Business Context and Reporting Period
This Form 8-K, filed on December 20, 2013, reports on events occurring on December 19, 2013. Intrexon Corporation (the "Registrant") entered into a definitive Agreement and Plan of Merger to acquire Medistem Inc. ("Medistem"). Upon completion, Medistem will become a wholly-owned subsidiary of Intrexon.
Key Financial Metrics and Transaction Terms
- Merger Consideration: Each outstanding Medistem share converts into $0.27 in cash and $1.08 worth of Intrexon common stock (based on a 20-day volume-weighted average price prior to closing).
- Total Consideration Cap: The aggregate merger consideration will not exceed $26.0 million.
- Share Issuance Cap: Intrexon common stock issued in the merger will not exceed 19.9% of Intrexon shares outstanding immediately prior to the effective time.
- Outstanding Shares: As of December 17, 2013, Medistem had 14,434,288 shares of common stock outstanding.
- Bridge Financing: Intrexon provided unsecured loans to Medistem totaling $700,000 at a 5% interest rate.
- Expense Advances: Intrexon agreed to advance up to $2.0 million in loans to Medistem directors and officers for claims exceeding existing insurance coverage.
Material Changes and Agreements
The primary material change is the execution of the Merger Agreement. Key structural elements include:
- Option and Warrant Treatment: Outstanding Medistem options and warrants are canceled. Holders receive consideration based on the formula: ($1.35 minus exercise price) / $1.35, paid in the same cash/stock ratio as common shareholders. Options with an exercise price of $1.35 or higher are canceled without payment.
- Convertible Notes: Convertible promissory notes are canceled for consideration in the same ratio as common stock, unless the conversion price is $1.35 or higher, in which case the principal and accrued interest are paid in full.
- Go-Shop Period: Medistem is permitted to solicit alternative proposals until January 9, 2014. A "no-shop" period begins January 10, 2014, subject to a fiduciary out for superior proposals.
- Termination Fees: Medistem must pay Intrexon $1,000,000 (or $750,000 under specific conditions) if the agreement is terminated to pursue an alternative transaction. Intrexon must pay Medistem $150,000 if terminated for certain other reasons.
- Voting Agreements: Medistem directors and executive officers (Supporting Stockholders), holding over two-thirds of outstanding shares, agreed to vote in favor of the merger and not to sell shares for 90 days post-closing.
Guidance, Outlook, and Risks
Conditions Precedent: Closing is subject to Medistem stockholder approval, absence of legal injunctions, effectiveness of the Form S-4 registration statement, and NYSE listing of Intrexon stock. Intrexon's due diligence condition expires on January 16, 2014.
Timeline: The agreement must be completed by March 12, 2014, unless extended due to SEC review of the registration statement (potentially until May 31, 2014).
Risks and Contingencies: The filing highlights risks regarding the ability to satisfy closing conditions, secure regulatory approvals, and manage management distraction. It includes standard forward-looking statement disclaimers regarding market volatility, biotechnology industry changes, and capital deployment.
Investor Verification Checklist
- Verify the 20-day volume-weighted average price of Intrexon stock immediately prior to the Effective Time to calculate the exact stock portion of the consideration.
- Confirm the outcome of the Medistem stockholder vote required for approval.
- Monitor the effectiveness of the Form S-4 registration statement filed with the SEC.
- Review the definitive proxy statement/prospectus for detailed financial data on Medistem not included in this 8-K.
- Check for any unsolicited superior proposals submitted during the "go-shop" period ending January 9, 2014.