental regulatory agencies, such as the Occupational Safety and Health Administration and the U.S. Environmental Protection Agency. Intrexon has incurred, and will continue to incur, capital and operating expenditures and other costs in the ordinary course of its business in complying with these laws and regulations.

Risks associated with Intrexon’s ECC business model

If Intrexon fails to maintain and successfully manage its existing, or enter into new, ECCs, Intrexon may not be able to develop and commercialize its technologies and achieve or sustain profitability.

Intrexon’s ability to enter into, maintain and manage collaborations in its target markets is fundamental to the success of its business. Intrexon currently relies, and intends to rely for the foreseeable future, on its collaborators to develop products enabled by its technologies and then to manufacture, market, distribute and sell these products. Intrexon intends to enter into other strategic ECCs to produce, market and sell products enabled by the technologies that Intrexon has developed and will continue to develop. However, Intrexon may not be successful in entering into ECCs with future strategic collaborators. Any failure to enter into ECCs in its target market sectors on favorable terms could delay or hinder its ability to develop and commercialize its technologies and could increase its costs of development and commercialization.

Intrexon has entered into ECCs with strategic collaborators to develop products enabled by its technologies. There can be no guarantee that Intrexon can successfully manage these ECCs. Under the ECCs, Intrexon must use diligent efforts to carry out development activities under the ECC. The exclusivity provisions of the ECCs restrict its ability to commercialize its technologies in the designated field covered by the ECC. In most cases, the collaborator may terminate the ECC

 

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with Intrexon for any reason upon 90 days’ notice. In all cases, the ECC may be terminated if Intrexon fails to exercise diligent efforts or breach, and fail to cure, other provisions of the ECC. In addition, since its efforts to date have focused on a small number of collaborators in certain targeted sectors, its business would be adversely affected if one or more of these collaborators terminate their ECCs, fail to use its technologies or fail to develop commercially viable products enabled by its technologies.

Dependence on ECCs also will subject Intrexon to other risks, including:

 

 

Intrexon has relinquished important rights regarding the commercialization, marketing and distribution of products and Intrexon may disagree with its collaborators’ plans in these areas;

 

 

although Intrexon retains broad rights with respect to intellectual property developed under the ECCs, its collaborators have the right, under certain circumstances, to take control of the enforcement of such intellectual property;

 

 

Intrexon may have lower revenues than if Intrexon were to develop, manufacture, market and distribute products enabled by its technologies ourselves;

 

 

a collaborator could, without the use of its synthetic biology technologies, develop and market a competing product either independently or in collaboration with others, including its competitors;

 

 

Intrexon’s collaborators could be undercapitalized or fail to secure sufficient resources to fund the development and/or commercialization of the products enabled by its technologies in accordance with the ECC;

 

 

Intrexon’s collaborators could become unable or less willing to expend their resources on research and development or commercialization efforts with respect to its technologies due to general market conditions, their financial condition or other circumstances beyond its control;

 

 

Intrexon may be unable to manage multiple simultaneous ECCs or fulfill its obligations with respect thereto;

 

 

disagreements with a collaborator could develop and any conflict with a collaborator could reduce its ability to enter into future ECCs and negatively impact its relationships with one or more existing collaborators;

 

 

Intrexon’s collaborators could terminate its ECC with them, in which case, its collaborators may retain rights related to certain products, Intrexon may not be able to find another collaborator to develop different products in the field and Intrexon may not be able to develop different products in the field ourselves;

 

 

Intrexon’s business could be negatively impacted if any of its collaborators undergo a change of control to a third party who is not willing to work with Intrexon on the same terms or commit the same resources as its current collaborator; and

 

 

Intrexon’s collaborators may operate in countries where their operations could be adversely affected by changes in the local regulatory environment or by political unrest.

If any of these events occur, or if Intrexon fails to maintain its ECCs with its collaborators, Intrexon may not be able to commercialize its existing and potential technologies, grow its business or generate sufficient revenues to support its operations.

 

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Many of Intrexon’s collaborators, including some businesses over which Intrexon has significant influence, will need additional capital.

In order for many of its collaborators to execute on their business plans, these collaborators will have future capital requirements, and Intrexon may be asked to invest additional funds in these collaborators. If Intrexon fails to invest additional funds in a collaborator, the collaborator may not have sufficient capital to continue operations. The independent registered public accounting firm of one of its collaborators, ZIOPHARM Oncology, Inc., or ZIOPHARM, has expressed a substantial doubt about ZIOPHARM’s ability to continue as a going concern in its report on ZIOPHARM’s financial statements. This report was issued prior to ZIOPHARM’s recent public offering of shares of its common stock. ZIOPHARM has disclosed that its business is highly cash-intensive and its ability to continue operations after its current cash resources are exhausted depends on its ability to obtain additional financing and/or achieve profitable operations, as to which no assurances can be given. Intrexon agreed under its ECC with ZIOPHARM to purchase up to $50.0 million of ZIOPHARM’s common stock in conjunction with securities offerings that may be conducted by ZIOPHARM in the future, subject to certain conditions and limitations. To date, Intrexon has purchased approximately $31.0 million of ZIOPHARM common stock in such securities offerings, and its remaining potential obligation on this purchase commitment is approximately $19.0 million.

Intrexon relies on its collaborators to develop, commercialize and market products, and they may not be successful.

Intrexon depends on its collaborators to commercialize the products enabled by its technologies. If its collaborators are not able to successfully develop the products enabled by its technologies, none of its enabled products will become commercially available and Intrexon will receive no back-end payments under its ECCs. Because Intrexon does not currently and may never possess the resources necessary to independently develop and commercialize all of the potential products that may result from its technologies, its ability to succeed in markets it has currently targeted depends on its ability to enter into ECCs to develop and commercialize potential products. Some of its existing collaborators do not themselves have the resources necessary to commercialize products and they in turn will need to rely on additional sources of financing or third party collaborations. In addition, pursuant to its current ECCs and similar ECCs that Intrexon may enter into in the future, Intrexon has limited or no control over the amount or timing of resources that any collaborator is able or willing to devote to developing products or collaborative efforts. Any of its collaborators may fail to perform its obligations under the ECC. Intrexon’s collaborators may breach or terminate their ECCs with Intrexon or otherwise fail to conduct their collaborative activities successfully and in a timely manner. If any of these events were to occur, its revenues, financial condition and results of operations could be adversely affected.

The sales process for its ECCs may be lengthy and unpredictable, and Intrexon may expend substantial funds and management effort with no assurance of successfully entering into new collaborations to commercialize its technologies.

The sales process for its ECCs may be lengthy and unpredictable. Intrexon’s sales and licensing efforts may require the effective demonstration of the benefits, value, differentiation, validation of its technologies and services and significant education and training of multiple personnel and departments within the potential collaborator’s organization. Though Intrexon has made efforts to standardize its ECCs, Intrexon may be required to negotiate ECCs containing terms unique to each collaborator, which would lengthen the sales cycle. Intrexon may expend substantial funds

 

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and management effort with no assurance that Intrexon will execute an ECC or otherwise sell its technologies or services. In addition, this lengthy sales cycle makes it more difficult for Intrexon to accurately forecast revenue in future periods and may cause revenues and operating results to vary significantly in such periods.

Intrexon has entered into a limited number of ECCs to date, and Intrexon requires collaborators to successfully commercialize the products enabled by its technologies.

Intrexon’s success depends upon entering into ECCs with a number of collaborators across a broad spectrum of industries. There is a risk that Intrexon may not be able to demonstrate the value proposition of its technologies with enough collaborators across enough industries for Intrexon to be successful. Intrexon intends to pursue additional ECCs, but may be unable to do so on terms satisfactory to us, or at all. Intrexon’s current ECCs and any new ECCs Intrexon is able to enter into in one or more of the markets Intrexon has targeted may not be successful. Moreover, because Intrexon has limited financial and managerial resources, Intrexon will be required to prioritize its application of resources to particular development efforts. Any resources Intrexon expends on one or more of these efforts could be at the expense of other potentially profitable opportunities. If Intrexon focuses its efforts and resources on one or more of these markets and they do not lead to commercially viable products, its revenues, financial condition and results of operations could be adversely affected.

Many of its current collaborators have no experience producing products at the commercial scale needed for the development of their business, and they will not succeed if they cannot effectively commercialize their products.

In addition to developing products using its technologies, its collaborators must demonstrate the ability to utilize its technologies to produce desired products at the commercial scale and on an economically viable basis or they must collaborate with others to do so. The products and processes developed using its technologies may not perform as expected when applied at commercial scale, or its collaborators may encounter operational challenges for which Intrexon and they are unable to devise a workable solution. For example, contamination in the production process could decrease process efficiency, create delays and increase its collaborators’ costs. Moreover, under the terms of its ECCs, Intrexon limits the ability of its collaborators to partner their programs with third parties. Intrexon and its collaborators may not be able to scale up its production in a timely manner, if at all, even if its collaborators successfully complete product development in their laboratories and pilot and demonstration facilities. If this occurs, the ability of its collaborators to commercialize products and processes using its technologies will be adversely affected, and, with respect to any products that are brought to market, its collaborators may not be able to lower the cost of production, which would adversely affect its ability to increase the future profitability of its business.

The markets in which its collaborators are developing products using its technologies are subject to extensive regulation, and Intrexon relies on its collaborators to comply with all applicable laws and regulations.

Intrexon’s technologies are used in products that are subject to extensive regulation by governmental authorities. Intrexon depends on its collaborators to comply with these laws and regulations with respect to products they produce using its technologies and Intrexon does not independently monitor whether its collaborators comply with applicable laws and regulations. If its collaborators fail to comply with applicable laws and regulations, Intrexon is subject to

 

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substantial financial and operating risks because Intrexon depends on its collaborators to produce the end products enabled by its technologies for sale, and because in many cases Intrexon has a substantial equity interest in its collaborators. These regulatory risks are extensive and include the following:

 

 

complying with these regulations, including seeking approvals, the uncertainty of the scope of future regulations, and the costs of continuing compliance with regulations could affect the sales and profitability of its collaborators and materially impact its operating results;

 

 

Intrexon’s business could be adversely affected if the processes used by its collaborators to manufacture their final products fail to be approved by the applicable regulatory authorities;

 

 

where products are subject to regulatory approval, the regulatory approval process can be lengthy, costly, time consuming and inherently unpredictable, and if its collaborators are ultimately unable to obtain regulatory approval for products using its technologies, its business will be substantially harmed;

 

 

even if its collaborators are able to commercialize products using its technologies, the product may become subject to post-approval regulatory requirements, unfavorable pricing regulations, third-party payor reimbursement practices or regulatory reform initiatives that could harm its business;

 

 

Intrexon and its collaborators conduct on-going research and development that relies on evaluations in animals, which may become subject to bans or additional regulations;

 

 

compliance with existing or future environmental laws and regulations could have a material adverse impact on the development and commercialization of products using its technologies; and

 

 

to the extent products produced using its technologies are commercialized outside the United States, they will be subject to additional laws and regulations under the jurisdictions in which such products are commercialized.

The markets in which Intrexon’s collaborators are developing products using its technologies are highly competitive.

The markets in which Intrexon’s collaborators are developing products are, and will continue to be, highly competitive, and there can be no assurance that Intrexon or its collaborators will be able to compete effectively. There are numerous companies presently in these markets that are developing products that may compete with, and could adversely affect the prices for, any products developed by its collaborators using its technologies. Many of these competitors and potential competitors are well-established companies with significant resources and experience, along with well-developed distribution systems and networks for their products, valuable historical relationships with potential customers and extensive sales and marketing programs for their products. Some of these competitors may use these resources and their market influence to impede the development and/or acceptance of the products developed by its collaborators using its technologies. Intrexon does not believe that it has any direct competitors who provide similar technologies which fully enable the commercialization of products developed using synthetic biology across a broad spectrum of biologically based industries. However, there are companies that have competing technologies for individual pieces of its proprietary suite of complementary technologies. One portion of its proprietary technology related to DNA synthesis and assembly includes the ability to de novo synthesize DNA. The following companies are examples of

 

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companies which Intrexon believes engage in the manufacture of DNA componentry: DNA 2.0, Inc., Blue Heron Biotech, LLC and Life Technologies Corporation. Another portion of its proprietary technology includes development of fully human monoclonal antibodies. Intrexon’s technology utilizes advanced methods of stimulating antibody production in naïve human B-cells in vitro (i.e., “in a test tube”) and specifically selecting those cells which produce antibodies that can bind a desired target (e.g., human toxins, tumor cells, microbial pathogens). The following companies are examples of companies which Intrexon believes engage in the manufacture of human or human-like monoclonal antibodies: AbD SeroTec (a Bio-Rad Laboratories, Inc. company), Alexion Pharmaceuticals, Inc., XOMA Corporation, Genmab US, Inc., MorphoSys AG, NovImmune SA, Société Des Systèmes Biologiques, or BIOTEM, Adimab, LLC, ProMab Biotechnologies, Inc., Abpro Labs, AIIM Therapeutics and OmniAb.

To the extent that any of its collaborators’ competitors are more successful with respect to any key competitive factor or its collaborators are forced to reduce, or are unable to raise, the price of any products enabled by its technologies in order to remain competitive, Intrexon’s operating results and financial condition could be materially adversely affected. Competitive pressure could arise from, among other things, safety and efficacy concerns, limited demand or a significant number of additional competitive products being introduced into a particular market, price reductions by competitors, the ability of competitors to capitalize on their economies of scale, the ability of competitors to produce or otherwise procure products similar or equivalent to those of its collaborators at lower costs and the ability of competitors to access more or newer technology than its collaborators can access (including its own).

Intrexon’s right to terminate its ECCs is limited.

Generally, Intrexon does not have the right to terminate an ECC except in limited circumstances such as the collaborator’s failure to exercise diligent efforts in performing its obligations under the ECC, including its development of products enabled by its technologies, or its breach of a term of the ECC that remains uncured for a specified period of time. Moreover, each of Intrexon’s collaborators receives an exclusive license to use all of its technologies in a designated field, potentially in perpetuity. The collaborators Intrexon chooses in particular fields may not be in the best position to maximize the value of its technologies in that field, if they are capable of commercializing any products at all. In addition, the scope of the field for a particular ECC may prove to be too broad and result in the failure to maximize the value of Intrexon’s technologies in that field.

Risks related to Intrexon’s intellectual property

Intrexon’s ability to compete may decline if Intrexon does not adequately protect its proprietary technologies or if it loses some of its intellectual property rights through costly litigation or administrative proceedings.

Intrexon’s success depends in part on its ability to obtain patents and maintain adequate protection of its intellectual property in the United States and abroad for its suite of technologies and resultant products and potential products. Intrexon has adopted a strategy of seeking patent protection in the United States and abroad with respect to certain of the technologies used in or relating to its products and processes. Intrexon has also in-licensed rights to additional patents and pending patent applications in the United States and abroad. However, some of these in-licensed patents will expire as early as 2014, and some of its own patents will expire as early as 2017. Intrexon intends to continue to apply for patents relating to its technologies, methods and products as it deems appropriate.

 

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Intrexon has strategic positioning with respect to its key technologies including patent portfolios directed to: its switch technology covering aspects of its gene switches, such as its RheoSwitch Therapeutic System, and gene modulation systems, vectors, cells and organisms containing these switches, and their use; Intrexon’s activator ligand technology covering aspects of its activator ligands and their use; and its cell identification and selection technology covering aspects of its cell identification and selection platform, including its cell purification, isolation, characterization and manipulation technologies. In these portfolios, the issued U.S. patents and applications, if granted, are scheduled to expire from 2017 to 2034. Intrexon has also filed counterpart patents and patent applications in other countries, including Australia, Argentina, Brazil, Canada, China, Europe, Hong Kong, India, Indonesia, Israel, Japan, Korea, Mexico, New Zealand, Philippines, Russia, Singapore, South Africa and Taiwan. In the future Intrexon may file in these or additional jurisdictions as deemed appropriate for the protection of its technologies. In these jurisdictions, the issued patents and patent applications, if granted, are scheduled to expire from 2018 to 2032.

The enforceability of patents involves complex legal and factual questions and, therefore, the extent of enforceability cannot be guaranteed. Issued patents and patents issuing from pending applications may be challenged, invalidated or circumvented. Moreover, the United States Leahy-Smith America Invents Act, enacted in September 2011, brought significant changes to the U.S. patent system, which include a change to a “first to file” system from a “first to invent” system and changes to the procedures for challenging issued patents and disputing patent applications during the examination process, among other things. The effects of these changes on Intrexon’s patent portfolio and business have yet to be determined, as the final substantive provisions of the America Invents Act took effect on March 16, 2013. The United States Patent and Trademark Office, or the USPTO, only recently finalized the rules relating to these changes and the courts have yet to address the new provisions. These changes could increase the costs and uncertainties surrounding the prosecution of Intrexon’s patent applications and the enforcement or defense of its patent rights. Additional uncertainty may result from legal precedent handed down by the United States Court of Appeals for the Federal Circuit and United States Supreme Court as they determine legal issues concerning the scope and construction of patent claims and inconsistent interpretation of patent laws by the lower courts. Accordingly, Intrexon cannot ensure that any of its pending patent applications will result in issued patents, or even if issued, predict the breadth of the claims upheld in its and other companies’ patents. Given that the degree of future protection for its proprietary rights is uncertain, Intrexon cannot ensure that it was the first to invent the inventions covered by its pending patent applications, it was the first to file patent applications for these inventions, the patents Intrexon has obtained, particularly certain patents claiming nucleic acids, proteins, or methods, are valid and enforceable, and the proprietary technologies it develops will be patentable.

In addition, unauthorized parties may attempt to copy or otherwise obtain and use Intrexon’s products or technology. Monitoring unauthorized use of its intellectual property is difficult, and Intrexon cannot be certain that the steps it has taken will prevent unauthorized use of its technologies, particularly in certain foreign countries where the local laws may not protect its proprietary rights as fully as in the United States. Moreover, third parties could practice Intrexon’s inventions in territories where it do not have patent protection. Such third parties may then try to import into the United States or other territories products, or information leading to potentially competing products, made using its inventions in countries where it do not have patent protection for those inventions. If competitors are able to use its technologies, Intrexon’s ability to compete effectively could be harmed. Moreover, others may independently develop

and obtain patents for technologies that are similar to or superior to its technologies. If that

 

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happens, Intrexon may need to license these technologies, and it may not be able to obtain licenses on reasonable terms, if at all, which could harm its business.

Intrexon also relies on trade secrets to protect its technologies, especially in cases when it believes patent protection is not appropriate or obtainable. However, trade secrets are difficult to protect. While Intrexon requires its employees, academic collaborators, collaborators, consultants and other contractors to enter into confidentiality agreements, it may not be able to adequately protect its trade secrets or other proprietary or licensed information. If Intrexon cannot maintain the confidentiality of its proprietary and licensed technologies and other confidential information, its ability and that of its licensor to receive patent protection and its ability to protect valuable information owned or licensed by Intrexon may be imperiled. Enforcing a claim that a third-party entity illegally obtained and is using any of its trade secrets is expensive and time consuming, and the outcome is unpredictable. Moreover, Intrexon’s competitors may independently develop equivalent knowledge, methods and know-how.

Litigation or other proceedings or third-party claims of intellectual property infringement could require Intrexon to spend significant time and money and could prevent it from commercializing its technologies or impact its stock price.

Intrexon’s commercial success also depends in part on not infringing patents and proprietary rights of third parties, and not breaching any licenses or other agreements that Intrexon has entered into with regard to its technologies, products and business. Intrexon cannot ensure that patents have not been issued to third parties that could block its or its collaborators’ ability to obtain patents or to operate as it would like. There may be patents in some countries that, if valid, may block its ability to make, use or sell its products in those countries, or import its products into those countries, if Intrexon is unsuccessful in circumventing or acquiring the rights to these patents. There also may be claims in patent applications filed in some countries that, if granted and valid, also may block its ability to commercialize products or processes in these countries if Intrexon is unable to circumvent or license them.

The biotechnology industry is characterized by frequent and extensive litigation regarding patents and other intellectual property rights. Many companies have employed intellectual property litigation as a way to gain a competitive advantage. Intrexon’s involvement in litigation, interferences, opposition proceedings or other intellectual property proceedings inside and outside of the United States, to defend its intellectual property rights or as a result of alleged infringement of the rights of others, may divert management time from focusing on business operations and could cause Intrexon to spend significant amounts of money. Some of its competitors may have significantly greater resources and, therefore, they are likely to be better able to sustain the cost of complex patent or intellectual property litigation than Intrexon could. The uncertainties associated with litigation could have a material adverse effect on Intrexon’s ability to raise the funds necessary to continue its business or to enter into additional collaborations with others. Furthermore, any potential intellectual property litigation also could force Intrexon or its collaborators to do one or more of the following:

 

 

stop selling, incorporating or using products that use the intellectual property at issue;

 

 

obtain from the third party asserting its intellectual property rights a license to sell or use the relevant technology, which license may not be available on reasonable terms, if at all; or

 

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redesign those products or processes that use any allegedly infringing technology, or relocate the operations relating to the allegedly infringing technology to another jurisdiction, which may result in significant cost or delay to Intrexon, or which could be technically infeasible.

The patent landscape in the field of synthetic biology is particularly complex. Intrexon is aware of U.S. and foreign patents and pending patent applications of third parties that cover various aspects of synthetic biology including patents that some may view as covering aspects of its technologies. In addition, there may be patents and patent applications in the field of which Intrexon is not aware. In many cases, the technologies Intrexon develops are early-stage technologies and Intrexon is and its collaborators are just beginning the process of designing and developing products using these technologies. Although it will seek to avoid pursuing the development of products that may infringe any patent claims that it believes to be valid and enforceable, Intrexon and its collaborators may fail to do so. Moreover, given the breadth and number of claims in patents and pending patent applications in the field of synthetic biology and the complexities and uncertainties associated with them, third parties may allege that Intrexon or its collaborators are infringing upon patent claims even if Intrexon does not believe such claims to be valid and enforceable.

Although no third party has asserted a claim of infringement against Intrexon, others may hold proprietary rights that could prevent products using its technologies from being marketed. Any patent-related legal action against persons who license its technologies, its collaborators or Intrexon claiming damages and seeking to enjoin commercial activities relating to products using its technologies or its processes could subject Intrexon to potential liability for damages and require its licensor or Intrexon to obtain a license to continue to manufacture or market such products or any future product candidates that use its technologies. Intrexon cannot predict whether it or its licensor would prevail in any such actions or that any license required under any of these patents would be made available on commercially acceptable terms, if at all. In addition, Intrexon cannot be sure that any such products or any future product candidates or processes could be redesigned to avoid infringement, if necessary. Accordingly, an adverse determination in a judicial or administrative proceeding, or the failure to obtain necessary licenses, could prevent its collaborators from developing and commercializing products using its technologies, which could harm its business, financial condition and operating results.

If any of its competitors have filed patent applications or obtained patents that claim inventions also claimed by us, Intrexon may have to participate in interference proceedings declared by the USPTO to determine priority of invention and, thus, the right to the patents for these inventions in the United States. These proceedings could result in substantial cost to Intrexon even if the outcome is favorable. Even if successful, interference may result in loss of certain of its important claims.

Any litigation or proceedings could divert its management’s time and efforts. Even unsuccessful claims could result in significant legal fees and other expenses, diversion of management time, and disruption in Intrexon’s business. Uncertainties resulting from initiation and continuation of any patent or related litigation could harm its ability to compete.

 

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Obtaining and maintaining Intrexon’s patent protection depends on compliance with various procedural, document submission, fee payment and other requirements imposed by governmental patent agencies, and its patent protection could be reduced or eliminated for non-compliance with these requirements.

The USPTO and various foreign governmental patent agencies require compliance with a number of procedural, documentary, fee payment and other provisions during the patent process. Given the size of its intellectual property portfolio, compliance with these provisions involves significant time and expense. There are situations in which noncompliance can result in abandonment or lapse of a patent or patent application, resulting in partial or complete loss of patent rights in the relevant jurisdiction. In such an event, competitors might be able to enter the market earlier than would otherwise have been the case.

If Intrexon does not obtain additional protection under the Hatch-Waxman Amendments and similar foreign legislation by extending the patent terms and obtaining data exclusivity for its technologies, its business may be materially harmed.

Depending upon the timing, duration and specifics of FDA marketing approval of products using its technologies, one or more of the U.S. patents Intrexon owns or licenses may be eligible for limited patent term restoration under the Drug Price Competition and Patent Term Restoration Act of 1984, referred to as the Hatch-Waxman Amendments. The Hatch-Waxman Amendments permit a patent restoration term of up to five years as compensation for patent term lost during product development and the FDA regulatory review process. However, Intrexon may not be granted an extension because of, for example, failing to apply within applicable deadlines, failing to apply prior to expiration of relevant patents or otherwise failing to satisfy applicable requirements. Moreover, the applicable time period or the scope of patent protection afforded could be less than Intrexon requests. If Intrexon is unable to obtain patent term extension or restoration or the term of any such extension is less than it requests, its competitors may obtain approval of competing products following its patent expiration, and its ability to generate revenues could be materially adversely affected.

Enforcing its intellectual property rights may be difficult and unpredictable.

If Intrexon was to initiate legal proceedings against a third party to enforce a patent claiming one of its technologies, the defendant could counterclaim that its patent is invalid and/or unenforceable or assert that the patent does not cover its manufacturing processes, manufacturing components or products. Proving patent infringement may be difficult, especially where it is possible to manufacture a product by multiple processes. Furthermore, in patent litigation in the United States, defendant counterclaims alleging both invalidity and unenforceability are commonplace. Although Intrexon believes that it has conducted its patent prosecution in accordance with the duty of candor and in good faith, the outcome following legal assertions of invalidity and unenforceability during patent litigation is unpredictable. With respect to the validity of its patent rights, Intrexon cannot be certain, for example, that there is no invalidating prior art, of which it and the patent examiner were unaware during prosecution. If a defendant were to prevail on a legal assertion of invalidity and/or unenforceability, Intrexon would not be able to exclude others from practicing the inventions claimed therein. Such a loss of patent protection could have a material adverse impact on its business. Even if its patent rights are found to be valid and enforceable, patent claims that survive litigation may not cover commercially valuable products or prevent competitors from importing or marketing products

 

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similar to its own, or using manufacturing processes or manufacturing components similar to those used to produce the products using its technologies.

Although Intrexon believes it has obtained assignments of patent rights from all inventors, if an inventor did not adequately assign their patent rights to Intrexon, a third party could obtain a license to the patent from such inventor. This could preclude Intrexon from enforcing the patent against such third party.

Intrexon may not be able to enforce its intellectual property rights throughout the world.

The laws of some foreign countries do not protect intellectual property rights to the same extent as the laws of the United States. Many companies have encountered significant problems in protecting and defending intellectual property rights in certain foreign jurisdictions. The legal systems of certain countries, particularly certain developing countries, do not favor the enforcement of patents and other intellectual property protection, particularly those relating to synthetic biology. This could make it difficult for Intrexon to stop the infringement of its patents or misappropriation of its other intellectual property rights. Proceedings to enforce its patent rights in foreign jurisdictions could result in substantial costs and divert its efforts and attention from other aspects of its business. Accordingly, its efforts to protect its intellectual property rights in such countries may be inadequate.

If Intrexon’s technologies or products using its technologies are stolen, misappropriated or reverse engineered, others could use the technologies to produce competing technologies or products.

Third parties, including its collaborators, contract manufacturers, contractors and others involved in Intrexon’s business often have access to its technologies. If Intrexon’s technologies, or products using its technologies, were stolen, misappropriated or reverse engineered, they could be used by other parties that may be able to reproduce its technologies or products using its technologies for their own commercial gain. If this were to occur, it would be difficult for Intrexon to challenge this type of use, especially in countries with limited intellectual property protection.

Confidentiality agreements with employees and others may not adequately prevent disclosures of trade secrets and other proprietary information.

Intrexon has taken measures to protect its trade secrets and proprietary information, but these measures may not be effective. Intrexon requires its new employees and consultants to execute confidentiality agreements upon the commencement of an employment or consulting arrangement with Intrexon. These agreements generally require that all confidential information developed by the individual or made known to the individual by Intrexon during the course of the individual’s relationship with Intrexon be kept confidential and not disclosed to third parties. These agreements also generally provide that inventions conceived by the individual in the course of rendering services to Intrexon shall be its exclusive property. Nevertheless, its proprietary information may be disclosed, third parties could reverse engineer its technologies or products using its technologies and others may independently develop substantially equivalent proprietary information and techniques or otherwise gain access to its trade secrets. Costly and time-consuming litigation could be necessary to enforce and determine the scope of its proprietary rights, and failure to obtain or maintain trade secret protection could adversely affect its competitive business position.

 

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Risks related to AquaBounty

Because Intrexon owns a majority of the issued and outstanding shares of AquaBounty, the following risk factors that are applicable to AquaBounty’s business also apply to Intrexon.

AquaBounty will need additional capital.

In order for AquaBounty to execute on its business plan as announced by its management, AquaBounty will have future capital requirements, and Intrexon may be asked to invest additional funds in AquaBounty. If Intrexon fails to invest these additional funds, Intrexon may not retain control over AquaBounty. Intrexon has been advised by the management of AquaBounty that as of September 30, 2013, AquaBounty held $3.1 million of cash and cash equivalents and had a working capital balance of $2.8 million and that these amounts will provide adequate funds for AquaBounty’s ongoing operations into the late first quarter of 2014. Intrexon has no contractual obligation to provide funds to AquaBounty and therefore it does not know whether, or to what extent, Intrexon will be required to invest additional funds in AquaBounty.

There is significant uncertainty regarding regulatory approval for AquaBounty’s AquAdvantage® Salmon.

As a genetically modified animal for human consumption, AquAdvantage Salmon, or AAS, will require approval from the FDA and regulatory bodies in other countries before it can be sold. To date, there have been significant delays in the regulatory process. There is no guarantee that any approvals granted, if granted, will not be subject to onerous obligations. Any change to AAS or the development of a new product, including pursuant to its ECC, will require AquaBounty to again obtain approval from the FDA and regulatory bodies in other countries.

The regulatory approval process for commercial introduction of AAS will be based on evidence that the AAS are safe to eat and can be grown under conditions that are environmentally sound. AquaBounty is seeking regulatory approval for AAS under a New Animal Drug Application, or NADA. NADA includes all the study components required for Import Tolerance, or tolerances for unapproved new animal drugs where edible portions of animals imported into the United States may contain residues of such drugs, plus an efficacy study, a target animal safety study and a non-target environmental safety study.

Regulatory approval, under the U.S. Food, Drug and Cosmetic Act, requires the submission of studies demonstrating human food safety and consistency in the manufacturing process. From 1995 to 2010 AquaBounty submitted the results of a number of studies on the safety and manufacturing of AAS. AquaBounty completed all major submissions for its NADA for AAS with the FDA in 2010.

In September 2010, the FDA held a public meeting of its Veterinary Medicine Advisory Committee to review its findings regarding AAS. The conclusion of the committee was that AAS is indistinguishable from other farmed Atlantic salmon, is safe to eat and does not pose a threat to the environment under its conditions of use. Subsequently, the FDA initiated an environmental assessment in compliance with its obligations under the U.S. National Environmental Policy Act, which requires that all federal agencies consider the possible environmental impacts of any action which they authorize.

On December 26, 2012, the FDA published its environmental assessment for AAS, along with a Finding of No Significant Impact, in the Federal Register, confirming that an approval of the

 

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pending NADA would not have an adverse effect on the environment and opened up a 60 day period for public comment. On February 13, 2013, the FDA extended the period for public comment by an additional 60 days and the period expired on April 26, 2013.

As of December 31, 2013, AquaBounty is awaiting a report of final action by the FDA on the pending NADA. Intrexon does not know when the FDA will issue this report.

The loss of AquaBounty broodstock would result in the loss of AquaBounty’s commercial technology.

AquaBounty’s AAS intellectual property resides in the breeding population of live fish, or broodstock, themselves; destruction of AAS broodstocks by whatever means would result in the loss of the commercial technology. Live animals are subject to disease that may, in some cases, prevent or cause delay in the export of fish or eggs to customers. Disease organisms may be present undetected and transferred inadvertently. Such events may cause loss of revenue.

AquaBounty is exposed to exchange rate fluctuation.

As a consequence of the international nature of its business, AquaBounty is exposed to risks associated with changes in foreign currency exchange rates. AquaBounty is based in the United States and presents its financial statements in U.S. dollars and the majority of AquaBounty’s cash resources are held in U.S. dollars or in Canadian dollars. Some of AquaBounty’s future expenses and revenues are expected to be denominated in currencies other than in U.S. dollars. Therefore, movements in exchange rates to translate to foreign currencies may have an impact on AquaBounty’s reported results of operations, financial position and cash flows.

Risks related to Intrexon’s common stock

An active trading market may not be sustained following the merger.

The initial public offering of Intrexon’s common stock was completed in August 2013 at a price of $16.00 per share. There has been a public market for Intrexon’s common stock for only a short period of time. Although Intrexon’s common stock is listed on the New York Stock Exchange, an active public market for Intrexon’s common stock may not be sustained. If an active market for Intrexon’s common stock is not maintained, it may be difficult for you to sell shares you receive pursuant to the merger without depressing the market price for the shares or at all. An inactive trading market also may impair Intrexon’s ability to raise capital to continue to fund operations by selling shares and may impair its ability to acquire other companies or technologies by using its shares as consideration. The lack of an active market also may reduce the fair market value of your shares.

The price of Intrexon’s shares of common stock is likely to be volatile, and you could lose all or part of your investment.

The trading price of Intrexon’s common stock has been, and is likely to continue to be, volatile. Since shares of its common stock were sold in its initial public offering in August 2013 at a price of $16.00 per share, Intrexon’s stock price has ranged from $17.52 to $38.50, through January 30, 2014. In addition to the factors discussed in this prospectus, the trading price of Intrexon’s common stock may fluctuate significantly in response to numerous factors, many of which are beyond its control, including:

 

 

developments concerning its collaborators;

 

 

competition from existing technologies and products or new technologies and products that may emerge;

 

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announcements of new ECCs, significant acquisitions, strategic partnerships, joint ventures, new products, capital commitments or other events by Intrexon or its competitors, including the announcement and closing of the merger with Medistem;

 

 

the inability to establish ECCs or terminate ECCs;

 

 

actual or anticipated variations in its quarterly operating results;

 

 

failure to meet the estimates and projections of the investment community or that Intrexon may otherwise provide to the public;

 

 

Intrexon’s cash position;

 

 

announcement or expectation of additional financing efforts;

 

 

issuances of debt or equity securities;

 

 

Intrexon’s inability to successfully enter new markets or develop additional products, whether with its collaborators or independently;

 

 

actual or anticipated fluctuations in its competitors’ or its collaborators’ operating results or changes in their respective growth rates;

 

 

fluctuations in the market value of collaborators for which Intrexon owns equity interests, particularly in light of its use of equity accounting for certain of these investments;

 

 

sales of its shares of common stock by Intrexon, or its shareholders in the future;

 

 

trading volume of its shares of common stock on the New York Stock Exchange;

 

 

market conditions in its industry;

 

 

overall performance of the equity markets and general political and economic conditions;

 

 

introduction of new products or services by Intrexon or its competitors;

 

 

additions or departures of key management, scientific or other personnel;

 

 

publication of research reports about Intrexon or its industry or positive or negative recommendations or withdrawal of research coverage by securities or industry analysts;

 

 

changes in the market valuation of similar companies;

 

 

disputes or other developments related to intellectual property and other proprietary rights, including patents, litigation matters and its ability to obtain patent protection for its technologies;

 

 

changes in accounting practices;

 

 

significant lawsuits, including patent or shareholder litigation; and

 

 

other events or factors, many of which are beyond Intrexon’s control.

Furthermore, the public equity markets have experienced extreme price and volume fluctuations that have affected and continue to affect the market prices of equity securities of many companies. These fluctuations often have been unrelated or disproportionate to the operating performance of those companies. These broad market and industry fluctuations, as well as

 

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general economic, political and market conditions such as recessions, interest rate changes or international currency fluctuations, may negatively impact the market price of its shares of common stock.

Intrexon does not anticipate paying cash dividends, and accordingly, shareholders must rely on stock appreciation for any return on their investment.

Intrexon has never declared or paid cash dividends on its capital stock. Intrexon does not anticipate paying cash dividends in the future and intend to retain all of its future earnings, if any, to finance the operations, development and growth of its business. As a result, only appreciation of the price of its common stock, which may never occur, will provide a return to shareholders. Investors seeking cash dividends should not invest in Intrexon’s common stock.

If securities or industry analysts do not publish research or reports, or publish inaccurate or unfavorable research or reports about Intrexon’s business, its share price and trading volume could decline.

The trading market for Intrexon’s shares of common stock depends, in part, on the research and reports that securities or industry analysts publish about Intrexon or its business. Intrexon does not have any control over these analysts. If securities or industry analysts do not continue to cover Intrexon, the trading price for its shares of common stock may be negatively impacted. If one or more of the analysts who covers Intrexon downgrades its shares of common stock, changes their opinion of its shares or publishes inaccurate or unfavorable research about its business, Intrexon’s share price would likely decline. If one or more of these analysts ceases coverage of Intrexon or fails to publish reports on it regularly, demand for its shares of common stock could decrease and Intrexon could lose visibility in the financial markets, which could cause its share price and trading volume to decline.

If its executive officers, directors and largest shareholders choose to act together, they may be able to control Intrexon’s management and operations, acting in their own best interests and not necessarily those of other shareholders.

As of December 31, 2013, Intrexon’s executive officers, directors and beneficial holders of five percent or more of its outstanding stock owned approximately 66 percent of its voting stock, including shares subject to outstanding options and warrants, and Intrexon expects that upon completion of the merger, the same group will continue to hold at least 66 percent of its outstanding voting stock. As a result, these shareholders, acting together, would be able to significantly influence all matters requiring approval by its shareholders, including the election of directors and the approval of mergers or other business combination transactions, as well as its management and affairs. The interests of this group of shareholders may not always coincide with the interests of other shareholders, and they may act in a manner that advances their best interests and not necessarily those of other shareholders. This concentration of ownership control may:

 

 

delay, defer or prevent a change in control;

 

 

entrench Intrexon’s management and/or the board of directors; or

 

 

impede a merger, consolidation, takeover or other business combination involving Intrexon that other shareholders may desire.

 

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Intrexon has engaged in transactions with companies in which Randal J. Kirk, its Chief Executive Officer, and his affiliates have an interest.

Intrexon has engaged in a variety of transactions with companies in which Mr. Kirk and affiliates of Mr. Kirk have an interest. Among these transactions are its ECCs with Genopaver, LLC and Fibrocell Science, Inc. and its licensing arrangement with Halozyme Therapeutics, Inc. Intrexon believes that each of these transactions was on terms no less favorable to it than terms it could have obtained from unaffiliated third parties, and each of these transactions was approved by at least a majority of the disinterested members of its board of directors. In addition, subsequent to Intrexon’s consummation of the ECCs with Oragenics, Inc., Synthetic Biologics, Inc., AmpliPhi Biosciences Corp., and Soligenix, Inc., Mr. Kirk and his affiliates invested in these companies. Furthermore, as it executes on these ECCs going forward, a conflict may arise between Intrexon’s interests and those of Mr. Kirk and his affiliates. It is Intrexon’s intention to ensure that all future transactions, if any, between it and its officers, directors, principal shareholders and their affiliates, are approved by the audit committee or a majority of the independent and disinterested members of the board of directors in accordance with Intrexon’s written related person transaction policy, and are on terms no less favorable to Intrexon than those that it could obtain from unaffiliated third parties.

Randal J. Kirk will control approximately 64 percent of its common stock after completion of the merger and will be able to control or significantly influence corporate actions, which may result in Mr. Kirk taking actions contrary to the desires of its other shareholders.

Intrexon has historically been controlled, managed and principally funded by Randal J. Kirk, its Chief Executive Officer, and affiliates of Mr. Kirk. As of December 31, 2013, Mr. Kirk and shareholders affiliated with him beneficially owned approximately 64 percent of Intrexon’s voting stock. Following the merger, Intrexon expects that Mr. Kirk and his affiliates will control approximately 64 percent of Intrexon’s common stock. Mr. Kirk will be able to control or significantly influence all matters requiring approval by Intrexon’s shareholders, including the election of directors and the approval of mergers or other business combination transactions. The interests of Mr. Kirk may not always coincide with the interests of other shareholders, and he may take actions that advance his personal interests and are contrary to the desires of Intrexon’s other shareholders.

A significant portion of Intrexon’s total outstanding shares of common stock is restricted from immediate resale but may be sold into the market in the near future. This could cause the market price of its common stock to drop significantly, even if its business is doing well.

Sales of a substantial number of shares of Intrexon’s common stock in the public market could occur at any time. These sales, or the perception in the market that the holders of a large number of shares of common stock intend to sell shares, could reduce the market price of Intrexon’s common stock. If Mr. Kirk or any of his affiliates were to sell a substantial portion of the shares they hold, it could cause its stock price to decline. In addition, as of December 31, 2013, there were 2,840,648 shares subject to outstanding options that will become eligible for sale in the public market to the extent permitted by any applicable vesting requirements and Rules 144 and 701 under the Securities Act of 1933, as amended. Moreover, holders of an aggregate of approximately 72,429,701 shares of Intrexon’s common stock have rights, subject to some conditions, to require Intrexon to file registration statements covering their shares or to include their shares in registration statements that it may file for itself or other shareholders.

 

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Intrexon also has registered 7,000,000 shares of common stock that it may issue under its Intrexon Corporation 2013 Omnibus Incentive Plan, or the 2013 Plan, and it has registered 2,832,443 shares of common stock reserved for issuance upon exercise of outstanding stock options under its Intrexon Corporation 2008 Equity Incentive Plan. These shares can be freely sold in the public market upon issuance and once vested, subject to the lock-up periods under any lock-up agreements applicable to such shares.

Intrexon is subject to anti-takeover provisions in its articles of incorporation and bylaws and under Virginia law that could delay or prevent an acquisition of Intrexon, even if the acquisition would be beneficial to its shareholders.

Certain provisions of Virginia law, the commonwealth in which Intrexon is incorporated, and its articles of incorporation and bylaws could hamper a third party’s acquisition of Intrexon, or discourage a third party from attempting to acquire control of Intrexon. These provisions include:

 

 

a provision allowing Intrexon’s board of directors to issue preferred stock with rights senior to those of the common stock without any vote or action by the holders of its common stock. The issuance of preferred stock could adversely affect the rights and powers, including voting rights, of the holders of common stock;

 

 

establish advance notice requirements for nominations for election to the board of directors or for proposing matters that can be acted on at shareholder meetings;

 

 

the inability of shareholders to convene a shareholders’ meeting without the support of shareholders owning together 25 percent of its common stock;

 

 

the application of Virginia law prohibiting Intrexon from entering into a business combination with the beneficial owner of 10 percent or more of its outstanding voting stock for a period of three years after the 10 percent or greater owner first reached that level of stock ownership, unless it meets certain criteria;

 

 

allow the authorized number of its directors to be changed only by resolution of its board of directors;

 

 

limit the manner in which shareholders can remove directors from the board;

 

 

require that shareholder actions must be effected at a duly called shareholder meeting and prohibit actions by its shareholders by written consent; and

 

 

limit who may call a special meeting of shareholder meetings.

These provisions also could limit the price that certain investors might be willing to pay in the future for shares of its common stock. In addition, these provisions make it more difficult for Intrexon’s shareholders, should they choose to do so, to remove its board of directors or management. See “Description of Intrexon Capital Stock.”

Intrexon is an “emerging growth company,” and it cannot be certain if the reduced reporting requirements applicable to emerging growth companies will make Intrexon’s shares of common stock less attractive to investors.

Intrexon is an “emerging growth company,” as defined in the Jumpstart Our Business Startups Act of 2012, or the JOBS Act. For as long as it continues to be an emerging growth company, Intrexon may take advantage of exemptions from various reporting requirements that are

 

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applicable to other public companies that are not emerging growth companies, including not being required to comply with the auditor attestation requirements of Section 404 of the Sarbanes-Oxley Act of 2002, or the Sarbanes-Oxley Act, reduced disclosure obligations regarding executive compensation, its periodic reports and proxy statements and exemptions from the requirements of holding a nonbinding advisory vote on executive compensation and shareholder approval of any golden parachute payments not previously approved. Intrexon could be an emerging growth company for up to five years, although circumstances could cause it to lose that status earlier, including if the market value of its shares of common stock held by non-affiliates exceeds $700.0 million as of any June 30 before that time or if Intrexon has total annual gross revenue of $1.0 billion or more during any fiscal year before that time, in which cases Intrexon would no longer be an emerging growth company as of the following December 31, or if Intrexon issues more than $1.0 billion in non-convertible debt during any three-year period before that time, in which case it would no longer be an emerging growth company immediately. Intrexon cannot predict if investors will find its shares of common stock less attractive because it may rely on these exemptions. If some investors find its shares of common stock less attractive as a result, there may be a less active trading market for its shares of common stock and its share price may be more volatile.

Under the JOBS Act, emerging growth companies also can delay adopting new or revised accounting standards until such time as those standards apply to private companies. Intrexon has irrevocably elected not to avail itself of this exemption from new or revised accounting standards and, therefore, will be subject to the same new or revised accounting standards as other public companies that are not emerging growth companies.

If Intrexon fails to maintain an effective system of internal control over financial reporting, it may not be able to accurately report its financial results or prevent fraud. As a result, shareholders could lose confidence in its financial and other public reporting, which would harm its business and the trading price of its common stock.

Effective internal controls over financial reporting are necessary for Intrexon to provide reliable financial reports and, together with adequate disclosure controls and procedures, are designed to prevent fraud. Any failure to implement required new or improved controls, or difficulties encountered in their implementation could cause Intrexon to fail to meet its reporting obligations. In addition, any testing by Intrexon conducted in connection with Section 404 of the Sarbanes-Oxley Act, or any subsequent testing by its independent registered public accounting firm, may reveal deficiencies in its internal controls over financial reporting that are deemed to be material weaknesses or that may require prospective or retroactive changes to its financial statements or identify other areas for further attention or improvement. Inferior internal controls could also cause investors to lose confidence in its reported financial information, which could have a negative effect on the trading price of its common stock.

The financial reporting obligations of being a public company in the United States are expensive and time consuming, and may place significant additional demands on its management.

Prior to the consummation of its initial public offering in August 2013, Intrexon was not subject to public company reporting obligations in the United States. The additional obligations of being a public company in the United States require significant additional expenditures and place additional demands on its management, including costs resulting from public company reporting obligations under the Securities Exchange Act of 1934, as amended, and the rules and regulations regarding corporate governance practices, including those under the Sarbanes-Oxley Act, the

 

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Dodd-Frank Wall Street Reform and Consumer Protection Act, and the listing requirements of the New York Stock Exchange. Intrexon’s management and other personnel devote a substantial amount of time to ensure that Intrexon complies with all of these requirements. Moreover, despite recent reforms made possible by the JOBS Act, the reporting requirements, rules and regulations increase its legal and financial compliance costs and will make some activities more time-consuming and costly, particularly after Intrexon is no longer an “emerging growth company.” Any changes that it makes to comply with these obligations may not be sufficient to allow Intrexon to satisfy its obligations as a public company on a timely basis, or at all.

Intrexon also expects these rules and regulations to make it more difficult and more expensive for it to obtain director and officer liability insurance, and Intrexon may be required to accept reduced policy limits and coverage or incur substantially higher costs to obtain the same or similar coverage. These factors also could make it more difficult for Intrexon to attract and retain qualified persons to serve on its board of directors, particularly to serve on its audit and compensation committees, or as executive officers.

Risks related to Medistem and its business

There are material risks related to the potential delay or failure to consummate the proposed merger with Intrexon.

The proposed merger with Intrexon may not be completed on the anticipated timetable, and it is possible that the merger will not be completed at all. The delay or failure to consummate the proposed merger with Intrexon could negatively impact Medistem’s stock price and future business and operations. If the merger with Intrexon is delayed or not consummated for any reason, Medistem may be subject to a number of material risks, including the following:

 

 

If the merger agreement is terminated under certain circumstances, and Medistem enters into a change of control transaction subsequent to such termination, Medistem may be required to pay to Intrexon a termination fee of up to $1 million, as well as repaying the outstanding principal and accrued but unpaid interest under its $700,000 promissory notes with Intrexon. These amounts may deter other parties from offering to acquire Medistem, which could interfere with the ability of its stockholders to receive a premium over the value of the merger consideration for their shares of Medistem stock;

 

 

The price of Medistem’s common stock may decline, as the current market price of its common stock may reflect an assumption that the proposed merger will be consummated and that its shareholders will become stockholders of Intrexon upon closing of the merger;

 

 

Medistem must pay certain expenses related to the proposed merger, including substantial financial advisory, legal, accounting and other merger-related fees even if the merger is not consummated, which could affect Medistem’s results of operations and cash liquidity, and potentially its stock price;

 

 

Significant management and other resources have been diverted to efforts to consummate the proposed merger and, if the merger is not consummated, such efforts will result in little or no benefit to Medistem;

 

 

The announcement of the proposed merger may have an adverse effect on Medistem’s financial condition in the near-term and its market position if Medistem’s customers, suppliers,

 

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marketing and collaboration partners and other third parties delay, defer or cancel purchases or transactions pending resolution of the proposed merger; and

 

 

If the merger agreement with Intrexon is terminated and Medistem’s board of directors decides to seek another merger or business combination, it may not be able to find a partner willing to pay an equivalent price to that which would have been obtained in the proposed merger with Intrexon.

Additional risks and uncertainties not presently known to Medistem also may adversely affect the merger and the combined company following the merger.

Class action litigation filed against Medistem and its directors may result in a substantial diversion of the company’s time and resources.

In connection with the merger, four purported class action lawsuits brought on behalf of all Medistem shareholders were filed; one in the Eighth Judicial District Court in Clark County, Nevada: Iden v. Medistem, et al., No. A-13-693813-C, filed December 31, 2013; and three in the Superior Court of California in San Diego County, California: Bachand v. Medistem, et al., No. 37-2013-00081729-CU-SL-CTL, filed December 31, 2013; Parent v. Medistem, et al., No. 37-2014-00083393-CU-SL-CTL, filed January 14, 2014; and Raymond v. Medistem, et al., No. 37-2014-00083495-CU-SL-CTL, filed January 15, 2014. The complaints in the pending lawsuits are similar. Each complaint names Medistem, members of Medistem’s board of directors, Intrexon, and Merger Sub as defendants. The complaints allege, among other things, that Medistem’s board of directors breached its fiduciary duties to its shareholders by failing to maximize shareholder value or to engage in a fair sale process before approving the proposed acquisition of Medistem by Intrexon. The complaints further allege that Medistem, Intrexon and Merger Sub aided and abetted the Medistem board of directors in its breaches of fiduciary duty. The plaintiffs seek relief that includes an injunction prohibiting the consummation of the merger, rescission to the extent the merger terms have already been implemented, damages for the breaches of fiduciary duty, payment of plaintiffs’ attorneys’ fees and costs and, in the Nevada action, a contingent monetary award in an unspecified amount. Medistem and its board of directors believe that these allegations are without merit and intend to defend the lawsuits vigorously. There can be no assurance, however, with regard to the outcome of these lawsuits. Furthermore, the litigation may result in a substantial diversion of the company’s time and resources.

Medistem has a history of losses and will likely incur future losses during the next few years as it attempts to expand its research and development endeavors.

As of December 31, 2012, Medistem had an accumulated deficit of $13,309,214. As of September 30, 2013 the accumulated deficit increased to $14,165,435. Medistem expects to incur additional losses in the future. Medistem does not have any marketing approval for any of its products, which makes it difficult for you to evaluate its future business prospects.

Medistem’s auditor’s report includes an explanatory paragraph regarding its ability to continue as a going concern.

Medistem’s independent registered public accounting firm noted in their report accompanying Medistem’s financial statements for the year ended December 31, 2012 that Medistem had a significant accumulated deficit, that it had a working capital deficit and that a significant amount of additional capital will be necessary to advance the development of its products to the point at which Medistem may become commercially viable. The firm’s report stated that those conditions raised substantial doubt about Medistem’s ability to continue as a going concern.

 

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Note 1 to its financial statements for the year ended December 31, 2012 describes management's plans to address these matters. Medistem cannot assure you that its business plans will be successful in addressing these issues. This explanatory paragraph about its ability to continue as a going concern could affect Medistem’s ability to obtain additional financing at favorable terms, if at all, as it may cause investors to lose faith in its long-term prospects. Furthermore, in connection with the merger, Medistem incurred an additional $700,000 in debt financing from Intrexon and is subject to certain restrictive covenants and termination fees under the merger agreement, which could prevent it from obtaining additional equity or debt financing on favorable terms, if at all, during the pendency of the merger or if the merger is not consummated. If Medistem cannot successfully continue as a going concern, its shareholders may lose their entire investment in Medistem’s common shares.

Inadequate internal controls and accounting practices could lead to errors, which could negatively impact Medistem’s business, financial condition, results of operations and cash flows.

Section 404 of the Sarbanes-Oxley Act of 2002 requires Medistem to document the effectiveness of its internal control over financial reporting in accordance with an established internal control framework and to report on its management’s conclusion as to the effectiveness of this internal control over financial reporting. Medistem expects to incur significant costs to comply with this requirement. In connection with Medistem’s audits of its financial statements for the periods ended December 31, 2012 and 2011, Medistem identified certain material weaknesses in its internal control over financial reporting and segregation of duties. Such weaknesses include: designing and implementing effective internal control policies and procedures to ensure that information relative to financial reporting is identified, reviewed, reconciled and reported in a manner that supports reliable and timely financial reporting; designing and implementing effective internal control policies and procedures to ensure adequate segregations of duties, or to establish adequate mitigating controls; and designing and implementing effective internal control policies and procedures to ensure the proper application of U.S. generally accepted accounting principles to complex accounting transactions. Because of Medistem’s inherent limitations, internal control over financial reporting may not allow it to prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

Medistem prepared, and on March 21, 2013 it adopted, the Medistem Accounting Policies & Procedures, which cover, among other things, policies and procedures for the review and approval of all financial reports, as a remedial measure to address these weaknesses. To its knowledge, the material weaknesses had no effect on Medistem’s financial statements to date.

Even if Medistem is successful in remedying these material weaknesses, Medistem may in the future discover other areas of its internal control over financial reporting that need improvement. There can be no assurance that the recent remedial measures Medistem implemented to address prior and current material weaknesses will result in adequate internal control over financial reporting in the future. Any failure to implement Medistem’s improved controls, or difficulties encountered in the future, could cause it to fail to meet its reporting obligations. If Medistem is unable to conclude that it has effective internal control over financial reporting, or if its auditors are unable to provide an unqualified report regarding the effectiveness of internal control over financial reporting when required by applicable rules and regulations of the SEC, investors may lose confidence in the reliability of Medistem’s financial statements, which could result in a decrease in the value of its

 

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securities and negatively affect its efforts to obtain necessary financing. In addition, failure to comply with Section 404 could potentially subject Medistem to sanctions or investigation by the SEC or other regulatory authorities. This could have a material adverse effect on its financial condition and results of operations.

Medistem’s product development efforts may not yield any marketable products.

Medistem’s success depends on its ability to successfully develop and obtain regulatory approval to market new adult stem cell products. Medistem expects that a significant portion of the research that it will conduct will involve new and unproven technologies. It has no products on the market.

Medistem may never achieve profitability. Medistem’s failure to achieve profitability could negatively impact the market price of its common stock. Even if it does become profitable, Medistem cannot assure you that it would be able to sustain or increase profitability on a quarterly or annual basis.

Medistem needs additional capital to conduct its operations and its ability to obtain the necessary funding is uncertain.

Medistem will require substantial capital resources in order to conduct its operations and develop its products, and its existing capital resources will not be sufficient to fund its planned operations. The timing and degree of any future capital requirements will depend on many factors, including:

 

 

the accuracy of the assumptions underlying Medistem’s estimates for its resource requirements in 2013 and beyond:

 

 

the magnitude and scope of Medistem’s research and development programs;

 

 

the progress Medistem makes in its research and development programs;

 

 

Medistem’s ability to establish, enforce and maintain strategic arrangements for research, development, clinical testing, manufacturing and marketing;

 

 

the time and costs involved in obtaining regulatory approvals; and

 

 

the costs involved in preparing, filing, prosecuting, maintaining, defending and enforcing patent claims.

Medistem does not have any committed sources of capital. Additional financing through strategic collaborations, public or private equity financings or other financing sources may not be available on acceptable terms, or at all. The receptivity of the public and private equity or debt markets to proposed financings is substantially affected by the general economic, market and political climate and by other factors which are unpredictable and over which Medistem has no control. Additional equity and/or convertible debt financings, if Medistem obtains them, could result in significant dilution to shareholders. Further, in the event that additional funds are obtained through arrangements with collaborative partners, these arrangements may require Medistem to relinquish rights to some of its technologies, stem cell therapies or proposed products that it would otherwise seek to develop and commercialize itself. If sufficient capital is not available, Medistem may be required to delay, reduce the scope of or eliminate one or more of its programs, any of which could have a material adverse effect on Medistem’s business. Furthermore, in connection with the

 

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merger, Medistem incurred an additional $700,000 in debt financing from Intrexon and is subject to certain restrictive covenants and termination fees under the merger agreement, which could prevent it from obtaining additional equity or debt financing on favorable terms, if at all, during the pendency of the merger or if the merger is not consummated.

As of December 31, 2013, Medistem had $856,607 in cash. Medistem believes its existing available cash will enable it to meet its working capital requirements for at least the next three months. The estimated working capital requirement for the next 12 months is approximately $2.1 million with an estimated burn rate of approximately $175,000 per month.

Any changes in the governmental regulatory classifications of Medistem’s products could prevent, limit or delay its ability to market or develop its products.

The FDA establishes regulatory requirements based on the classification of a product. Because Medistem’s product development programs are designed to satisfy the standards applicable to biological licensure for its cellular products, any change in the regulatory classification or designation would affect its ability to obtain FDA approval of its products. Each of Medistem’s cell products is, under current regulations, regulated as a biologic, and requires a BLA.

Medistem must successfully complete its clinical trials to be able to market its products.

To be able to market therapeutic cell products in the United States, Medistem must demonstrate, through extensive preclinical studies and clinical trials, the safety and efficacy of its processes and product candidates. If its clinical trials are not successful, its products will not be marketable. The results of early stage clinical trials do not ensure success in later clinical trials, and interim results are not necessarily predictive of final results.

Medistem’s ability to complete its clinical trials in a timely manner depends on many factors, including the rate of patient enrollment. Patient enrollment can vary with the size of the patient population, the proximity of suitable patients to clinical sites, perceptions of the utility of cell therapy for the treatment of certain diseases, and the patient eligibility criteria for the study.

Furthermore, the FDA monitors the progress of clinical trials and it may suspend or terminate clinical trials at any time due to patient safety or other considerations.

Medistem relies and will continue to rely on third parties to conduct its clinical trials, and their failure to perform their obligations in a timely or competent manner may delay development and commercialization of Medistem’s product candidates.

Medistem has engaged and it expects to continue to use contract research organizations (CRO) to assist in conduct of its clinical trials. There are numerous alternative sources to provide these services. However, Medistem may face delays outside of its control if these parties do not perform their obligations in a timely or competent fashion or if Medistem is forced to change service providers. Any third party that Medistem hires to conduct clinical trials may also provide services to its competitors, which could compromise the performance of their obligations to Medistem. If Medistem experiences significant delays in the progress of its clinical trials, the commercial prospects for product candidates could be harmed and Medistem’s ability to generate product revenue would be delayed or prevented. In addition, Medistem and any provider that it retains will be subject to Good Clinical Practice, or GCP requirements. If GCP and other regulatory requirements are not adhered to by Medistem or its third-party providers, the development and commercialization of Medistem’s product candidates could be delayed.

 

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Any failure of such CRO to successfully accomplish clinical trial monitoring, data collection, safety monitoring and data management and the other services it provides for Medistem in a timely manner and in compliance with regulatory requirements could have a material adverse effect on Medistem’s ability to complete clinical development of its products and obtain regulatory approval. Problems with the timeliness or quality of the work of a CRO may lead Medistem to seek to terminate the relationship and use an alternate service provider. However, making such changes may be costly and may delay Medistem’s trials, and contractual restrictions may make such a change difficult or impossible. Additionally, it may be difficult to find a replacement organization that can conduct Medistem’s trials in an acceptable manner and at an acceptable cost.

The CRO for Medistem’s ongoing clinical trial in CHF at the Bakulev Scientific Center for Cardiovascular Surgery in Moscow, Russia, is Cromos Pharma, LLC, which is controlled by Vladimir Bogin, Medistem’s Chairman of the board of directors, however, Dr. Bogin has recused himself from the conduct of the study.

Medistem is conducting ongoing clinical trials overseas.

Medistem’s CHF trial is being conducted at the Bakulev Scientific Center for Cardiovascular Surgery, Moscow, Russia. Additionally, Medistem cooperated with Shanghai Jia Fu Medical Apparatus Inc., a Chinese conglomerate, for a pilot CLI clinical study in China. Neither of these trials was FDA-approved. Investors and authorities in the United States often consider that clinical trial results from trials not conducted in the United States or Western Europe are less reliable than those from trials conducted in the United States or Western Europe. Therefore, it is possible the FDA may not honor some or all the data derived from overseas clinical trials.

Even if Medistem obtains regulatory approvals to sell its products, lack of commercial acceptance could impair its business.

Medistem will be seeking to obtain regulatory approvals to market its cell products for various therapeutic indications. Even if Medistem obtains all required regulatory approvals, Medistem cannot be certain that its products and processes will be accepted in the marketplace at a level that would allow Medistem to operate profitably. Medistem’s products may be unable to achieve commercial acceptance for a number of reasons, such as the availability of alternatives that are less expensive, more effective, or easier to use; the perception of a low cost-benefit ratio for the product amongst physicians and hospitals; or an inadequate level of product support from itself or a commercial partner. Medistem’s technologies or product candidates may not be employed in all potential applications being investigated, and any reduction in applications would limit the market acceptance of its technologies and product candidates, and its potential revenues.

The market for Medistem’s products will be heavily dependent on third party reimbursement policies.

Medistem’s ability to successfully commercialize its product candidates will depend on the extent to which government healthcare programs, such as Medicare and Medicaid, as well as private health insurers, health maintenance organizations and other third party payers will pay for Medistem’s products and related treatments.

Reimbursement by third party payers depends on a number of factors, including the payer’s determination that use of the product is safe and effective, not experimental or investigational, medically necessary, appropriate for the specific patient and cost-effective. Reimbursement in the

 

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United States or foreign countries may not be available or maintained for any of Medistem’s product candidates. If Medistem does not obtain approvals for adequate third party reimbursements, it may not be able to establish or maintain price levels sufficient to realize an appropriate return on its investment in product development. Any limits on reimbursement from third party payers may reduce the demand for, or negatively affect the price of, Medistem’s products.

Managing and reducing health care costs has been a general concern of federal and state governments in the United States and of foreign governments. In addition, third party payers are increasingly challenging the price and cost-effectiveness of medical products and services, and many limit reimbursement for newly approved health care products. In particular, third party payers may limit the indications for which they will reimburse patients who use any products that Medistem may develop. Cost control initiatives could decrease the price for products that Medistem may develop, which would result in lower product revenues to Medistem.

If the potential of Medistem’s stem cell therapies to treat diseases is not realized, the value of its technology and its development programs could be significantly reduced.

Medistem has not proven in clinical trials that its stem cell therapy will be a safe and effective treatment for any disease. Medistem’s stem cell therapies are susceptible to various risks, including undesirable and unintended side effects, unintended immune system responses, inadequate therapeutic efficacy or other characteristics that may prevent or limit their marketing approval or commercial use. Medistem has not treated a sufficient number of patients to allow it to demonstrate efficacy or make a determination that serious unintended consequences will not occur. If the potential of Medistem’s stem cell therapies to treat disease is not realized, the value of its technology and its development programs could be significantly reduced.

Medistem’s product development programs are based on novel technologies and are inherently risky.

Medistem is subject to the risks of failure inherent in the development of products based on new technologies. The novel nature of its therapeutics creates significant challenges in regards to scientific issues, product development and optimization, manufacturing, government regulation, third-party reimbursement and market acceptance. For example, the FDA has relatively limited experience with stem cell therapies. The pathway to regulatory approval for its biologic drug candidates may accordingly be more complex and lengthy. As a result, the development and commercialization pathway for Medistem’s therapies may be subject to increased uncertainty, as compared to the pathway for new conventional drugs.

Restrictions on the use of stem cells arising from ethical, legal and social implications involving stem cells could prevent Medistem from developing or gaining acceptance for commercially viable products based upon such stem cells and adversely affect the market price of Medistem’s common stock.

The use of human embryonic stem cells has given rise to ethical, legal and social issues regarding the appropriate use of these cells. While Medistem’s business does not relate to this controversial area, the use of adult stem cells may become the subject of adverse commentary or publicity, or may be confused with the use of embryonic stem cells, either of which could significantly harm the market price for Medistem’s common stock.

 

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Medistem’s patent applications might not result in the issuance of patents.

A patent application gives no intellectual property protection; only an issued patent does. Many patent applications fail to result in issued patents or else patents may be granted for only a limited number of claims (or claims whose scope has been limited). Patent examiners have discretion in their review and there are various possible grounds for denying patent applications. Medistem has one issued patent but it may not be successful in obtaining any future patents. Medistem believes that obtaining broad patent protection in the US and other key countries is vital for its ultimate success.

Some of the information and know-how that is critical to Medistem’s business is not patentable and Medistem may not be able to prevent others from obtaining this information and establishing competitive enterprises.

Medistem sometimes relies on trade secrets to protect its proprietary manufacturing technology, especially in circumstances in which it believes patent protection is not appropriate or available. Medistem attempts to protect its proprietary manufacturing technology and other proprietary information in part by confidentiality agreements with its employees, consultants, collaborators and contractors. Medistem cannot assure you that these agreements will not be breached, that it would have adequate remedies for any breach, or that its trade secrets will not otherwise become known or be independently discovered by competitors, any of which would harm Medistem’s business significantly.

Some of Medistem’s competitors may develop technologies that are superior to or more cost-effective than Medistem’s, which may impact the commercial viability of Medistem’s technologies and which may significantly damage its ability to sustain operations.

The pharmaceutical and biotechnology industries are intensely competitive. Other pharmaceutical and biotechnology companies and research organizations currently engage in or have in the past engaged in efforts related to the biological mechanisms and disease conditions that are the focus of Medistem’s programs. In addition, other products and therapies that could compete directly with the stem cell therapies that Medistem is seeking to develop and market are being developed by pharmaceutical and biopharmaceutical companies and by academic and other research organizations.

Medistem may not be able to compete successfully because of the number and strength of its competitors and expected numerous market entrants and product introductions.

Medistem competes with numerous companies in the biotechnology industry. The biotechnology industry is characterized by rapidly evolving technology and intense competition. Medistem’s competitors include startup, development-stage, and major commercial companies offering services, techniques, treatments and services for producing, processing and marketing stem cell derived therapies from all classes of adult stem cells, as well as competing therapies that do not involve stem cells. Some of these companies are well established and possess technical, research and development, financial, manufacturing, reputational, regulatory affairs, and sales and marketing resources significantly greater than those of Medistem. In addition, many smaller biotech companies have formed strategic collaborations, partnerships and other types of alliances with larger, well-established industry competitors that afford these companies’ potential research and development and commercialization advantages in product areas currently being pursued by Medistem. Academic institutions and other public and private research organizations are also conducting and financing research activities which may produce products and processes

 

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directly competitive to those being commercialized by Medistem. Moreover, many of these competitors may be able to obtain patent protection, obtain FDA and other regulatory approvals and begin commercial sales of their products before Medistem does. Competitors focusing primarily on stem cells include Aastrom Biosciences, Inc., Advanced Stem Cell Technology, Inc., Athersys, Inc., Biomet, Inc., Cytomedix, Inc., Harvest Technologies Corporation, International Stem Cell Corporation, Mesoblast Limited, Opexa Therapeutics, Osiris Therapeutics, Inc., Pluristem Therapeutics, Inc., and Stem Cells, Inc.

There is significant competition in Medistem’s industry for highly skilled employees and Medistem’s failure to attract and retain technical and managerial personnel would adversely affect Medistem’s business.

Medistem may not be able to successfully attract or retain highly skilled employees. Medistem’s inability to hire or retain highly qualified individuals may impede its ability to develop and commercially introduce Medistem’s products that may adversely affect its business. Even if Medistem is able to hire these individuals, it may be unable to retain them. Furthermore, there is market pressure to provide technical and managerial employees with stock options and other equity interests, which may dilute earnings per share.

Medistem may be unable to retain the services of its key people.

Medistem’s future success depends, in significant part, upon the continuing service and performance of its senior management and other key personnel. In particular, Medistem’s future depends on the continued services of Alan J. Lewis, Ph.D., its Chief Executive Officer, and Thomas E. Ichim, Ph.D. its President and Chief Scientific Officer. There is a risk that these individuals will not remain in Medistem’s employ. If Medistem loses the services of any of these individuals, its ability to effectively develop and manage its business effectively could be impaired. Medistem does not have key-person life insurance on any of its key personnel. Dr. Ichim, who is a Canadian citizen, is currently permitted to work in the United States by virtue of his H1-B visa. He is seeking permanent residency status, but there is no assurance he will be able to obtain it. If Dr. Ichim is required to relocate outside the United States in order to continue working, and Medistem was to continue his services, the resulting inefficiencies might adversely affect its business.

Medistem’s sole-source vendor’s failure to manufacture or supply the ERCs could impair its cell product development.

Cook General BioTechnology, LLC, is Medistem’s sole manufacturing supplier of ERCs. If Cook were to become unable or unwilling to continue to supply Medistem, it would be difficult to obtain alternate sources of manufacturing supply on a short-term basis. If Cook fails to perform its obligations, it could impair or delay Medistem’s ability to conduct its clinical trials or market its product candidates on a timely and cost-competitive basis.

Defending lawsuits for alleged intellectual property infringements would, even if meritorious, be expensive and distract Medistem’s management’s focus. Medistem may be unable to afford such litigation. Moreover, the outcome of litigation is always uncertain, and an unfavorable outcome in such litigation might seriously harm Medistem.

Medistem cannot be certain that the services and products it delivers would not infringe valid patents, copyrights, trademarks or other intellectual property rights held by third parties. Medistem may incur substantial expenses in defending against infringement claims, regardless of their merit. If Medistem lacks the resources for such litigation, its ability to defend itself would be

 

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compromised. In addition, litigation can be a serious distraction for key personnel who must assist with or participate in the litigation. If any claims are successfully asserted against Medistem, it may be required to modify its technology or seek a license to use the infringing technology. Medistem may not be able to do so on commercially reasonable terms, or at all. Successful infringement claims against Medistem may also result in substantial monetary liability. Any of the foregoing could seriously harm its business.

Failure to manage growth (if any) may adversely affect Medistem’s business.

Medistem cannot be sure that it will be able to grow or manage growth. Any counterproductive scenarios, cash flow problems and expansion of operations will result in new and increased responsibilities for management, and will place a significant strain on Medistem’s operating and financial systems. To accommodate any increased number of employees, locations and the increased size of operations, Medistem will need to recruit and retain the appropriate personnel to manage operations. Medistem will also need to significantly improve its operations, financial and management processes and systems. If it fails to successfully implement and integrate these systems, or if it is unable to expand these systems to accommodate its growth, Medistem may have serious financial or operating difficulties and/or inadequate, inaccurate or non-timely financial and operational information, which could seriously harm its business.

 

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Cautionary statement regarding forward-looking statements

This proxy statement/prospectus contains forward-looking statements within the meaning of Section 27A of the Securities Act and Section 21E of the Exchange Act. Forward-looking statements generally relate to future events or future financial or operating performance. In some cases, you can identify forward-looking statements because they contain words such as “may,” “will,” “should,” “expects,” “plans,” “anticipates,” “could,” “intends,” “target,” “projects,” “contemplates,” “believes,” “estimates,” “predicts,” “potential” or “continue” or the negative of these words or other similar terms or expressions that concern Intrexon’s and Medistem’s expectations, strategy, plans or intentions. Intrexon’s and Medistem’s expectations and beliefs regarding these matters may not materialize, and actual results in future periods are subject to risks and uncertainties that could cause actual results to differ materially from those projected, including but not limited to:

 

 

the risk that Medistem shareholders may fail to approve the merger proposal;

 

 

the risk that Intrexon and Medistem will be unable to consummate the merger on the terms set forth in the merger agreement for any reason;

 

 

the possibility that costs, difficulties or disruptions related to the integration of Medistem’s operations into Intrexon will be greater than expected;

 

 

the risk that growth opportunities will not be realized or realized to the extent anticipated;

 

 

the risk that Intrexon following the merger will not realize on its financing or operating strategies;

 

 

the price of, market for, and the potential market price volatility of Intrexon’s common stock;

 

 

the risk that litigation in respect of either company or the merger could adversely impact either company;

 

 

the risk that disruption caused by the merger that make it difficult to maintain certain strategic relationships;

 

 

the ability of the combined company to innovate and provide a superior user experience;

 

 

the sufficiency of Intrexon’s cash and cash equivalents to meet its liquidity needs following the merger, whether caused by unanticipated increases in capital expenditures or otherwise;

 

 

Intrexon’s current and future exclusive channel collaborations (ECCs);

 

 

developments concerning Intrexon’s collaborators;

 

 

Intrexon’s ability to successfully enter new markets or develop additional products, whether with its collaborators or independently;

 

 

changes in laws and regulations applicable to Medistem and/or Intrexon;

 

 

competition from existing technologies and products or new technologies and products that may emerge;

 

 

actual or anticipated variations in Intrexon’s operating results;

 

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actual or anticipated fluctuations in Intrexon’s competitors’ or its collaborators’ operating results or changes in their respective growth rates;

 

 

market conditions in the industry;

 

 

Intrexon’s ability, and the ability of its collaborators, to protect their intellectual property and other proprietary rights and technologies;

 

 

Intrexon’s ability, and the ability of its collaborators, to adapt to changes in laws or regulations and policies;

 

 

the ability of Intrexon’s collaborators to secure any necessary regulatory approvals to commercialize any products developed under the ECCs;

 

 

the rate and degree of market acceptance of any products developed by a collaborator under an ECC;

 

 

Intrexon’s ability to retain and recruit key personnel;

 

 

Intrexon’s estimates regarding expenses, future revenue, capital requirements and needs for additional financing; and

 

 

the other factors discussed in the section entitled “Risk Factors” and in Intrexon’s and Medistem’s filings with the SEC.

Due to these risks and uncertainties, there can be no assurances that the results anticipated by the forward-looking statements of Intrexon or Medistem will occur, that their respective judgments or assumptions will prove correct or that unforeseen developments will not occur. Accordingly, you are cautioned not to place undue reliance upon any forward-looking statements of Intrexon or Medistem, which speak only as of the date made. Intrexon and Medistem undertake no obligation to publicly update any forward-looking statement, whether as a result of new information, future events, changed circumstances or otherwise, except as required by law.

 

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The Medistem special meeting

This proxy statement/prospectus is being furnished to Medistem shareholders in connection with the solicitation of proxies by the Medistem board of directors in connection with the special meeting.

This proxy statement/prospectus and the enclosed proxy card(s) are first being sent to Medistem shareholders on or about February 12, 2014.

Date, time and place of the special meeting

The Medistem special meeting will take place on March 4, 2014, at 9:00 a.m., local time, at the offices of Jones Day, 12265 El Camino Real, Suite 300, San Diego, California 92130.

Purpose of the Medistem special meeting

At the special meeting you will be asked to consider and vote upon:

 

Proposal 1.

   a proposal to adopt and approve the Agreement and Plan of Merger, dated as of December 19, 2013, by and among Medistem, Intrexon Corporation, and XON Cells, Inc., which is referred to herein as the merger agreement, pursuant to which Medistem will merger with and into XON Cells, Inc., a wholly owned subsidiary of Intrexon, as more fully described in the accompanying proxy statement/prospectus. A copy of the merger agreement is attached as Annex A to the accompanying proxy statement/prospectus;

Proposal 2.

   a proposal to approve, on a non-binding, advisory basis, the compensation payable to Medistem’s named executive officers that is based on or otherwise relates to the merger, which is referred to herein as the merger-related compensation payments proposal, as discussed under the section entitled “The Merger — Interests of Medistem’s Directors and Executive Officers in the Merger — Quantification of Potential Payments to Medistem Named Executive Officers in Connection with the Merger”; and

Proposal 3.

   a proposal to adjourn the Medistem special meeting, if necessary or appropriate, to solicit additional proxies in favor of the proposal to adopt and approve the merger agreement, if there are not sufficient votes at the time of such adjournment to adopt and approve the merger agreement proposal.

At the special meeting, Medistem may also conduct any other business properly brought before the special meeting and any adjournment or postponement thereof.

Recommendations of the Medistem board of directors

The Medistem board of directors reviewed and considered the terms and conditions of the merger agreement and the transactions contemplated thereby, including the merger and, after careful consideration, has unanimously:

 

 

determined that the merger agreement and the transactions contemplated thereby, including the merger, are advisable, fair to, and in the best interests of, Medistem and its shareholders;

 

 

adopted the merger agreement and approved the transactions contemplated thereby, including the merger; and

 

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resolved to recommend the adoption and approval of the merger agreement to Medistem’s shareholders.

The Medistem board of directors unanimously recommends that Medistem’s shareholders vote “FOR” the merger proposal, “FOR” the approval, on a non-binding, advisory basis, of the merger-related compensation payments proposal and “FOR” the adjournment of the special meeting, if necessary to solicit additional proxies.

Record date; stock entitled to vote

Only holders of record of shares of Medistem common stock at the close of business on January 31, 2014 are entitled to notice of, and to vote at, the Medistem special meeting and at any adjournment of the meeting. This date is referred to as the record date for the Medistem special meeting. Beginning ten days before the special meeting, a list of Medistem shareholders of record entitled to vote at the Medistem special meeting will be available during regular business hours at Medistem’s executive offices and principal place of business at 9255 Towne Centre Drive, #450, San Diego, CA 92121 for inspection by shareholders of record of Medistem for any purpose germane to the special meeting. The list will also be available at the special meeting.

In connection with entering into the merger agreement, each of the directors and executive officers of Medistem and their respective permitted transferees, as applicable, in their individual capacities, each of whom are referred to herein as a supporting shareholder, entered into a voting agreement pursuant to which the supporting shareholder agreed to, among other things, vote his shares of Medistem common stock (i) in favor of the merger proposal and (ii) against an acquisition proposal other than the merger, subject to any termination of the voting agreement in accordance with its terms. In addition, the supporting shareholders agreed not to directly or indirectly transfer their respective shares of Medistem common stock during the term of the voting agreement, subject to certain limited exceptions. The voting agreements may be terminated by the supporting shareholders if the Medistem board of directors has withdrawn or changed its recommendation in favor of a competing transaction. As of the record date, the supporting shareholders as a group owned and were entitled to vote 9,243,218 shares of Medistem common stock, or approximately 64% of the outstanding shares of Medistem common stock on that date.

Quorum

A quorum is necessary to hold a valid special meeting of Medistem shareholders. A quorum will be present at the Medistem special meeting if the holders of a majority of the outstanding shares of the common stock of Medistem entitled to vote on the record date are present, in person or by proxy. If a quorum is not present at the Medistem special meeting, Medistem expects the presiding officer to adjourn the special meeting in order to solicit additional proxies. Abstentions and broker non-votes (as described below), if any, will be counted as present for purposes of determining whether a quorum is present.

 

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Required vote

 

Proposal 1.

   The adoption and approval of the merger proposal requires the affirmative vote of the shareholders of record as of the record date holding a majority of all outstanding shares of Medistem’s common stock.
   Your failure to vote, in the case you are the record holder of shares, or instruct your broker, bank or other nominee to vote, in the case you hold shares in street name, will have the same effect as a vote against the merger proposal.

Proposal 2.

   The approval, on a non-binding, advisory basis, of the merger-related compensation payable to Medistem’s named executive officers that is based on or otherwise relates to the merger requires that the votes cast in favor of this proposal exceed the votes cast against this proposal.

Proposal 3.

   The approval of the adjournment of the special meeting, to solicit additional proxies in favor of the merger proposal if there are not sufficient votes at the time of such adjournment to approve the merger proposal and the merger, requires the affirmative vote of the holders of a majority of the shares of Medistem common stock present, in person or by proxy, at the special meeting and entitled to vote thereon, if a quorum is not present. If a quorum is present, the approval of the adjournment of the special meeting to solicit proxies in favor of the merger proposal if there are not sufficient votes at the time of such adjournment to approve the merger proposal, requires that the votes cast in favor of the adjournment proposal exceed the votes cast against the merger proposal.

Voting rights

Each Medistem shareholder is entitled to one vote for each share of Medistem common stock owned as of the record date. As of the close of business on the record date, there were 14,454,288 issued and outstanding shares of Medistem common stock. As of the record date, the directors and executive officers and their affiliates as a group owned and were entitled to vote 9,243,218 shares of Medistem common stock, or approximately 64% of the shares of Medistem common stock on that date.

In connection with entering into the merger agreement, each of the directors and executive officers of Medistem and their respective permitted transferees, as applicable, in their individual capacities, each of whom are referred to herein as a supporting shareholder, entered into a voting agreement pursuant to which the supporting shareholder agreed to, among other things, vote his shares of Medistem common stock (i) in favor of the merger proposal and (ii) against an acquisition proposal other than the merger, subject to any termination of the voting agreement in accordance with its terms. In addition, the supporting shareholders agreed not to directly or indirectly transfer their respective shares of Medistem common stock during the term of the voting agreement, subject to certain limited exceptions. The voting agreements may be terminated by the supporting shareholders if the Medistem board of directors has withdrawn or changed its recommendation in favor of a competing transaction. As of the record date, the supporting shareholders as a group owned and were entitled to vote 9,243,218 shares of Medistem common stock, or approximately 64% of the outstanding shares of Medistem common stock on that date.

 

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Abstentions and broker non-votes

In accordance with the rules of the OTC Markets Group’s OTCQB marketplace, brokers who hold shares of Medistem common stock in street name for their customers have authority to vote on “routine” proposals when they have not received instructions from beneficial owners. However, brokers are precluded from exercising their voting discretion with respect to non-routine matters, such as the merger proposal, the proposal to approve the merger-related compensation for named executive officers and the adjournment proposal. As a result, absent specific instructions from the beneficial owner of such shares, brokers are not empowered to vote such shares, which we refer to generally as “broker non-votes” in this proxy statement/prospectus.

Your abstention from voting and broker non-votes, if any, will have the same effect as a vote against the merger proposal and, if a quorum is not present, the adjournment proposal. Abstentions and broker non-votes are not counted as votes “for” or “against” the merger-related compensation payments proposal or, if a quorum is present, the adjournment proposal and therefore do not affect the outcome.

Voting at the special meeting

Whether or not you plan to attend the Medistem special meeting, please promptly vote your shares of Medistem common stock by proxy or, if you hold your shares in street name, instruct your broker, bank or other nominee how to vote, to ensure your shares are represented at the meeting. You may also vote in person at the Medistem special meeting.

Voting in person

If you plan to attend the Medistem special meeting and wish to vote in person, you will be given a ballot at the special meeting. Please note, however, that if your shares of Medistem common stock are held in street name, which means your shares of Medistem common stock are held of record by a broker, bank or other nominee, and you wish to vote at the Medistem special meeting, you must bring to the Medistem special meeting a legal proxy from the record holder (your broker, bank or nominee) of the shares of Medistem common stock authorizing you to vote at the Medistem special meeting.

Voting by proxy; voting instructions

Shareholders of Record: You should vote your proxy even if you plan to attend the Medistem special meeting. You can always change your vote at the Medistem special meeting. Registered shareholders may vote by mail, by telephone or by Internet.

 

 

To vote by mail, please complete, sign, date and mail your proxy card in the postage prepaid envelope provided. Proxies should be mailed sufficiently in advance to ensure receipt prior to the special meeting.

 

 

To vote by telephone, call toll-free 1-800-690-6903 from any touch-tone telephone and follow the instructions. Have your proxy card available when you call. If you vote by phone, you do not need to mail your proxy card. Telephone voting is available until 11:59 p.m., Eastern Time, on March 3, 2014.

 

 

You can vote on the Internet at www.proxyvote.com. Have your proxy card in hand when going online and follow the online instructions. If you vote by the Internet, you do not need to mail your proxy card. Internet voting is available up until 11:59 p.m., Eastern Time, on March 3, 2014.

 

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Your enclosed proxy card includes specific instructions for voting your shares of Medistem common stock. Medistem’s electronic voting procedures are designed to authenticate your identity and to ensure that your votes are accurately recorded. When the accompanying proxy is returned properly executed, the shares of Medistem common stock represented by it will be voted at the Medistem special meeting or any adjournment thereof in accordance with the instructions contained in the proxy.

If you return your signed proxy card without indicating how you want your shares of Medistem common stock to be voted with regard to a particular proposal, your shares of Medistem common stock will be voted in favor of each such proposal. Proxy cards that are returned without a signature will not be counted as present at the Medistem special meeting and cannot be voted.

If the special meeting is postponed or adjourned for any reason, at any subsequent reconvening of the special meeting all proxies will be voted in the same manner as the proxies would have been voted at the original convening of the special meeting, except for any proxies that have at that time effectively been revoked or withdrawn, even if the proxies had been effectively voted on the same or any other matter at a previous meeting.

Shares Held in Street Name: If your shares are held of record in the name of a bank, broker or other nominee you should follow the separate instructions that the nominee provides to you. Although most banks and brokers now offer telephone and Internet voting, availability and specific processes will depend on their voting arrangements.

Revocation of proxies or voting instructions

If you are a registered holder and give your proxy card to Medistem or vote by telephone or the Internet, you have the power to revoke your proxy or change your vote by taking any of the following actions before your proxy is voted at the special meeting:

 

 

voting again by telephone or Internet any time prior to 11:59 p.m., Eastern Time, on March 3, 2014;

 

 

notifying the Secretary of Medistem in writing no later than the beginning of the special meeting of your revocation;

 

 

delivering to the Secretary of Medistem no later than the beginning of the special meeting a revised signed proxy card bearing a later date; or

 

 

attending the special meeting and voting in person, which will automatically cancel any proxy previously given, or revoking your proxy in person, but your attendance alone will not revoke any proxy that you have previously given.

If your shares are held in street name by your broker, bank or other nominee, you should contact them to change your vote.

Notice of revocation or your new proxy must be delivered to Medistem’s Corporate Secretary at 9255 Towne Centre Drive, #450, San Diego, CA 92121.

Other matters

As of the date of this proxy statement/prospectus, the Medistem board of directors is not aware of any other business to be presented for consideration at the special meeting.

 

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Solicitation of proxies

In addition to the use of the mail, proxies may be solicited by officers and directors and regular employees of Medistem and Intrexon, without additional remuneration, by personal interview, telephone, facsimile or otherwise. Medistem will also request brokers, banks and nominees to forward proxy materials to the beneficial owners of shares of Medistem common stock held of record on the record date, the cost of which will be borne by Medistem.

Additional questions

If you have questions about the merger agreement, the merger or the merger proposal or the other matters to be voted on at the special meeting or desire additional copies of this proxy statement/prospectus or additional proxy cards, you should contact Medistem, 9255 Towne Centre Drive, #450, San Diego, CA 92121 (858) 352-7071 Attn: Investor Relations.

 

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The companies

Intrexon Corporation

Intrexon believes it is a leader in the field of synthetic biology, an emerging and rapidly evolving discipline that applies engineering principles to biological systems. Using its suite of proprietary and complementary technologies, Intrexon designs, builds and regulates gene programs, or sequences of DNA that control cellular function, and cellular systems, or activities that take place within a cell and the interaction of those systems in the greater cellular environment, to enable the development of new and improved products and manufacturing processes across a variety of end markets, including healthcare, food, energy and environmental sciences. Intrexon’s synthetic biology capabilities include the ability to precisely control the amount, location and modification of biological molecules to control the function and output of living cells and optimize for desired results at an industrial scale.

Working with its collaborators, Intrexon seeks to create more effective, less costly and more sustainable solutions than can be provided through current industry practices. Intrexon believes its approach to synthetic biology can enable new and improved biotherapeutics, increase the productivity and quality of food crops and livestock, create sustainable alternative energy sources and chemical feedstocks and provide for enhanced environmental remediation. Intrexon’s business model is to commercialize its technologies through exclusive channel collaborations, or ECCs, with collaborators that have industry expertise, development resources and sales and marketing capabilities to bring new and improved products and processes to market.

Intrexon’s common stock is traded on the NYSE under the symbol “XON.” The principal executive offices of Intrexon are located at 222 Lakeview Avenue, Suite 1400, West Palm Beach, Florida 33401, and its telephone number is (561) 410-7000.

For more information regarding Intrexon’s business, see the section entitled “Description of Intrexon’s Business.”

Medistem Inc.

Medistem Inc., is focused on the development of the Endometrial Regenerative Cell (ERC), a universal donor adult stem cell product. ERCs possess specialized abilities to stimulate new blood vessel growth and can differentiate into lung, liver, heart, brain, bone, cartilage, fat and pancreatic tissue. These unique properties have applications for treatment of critical limb ischemia (CLI), congestive heart failure (CHF), neurodegenerative diseases, liver failure, kidney failure, and diabetes. ERCs have been cleared by the FDA to begin studies in the United States.

Since September 7, 2013, shares of Medistem common stock have traded on the OTC Markets Group’s OTCQB marketplace under the stock symbol “MEDS.” Prior to that time, shares of Medistem’s common stock traded on the OTCPink marketplace. The principal executive offices of Medistem are located at 9255 Towne Centre Drive, #450, San Diego, CA 92121, and its telephone number is (858) 352-7071.

For more information regarding Medistem’s business, see the section entitled “Description of Medistem’s Business.”

 

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XON Cells, Inc.

XON Cells, Inc., a wholly owned subsidiary of Intrexon, is a Nevada corporation formed solely for the purpose of effecting the merger and is referred to herein as Merger Sub.

Merger Sub has not conducted any activities other than those incidental to its formation and the matters contemplated by the merger agreement. The principal executive offices of Merger Sub are located at 20374 Seneca Meadows Parkway, Germantown, Maryland 20876, and its telephone number is (301) 556-9900.

 

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The merger

Effects of the merger

The shareholders of Medistem are being asked to adopt and approve the Agreement and Plan of Merger, dated as of December 19, 2013, by and among Medistem, Intrexon Corporation, and Merger Sub, as amended by the First Amendment to the Agreement and Plan of Merger and as may be further amended from time to time, which is referred to herein as the merger proposal.

Pursuant to the terms and subject to the conditions of the merger agreement, at the closing of the proposed transactions contemplated by the merger agreement, Merger Sub will be merged with and into Medistem, and Medistem will continue as the surviving corporation of the merger and as a wholly owned subsidiary of Intrexon. Following the merger, Medistem will no longer be a publicly traded corporation.

Background of the merger

As part of its ongoing oversight of Medistem’s business, Medistem’s board of directors, with input from senior management, has from time to time discussed and evaluated its business, strategic direction, longer-term goals, performance and prospects. In the course of these discussions, Medistem’s board of directors and certain members of senior management also discussed and reviewed various potential strategic alternatives involving private capital financing and possible acquisitions or business combinations that could complement and enhance Medistem’s competitive strengths and strategic positions, and also regularly considered Medistem’s prospects as an independent company. In connection with the periodic consideration of strategic alternatives by Medistem’s board of directors, from time to time, Medistem’s senior management has communicated informally and formally with potential investors, financing sources, and representatives of other companies in the biotechnology sector that were considered potentially complementary and with other companies that represented potential licensing or merger and acquisition opportunities.

On November 17, 2011, as a follow-up to a meeting by Medistem board of directors members Vladimir Zaharchook-Williams and Thomas E. Ichim, Ph.D., Medistem’s then Chief Executive Officer, met with representatives of Suitor A to discuss a potential business combination. Medistem submitted a merger proposal to Suitor A’s chief operating officer, and its then interim chief executive officer. A subsequent telephonic conversation between Suitor A’s chief operating officer and Dr. Ichim revealed no interest by Suitor A in continuing merger discussions. Suitor A’s chief operating officer cited lack of clinical data as the primary reason for their lack of interest.

On March 18, 2012, Vladimir Bogin, M.D., Medistem’s Chairman of the board of directors, was approached by representatives of Suitor B, a biologics company that expressed an interest in collaborating with Medistem, obtaining license rights to Medistem’s intellectual property, or acquiring Medistem. Medistem and Suitor B signed a confidential disclosure agreement and engaged in multiple communications, including telephonic conferences, a meeting on June 22, 2012, at Medistem offices attended by representatives of Suitor B, and a virtual tour of Medistem’s ERC manufacturing site at Cook GBT. The two companies engaged in follow-up email correspondences and telephonic communications until September 20, 2012, when Suitor B informed Medistem that Suitor B’s management team deemed Medistem’s technology to be at too early a stage in clinical development.

 

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On June 12, 2012, Amit Patel, M.D., a member of Medistem’s Scientific Advisory Board, introduced Suitor C to Medistem as a potential collaborator, licensee, or acquirer. A representative of Suitor C told Dr. Patel that Suitor C had an interest in the area of regenerative medicine. On that date, Medistem and Suitor C signed a confidential disclosure agreement. On June 20, 2012, Medistem’s then Chief Executive Officer, Dr. Ichim, together with Medistem’s Chairman of the Board, Dr. Bogin, and then Scientific Advisory Board member Alan J. Lewis, Ph.D., met with Suitor C. On August 12, 2012, Suitor C’s executive vice president advised Medistem in writing of Suitor C’s lack of interest in continued discussions.

On April 30, 2012, Medistem engaged SR Ventures, LLC, referred to as SR Ventures, to identify an investment bank to help Medistem raise capital. SR Ventures was selected based on a recommendation from Medistem board members Sergey Sablin, Ph.D., and Dr. Ichim, who were aware of SR Ventures’ success in helping raise capital for several public companies. Subsequently, SR Ventures provided introductions and meetings for Medistem with several investment banks.

Of these investment banks, only Noble Financial Group, referred to as Noble, expressed an interest in assisting Medistem. A common concern expressed by the potential investment banks was the lack of liquidity of Medistem’s stock, its trading on the OTC Markets Group’s OTCPink marketplace, or OTCPink, and Medistem’s lack of clinical data. Noble invited Medistem to present at the Noble Financial Bio-X Life Sciences Conference, on September 24, 2012. At the conference, Dr. Ichim and Dr. Bogin were introduced to several institutional investors. Discussions with these potential investors, as well as with Biotech Analyst Henry McKusker of Scimitar Equity, resulted in feedback that Medistem had an “optics problem” due to OTCPink listing, the lack of liquidity of Medistem’s common stock, the fact that clinical trials were being conducted overseas, and the absence of clinical trials in the United States.

On September 30, 2012, Medistem engaged Noble to act as its placement agent in an effort to raise private financing for Medistem through the sale of securities to investors. Between September 2012 and January 2013, representatives of Noble contacted more than 80 potential investors to solicit interest in Medistem. On January 7, 2013 at the JP Morgan Healthcare conference, Dr. Lewis, who was then Medistem’s Chief Executive Officer, Dr. Ichim, Dr. Bogin and Dr. Sablin met with Noble representative Jonathan Blum to discuss progress. Mr. Blum advised Medistem that a value-based investment was highly unlikely based on negative feedback from the institutional investors that had been approached. Mr. Blum indicated that there was no interest from any institutional investors to meet with Medistem at the JP Morgan Healthcare conference.

Given the lack of interest of institutional investors, Medistem’s senior management and board of directors elected to focus on seeking investors interested in structured investments such as convertible bonds to raise a seed round of financing necessary to initiate a United States-based clinical trial, which had been approved by the FDA in 2011, but had not been initiated due to lack of finances. The decision to seek such investors was shared with the full Medistem board of directors in January 2013.

As part of Medistem’s outreach to potential investors in a structured product, Noble invited Dr. Ichim to present at the Ninth Annual Equity Conference on January 22-23, 2013, and to meet potentially interested investors. Six investors agreed to preliminary meetings. Following the preliminary meetings, these potential investors advised that they would not be interested in investing in Medistem, citing that the company, at that time, was not a fully reporting company under the federal securities laws as Medistem’s common stock was trading on the OTCPink, and

 

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that, as a result, its common shares were illiquid. Furthermore, the potential investors expressed fundamental concerns surrounding the lack of U.S. clinical data, poor performance of non-genetically modified stem cell stocks in general, and the absence of significant differentiating factors between Medistem’s technology and that of other companies developing non-genetically modified stem cells.

On February 27, 2013, by unanimous vote of its board of directors, Medistem terminated its engagement with Noble. With the realization of the difficulty of attracting institutional investors, simultaneously the Board approved engaging independent auditors and retaining outside counsel to assist in returning Medistem to status as a fully reporting company under the federal securities laws through a Registration Statement on Form 10, pursuant to Section 12(b) of the Securities Exchange Act of 1934.

On May 3, 2013, Dr. Bogin, was introduced by Yan Stillman, a financial consultant to Medistem, to Party A, an entrepreneur from the Russian Federation, to determine Party A’s interest in providing capital through a fund controlled by himself and his associates. After five meetings and detailed due diligence, Party A informed Dr. Bogin that his fund would not make a direct investment in Medistem, citing the illiquidity of Medistem’s common stock. Discussions with Party A were formally terminated on November 7, 2013.

In mid-May 2013, senior management of Medistem contacted Aegis Capital Corp., which is referred to as Aegis, Maxim Group, which is referred to as Maxim, and Roth Capital Partners, LLC, which is referred to as Roth, to discuss Medistem’s capital needs. Aegis, Maxim, and Roth were selected on the basis of their prolific activity in the area of biotech microcap companies, particularly companies focused on regenerative medicine.

On May 15, 2013, Dr. Lewis initiated a telephonic conversation with Joe Pantgenis at Aegis to discuss Medistem’s capital needs. The feedback Dr. Lewis received was a recommendation to file a Form S-1 registration statement immediately after submission of the Form 10. Given the costs associated with a Form S-1 filing, Medistem’s board deemed this strategy financially unfeasible.

During the week of May 20, 2013, Dr. Lewis met in New York with investment banking representatives Tom Higgins and Jim Alfaro of Maxim and John Chambers of Roth to seek their support in obtaining financing for Medistem. Maxim’s representatives indicated they would not be able to assist Medistem in a capital raise, citing illiquidity of the Company’s common stock.

In May and June 2013, Medistem reached out to several other investment banks and funds specialized in biotech microcap companies. None of these firms expressed an interest in supporting Medistem’s capital raising efforts.

On July 8, 2013, Dr. Lewis received an email from the President of Intrexon’s Protein Production Division, introducing Randal J. Kirk, Intrexon’s Chief Executive Officer, and Dr. Lewis to each other.

On July 9, 2013, Mr. Kirk and Dr. Lewis spoke on the phone and discussed Intrexon and Medistem’s technology. That same day, Mr. Kirk followed up with an email to Dr. Lewis introducing Medistem to Donald P. Lehr, Intrexon’s Chief Legal Officer, and forwarding a mutual confidential disclosure agreement for Medistem’s review. Mr. Kirk’s email also introduced additional members of Intrexon’s team.

Also on July 9, 2013, Medistem filed its registration statement on Form 10.

 

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Following the filing of the Registration Statement, Dr. Lewis and John P. Salvador, Medistem’s Chief Operating Officer, began an outreach campaign to investment banks to explore their interest in assisting Medistem in a PIPEs transaction. Dr. Lewis and Mr. Salvador also began an outreach campaign to institutional investors and sell-side analysts to gauge their interest in participating in either a PIPEs transaction, purchasing company shares in the open market, or providing research coverage.

On July 18, 2013, Medistem and Intrexon executed a mutual confidential disclosure agreement.

Between August 9, 2013 and September 8, 2013, representatives of Roth agreed to arrange a non-deal road show to gauge investor interest in Medistem. The non-deal road show covered qualified investors in New York and Boston. Roth approached approximately 45 institutional investors that invest in micro-cap healthcare companies. Roth’s representatives managed to arrange seven meetings in New York and Boston for the week of September 8, 2013.

On August 30, 2013, Dr. Lewis sent an email to Mr. Kirk and Mr. Lehr, informing them of progress to uplist to the OTC Market’s OTCQB marketplace, or OTCQB, and requesting that Intrexon and Medistem engage in discussions related to Medistem using Intrexon technology as a means of augmenting the Medistem ERC stem cell product. Mr. Kirk responded, suggesting the companies initiate a discussion of those ideas.

On September 7, 2013, Medistem’s registration statement on Form 10 became effective thus bringing Medistem to full reporting status.

During the week of September 9, 2013, in addition to meeting with the institutional investors introduced by Roth, Dr. Lewis and Mr. Salvador met with investment banking representatives from Laidlaw and Company, which is referred to as Laidlaw, RBC Capital Markets, which is referred to as RBC, Ladenburg Thalman Financial Services Inc., which is referred to as Ladenburg, Midtown Partners, & Company, LLC, which is referred to as Midtown, Dawson James Securities, which is referred to as Dawson, Janey Montgomery Scott, LLC, which is referred to as Janey, and Roberts Mitani Advisors, LLC, which is referred to as Roberts Mitani. During the meeting with Laidlaw, their representative indicated that Laidlaw might be able to assist in a capital raise at $0.50 per share with 100% warrant coverage at $0.75. Between September 9, 2013 and September 13, 2013, Medistem’s shares were trading between $2.00 and $2.35 on the OTCQB. In addition, between September 9, 2013 and September 13, 2013, the average volume for those five days was 1,960 shares per day. Dr. Lewis and Mr. Salvador concluded that Laidlaw was the only viable banker willing to raise capital on Medistem’s behalf. Despite the extreme dilution, there was an imperative need to raise capital to ensure Medistem’s survival. As a result, Dr. Lewis and Mr. Salvador recommended that the Board enter into an agreement with Laidlaw. Shortly thereafter, a Board conference call with representatives of Laidlaw occurred to discuss a potential funding.

On September 17, 2013, Dr. Lewis submitted a list of collaborative concepts to an employee of Intrexon outlining possible areas of potential opportunities for Medistem and Intrexon to collaborate.

On September 18, 2013, Roth informed Dr. Lewis and Mr. Salvador that they would not be able to assist in a capital raise and cited investor feedback that Medistem lacked U.S. clinical data, that Medistem’s stock was illiquid, and investor lack of interest in the non-genetically modified stem cell sector.

 

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Following the road show, between September 16, 2013, and October 31, 2013, representatives of Midtown, Dawson, Janey, and Roberts Mitani, each informed Medistem that they would not be able to assist Medistem in a capital raise, and also cited Medistem’s lack of U.S. clinical data, illiquid stock and investor lack of interest in the non-genetically modified stem cell sector. Medistem continued discussions with Laidlaw.

On September 30, 2013, Dr. Ichim had a telephonic discussion with Intrexon representatives, to discuss market opportunities and opportunities for working together. The avenues of potential collaboration presented included: licensing of ERC to Intrexon for genetic manipulation for a single application; licensing for broad application for genetic manipulation; and acquisition of Medistem by Intrexon.

On October 5, 2013, Intrexon’s Chief Science Officer, Thomas D. Reed, PhD., called Dr. Lewis and confirmed Intrexon’s continued interest in Medistem’s technology. Dr. Reed also indicated that Intrexon had an interest in acquiring Medistem.

On October 14, 2013, Dr. Lewis, Dr. Ichim, Mr. Dickerson, and Mr. Salvador, each of Medistem, met with Dr. Reed and several other Intrexon employees. The purpose of the meeting was to further discuss potential synergies between each of the companies’ technology.

On October 22, 2013, following a call with Dr. Bogin and Medistem’s board of directors, Laidlaw delivered to Dr. Lewis and Mr. Salvador an engagement letter.

With the knowledge of the Medistem board of directors, on November 5, 2013, Dr. Lewis met with Mr. Kirk to discuss a potential offer letter for an acquisition of Medistem by Intrexon.

On November 7, 2013, Medistem received a letter of intent, referred to as the LOI, from Mr. Kirk on behalf of Intrexon. The LOI detailed certain material terms and conditions pursuant to which Intrexon proposed to acquire Medistem. The LOI provided that Intrexon would acquire all of the outstanding common stock of Medistem for a price of $1.00 per share in exchange for Intrexon stock.

Also on November 7, 2013, Medistem scheduled a special meeting of the board of directors to discuss the LOI received from Mr. Kirk. At the special meeting, Medistem’s board of directors approved and formed a Transaction Committee consisting of Dr. Bogin, Dr. Lewis, Herm Rosenman and John Chiplin to evaluate sale and financing alternatives for Medistem.

The members of the Transaction Committee were selected based on the mergers and acquisitions experience of the two independent directors (Mr. Rosenman and Mr. Chiplin), and the addition of the Chairman and CEO.

The Transaction Committee prepared and shared with the full Medistem board an internal analysis of a potential transaction with Intrexon, detailing among other things: certain technology risks facing Medistem; the potential resources, experience, and other benefits that a transaction with Intrexon might provide; how an acquisition by Intrexon might mitigate competitive risks facing Medistem; Medistem’s lack of success in interesting institutional investors; options available to Medistem; and a recommendation to pursue a potential merger to maximize value for shareholders and accelerate clinical development of Medistem’s technology.

On November 11, 2013, a special meeting of Medistem’s board of directors was held to further review the LOI from Intrexon. Detailed discussions and possible alternatives to the merger were

 

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considered. Specifically, the Medistem board determined not to pursue the Laidlaw engagement letter that was received on October 22, 2013 as the initial Intrexon proposed acquisition valuation was superior to the proposed terms discussed with Laidlaw. Alternatives to the Intrexon merger were discussed, but Medistem’s board of directors was concerned that given the timing and other considerations, if it did not focus on the merger with Intrexon, Intrexon might walk away and not enter into a binding agreement. The Medistem board determined ultimately to arrange a telephonic meeting with Mr. Kirk and his management team to address questions related to the proposed merger.

On November 12, 2013, Dr. Lewis sent Mr. Kirk an email raising some of the issues that Medistem’s board had with the Intrexon LOI. The issues addressed included: increasing the consideration offered to $1.50 per share; altering the consideration to include a mix of stock and cash, instead of stock only; clarifying the duration of any lock-up period; suggesting different timing for determining the conversion ratio for Intrexon common stock; and a request for a bridge loan to finance Medistem operations during the diligence and negotiation phases of the proposed transaction.

On November 13, 2013, Mr. Lehr sent Medistem a request for due diligence information concerning Medistem’s Form 10, Medistem’s number of shares outstanding, and Medistem’s relationship with partially and wholly owned subsidiaries.

On November 14, 2013, Mr. Kirk, Dr. Reed, Krish Krishnan, Intrexon’s Chief Operating Officer, and Mr. Lehr and Medistem’s board of directors discussed Intrexon’s business and vision, as well as potential Medistem integration into the Intrexon infrastructure. The draft LOI and the possibility of Intrexon acquiring Medistem were discussed at length. The issues mentioned in the November 12 email were discussed in detail. The parties negotiated the price per share and agreed upon $1.35 per Medistem share. Additionally, subject to documentation and shareholder approval, it was agreed that the transaction would consist of 80% stock and 20% cash. A three-month lock-up period on the stock was agreed upon. It also was agreed that Intrexon would make a $700,000 bridge loan available to Medistem upon signing of the LOI.

On November 15, 2013, Dr. Lewis sent a revised version of the LOI to Mr. Kirk, proposing, among other things, an acquisition price of $1.35 per share and adding a provision for a bridge loan whereby Intrexon would lend $700,000 for the purpose of funding Medistem’s ongoing operations.

On November 19, 2013, Mr. Lehr sent to Dr. Lewis a revised copy of the LOI, offering $1.35 per share, consisting of $0.27 cash per share and $1.08 per share in Intrexon’s common stock.

On November 20, 2013, Medistem provided access to Intrexon to an electronic data site allowing access to initial due diligence items requested by Intrexon.

On November 20, 2013, Medistem and Intrexon executed the finalized LOI reflecting the negotiated key terms of a proposed business combination. On that same date, Intrexon provided an additional due diligence request list to Medistem. Due diligence materials were made available to Intrexon beginning on that date through present. The LOI contained a standard non-solicitation clause with an expiration date of December 5, 2013.

Following entry into the non-binding LOI, the parties’ respective outside counsel engaged in discussions about the terms of a definitive merger agreement relating to the proposed transaction, focused principally on structure for the transaction. On November 27, 2013, Troutman Sanders LLP, counsel to Intrexon, delivered to Jones Day LLP, counsel to Medistem, an initial draft of a definitive merger agreement for the proposed merger transaction.

 

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On November 27, 2013, Medistem received a draft promissory note for $700,000 and proposed definitive merger agreement from Intrexon.

Between November 27, 2013 and December 7, 2013, the parties’ outside legal counsel discussed various issues relating to the draft definitive merger agreement, including structure and related tax implications, and treatment of Medistem’s outstanding equity awards under the merger agreement. A 21 day go shop provision was discussed and added to the draft definitive merger agreement. In addition, Dr. Ichim’s employment agreement was discussed and included in the draft of the definitive merger agreement as a closing condition for the merger.

On November 29, 2013, Medistem began discussions with investment banks to provide Medistem’s Board with a fairness opinion to analyze the potential Intrexon transaction. Ladenburg, Dawson James, Roth, and Griffin Securities, Inc. referred to as Griffin, were approached. The three potential companies were selected as potential advisors on the basis of their expertise in biotechnology transactions and experience in providing fairness opinions. Proposals were solicited from each of the investment banking firms, and telephonic interviews were conducted.

On November 29, 2013, Medistem’s Transaction Committee held a telephonic meeting to, among other things, review the initial draft of the merger agreement and related key issues.

On December 1, 2013, Medistem’s board of directors held a telephonic meeting to, among other things, discuss the draft merger agreement and the proposed bridge loan financing terms.

On December 1, 2013, Dr. Lewis requested from Intrexon a $50,000 loan to cover certain transaction expenses.

On December 3, 2013, Medistem’s board selected Griffin as the bank to provide a fairness opinion. The selection of Griffin was based on experience, proposed speed of completing its analysis, Griffin’s awareness of Intrexon, and the price proposed by Griffin. Medistem’s board approved the selection of Griffin, knowing also that Griffin had material relationships with Intrexon during the two prior years, but recognizing that Griffin was not advising Intrexon on the contemplated merger transaction.

On December 3, 2013, Medistem executed a promissory note for $50,000 from Intrexon to fund ongoing working capital needs, including certain transaction expenses.

On December 4, 2013, Medistem’s board of directors held a telephonic meeting to, among other things, discuss the transaction status, the engagement of an investment banking firm to render a fairness opinion, and the pending expiration of Medistem’s LOI with Intrexon.

On December 5, 2013, Medistem formally engaged Griffin, and provided Griffin with access to the due diligence files. Ultimately, Griffin interviewed Medistem’s senior management, as well as Medistem’s International Principle Investigator, Dr. Patel.

On December 5, 2013, the LOI expired by its terms.

On December 8, 2013, Medistem’s board of directors held a telephonic meeting to discuss, among other things, the draft merger agreement and proposed documents relating to a bridge loan of $650,000. Additionally, the board discussed inclusion of a go shop period in the documents, a proposal to lower the proposed termination fees owed Intrexon should the contemplated transaction not be completed, indemnification of directors and officers, a due diligence out for Intrexon, and representations and warranties from Intrexon to Medistem.

 

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On December 8, 2013, Jones Day delivered to Troutman Sanders a revised draft of the merger agreement. Discussions between the parties’ respective outside counsel regarding certain issues relating to the merger agreement continued that week.

On December 10, 2013, Medistem received Griffin’s Market Valuation Study, bearing the same date.

On December 12, 2013, Troutman Sanders delivered to Jones Day a revised draft of the merger agreement. Over the course of the following week, the parties continued to negotiate the provisions of the merger agreement, as well as the form of voting agreement to be entered into by Medistem’s directors and executive officers. These negotiations focused primarily on the scope of representations and warranties, covenants, and provisions related to deal protections, termination and the circumstances under which the parties would be obligated to pay termination fees.

On December 15, 2013, Medistem’s board of directors held telephonic meetings to, among other things, discuss the status of the contemplated transaction and remaining open issues.

On December 16, 2013, Medistem’s board of directors held a telephonic meeting to, among other things, discuss outstanding items on the definitive merger agreement. As part of that telephonic board meeting, Adrian Stecyk, Chairman & CEO, Chrystyna M. Bedrij, Principal, and Mark Merrill, Managing Director, each from Griffin discussed their Market Valuation Study of December 10, 2013 and answered questions from members of the board relating to Griffin’s analysis and then stated oral opinion that the contemplated transaction is fair, from a financial point of view, to Medistem’s shareholders. This oral opinion subsequently was confirmed in writing on December 18, 2013. Following all these discussions, and after careful consideration, Medistem’s board of directors determined that the merger agreement is fair, advisable and in the best interests of Medistem and its shareholders, adopted the merger agreement, and authorized Medistem’s officers to execute and deliver the merger agreement to Intrexon.

On December 17, 2013, Intrexon’s board of directors convened a meeting in which Intrexon’s senior management participated. During the meeting, Intrexon’s management presented to the Intrexon board of directors the terms and conditions of the proposed merger. Intrexon’s management indicated to the Intrexon board of directors that the merger agreement and related documents were substantially finalized. Following that, members of Intrexon’s senior management team presented a summary of due diligence performed on Medistem, including a review of the process and key findings. Then the members of Intrexon’s senior management team reviewed the potential benefits and risks related to the transaction, and responded to questions from members of the board of directors. Following these discussions and after careful consideration, the Intrexon board of directors unanimously approved the merger agreement and the transactions contemplated thereby.

Following the approval of the merger agreement by the Intrexon board of directors, the parties executed and exchanged copies of the finalized merger agreement after the close of business on December 19, 2013.

On December 20, 2013, Medistem executed a promissory note for $650,000 to Intrexon for interim financing and Intrexon wired $650,000 to Medistem.

 

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The parties announced the merger agreement in a joint press release issued by Intrexon and Medistem prior to the opening of trading on the morning of December 20, 2013. Intrexon and Medistem filed a Form 8-K related to entry into the merger agreement on December 20 and 23, 2013, respectively.

On December 23, 2013, Dr. Lewis initiated a go shop outreach to 16 candidate biopharmaceutical companies based in Australia, Europe, Japan, Korea, and the U.S. These candidates were chosen by Dr. Lewis and Dr. Ichim and discussed with the Medistem board. Selection criteria included: (a) previous dialogue with some of these companies; (b) interest in the fields of cell therapy and regenerative medicine; and (c) financial resources to realistically offer superior terms to those proposed by Intrexon. Of these candidates, 12 indicated they had no interest and two candidates did not respond. One candidate responded that they had an interest in a regional collaboration, in a field of use outside of Medistem’s area of expertise. Furthermore, this candidate was not interested in acquiring Medistem. One candidate requested access to Medistem’s manufacturing trade secrets. Given that the candidate is a direct competitor, management and the Medistem board deemed that it was in the best interest of the Company and its shareholders to decline the request and proceed with the merger.

On January 29, 2014 the parties amended the merger agreement to provide, in the event that any Medistem shareholder exercises dissenters’ rights with respect to the merger, that after the consummation of the merger, Medistem will then be merged into a wholly owned limited liability company subsidiary of Intrexon in order for the merger to qualify as a tax-free “reorganization” within the meaning of Section 368(a) of the Internal Revenue Code, as further described in “Material U.S. Federal Income Tax Consequences of the Merger.”

Medistem’s reasons for the merger and recommendation of the Medistem board of directors

In the course of reaching its decision to adopt the merger agreement and to recommend that Medistem shareholders vote to adopt and approve the merger agreement, Medistem’s board of directors consulted with the company’s senior management, financial advisors and legal counsel, reviewed a significant amount of information and considered a number of factors, including, among others, the following:

 

 

the fact that the consideration payable in a combination of cash and shares of Intrexon common stock represents a premium of (1) 57% over the closing price per share of the Medistem common stock on December 19, 2013; (2) 22% over the volume weighted average price per share, or VWAP, over the 30 calendar days ended December 19, 2013;

 

 

the fact that approximately 20% of the upfront merger consideration is in the form of cash, which provides immediate liquidity and a high degree of certainty of value to Medistem shareholders;

 

 

the fact that approximately 80% of the upfront merger consideration is in the form of SEC-registered and transferable Intrexon common stock, tradeable on the New York Stock Exchange, while Medistem shares are less liquid and tradeable on the OTCQB, with an average trading volume of less than 3,800 shares per day during the period from September 7, 2013, the day Medistem’s common stock began trading on the OTCQB, through December 18, 2013, the last day before the merger agreement was entered, making it difficult for shareholders to sell shares without significant depreciation of stock price;

 

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the Medistem board of directors’ belief that the combination with Intrexon will allow existing Medistem shareholders to participate in the benefits of a more diversified company with greater resources and to benefit from any future growth and synergies of the combined company;

 

 

the fact that Medistem has no ERC-related issued patents and limited international intellectual property rights.

 

 

the Medistem board of directors’ belief that the combination of Medistem’s cellular technologies with Intrexon’s gene regulation technologies will allow for expansion of patent filings, as well as international patent prosecution;

 

 

the fact that Medistem has not been successful in obtaining institutional financing and its limited financial resources greatly reduce Medistem’s ability to continue operations and to enter into clinical trials for other diseases in which the Medistem technology may demonstrate efficacy based on previous animal studies;

 

 

the fact that Medistem’s business, competitive position, strategy and prospects as a stand-alone company are decreasing as other competitors enter the market, and other technologies are developed;

 

 

the fact that the financial analyses presented by representatives of Griffin, as well as the opinion of Griffin, to the effect that, as of December 18, 2013, based upon and subject to the factors, assumptions and limitations set forth in Griffin’s opinion, the consideration to be received by the holders of Medistem’s common stock pursuant to the merger agreement is fair, from a financial point of view, to such holders;

 

 

the Medistem board of directors’ belief that the terms of the merger agreement, including the parties’ representations, warranties and covenants, and the conditions to the parties’ respective obligations, are reasonable;

 

 

the fact that the timing of the merger and the risk that if Medistem does not accept Intrexon’s current offer, Medistem may not find a similarly compelling offer or valuation in the future;

 

 

the fact that the merger is not subject to any financing condition and that Intrexon has sufficient cash assets on its balance sheet to consummate the transaction;

 

 

the fact that Medistem shareholders who do not vote to adopt the merger agreement and who follow certain prescribed procedures will still be entitled to appraisal rights under Nevada law;

 

 

the fact that subject to the terms and conditions of the merger agreement, Medistem reserved the ability to solicit acquisition proposals and superior offers during the go shop period; and

 

 

the fact that the deal protections set forth in the merger agreement do not preclude a third party from making an acquisition proposal that is superior to the terms of the merger with Intrexon, because the Medistem board of directors may, subject to the terms and conditions of the merger agreement, change its recommendation in favor of the proposal to adopt and approve the merger agreement with Intrexon, and that the amount of the break-up fee is reasonable under the circumstances.

 

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In the course of its deliberations, Medistem’s board of directors also considered a variety of risks and other potentially negative factors, including the following:

 

 

the fact that, if the merger is consummated, Medistem will no longer exist as an independent public company and its shareholders will not participate in the future growth of the Medistem business except to the extent of their ownership interest in Intrexon;

 

 

the risks and contingencies related to the announcement and pendency of the merger, including the impact of the merger on Medistem’s employees, customers and Medistem’s relationships with third parties;

 

 

the possibility that Medistem shareholders may not be interested in owning Intrexon shares that will be received by them as consideration in the merger;

 

 

the fact that the price of Intrexon common stock at the closing of the merger may vary significantly from the price of Intrexon common stock at the date of the announcement of the merger agreement and the date of this proxy statement/prospectus;

 

 

the fact that Medistem’s customers and suppliers may choose not to continue doing business with Medistem when it is part of Intrexon;

 

 

the fact that Intrexon has the right to terminate the merger agreement in certain circumstances;

 

 

the fact that Medistem has incurred and will continue to incur significant transaction costs and expenses in connection with the proposed transaction, regardless of whether or not the merger is consummated;

 

 

the fact that under the terms of the merger agreement, Medistem must pay to Intrexon a termination fee of $1.0 million if the merger agreement is terminated under certain circumstances, or a termination fee of $750,000 if the merger agreement is terminated during the go shop period;

 

 

the fact that certain of Medistem’s directors and executive officers may receive certain benefits that are different from, and in addition to, those of Medistem’s other stockholders (See “Interests of Medistem’s Directors and Executive Officers in the Merger”); and

 

 

the fact that, pursuant to the merger agreement, unless Intrexon otherwise consents, Medistem must generally conduct its business in the ordinary course and is subject to a variety of other restrictions on the conduct of its business prior to the closing of the merger, which may delay or prevent Medistem from pursuing business opportunities that may arise or preclude actions that would be advisable if Medistem were to remain an independent company.

 

 

the fact that for a majority of the trading days during the period from the date Medistem filed its registration statement on Form 10 through the date of the merger agreement, the closing price of Medistem’s common stock exceeded the per-share merger consideration.

The foregoing discussion of the factors considered by Medistem’s board of directors is not intended to be exhaustive, but rather includes material factors that Medistem’s board of directors considered in approving and recommending the merger agreement. Medistem’s board of directors carefully considered all of these factors as a whole in reaching its determination and recommendation and did not assign any particular weight or rank to any of the positive or potentially negative factors or risks discussed in this section. Individual members of Medistem’s board of directors may have given different weight to different factors.

 

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The Medistem board of directors has unanimously determined that the merger agreement and the transactions contemplated thereby, including the merger, are advisable, fair to, and in the best interests of Medistem and its shareholders, adopted the merger agreement and approved the transactions contemplated thereby, including the merger; and unanimously recommends that you vote “FOR” the merger proposal, “FOR” the approval, on a non-binding, advisory basis, of the merger-related compensation payments proposal and “FOR” the adjournment of the special meeting, if necessary to solicit additional proxies.

 

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Opinion of Griffin Securities, Inc.

The transaction

Medistem, Inc. (OTCQB: MEDS) (“Medistem” or the “Company”) announced on December 20, 2013, that it had entered into a definitive agreement (the “Agreement”) for the Company to be acquired (the “Transaction”) by Intrexon Corporation (NYSE: XON) (“Intrexon” or the “Purchaser”) for total consideration (the “Consideration”) for each outstanding share of common stock of the Company consisting of (i) $0.27 in cash and (ii) a number of shares of Intrexon common stock determined by dividing $1.08 by the volume-weighted average price for a share of Intrexon common stock, no par value, on the New York Stock Exchange for 20 consecutive trading days immediately preceding the last trading day prior to the effective date of the Transaction. Consummation of the Agreement is subject to Intrexon's satisfactory completion of its due diligence of Medistem and its technology, customary closing conditions and Medistem shareholder approval.

Opinion of Griffin securities

Griffin Securities, Inc. (“Griffin”) rendered its oral opinion to the Company’s board of directors on December 16, 2013, which was subsequently confirmed in writing, that as of the date of the written opinion and based upon and subject to the factors and assumptions set forth therein, the Consideration pursuant to the Agreement was fair from a financial point of view to the Company’s holders of common stock.

The full text of the written opinion of Griffin, dated December 18, 2013, which sets forth assumptions made, procedures followed, matters considered and limitations on the review undertaken in connection with the opinion, is attached as Annex C. Griffin provided its opinion for the information and assistance of the Company Board in connection with its consideration of the transactions contemplated by the Agreement. The Griffin opinion is not a recommendation as to whether or not any holder of common shares should tender such shares in connection with the Transaction or any other matter.

In connection with the valuation and financial analysis below, Griffin reviewed, among other things:

 

 

certain publicly-available business and financial information relating to the Company and its common stock that Griffin deemed to be relevant;

 

 

certain information, including financial forecasts, relating to the business, earnings, cash flow, assets, liabilities, and prospects of the Company furnished to Griffin by or on behalf of the Company;

 

 

certain publicly-available business and financial information relating to Intrexon and its common stock that Griffin deemed to be relevant;

 

 

information referred to above compared with that of certain companies and transactions that Griffin deemed to be relevant and also reviewed the market prices and valuation multiples of publicly-traded companies and publicly-announced transactions;

 

 

a draft, dated December 18, 2013, of the Agreement; and

 

 

such other financial studies and analyses and taking into account such other matters as Griffin deemed necessary, including our assessment of general economic, market, and monetary conditions.

 

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Griffin also held discussions with members of the management of the Company regarding their assessment of the past and current business operations, financial condition and future prospects of the Company; compared certain financial and stock market information for the Company with similar information for certain other companies the securities of which are publicly traded; reviewed the financial terms of certain recent business combinations in the stem cell-based technology platform and therapeutics industries and in other industries; and performed such other studies and analyses, and considered such other factors, as Griffin considered appropriate.

For purposes of rendering the opinion described above, Griffin relied upon and assumed, without assuming any responsibility for independent verification, the accuracy and completeness of all of the financial, legal, regulatory, tax, accounting and other information provided to, discussed with or reviewed by it, and Griffin does not assume any liability for any such information. In addition, Griffin did not make an independent evaluation or appraisal of the assets and liabilities (including any contingent, derivative or other off-balance-sheet assets and liabilities) of the Company or any of its subsidiaries, nor was any such evaluation or appraisal of the assets or liabilities of the Company or any of its subsidiaries furnished to Griffin. Griffin assumed that all governmental, regulatory or other consents and approvals necessary for the consummation of the transactions contemplated by the Agreement will be obtained without any adverse effect on the expected benefits of such transactions in any way meaningful to its analysis. Griffin also assumed that the transactions contemplated by the Agreement will be consummated on the terms set forth therein, without the waiver or modification of any term or condition the effect of which would be in any way meaningful to its analysis. Griffin’s opinion does not address any legal, regulatory, tax or accounting matters.

Griffin’s opinion does not address the underlying business decision of the Company to engage in the transactions contemplated by the Agreement or the relative merits of such transactions Griffin’s opinion addresses only the fairness from a financial point of view, as of the date of its opinion, of the Consideration to be paid to the holders of such shares of common stock pursuant to the Agreement. Griffin’s opinion does not express any view on, and does not address, any other term or aspect of the Agreement or the transactions contemplated thereby or any term or aspect of any other agreement or instrument contemplated by the Agreement or entered into or amended in connection with the transactions contemplated thereby, including, without limitation, the fairness of such transactions to, or any consideration received in connection therewith by, the holders of any other class of securities, creditors, or other constituencies of the Company; nor as to the fairness of the amount or nature of any compensation to be paid or payable to any of the officers, directors or employees of the Company, or class of such persons, in connection with the transactions contemplated by the Agreement, whether relative to the Consideration to be paid to the holders of such shares pursuant to the Agreement or otherwise. Griffin’s opinion was necessarily based on economic, monetary, market and other conditions as in effect on, and the information made available to it as of, the date of its opinion and Griffin assumed no responsibility for updating, revising or reaffirming its opinion based on circumstances, developments or events occurring after the date of the opinion.

The opinion expressed in Griffin’s fairness opinion was provided for the information and assistance of the Company’s board of directors in connection with its consideration of the transactions contemplated by the Agreement, and Griffin’s opinion does not constitute a recommendation as to how any holder of such shares should vote with respect to the Transaction or any other matter.

The following is a summary of the material financial analyses delivered by Griffin to the Company’s board of directors in connection with rendering the opinion described above. The

 

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following summary, however, does not purport to be a complete description of the financial analyses performed by Griffin, nor does the order of analyses described represent relative importance or weight given to those analyses by Griffin. Some of the summaries of the financial analyses include information presented in tabular format. The tables must be read together with the full text of each summary. Except as otherwise noted, the following quantitative information, to the extent that it is based on market data, is based on market data as it existed on or before December 18, 2013, and is not necessarily indicative of current market conditions.

Selected public companies analysis

Griffin reviewed and compared certain financial information from the Company to corresponding financial information, ratios, and public market multiples for the following publicly-traded companies in the stem cell-based technology platform and therapeutics industries:

 

 

BioRestorative Therapies, Inc.;

 

 

Brainstorm Cell Therapeutics Inc.;

 

 

Capricor Therapeutics, Inc.;

 

 

Cellular Biomedicine Group Inc.;

 

 

IntelliCell BioSciences, Inc.;

 

 

International Stem Cell Corporation;

 

 

StemCells Inc.; and

 

 

VistaGen Therapeutics, Inc.

While none of the selected companies is directly comparable to the Company, the companies included were chosen because they are publicly traded companies with operations that for purposes of analysis may be considered similar to certain operations of the Company.

Griffin calculated and compared various financial valuations based on the closing price of each company’s shares on December 10, 2013, and the most recent publicly-available financial data obtained from SEC filings. With respect to the Company and the selected companies, Griffin calculated (1) market capitalization and (2) enterprise value, which is the market value of common equity plus the book value of debt, less cash. The following table presents the results of the analysis:

 

      Selected Public Companies     

Proposed
Purchase

Price

 
$ in millions    Range      Mean      Median     

 

 

Market Capitalization

     0.6 to 69.8         25.8         26.3         N/A   

Enterprise Value

     4.2 to 62.6         25.0         21.3         25.6   

 

 

The analysis was undertaken to indicate how the common stock of the Company and the selected companies were then currently trading with respect to certain commonly used financial metrics and whether the shares of the Company were trading at a relative premium or discount to the selected companies.

 

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Selected transactions analysis

Griffin analyzed certain information relating to the following selected transactions in the stem cell-based technology platform industry since 2009. These transactions (listed by acquirer/target and date of closing) were:

 

 

Mesoblast LTD./certain assets of Osiris Therapeutics, Inc. (October 2013);

 

 

BioTime, Inc. and Asterias Biotherapeutics, Inc./certain assets of Geron Corporation (October 2013);

 

 

NeoStem, Inc./Amorcyte, LLC (July 2011); and

 

 

Novartis AG/certain assets of Opexa Therapeutics, Inc. (August 2009).

For the selected transactions, Griffin calculated and compared, using publicly available data, total probability-adjusted consideration for the target companies/assets adjusted for the likelihood of receiving future milestone payments, if applicable. While none of the companies that participated in the selected transactions are directly comparable to the Company, the companies that participated in the selected transactions are companies with technologies that, for the purposes of analysis, may be considered similar to certain of the Company’s technologies and programs.

The following table presents the results:

 

      Selected Comparable
Transactions
    

Proposed
Purchase

Price

 
$ in millions    Range      Mean      Median     

 

 

Total Probability-adjusted Transaction Value

     7.3 to 51.3         22.7         16.1         25.6   

 

 

The analysis was undertaken to indicate how the aggregate consideration for the selected target companies compared with the same metrics for the proposed transaction between the Company and Intrexon.

Takeover premium analysis

Griffin also analyzed certain information relating to the following selected transactions in the biotechnology industry that closed in the last 12 months and calculated the mean and median takeover premia paid per share relative to the market closing price of target companies prior to the announcement. These transactions (listed by acquirer/target and date of closing) were:

 

 

Cubist Pharmaceuticals, Inc./Optimer Pharmaceuticals, Inc. (October 2013);

 

 

Otsuka America, Inc./Astex Pharmaceuticals, Inc. (October 2013);

 

 

Amgen Inc./Onyx Pharmaceuticals, Inc. (October 2013);

 

 

Mitsubishi Tanabe Pharma Corporation and Philip Morris International, Inc./Medicago Inc. (September 2013);

 

 

Cubist Pharmaceuticals Inc./Trius Therapeutics, Inc. (September 2013);

 

 

BELLUS Health Inc./Thallion Pharmaceuticals, Inc. (August 2013);

 

 

Spectrum Pharmaceuticals, Inc./Talon Therapeutics, Inc. (July 2013);

 

 

AstraZeneca LP/Omthera Pharmaceuticals, Inc. (July 2013);

 

 

BGI/Complete Genomics, Inc. (March 2013);

 

 

JLL Partners/BioClinica, Inc. (March 2013);

 

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Allergan Inc./MAP Pharmaceuticals, Inc. (February 2013); and

 

 

Gilead Sciences Inc./YM BioSciences Inc. (February 2013).

While none of the companies that participated in the selected transactions are directly comparable to the Company, the companies that participated in the selected transactions are companies in the biotechnology industry that, for the purposes of analysis, may be considered similar to the Company.

The following table presents the results:

 

      Selected Biotechnology
Transactions
    

Proposed
Purchase

Premium

 
     Range      Mean      Median     

 

 

Takeover Premium

     -6.0% to 88.0%         40.0%         40.0%         33.6%   

 

 

Financing premium/discount analysis

Due to Medistem’s current liquidity position and the substantial doubt to continue as a going concern noted in Medistem’s Form 10-Q dated November 12, 2013, the Company would likely be obligated to pursue alternative financing initiatives to secure sufficient capital to meet near-term cash requirements in lieu of this Transaction.

Griffin analyzed certain information relating to selected private placement (“PIPE”) transactions in the biotechnology industry for companies with market capitalizations below $250 million that closed in the last 12 months. Griffin analyzed a total of 42 transactions.

For the selected transactions, Griffin calculated and compared, using publicly available data, the premium or discount based on the ratio of the stock price of the transaction to the target’s stock price prior to the transaction announcement. While none of the companies that participated in the selected transactions are directly comparable to the Company, the companies that participated in the selected transactions are companies in the biotechnology industry that, for the purposes of analysis, may be considered similar to the Company.

The following table presents the results:

 

      Selected Biotechnology Financing
Transactions
 
     Range      Mean      Median  

 

 

Financing Premium/Discount

     -86.0% to 31.0%         -16.0%         -9.0%   

 

 

General

The preparation of a fairness opinion is a complex process and is not necessarily susceptible to partial analysis or summary description. Selecting portions of the analyses or of the summary set forth above, without considering the analyses as a whole, could create an incomplete view of the processes underlying Griffin’s opinion. In arriving at its fairness determination, Griffin considered the results of all of its analyses and did not attribute any particular weight to any factor or analysis considered by it. Rather, Griffin made its determination as to fairness on the basis of its experience and professional judgment after considering the results of all of its analyses. No company or transaction used in the above analyses as a comparison is directly comparable to the Company or the contemplated transactions.

Griffin prepared these analyses for purposes of Griffin providing its opinion to the Company’s board of directors as to the fairness from a financial point of view of the Consideration to be paid to the holders of common shares pursuant to the Agreement. These analyses do not purport

 

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to be appraisals nor do they necessarily reflect the prices at which businesses or securities actually may be sold. Analyses based upon forecasts of future results are not necessarily indicative of actual future results, which may be significantly more or less favorable than suggested by these analyses. Because these analyses are inherently subject to uncertainty, being based upon numerous factors or events beyond the control of the parties or their respective advisors, none of the Company, Intrexon, Griffin or any other person assumes responsibility if future results are materially different from those forecast.

As described above, Griffin’s opinion to the Company Board was one of many factors taken into consideration by the Company’s board of directors in making its determination to approve the Agreement. The foregoing summary does not purport to be a complete description of the analyses performed by Griffin in connection with the fairness opinion and is qualified in its entirety by reference to the written opinion of Griffin attached.

During the two years preceding the date of Griffin's opinion, Griffin did not have any investment banking or financial services relationships with the Company. During the two years preceding the date of its opinion, Griffin performed financial advisory and investment banking services for Intrexon for which it received compensation in the aggregate amount of $1,714,624. Such services consisted of acting as financial advisor relating to exclusive channel collaborations with unaffiliated entities; soliciting agent for mandatory cash tender offer to shareholders of an unaffiliated entity; financial advisor and placement agent in connection with private placement of Intrexon securities; co-manager of underwritten registered offering of Intrexon common stock. Griffin may provide investment banking and/or financial services to the Company or Intrexon in the future and may receive fees for the rendering of such services.

Griffin will receive a fee from the Company for services in connection with rendering the opinion. The Company has also agreed to reimburse Griffin’s expenses in connection with Griffin’s engagement and to indemnify Griffin for certain liabilities that may arise out of the engagement.

Interests of Medistem’s directors and executive officers in the merger

In considering the recommendation of the Medistem board of directors in favor of the approval of the merger proposal, Medistem shareholders should be aware that Medistem’s board of directors and executive officers may have interests in the merger that are different from, or in addition to, the interests of Medistem’s shareholders generally. The Medistem board of directors was aware of these interests and considered them, among other matters, in approving the merger agreement and recommending that the Medistem shareholders adopt and approve the merger agreement. Medistem shareholders should take these benefits into account in deciding whether to vote for the adoption of the merger agreement.

These interests relate to or arise from:

 

 

potential payments for stock options, warrants and convertible promissory notes held by Medistem employees and directors;

 

 

certain cash payments and other benefits payable to Medistem executive officers in the event of a qualifying termination of employment following consummation of the merger;

 

 

Payment of specified salary and certain other employee benefits for Medistem executive officers, who continue employment with the surviving corporation, Intrexon or their subsidiaries; and

 

 

continuation of certain indemnification and insurance arrangements for Medistem directors and executive officers, and advancement of expenses for claims arising from Medistem

 

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directors’ and officers’ fulfillment of their fiduciary duties in connection with Medistem’s entry into the merger agreement.

Treatment of outstanding equity awards held by Medistem directors and executive officers

As of the date of this proxy statement/prospectus, Medistem’s non-employee directors hold stock options and Medistem’s executive officers hold stock options and restricted stock units to purchase or acquire Medistem common stock. Information about the treatment of outstanding Medistem stock options and restricted stock units in the merger is provided in the section entitled “The Merger Agreement — Treatment of Medistem Stock Options and Other Equity-Based Awards.” Medistem’s directors and executive officers will be entitled to receive, for each share of Medistem common stock they hold, the per share merger consideration in the same manner as other shareholders of Medistem.

Pursuant to the terms of the merger agreement, all Medistem employee employment agreements will be terminated prior to consummation of the merger. All outstanding stock options and restricted stock units will be converted into the right to receive cash and Intrexon common stock pursuant to the terms of the merger agreement and as described in the section entitled “The Merger Agreement — Treatment of Medistem Stock Options and Other Equity-Based Awards.”

The following table identifies, as of December 31, 2013, for each of Medistem’s non-employee directors and executive officers, (i) the aggregate number of shares of Medistem common stock subject to outstanding options; (ii) the per share weighted average exercise price of such options; (iii) the aggregate number of shares subject to vested options; (iv) the aggregate number of shares subject to unvested options; and (v) the aggregate number of shares subject to outstanding options that will be converted into the right to receive cash and Intrexon common stock pursuant to the terms of the merger agreement and as described in the section entitled “The Merger Agreement — Treatment of Medistem Stock Options and Other Equity-Based Awards.”

 

Name  
Shares
Subject to
Outstanding
Options
(#)
    Per
Share
Weighted
Average
Exercise
Price
($)
    Shares
Vested
Under
Outstanding
Options
(#)
    Shares
Unvested
Under
Outstanding
Options
(#)
    Shares
Subject to
Conversion
into Right
to Payment
Upon
Merger
(#)
 

 

 

Non-Employee Directors

         

Vladimir Bogin, M.D.

    100,000      $ 0.35        50,000        50,000        100,000   

Vladimir Zaharchook-Williams

    50,000        0.35        25,000        25,000        50,000   

Sergey Sablin

    50,000        0.35        25,000        25,000        50,000   

John Chiplin, Ph.D.

    120,000        0.35        120,000               120,000   

Herm Rosenman

    120,000        0.35        60,000        60,000        120,000   

Executive Officers

         

Alan J. Lewis, Ph.D.

    1,233,000        0.35        684,607        548,393        1,233,000   

Thomas E. Ichim, Ph.D.

    600,000        0.35        249,562        350,438        600,000   

John P. Salvador, J.D.

    500,000        0.35        268,219        231,781        500,000   

Donald F. Dickerson

    100,000        0.35        53,644        46,356        100,000   

 

 

Employment agreements with Medistem executive officers

Medistem has entered into employment agreements with each of its executive officers, as amended from time to time. The employment agreements will be terminated as a condition to

 

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completion of the merger. Thus, no amounts or benefits will be paid under any of the executive officers’ employment agreements with Medistem solely by reason of the merger. However, in the case of Dr. Lewis, if his employment is terminated without “cause,” he will be entitled to receive six months’ salary. The definition of “cause” includes the following: (i) gross and willful misconduct with regard to the Company which is materially injurious to Medistem; (ii) engagement in fraudulent conduct with respect to Medistem’s business or in conduct of a criminal nature that will have an material adverse impact on Medistem’s standing and reputation; (iii) the continued and unjustified willful failure or willful refusal to attempt to perform the duties required of Dr. Lewis by his employment agreement (other than any such failure or refusal resulting from incapacity due to physical or mental illness) which willful failure or willful refusal is not cured within 15 days following (A) receipt by Dr. Lewis of written notice from Medistem’s board of directors specifying the factors or events constituting such willful failure or willful refusal, and (B) a reasonable opportunity for Dr. Lewis to correct such deficiencies; or (iv) use of drugs and/or alcohol in material violation of Medistem’s policy in effect on the date of the employment agreement. No event or condition described above constitutes “cause” under the employment agreement unless (x) Medistem first gives Dr. Lewis a notice of termination no fewer than 30 days prior to the date of termination; and (y) Dr. Lewis is provided the opportunity to appear before the Medistem board of directors, with or without legal representation at his election to present arguments on his own behalf. While his agreement will be terminated, there is no intention to terminate Dr. Lewis’ employment with the Company.

It is a condition to the merger that Dr. Ichim enter into an employment agreement with Intrexon and that offers of employment are extended to the other officers of Medistem. However, as of this date, the parties have not agreed on the terms and conditions of such employment arrangements including the amount of compensation or other benefits.

Quantification of potential payments to Medistem named executive officers in connection with the merger

In accordance with Item 402(t) of Regulation S-K, the table below sets forth the estimated amounts of compensation that is based on or otherwise relates to the merger that may become payable to each of Medistem’s named executive officers, assuming the merger is completed as of the date of this proxy statement/prospectus and with respect to severance amounts, assuming the executive officer’s employment is terminated without cause as of the date of this proxy statement/prospectus.

The estimated amounts below are based on multiple assumptions that may not actually occur, including assumptions described in this proxy statement/prospectus. In addition, certain amounts payable will vary depending on the actual date the merger is completed and the actual date, if any, of a qualifying termination of employment. As a result, the actual amounts, if any, to be received by an executive officer may differ in material respects from the amounts set forth below. The disclosures in the table below and the accompanying footnotes should be read in conjunction with the narrative description of the compensation arrangements set forth above.

 

      Golden Parachute Compensation  
Name    Cash
($)
    Equity
($)(2)
     Total
($)
 

 

 

Alan J. Lewis, Ph.D.

   $ 175,000 (1)   $ 548,393       $ 723,393   

Thomas E. Ichim, Ph.D.

            1,044,724         1,044,724   

John P. Salvador, J.D.

            231,781         231,781   

Donald F. Dickerson

            297,745         297,745   

 

 

 

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(1)   Cash amount is payable upon termination of employment without cause and represents six months’ salary. Under the terms of the merger agreement, Dr. Lewis’s employment agreement will be canceled prior to closing of the merger. As a result, closing of the merger is not expected to result in any cash severance change of control benefits to Dr. Lewis.

 

(2)   Represents the net exercise value of each executive’s outstanding unvested options as of December 31, 2013, and total value of restricted stock that will become vested and exercisable and unrestricted, respectively, upon consummation of the merger pursuant to the merger agreement.

Director and officer indemnification

The merger agreement provides that Intrexon will honor and fulfill in all respects the obligations of Medistem and its subsidiaries with respect to the indemnification of Medistem and its subsidiaries’ directors and officers under their articles of incorporation, bylaws and indemnification agreements for six years after the effective date of the merger agreement.

The merger agreement provides that Intrexon will and will cause the surviving corporation to provide Medistem’s current and former directors and officers liability insurance for a period of six years, which such policies may be no less favorable in the aggregate to the directors and officers of Medistem than Medistem’s current policy. Prior to the effective time, Medistem or Intrexon may also obtain a prepaid “tail” directors’ and officers’ liability insurance policy with a claims period of six years following the effective time of the merger. Intrexon and Medistem directors and officers have also entered into a letter agreement, pursuant to which Intrexon has agreed to advance in the form of a loan or loans to Medistem by Intrexon for advancement to Medistem’s directors and officers for claims in excess of existing Medistem insurance coverage, up to an aggregate of $2.0 million of loans outstanding at any time, related to the directors’ and officers’ actions in fulfilling their fiduciary duties in connection with Medistem’s entry into the merger agreement, for the period from the date the merger agreement was signed until consummation of the merger.

Transactions with Randber, LLC and affiliates

On August 19, 2013, the company borrowed $500,000 from Randber, LLC, an entity controlled by its Vice Chairman Vladimir Zaharchook-Williams, against a $500,000 Promissory Note (the “Note”) with a conversion price of $0.50 per share. The note had a maturity date of August 19, 2015. However, the company could not use the funds except upon the approval of Mr. Zaharchook-Williams given from time to time. On January 23, 2014, the Company’s board of directors authorized the termination of the Note. All unused principal was returned to Randber LLC and the company will pay Randber $10,685, which is the accrued interest owed on the Note from the Date of Note to the date of the termination at a semiannual compounded rate of 5%. The accrued interest will be paid as 21,370 shares of Medistem common stock that represents a conversion rate of $0.50 per share as stated in the Note. The company did not incur any early termination penalties.

On October 15, 2012, the company issued, in a private placement, at par, a $50,000 two-year, unsecured, convertible note bearing interest at 5% per annum to Randber, LLC. The note was convertible into 142,858 shares of common stock at any time. On November 19, 2013, Randber, LLC converted the note and the company issued 142,858 shares of common stock.

On April 1, 2011, the company issued, in a private placement, at par, a $100,000 two-year, unsecured, convertible note bearing interest at 5% per annum to Randber, LLC, with the option to convert into 500,000 shares of common stock at any time. On November 30, 2011, Randber, LLC converted the note and the company issued 500,000 shares of common stock to Randber, LLC.

Voting agreements

In connection with entering into the merger agreement, each of the directors and executive officers of Medistem and their respective permitted transferees, as applicable, in their individual

 

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capacities, each of whom are referred to herein as a supporting shareholder, entered into a voting agreement pursuant to which the supporting shareholder agreed to, among other things, vote his shares of Medistem common stock (i) in favor of the merger proposal and (ii) against an acquisition proposal other than the merger, subject to any termination of the voting agreement in accordance with its terms. In addition, the supporting shareholders agreed not to directly or indirectly transfer their respective shares of Medistem common stock during the term of the voting agreement, subject to certain limited exceptions. The voting agreements may be terminated by the supporting shareholders if the Medistem board of directors has withdrawn or changed its recommendation in favor of a competing transaction. As of the record date, the supporting shareholders as a group owned and were entitled to vote 9,243,218 shares of Medistem common stock, or approximately 64% of the outstanding shares of Medistem common stock on that date. For more information, see the section entitled “Voting Agreements.”

Intrexon’s reasons for the merger

Intrexon’s board of directors approved the merger agreement at a meeting held on December 17, 2013, and determined that the merger agreement and the merger are in the best interests of Intrexon and its shareholders. In reaching this decision, Intrexon’s board of directors considered the financial performance and condition, business operations and prospects of each of Intrexon, Medistem and the combined company, the terms and conditions of the merger agreement and the ancillary documents, the results of the due diligence investigation conducted by Intrexon’s management, accountants and legal counsel, and the analysis of Intrexon’s legal and financial advisors.

Intrexon’s board of directors also considered numerous factors, including those listed below:

 

 

the acquisition of Medistem is expected to complement Intrexon’s integrated suite of technology platforms;

 

 

as a pioneer in the development of Endometrial Regenerative Cells (“ERC” or “ERCs”), Medistem has expertise in universal donor adult stem cells with diverse therapeutic utility;

 

 

that Intrexon believes it can employ its integrated synthetic biology platforms, including its proprietary Cell Systems Informatics, RheoSwitch Therapeutic System®, AttSite System, and LEAP platform to engineer a diverse array of cell-based therapeutic candidates using Medistem’s multipotent ERCs;

 

 

the expectation that, based on review of available literature, that ERCs are derived through non-invasive methods, are economical and scalable to manufacture, are superior therapeutically to other stem cell types for select indications, display intrinsic anti-cancer activity, and have been demonstrated to be safe in animal and pilot human studies;

 

 

the expectation that, through further refining of ERCs, Intrexon can produce proteins and bioactive RNAs for use as therapeutics to treat various medical conditions;

 

 

the expected operational and financial strength of the combined company should enable continued investment in new products and technologies;

 

 

expected increases to Intrexon’s shareholder value through enhanced revenue opportunities;

 

 

the resulting percentage ownership interests and voting power that current Medistem shareholders would have in Intrexon following the merger; and

 

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current industry, economic and market conditions and trends, including Medistem’s market position.

Intrexon’s board of directors also considered a number of potentially negative factors, including those listed below:

 

 

the risk that the value of the Medistem business could decline after the execution of the merger agreement;

 

 

the risk that the potential benefits of the merger would not be realized fully as a result of challenges the companies might face in integrating their technology, personnel and operations, as well as general industry-wide or economic conditions or other factors;

 

 

the risk that, if the merger is not completed, Intrexon’s management would have devoted substantial time and resources to the combination at the expense of attending to and growing Intrexon’s business or other business opportunities;

 

 

the risk associated with the additional demands that the acquisition of Medistem would place on Intrexon and its management, including the potential disruption of Intrexon’s ongoing business as Intrexon’s management and employees are required to dedicate significant time and effort in order to integrate the two companies’ systems, cultures, processes, controls and two separate client experiences; and

 

 

the risk that the potential business opportunities and growth prospects considered by Intrexon’s board of directors will not be achieved through the completion of the merger.

The foregoing list comprises the material factors considered by Intrexon’s board of directors in its consideration of the merger and intended to be a summary rather than an exhaustive list. In view of the variety and complexity of factors and information considered, Intrexon’s board of directors did not find it practicable to, and did not, make specific assessments of, quantify or otherwise assign relative weights to the specific factors considered in reaching its decision. Rather, the decision was made after consideration of all of the factors as a whole. In addition, individual members of Intrexon’s board of directors may have given different weight to different factors.

Directors and management after the merger

Upon completion of the merger, the board of directors and executive officers of Intrexon are expected to remain unchanged.

Material U.S. federal income tax consequences of the merger

General

The following summary sets forth the anticipated material U.S. federal income tax consequences of the merger to “U.S. holders” of Medistem common stock who exchange such stock for shares of Intrexon common stock and cash pursuant to the merger. This summary is based upon the opinions of tax counsel for each of Intrexon and Medistem, which are filed as Exhibit 8.1 and Exhibit 8.2, respectively, to the registration statement on Form S-4 of which this prospectus and joint proxy statement is a part. This discussion is based upon the Internal Revenue Code of 1986, as amended, or the Code, existing and proposed Treasury Regulations, administrative pronouncements and judicial decisions, all as currently in effect as of the date hereof, and all of which are subject to change, possibly with retroactive effect. Such a change could affect the

 

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continuing validity of this summary. No assurance can be given that the Internal Revenue Service, or the IRS, would not assert, or that a court would not sustain, a position contrary to any of the tax consequences set forth below.

For purposes of this summary, a “U.S. holder” is a beneficial owner of Medistem common stock that for U.S. federal income tax purposes is: (1) a citizen or resident of the United States; (2) a corporation, or an entity treated as a corporation, created or organized in or under the laws of the United States or any state or political subdivision thereof; (3) a trust (A) if (i) the administration thereof is subject to the primary supervision of a court within the United States, and (ii) one or more United States persons have the authority to control all substantial decisions of such trust or (B) that has a valid election in effect under applicable Treasury Regulations to be treated as a United States person; or (4) an estate that is subject to U.S. federal income tax on its income regardless of the source.

If a partnership (including for this purpose any entity treated as a partnership for U.S. federal income tax purposes) holds Medistem common stock, the tax treatment of a partner generally will depend on the status of the partner and the activities of the partnership. If you are a partner of a partnership holding Medistem common stock, you should consult your tax advisor.

The following summary addresses only those U.S. holders that hold their Medistem common stock as a capital asset within the meaning of Section 1221 of the Code. It does not address all the tax consequences that may be relevant to particular shareholders in light of their individual circumstances or to shareholders that are subject to special rules, including, without limitation: financial institutions; tax-exempt organizations; S corporations, partnerships or other pass-through entities (or an investor in an S corporation, partnership or other pass-through entities); insurance companies; mutual funds; dealers in stocks or securities, or foreign currencies; non-U.S. holders; a trader in securities who elects the mark-to-market method of accounting for the securities; persons that hold shares as a hedge against currency risk, a straddle or a constructive sale or conversion transaction; holders who acquired their shares pursuant to the exercise of employee stock options or otherwise as compensation or through a tax-qualified retirement plan; and holders of Medistem stock options, stock warrants or debt instruments. In addition, the discussion does not address any alternative minimum tax or any state, local or foreign tax consequences of the merger, nor does it address any tax consequences arising under the unearned income Medicare contribution tax pursuant to the Health Care and Education Reconciliation Act of 2010.

The Merger

Intrexon and Medistem have structured the merger to qualify as a reorganization within the meaning of Section 368(a) of the Code. Consummation of the merger is conditioned upon Intrexon receiving an opinion from Troutman Sanders LLP and upon Medistem receiving an opinion from Eisner Amper LLP, both to the effect that, based upon facts, representations and assumptions set forth in such opinions, the merger constitutes a reorganization within the meaning of Section 368(a) of the Code. The issuance of the opinions is conditioned on, among other things, such tax counsel’s receipt of representation letters from each of Intrexon or Medistem, in each case in form and substance reasonably satisfactory to such counsel, and on customary factual assumptions. Neither of these opinions of counsel is binding on the IRS or the courts and no ruling has been, or will be, sought from the IRS as to the U.S. federal income tax consequences of the merger. Accordingly, each Medistem shareholder should consult its tax advisor with respect to the particular tax consequences of the merger to such holder.

 

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The discussion set forth below under “Consequences to Intrexon and Medistem” and “Consequences to Shareholders” assumes that, for U.S. federal income tax purposes, the merger will constitute a reorganization within the meaning of Section 368(a) of the Code.

Consequences to Intrexon and Medistem

Each of Intrexon and Medistem will be a party to the merger within the meaning of Section 368(b) of the Code, and neither Intrexon nor Medistem will recognize any gain or loss as a result of the merger.

Consequences to Shareholders

Exchange of Medistem Common Stock for Intrexon Common Stock and Cash. A U.S. holder of Medistem common stock that exchange its Medistem common stock for Intrexon common stock and cash generally will recognize gain equal to the lesser of (i) the amount of cash received by the U.S. holder (excluding any cash received in lieu of fractional shares) and (ii) the excess of the “amount realized” by the U.S. holder over the U.S. holder’s tax basis in its Medistem common stock (generally the purchase price paid by the U.S. holder to acquire such stock). The “amount realized” by the U.S. holder will equal the sum of the fair market value of the Intrexon common stock and the amount of cash (excluding any cash received in lieu of fractional shares) received by the U.S. holder. Losses will not be permitted to be recognized by U.S. holders of Medistem common stock in the merger, except in connection with the receipt of cash in lieu of fractional shares, as discussed below. Any gain recognized by a U.S. holder of Medistem common stock generally will be long-term capital gain if, as of the effective date of the merger, the U.S. holder has held such stock for more than one year. Long-term capital gains of individuals are currently eligible for reduced rates of taxation.

For a U.S. holder who acquired different blocks of Medistem common stock at different times or at different prices, realized gain or loss generally must be calculated separately for each identifiable block of shares exchanged in the merger, and a loss realized on the exchange of one block of shares cannot be used to offset a gain recognized on the exchange of another block of shares.

Cash in Lieu of Fractional Shares. U.S. holders of Medistem common stock that receive cash in lieu of fractional shares of Intrexon common stock in the merger generally will be treated as if the fractional shares of Intrexon common stock had been distributed to them as part of the merger, and then redeemed by Intrexon in exchange for the cash actually distributed in lieu of the fractional shares, with the redemption generally qualifying as an “exchange” under Section 302 of the Code. Consequently, those holders generally will recognize capital gain or loss with respect to the cash payments they receive in lieu of fractional shares measured by the difference between the amount of cash received and the tax basis allocated to the fractional shares, and will be long-term capital gain or loss if, as of the effective date of the merger, the holding period of such shares is greater than one year. The deductibility of capital losses is subject to limitations.

Basis in Intrexon Common Stock. A U.S. holder’s aggregate tax basis of the Intrexon common stock received (excluding fractional shares deemed received and redeemed as described below) will be equal to the aggregate tax basis of its Medistem common stock surrendered, reduced by the amount of cash the U.S. holder of Medistem common stock received (excluding any cash received in lieu of fractional shares), and increased by the amount of gain that the U.S. holder of Medistem common stock recognizes, but excluding any gain or loss from the deemed receipt and

 

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redemption of fractional shares described above. The holding period of Intrexon common stock received by a U.S. holder of Medistem common stock in the merger will include the holding period of the U.S. holder’s Medistem common stock. If a U.S. holder acquired different blocks of Medistem common stock at different times or at different prices, the Intrexon common stock such holder receives will be allocated pro rata to each block of Medistem common stock, and the basis and holding period of each block of Intrexon common stock such holder receives will be determined on a block-for-block basis depending on the basis and holding period of the blocks of Medistem common stock exchanged for such block of Intrexon common stock. If a U.S. holder has differing bases or holding periods in respect of shares of Medistem common stock, the U.S. holder should consult its tax advisor prior to the exchange with regard to identifying the bases or holding periods of the particular shares of Intrexon common stock received in the merger.

Dissenting Shareholders. A U.S. holder of Medistem common stock who exercises appraisal rights and receives a cash payment in exchange for its Medistem common stock generally should recognize capital gain or loss equal to the difference between the amount of cash received by such U.S. holder and its tax basis in its Medistem common stock exchanged.

Backup Withholding and Reporting Requirements

U.S. holders of Medistem common stock, other than certain exempt recipients, may be subject to backup withholding at a rate of 28% with respect to any cash payment received in the merger in lieu of fractional shares. However, backup withholding will not apply to any U.S. holder that either (a) furnishes a correct taxpayer identification number and certifies that it is not subject to backup withholding or (b) otherwise proves to Intrexon and its exchange agent that the U.S. holder is exempt from backup withholding.

In addition, U.S. holders of Medistem common stock are required to retain permanent records and make such records available to any authorized IRS officers and employees. The records should include the number of shares of Medistem stock exchanged, the number of shares of Intrexon stock received, the fair market value and tax basis of Medistem shares exchanged and the U.S. holder’s tax basis in the Intrexon common stock received. If a U.S. holder of Medistem common stock that exchanges such stock for Intrexon common stock is a “significant holder” with respect to Medistem, the U.S. holder is required to include a statement with respect to the exchange on or with the federal income tax return of the U.S. holder for the year of the exchange. A U.S. holder of Medistem common stock will be treated as a significant holder in Medistem if the U.S. holder’s ownership interest in Medistem is five percent (5%) or more of Medistem’s issued and outstanding common stock or if the U.S. holder’s basis in the shares of Medistem stock exchanged is one million dollars ($1,000,000) or more. The statement must be prepared in accordance with Treasury Regulation Section 1.368­3 and must be entitled “STATEMENT PURSUANT TO §1.368­3 BY [INSERT NAME AND TAXPAYER IDENTIFICATION NUMBER (IF ANY) OF TAXPAYER], A SIGNIFICANT HOLDER”. The statement must include the names and employer identification numbers of Medistem and Intrexon, the date of the merger, and the fair market value and tax basis of Medistem shares exchanged (determined immediately before the merger).

The discussion of material U.S. federal income tax consequences set forth above does not purport to be a complete analysis or listing of all potential tax effects that may apply to a holder of Medistem common stock. We strongly encourage shareholders of Medistem to consult their tax advisors to determine the particular tax consequences to them of the merger, including the application and effect of federal, state, local, foreign and other tax laws.

 

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Accounting treatment

The merger will be accounted for using the acquisition method of accounting for business combinations. Intrexon will record net tangible and identifiable intangible assets acquired and liabilities assumed from Medistem at their respective fair values at the date of the completion of the merger. Any excess of the purchase price over the net fair value of such assets and liabilities will be recorded as goodwill.

The financial condition and results of operations of Intrexon after completion of the merger will reflect Medistem’s balances and results after completion of the transaction but will not be restated retroactively to reflect the historical financial condition or results of operations of Medistem. The earnings of Intrexon following the completion of the merger will reflect acquisition accounting adjustments, including the effect of changes in the carrying value for assets and liabilities on depreciation and amortization expense. Intangible assets with indefinite useful lives and goodwill will not be amortized but will be tested for impairment at least annually, and all long-lived assets including goodwill will be tested for impairment when certain indicators are present. If in the future, Intrexon determines that tangible or intangible assets (including goodwill) are impaired, Intrexon would record an impairment charge at that time.

Regulatory approvals required for the merger

At any time before or after the completion of the merger, any state, foreign country, or private individual could take action to enjoin the merger under the antitrust laws as it deems necessary or desirable in the public interest or any private party could seek to enjoin the merger on anti-competitive grounds. Although the parties believe that completion of the merger would not violate any antitrust law, there can be no assurance that a challenge to the merger on antitrust grounds will not be made or, if a challenge is made, what the result will be. Intrexon and Medistem have determined that no filing under the Hart-Scott-Rodino Antitrust Improvements Act of 1976 is required in connection with the proposed merger.

Litigation Relating to the Merger

In connection with the merger, four purported class action lawsuits brought on behalf of all Medistem shareholders were filed; one in the Eighth Judicial District Court in Clark County, Nevada: Iden v. Medistem, et al., No. A-13-693813-C, filed December 31, 2013; and three in the Superior Court of California in San Diego County, California: Bachand v. Medistem, et al., No. 37-2013-00081729-CU-SL-CTL, filed December 31, 2013; Parent v. Medistem, et al., No. 37-2014-00083393-CU-SL-CTL, filed January 14, 2014; and Raymond v. Medistem, et al., No. 37-2014-00083495-CU-SL-CTL, filed January 15, 2014. The complaints in the pending lawsuits are similar. Each complaint names Medistem, members of Medistem’s board of directors, Intrexon, and Merger Sub as defendants. The complaints allege, among other things, that Medistem’s board of directors breached its fiduciary duties to its shareholders by failing to maximize shareholder value or to engage in a fair sale process before approving the proposed acquisition of Medistem by Intrexon. The complaints further allege that Medistem, Intrexon and Merger Sub aided and abetted the Medistem board of directors in its breaches of fiduciary duty.

The plaintiffs seek relief that includes an injunction prohibiting the consummation of the merger, rescission to the extent the merger terms have already been implemented, damages for the breaches of fiduciary duty, payment of plaintiffs’ attorneys’ fees and costs and, in the Nevada action, a contingent monetary award in an unspecified amount.

 

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Medistem and its board of directors believe that these allegations are without merit and intend to defend the lawsuits vigorously. There can be no assurance, however, with regard to the outcome of these lawsuits.

Exchange of shares in the merger

Intrexon has appointed American Stock Transfer & Trust Company, LLC as its exchange agent, referred to herein as the exchange agent, to handle the exchange of shares of Medistem common stock for the merger consideration the holder is entitled to receive under the merger agreement. Promptly following the completion of the merger, the exchange agent will mail to each record holder of Medistem common stock immediately prior to the completion of the merger a letter of transmittal and instructions for effecting the exchange of Medistem common stock certificates for the merger consideration. Upon surrender of stock certificates for cancellation along with the executed letter of transmittal and other documents described in the instructions, a Medistem shareholder will receive (1) the per share cash consideration, (2) the per share stock consideration and (3) if applicable, cash in lieu of fractional shares of Intrexon common stock. After the effective time of the merger, Medistem will not register any transfers of the shares of Medistem common stock. The shares of Intrexon common stock you receive in the merger will be issued in book-entry form. The exchange agent and Intrexon are entitled to deduct and withhold any applicable taxes from any merger consideration that would otherwise be payable.

Medistem shareholders should not return their stock certificates with the enclosed proxy card and should not forward stock certificates to the exchange agent without a letter of transmittal.

Dissenters’ rights

Medistem shareholders who do not vote in favor of the merger proposal and follow certain procedural steps will be entitled to dissenters’ rights under Chapter 92A.300-500 of the NRS, provided they take the steps required to perfect their rights under Chapter 92A.300-500 of the NRS. For more information regarding dissenters’ rights, see the section entitled “Dissenters’ Rights.” In addition, a copy of Chapter 92A.300-500 of the NRS is attached as Annex B to this proxy statement.

State takeover statute

Under the NRS, except under certain circumstances, a corporation is not permitted to engage in a business combination with any interested shareholder for a period of three years following the date such shareholder became an interested shareholder. An interested shareholder is a person who owns 10% or more of the outstanding shares of voting stock. Nevada permits a corporation to opt out of the application of these business combinations provisions by so providing in the articles of incorporation; Medistem has not opted out of these provisions in its governing documents.

Listing of Intrexon common stock

Intrexon’s common stock currently trades on the NYSE under the stock symbol “XON.” It is a condition to the completion of the merger that the Intrexon common stock issuable in the merger be approved for listing on the NYSE, subject to official notice of issuance. Intrexon has agreed to use its reasonable best efforts to cause the shares of Intrexon common stock issuable in connection with the merger to be approved for listing on the NYSE and expects to obtain NYSE’s approval to list such shares prior to completion of the merger, subject to official notice of issuance.

 

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Delisting and deregistration of Medistem common stock

Shares of Medistem common stock currently trade on the OTC Markets Group’s OTCQB marketplace under the stock symbol “MEDS.” Following the completion of the merger, the Medistem common stock currently listed on the OTC Markets Group’s OTCQB marketplace will cease to be quoted on the OTC Markets Group’s OTCQB marketplace and will be deregistered under the Exchange Act.

Restrictions on the shares of Intrexon common stock received in the merger

The shares of Intrexon common stock to be issued in connection with the merger will be freely transferable under the Securities Act and the Exchange Act, except for shares issued to any shareholder who may be deemed to be an “affiliate” of Intrexon for purposes of Rule 144 under the Securities Act. Persons who may be deemed to be affiliates include individuals or entities that control, are controlled by, or under the common control with Intrexon and may include the executive officers, directors and significant shareholders of Intrexon.

 

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The merger agreement

The following description describes the material terms of the merger agreement. This description of the merger agreement is qualified in its entirety by reference to the full text of the merger agreement, which is attached as Annex A to this proxy statement/prospectus and is incorporated herein by reference. The merger agreement has been included to provide you with information regarding its terms. Medistem encourages you to read the entire merger agreement, as well as this proxy statement/prospectus, before making any decisions regarding the merger.

The merger

Each of the Medistem board of directors and Intrexon board of directors has approved the merger agreement, which provides that, at the closing of the proposed transactions contemplated by the merger agreement, Merger Sub will be merged with and into Medistem, and Medistem will continue as the surviving corporation of the merger and as a wholly owned subsidiary of Intrexon. Following the merger, Medistem will no longer be a publicly traded corporation. In the event that any Medistem shareholder exercises dissenters’ rights with respect to the merger, the merger agreement as amended provides for a second-step merger, whereby Medistem shall be merged with and into a limited liability company wholly owned by Intrexon.

Merger consideration

At the effective time of the merger, each share of Medistem common stock (other than shares with respect to which dissenter’s rights are properly exercised or shares owned by Intrexon, any of its subsidiaries or Medistem), will be converted into the right to receive consideration equal to $1.35, payable in (i) $0.27 in cash, without interest and subject to applicable withholding tax, referred to as the cash consideration, and (ii) $1.08 worth of shares of Intrexon common stock, referred to as the stock consideration, determined as the number of shares represented by $1.08 divided by the volume-weighted average price of Intrexon common stock, as reported on the New York Stock Exchange, or NYSE, for the 20 trading days immediately preceding the last trading day prior to the date of the closing of the merger, which is referred to herein as the Intrexon stock value, in each case subject to adjustment as described below under the section entitled “— Adjustment to the Merger Consideration.” In no event, however, will the total consideration paid to Medistem shareholders exceed $26.0 million in the aggregate.

Medistem shareholders will not receive any fractional shares of Intrexon common stock in the merger. Instead, each Medistem shareholder otherwise entitled to a fraction of a share of Intrexon common stock will be entitled to receive in cash the dollar amount (rounded to the nearest whole cent), without interest, determined by multiplying such fraction by the Intrexon stock value.

The stock consideration will be adjusted appropriately to reflect the effect of any stock split, reverse stock split, stock dividend (including any dividend or distribution of securities convertible into shares of Intrexon’s common stock), reorganization, recapitalization, reclassification or other similar change with respect to Intrexon’s common stock having a record date on or after the date of the merger agreement but before the effective time of the merger. The cash consideration and the stock consideration will be adjusted appropriately to reflect the effect of any stock split, reverse stock split, stock dividend (including any dividend or distribution of securities convertible into shares of Medistem’s common stock), reorganization, recapitalization, reclassification or other similar change with respect to Medistem’s common stock having a record date on or after the date of the merger agreement but before the effective time of the merger.

 

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Treatment of Medistem stock options and other equity-based awards and convertible instruments

In connection with the merger, each outstanding Medistem stock option, restricted stock unit and convertible promissory will vest fully, if applicable, and may be exercised for a period of at least 15 days prior to the consummation of the merger.

Treatment of stock options, warrants and convertible instruments

As of the effective time of the merger, each outstanding Medistem stock option shall be canceled in exchange for the right to receive a combination of cash and shares of Intrexon common stock as described below, (i) $1.35 minus the exercise price of such stock option divided by (ii) $1.35 (the “Net Option Share Amount”), which shall be paid in (A) a cash amount equal to the product of the Net Option Share Amount multiplied by $0.27 and (B) the number of whole and fractional shares of Intrexon common stock equal to the quotient of (1) the product of the Net Option Share Amount multiplied by $1.08, divided by (2) the Intrexon stock value. If the exercise price per share of any such stock option is equal to or greater than $1.35, such stock option shall be canceled without any payment or other consideration being made in respect thereof.

As of the effective time of the merger, each outstanding warrant to purchase Medistem common stock shall be canceled in exchange for the right to receive a combination of cash and shares of Intrexon common stock as described below, (i) $1.35 minus the exercise price of such Medistem warrant divided by (ii) $1.35 (the “Net Warrant Share Amount”), which shall be paid in (A) a cash amount equal to the product of the Net Warrant Share Amount multiplied by $0.27 and (B) the number of whole and fractional shares of Intrexon common stock equal to the quotient of (1) the product of the Net Warrant Share Amount multiplied by $1.08, divided by (2) the Intrexon stock value. If the exercise price per share of any such warrant is equal to or greater than $1.35, such warrant shall be canceled without any payment or other consideration being made in respect thereof.

In connection with the merger, as of the effective time of the merger, each outstanding promissory note convertible into Medistem common stock shall be canceled exchange for the right to receive a combination of cash and shares of Intrexon common stock as described below, the total number of shares of Medistem common stock to which such promissory note was convertible immediately prior to the effective time of the Merger (the “Net Note Share Amount”), which shall be paid in (i) a cash amount equal to the product of the Net Note Share Amount multiplied by $0.27 and (ii) the number of whole and fractional shares of Intrexon common stock equal to the quotient of (A) the product of the Net Note Share Amount multiplied by $1.08, divided by (B) the Intrexon stock value. If the conversion price per share of any such promissory note is equal to or greater than $1.35, the outstanding principal balance of such promissory note, together with all accrued but unpaid interest thereon, shall instead be paid in full.

Dissenters’ rights

Medistem shareholders who do not vote in favor of the merger proposal and follow certain procedural steps will be entitled to dissenters’ rights under Chapter 92A.300-500 of the Nevada Revised Statutes, or NRS, provided they take the steps required to perfect their rights under Chapter 92A.300-500 of the NRS. For more information regarding dissenters’ rights, see the

 

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section entitled “Dissenters’ Rights.” In addition, a copy of Chapter 92A.300-500 of the NRS is attached as Annex B to this proxy statement.

A condition to Intrexon’s and Merger Sub’s obligation to complete the merger is that holders of no more than 7.5% of Medistem’s outstanding shares of common stock (on an as-converted basis) have exercised statutory rights of dissent under Nevada law, or notified Medistem or Intrexon of an intent to exercise statutory rights of dissent under the Nevada law, in either case and not withdrawn such claims.

Completion of the merger

The merger agreement requires the parties to complete the merger after all of the conditions to the completion of the merger contained in the merger agreement are satisfied or waived, including the approval of the merger proposal by the shareholders of Medistem. The merger will become effective upon the filing of the articles of merger with the Secretary of State of the State of Nevada, or at such later time as is agreed to by Intrexon, Merger Sub and Medistem and specified in the articles of merger.

Intrexon and Medistem expect to complete the merger during the first quarter of 2014 if the approval of the merger proposal is obtained, assuming the other conditions that are set forth in the merger agreement to the consummation of the merger are satisfied or waived. However, it is possible that the merger will not be consummated within that timeframe.

Conversion of shares; exchange of certificates

The merger agreement provides that Intrexon will select a bank or trust company, reasonably acceptable to Medistem, to act as the exchange agent. Intrexon has appointed American Stock Transfer & Trust Company, LLC as its exchange agent. The merger agreement provides that on or prior to the date of completion of the merger, Intrexon will deposit with the exchange agent a sufficient amount of cash to make the payment of the cash consideration, a sufficient number of shares of Intrexon common stock to provide for the issuance of the stock consideration, and a sufficient amount of cash to make payments in lieu of fractional shares and any dividends or distributions to which holders of Medistem common stock are entitled pursuant to the terms of the merger agreement. The exchange agent will be entitled to deduct and withhold from the cash amounts payable to any Medistem shareholder the amounts it is required to deduct and withhold under any federal, state, local or foreign tax law. If the exchange agent withholds any amounts, these amounts will be treated for all purposes of the merger as having been paid to the shareholders from whom they were withheld.

Promptly following the completion of the merger, the exchange agent will mail to each record holder of Medistem common stock immediately prior to the completion of the merger a letter of transmittal and instructions for surrendering and exchanging the record holder’s Medistem stock certificates or book-entry shares. Upon surrender of a Medistem common stock certificate for exchange to the exchange agent (or upon receipt of an appropriate agent’s message in the case of book-entry shares), together with a duly signed and completed letter of transmittal, and such other documents as the exchange agent or Intrexon may reasonably require, the holder of the Medistem stock certificate and book-entry shares will be entitled to receive merger consideration and any other amounts to which such holder is entitled for fractional shares of Intrexon common stock or in respect of any dividends or other distributions as set forth in the merger agreement.

 

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After the completion of the merger, all holders of certificates representing shares of Medistem common stock that were outstanding immediately prior to the completion of the merger will cease to have any rights as shareholders of Medistem, other than the right to receive the merger consideration (or, in the alternative, the dissenters’ rights described under the heading “Dissenters’ Rights,” if so elected) and any rights to dividends or other distributions. In addition, no transfer of Medistem common stock after the completion of the merger will be registered on the stock transfer books of Medistem.

If any Medistem stock certificate has been lost, stolen or destroyed, the exchange agent will issue in exchange for such lost, stolen or destroyed stock certificate the merger consideration upon the delivery of an affidavit by the owner of such stock certificate claiming that such stock certificate has been lost, stolen or destroyed. However, Intrexon and/or the exchange agent may, in its discretion and as a condition to the payment of cash or the issuance of any shares of Intrexon common stock in exchange therefor, also require the owner of such lost, stolen or destroyed stock certificate to deliver a bond as indemnity against any claim that may be made with respect to that stock certificate against Intrexon, the surviving corporation or the exchange agent.

Stock certificates should be sent only pursuant to instructions set forth in the letters of transmittal, which the merger agreement provides will be mailed to Medistem shareholders promptly following the completion of the merger. In all cases, the cash payments, shares of Intrexon common stock and cash in lieu of fractional shares and in respect of any dividends or other distributions will be delivered only in accordance with the procedures set forth in the letter of transmittal.

Representations and warranties

The merger agreement contains representations and warranties made by Medistem to Intrexon and Merger Sub and made by Intrexon and Merger Sub to Medistem. The assertions embodied in the representations and warranties were made solely for purposes of the merger agreement and may be subject to important qualifications and limitations agreed to by the parties to the merger agreement in connection with negotiating its terms. In particular, in your review of the representations and warranties contained in the merger agreement, it is important to bear in mind that the representations and warranties were made solely for the benefit of the parties to the merger agreement and were negotiated for the purpose of allocating contractual risk among the parties to the merger agreement rather than to establish matters as facts. The representations and warranties may also be subject to a standard of materiality or material adverse effect different from those generally applicable to investors and reports and documents filed with the SEC and in some cases may be qualified by disclosures made by one party to the other, which are not necessarily reflected in the merger agreement. Moreover, information concerning the subject matter of the representations and warranties, which do not purport to be accurate as of the date of this proxy statement, may have changed since the date of the merger agreement, and subsequent developments or new information qualifying a representation or warranty may have been included in or incorporated by reference into this proxy statement. For the foregoing reasons, the representations, warranties and covenants or any descriptions of those provisions should not be read alone or relied upon as characterizations of the actual state of facts or condition of Medistem and Intrexon or any of their respective subsidiaries or affiliates. Instead, such provisions or descriptions should be read only in conjunction with the other information provided elsewhere in this document or incorporated by reference into this proxy statement.

 

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In the merger agreement, Medistem, Intrexon and Merger Sub each made representations and warranties relating to, among other things:

 

 

due organization, good standing, corporate power and authority to own, lease and operate properties and carry on its business;

 

 

accuracy of the governing documents;

 

 

capitalization;

 

 

corporate power and authority to execute and deliver the merger agreement, to perform the obligations under the merger agreement, to consummate the merger and the transactions contemplated by the merger agreement and the enforceability of the merger agreement and other related transaction documents;

 

 

absence of any conflict with or violation of corporate charter documents, applicable law or contracts as a result of the execution, delivery and consummation of the transactions contemplated by the merger agreement;

 

 

compliance with law and permits;

 

 

compliance with securities laws, including filing all registration statements, prospectuses, forms, reports, definitive proxy statements, schedules and documents required to be filed under the Securities Act or Exchange Act, since August 7, 2013 with respect to Intrexon and September 7, 2013 with respect to Medistem;

 

 

accuracy and GAAP compliance (subject to customary exceptions) of the financial statements contained in the SEC filings;

 

 

absence of liabilities or obligations that would require reservation against on the balance sheet, except as disclosed in SEC filings, incurred in the ordinary course, incurred in connection with the merger or that would not have a material adverse effect;

 

 

absence of untrue statements of material fact or omissions of material facts in all documents filed with the SEC in connection with the merger;

 

 

absence of any event or events that would have a material adverse effect since January 1, 2013 with respect to Intrexon and September 30, 2013 with respect to Medistem;

 

 

material contracts;

 

 

absence of litigation, except as disclosed in the SEC filings or disclosure schedules to the merger agreement;

 

 

intellectual property matters;

 

 

accuracy of tax returns, proper preparation and timely filing of tax returns and timely payment of taxes;

 

 

compliance with the U.S. Foreign Corrupt Practices Act of 1977, as amended;

 

 

compliance with the sanction programs of the Office of Foreign Assets Control of the U.S. Department of the Treasury and the U.S. Patriot Act of 201, as amended; and

 

 

limitation of warranties to those made in the merger agreement.

 

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In the merger agreement, Intrexon and Merger Sub also each made representations and warranties relating to:

 

 

formation, ownership and organization and operation of Merger Sub;

 

 

no shareholder vote required to adopt the merger agreement and consummate the transactions; and

 

 

the availability of sufficient funds to pay the amounts contemplated by the merger agreement.

In the merger agreement, Medistem also made representations and warranties relating to:

 

 

compliance with regulatory matters;

 

 

operation of business in the ordinary course and the absence of breaches of certain provisions of the merger agreement;

 

 

employees, employee relations and employee benefit plans;

 

 

labor and other employment matters;

 

 

valid ownership and possession of properties;

 

 

environmental liabilities and compliance with environmental laws;

 

 

absence of an event or events since January 1, 2011, that would be required to be reported as a business relationship with certain affiliates;

 

 

insurance owned or held by Medistem;

 

 

opinion of Medistem’s financial advisor;

 

 

vote required to adopt the merger agreement and consummate the transactions;

 

 

broker’s or finder’s fees; and

 

 

foreign law equivalent versions of the representations and warranties.

Material adverse effect

Several of the representations, warranties, covenants, closing conditions and termination provisions in the merger agreement are qualified by a material adverse effect standard. For the purposes of the merger agreement, “material adverse effect,” with respect to both parties, is defined to mean any change, event or effect that has or would reasonably be expected to have a materially adverse effect on the business, financial condition or results of operations of the party and its subsidiaries, taken as a whole.

However, none of the following shall be deemed in themselves, either alone or in combination, to constitute, and none of the following shall be taken into account in determining whether there has or there will be a material adverse effect with respect to either Intrexon and Merger Sub or Medistem:

 

 

the execution or announcement of the merger agreement or the pendency of the transactions contemplated thereby, including the loss of employees, or loss or any disruption in supplier,

 

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licensor, licensee, partner or similar relationship (and, with respect to Medistem any litigation arising from allegations of any breach of fiduciary duty or violation of law relating to the merger agreement or the transactions);

 

 

any adverse change, event or effect attributable to conditions in the pharmaceuticals industry, general economic conditions in the United States economy or financial markets in the United States or in any other country where either party or its subsidiaries has material operations or sales;

 

 

any adverse change, event or effect arising from or relating to compliance with the terms of the merger agreement or any actions taken or failure to take action which the party has approved, consented to or requested in writing;

 

 

changes in laws, including the rules, regulations and administrative policies of any health authority;

 

 

any change in GAAP or any change in laws applicable to the operation of the business of either party or its subsidiaries;

 

 

earthquakes, fires, floods, hurricanes, tornadoes or other force majeure, including acts or war, sabotage, terrorism, military action or any escalation or worsening thereof whether commenced before or after the date of the merger agreement, and whether or not pursuant to the declaration of national emergency of war;

 

 

any failure to meet any internal or third party estimates of revenue;

 

 

with respect to Intrexon, any change in the trading price or volume of Intrexon stock;

 

 

the identity of either party as a party to the merger; or

 

 

with respect to Medistem, Medistem undertaking a financing, subject to certain limitations set forth in merger agreement, if the merger has not closed by March 12, 2014.

Any event, change, development or state of facts described in the second, fourth, fifth and seventh bullet points above may be taken into account when determining whether a material adverse effect has occurred or would reasonably be expected to occur if the event, change, development or state of facts has or would reasonably be expected to have a disproportionate impact on either party, taken as a whole, as compared to other companies that conduct business in the countries and in the industries in which either party conducts business.

Covenants

Interim conduct of Medistem’s business

Under the merger agreement, both Intrexon and Medistem each agreed, subject to certain exceptions, to, and to cause their respective subsidiaries to:

 

 

conduct its business in the ordinary course; and

 

 

use reasonable best efforts to preserve intact its business organization and goodwill (subject to Medistem’s right to undertake a financing, subject to certain limitations set forth in merger agreement, if the merger has not closed by March 12, 2014).

 

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Additionally, during the pendency of the merger, Intrexon and Medistem agreed, with certain exceptions, not to, and not to allow their respective subsidiaries to:

 

 

amend its articles of incorporation, its bylaws or equivalent organizational documents;

 

 

take or agree to take, any action that would prevent the merger from qualifying as a reorganization within the meaning of Section 368(a) of the Code;

 

 

take, or agree to take, any action that would be reasonably likely to delay the effectiveness of the Registration Statement; or

 

 

authorize or enter into any agreement or otherwise make any commitment to do any of the items prohibited by the various conduct of business covenants.

Additionally, during the pendency of the merger, Medistem further agreed, with certain exceptions, not to:

 

 

issue or authorize the issuance of shares of capital stock, or securities convertible, exchangeable or exercisable for shares of capital stock, except pursuant to the issuance of common stock upon the exercise of warrants or options outstanding on the date of the merger agreement, or the issuance of shares of capital stock pursuant to a financing permitted by the merger agreement;

 

 

sell, pledge, dispose of, transfer, lease, license, guarantee or encumber, or authorize the sale, pledge, disposition, transfer, lease, license, guarantee or encumbrance of, any material property or assets of Medistem, except pursuant to existing contracts or written commitments or the sale or purchase of goods or other property or assets in the ordinary course of business or a financing permitted by the merger agreement;

 

 

declare, set aside, make or pay any dividend or other distribution with respect to any of its capital stock or enter into any agreement with respect to the voting of its capital stock, except pursuant to a financing permitted by the merger agreement;

 

 

reclassify, combine, split, subdivide or redeem, purchase or otherwise acquire, directly or indirectly, any capital stock, other than the exercise of Medistem options or warrants to purchase Medistem common stock;

 

 

acquire any interest in any person or substantially all of the assets of any other person, other than acquisitions of assets in the ordinary course of business;

 

 

incur any indebtedness, issue any debt securities or assume, guarantee, endorse or otherwise become responsible for the obligations of any person, in each case, other than the promissory note from Medistem to Intrexon, the indebtedness and promissory notes disclosed in Medistem’s SEC filings prior to the date of the merger agreement, and any financing permitted by the merger agreement;

 

 

materially increase the compensation or benefits of any director, officer, employee or consultant, or grant any rights to severance or termination pay to, or enter into any employment or severance agreement, with any director, officer, employee or consultant, or establish, adopt, enter into or amend any collective bargaining, bonus, profit sharing, thrift, compensation, stock option, restricted stock, pension, retirement, deferred compensation, employment, termination, severance or other plan, agreement, trust, fund, policy or

 

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arrangement for the benefit of any director, officer, employee, consultant or other service provider;

 

 

terminate, cancel or request any material change in, or agree to any material change in, any material contract, except in the ordinary course of business or pursuant to a financing permitted by the merger agreement;

 

 

waive, release, assign, settle or compromise any material claims or any material litigation or arbitration, except in the ordinary course of business or for amounts, individually or in the aggregate, not to exceed $50,000 (in excess of third party insurance);

 

 

make any material tax election or settle or compromise any material liability for taxes;

 

 

make any material change in accounting policies or procedures, other than in the ordinary course of business consistent with past practice or except as required by GAAP or by a governmental entity; or

 

 

take any action or conduct its business in a manner such that as of the closing date of the merger the amount derived by subtracting the total current liabilities of Medistem and its subsidiaries on a consolidated basis from the total current assets of Medistem and its subsidiaries on a consolidated basis will be less than $500,000, determined in accordance with GAAP and consistent with the historical audited financial statements of Medistem included in its SEC filings.

Other covenants

The merger agreement also contains covenants relating to:

 

 

cooperation between Intrexon and Medistem;

 

 

filing of this Registration Statement, a proxy statement/prospectus and other SEC filings;

 

 

the holding of a meeting of Medistem shareholders;

 

 

access to information and confidentiality;

 

 

taking appropriate action to consummate the merger, obtain any necessary consents, make applicable filings, complying with information requests and notifying the other party of certain actions by governmental authorities;

 

 

providing notice of certain events;

 

 

the coordination of public announcements with respect to the transactions contemplated by the merger agreement;

 

 

the listing of the Intrexon shares issued in the merger on the NYSE;

 

 

certain tax matters;

 

 

cooperating with respect to shareholder litigation;

 

 

obligations of Merger Sub; and

 

 

other matters as described further below.

 

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Covenants regarding alternative acquisition proposals

The merger agreement contains detailed provisions regarding Medistem seeking or entertaining alternative acquisition proposals.

Go shop

Until January 9, 2014, Medistem may, directly or indirectly:

 

 

solicit, initiate, facilitate or encourage, whether publicly or otherwise, the submission of any acquisition proposal (or inquiries, proposals or offers or other efforts or attempts that may reasonably be expected to lead to an acquisition proposal); and

 

 

enter into, engage in, and maintain discussions or negotiations with respect to acquisition proposals (or inquiries, proposals or offers or other efforts that may reasonably be expected to lead to an acquisition proposal) or otherwise cooperate with or assist or participate in, or facilitate any such inquiries, proposals, offers, efforts, discussions or negotiations.

No shop

Except for discussions with any person or group of persons that provided Medistem an acquisition proposal between December 19, 2013 and January 9, 2014 that the board of directors of Medistem in good faith determines to either constitute a proposal superior to the merger or could reasonably be expected to lead to a proposal superior to the merger (for purposes hereof any such person shall be referred to as an excluded party), on January 10, 2014, Medistem shall immediately cease and terminate any solicitation, encouragement, discussions or negotiations with any persons that may be ongoing with respect to any acquisition proposal, and as promptly as practicable thereafter deliver a written notice to each such person indicating that Medistem is ending all discussions and negotiations with such person with respect to any acquisition proposal, effective immediately. Medistem must disclose the number and identity of each excluded party to Intrexon by January 13, 2014 and keep Intrexon reasonably informed of any material developments, discussions or negotiations with respect to any acquisition proposal. From January 10, 2014 until the earlier of the closing date or termination of the merger agreement, Medistem shall not, directly or indirectly:

 

 

initiate, solicit or knowingly facilitate or encourage (publicly or otherwise) any inquiries regarding, or the making, submission or announcement of any proposal or offer that constitutes, or would reasonably be expected to lead to, an acquisition proposal;

 

 

engage in, continue or otherwise participate in any discussions or negotiations with respect to, or provide any non-public information or data concerning, Medistem or its subsidiaries to any person relating to, or for the purpose of encouraging or facilitating, any acquisition proposal or otherwise cooperate with or assist or participate in, or facilitate such discussions or negotiations; or

 

 

otherwise knowingly facilitate any such inquiries, proposals, discussion or negotiations or any effort or attempt by any person to make an acquisition proposal.

Medistem may continue to do the foregoing with any excluded party until the earlier of:

 

 

the time Medistem obtains shareholder approval of the merger and

 

 

the time such person or group ceases to be an excluded party, including with respect to any amended or revised acquisition proposal submitted by such excluded party on or after January 10, 2014.

 

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Additionally, from January 10, 2014 until the time Medistem obtains shareholder approval of the merger, if Medistem receives an acquisition proposal from any person or group that was made by an excluded party or that was made or renewed after January 10, 2014 without materially breaching the terms of the merger agreement, Medistem may:

 

 

contact such person or group to clarify the terms and conditions of such acquisition proposal; and

 

 

if Medistem determines in good faith that such acquisition proposal either constitutes a superior proposal to the merger or could reasonably be expected to result in a proposal superior to the merger, then Medistem may (i) provide, pursuant to a confidentiality agreement, non-public information and data concerning the company to such person or group; provided that Medistem shall promptly make the same information available to Intrexon, if such information was not previously made available to Intrexon, and (ii) engage in or otherwise participate in any discussions or negotiations with the person or group.

No change in recommendation or alternative acquisition agreement

Medistem shall not:

 

 

(i) change, withhold, withdraw, qualify or modify (or publicly propose to change, withhold, withdraw, qualify or modify) the recommendation of Medistem’s board of directors in favor of the merger, (ii) fail to include the recommendation of Medistem’s board of directors in favor of the merger in Medistem’s proxy statement, (iii) adopt, approve, authorize, declare advisable or recommend to Medistem’s shareholders any other acquisition proposal or (iv) take formal action, or make any recommendation or public statement in connection with (other than a recommendation against such offer or a customary “stop, look and listen” communication) any other acquisition proposal subject to Regulation 14D under the Exchange Act in any solicitation or recommendation statement made on Schedule 14D-9 relating thereto within ten business days after the commencement of such acquisition proposal; or

 

 

approve or recommend, or publicly propose to approve or recommend, or cause or permit Medistem or any of its subsidiaries to enter into, any letter of intent, memorandum of understanding, acquisition agreement, merger agreement or similar definitive agreement relating to any acquisition proposal.

Permitted changes in recommendation and opportunity to modify the merger agreement

Notwithstanding the above, prior to shareholder approval and provided that Medistem has not breached the covenants regarding alternative acquisition proposals contained in the merger agreement, the board of directors of Medistem may change its recommendation of the merger to its shareholders in favor of an alternative acquisition proposal, or terminate the merger agreement as described below to enter into such alternative acquisition proposal, if Medistem’s board of directors first determines in good faith (after consultation with its financial advisor and based on the advice of its outside legal counsel) that (i) the failure to take such action would be inconsistent with such board’s fiduciary duties under applicable law, and (ii) such acquisition proposal constitutes a superior proposal to the merger agreement (after giving effect to all of the binding written adjustments, if any, offered by Intrexon). Prior to any such change in recommendation, Medistem must first provide three days notice to Intrexon, as well as copies of such superior proposal and related documents. Intrexon shall then have the opportunity, during

 

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this three-day period, to negotiate with Medistem and make amendments to the merger agreement. Following this three-day period, if the board of directors determines in good faith and giving effect to any adjustments offered by Intrexon that the alternative acquisition proposal is still a superior proposal, Medistem may change its recommendation of the merger to its shareholders in favor of an alternative acquisition proposal. In the event that the alternative proposal is materially amended, this notice and adjustment process shall be restated.

For purposes of this summary of the merger agreement, an acquisition proposal shall mean any offer or proposal concerning any (i) merger, consolidation, business combination, or similar transaction involving 20% or more of the voting power of Medistem, (ii) sale, lease or other disposition directly or indirectly by merger, consolidation, business combination, share exchange, joint venture or otherwise of assets or businesses of Medistem representing 20% or more of the consolidated assets, revenues or net income of Medistem, (iii) issuance, sale or other disposition of (including by way of merger, consolidation, business combination, share exchange, joint venture or any similar transaction) equity interests representing 20% or more of the voting power of Medistem, (iv) transaction in which any person or group shall acquire beneficial ownership, or the right to acquire beneficial ownership, of 20% or more of the outstanding voting capital stock of Medistem or (v) any combination of the foregoing (in each case, other than this merger). For purposes of clarification, a financing permitted by the terms of the merger agreement shall not be considered an acquisition proposal if such financing does not fall within the foregoing definition of an acquisition proposal.

For purposes of this summary of the merger agreement, a superior proposal means an acquisition proposal (except that the phrase “20% or more” in the definition of acquisition proposal shall be replaced with the phrase “50% or more” for purposes of this definition) made by a third party which, in the good faith judgment of the Medistem board of directors (after consultation with its financial advisors and outside legal counsel), (a) would if consummated result in a transaction that is more favorable to Medistem’s shareholders from a financial point of view than the merger proposal, and (b) is reasonably likely of being consummated on the terms proposed, taking into account all financial, legal, regulatory and other aspects of such proposal, including all conditions contained therein.

Employee matters

The merger agreement provides that certain of Medistem’s employees will be offered employment with Intrexon effective as of the closing of the merger. At closing, the employment agreements with these certain employees (but not their employment) and Medistem’s officer and director equity ownership plan, will each be terminated by Medistem.

Indemnification and insurance

The merger agreement provides that Intrexon will honor and fulfill in all respects the obligations of Medistem and its subsidiaries with respect to the indemnification of Medistem and its subsidiaries’ directors and officers under their articles of incorporation, bylaws and indemnification agreements for six years after the effective date of the merger agreement.

The merger agreement provides that Intrexon will and will cause the surviving corporation to provide Medistem’s current and former directors and officers liability insurance for a period of six years, which such policies may be no less favorable in the aggregate to the directors and officers of Medistem than Medistem’s current policy. Prior to the effective time, Medistem or Intrexon may also obtain a

 

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prepaid “tail” directors’ and officers’ liability insurance policy with a claims period of six years following the effective time of the merger. Intrexon and Medistem directors and officers have also entered into a letter agreement, pursuant to which Intrexon has agreed to advance expenses in the form of a loan or loans to Medistem by Intrexon for advancement to Medistem’s directors and officers for claims in excess of existing Medistem insurance coverage, up to an aggregate of $2.0 million of loans outstanding at any time, related to the directors’ and officers’ actions in fulfilling their fiduciary duties in connection with Medistem’s entry into the merger agreement, for the period from the date the merger agreement was signed until consummation of the merger.

Conditions to complete the merger

Mutual conditions

The respective obligations of the parties to complete the merger are subject to satisfaction or waiver of the following conditions:

 

 

this Registration Statement shall have been declared effective by the SEC and a stop order suspending the effectiveness of the registration shall not have been issued or a proceeding initiated or threatened for such purpose and not have been withdrawn;

 

 

the merger agreement shall have been adopted by the affirmative vote of the holders of a majority of the outstanding shares of Medistem’s common stock;

 

 

no federal or state court of competent jurisdiction or other governmental entity shall have enacted, adopted, issued, promulgated, enforced or entered any law, order, decree, judgment, injunction or other ruling, which prevents or prohibits consummation of the merger; and

 

 

the shares of Intrexon’s common stock issuable to Medistem’s shareholders in the merger shall have been approved for listing on NYSE.

Conditions of Medistem

In addition, the obligations of Intrexon and Merger Sub to effect the merger are subject to satisfaction or waiver of the following conditions:

 

 

the representations and warranties of Medistem shall be true and correct in all respects (without giving effect to any materiality or material adverse effect qualifications contained therein, and except for (i) de minimis inaccuracies with respect to the capitalization representations and warranties and (ii) inaccuracies with respect to any provision of the representations and warranties regarding regulatory compliance, Foreign Corrupt Practices Act and compliance with Office of Foreign Assets Control that are not qualified by “materiality”, which shall be subject to a material adverse effect standard), as of the closing date of the merger as though made on such date (except to the extent any representations and warranties address matters only as of a particular date or only with respect to a specific period of time, in which case they shall be true and correct as of such date or with respect to such period). The truth and accuracy of the representation and warranties shall be deemed to be satisfied so long as any failure of such representations and warranties to be true and correct would not be reasonably expected to have or result in, individually or in the aggregate, a material adverse effect with respect to Medistem. Intrexon shall have received a certificate of the chief executive officer or chief financial officer of Medistem to that effect;

 

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Medistem shall have performed in all material respects the covenants and agreements (except for certain of the conduct of business covenants, which shall be subject to a material adverse effect standard) required to be performed by it under the merger agreement, and Intrexon shall have received a certificate signed on behalf of Medistem by its chief executive officer or chief financial officer to such effect;

 

 

Medistem shall have obtained all of the consents required pursuant to the merger agreement;

 

 

Intrexon shall have received an opinion of counsel, date as of the closing date, that the merger will qualify for United States federal income tax purposes as a “reorganization” within the meaning of Section 368(a) of the Code;

 

 

holders of no more than 7.5% of the outstanding shares of Medistem’s common stock shall have validly exercised, or remained entitled to exercise, their dissenters’ rights under Section 92A.440 of the NRS;

 

 

Intrexon shall have received the promissory note set forth in the merger agreement duly executed by Medistem;

 

 

Intrexon shall have completed, to its satisfaction in its sole discretion, its business, financial and legal due diligence investigation of Medistem, provided that this condition will no longer be applicable on and after January 16, 2014;

 

 

the aggregate number of shares of Intrexon common stock issuable in the merger shall not be equal to or greater than 19.9% of the shares of Intrexon’s common stock outstanding as of immediately prior to the effective time of the merger;

 

 

Thomas E. Ichim, Ph.D. shall have executed and delivered an employment agreement with Parent or the Company dated as of the Closing Date and in the form to be mutually agreed by Parent and the Company after the date hereof acting reasonably (the “Ichim Agreement”); and

 

 

each current employee, officer and consultant of Medistem and each its subsidiaries shall have executed a proprietary information and inventions assignment agreement in the form presented by Intrexon.

Conditions of Intrexon

In addition, the obligations of Medistem to effect the merger are subject to the satisfaction or waiver of the following conditions:

 

 

the representations and warranties of Intrexon shall be true and correct in all respects (without giving effect to any materiality or material adverse effect qualification contained therein) as of the closing date of the merger as though made on such date (except to the extent any representations and warranties address matters only as of a particular date or only with respect to a specific period of time, in which case they shall be true and correct as of such date or with respect to such period). The truth and accuracy of the representation and warranties shall be deemed to be satisfied so long as any failure of such representations and warranties to be true and correct would not be reasonably expected to have or result in, individually or in the aggregate, a material adverse effect with respect to Medistem. Medistem shall have received a certificate of the chief executive officer or chief financial officer of Intrexon to that effect.

 

 

Intrexon shall have performed in all material respects the covenants and agreements (except for certain of the conduct of business covenants, which shall be subject to a material adverse

 

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effect standard) required to be performed by it under the merger agreement, and Medistem shall have received a certificate signed on behalf of Intrexon by its chief executive officer or chief financial officer to such effect; and

 

 

Medistem shall have received an opinion of counsel, date as of the closing date, that the merger will qualify for United States federal income tax purposes as a “reorganization” within the meaning of Section 368(a) of the Code.

Termination of the merger agreement

The merger may be terminated upon the following occurrences:

 

 

by mutual written consent of Intrexon and Medistem;

 

 

by either party, if the merger is not consummated on or before March 12, 2014 (unless the SEC elects to review the registration statement, in which case such date shall be extended to the earlier of May 31, 2014 or 45 days after the date that Intrexon files its annual report on Form 10-K that includes Intrexon’s audited financial statements for the year ended December 31, 2013) unless the failure of the closing to occur by such date shall be due to failure to fulfill any obligation under this agreement by the party seeking to terminate the merger agreement;

 

 

by either party, if a federal or state court of competent jurisdiction or other governmental entity shall have enacted, issued, promulgated, enforced or entered any order, decree, judgment, injunction or other ruling, which prevents or prohibits consummation of the merger, unless the primary cause resulting in such judgment, injunction, order, decree or ruling was due to failure to fulfill any obligation under this agreement by the party seeking to terminate the merger agreement;

 

 

by either party, if Medistem shall have failed to obtain the requisite affirmative vote of its shareholders;

 

 

by Intrexon, if the board of directors of Medistem shall have effected a change in recommendation, or if Medistem shall have entered into an acquisition proposal other than the merger;

 

 

by Medistem, if prior to the approval of the merger by the shareholders of Medistem, in order to accept a superior proposal, provided that Medistem complied with the go shop provisions of the merger agreement and shall have paid Intrexon the termination fee discussed below;

 

 

by either party, if there shall have been a breach of any of the covenants or agreements or any of the representations or warranties by the other party that is not cured as set forth in the merger agreement, which breach or misrepresentation would constitute the failure of any of the conditions to closing, provided that neither party shall have the right to terminate pursuant to this provision if it is in breach of this agreement such that any of the conditions to closing would not be satisfied;

 

 

by Medistem, if Intrexon has not loaned the amount to Medistem payable by the promissory note set forth in the merger agreement; or

 

 

by Intrexon, if the results of its diligence investigation are unsatisfactory, as determined by Intrexon in its sole and absolute discretion, provided that this termination right shall no longer be applicable and/or exercisable by Intrexon on and after January 16, 2014.

 

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Medistem shall pay Intrexon a termination fee of $1.0 million, if the merger agreement is terminated:

 

 

by Medistem, prior to the approval of the merger by the shareholders of Medistem, in order to accept a superior proposal;

 

 

by Intrexon, because the board of directors of Medistem shall have effected a change in recommendation, or because Medistem shall have entered into an acquisition proposal other than the merger;

 

 

by Intrexon or Medistem because the merger is not consummated on or before March 12, 2014 (unless the SEC elects to review the registration statement, in which case such date shall be extended to the earlier of May 31, 2014 or 45 days after the date that Intrexon files its annual report on Form 10-K that includes Intrexon’s audited financial statements for the year ended December 31, 2013) unless the failure of the closing to occur by such date shall be due to failure to fulfill any obligation under this agreement by the party seeking to terminate the merger agreement, and (i) an acquisition proposal has been publicly announced prior to the occurrence of the events giving rise to the right to terminate and not withdrawn prior to the date of such termination and (ii) within six months of such termination Medistem enters into a definitive agreement or consummates such acquisition proposal; or

 

 

by Intrexon or Medistem because Medistem shall have failed to obtain the requisite affirmative vote of its shareholders, and (i) an acquisition proposal has been publicly announced prior to the occurrence of the events giving rise to the right to terminate and not withdrawn prior to the date of such termination and (ii) within six months of such termination Medistem enters into a definitive agreement or consummates such acquisition proposal.

Medistem shall pay Intrexon a termination fee of $750,000, if the merger agreement is terminated by Medistem, prior to the approval of the merger by the shareholders of Medistem, in order to accept a superior proposal if such termination occurs prior to (i) then start of the no-shop period or (ii) after the start of the no-shop period to enter into an alternative acquisition agreement with an excluded party.

Intrexon shall pay Medistem a termination fee of $150,000, if the merger agreement is terminated by Intrexon or Medistem (i) pursuant to any mutual termination right, any termination right exclusive to Medistem or pursuant to Intrexon’s due diligence termination right and (ii) no termination fee is payable to Intrexon as a result of such termination.

In addition, if the merger agreement is terminated in certain circumstances, Medistem would be required to repay the outstanding principal balance on the loans made to Medistem by Intrexon pursuant to two promissory notes in the aggregate amount of $700,000 in connection with the proposed merger.

Costs and expenses

All fees, costs and expenses incurred in connection with the merger agreement and the transactions contemplated therein are to be paid by the party incurring such expense; except as otherwise agreed by the parties or as provided above in connection with termination of the merger agreement and except that the parties shall each pay one-half of the expenses related to printing, filing and mailing the registration statement and the proxy statement and all SEC and other regulatory filing fees incurred in connection with the proxy statement and registration statement.

 

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Specific performance

In addition to any other remedy to which the parties to the merger agreement are entitled at law or in equity, the parties thereto will be entitled to an injunction or injunctions to prevent breaches of the merger agreement and to enforce specifically the terms and provisions hereof in any court of the United States or any state having jurisdiction.

Amendment, waiver and extension of the merger agreement

The merger agreement may be amended by the parties at any time prior to the effective time of the merger. After approval of the merger by the shareholders of Medistem, no amendment may be made that, by law or in accordance with the rules of any relevant stock exchange, requires further approval by such shareholders. The merger agreement may not be amended except by an instrument in writing signed by the parties.

At any time prior to the effective time of the merger, the parties may (i) extend the time for the performance of any of the obligations or other acts of the other party, (ii) waive any inaccuracies in the representations and warranties and (iii) waive compliance with any of the agreements or satisfaction of any conditions; provided, however, that after any approval of the merger by the shareholders of Medistem, there may not be any extension or waiver of the merger agreement that, by law or in accordance with the rules of any relevant stock exchange, requires further approval by such shareholders. Any such extension or waiver will be valid only if set forth in an instrument in writing signed by the parties, but such extension or waiver or failure to insist on strict compliance with an obligation, covenant, agreement or condition shall not operate as a waiver of, or estoppel with respect to, any subsequent or other failure.

Governing law

The merger agreement is governed by and will be construed in accordance with the laws of the State of New York (including sections 5-1401 and 5-1402 of the New York General Obligations Law but excluding all other choice of law and conflicts of law rules), except to the extent that mandatory provisions of federal law apply or mandatory principles of law require the application of the NRS.

Amendment to the merger agreement

On January 29, 2014 the parties amended the merger agreement to provide, in the event that any Medistem shareholder exercises dissenters’ rights with respect to the merger, that after the consummation of the merger, Medistem will then be merged into a wholly owned limited liability company subsidiary of Intrexon in order for the merger to qualify as a tax-free “reorganization” within the meaning of Section 368(a) of the Internal Revenue Code, as further described in “Material U.S. Federal Income Tax Consequences of the Merger.”

 

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Voting agreements

On December 19, 2013, each of the executive officers and directors of Medistem, referred to herein as the supporting shareholders, entered into voting agreements with Intrexon. The following summary describes certain material provisions of the form of voting agreement and is qualified in its entirety by reference to the form of voting agreement, the form of which is attached to this proxy statement/prospectus as Annex D and which is incorporated by reference into this proxy statement/prospectus. This summary does not purport to be complete and may not contain all of the information about the voting agreements that may be important to you. You are encouraged to read the form of voting agreement carefully and in its entirety.

Agreement to vote and irrevocable proxy

Under the voting agreements, each supporting shareholder agreed to vote in favor of the merger agreement and in favor of approval of the merger and any other transactions contemplated by the merger agreement at every meeting of Medistem shareholders and on every action by written consent of Medistem shareholders.

Each supporting shareholder also agreed, while the voting agreements remain in effect and subject to certain exceptions, to vote or execute consents, as applicable, with respect to their shares of capital stock of Medistem:

 

 

in favor of adoption and approval of the merger agreement and all other transactions contemplated by the merger agreement as to which shareholders of Medistem are called upon to vote in favor of or consent to any matter necessary for consummation of the merger and other transactions contemplated by the merger agreement; and against any acquisition proposal; and

 

 

against any of the following actions (other than those actions that relate to the merger and any other transactions contemplated by the merger agreement): (a) any merger, consolidation, business combination, sale of assets, reorganization or recapitalization of or involving Medistem or any of its subsidiaries; (b) any sale, lease or transfer of all or substantially all of the assets of Medistem; (c) any reorganization, recapitalization, dissolution, liquidation or winding up of Medistem or any of its subsidiaries; (d) any material change in the capitalization of Medistem or any of its subsidiaries or in the corporate structure of Medistem or any of its subsidiaries; or (e) any other action that is intended to, or would reasonably be expected to materially impede, interfere with, delay, postpone, discourage or adversely affect the merger or any other transactions contemplated by the merger agreement.

In connection with the foregoing voting covenants and to secure their duties under the voting agreements, each supporting shareholder irrevocably appointed Intrexon as such director or executive officer’s true and lawful attorney and proxies to vote, if the supporting shareholder is unable to perform his, her or its obligations under the voting agreement, with respect to the matters relating to merger described above.

The voting agreements also provide that each supporting shareholder may not, among other things (a) initiate, solicit, seek or knowingly encourage or support any inquiries, proposals or offers that constitute or may reasonably be expected to lead to, an acquisition proposal, (b) engage or participate in, or facilitate, any discussions or negotiations regarding, or furnish any nonpublic information to any person in connection with, any inquiries, proposals or offers

 

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that constitute, or may reasonably be expected to lead to, an acquisition proposal, (c) enter into any letter of intent, agreement in principle or other similar type of agreement relating to an acquisition proposal, or enter into any agreement or agreement in principle requiring Medistem to abandon, terminate or fail to consummate the transactions contemplated hereby, (d) initiate a shareholders’ vote or action by consent of Medistem’s shareholders with respect to an acquisition proposal, (e) except by reason of the voting agreements, become a member of a “group” (within the meaning of Section 13(d) of the Exchange Act) with respect to any voting securities of Medistem that takes any action in support of an acquisition proposal, or (f) propose or agree to do any of the foregoing

The voting agreements do not limit or restrict such supporting shareholders in their respective capacities as directors or executive officers of Medistem, including such supporting shareholder’s ability to vote in his or her sole discretion on any matter in his or her capacity as a director of Medistem.

Transfer restrictions

While the voting agreements remain in effect, each supporting shareholder agreed not to (1) transfer any shares of Medistem that are subject to the voting agreement (or cause or permit the transfer of such shares); or (2) grant any proxies or powers of attorney or deposit any shares of Medistem common stock into a voting trust or enter into a voting agreement with respect to any shares of Medistem common stock.

Termination

The voting agreements will terminate upon the earlier to occur of:

 

 

the valid termination of the merger agreement in certain circumstances in accordance with its terms; and

 

 

the completion of the merger.

The voting agreements may be terminated by the supporting shareholders if the Medistem board of directors has withdrawn or changed its recommendation in favor of a competing transaction.

 

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Description of Intrexon capital stock

As a result of the merger, holders of Medistem common stock who receive shares of Intrexon (with respect to this section, the “Company,” “Intrexon,” “us”, “our”, “its” or “we”) common stock in the merger will become Intrexon shareholders. Your rights as Intrexon shareholders will be governed by Virginia law and the amended and restated articles of incorporation and amended and restated bylaws of Intrexon. The following description of the material terms of Intrexon’s capital stock, including the common stock to be issued in the merger, reflects the anticipated state of affairs upon completion of the merger. The following summary is qualified by reference to the provisions of applicable law and Intrexon’s amended and restated articles of incorporation and amended and restated bylaws, which are included as annexes to this proxy statement/prospectus. You are urged to read the applicable provisions of Virginia law, Intrexon’s amended and restated articles of incorporation and Intrexon’s bylaws carefully and in their entirety.

General

The following description summarizes information about our capital stock. This information does not purport to be complete and is subject to, and qualified in its entirety by reference to, the terms of our amended and restated articles of incorporation and amended and restated bylaws, which are included as exhibits to the registration statement of which this prospectus forms a part, and the applicable provisions of Virginia law, the state in which we are incorporated.

As of December 31, 2013, our authorized capital stock consisted of 200,000,000 shares of common stock, no par value per share, and 25,000,000 shares of preferred stock, no par value per share.

As of December 31, 2013, there were 97,053,712 shares of common stock outstanding and held of record by 426 shareholders. The actual number of shareholders is greater than this number of record holders and includes shareholders who are beneficial owners but whose shares are held in street name by brokers and other nominees. This number of holders of record also does not include shareholders whose shares may be held in trust by other entities. Upon the issuance of approximately 599,542 shares of common stock at the completion of the merger, there will be approximately 97,653,254 shares of common stock outstanding. All outstanding shares of common stock are, and the shares of common stock to be issued pursuant to the merger will be, fully paid and nonassessable.

It is a condition to the closing of the merger that the shares of Intrexon common stock issuable in the merger be approved for listing on the NYSE, subject to official notice of issuance, prior to the effective time. Intrexon will use its reasonable best efforts to cause the shares of its common stock to be authorized for listing on the NYSE upon official notice of issuance, prior to the closing date of the merger.

Common stock

Shares of our common stock have the following rights, preferences and privileges:

Voting rights

Each outstanding share of common stock is entitled to one vote on all matters submitted to a vote of our shareholders, including the election of directors. Holders of our common stock do not have cumulative voting rights in the election of directors, and therefore the holders of a plurality of the shares of common stock voting for the election of directors may elect all of our directors standing for election.

 

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Dividends

Holders of common stock are entitled to receive dividends if and when dividends are declared by our board of directors out of assets legally available for the payment of dividends, subject to preferential rights of outstanding shares of preferred stock, if any.

Liquidation

In the event of a liquidation, dissolution or winding up of the affairs of our Company, whether voluntary or involuntary, after payment of our debts and other liabilities and making provision for the holders of outstanding shares of preferred stock, if any, we will distribute the remainder of our assets ratably among the holders of shares of common stock.

Rights and preferences

The common stock has no preemptive, redemption, conversion or subscription rights. The rights, powers, preferences and privileges of holders of common stock are subject to, and may be impaired by, the rights of the holders of shares of any series of preferred stock that we may designate and issue in the future.

Fully paid and nonassessable

All outstanding shares of common stock are fully paid and non-assessable, and the shares of common stock to be issued upon the closing of the merger will be fully paid and non-assessable.

Stock options

As of December 31, 2013, options to purchase 2,840,648 shares of our common stock were outstanding, of which options to purchase 1,227,563 shares of our common stock were exercisable.

Warrants

As of December 31, 2013, we had outstanding warrants to purchase an aggregate of 414,404 shares of our common stock. Each of these warrants was and remains exercisable in full.

Registration rights

We have entered into an investors’ rights agreement with certain of our shareholders. Holders of a total of 72,429,701 shares of our common stock as of December 31, 2013 have the right to require us to register these shares under the Securities Act under specified circumstances and will have incidental registration rights as described below. After registration pursuant to these rights, these shares will become freely tradable without restriction under the Securities Act.

Demand registration rights

Certain holders, or Demand Holders, have demand registration rights. Beginning on the 180th day after August 7, 2013, the effective date of the registration statement for our initial public offering, subject to specified limitations set forth in the investor rights agreement, and the

 

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lock-up agreements entered into between the Demand Holders and the underwriters for our initial public offering, at any time the Demand Holders who are holders of at least 75 percent of the then-outstanding registrable securities, as defined in the investor rights agreement, of all Demand Holders as a class, acting together, may demand in writing that we register their registrable securities under the Securities Act. We are not obligated to file a registration statement pursuant to this demand provision on more than two occasions, subject to specified exceptions.

In addition, at any time after we become eligible to file a registration statement on Form S-3 under the Securities Act, subject to specified limitations, the holders of registrable securities may demand in writing that we register on Form S-3 the registrable securities held by them so long as the total amount of registrable securities being registered has an aggregate offering price of at least $500,000. We are not obligated to file a Form S-3 pursuant to this provision within 12 months of the effective date of any other Form S-3 registration statement that we may file.

Incidental registration rights

If we propose to file a registration statement to register any of our securities under the Securities Act for our own account, other than pursuant to a Form S-4 or Form S-8, the holders of our registrable securities are entitled to notice of registration and, subject to specified exceptions, and the lock-up agreements entered into between these holders and the underwriters for our initial public offering, we will be required to register the registrable securities then held by them that they request that we register.

Expenses

Pursuant to the investor rights agreement, we are required to pay all registration expenses, including all registration, filing and qualification fees, printers’ and accounting fees, fees and expenses incurred in connection with complying with state securities or “blue sky” laws, fees and expenses of listing registrable securities on any securities exchange on which shares of our common stock are then listed, fees and disbursements of our counsel, but excluding any underwriting discounts and commissions, related to any demand or incidental registration. The investor rights agreement contains customary cross-indemnification provisions, pursuant to which we are obligated to indemnify the selling shareholders in the event of material misstatements or omissions in the registration statement attributable to us, and they are obligated to indemnify us for material misstatements or omissions in the registration statement attributable to them.

Preferred stock

As of December 31, 2013, there were no shares of preferred stock issued or outstanding. Our amended and restated articles of incorporation authorize our board of directors to designate and issue from time to time one or more series of preferred stock without shareholder approval. Our board of directors may fix and determine the preferences, limitations and relative rights of each series of preferred stock issued. Because our board of directors has the power to establish the preferences and rights of each series of preferred stock, it may afford the holders of any series of preferred stock preferences and rights, voting or otherwise, senior to the rights of holders of our common stock. It is not possible to state the actual effect of the issuance of any shares of preferred stock upon the rights of holders of common stock until our board of directors

 

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determines the specific rights of the holders of preferred stock. However, the effects might include:

 

 

restricting dividends on our common stock;

 

 

diluting the voting power of our common stock;

 

 

impairing liquidation rights of our common stock; or

 

 

delaying or preventing a change in control of us without further action by our shareholders.

We have no present plans to issue any shares of preferred stock.

Anti-takeover effects of provisions of our charter and bylaws and of Virginia law

Our amended and restated articles of incorporation, bylaws and Virginia law contain provisions that may have the effect of impeding the acquisition of control of us by means of a tender offer, a proxy contest, open market purchases or otherwise in a transaction not approved by our board of directors. These provisions are designed to reduce, or have the effect of reducing, our vulnerability to, coercive takeover practices and inadequate takeover bids. The existence of these provisions could limit the price that investors might otherwise pay in the future for shares of common stock. In addition, these provisions make it more difficult for our shareholders, should they choose to do so, to remove our board of directors or management.

Articles of incorporation and bylaws

Preferred stock

Our amended and restated articles of incorporation authorize our board of directors to establish one or more series of preferred stock and to determine, with respect to any series of preferred stock, the preferences, rights and other terms of such series. See “Preferred stock” above for additional information. Under this authority, our board of directors could create and issue a series of preferred stock with rights, preferences or restrictions that have the effect of discriminating against an existing or prospective holder of our capital stock as a result of such holder beneficially owning or commencing a tender offer for a substantial amount of our common stock. One of the effects of authorized but unissued and unreserved shares of preferred stock may be to render it more difficult for, or to discourage an attempt by, a potential acquiror to obtain control of us by means of a merger, tender offer, proxy contest or otherwise, and thereby protect the continuity of our management. The issuance of shares of preferred stock may have the effect of delaying, deferring or preventing a change in control of our Company without any action by our shareholders.

Qualification and election of directors

Our bylaws provide that to be eligible to be a nominee for election to our board of directors, a person must submit a written questionnaire regarding his or her background and qualifications and must agree to other representations as set forth in our bylaws. In addition, we have adopted a director resignation policy. The director resignation policy is incorporated into our bylaws and Corporate Governance Guidelines and provides that any nominee for director in an uncontested election who receives a greater number of votes “withheld” from his or her election than votes “for” his or her election must tender his or her resignation to the board of directors for

 

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consideration in accordance with the procedures set forth in our Corporate Governance Guidelines. The Nominating and Corporate Governance Committee will then evaluate the best interests of us and our shareholders and will recommend to the board of directors the action to be taken with respect to the tendered resignation. Following the board of directors’ determination, we will promptly publicly disclose the board of directors’ decision of whether or not to accept the resignation and an explanation of how the decision was reached, including, if applicable, the reasons for rejecting the resignation.

Board vacancies; removal

Our amended and restated articles of incorporation provide that any vacancy occurring on our board of directors may be filled by a majority of directors then in office, even if less than a quorum.

Special meetings of shareholders

Our bylaws provide that the vote of 25 percent of shareholders is required to call a special meeting, and that shareholders may only conduct business at special meetings of shareholders that was specified in the notice of the meeting.

Advance notification of shareholder nominations and proposals

Our amended and restated bylaws establish advance notice procedures with respect to shareholder proposals and the nomination of persons for election as directors, other than nominations made by or at the direction of our board of directors.

Virginia anti-takeover statutes

Affiliated transactions statute

Virginia law contains provisions governing affiliated transactions. In general, these provisions prohibit a Virginia corporation from engaging in affiliated transactions with any holder of more than 10 percent of any class of its outstanding voting shares, or an interested shareholder, for a period of three years following the date that such person became an interested shareholder unless:

 

 

a majority of (but not fewer than two) disinterested directors of the corporation and the holders of two-thirds of the voting shares, other than the shares beneficially owned by the interested shareholder, approve the affiliated transaction; or

 

 

before or on the date the person became an interested shareholder, a majority of disinterested directors approved the transaction that resulted in the shareholder becoming an interested shareholder.

Affiliated transactions subject to this approval requirement include mergers, share exchanges, material dispositions of corporate assets not in the ordinary course of business, any dissolution of the corporation proposed by or on behalf of an interested shareholder or any reclassification, including reverse stock splits, recapitalizations or mergers of the corporation with its subsidiaries, which increases the percentage of voting shares owned beneficially by an interested shareholder by more than five percent.

 

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Virginia law permits a corporation to exempt itself from this statutory provision by placing a statement to that effect in its articles of incorporation. Our amended and restated articles of incorporation do not specifically address the Virginia statute regarding affiliated transactions; therefore, we are subject to this provision.

Control share acquisitions statute

Virginia law also contains provisions relating to control share acquisitions, which are transactions causing the voting strength of any person acquiring beneficial ownership of shares of a Virginia public corporation to meet or exceed certain threshold percentages (20 percent, 33 1/3 percent or 50 percent) of the total votes entitled to be cast for the election of directors. Shares acquired in a control share acquisition have no voting rights unless:

 

 

the voting rights are granted by a majority vote of all outstanding shares other than those held by the acquiring person or any officer or employee director of the corporation; or

 

 

the articles of incorporation or bylaws of the corporation provide that these Virginia law provisions do not apply to acquisitions of its shares.

The acquiring person may require that a special meeting of the shareholders be held within 50 days of the acquiring person’s request to consider the grant of voting rights to the shares acquired in the control share acquisition. If voting rights are not granted and the corporation’s articles of incorporation or bylaws permit, the acquiring person’s shares may be repurchased by the corporation, at its option, at a price per share equal to the acquiring person’s cost. Virginia law grants dissenters’ rights to any shareholder who objects to a control share acquisition that is approved by a vote of disinterested shareholders and that gives the acquiring person control of a majority of the corporation’s voting shares.

Our amended and restated articles of incorporation provide that this second statutory provision does not apply to our Company; therefore, we are not subject to this provision.

Indemnification and limitation of directors’ and officers’ liability

The Virginia Stock Corporation Act and our articles of incorporation provide for indemnification of our directors and officers in a variety of circumstances, which may include liabilities under the Securities Act. Virginia law provides that, unless limited by its articles of incorporation, a corporation must indemnify a director or officer who entirely prevails in the defense of any proceeding to which he was a party because he is or was a director or officer of the corporation against reasonable expenses incurred by him in connection with the proceeding. Virginia law permits a corporation to indemnify, after a determination has been made that indemnification of the director is permissible in the circumstances because he has met the following standard of conduct, an individual made a party to a proceeding because he is or was a director against liability incurred in the proceeding if:

 

 

he conducted himself in good faith;

 

 

he believed in the case of conduct in his official capacity with the corporation, that his conduct was in its best interests and in all other cases that his conduct was at least not opposed to its best interests; and

 

 

in the case of any criminal proceeding, he had no reasonable cause to believe his conduct was unlawful.

 

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A Virginia corporation may not indemnify a director in connection with a proceeding by or in the right of the corporation in which the director was adjudged liable to the corporation or in connection with any other proceeding charging improper personal benefit to him, whether or not involving action in his official capacity, in which he was adjudged liable on the basis that personal benefit was improperly received by him, unless in either case a court orders indemnification and then only for expenses. In addition, the Virginia Stock Corporation Act permits a corporation to advance reasonable expenses to a director or officer upon the corporation’s receipt of:

 

 

a written affirmation by the director or officer of his good faith belief that he has met the standard of conduct necessary for indemnification by the company; and

 

 

a written undertaking by the director or on the director’s behalf to repay the amount paid or reimbursed by the corporation if it is ultimately determined that the director is not entitled to indemnification and did not meet the relevant standard of conduct.

In addition, Virginia law permits a corporation to make any further indemnity, including indemnity with respect to a proceeding by or in the right of the corporation, and to make additional provision for advances and reimbursement of expenses, to any director or officer that may be authorized by the articles of incorporation or any bylaw made by the shareholders or any resolution adopted by the shareholders, except an indemnity against his willful misconduct or a knowing violation of the criminal law.

In addition, the Virginia Stock Corporation Act permits a Virginia corporation to limit the personal liability of an officer or director in any proceeding brought by or in the name of the corporation or its shareholders, except if the director or officer engaged in willful misconduct or a knowing violation of the criminal law or any federal or state securities laws, including insider trading or market manipulation.

Our amended and restated articles of incorporation require indemnification of directors and officers with respect to certain liabilities, expenses, and other amounts imposed on them by reason of having been a director or officer, except in the case of willful misconduct or a knowing violation of criminal law. Our amended and restated articles of incorporation also limit the liability of our officers and directors to the extent not prohibited by Virginia law. We also carry insurance on behalf of directors, officers, employees or agents which may cover liabilities under the Securities Act.

Insofar as the foregoing provisions permit indemnification of directors, officers or persons controlling us for liability arising under the Securities Act, we have been informed that in the opinion of the SEC, this indemnification is against public policy as expressed in the Securities Act and is therefore unenforceable.

Listing on the New York Stock Exchange

Our common stock is listed on the New York Stock Exchange under the symbol “XON.”

Authorized but unissued shares

The authorized but unissued shares of common stock and preferred stock are available for future issuance without shareholder approval, subject to any limitations imposed by the New York Stock Exchange listing rules. These additional shares may be used for a variety of corporate finance

 

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transactions, acquisitions and employee benefit plans. The existence of authorized but unissued and unreserved common stock and preferred stock could make it more difficult or discourage an attempt to obtain control of us by means of a proxy contest, tender offer, merger or otherwise.

Transfer agent and registrar

The transfer agent and registrar for the common stock is American Stock Transfer & Trust Company, LLC.

 

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Comparison of rights of shareholders of Intrexon and Medistem

Medistem is incorporated under the laws of the State of Nevada and, accordingly, the rights of Medistem shareholders are currently governed by the Nevada Revised Statutes (referred to herein as the NRS). Intrexon is incorporated under the laws of the Commonwealth of Virginia and, accordingly, the rights of Intrexon shareholders are currently governed by the Virginia Stock Corporation Act (referred to herein as the VSCA). Upon completion of the merger, the Medistem shareholders who elect to receive shares of Intrexon common stock in exchange for their shares of Medistem common stock will become Intrexon shareholders. The rights of the former Medistem shareholders and the Intrexon shareholders will therefore be governed by the VSCA and by Intrexon’s amended and restated articles of incorporation and Intrexon’s bylaws.

The table below summarizes material differences between the rights of Medistem’s shareholders and those of Intrexon’s shareholders pursuant to the NRS, the VSCA and their respective constitutive documents as they are currently in effect. While Intrexon and Medistem believe that the summary table includes the material differences between the rights of their respective shareholders prior to the merger, this summary does not include a complete description of all the differences between the rights of Intrexon’s shareholders and those of Medistem’s shareholders, nor does it include a complete description of the specific rights of the respective shareholders discussed. The inclusion of differences in the rights of these shareholders in the table is not intended to indicate that all of such differences should necessarily be considered material by you or that other differences that you may consider equally important do not exist.

Each of Intrexon and Medistem urge you to carefully read this entire proxy statement/prospectus, the relevant provisions of the VSCA, and the other documents to which Intrexon and Medistem refer in this proxy statement/prospectus for a more complete understanding of the differences between being a shareholder of Medistem and being a shareholder of Intrexon. Copies of Intrexon’s amended and restated articles of incorporation, as currently in effect, and Intrexon’s bylaws, as currently in effect, are attached as Exhibits 3.1 and 3.2, respectively to the Registration Statement on Form S-4 of which this proxy statement/prospectus is a part. Medistem has filed with the SEC its amended and restated articles of incorporation and amended and restated bylaws referenced in this summary of shareholder rights and will send copies of these documents to you, free of charge, upon your request. See the section entitled “Where You Can Find More Information.”

 

      Rights of Intrexon Shareholders    Rights of Medistem Shareholders

 

Corporate Governance    Upon completion of the merger, the rights of Intrexon shareholders and former Medistem shareholders will be governed by the VSCA, Intrexon’s amended and restated articles of incorporation, and Intrexon’s bylaws.    The rights of Medistem shareholders are governed by the NRS, the Medistem amended and restated articles of incorporation and the Medistem bylaws.
Authorized Capital Stock    Intrexon’s authorized capital stock consists of 200,000,000 shares of common stock, no par value per share, and 25,000,000 shares of preferred stock, no par value per share.    Medistem’s authorized capital stock consists of 300,000,000 shares of common stock, $0.0001 par value per share, and 200,000,000 shares of preferred stock, $0.0001 par value per share.

 

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Special Meetings of Shareholders    Intrexon’s bylaws provide that a special meeting may be called by the board of directors, the chairman of the board of directors or the chief executive officer. Intrexon’s bylaws also provide that the vote of 25 percent of its shareholders is required to call a special meeting, and that shareholders may only conduct business at special meetings of shareholders that was specified in the notice of the meeting.    A special meeting of the shareholders may be called by Medistem’s board of directors or upon the written request of 51% of the shares then outstanding and entitled to vote thereat. In addition, under the NRS, any two directors or Medistem’s president may call a special meeting of the shareholders. In accordance with the NRS, Medistem’s bylaws provide that a written notice of the time, place and purpose of the meeting must be given to each shareholder entitled to vote at the meeting not less than 10 days nor more than 60 days prior to the meeting. Notice of special meetings of shareholders must also include a description of the purpose or purposes for which the meeting is being called.
Shareholder Nominations and Shareholder Proposals   

Intrexon’s bylaws provide that nominations for the election of directors may be made at an annual shareholder meeting only (i) pursuant to Intrexon’s notice of meeting (or any supplement thereto), (ii) by or at the direction of the board or (iii) by any shareholder of Intrexon who (a) was a shareholder of record of Intrexon (and, with respect to any beneficial owner, if different, on whose behalf such nominations or proposal of other business are made, only if such beneficial owner was the beneficial owner of shares of Intrexon) at the time the notice provided for in its bylaws is delivered to the Secretary and at the time of the annual meeting, (b) is entitled to vote at the meeting, and (c) complies with the notice procedures set forth in its bylaws.

 

To comply with the notice procedures set forth in Intrexon’s bylaws, a shareholder must have given notice thereof in writing to the Secretary and any such proposed business other than the nominations of persons for election to the board must constitute a proper matter for shareholder

   Medistem’s articles of incorporation and bylaws do not contain specific provisions addressing shareholder nominations and proposals. Further, the NRS does not specifically address the issue.

 

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action. To be timely, a shareholder’s notice shall be delivered to the Secretary at Intrexon’s principal executive offices not later than the close of business on the 90th day nor earlier than the close of business on the 120th day prior to the first anniversary of the preceding year’s annual meeting; provided, however, that in the event that the date of the annual meeting is more than 30 days before or more than 70 days after such anniversary date, notice by such shareholder must be so delivered not earlier than the close of business on the 120th day prior to such annual meeting and not later than the close of business on the later of the 90th day prior to such annual meeting or the 10th day following the day on which public announcement of the date of such meeting is first made by Intrexon.

 

To be in proper form, a shareholder’s notice to the Secretary must:

 

(i) set forth, as to the shareholder giving the notice and the beneficial owner, if any, on whose behalf the nomination or proposal is made:

 

(a)    the name and address of such shareholder, as they appear on Intrexon’s books, and of such beneficial owner, if any;

 

(b)   (1) the class or series and number of shares of Intrexon which are, directly or indirectly owned beneficially and of record by such shareholder rand such beneficial owner;

 

(2) any option, warrant, convertible security, stock appreciation right, or similar right with an exercise or conversion privilege or a settlement payment or mechanism at a price related to any class or series of shares of

  

 

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Intrexon or with a value derived in whole or in part from the value of any class or series of shares of Intrexon, whether or not such instrument or right shall be subject to settlement in the underlying class or series of capital stock of Intrexon or otherwise (a “Derivative Instrument”) directly or indirectly owned beneficially by such shareholder and such beneficial owner and any other direct or indirect opportunity to profit or share in any profit derived from any increase or decrease in the value of shares of Intrexon;

 

(3) any proxy, contract, arrangement, understanding, or relationship pursuant to which such shareholder and such beneficial owner has a right to vote any shares of any security of Intrexon;

 

(4) any short interest in any security of Intrexon;

 

(5) any rights to dividends on the shares of Intrexon owned beneficially by such shareholder and such beneficial owner that are separated or separable from the underlying shares of Intrexon;

 

(6) any proportionate interest in shares of Intrexon or Derivative Instruments held, director or indirectly, by a general or limited partnership in which such shareholder and such beneficial owner is a general partner or, directly or indirectly, beneficially owns an interest in a general partner;

 

(7) any performance-related fees (other than an asset-based fee)

  

 

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that such shareholder and such beneficial owner is entitled to based on any increase or decrease in the value of shares of Intrexon or Derivative Instruments, if any, as of the date of such notice, including without limitation any such interests held by members of such shareholder and such beneficial owner’s immediate family sharing the same household (which information shall be supplemented by such shareholder and beneficial owner, if any, not later than 10 days after the record date for the meeting to disclose such ownership as of the record date);

 

(c)    any other information relating to such shareholder and beneficial owner, if any, that would be required to be disclosed in a proxy statement or other filings required to be made in connection with solicitations of proxies for, as applicable, the proposal and/or for the election of directors in a contested election pursuant to Section 14 of the Exchange Act and the rules and regulations promulgated thereunder;

 

(d)   a statement whether such shareholder or any other person known to the shareholder will deliver a proxy statement and form of proxy to holders of at least the percentage of Intrexon’s voting shares required under applicable law to carry the proposal; and

 

(e)    a representation that the shareholder is a holder of record of stock of Intrexon entitled to vote at such meeting and intends

  

 

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to appear in person or by proxy at the meeting to make the nomination or propose such business specified in the notice before the meeting;

 

(ii) if the notice relates to any business other than a nomination of a director or directors that the shareholder proposes to bring before the meeting, set forth:

 

(a)    a brief description of the business desired to be brought before the meeting, the reasons for conducting such business at the meeting and any material interest of such shareholder and beneficial owner, if any, in such business;

 

(b)   the complete text of any resolutions intended to be presented at the meeting and in the event that such business includes a proposal to amend the bylaws of Intrexon, the language of the proposed amendment; and

 

(c)    a description of all agreements, arrangements and understandings between such shareholder and beneficial owner, if any, and any other person or persons (including their names) in connection with the proposal of such business by such shareholder;

 

(iii) set forth, as to each person, if any, whom the shareholder proposes to nominate for election or reelection to the board:

 

(a)    all information relating to such person that would be required to be disclosed in a proxy statement or other filings required to be made in connection with solicitations of proxies for election of directors in a

  

 

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contested election pursuant to Section 14 of the Exchange Act and the rules and regulations promulgated thereunder (including such person’s written consent to being named in the proxy statement as a nominee and to serving as a director if elected) and;

 

(b)   a description of all direct and indirect compensation and other material monetary agreements, arrangements and understandings during the past three years, and any other material relationships, between or among such shareholder and the beneficial owner, if any, and their respective affiliates and associates, or others acting in concert therewith, on the one hand, and each proposed nominee, and his or her respective affiliates and associates, or others acting in concert therewith, on the other hand, including, without limitation all information that would be required to be disclosed pursuant to Rule 404 promulgated under Regulation S-K under the Exchange Act if the shareholder making the nomination and any beneficial owner on whose behalf the nomination is made, if any, or any affiliate or associate thereof or person acting in concert therewith, were the “registrant” for purposes of such rule and the nominee were a director or executive officer of such registration; and

 

(iv) with respect to each nominee for election or reelection to the board, include a completed and signed questionnaire, representation and agreement as required by the bylaws.

  

 

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Shareholder Action by Written Consent   

The VSCA allows action by written consent to be made by the shareholders in lieu of a shareholder’s meeting if the action is adopted or taken by all the shareholders entitled to vote on the action. Under the VSCA, the articles of incorporation may authorize action by shareholders by less than unanimous written consent provided that the taking of such action is consistent with any requirements that may be set forth in Intrexon's articles of incorporation, the bylaws, or the VSCA.

 

Intrexon’s bylaws do not provide for action by shareholders by less than unanimous written consent.

  

Under the NRS, shareholder action with respect to a public company may be taken without a meeting only if written consents setting forth such action are signed by all shareholders entitled to vote on the action.

 

The Medistem amended and restated bylaws provide that any action that could be taken at a meeting of the shareholders may be taken without a meeting if one or more written consents setting forth the action so taken are signed by all shareholders entitled to vote on the action and are delivered to the corporation.

Number of Directors   

Intrexon’s bylaws provide that the number of directors constituting the board shall be designated by resolution of the board, but shall not be more than 10; provided that no decrease in the number of directors shall shorten or terminate the term of any incumbent director. Intrexon’s amended and restated articles of incorporation provide that the board of directors shall consist of a number of directors as shall be specified in accordance with the bylaws.

 

There are currently eight directors serving on the Intrexon board of directors.

  

The Med