Item 1.01
Entry into a Material Definitive Agreement.
Merger Agreement and Transaction
On March 16, 2017, Threshold Pharmaceuticals, Inc. (the “Company”)
entered into an Agreement and Plan of Merger and Reorganization (the “Merger Agreement”) with Molecular Templates,
Inc., a Delaware corporation (“Molecular Templates”), a clinical-stage biopharmaceutical company focused on the development
and commercialization of innovative therapeutics to treat cancer, and Trojan Merger Sub, Inc., a Delaware corporation and wholly-owned
subsidiary of the Company (“Merger Sub”). Upon the terms and subject to the satisfaction of the conditions described
in the Merger Agreement, including approval of the transaction by the Company’s stockholders and Molecular Templates’
stockholders, Merger Sub will be merged with and into Molecular Templates (the “Merger”), with Molecular Templates
surviving the Merger as a wholly-owned subsidiary of the Company. The Merger is intended to qualify as a tax-free reorganization
for U.S. federal income tax purposes.
At the effective time of the Merger (the “Effective Time”):
(a) each share of Molecular Templates common stock outstanding immediately prior to the Effective Time (excluding shares held by
the Company, Merger Sub or Molecular Templates and dissenting shares, and after giving effect to the purchase or conversion rights
of Molecular Templates’ preferred stockholders, warrantholders and noteholders) will be converted solely into the right to
receive a number of shares of Company Common Stock (the “Shares”) equal to the exchange ratio described below, and
(b) each outstanding Molecular Templates stock option will be assumed by the Company. Under the exchange ratio formula in the Merger
Agreement, the former Molecular Templates security holders immediately before the Merger are expected to own approximately 65.6%
of the aggregate number of the Shares, and the stockholders of the Company immediately before the Merger are expected to own approximately
34.4% of the aggregate number of the Shares, subject to certain assumptions (on a fully diluted basis). Further, this exchange
ratio will be adjusted to the extent the Company’s net cash (as defined in the Merger Agreement) at closing of the merger
(the “Closing”) is greater than $17.5 million or less than $12.5 million.
Following the Closing, Molecular Templates’ Chief Executive
Officer, Eric Poma, Ph.D., will become the Company’s Chief Executive Officer, and the Company’s corporate headquarters
will be relocated Austin, Texas. Additionally, following the Closing, the board of directors of the Company (the “Company
Board”) will consist of seven directors and will be comprised of (i) two members designated by Molecular Templates, (ii)
two members of the current Company Board, including Harold E. Selick, who will act as chairman, and (iii) three members mutually
agreed upon by Molecular Templates and the Company. In addition, following the Closing, the Company will change its name to Molecular
Templates, Inc. and will change its NASDAQ symbol to MTEM.
The Merger Agreement contains customary representations, warranties
and covenants made by the Company and Molecular Templates, including covenants relating to obtaining the requisite approvals of
the stockholders of the Company and Molecular Templates, indemnification of directors and officers, the Company’s and Molecular
Templates’ conduct of their respective businesses between the date of signing of the Merger Agreement and the Closing and
to prepare and file a registration statement on Form S-4 that will contain a proxy statement / prospectus / information statement
to register the Shares issued pursuant to the Merger Agreement (the “S-4”).
In connection with the Merger and the S-4, the Company will
be seeking the approval of the Company’s stockholders with respect to certain actions, including the following:
|
·
|
The authorization and issuance of the Shares in the Merger;
|
|
·
|
The authorization of the issuance of securities proposed to be issued
in the proposed financing described below;
|
|
·
|
amendments of the Company certificate of incorporation related to
changing the name of the Company; and
|
|
·
|
authorization of the Company Board to effect a reverse stock split
of the Shares within a range, which shall be no less than 5:1 or more than 15:1.
|
The Closing is subject to satisfaction or waiver of certain
conditions including, among other things, (i) the expiration or termination of any waiting period applicable to the consummation
of the Merger under the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended, (ii) the accuracy of the representations
and warranties, subject to certain materiality qualifications, (iii) compliance by the parties with their respective covenants,
(iv) no law or order preventing the Merger and related transactions, and (v) the effectiveness of the S-4. The Closing is not contingent
upon the completion of the Financing described below.
The Merger Agreement also includes termination provisions for
both the Company and Molecular Templates. In connection with a termination of the Merger Agreement under specified circumstances
involving competing transactions, a willful, intentional and material breach of the non-solicitation obligations, a change in the
board of directors’ recommendation of the Merger to the stockholders or other triggering events, either party may be required
to pay the other party a termination fee of $750,000, plus reimbursement for certain fees and expenses.
In connection with execution of the Merger Agreement, the Company
will make a bridge loan to Molecular Templates pursuant to a note purchase agreement and promissory notes (the “Notes”)
up to an aggregate principal amount of $4.0 million with an initial closing to be held no later than the third business day following
the execution of the Merger Agreement for a principal amount of $2.0 million. If the Merger Agreement is terminated prior to the
to the maturity date of the Notes, the outstanding principal of the Notes plus all accrued and unpaid interest shall become due
and payable upon the earlier of (i) the consummation of a qualified financing by Molecular Templates of at least $10.0 million,
(ii) the occurrence of a Molecular Templates liquidity event, or (iii) the four-month anniversary of the termination of the Merger
Agreement, and such amounts shall be credited against any termination fees owed by the Company to Molecular Templates pursuant
to the Merger Agreement.
Support Agreements
Concurrently with the execution of the Merger Agreement, officers
and directors of the Company entered into support agreements with Molecular Templates relating to the Merger covering approximately
1.2% of the outstanding Shares, as of immediately prior to the Merger (the “Company Support Agreements”). The Company
Support Agreements provide, among other things, that the stockholders to the Company Support Agreement will vote all of the Shares
held by them in favor of the issuance of the Shares in connection with the Merger and the amendments to the Company’s certificate
of incorporation contemplated by the Merger Agreement.
Concurrently with the execution of the Merger Agreement, officers,
directors and certain stockholders of Molecular Templates entered into support agreements with the Company covering approximately
96.3% of the outstanding shares of Molecular Templates (including shares of its preferred stock on an as-converted to common stock
basis) relating to the Merger (the “Molecular Templates Support Agreements,” and together with the Company Support
Agreement, the “Support Agreements”). The Molecular Templates Support Agreements provide, among other things, that
the officers and stockholders party to the Molecular Templates Support Agreement will vote all of the shares of Molecular Templates
held by them in favor of the adoption of the Merger Agreement, the approval of the Merger and the other transactions contemplated
by the Merger Agreement.
Lock-Up Agreements
Concurrently with the execution of the Merger Agreement, officers
and directors of the Company entered into lock-up agreements (the “Company Lock-Up Agreement”), pursuant to which they
accepted certain restrictions on transfers of the Shares for the 180-day period following the Effective Time.
Concurrently with the execution of the Merger Agreement, officers,
directors and certain stockholders of Molecular Templates, have entered into lock-up agreements (the “Molecular Lock-Up Agreement,”
and together with the Company Lock-Up Agreement, the “Lock-Up Agreements”), pursuant to which they accepted certain
restrictions on transfers of the Shares for the 180-day period following the Effective Time.
The foregoing descriptions of the Merger Agreement, Company
Support Agreement, Molecular Templates Support Agreement, the Company Lock-Up Agreement and the Molecular Lock-Up Agreement, are
not complete and are qualified in their entirety by reference to those agreements, which are attached hereto as Exhibit 2.1, 10.1,
10.2, 10.3 and 10.4 respectively to this report and incorporated herein by reference.
Equity Commitment Letter
On March 16, 2017, the Company and Molecular Templates
received from Longitude Venture Partners III, L.P. (“Longitude”) an Equity Commitment Letter (the “Commitment
Letter”), pursuant to which, immediately following the Closing of the Merger, Longitude will purchase $20 million of equity
securities in the Company. Longitude’s investment is subject to certain conditions, including the Closing of the Merger and
the Company having secured commitments from additional investors for the purchase of an additional $20 million of such securities
(the “Financing”).
The Financing will be accomplished in a private placement exempt
from registration under Section 4(a)(2) and Regulation D under the Securities Act of 1933, as amended (the “Securities
Act”), and the rules promulgated thereunder. The securities to be sold in the 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 report 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.
The foregoing description of the Commitment Letter is not complete
and is qualified in its entirety by reference to the Commitment Letter, a copy of which will be filed as an Exhibit to the Company’s
Quarterly Report on Form 10-Q for the quarter ended March 31, 2017.