Commitments and Contingencies
|12 Months Ended
Dec. 31, 2016
|Commitments and Contingencies Disclosure [Abstract]
|Commitments and Contingencies
16. Commitments and Contingencies
Operating Lease Obligations - Fortress (excluding National)
In July 2016, Journey extended its lease for one year for $2,295 square feet of office space in Scottsdale, AZ, at an annual rate of approximately $53,000. Journey took occupancy of this space in November 2014.
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.
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 $2.7 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. 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 us. 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, 2016, the Company recorded $1.3 million of rent expense related to this facility
In December 2012, we 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 ends February 28, 2018. The annual rent payment is approximately $0.1 million.
In April 2013, the Company entered into a three-year lease for approximately 1,500 square feet of office space in New York, NY at an average annual rent of approximately $0.1 million. The Company commenced occupancy of this space in May 2013. In March 2014, the Company made the decision to close this New York, NY office and commenced marketing the facility for sub-lease. In April 2014, the Company entered into a sub-lease arrangement for this New York, NY office for the remaining term of the lease, and in December 2014, the sub-tenant returned the space. The lease expired in June 2016.
Pursuant to the Second Amendment and Agreement, dated as of December 21, 2012, by and between the Company and Ovamed (the “Manufacturing Agreement”), in December 2012, the Company entered into an Assignment and Assumption of Lease (“Assignment”) with TSO Laboratories, Inc., a wholly owned subsidiary of Ovamed, for approximately 8,700 square feet in Woburn, MA for the purpose of establishing a manufacturing facility. Total rent expense for the five-year lease term was approximately $0.6 million at an average annual rate of $0.1 million. As of December 31, 2013, the Company had spent $0.4 million in leasehold improvement costs associated with this lease. In March 2014, the Company abandoned its plans to build out the Woburn, MA manufacturing facility. As a result, the Company commenced marketing the facility for sub-lease. As of December 31, 2016, the space has not been sublet, and the company continues to seek a sub-tenant.
Total future minimum lease payments under these leases are:
The Company recognizes rent expense on a straight-line basis over the non-cancellable lease term. Rent expense for the years ended December 31, 2016, 2015 and 2014 was $1.8 million, $0.4 million, and $0.3 million, respectively.
Operating Lease Obligations - National
As of September 30, 2016, National leases office space in various states expiring at various dates through August 2025, and is committed under operating leases for future minimum lease payments as follows (dollars in thousands):
Rental expense under all operating leases for the period from September 9, 2016 through September 30, 2016 was approximately $0.2 million. Sublease income under all operating subleases for the period from September 9, 2016 through September 30, 2016 was approximately $8,200.
As of September 30, 2016, National had outstanding three letters of credit, which have been issued in the maximum amount of $0.4 million, as security for property leases, and are collateralized by the restricted cash as reflected in the statements of financial condition.
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.
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.
On August 1, 2016, the Company entered into a Settlement and Forbearance Agreement with Ovamed to settle contractual obligations of approximately $1.9 million. Under the terms of the agreement, within ten days of execution of the agreement, the Company paid $1.1 million during the third quarter of 2016, to be followed in nine months by a second payment of $0.8 million. The combined settlement amount reflects a payment of an obligation previously recorded by the Company.
Mustang and Fortress
On January 15, 2016, Dr. Winson Tang (“Plaintiff”) filed a Complaint against Dr. Rosenwald, Mr. Weiss, Mustang, Fortress, and others 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 alleges that Dr. Tang was a third-party beneficiary of Mustang’s Exclusive License Agreement with COH and should be declared the owner of 15% of Mustang’s outstanding shares. After Fortress, Mustang and other defendants demurred, the Court sustained the demurrer and dismissed all claims without prejudice on September 13, 2016. Dr. Tang filed his second amended complaint on October 11, 2016, and the court again sustained the demurrer without prejudice, except for a claim for declaratory relief against Mustang. Subsequently, Dr. Tang agreed to narrow his claims and drop certain defendants from the case. Dr. Tang filed his third amended complaint on January 17, 2017, alleging one claim for declaratory relief against Mustang and two claims for breach of contract against certain other defendants. The parties are proceeding with discovery, and the case is set for a case management conference on March 15, 2017.
As of December 31, 2016, neither Fortress nor Mustang has accrued any losses in connection with this litigation as both believe that Plaintiff’s claims are without merit and intend to vigorously defend this lawsuit. Even in the event of an adverse determination, Fortress and Mustang intend to satisfy any judgment from sources other than newly issued shares of the Company or Mustang, in order to prevent dilution.
Litigation and Regulatory Matters - National
National is a defendant or respondent in various pending and threatened arbitrations, administrative proceedings and lawsuits seeking compensatory damages. Several cases have no stated alleged damages. Claim amounts are infrequently indicative of the actual amounts National will be liable for, if any. Further, National has a history of collecting amounts awarded in these types of matters from its brokers that are still affiliated, as well as from those that are no longer affiliated. Many of these claimants also seek, in addition to compensatory damages, punitive or treble damages, and all seek interest, costs and fees. These matters arise in the normal course of business. National intends to vigorously defend itself in these actions, and the ultimate outcome of these matters cannot be determined at this time.
Liabilities for potential losses from complaints, legal actions, government investigations and proceedings are established where management believes that it is probable that a liability has been incurred and the amount of loss can be reasonably estimated. In making these decisions, management bases its judgments on its knowledge of the situations, consultations with legal counsel and its historical experience in resolving similar matters. In many lawsuits, arbitrations and regulatory proceedings, it is not possible to determine whether a liability has been incurred or to estimate the amount of that liability until the matter is close to resolution. However, accruals are reviewed regularly and are adjusted to reflect management’s estimates of the impact of developments, rulings, advice of counsel and any other information pertinent to a particular matter. Because of the inherent difficulty in predicting the ultimate outcome of legal and regulatory actions, management cannot predict with certainty the eventual loss or range of loss related to such matters. These amounts are included in accounts payable and other accrued expenses in the statements of financial condition. Awards ultimately paid, if any, may be covered by our errors and omissions insurance policy. While National will vigorously defend itself in these matters, and will assert insurance coverage and indemnification to the maximum extent possible, there can be no assurance that such matters will not have a material adverse impact on our financial position, results of operations or cash flows. National has included in "Professional fees" litigation and FINRA related expenses of $0.2 million for the period from September 9, 2016 through September 30, 2016.