Fortress Biotech, Inc. Quarterly report pursuant to Section 13 or 15(d)

Quarterly report pursuant to Section 13 or 15(d)

Related Party Transactions

Related Party Transactions

9 Months Ended

Sep. 30, 2020

16. Related Party Transactions

The Company’s Chairman, President and Chief Executive Officer, individually and through certain trusts over which he has voting and dispositive control, beneficially owned approximately 10.1% of the Company’s issued and outstanding Common Stock as of September 30, 2020. The Company’s Executive Vice Chairman, Strategic Development owns approximately 10.9% of the Company’s issued and outstanding Common Stock as of September 30, 2020.

Shared Services Agreement with TG Therapeutics, Inc

TG Therapeutics, Inc. ("TGTX") and the Company entered into an arrangement to share the cost of certain research and development employees. The Company’s Executive Vice Chairman, Strategic Development, is also the Executive Chairman and Chief Executive Officer of TGTX. Under the terms of the Agreement, TGTX will reimburse the Company for the salary and benefit costs associated with these employees based upon actual hours worked on TGTX related projects. For the three months ended September 30, 2020 and 2019, the Company invoiced TGTX $0.1 million and $0.1 million, respectively. For the nine months ended September 30, 2020 and 2019, the Company invoiced TGTX $0.3 million and $0.3 million, respectively. On September 30, 2020, the amount due from TGTX related to this arrangement approximated $69,000.

Desk Space Agreements with TGTX and OPPM

In connection with the Company’s Desk Space Agreements with TGTX and Opus Point Partners Management, LLC (“OPPM”), for the three months ended September 30, 2020 and 2019, the Company had paid $0.7 million and $0.7 million in rent under the Desk Space Agreements. For the three months ended September 30, 2020 and 2019, the Company invoiced TGTX approximately $0.4 million and $0.4 million, respectively, and invoiced OPPM nil and approximately $24,000, respectively, for their prorated share of the rent base. On September 30, 2020, the amount due related to this arrangement from TGTX was nil and the amount due from OPPM approximated $0.4 million.

2019 Notes (formerly the Opus Credit Facility)

On September 13, 2019, the Company and Opus Point Healthcare Innovations Fund, LP (“OPHIF”) extended the maturity date of the 2019 Notes (formerly the “A&R Opus Credit Facility) from September 14, 2019 by two years to September 14, 2021. Terms of the 2019 Notes allows for the Company to make portions of interest and principal repayments in the form of shares of the Company’s common stock and/or in common stock of the Company’s publicly-traded subsidiaries, subject to certain conditions. Fortress retained the ability to prepay the Notes at any time without penalty. The notes payable under the A&R Opus Credit Facility bear interest at 12% per annum.

Effective December 31, 2019, OPHIF dissolved and distributed it assets among its limited partners. Following the distribution, the $9.0 million facility comprised of separate notes (collectively, the “2019 Notes”) held by DAK Capital Inc. ($3.8 million); Fortress’ Chairman, President and Chief Executive Officer Lindsay A. Rosenwald, M.D. ($0.3 million); Fortress's Executive Vice President, Strategic Development Michael S. Weiss ($2.0 million); and various entities and individuals affiliated with Dr. Rosenwald and Mr. Weiss ($2.9 million). The terms of the 2019 Notes did not change in connection with such reallocations.

During the quarter ended September 30, 2020, the Company used certain proceeds from the Oaktree Note to pay off the $9.0 million balance previously outstanding under the 2019 Notes (see Note 10).

For the nine months ended September 30, 2020, in connection with the 2019 Notes, the Company paid $0.5 million in interest on the portion of the 2019 Notes held by the Company's Chairman, President and Chief Executive Officer and the Company's Executive Vice President, Strategic Development. For the nine months ended September 30, 2019, the Company paid $0.2 million in common stock consisting of 91,767 shares at $1.80 per share.

Avenue Credit Facility Agreement

On June 12, 2020, Avenue, the Company and InvaGen entered into a Facility Agreement (“Avenue Facility Agreement”), under which, beginning on October 1, 2020, Avenue may borrow up to $2 million collectively from the Company and InvaGen, subject to certain conditions set forth therein. The Company’s commitment amount is $0.8 million, and InvaGen’s is $1.2 million , and a 7% per annum interest rate applies (payable on the last day of each fiscal quarter). Repayment of the loan is due upon the earliest to occur of: (i) the Second Stage Closing Date, as defined in the SPMA; (ii) April 29, 2021; and (iii) the date that is 30 days following the termination of the Avenue SPMA. As of September 30, 2020, there have been no amounts drawn by Avenue on the Avenue Facility Agreement.

Founders Agreements

The Company has entered into Founders Agreements and, in some cases, Exchange Agreements with certain of its subsidiaries as described in the Company's Form 10-K for the year ended December 31, 2019, filed with the SEC on March 16, 2020. The following table summarizes, by partner company, the effective date of the Founders Agreements and PIK dividend or equity fee payable to the Company in accordance with the terms of the Founders Agreements, Exchange Agreements, and the subsidiaries' certificates of incorporation:


		PIK Dividend as
		a % of fully
		diluted
		outstanding		Class of Stock
Fortress Partner Company	Effective Date ¹	capitalization		Issued
Helocyte	March 20, 2015	2.5	%	Common Stock
Avenue	February 17, 2015	0.0	%²	Common Stock
Mustang	March 13, 2015	2.5	%	Common Stock
Checkpoint	March 17, 2015	0.0	%³	Common Stock
Cellvation	October 31, 2016	2.5	%	Common Stock
Caelum	January 1, 2017	0.0	%⁴	Common Stock
Baergic	December 17, 2019⁵	2.5	%	Common Stock
Cyprium	March 13, 2017	2.5	%	Common Stock
Aevitas	July 28, 2017	2.5	%	Common Stock
Oncogenuity	April 22, 2020 ⁵	2.5	%	Common Stock

Note 1:

Represents the effective date of each subsidiary’s Founders Agreement. Each PIK dividend and equity fee is payable on the annual anniversary of the effective date of the original Founders Agreement or has since been amended to January 1 of each calendar year.

Note 2:

Concurrently with the execution and delivery of the Stock Purchase and Merger Agreement (“Avenue SPMA”) entered into between, Avenue, the Company and InvaGen Pharmaceuticals Inc. (“InvaGen”) (together, the “ SPMA Parties”), the SPMA Parties entered into a waiver agreement (the “Waiver Agreement”), pursuant to which the Company irrevocably waived its right to receive the annual dividend of Avenue’s common shares under the terms of the Class A preferred stock and any fees, payments, reimbursements or other distributions under the management services agreement between the Company and Avenue and the Founders Agreement, for the period from the effective date of the Waiver Agreement to the termination of InvaGen’s rights under the Avenue SPMA. Pursuant to the Waiver Agreement, immediately prior to the closing of the Merger Transaction contemplated under the Avenue SPMA, the Company will convert all of its preferred shares into common shares pursuant to the terms of the certificate of incorporation of Avenue, as amended from time to time.

Note 3:

Instead of a PIK dividend, Checkpoint pays the Company an annual equity fee in shares of Checkpoint’s common stock equal to 2.5% of Checkpoint’s fully diluted outstanding capitalization.

Note 4:

Effective January 31, 2019 the Caelum Founders Agreement and MSA with Fortress were terminated in conjunction with the execution of the DOSPA between Caelum and Alexion (See Note 4).

Note 5:

Represents the Trigger Date, the date that the Fortress partner company first acquires, whether by license or otherwise, ownership rights in a product.

Management Services Agreements

The Company has entered in Management Services Agreements (the “MSAs”) with certain of its partner companies as described in the Company’s Form 10-K for the year ended December 31, 2019, filed with the SEC on March 16, 2020. The following table summarizes the effective date of the MSA and the annual consulting fee payable by the partner company to the Company in quarterly installments:


		Annual MSA Fee
Fortress partner company	Effective Date	(Income)/Expense
Helocyte	March 20, 2015	$	500
Avenue ¹	February 17, 2015		—
Mustang	March 13, 2015		500
Checkpoint	March 17, 2015		500
Cellvation	October 31, 2016		500
Baergic	March 9, 2017		500
Cyprium	March 13, 2017		500
Aevitas	July 28, 2017		500
Oncogenuity	February 10, 2017		500
Fortress			(4,000)
Consolidated (Income)/Expense		$	—

Note 1:

Concurrently with the execution and delivery of the Avenue SPMA entered into among, Avenue, the Company and InvaGen Pharmaceuticals Inc. (“InvaGen”) (together, the “SPMA Parties”), the SPMA Parties entered into a waiver agreement (the “Waiver Agreement”), pursuant to which the Company irrevocably waived its right to receive the annual dividend of Avenue’s common shares under the terms of the Class A preferred stock and any fees, payments, reimbursements or other distributions under the management services agreement between the Company and Avenue and the Founders Agreement, for the period from the effective date of the Waiver Agreement to the termination of InvaGen’s rights under the Avenue SPMA. Pursuant to the Waiver Agreement, immediately prior to the closing of the Merger Transaction contemplated under the Avenue SPMA, the Company will convert all of its preferred shares into common shares pursuant to the terms of the certificate of incorporation of Avenue, as amended from time to time. (See Note 4).