PROSPECTUS SUMMARY

This summary highlights selected information from this proxy statement/prospectus/information statement and may not contain all of the information that is important to you. To better understand the merger, the proposals being considered at the Threshold annual meeting and the Molecular stockholder actions that are the subject of the written consent, you should read this entire proxy statement/prospectus/information statement carefully, including the merger agreement and the other annexes to which you are referred in this proxy statement/prospectus/information statement. For more information, please see the section titled “Where You Can Find More Information” beginning on page 360 of this proxy statement/prospectus/information statement. Except where specifically noted, the following information and all other information contained in this proxy statement/prospectus/information statement does not give effect to the proposed reverse stock split described in Proposal No. 5 of this proxy statement/prospectus/information statement.

The Companies

Threshold Pharmaceuticals, Inc.

3705 Haven Ave., Suite 120

Menlo Park, California 94025

(650) 474-8200

Threshold is a clinical-stage biopharmaceutical company that has historically used its expertise in the tumor microenvironment to discover and develop therapeutic and diagnostic agents that selectively target tumor cells for the treatment of patients living with cancer. Threshold has discontinued development of all of its product candidates other than evofosfamide. In December 2015, Threshold announced that neither of two pivotal Phase III clinical trials of evofosfamide met its primary endpoint of demonstrating a statistically significant improvement in overall survival. However, based on a meaningful improvement in overall survival was reported for a subgroup of 123 Asian patients, Threshold is engaging in discussions with Japan’s Pharmaceuticals and Medical Devices Agency, or PMDA, regarding potential registration pathways and additional clinical trials that would be required. In the meantime, Threshold’s current evofosfamide development strategy is limited to its company-sponsored Phase I clinical trial of evofosfamide in combination with immune checkpoint antibodies in collaboration with researchers and clinicians at The University of Texas MD Anderson Cancer Center, initiated March 1, 2017, and investigator-sponsored clinical trials of evofosfamide in combination with antiangiogenic therapies in a variety of tumor types.

Molecular Templates, Inc.

9301 Amberglen Blvd, Suite 100

Austin, TX 78729

(512) 869-1555

Molecular is a clinical-stage oncology company focused on the discovery and development of novel, targeted, biologic therapeutics for cancer. Molecular believes its proprietary biologic drug platforms, which it refers to as engineered toxin bodies, or ETBs, provide a differentiated mechanism of action that solves problems associated with currently available cancer therapeutics. ETBs use a genetically engineered version of the Shiga-like Toxin A subunit, or SLTA, a ribosomal inactivating bacterial protein. ETBs combine the specificity of an antibody with SLTA’s potent mechanism of cell destruction. In Molecular’s second- and third-generation ETBs, Molecular has modified the SLTA further to reduce immunogenicity and deliver payloads into the cell. Molecular believes the target specificity of ETBs, their ability to self-internalize, their potent and differentiated mechanism of cell kill and their safety profile provide opportunities for the clinical development of these agents to address multiple cancer types.

 

Trojan Merger Sub, Inc.

3705 Haven Ave., Suite 120

Menlo Park, California 94025

(650) 474-8200

Merger Sub is a wholly-owned subsidiary of Threshold and was formed solely for the purpose of carrying out the merger.

The Merger (see page 116)

If the merger is completed, Merger Sub will merge with and into Molecular, with Molecular surviving as a wholly-owned subsidiary of Threshold.

Immediately prior to the effective time of the merger, each share of Molecular preferred stock will be converted into one share of Molecular common stock, as determined in accordance with the Molecular certificate of incorporation then in effect. At the effective time of the merger, other than the shares of Molecular common stock held or owned by Molecular, Threshold, or Merger Sub, which will be cancelled without conversion or payment, and with respect to any shares of Molecular common stock held by stockholders who are entitled to demand and have properly demanded appraisal of such shares pursuant to, and in strict compliance in all respects with, the DGCL, each share of Molecular common stock will be converted into the right to receive a fraction of a share of Threshold common stock as determined pursuant to the exchange ratio.

In connection with the merger, each outstanding and unexercised option to purchase shares of Molecular common stock will be assumed by Threshold and will be converted into an option to purchase that number of shares of Threshold common stock as determined by the exchange ratio described in more detail below. Each outstanding warrant to purchase shares of Molecular’s capital stock will be exercised on a net exercise basis for shares of Molecular’s series C preferred stock, which shares will then be converted into shares of Molecular common stock, which shares in turn will be converted into the right to receive that number of shares of Threshold common stock as determined pursuant to the exchange ratio. Each of Molecular’s convertible promissory notes will be converted into shares of Molecular’s series C-1 preferred stock, which shares will then be converted into shares of Molecular common stock, which shares in turn will be converted into the right to receive that number of shares of Threshold common stock as determined pursuant to the exchange ratio.

Each share of Threshold common stock issued and outstanding at the time of the merger will remain issued and outstanding and those shares, subject to the reverse split to be effected in connection with the merger, will be unaffected by the merger. Please see the section titled “The Merger—Stock Options and Warrants” beginning on page 150 of this proxy statement/prospectus/information statement.

For a more complete description of the exchange ratio, please see the section titled “The Merger Agreement—Merger Consideration and Exchange Ratio—Exchange Ratio” beginning on page 160 of this proxy statement/prospectus/information statement.

The merger will be completed as promptly as practicable after all of the conditions to completion of the merger are satisfied or waived, including the approval or written consent of the Threshold and Molecular stockholders, as applicable. Threshold and Molecular are working to complete the merger as quickly as practicable. The merger is anticipated to occur as soon as practicable after the Threshold annual meeting of stockholders. However, Threshold and Molecular cannot predict the exact timing of the completion of the merger because it is subject to various conditions. After completion of the merger, assuming that Threshold receives the required stockholder approval of Proposal No. 4, the combined company will be renamed “Molecular Templates, Inc.”

 

Reasons for the Merger (see pages 125 and 128)

Following the merger, the combined company will be a clinical-stage biopharmaceutical company focused on the discovery, development and commercialization of a next-generation of immunotoxins called ETBs for the treatment of cancers and other serious diseases. Threshold and Molecular believe that the combined company will have the following potential advantages:

 

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the combined company will be a publicly traded, clinical-stage company with a diversified development portfolio of ETBs drug candidates in various stages of development as well as evofosfamide in combination with immunotherapies;

 

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the combined company will be led by an experienced senior management team from Molecular and a board of directors of seven members designated by Molecular and Threshold; and

 

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proceeds from the concurrent financing and Takeda equity financing, if completed, would provide funds for the combined company’s research and development and operating activities.

The Threshold board of directors considered a number of factors in reaching its conclusion to approve the merger and to recommend that the Threshold stockholders approve the issuance of shares of Threshold common stock in the merger and the concurrent financing, including the following:

 

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the financial analyses of Ladenburg Thalmann & Co., Inc., Threshold’s financial advisor, or Ladenburg, including Ladenburg’s opinion to the Threshold board as to the fairness to Threshold, from a financial point of view and as of the date of the opinion, of the aggregate number of shares of Threshold common stock to be paid in the merger, as more fully described below in the section titled “ Opinion of Threshold Financial Advisor ” beginning on page 16 of this proxy statement/prospectus/information statement;

 

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the opportunity as a result of the merger for Threshold’s stockholders to participate in the value of the Molecular’s product candidate portfolio and for the combined company’s management to focus on the continued development and potential commercialization of ETBs and evofosfamide;

 

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the lack of success in developing Threshold’s lead product and the difficulty Threshold would have obtaining the amount of funding required to meaningfully redesign the evofosfamide asset and develop the TH-3424 asset in the near-term;

 

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the judgment, advice and analysis of Threshold senior management with respect to the potential strategic, financial and operational benefits of the merger (which judgment, advice and analysis was informed in part on the business, technical, financial, accounting and legal due diligence investigation performed with respect to Molecular), that Molecular’s lead drug candidate represents a sizeable market opportunity and may provide new medical benefits for a large underserved patient population and returns for investors;

 

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the risks associated with continuing to operate Threshold on a stand-alone basis, including the need to rebuild infrastructure and management to continue its operations;

 

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the results of substantial efforts made over a significant period of time by Threshold’s senior management and financial advisors to explore strategic alternatives for Threshold, including the discussions that Threshold management and the Threshold board of directors had in fall 2016 with other potential merger candidates;

 

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that the merger would provide the existing Threshold stockholders a significant opportunity to participate in the potential growth of the combined company following the merger;

 

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that the combined company will be led by an experienced senior management team and a board of directors with representation from each of the current boards of directors of Threshold and Molecular; and

 

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the projected liquidation value of Threshold and the risks, costs and timing associated with liquidating compared to the value Threshold stockholders will receive in the merger.

In the course of its deliberations, the Threshold board of directors also considered a variety of risks and other countervailing factors related to entering into the merger, including:

 

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the termination fee of up to $750,000 and up to $150,000 in related expenses payable to Molecular upon the occurrence of certain events and the potential effect of such termination fee in deterring other potential acquirors from proposing an alternative transaction that may be more advantageous to Threshold stockholders;

 

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the substantial expenses to be incurred in connection with the merger, including the costs associated with any related litigation;

 

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the possible volatility, at least in the short term, of the trading price of the Threshold common stock resulting from the announcement of the merger;

 

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the risk that the merger might not be consummated in a timely manner, or at all, and the potential adverse effect of the public announcement of the merger or on the delay or failure to complete the merger on the reputation of Threshold;

 

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the risk to the business, operations and financial results of Threshold in the event the merger is not consummated, including the diminution of Threshold’s cash and its likely inability to raise additional capital through the public or private sale of equity securities;

 

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the strategic direction of the combined company following the completion of the merger, which will be determined by a board of directors initially comprised of a majority of the members of the current Molecular board of directors; and

 

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various other risks associated with the combined company and the merger, including those described in the section titled “ Risk Factors ” beginning on page 35 of this proxy statement/prospectus/information statement.

In addition, the Molecular board of directors approved the merger based on a number of factors, including the following:

 

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the potential to provide its current stockholders with greater liquidity by owning stock in a public company;

 

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the cash resources of the combined company expected to be available at the closing of the merger relative to the anticipated burn rate of the combined company;

 

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the potential for access to public capital markets, including sources of capital from a broader range of investors to support the clinical development of its product candidates than it could otherwise obtain if it continued to operate as a privately-held company;

 

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the board’s belief that no alternatives to the merger were reasonably likely to create greater value for Molecular’s stockholders after reviewing the various alternatives that were considered by the Molecular board of directors and the likelihood of achieving any alternative transaction compared to the likelihood of completing the merger; and

 

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the expectation that the merger will be treated as a reorganization for U.S. federal income tax purposes, with the result that the Molecular stockholders will generally not recognize taxable gain or loss for U.S. federal income tax purposes.

 

Opinion of Threshold Financial Advisor (see page 129)

On August 30, 2016, Threshold engaged Ladenburg to act as Threshold’s financial advisor in connection with the consideration of potential strategic alternatives for Threshold. As part of this engagement, Threshold’s board of directors requested that Ladenburg evaluate the fairness, from a financial point of view, to Threshold of the exchange ratio for the conversion of Molecular common stock into Threshold common stock pursuant to the merger agreement. On March 16, 2017, at a meeting of Threshold’s board of directors, Ladenburg rendered its oral opinion to Threshold’s board of directors (in its capacity as such), which opinion was subsequently confirmed by delivery of a written opinion dated March 16, 2017, that, as of such date and based upon and subject to the assumptions made, procedures followed, matters considered, and qualifications and limitations set forth in the opinion, the exchange ratio for the conversion of Molecular common stock into Threshold common stock pursuant to the merger agreement was fair, from a financial point of view, to Threshold, as more fully described below under the section titled “ The Merger—Opinion of Threshold Financial Advisor ” beginning on page 129 of this proxy statement/prospectus/information statement.

The full text of the written opinion of Ladenburg, dated March 16, 2017, which sets forth, among other things, the assumptions made, procedures followed, matters considered and qualifications and limitations of the review undertaken in connection with such opinion, is attached as Annex F . Holders of Threshold common stock are urged to read this opinion carefully and in its entirety. Ladenburg’s opinion was provided for the sole benefit and use of Threshold’s board of directors (in its capacity as such) in connection with its consideration of the merger and addresses only the fairness to Threshold, from a financial point of view, of the exchange ratio for the conversion of Molecular common stock into Threshold common stock pursuant to the merger agreement. It does not address any other aspects of the merger and does not constitute a recommendation as to how holders of Threshold common stock or Molecular common stock should vote or act in connection with the merger. The exchange ratio was determined through negotiations between Threshold and Molecular and not pursuant to any recommendation of Ladenburg. The summary of the opinion set forth under the section titled “ The Merger—Opinion of Threshold Financial Advisor ” beginning on page 129 of this proxy statement/prospectus/information statement is qualified in its entirety by reference to the full text of the opinion.

Interests of Certain Directors, Officers and Affiliates of Threshold and Molecular (see pages 139 and 144)

In considering the recommendation of Threshold’s board of directors with respect to issuing shares of Threshold common stock pursuant to the merger agreement and the other matters to be acted upon by Threshold stockholders at the Threshold annual meeting, Threshold stockholders should be aware that certain members of Threshold’s board of directors and executive officers of Threshold have interests in the merger that may be different from, or in addition to, interests they have as Threshold stockholders.

Continued Service with Combined Company . Harold E. Selick, Ph.D., currently the chairman of Threshold’s board of directors, will continue as chairman of the board of directors of the combined company after the effective time of the merger, and David R. Hoffmann, currently a Threshold board member, will continue as a director of the combined company following the merger. Additionally, Joel Fernandes, currently the Senior Vice President of Finance and Controller of Threshold, is expected to be terminated from his position as an officer of Threshold as of the effective time of the merger. After the effective time of the merger, it is expected that Mr. Fernandes will continue to provide services to the combined company as a consultant and to advise the board of the combined company on financial matters.

Severance Arrangements and Equity Acceleration . Upon the completion of the merger, it is expected that the employment of all of Threshold’s executive officers will terminate, and in connection with such termination certain of these executive officers will be entitled to receive cash severance payments and other benefits with a total value of approximately $1.4 million (collectively, not individually, and including the value of the accelerated vesting of unvested stock options and restricted stock awards).

 

Threshold Director Compensation Arrangements . Upon completion of the merger, the unvested stock options held by the non-employee directors will accelerate and vest.

Warrants Held by Threshold Director . Wilfred E. Jaeger, M.D. is a holder of a warrant to purchase 25,000 shares of Threshold common stock. In accordance with the terms of the Threshold warrants, upon the consummation of the merger and for the 90-day period following the merger, a warrant holder will have a “put” right, which is a right to require Threshold to purchase the Threshold warrants from such requesting holders by paying to such holders on the effective date of the merger cash in an amount equal to the “Black Scholes Value” (as defined in the Threshold warrants) of the remaining unexercised portion of the Threshold warrants. Accordingly, if Dr. Jaeger were to exercise his put right with respect to his warrant, Threshold would be required to repurchase the warrant at a Black Scholes Value calculation in accordance with the Threshold warrant.

Equity Ownership . As of June 6, 2017, directors and executive officers of Threshold beneficially owned approximately 12.60% of the outstanding shares of Threshold common stock, and, based on the projected number of shares of Threshold common stock to be outstanding immediately after the closing of the merger, would have a pro forma stock ownership of approximately 4.33% immediately after the closing of the merger (without taking into account shares that may be issued in the concurrent financing and the Takeda equity financing).

Threshold directors and executive officers have entered into support agreements in connection with the merger. The support agreements are discussed in greater detail in the section titled “ Agreements Related to the Merger—Support Agreements ” beginning on page 181 of this proxy statement/prospectus/information statement.

In considering the recommendation of Molecular’s board of directors with respect to consenting to the adoption of the merger agreement and the approval of the merger and related transactions, Molecular’s stockholders should be aware that certain members of Molecular’s board of directors and executive officers of Molecular have interests in the merger that may be different from, or in addition to, interests they have as Molecular stockholders.

Continued Service with Combined Company . The executive officers and certain directors of Molecular are expected to become executive officers and directors of the combined company after the closing of the merger.

Equity Ownership . Certain of Molecular’s executive officers and directors have options to purchase shares of Molecular common stock that will each convert into an option to purchase that number of shares of Threshold common stock as determined pursuant to an exchange ratio described in more detail below.

Certain of Molecular’s officers, directors and significant stockholders have entered into support agreements in connection with the merger. The support agreements are discussed in greater detail in the section titled “ Agreements Related to the Merger—Support Agreements ” beginning on page 181 of this proxy statement/prospectus/information statement.

Management Following the Merger (see page 326)

Effective as of the closing of the merger, the combined company’s executive officers are expected to be members of the Molecular executive management team, including:

 

Name		Title
Eric E. Poma, Ph.D.		Chief Executive Officer, Chief Scientific Officer and Class I Director
Jason Kim		President, Chief Operating Officer and Principal Financial Officer
David Valacer, M.D.		Chief Medical Officer
Jack Higgins, Ph.D.		Executive Vice President, Operations and Head of Manufacturing
Kurt Elster		Executive Vice President, Corporate Development
Erin Willert, Ph.D.		Executive Vice President, Research and Development
Jen-Sing Liu, Ph.D.		Executive Vice President, Manufacturing

 

Overview

of the Merger Agreement and Agreements Related to the Merger Agreement

Merger Consideration and Exchange Ratio (see page 148 )

Immediately prior to the effective time of the merger, each outstanding share of Molecular preferred stock will be converted into Molecular common stock. At the effective time of the merger, upon the terms and subject to the conditions set forth in the merger agreement:

 

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each outstanding share of Molecular common stock (other than the shares of common stock held or owned by Molecular, Threshold or Merger Sub, which will be cancelled without conversion or payment, and with respect to any shares held by stockholders who are entitled to demand and have properly demanded appraisal of such shares pursuant to, and in strict compliance in all respects with, the DGCL) will be converted into the right to receive that number of shares of Threshold common stock as determined pursuant to the exchange ratio described in more detail below;

 

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each outstanding and unexercised option to purchase shares of Molecular common stock will be assumed by Threshold and will be converted into an option to purchase the number of shares of Threshold common stock as determined pursuant to the exchange ratio described in more detail below;

 

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each outstanding warrant to purchase shares of Molecular’s capital stock will be exercised on a net exercise basis for shares of Molecular’s series C preferred stock, which shares will then be converted into shares of Molecular common stock, which shares in turn will be converted into the right to receive that number of shares of Threshold common stock as determined pursuant to the exchange ratio described in more detail below; and

 

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each Molecular note will be converted into shares of Molecular’s series C-1 preferred stock, which shares will then be converted into shares of Molecular common stock, which shares in turn will be converted into the right to receive that number of shares of Threshold common stock as determined pursuant to the exchange ratio described in more detail below.

It is anticipated that immediately after the merger but prior to closing the concurrent financing and Takeda equity financing, Molecular securityholders will own, subject to adjustment, approximately 65.6% of the fully-diluted common stock of the combined company, with Threshold securityholders owning approximately 34.4% of the fully-diluted common stock of the combined company. Upon the closing of the concurrent financing and Takeda equity financing, it is anticipated that Molecular securityholders would own approximately 40.5% of the fully-diluted common stock of the combined company, with Threshold securityholders owning approximately 21.2% of the fully-diluted common stock of the combined company. See the section titled “The Merger Agreement—Merger Consideration and Exchange Ratio” beginning on page 160 of this proxy statement/prospectus/information statement.

There will be no adjustment to the total number of shares of Threshold common stock that Molecular stockholders will be entitled to receive in the merger for changes in the market price of Threshold common stock. Accordingly, the market value of the shares of Threshold common stock issued pursuant to the merger will depend on the market value of the shares of Threshold common stock at the time the merger closes, and could vary significantly from the market value on the date of this proxy statement/prospectus/information statement.

Treatment of Threshold Warrants and Stock Options (see page 150)

All options and warrants to purchase shares of Threshold common stock that are outstanding immediately prior to the effective time of the merger will remain outstanding following the effective time of the merger.

In accordance with the terms of the Threshold warrants, upon the consummation of the merger, warrant holders will have a “put” right, which is a right to require Threshold to purchase the Threshold warrants from such requesting holders by paying to such holders on the effective date of the merger, cash in an amount equal to the “Black Scholes Value” (as defined in the Threshold warrants) of the remaining unexercised portion of the Threshold warrants.

 

Treatment of Molecular Warrants and Stock Options (see page 150)

At the effective time of the merger, each outstanding option, whether or not vested, to purchase shares of Molecular capital stock unexercised immediately prior to the effective time of the merger will be converted into an option to purchase that number of shares of Threshold common stock as determined pursuant to the exchange ratio described in more detail below. All rights with respect to each Molecular option will be assumed by Threshold in accordance with its terms. Accordingly, from and after the effective time of the merger each option assumed by Threshold may be exercised solely for shares of Threshold common stock.

The number of shares of Threshold common stock subject to each outstanding Molecular option assumed by Threshold will be determined by multiplying the number of shares of Molecular capital stock that were subject to such option by the exchange ratio and rounding the resulting number down to the nearest whole number of shares of Threshold common stock. The per share exercise price for the shares of Threshold common stock issuable upon exercise of each Molecular option assumed by Threshold will be determined by dividing the per share exercise price of Molecular capital stock subject to such option by the exchange ratio and rounding the resulting exercise price up to the nearest whole cent. Any restriction on the exercise of any option will continue in full force and effect and the term, exercisability, vesting schedule and other provisions of such option will otherwise remain unchanged.

Immediately prior to the effective time of the merger, each Molecular warrant will be exercised on a net exercise basis, without any action on the part of the holder thereof, for shares of Molecular’s series C preferred stock, which shares will then be converted into shares of Molecular common stock, which shares in turn will be converted into the right to receive that number of shares of Threshold common stock as determined pursuant to the exchange ratio.

Conditions to the Completion of the Merger (see page 175)

To complete the merger, Threshold stockholders must approve Proposal Nos. 1, 4 and 5. Additionally, the Molecular stockholders must approve the merger and adopt the merger agreement and the transactions contemplated thereby. In addition to obtaining Threshold stockholder approval, each of the other closing conditions set forth in the merger agreement must be satisfied or waived.

Non-Solicitation (see page 170)

The merger agreement contains provisions prohibiting Threshold and Molecular from inquiring about or seeking a competing transaction, subject to specified exceptions described in the merger agreement. Under these “non-solicitation” provisions, each of Threshold and Molecular has agreed that neither it nor its subsidiaries, nor any of its officers, directors, employees, representatives, affiliates, advisors or agents will directly or indirectly:

 

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solicit, initiate, respond to or take any action to facilitate or encourage any inquiries or the communication, making, submission or announcement of any acquisition inquiry or competing proposal or take any action that could reasonably be expected to lead to a competing proposal;

 

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enter into or participate in any discussions or negotiations with any person with respect to an acquisition inquiry or any competing proposal;

 

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furnish any information regarding such party to any person in connection with, in response to, relating to or for the purpose of assisting with or facilitating an acquisition inquiry or a competing proposal;

 

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approve, endorse or recommend any competing proposal, subject to the terms and conditions in the merger agreement;

 

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execute or enter into any letter of intent or similar document or any contract contemplating or otherwise relating to any competing proposal; or

 

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grant any waiver or release under any confidentiality, standstill or similar agreement (other than to the other party).

 

Termination of the Merger Agreement (see page 177)

Either Threshold or Molecular can terminate the merger agreement under certain circumstances, which would prevent the merger from being consummated.

Termination Fee (see page 177)

The merger agreement provides that, upon termination of the merger agreement under specified circumstances, Threshold may be required to pay Molecular a termination fee of $750,000 and up to $150,000 in expense reimbursements plus certain legal fees and expenses, or Molecular may be required to pay Threshold a termination fee of $750,000 and up to $150,000 in expense reimbursements plus certain fees and expenses.

Support Agreements (see page 181)

In connection with the execution of the merger agreement, officers, directors and certain stockholders of Molecular, who collectively beneficially owned approximately 97.7% of the voting power of Molecular’s outstanding capital stock on an as-converted to common stock basis as of March 16, 2017 entered into support agreements with Threshold under which such stockholders have agreed to, among other things, vote in favor of the merger and the merger agreement and against any competing transaction.

In connection with the execution of the merger agreement, directors and executive officers of Threshold, who in the aggregate own approximately 6.80% of the outstanding shares of Threshold common stock as of June 6, 2017, have entered into support agreements with Molecular under which such stockholders have agreed to, among other things, vote in favor of Proposal Nos. 1, 4 and 5 and against any competing transaction.

Each stockholder executing a support agreement has made representations and warranties to Threshold or Molecular, as applicable, regarding ownership and unencumbered title to the shares subject to such agreement, such stockholder’s power and authority to execute the support agreement, due execution and enforceability of the support agreement, and ownership and unencumbered title to the shares. Unless otherwise waived, all of these support agreements prohibit the transfer, sale, assignment, gift or other disposition by the stockholder of their respective shares of Threshold or Molecular capital stock, or the entrance into an agreement or commitment to do any of the foregoing, subject to specified exceptions. Each Molecular stockholder executing a support agreement has also waived such stockholder’s statutory appraisal rights in connection with the merger.

The support agreements will terminate at the earlier of the effective time of the merger or the termination of the merger agreement in accordance with its terms.

Lock-Up Agreements (see page 181)

The officers, directors and certain other securityholders of Molecular also entered into lock-up agreements, pursuant to which such securityholders have agreed not to, except in limited circumstances, offer, pledge, sell, contract to sell, sell any option to purchase, purchase any option or contract to sell, grant any option, right or warrant to purchase, or otherwise transfer or dispose of, any Molecular securities or shares of Threshold common stock, including, as applicable, shares received in the merger and issuable upon exercise of certain warrants and options, until 180 days after the closing date of the merger.

The Molecular securityholders who have executed lock-up agreements as of March 16, 2017 owned, in the aggregate, approximately 97.7% of the shares of Molecular’s outstanding capital stock on an as-converted to common stock basis.

Threshold’s officers and directors also entered into lock-up agreements, pursuant to which such securityholders have agreed not to, except in limited circumstances, offer, pledge, sell, contract to sell, sell any option to purchase, purchase any option or contract to sell, grant any option, right or warrant to purchase, or otherwise transfer or dispose of, any Threshold securities or shares of Threshold common stock, including, as applicable, shares issuable upon exercise of certain warrants and options, until 180 days after the closing date of the merger.

 

The Threshold stockholders who have executed lock-up agreements as of March 16, 2017 owned, in the aggregate, approximately 9.14% of the shares of Threshold’s outstanding capital stock on an as-converted to common stock basis.

Bridge Loan (see page 181)

In connection with execution of the merger agreement, Threshold entered into a note purchase agreement and promissory note, or the bridge note, with Molecular pursuant to which Threshold provided Molecular with $2.0 million in principal amount of funding and an additional $2.0 million at a second closing held on June 1, 2017. For a description of the bridge note, please see the section titled “ Agreements Related to the Merger—Bridge Loan ” beginning on page 181 of this proxy statement/prospectus/information statement.

Equity Commitment Letters and Takeda Equity Financing (see page 182)

Concurrent with the execution of the merger agreement, Threshold and Molecular entered into an equity commitment letter with Longitude, pursuant to which Longitude agreed to purchase $20.0 million of equity securities from the combined company immediately following the consummation of the merger through a private placement. Subsequent to the execution of the merger agreement, Threshold and Molecular have obtained equity commitment letters from additional investors in a form substantially similar to the equity commitment letter with Longitude for an additional $20.0 million of equity securities of the combined company, such that the aggregate size of the concurrent financing is expected to be approximately $40.0 million. Such transaction is referred to herein as the concurrent financing. Certain related parties of Molecular have agreed to participate in the concurrent financing. Please see the section titled “ Certain Relationships and Related Party Transactions— Threshold Transactions—Equity Commitment Letters for Concurrent Financing ” beginning on page 334 of this proxy statement/prospectus/information statement. The equity securities proposed to be issued and sold in the concurrent financing would be “units,” with each unit to consist of (i) one share of the combined company’s common stock, and (ii) a warrant to purchase 0.50 shares of such common stock. The warrants would be exercisable for a period of seven years from the effective date of the merger.

The closing of the merger is not conditioned upon the closing of the concurrent financing; however, the closing of the concurrent financing is conditioned upon the closing of the merger. In addition, the conditions to close the concurrent financing include: (i) the non-existence of a material adverse event of either Molecular or Threshold; (ii) for Longitude only, the appointment of David Hirsch, M.D., Ph.D., to the Threshold board of directors immediately following the consummation of the concurrent financing; and (iii) the receipt by Threshold of additional equity financing commitments by third parties mutually and reasonably acceptable to Threshold, Molecular and Longitude for the purchase of an additional $20.0 million of units, which condition has been satisfied.

The pricing of the unit, or the per unit price (as defined in the warrant), and the exercise price for the warrants were determined by the parties based on the application of an assumed reverse split ratio of 8.1970-to-1 for the reverse split of Threshold common stock to be implemented by the Threshold board of directors after obtaining stockholder approval of Proposal No. 5. Based on that assumed reverse split ratio, the purchase price per unit would be $5.0625 per unit (with the $0.0625 portion being ascribed to the purchase of the warrant, which is fixed and not subject to adjustment), and the exercise price for the warrant would be $5.00 per share. The equity commitment letters provide that if the actual reverse split ratio implemented by the Threshold board of directors differs from the assumed reverse split ratio, the per unit price and the warrant exercise price will be appropriately adjusted. For example and for illustration purposes only: (i) if the actual reverse split ratio were to be 6.6666-to-1, the per unit price would be adjusted to $4.12906 (reflecting $4.0665 per share (which would also be the adjusted exercise price for the warrant) and $0.0625 per warrant); and (ii) if the actual reverse split ratio were to be 10.0000-to-1, the per unit price would be adjusted to $6.1623 (reflecting $6.0998 per share (which would also be the adjusted exercise price for the warrant) and $0.0625 per warrant).

 

There will be no adjustment, however, to the composition of the unit as a result of an actual reverse split ratio that differs from the assumed reverse split ratio (i.e., a unit shall remain one share of common stock and a warrant to purchase 0.50 shares of common stock). Accordingly, if the combined company sells $40.0 million of units at the per unit price of $5.0625 per unit based on the assumed reverse split ratio, the combined company expects to issue and sell units representing an aggregate of approximately 8.0 million shares of common stock, and warrants for the purchase of approximately 4.0 million shares of common stock with an exercise price of $5.00 per share in each case on a post-reverse split basis. Using the same hypothetical reverse split ratios above (for illustration purposes only): (1) if the actual reverse split ratio were to be 6.6666-to-1, the combined company would expect to issue and sell units representing an aggregate of 9.84 million shares of common stock, and warrants for the purchase of 4.92 million shares of common stock with an exercise price of $4.0665 per share; and (2) if the actual reverse split ratio were to be 10.0000-to-1, the combined company would expect to issue and sell units representing an aggregate of approximately 6.56 million shares of common stock, and warrants for the purchase of 3.28 million shares of common stock with an exercise price of $6.0998 per share.

In connection with the execution of a collaboration and license agreement between Molecular and Takeda, on June 23, 2017, Takeda also entered into a stock purchase agreement with Threshold and Molecular, pursuant to which Takeda will purchase approximately $20.0 million of shares of common stock of the combined company at a (pre-reverse split) purchase price per share of approximately $0.61 per share. This transaction will be a private placement and is referred to herein as the Takeda equity financing. Please see the section titled “ Certain Relationships and Related Party Transactions—Threshold Transactions—Takeda Equity Financing” beginning on page 335 of this proxy statement/prospectus/information statement.

In accordance with the terms of the stock purchase agreement, the aggregate purchase price and number of shares of common stock issuable to Takeda in the Takeda equity financing may be reduced so that Takeda will own no more than 19% of the issued and outstanding common stock of the combined company upon the closing of the Takeda equity financing.

The closing of the merger is not conditioned upon the closing of the Takeda equity financing. However, the closing of the Takeda equity financing is conditioned upon the closing of the merger and the concurrent financing as well as other customary closing conditions.

Subject to the 19% limitation, the aggregate number of shares to be purchased by Takeda will be determined by dividing $20.0 million, subject to certain adjustments set forth in the stock purchase agreement, by an assumed price of $5.00 per share. The per share price was determined by the parties based on the application of an assumed reverse split ratio of 8.1970-to-1 for the reverse split of Threshold common stock to be implemented by the Threshold board of directors after obtaining stockholder approval of Proposal No. 5. The stock purchase agreement provides that if the actual reverse split ratio implemented by the Threshold board of directors differs from the assumed reverse split ratio, the per share price will be appropriately adjusted.

The concurrent financing and the Takeda equity financing will have a dilutive impact on the Threshold and Molecular securityholders’ ownership in the combined company. Assuming the assumed reverse split ratio, then it is anticipated that immediately after the merger and the closing of the concurrent financing and the Takeda equity financing, on a fully-diluted basis (excluding the warrants and out of the money Threshold options), Molecular securityholders would own approximately 44.7% of the common stock of the combined company and existing Threshold securityholders would own approximately 23.5%. On a fully-diluted basis including the shares underlying the warrants, the percentages decline further to 40.5% and 21.2% for Molecular and Threshold securityholders, respectively. For more information, please see section titled “ Risk Factors—Risks Related to the Merger—While Threshold and Molecular have received commitments for the purchase of $40.0 million in equity securities of the combined company in the concurrent financing and entered into a stock purchase agreement with Takeda for the sale of $20.0 million of shares of common stock of the combined company, consummation of the concurrent financing and Takeda equity financing are subject to conditions and are not condition s to closing

 

the merger. If Molecular and Threshold complete the merger, but they do not complete the concurrent financing or the Takeda equity financing , then the combined company may need to raise additional capital by issuing securities or debt or through licensing arrangements, which may be on worse commercial terms than the concurrent financing or Takeda equity financing , cause significant dilution to the combined company’s stockholders, restrict the combined company’s operations or require the combined company to relinquish proprietary rights .” beginning on page 37 of this proxy statement/prospectus/information statement.

The combined company intends to use the proceeds from the concurrent financing and Takeda equity financing for research and development, operations, manufacturing and general administrative activities, but management will have broad discretion as to the application of its uses. For more information, please see the section titled “ Risk Factors— Risks Related to the Merger— The combined company will have broad discretion in the use of proceeds from the concurrent financing and Takeda equity financing and may invest or spend the proceeds in ways with which you do not agree and in ways that may not increase the value of your investment .” beginning on page 108 of this proxy statement/prospectus/information statement.

The equity commitment letters call for the investors in the concurrent financing to enter into a Securities Purchase Agreement for the issuance and sale of the units, with the warrant component of the unit to be evidenced by the execution of a warrant, in customary form. In addition, the equity commitment letters and stock purchase agreement with Takeda call for the combined company to provide certain registration rights to the investors in the concurrent financing and Takeda equity financing, including (i) a commitment to file a registration statement with the SEC within 45 days following the closing of the concurrent financing and Takeda equity financing for purposes of registering the shares of common stock purchased in the concurrent financing and Takeda equity financing and the shares issuable upon exercise of the warrants issued in the concurrent financing for resale by the investor, (ii) use its commercially reasonable efforts to have the registration statement declared effective as soon as practicable after filing, and in any event no later than 120 days after the closing of the concurrent financing and Takeda equity financing, and (iii) maintain the registration until all registrable securities may be sold pursuant to Rule 144 under the Securities Act, without restriction as to volume.

The concurrent financing and Takeda equity financing will be accomplished, if at all, in private placements exempt from registration under Section 4(a)(2) and Regulation D under the Securities Act, and the rules promulgated thereunder. The securities to be sold in the concurrent financing and Takeda equity financing have not been registered under the Securities Act, or any state securities laws, and may not be offered or sold in the United States except pursuant to an exemption from, or in a transaction not subject to, the registration requirements of the Securities Act and applicable state securities laws. This proxy statement/prospectus/information statement shall not constitute an offer to sell or the solicitation of an offer to buy, nor shall there be any sale of the securities in any state or jurisdiction in which such offer, solicitation or sale would be unlawful.

 

Regulatory

Approvals (see page 173)

Threshold must comply with applicable federal and state securities laws and the rules and regulations of The NASDAQ Capital Market in connection with the issuance of shares of Threshold common stock and the filing of this proxy statement/prospectus/information statement with the SEC. As of the date hereof, the registration statement on Form S-4 of which this proxy statement/prospectus/information statement is a part has not been declared effective.

 

Material U.S. Federal Income Tax Consequences of the Merger (see page 151)

Each of Threshold and Molecular intends the merger to qualify as a reorganization within the meaning of Section 368(a) of the Code. In general, and subject to the qualifications and limitations set forth in the section titled “ The Merger—Material U.S. Federal Income Tax Consequences of the Merger ” beginning on page 151 of this proxy statement/prospectus/information statement, if the merger qualifies as a “reorganization” within the meaning of Section 368(a) of the Code, the material tax consequences to U.S. holders of Molecular common stock will be as follows:

 

•

a Molecular stockholder will not recognize gain or loss upon the exchange of Molecular common stock for Threshold common stock pursuant to the merger, except to the extent of cash received in lieu of a fractional share of Threshold common stock as described below;

 

•

a Molecular stockholder who receives cash in lieu of a fractional share of Threshold common stock in the merger will recognize capital gain or loss in an amount equal to the difference between the amount of cash received in lieu of a fractional share and the stockholder’s tax basis allocable to such fractional share;

 

•

a Molecular stockholder’s aggregate tax basis for the shares of Threshold common stock received in the merger (including any fractional share interest for which cash is received) will equal the stockholder’s aggregate tax basis in the shares of Molecular common stock surrendered in the merger; and

 

•

the holding period of the shares of Threshold common stock received by a Molecular stockholder in the merger will include the holding period of the shares of Molecular common stock surrendered in exchange thereof.

Tax matters are very complicated, and the tax consequences of the merger to a particular Molecular stockholder will depend on such stockholder’s circumstances. Accordingly, you are strongly urged to consult your 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 non-U.S. income and other tax laws.

 

NASDAQ

Stock Market Listing (see page 175)

Threshold has filed an initial listing application for the combined company with The NASDAQ Capital Market. If such application is accepted, Threshold anticipates that the common stock of the combined company will be listed on The NASDAQ Capital Market following the closing of the merger under the trading symbol “MTEM.”

 

Anticipated

Accounting Treatment (see page 155)

The merger will be treated by Threshold as a reverse merger under the acquisition method of accounting in accordance with accounting principles generally accepted in the United States, or U.S. GAAP. For accounting purposes, Molecular is considered to be acquiring Threshold in the merger.

 

Appraisal

Rights and Dissenters’ Rights (see page 156)

Holders of Threshold common stock are not entitled to appraisal rights in connection with the merger. Holders of Molecular common stock are entitled to appraisal rights in connection with the merger under Delaware law. For more information about such rights, please see the provisions of Section 262 of the DGCL attached as Annex G , and the section titled “ The Merger—Appraisal Rights and Dissenters ’ Rights ” beginning on page 156 of this proxy statement/prospectus/information statement.

 

Litigation

Related To Merger (see page 158)

On June 20, 2017, Victor Pariso, a purported stockholder of Threshold, or the Plaintiff, filed a putative class action complaint against Threshold and members of its Board of Directors (the “Board”) in the United States District Court for the Northern District of California, or the District Court. This case is captioned Pariso v. Threshold Pharmaceuticals, Inc., et al. , Case No. 3:17-cv-03557-WHA. The complaint alleges that (1) Threshold and the members of Threshold’s board of directors violated Section 14(a) of the Securities Exchange Act of 1934, as amended, or the Exchange Act, and Rule 14a-9 promulgated thereunder, by filing a proxy statement, which allegedly fails to disclose and/or misrepresents material information about the proposed merger, and (2) the members of Threshold’s board of directors, as control persons of Threshold, violated Section 20(a) of the Exchange Act in connection with the filing of the allegedly materially deficient proxy statement. The Plaintiff has asked the District Court to, among other things, (i) enjoin the defendants from proceeding with the proposed merger, (ii) rescind, to the extent already implemented, the proposed merger or grant rescissory damages, and (iii) award damages and attorneys’ fees and expenses. Threshold believes these claims are without merit and intends to vigorously defend this action. Threshold cannot predict the outcome of or estimate the possible loss or range of loss from this matter. It is possible that additional, similar complaints may be filed or the complaint described above is amended. If this occurs, Threshold does not intend to announce the filing of each additional, similar complaint or any amended complaint unless it contain allegations that are substantially distinct from those made in the pending action described above.

 

Comparison

of Stockholder Rights (see page 343)

Both Threshold and Molecular are incorporated under the laws of the State of Delaware and, accordingly, the rights of the stockholders of each are currently, and will continue to be, governed by the DGCL. If the merger is completed, Molecular stockholders will become Threshold stockholders, and their rights will be governed by the DGCL, the amended and restated bylaws of Threshold and the amended and restated certificate of incorporation of Threshold, as amended, as may be further amended by Proposal Nos. 4 and 5 if approved by the Threshold stockholders at the Threshold annual meeting. The rights of Threshold stockholders contained in the amended and restated certificate of incorporation, as amended, and amended and restated bylaws, as amended, of Threshold differ from the rights of Molecular stockholders under the amended and restated certificate of incorporation and amended and restated bylaws of Molecular, as more fully described under the section titled “ Comparison of Rights of Holders of Threshold Capital Stock and Molecular Capital Stock ” beginning on page 346 of this proxy statement/prospectus/information statement.

Risk Factors (see page 35)

Both Threshold and Molecular are subject to various risks associated with their businesses and their industries. In addition, the merger, including the possibility that the merger may not be completed, poses a number of risks to each company and its respective stockholders, including the following risks:

 

•

the exchange ratio is not adjustable based on the market price of Threshold common stock so the merger consideration at the closing may have a greater or lesser value than at the time the merger agreement was signed;

 

•

failure to complete the merger may result in Threshold or Molecular paying a termination fee to the other party and could harm the common stock price of Threshold and future business and operations of each company;

 

•

if the conditions to the merger are not met, the merger may not occur;

 

•

the merger may be completed even though material adverse changes may result from the announcement of the merger, industry-wide changes and other causes;

 

•

while Threshold and Molecular have received commitments for the purchase of $40.0 million in equity securities of the combined company in the concurrent financing and entered into a stock purchase agreement with Takeda for the sale of $20.0 million of shares of common stock of the combined company, consummation of the concurrent financing and Takeda equity financing are subject to conditions and are not conditions to closing the merger, and if Molecular and Threshold complete the merger, but they do not complete the concurrent financing or the Takeda equity financing, then the combined company may need to raise additional capital by issuing securities or debt or through licensing arrangements, which may be on worse commercial terms than the concurrent financing or Takeda equity financing, cause significant dilution to the combined company’s stockholders, restrict the combined company’s operations or require the combined company to relinquish proprietary rights;

 

•

certain Threshold and Molecular executive officers and directors have interests in the merger that are different from yours and that may influence them to support or approve the merger without regard to your interests;

 

•

the market price of Threshold common stock following the merger may decline as a result of the merger;

 

•

Threshold stockholders may not realize a benefit from the merger commensurate with the ownership dilution they will experience in connection with the merger;

 

•

if the merger is not completed, Threshold’s stock price may decline significantly;

 

•

following the completion of the merger, Molecular and Threshold securityholders will have a reduced ownership and voting interest in, and will exercise less influence over the management of, the combined company as compared to their current ownership and voting interest in the respective companies;

 

•

during the pendency of the merger, Threshold and Molecular may not be able to enter into a business combination with another party at a favorable price because of restrictions in the merger agreement, which could adversely affect their respective businesses;

 

•

certain provisions of the merger agreement may discourage third parties from submitting competing proposals, including proposals that may be superior to the arrangements contemplated by the merger agreement; and

 

•

because the lack of a public market for Molecular’s capital stock makes it difficult to evaluate the fairness of the merger, the stockholders of Molecular may receive consideration in the merger that is less than the fair market value of Molecular’s capital stock and/or Threshold may pay more than the fair market value of Molecular’s capital stock.

These risks and other risks are discussed in greater detail under the section titled “ Risk Factors ” beginning on page 35 of this proxy statement/prospectus/information statement. Threshold and Molecular both encourage you to read and consider all of these risks carefully.

 

SELECTED HISTORICAL AND UNAUDITED PRO FORMA

COMBINED FINANCIAL INFORMATION AND DATA

The following tables present summary historical financial data for Threshold and Molecular, summary unaudited pro forma condensed combined financial data for Threshold and Molecular, and comparative historical and unaudited pro forma per share data for Threshold and Molecular.

Selected Historical Consolidated Financial Data of Threshold

The selected consolidated statements of operations data for the years ended December 31, 2016, 2015, 2014, 2013 and 2012 and the selected consolidated balance sheet data as of December 31, 2016, 2015, 2014, 2013 and 2012 are derived from Threshold’s audited consolidated financial statements, of which the last three years are included elsewhere in this proxy statement/prospectus/information statement. The selected statements of operations data for the three months ended March 31, 2017 and 2016 and the selected balance sheet data as of March 31, 2017 and 2016 are derived from Threshold’s unaudited condensed consolidated financial statements included elsewhere in this proxy statement/prospectus/information statement. Threshold’s unaudited condensed consolidated financial statements have been prepared in accordance with U.S. GAAP on the same basis as its audited annual consolidated financial statements and, in the opinion of management, reflect all adjustments, consisting only of normal, recurring adjustments, necessary for the fair presentation of those unaudited condensed consolidated financial statements. Threshold’s historical results are not necessarily indicative of the results that may be expected in any future period.

The selected historical consolidated financial data below should be read in conjunction with the sections titled “ Threshold Management’s Discussion and Analysis of Financial Condition and Results of Operations ,” “ Risk Factors—Risks Related to Threshold’s Financial Performance and Operations ” and Threshold’s consolidated financial statements, unaudited condensed consolidated financial statements and related notes included elsewhere in this proxy statement/prospectus/information statement.

 

		Years Ended December 31,																				Three Months Ended March 31,
		2016				2015				2014				2013				2012				2017				2016
(In thousands, except per share data)																						Unaudited
Revenue		$	—			$	76,915			$	14,722			$	12,495			$	5,867			$	—			$	—
Operating expenses:
Research and development (1)			16,554				40,271				35,832				29,334				18,786				1,590				6,005
General and administrative (1)			7,808				9,716				10,141				9,185				7,080				2,853				2,249
Total operating expenses			24,362				49,987				45,973				38,519				25,866				4,443				8,254
Income (loss) from operations			(24,362	)			26,928				(31,251	)			(26,024	)			(19,999	)			(4,443	)			(8,254	)
Interest income (expense), net			147				125				121				136				80				33				32
Other income (expense), net			121				16,769				9,344				(2,325	)			(51,216	)			(664	)			370
Income (loss) before provision for income taxes			(24,094	)			43,822				(21,786	)			(28,213	)			(71,135	)			(5,074	)			(7,852	)
Provision (benefit ) for income taxes			—				—				(202	)			202				—				—				—
Net income (loss)		$	(24,094	)		$	43,822			$	(21,584	)		$	(28,415	)		$	(71,135	)		$	(5,074	)		$	(7,852	)
Net income (loss) per common share:
Basic		$	(0.34	)		$	0.62			$	(0.36	)		$	(0.49	)		$	(1.31	)		$	(0.07	)		$	(0.11	)
Diluted		$	(0.34	)		$	0.54			$	(0.49	)		$	(0.49	)		$	(1.31	)		$	(0.07	)		$	(0.11	)