Item 1.01. Entry into a Material Definitive Agreement.
The following descriptions of the various agreements
below are a summary of certain of their terms only and are qualified in their entirety by the full text of the agreements which
are being filed with this Report on Form 8-K.
Stock Purchase and Merger Agreement
On November 12, 2018, Avenue Therapeutics,
Inc. (the “Company”), a subsidiary of Fortress Biotech, Inc. (“Fortress), entered into a Stock Purchase and Merger
Agreement (the “SPMA”) with InvaGen Pharmaceuticals Inc. (the “Buyer”) and Madison Pharmaceuticals Inc.,
a newly formed wholly-owned subsidiary of the Buyer, pursuant to which the Buyer will purchase, for $35 million, common shares
representing 33.3% of the fully diluted capitalization of the Company (the “Stock Purchase Transaction”) and subsequently
acquire the remaining issued and outstanding capital stock of the Company for $180 million, subject to certain reductions, in a
reverse subsidiary merger transaction (the “Merger Transaction”). Pursuant to the terms and subject to the conditions
set forth in the SPMA, the Buyer will, at second closing, hold 100% of the issued and outstanding equity interests of the Company.
The aggregate consideration to be paid by
the Buyer under the SPMA is $215 million in cash, subject to certain potential reductions, which Buyer intends to
have sufficient immediately available funds to pay. In addition, the Company is subject to certain lock-up restrictions and
agreed not to (subject to customary exceptions), during the period commencing at the signing of the SPMA until the Merger
Transaction, issue, buy, sell, or otherwise subject to a security interest, pledge, hypothecation, mortgage or lien, any
securities of the Company.
Consummation of the Merger Transaction is
conditioned, among other things, upon U.S. Food and Drug Administration (“FDA”) approval of IV Tramadol, its labeling
and scheduling and the absence of any Risk Evaluation and Mitigation Strategy restrictions in effect with respect to IV Tramadol,
as well as the expiration of any waiting period applicable to the acquisition under the Hart-Scott-Rodino Antitrust Improvements
Act of 1976, as amended.
The SPMA contains customary representations,
warranties, covenants and termination rights as well as certain customary closing conditions, including the approval of the Company’s
stockholders of the Stock Purchase Transaction and the Merger Transaction.
Stockholders Agreement
Concurrently with the execution
and delivery of the SPMA, the Company, certain stockholders of the Company, including Fortress (the
“Stockholders”), and the Buyer entered into a stockholders agreement (the “Stockholders Agreement”),
pursuant to which, among other things, the Buyer obtained the right to appoint three directors to the Company’s seven
member Board of Directors, one of whom must qualify as an independent director, upon the closing of the Stock Purchase
Transaction. The Stockholders Agreement also entitles the Buyer to veto rights over certain Company actions in the event the
Merger Transaction fails to close.
Credit Agreement and Guaranty
Concurrently with the execution and delivery
of the SPMA, the Company and the Buyer entered into a credit agreement (the “Credit Agreement”), pursuant to which
the Buyer will provide initial financing to the Company in an amount of up to $3 million in the form of a line of credit, up to
the closing of the Stock Purchase Transaction. Any amounts drawn on the line of credit will be deducted from the aggregate consideration
payable to the Company pursuant to the Stock Purchase Transaction. Subject to the terms and conditions described in the SPMA,
the Buyer may also provide interim financing to the Company in an amount of up to $7 million during the time period between the
Stock Purchase Transaction and the Merger Transaction. Any amounts drawn on the interim financing will be deducted
from the aggregate consideration payable to Company stockholders by virtue of the Merger Transaction.
Concurrently with the execution and delivery
of the Credit Agreement, Fortress and the Buyer entered into a guaranty (the “Guaranty”), pursuant to which Fortress
guaranteed the full payment to the Buyer, when due, of all amounts of (x) all obligations of the Company to the Buyer under the
Credit Agreement, whether for principal interest, fees, charges, expenses or otherwise, and (y) any and all costs and expenses
incurred by the Buyer in enforcing any of its rights under the Guaranty.
Voting and Support Agreement
Concurrently with the execution and delivery
of the SPMA, the Company, the Stockholders and the Buyer entered into a voting and support agreement (the “Voting Agreement”),
pursuant to which, among other things, the Stockholders will (i) be present at any meeting of the Company’s stockholders,
in person or represented by proxy, or otherwise cause all of their voting securities to be counted as present for purposes of
calculating a quorum, and (ii) vote or cause to be voted (including by proxy or written consent, if applicable) all of their securities
in favor of the Proposals (as defined in the SPMA), adjourning or postponing the stockholders meeting to a later date if there
are not sufficient votes for the requisite stockholder approval, electing the Buyer Directors (as defined in the Stockholders
Agreement) as members of the board of directors of the Company or any other matter necessary for the consummation of the Stock
Purchase Transaction, Merger Transaction and any other transactions contemplated by the SPMA or the ancillary agreements. Further,
pursuant to the Voting Agreement, the Stockholders will vote against any Takeover Proposal (as defined in the SPMA), any other
action made in opposition to adoption of the SPMA or the ancillary agreements, any action reasonably expected to materially impede
any of the transactions contemplated by the SPMA or the ancillary agreements or any action reasonably expected to result in a
breach in any respect of any covenant, representation or warranty or any other obligation or agreement of the Company contained
in the SPMA, or of the Stockholders contained in the Voting Agreement. In addition, the Stockholders agreed not to transfer any
Company securities held by them until the earlier of the Merger Transaction and the termination of the SPMA.
Waiver Agreement
Concurrently with the execution
and delivery of the SPMA, the Company, the Buyer and Fortress entered into a waiver agreement (the
“Waiver Agreement”), pursuant to which, among other things, Fortress irrevocably waived its right to receive
dividends of the Company’s common shares under the terms of the Class A Preferred Stock and any fees, payments,
reimbursements or other distributions under a certain management services agreement between the Company and Fortress and the
Founders Agreement (as defined in the SPMA), for the period from the effective date of the Waiver Agreement to the termination of
Buyer’s rights under Section 4 of the Stockholders Agreement. Pursuant to the Waiver Agreement, immediately prior to
the closing of the Merger Transaction, Fortress will convert all of its preferred shares into common shares pursuant to the
terms of the certificate of incorporation of the Company, as amended from time to time.
Restrictive Covenant Agreement
Concurrently with the execution
and delivery of the SPMA, the Buyer and Fortress entered into a restrictive covenant agreement under which, among other
things, Fortress agrees not to engage or participate in, or render services to any person engaged in, the business of
hospital administered pain management anywhere in the world other than Canada, Central America, or South America, or solicit
certain empoloyees, during the pendency of the SPMA and for a period of five years after the Merger Transaction.
Indemnification Agreement
Concurrently with the execution and delivery
of the SPMA, the Buyer and Fortress entered into an indemnification agreement (the “Indemnification Agreement”), pursuant
to which Fortress agreed to indemnify and hold harmless the Buyer from and against all losses arising out of any breach or inaccuracy
of any representation or warranty of the Company contained in the SPMA or any ancillary agreement. Pursuant to the Indemnification
Agreement, except in the case of fraud or intentional misrepresentation, the maximum liability of Fortress (other than with respect
to any breach or inaccuracy of any Fundamental Representation, as defined in the Indemnification Agreement) is limited to $7,000,000.
Except in the case of fraud or intentional misrepresentation, the maximum liability of Fortress solely with respect to any breach
or inaccuracy of any Fundamental Representation is limited to $35,000,000. Claims agreed to or adjudicated prior to the Merger
Transaction will be reduced from the Merger Transaction consideration. Claims surviving the Merger Transaction and agreed to or
adjudicated after the Merger Transaction will be reduced from amounts payable under the CVR Agreement (defined below).
Contingent Value Rights Agreement
Following the execution and delivery of the
SPMA and prior to the closing of the Merger Transaction, the Company intends to enter into a Contingent Value Rights Agreement
(the “CVR Agreement”) with a trust company as rights agent, pursuant to which holders of common shares of the Company
(each, a “Holder”), excluding any shares to be cancelled and retired in accordance with the SPMA and any dissenting
shares, will be entitled to receive one Contingent Value Right (“CVR”) for each share held immediately prior to the
Merger Transaction.
Each CVR represents the right of
its holder to receive a contingent cash payment pursuant to the CVR Agreement upon the achievement of certain milestones.
If, during the period commencing on the day following the closing of the Merger Transaction until December 31, 2028, IV
Tramadol generates at least $325 million or more in Net Sales (as defined in the CVR Agreement) in a calendar year, each
Holder shall entitled to receive their pro rata share of (i) if the product generated less than $400 million in Net Sales
during such calendar year, 10% of Gross Profit (as defined in the CVR Agreement), (ii) if the product generated between $400
million and $500 million in Net Sales during such calendar year, 12.5% of Gross Profit, or (iii) if the product generated
more than $500 million in Net Sales during such calendar year, 15% of Gross Profit. Additionally, at any time beginning on
January 1, 2029 that IV Tramadol has generated at least $1.5 billion in aggregate Net Sales, then with respect to each
calendar year in which IV Tramadol generates $100 million or more in Net Sales, each Holder shall be entitled to receive
their pro rata share of an amount equal to 20% of the Gross Profit generated by IV Tramadol. These additional payments will
terminate on the earlier of December 31, 2036 and the date (which may be extended by up to 6 months) that any person has
received approval from the FDA for an Abbreviated New Drug Application or an FDA AP-rated 505(b)(2) NDA using IV Tramadol.