Quarterly report pursuant to Section 13 or 15(d)

Related Party Transactions

v3.22.2.2
Related Party Transactions
9 Months Ended
Sep. 30, 2022
Related Party Transactions  
Related Party Transactions

14. 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 owns approximately 10.7% of the Company’s issued and outstanding Common Stock as of September 30, 2022. The Company’s Executive Vice Chairman, Strategic Development owns approximately 11.4% of the Company’s issued and outstanding Common Stock as of September 30, 2022.

Shared Services Agreement with TG Therapeutics, Inc (“TGTX”)

In July 2015, 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 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. In connection with the shared services agreement, for the three months ended September 30, 2022 and 2021 the Company invoiced TGTX $0.1 million and $0.1 million, respectively. For the nine months ended September 30, 2022 and 2021, the Company invoiced TGTX $0.7 million and $0.3 million, respectively.  At September 30, 2022, there were no amounts due from TGTX related to this arrangement.

Shared Services Agreement with Journey

On November 12, 2021, Journey and the Company entered into an arrangement to share the cost of certain legal, finance, regulatory, and research and development employees. The Company’s Executive Chairman and Chief Executive Officer is the Executive Chairman of Journey. Under the terms of the arrangement, Journey began reimbursing the Company for the salary and benefit costs associated with these employees based upon actual hours worked on Journey related projects following the completion of their initial public offering in November 2021. For the three and nine months ended September 30, 2022, the Company’s employees have provided services to Journey totaling approximately $7,000 and $0.1 million, respectively.  

Desk Share Agreement with TGTX

The Desk Share Agreement with TGTX, as amended, requires TGTX to pay their share of the average annual rent for office space in New York, NY and Waltham, MA based on actual percentage of the office space occupied on a month-by-month basis. For the three months ended September 30, 2022 and 2021, the Company had paid $0.8 million and $0.7 million in rent, respectively, and in connection with the Company’s Desk Share Agreement with TGTX, has invoiced TGTX approximately $0.5 million and $0.4 million, respectively, for their prorated share of the rent base. For the nine months ended September 30, 2022 and 2021, the Company had paid $2.2 million and $2.1 million in rent, respectively, and invoiced TGTX approximately $1.4 million and $1.2 million, respectively, for their prorated share of the rent base. At September 30, 2022, there were no amounts due from TGTX related to this arrangement.

Contribution Agreement with Avenue

On May 11, 2022, the Company entered into a stock contribution agreement (the “Contribution Agreement”) with Avenue, pursuant to which the Company agreed to transfer ownership of 100% of its shares (common and preferred) in Baergic to Avenue. Under the Contribution Agreement, the Company also agreed to assign to Avenue certain intercompany agreements existing between Fortress and Baergic, including a Founders Agreement, by and between Fortress and Baergic, dated as of March 9, 2017, and Management Services Agreement, by and between Fortress and Baergic, dated as of March 9, 2017. Consummation of the transactions contemplated by the Contribution Agreement is subject to the satisfaction of certain conditions precedent, including, inter alia: (i) the closing of an equity financing by Avenue resulting in gross proceeds of at least $7.5 million, (ii) the agreement by minority Avenue shareholder InvaGen Pharmaceuticals, Inc. (“InvaGen”) to (A) have 100% of its shares in Avenue repurchased by Avenue and (B) terminate certain of the agreements into which it entered with Avenue and/or the Company in connection with InvaGen’s 2019 equity investment in Avenue, which would eliminate certain negative consent rights of InvaGen over Avenue and restore certain rights and privileges of Fortress in Avenue (all upon terms to be agreed upon with InvaGen); and (iii) the sustained listing of Avenue’s common stock on the Nasdaq Capital Market.  On October 11, 2022, Avenue announced the closing of an underwritten public offering in which it received net proceeds of approximately $10.4 million.  The offering, together with the October 2022 repurchase of Avenue common shares held by InvaGen, resulted in the consummation of the Contribution Agreement in November 2022 (see Note 18).

Founders Agreement

The Company has entered into Founders Agreements and, in some cases, exchange agreements with certain of its subsidiaries as described in the 2021 Form 10-K. The following table summarizes, by partner company, the effective date of the Founders Agreements and Payment-in-Kind (“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

Partner Company

    

Effective Date 1

    

capitalization

    

Issued

Aevitas

July 28, 2017

 

2.5

%  

Common Stock

Avenue

February 17, 2015

 

0.0

%2  

Common Stock

Baergic

December 17, 2019 5

2.5

%3  

Common Stock

Cellvation

October 31, 2016

 

2.5

%  

Common Stock

Checkpoint

March 17, 2015

 

0.0

%4  

Common Stock

Cyprium

March 13, 2017

 

2.5

%  

Common Stock

Helocyte

March 20, 2015

 

2.5

%  

Common Stock

Mustang

March 13, 2015

 

2.5

%  

Common Stock

Oncogenuity

April 22, 2020 5

2.5

%

Common Stock

Urica

November 7, 2017 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:

PIK dividends in Avenue were not paid or accrued while InvaGen retained certain rights under that certain Stockholders Agreement, dated as of November 12, 2018, by and among the Company, Avenue, InvaGen and the other stockholder parties thereto (the “Avenue Stockholders Agreement”). In connection with the closing of Avenue’s public offering, InveGen’s shares were repurchased under a Share Repurchase Agreement in October 2022 and upon the closing of the Share Repurchase Agreement, also in October 2022, all of the rights retained by InvaGen pursuant to the avenue Stockholders Agreement were terminated and all of Fortress’ rights were restored (see Note 18).

Note 3:

Due to the November 2022 consummation of the Contribution Agreement between the Company and Avenue, Avenue is now eligible to receive the PIK dividend and equity fee payable by Baergic in accordance with the terms of the Founders Agreement and Baergic’s certificate of incorporation.

Note 4:

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 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 2021 Form 10-K. 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

Partner company

    

Effective Date

    

(Income)/Expense

Aevitas

July 28, 2017

$

500

Avenue1

February 17, 2015

 

Baergic2

March 9, 2017

 

500

Cellvation

October 31, 2016

 

500

Checkpoint

March 17, 2015

 

500

Cyprium

March 13, 2017

 

500

Helocyte

March 20, 2015

500

Mustang

March 13, 2015

 

1,000

Oncogenuity

February 10, 2017

500

Urica

November 7, 2017

500

Fortress

 

(5,000)

Consolidated (Income)/Expense

$

Note 1:

MSA fees from Avenue were not paid or accrued so long as InvaGen held certain rights under the Avenue Stockholders Agreement. InvaGen’s shares in Avenue were repurchased in October 2022, and all existing agreements between InvaGen and Avenue (including the Avenue Stockholders Agreement) were terminated as of the closing of the Share Repurchase Agreement in October 2022 (see Note 18). Fortress has been eligible to receive MSA fees from Avenue since such closing occurred.

Note 2:  Due to the November 2022 consummation of the Contribution Agreement between the Company and Avenue, Avenue (and not the Company) is now eligible to receive MSA fees from Baergic in accordance with the terms of the Founders Agreement and Baergic’s certificate of incorporation.