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, 2017

17. Related Party Transactions

Shared Services Agreement with TGTX

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 Interim 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, 2017 and 2016, the Company invoiced TGTX $0.2 million and $0.3 million, respectively. For the nine months ended September 30, 2017 and 2016, the Company invoiced TGTX $0.8 million and $0.6 million, respectively. At September 30, 2017, the amount receivable from TGTX approximated $0.1 million.

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”), as of September 30, 2017, the Company had paid $1.8 million in rent under the Desk Space Agreements, and invoiced OPPM and TGTX approximately $0.1 million and $0.6 million, respectively, for their prorated share of the rent base. In addition, for the nine months ended September 30, 2017, the Company had incurred $0.3 million in connection with the build out of the space and recorded a receivable of $0.1 million due from TGTX and $28,000 due from OPPM. At September 30, 2017, the amount due from TGTX approximated $56,000 and the amount due from OPPM approximated $0.1 million.

Opus Credit Facility

In September 2016, the Company and Opus Point Health Innovations Fund (“OPHIF”) entered into a Credit Facility Agreement (the “Opus Credit Facility”). Fortress’s Chairman, President and Chief Executive Officer (Lindsay A. Rosenwald) and Fortress’s Executive Vice President, Strategic Development (Michael Weiss), are Co-Portfolio Managers and Partners of OPPM, an affiliate of OPHIF. As such, all of the disinterested directors of Fortress’s board of directors approved the terms of the Opus Credit Facility and related agreements (see Note 11). For the three and nine months ended September 30, 2017 and 2016, we paid $0.3 million and $0.8 million, and $nil and $nil, respectively.

2017 Subordinated Note Financing

On March 17, 2017, the Company and NSC, a subsidiary of National (of which the Company owns 56.6% and Michael Weiss serves as Chairman of the Board of Directors), entered into placement agency agreements with NAM Biotech Fund and NAM Special Situation Fund in connection with the sale of subordinated promissory notes (see Note 11). Pursuant to the terms of the agreements, NSC will receive a placement agent fee in cash of 10% of the debt raised and warrants equal to 10% of the aggregate principal amount of debt raised divided by the closing share price of the Company’s common stock on the date of closing.

For the three and nine months ended September 30, 2017, NSC earned a placement agent fee of $0.9 million and $2.8 million, respectively, and a Placement Agent Warrant to purchase 716,180 shares of the Company’s common stock, all of which are outstanding, with exercise prices ranging from $3.61 to $4.75.

Caelum Convertible Notes

On July 31, 2017 Caelum through NSC, a subsidiary of National offered up to $10 million, convertible promissory notes to accredited investors (as defined under the U.S. Federal securities laws). Caelum raised $9.9 million in the offering, in three separate closings and paid a placement fee equal to NSC of 10% of the proceeds of the sale or $0.9 million. Additionally NSC received warrants to purchase a number of shares the Caelum’s Common Stock equal to 10% of the aggregate amount of shares underlying the Notes with a per share exercise price equal to 110% of the per share conversion price of the Notes; provided, however, that if no Note converts, the exercise price will be $75 million dollars divided by the total number of fully-diluted shares of Common Stock outstanding immediately prior to exercise of the warrant, giving effect to the assumed conversion of all options, warrants, and convertible securities of the Company.

Avenue IPO

On June 26, 2017, Avenue completed an IPO in which NSC acted as co-manager and earned fees and commissions of approximately $2.3 million that were deducted from the proceeds.

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, 2016, filed with the SEC on March 16, 2017. The following table summarizes, by subsidiary, 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 Company	Effective Date ⁽¹⁾	capitalization			Issued
Helocyte	March 20, 2015		2.5	%	Common Stock
Avenue	February 17, 2015		2.5	%	Common Stock
Mustang	March 13, 2015		2.5	%	Common Stock
Checkpoint	March 17, 2015		0.0	%(2)	Common Stock
Cellvation	October 31, 2016		2.5	%	Common Stock
Caelum	January 1, 2017		2.5	%	Common Stock
Cyprium	March 13, 2017		2.5	%	Common Stock
Aevitas	July 28, 2017		2.5	%	Common Stock

(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.

(2) - 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.

Pursuant to the Founders’ Agreement, Caelum, in connection with each Convertible Note Closing during the three months ended September 30, 2017, issued to Fortress approximately 218,000 shares of its common stock representing the 2.5% fee or approximately $0.2 million.

On June 26, 2017, pursuant to the Founders’ Agreement, Avenue, in connection with its IPO, issued to Fortress approximately 158,000 shares of its common stock representing the 2.5% fee.

Management Services Agreements

The Company has entered in Management Services Agreements (the “MSAs”) with certain of its subsidiaries as described in the Company’s Form 10-K for the year ended December 31, 2016, filed with the SEC on March 16, 2017. The following table summarizes, by subsidiary, the effective date of the MSA and the annual consulting fee payable by the subsidiary to the Company in quarterly installments:

($ in thousands)
						Annual MSA Fee
Fortress Company	Effective Date	R&D		G&A		(Income)/Expense
Helocyte	March 20, 2015	$	250	$	250	$	500
Avenue	February 17, 2015		250		250		500
Mustang	March 13, 2015		250		250		500
Checkpoint	March 17, 2015		250		250		500
Cellvation	October 31, 2016		250		250		500
Caelum	January 1, 2017		250		250		500
Cyprium	March 13, 2017		250		250		500
Aevitas	July 28, 2017		250		250		500
Fortress			(2,000)		(2,000)		(4,000)
Consolidated (Income)/Expense		$	-	$	-	$	-

Chord Advisors, LLC

In May 2015, the Company entered into a full-service consulting agreement with Chord Advisors, LLC (“Chord”) to provide advisory accounting services. Under the terms of the agreement, the Company pays Chord $10,000 per month to provide technical accounting and financial reporting support. Either party upon 30-days written notice can terminate the agreement. Mr. Horin, Managing Partner of Chord, serves as Interim Chief Financial Officer to Avenue, Caelum, Helocyte and Mustang. Pursuant to the agreements with Helocyte, Mustang and Caelum, Chord provides back office accounting support and accounting policy and financial reporting services, including the services of Mr. Horin. Chord receives up to $5,000 per month from Caelum and Helocyte, and up to $7,500 per month from Mustang. Checkpoint and Avenue are billed at a blended hourly rate, for services incurred. For the three and nine months ended September 30, 2017, Checkpoint incurred approximately $15,000 and $52,000, and Avenue incurred approximately $17,000 and $58,000 respectively, in hourly fees.

National

As of September 30, 2017, the Company owns approximately 56.6% of National. The Company’s Executive Vice Chairman, Strategic Development is the Chairman of the Board of National.

Additionally, the Company’s Chairman, President and Chief Executive Officer and the Company’s Executive Vice Chairman, Strategic Development are both Co-Portfolio Managers and Partners of OPPM which owns approximately 4.6% of National. In the normal course, National provides the Company and the Company’s subsidiaries with placement agent services in connection with third party raises.