Annual report pursuant to Section 13 and 15(d)

Commitments and Contingencies

Commitments and Contingencies
12 Months Ended
Dec. 31, 2018
Commitments and Contingencies Disclosure [Abstract]  
Commitments and Contingencies
14. Commitments and Contingencies
Operating Lease Obligations
In October 2015, the Company entered into a 5-year lease for approximately 6,100 square feet of office space in Waltham, MA at an average annual rent of approximately $0.2 million. The Company took occupancy of this space in January 2016. For the twelve months ended December 31, 2018 and 2017, the Company recorded $0.2 million and 0.2 million, respectively of rent expense related to this facility.
On October 3, 2014, the Company entered into a 15-year lease for office space at 2 Gansevoort Street New York, NY 10014, at an average annual rent of $2.5 million. The Company took possession of this space in December 2015, and it became the Company’s principal executive office upon occupancy in the first half of 2016. Also, on October 3, 2014, the Company entered into Desk Share Agreements with each of OPPM and TGTX, to occupy 10% and 45%, respectively, of the New York, NY office space that requires them to pay their share of the average annual rent of $0.3 million and $1.1 million, respectively. These initial rent allocations will be adjusted periodically for each party based upon actual percentage of the office space occupied. At December 31, 2018, the office space occupied by OPPM and TGTX is 9% and 46%. Additionally, the Company has reserved the right to execute additional desk share agreements with other third parties and those arrangements will also affect the cost of the lease actually borne by the Company. The lease was executed to further the business strategy, which includes forming additional subsidiaries and/or affiliate companies. Mr. Weiss is Executive Chairman, Chief Executive Officer, President and a stockholder of TGTX. The lease is subject to early termination by the Company, or in circumstances including events of default, the landlord, and includes a five-year extension option in our favor. For the twelve months ended December 31, 2018 and 2017, the Company recorded $0.9 million and $1.0 million, respectively of rent expense related to this facility.
In December 2012, 
the Company 
assumed a lease from TSO Laboratories, Inc., a wholly owned subsidiary of Ovamed GmbH, for approximately 8,700 square feet of space in Woburn, MA for the purpose of establishing a manufacturing facility for TSO. The term of the lease ended February 28, 2018. The annual rent payment was approximately $0.1 million. In July 2017, the Company entered into an agreement with the landlord of this facility, whereby the Company returned the facility to the landlord.
In June 2017, Journey extended its lease for one year for 2,295 square feet of office space in Scottsdale, AZ, at an annual rate of approximately $55,000. Journey took occupancy of this space in November 2014. In August 2018, Journey amended their lease for two years and relocated to a 3,681 square feet of office space in the same location in Scottsdale, AZ at an annual rate of approximately $
. The term of this amended lease commenced on December 1, 2018 and will expire on November 30, 2020.
For the twelve months ended December 31, 2018 and 2017, the Company recorded $0.1 million and $0.1 million, respectively of rent expense related to this facility.
On October 27, 2017, Mustang entered into a lease agreement to lease a 27,043 sf
cell processing facility
, located at 377 Plantation Street in Worcester, MA, through November 2026, subject to additional extensions at Mustang’s option. Base rent, net of abatements of $0.6 million over the lease term, totals approximately $3.6 million, on a triple-net basis. Mustang 
improvements to the facility of approximately $3.5 million.
The terms of the lease also require that Mustang post an initial security deposit of $0.8 million, in the form of $0.5 million letter of credit and $0.3 million in cash, which shall increase to $1.3 million ($1.0 million letter of credit, $0.3 million in cash) when the facility is fully occupied by Mustang. After the fifth lease year, the letter of credit obligation is subject to reduction.
The Facility became operational for the production of 
gene therapies and 
personalized CAR T therapies in 2018.
For the twelve months ended December 31, 2018 and 2017 Mustang recorded $0.4 million and $0.1 million of rent expense.
Total future minimum lease payments under all leases are:
($ in thousands)
Total minimum lease payments
The Company recognizes rent expense on a straight-line basis over the non-cancellable lease term. Rent expense for the years ended December 31, 2018 and 2017 was $1.7 million and $1.2 million, respectively.
In accordance with its certificate of incorporation, bylaws and indemnification agreements, the Company has indemnification obligations to its officers and directors for certain events or occurrences, subject to certain limits, while they are serving at the Company’s request in such capacity. There have been no claims to date, and the Company has director and officer insurance to address such claims. Pursuant to agreements with clinical trial sites, the Company provides indemnification to such sites in certain conditions.
Legal Proceedings
Fortress Biotech, Inc.
In the ordinary course of business, the Company and its subsidiaries may be subject to both insured and uninsured litigation. Suits and claims may be brought against the Company by customers, suppliers, partners and/or third parties (including tort claims for personal injury arising from clinical trials of the Company’s product candidates and property damage) alleging deficiencies in performance, breach of contract, etc., and seeking resulting alleged damages.
Dr. Falk Pharma, GmbH v. Fortress Biotech, Inc. (Frankfurt am Main Regional Court, Ref. No. 3-06 0 28/16). Dr. Falk Pharma, GmbH (“Dr. Falk Pharma”) and Fortress were among the parties to that certain Collaboration Agreement dated March 20, 2012, whereby they agreed to collaborate to develop a product for treatment of Crohn’s disease. A dispute arose between Dr. Falk Pharma and Fortress with respect to their relative rights and obligations under the Collaboration Agreement; specifically, Dr. Falk Pharma contended that it had fulfilled its contractual obligations to Fortress and is entitled to the final milestone payment due under the Collaboration Agreement - EUR 2.5 million. Fortress contended that no such payment is due because a condition of the EUR 2.5 million payment was the delivery of a Clinical Study Report that addressed the primary and secondary objectives of a Phase II trial, and Fortress contended that Dr. Falk Pharma failed to deliver such a Clinical Study Report. Dr. Falk Pharma filed a lawsuit against Fortress in the above-referenced Court in Frankfurt, Germany to recover the EUR 2.5 million plus interest and attorneys’ fees, and Fortress filed an answer to the complaint, denying that it had any liability to Dr. Falk Pharma. On July 27, 2017, Fortress received a judgment from the court in Frankfurt awarding the full amount (EUR 2.5 million) plus interest to Dr. Falk Pharma. Fortress appealed the decision to the Higher Regional Court of Frankfurt on August 28, 2017, and the initial response of Dr. Falk Pharma to the appeal was filed on February 16, 2018. At an appellate hearing in the Higher Regional Court on June 12, 2018, the court issued an oral ruling upholding the lower court’s judgment and indicating that an impending written, enforceable judgment would do the same. On July 12, 2018, the Higher Regional Court approved and recorded terms of settlement between Fortress and Dr. Falk Pharma pursuant to which Fortress paid $3.3 million to Dr. Falk Pharma during the calendar year of 2018, and approximately $39,500 to the court in mandated administrative fees. An additional $300,000 is due during calendar year 2019.
At December 31, 2018 and 2017, the Company recorded a liability of approximately $0.3 million and $3.0 million, representing the U.S. dollar equivalent of the EUR 2.5 million on the Consolidated Balance Sheets.
Fortress and Mustang
On January 15, 2016, Dr. Winson Tang (“Tang”) filed a Complaint against the Company in the Superior Court of the State of California, County of Los Angeles.  
Winson Tang v. Lindsay Rosenwald et al., 
Case No. BC607346. As amended, the Complaint alleged a breach of contract by
the Company
and two officers, Dr. Rosenwald and Mr. Weiss, and two claims against other Defendants, including Mustang. On November 3, 2017, Tang and Defendants entered into a Settlement Agreement regarding this matter.
In connection with the legal settlement, above, the Company delivered 200,000 Mustang common shares, held by the Company, to Tang. During the year ended December 31, 2017, Mustang recorded this transaction as a capital contribution from Fortress and a corresponding expense of approximately $2.0 million based upon the closing share price of Mustang shares as of the date of the Settlement Agreement. In addition to the share issuance Mustang paid, in November 2017, a $0.2 million cash settlement to Tang. The total settlement of $2.2 million, was recorded in general and administrative expenses on the Consolidated Statements of Operations.