The Company’s Certificate of Incorporation, as amended, authorizes the Company to issue 100,000,000 shares of $0.001 par value Common Stock of which 57,845,447 and 50,991,285 shares are outstanding at December 31, 2018 and 2017, respectively.

 

The terms, rights, preference and privileges of the Common Stock are as follows:

 

 

Each holder of Common Stock is entitled to one vote per share of Common Stock held on all matters submitted to a vote of the stockholders, including the election of directors. The Company’s certificate of incorporation and bylaws do not provide for cumulative voting rights.

 

 

Subject to preferences that may be applicable to any then outstanding preferred stock, the holders of the Company’s outstanding shares of Common Stock are entitled to receive dividends, if any, as may be declared from time to time by the Company’s Board of Directors out of legally available funds.

 

 

In the event of the Company’s liquidation, dissolution or winding up, holders of Common Stock will be entitled to share ratably in the net assets legally available for distribution to stockholders after the payment of all of the Company’s debts and other liabilities, subject to the satisfaction of any liquidation preference granted to the holders of any outstanding shares of Preferred Stock.

 

 

Holders of the Company’s Common Stock have no preemptive, conversion or subscription rights, and there is no redemption or sinking fund provisions applicable to the Common Stock. The rights, preferences and privileges of the holders of Common Stock are subject to, and may be adversely affected by, the rights of the holders of shares of any series of the Company’s preferred stock that are or may be issued.

 

 

All of the Company’s outstanding shares of Common Stock are fully paid and nonassessable.

 

 

On October 26, 2017, the Company designated 5,000,000 shares of preferred stock as Series A Preferred Stock.  On December 15, 2017, the Company issued $25.0 million (or 1,000,000 shares) of Series A Preferred Stock through B. Riley FBR, as lead manager and joint bookrunner of the placement, and NSC and H.C. Wainwright & Co. as joint bookrunners.  NSC is a subsidiary of National Holdings Corporation. 

 

 

Except as may be otherwise required by law, the voting rights of the holders of the Series A Preferred Stock are limited to the affirmative vote or consent of the holders of at least two-thirds of the votes entitled to be cast by the holders of the Series A Preferred Stock outstanding at the time in connection with the: (1) authorization or creation, or increase in the authorized or issued amount of, any class or series of capital stock ranking senior to the Series A Preferred Stock with respect to payment of dividends or the distribution of assets upon liquidation, dissolution or winding up or reclassification of any of the Company’s authorized capital stock into such shares, or creation, authorization or issuance of any obligation or security convertible into or evidencing the right to purchase any such shares; or (2)  amendment, alteration, repeal or replacement of the Company’s certificate of incorporation, including by way of a merger, consolidation or otherwise in which the Company may or may not be the surviving entity, so as to materially and adversely affect and deprive holders of Series A Preferred Stock of any right, preference, privilege or voting power of the Series A Preferred Stock.

 

 

Dividends on Series A Preferred Stock accrue daily and will be cumulative from, and including, the date of original issue and shall be payable quarterly every March 31, June 30, September 30, and December 31, at the rate of 9.375% per annum of its liquidation preference, which is equivalent to $2.34375 per annum per share. The first dividend on Series A Preferred Stock sold in the offering was payable on December 31, 2017 (in the amount of $0.299479 per share) to the holders of record of the Series A Preferred Stock at the close of business on December 15, 2017 and thereafter for each subsequent quarter in the amount of $0.5839375 per share. The Company recorded approximately $2.3 million and $0.3 million of dividends in Additional Paid in Capital on the Consolidated Balance Sheets as of December 31

 

 

The Series A Preferred Stock has no maturity date, and the Company is not required to redeem the Series A Preferred Stock. Accordingly, the Series A Preferred Stock will remain outstanding indefinitely unless the Company decides to redeem it pursuant to its optional redemption right or its special optional redemption right in connection with a Change of Control (as defined below), or under the circumstances set forth below under “Limited Conversion Rights Upon a Change of Control” and elect to convert such Series A Preferred Stock. The Company is not required to set aside funds to redeem the Series A Preferred Stock.

 

 

The Series A Preferred Stock may be redeemed in whole or in part (at the Company’s option) any time on or after December 15, 2022, upon not less than 30 days nor more than 60 days’ written notice by mail prior to the date fixed for redemption thereof, for cash at a redemption price equal to $25.00 per share, plus any accumulated and unpaid dividends to, but not including, the redemption date.  

 

 

Upon the occurrence a Change of Control (as defined below), the Company may redeem the shares of Series A Preferred Stock, at its option, in whole or in part, within one hundred twenty (120) days of any such Change of Control, for cash at $25.00 per share, plus accumulated and unpaid dividends (whether or not declared) to, but excluding, the redemption date. If, prior to the Change of Control conversion date, the Company has provided notice of its election to redeem some or all of the shares of Series A Preferred Stock (whether pursuant to the Company’s optional redemption right described above under “Optional Redemption” or this special optional redemption right), the holders of shares of Series A Preferred Stock will not have the Change of Control conversion right with respect to the shares of Series A Preferred Stock called for redemption. If the Company elects to redeem any shares of the Series A Preferred Stock as described in this paragraph, the Company may use any available cash to pay the redemption price.

 

A “Change of Control” is deemed to occur when, after the original issuance of the Series A Preferred Stock, the following have occurred and are continuing:

 

 

 

Except as described below under “Limited Conversion Rights upon a Change of Control,” the Series A Preferred Stock is not subject to preemptive rights or convertible into or exchangeable for any other securities or property at the option of the holder.

 

Upon the occurrence of a Change of Control, each holder of shares of Series A Preferred Stock will have the right (unless, prior to the Change of Control Conversion Date, the Company has provided or provides irrevocable notice of its election to redeem the Series A Preferred Stock as described above under “Optional Redemption,” or “

Special Optional Redemption

”) to convert some or all of the shares of Series A Preferred Stock held by such holder on the Change of Control Conversion Date, into the Common Stock Conversion Consideration, which is equal to the lesser of:

 

 

In the case of a Change of Control pursuant to which the Company’s common stock will be converted into cash, securities or other property or assets, a holder of Series A Preferred Stock will receive upon conversion of such Series A Preferred Stock the kind and amount of Alternative Form Consideration which such holder would have owned or been entitled to receive upon the Change of Control had such holder held a number of shares of the Company’s common stock equal to the Common Stock Conversion Consideration immediately prior to the effective time of the Change of Control.

 

 Notwithstanding the foregoing, the holders of shares of Series A Preferred Stock will not have the Change of Control Conversion Right if the acquiror has shares listed or quoted on the NYSE, the NYSE American LLC or Nasdaq Stock Market or listed or quoted on an exchange or quotation system that is a successor to the NYSE, the NYSE American LLC or Nasdaq Stock Market, and the Series A Preferred Stock becomes convertible into or exchangeable for such acquiror’s listed shares upon a subsequent Change of Control of the acquiror.

 

 

In the event the Company liquidates, dissolves or is wound up, holders of the Series A Preferred Stock will have the right to receive $25.00 per share, plus any accumulated and unpaid dividends to, but not including, the date of payment, before any payment is made to the holders of the Company’s common stock.

 

 

The Series A Preferred Stock will rank, with respect to rights to the payment of dividends and the distribution of assets upon the Company’s liquidation, dissolution or winding up, (1) senior to all classes or series of the Company’s common stock and to all other equity securities issued by the Company other than equity securities referred to in clauses (2) and (3); (2) on a par with all equity securities issued by the Company with terms specifically providing that those equity securities rank on a par with the Series A Preferred Stock with respect to rights to the payment of dividends and the distribution of assets upon the Company’s liquidation, dissolution or winding up; (3) junior to all equity securities issued by the Company with terms specifically providing that those equity securities rank senior to the Series A Preferred Stock with respect to rights to the payment of dividends and the distribution of assets upon the Company liquidation, dissolution or winding up; and (4) junior to all of the Company’s existing and future indebtedness.

 

As of December 31, 2018, and 2017, 1,000,000 shares of Series A Preferred Stock were issued and outstanding.

 

 

As of December 31, 2018, the Company had four equity compensation plans: the Fortress Biotech, Inc. 2007 Stock Incentive Plan (the “2007 Plan”), the Fortress Biotech, Inc. 2013 Stock Incentive Plan, as amended (the “2013 Plan”), the Fortress Biotech, Inc. 2012 Employee Stock Purchase Plan (the “ESPP”) and the Fortress Biotech, Inc. Long Term Incentive Plan (“LTIP”). In 2007, the Company’s Board of Directors adopted and stockholders approved the 2007 Plan authorizing the Company to grant up to shares of Common Stock to eligible employees, directors, and consultants in the form of restricted stock, stock options and other types of grants. In 2013, the Company’s Board of Directors adopted and stockholders approved the 2013 Plan authorizing the Company to grant up to 2,300,000 shares of Common Stock to eligible employees, directors, and consultants in the form of restricted stock, stock options and other types of grants. In 2015, the Company’s Board of Directors and stockholders approved an increase of 7,700,000 shares for the 2013 Plan bringing the total number of shares approved under this plan to , with the aggregate total of authorized shares available for grants under the 2007 Plan and the 2013 Plan of up to 16,000,000 shares. An aggregate 13,176,146 shares were granted under both the Company’s 2007 and 2013 plans, net of cancellations, and 2,823,854 shares were available for issuance as of December 31, 2018.

 

 

 

The purpose of the Company’s 

and 

equity compensation plans is to provide for equity awards as part of an overall compensation package of performance-based rewards to attract and retain qualified personnel. Such awards include, without limitation, options, stock appreciation rights, sales or bonuses of restricted stock, restricted stock units or dividend equivalent rights, and an award may consist of one such security or benefit, or two or more of them in any combination or alternative. Vesting of awards may be based upon the passage of time, the occurrence of one or more events, or the satisfaction of performance criteria or other conditions.

 

Incentive and non-statutory stock options are granted pursuant to option agreements adopted by the plan administrator. Options generally have 10-year contractual terms and vest in three equal annual installments commencing on the grant date.

 

The Company estimates the fair value of stock option grants using a Black-Scholes option pricing model. In applying this model, the Company uses the following assumptions:

 

 

The fair value of each option award was estimated on the grant date using the Black-Scholes option-pricing model and expensed under the straight-line method. Journey and Mustang issued stock options during the years ended December 31, 2018 and 2017.

 

The fair value for non-employee stock-based awards are marked-to-market on each valuation date until vested using the Black-Scholes pricing model.

 

The following table summarizes the stock-based compensation expense from stock option, employee stock purchase programs and restricted Common Stock awards and warrants for the years ended December 31, 2018 and 2017:

 

 

For the years ended December 31, 2018 and 2017, $5.3 million and $4.0 million was included in research and development expenses, and $9.7 million and $9.4 million was included in general and administrative expenses, respectively.

 

 

The following table summarizes Fortress stock option activities excluding activities related to 

 

 

During the years ended December 31, 2018 and 2017, exercises of stock options resulted in total proceeds of approximately nil and $27,000, respectively.

 

As of December 31, 2018, the Company had unrecognized stock-based compensation expense related to all unvested options and vested options of nil and nil, respectively.

 

 

Stock-based compensation expense from restricted stock awards and restricted stock units for the years ended December 31, 2018 and 2017 was $13.9 million and $11.3 million, respectively.

  

During 2018, the Company granted 1,721,802 restricted shares of its Common Stock to executives and directors of the Company and 490,000 restricted stock units to employees and non-employees of the Company. The fair value of the restricted stock awards issued during 2018 of $6.6 million and the fair value of the restricted stock unit awards issued during 2018 of $1.8 million were estimated on the grant date using the Company’s stock price as of the grant date.  The 2018 restricted stock awards and restricted stock unit awards vest upon both the passage of time as well as meeting certain performance criteria. Restricted stock awards and restricted stock unit awards are expensed under the straight-line method over the vesting period.

 

During 2017, the Company granted 1,325,396 restricted shares of its Common Stock to executives and directors of the Company and 1,128,750 restricted stock units to employees and non-employees of the Company. The fair value of the restricted stock awards issued during 2017 of $3.6 million and the fair value of the restricted stock unit awards issued during 2017 of $4.7 million were estimated on the grant date using the Company’s stock price as of the grant date.  The 2017 restricted stock awards and restricted stock unit awards vest upon both the passage of time as well as meeting certain performance criteria. Restricted stock awards and restricted stock unit awards are expensed under the straight-line method over the vesting period.

 

 

In December 2017, the Company modified the vesting schedule on the 1.9 million share grant made to its Chief Executive Officer and Executive Chair, Strategic Development in December 2013, and the 3.9 million share inducement grant made to its Executive Chair, Strategic Development in February 2014. The impact of the 2017 modification, which extends the vesting to December 2022, was $2.5 million, which will be amortized over the remaining life of the award.

 

The following table summarizes Fortress restricted stock awards and restricted stock units activities, excluding activities related to Fortress 

 

 

As of December 31, 2018, the Company had unrecognized stock-based compensation expense related to all unvested restricted stock and restricted stock unit awards of $6.1 million and $3.0 million, respectively, which is expected to be recognized over the remaining weighted-average vesting period of

 

On March 12, 2015, the Company’s Compensation Committee approved the Deferred Compensation Plan allowing all non-employee directors the opportunity to defer all or a portion of their fees or compensation, including restricted stock and restricted stock units. During the year ended December 31, 2018 and 2017, certain non-employee directors elected to defer an aggregate of 230,000 and 230,000 restricted stock awards, respectively, under this plan.

 

 

Eligible employees can purchase the Company’s Common Stock at the end of a predetermined offering period at 85% of the lower of the fair market value at the beginning or end of the offering period. The ESPP is compensatory and results in stock-based compensation expense.

 

On June 1, 2018, the Company issued 43,707 shares of Common Stock under the ESPP. The shares were issued at $2.93 per share, which represents 85% of the closing price of $3.45 of the Common Stock on May 31, 2018. On December 31, 2018, the Company issued 67,148 shares of Common Stock under the ESPP. The shares were issued at $1.04 per share, which represents 85% of the closing price of $1.22 of the Common Stock on November 30, 2018.

 

On June 1, 2017, the Company issued 22,076 shares of Common Stock under the ESPP. The shares were issued at $1.90 per share, which represents 85% of the closing price of $2.24 of the Common Stock on December 1, 2016. On December 1, 2017, the Company issued 45,657 shares of Common Stock under the ESPP. The shares were issued at $3.26 per share, which represents 85% of the closing price of $3.83 of the Common Stock on June 1, 2017.

 

As of December 31, 2018, 356,507 shares have been purchased and 643,493 shares are available for future sale under the Company’s ESPP. The Company recognized share-based compensation expense of $0.2 million and $0.2 million for the years ended December 31, 2018 and 2017, respectively.

 

 

The following table summarizes Fortress warrant activities, excluding activities related to 

: 

 

 

All stock-based expense in connection with these warrants has been recognized prior to January 1, 2017.

 

 

On July 15, 2015, the stockholders approved the LTIP for the Company’s Chairman, President and Chief Executive Officer, Dr. Rosenwald, and Executive Vice Chairman, Strategic Development, Mr. Weiss. The LTIP consists of a program to grant equity interests in the Company and in the Company’s subsidiaries, and a performance-based bonus program that is designed to result in performance-based compensation that is deductible without limit under Section 162(m) of the Internal Revenue Code of 1986, as amended.

 

Beginning in 2017, LTIP equity interest grants were made in the form of stock. During the year ended December 31, 2017, Mr. Weiss and Dr. Rosenwald received, for their services to the Company, stock awards of 500,000 shares representing 5% of the ownership in the following entities:

 

 

For the year ended December 31, 2017, the Company recorded expense of approximately $0.1 million related to these grants on the Consolidated Statements of Operations. These grants are expensed by the Company at the time of the grant, as they are immediately vested.

 

On January 1, 2018 and 2017, the Compensation Committee granted 586,429 and 552,698 shares each to 

 Rosenwald and 

Weiss, respectively. These equity grants, made in accordance with the LTIP, represent 1% of total outstanding shares of the Company as of the dates of such grants and were granted in recognition of their performance in 2017 and 2016. The shares are subject to repurchase by the Company until both of the following conditions are met: (i) the Company’s market capitalization increases by a minimum of $100.0 million, and (ii) the employee is either in the service of the Company as an employee or as a Board member (or both) on the tenth anniversary of the LTIP, or the eligible employee has had an involuntary separation from service (as defined in the LTIP). The Company’s repurchase option on such shares will also lapse upon the occurrence of a corporate transaction (as defined in the LTIP) if the eligible employee is in service on the date of the corporate transaction. The fair value of each grant on the grant date was approximately $2.3 million for the 2018 grant and $1.5 million for the 2017 grant. For the year ended December 31, 2018 and 2017, the Company recorded expense of approximately $1.3 million and $0.6 million, respectively related to these grants on the Consolidated Statements of Operations.

 

 

On June 26, 2017, Avenue completed an IPO of its common stock. In connection with the IPO, Avenue issued 6,325,000 shares of its common stock, inclusive of 825,000 shares subject to an underwriter over-allotment. The shares were issued at $6.00 per share, resulting in net proceeds of approximately $34.2 million after deducting underwriting discounts, and other offering costs. NSC acted as co-manager in this offering and earned commissions and fees of approximately $2.3 million.

 

In conjunction with the closing of the IPO, Avenue issued warrants in connection with its NSC Debt and its Convertible Notes.

 

Avenue issued to National warrants for 125,000 common shares at par with a fair value of $0.8 million, relating to its aggregate gross proceeds from its third-party offerings exceeding five times the value of the debt. Upon the issuance of the warrant, Fortress was removed as the guarantor on the note.

 

 

In November 2017, the Checkpoint filed a shelf registration statement on Form S-3 (the "S-3"), which was declared effective in December 2017. Under the S-3, 

may sell up to a total of $100 million of its securities. In connection with the S-3,

entered

into an At-the-Market Issuance Sales Agreement (the "Checkpoint ATM") with Cantor Fitzgerald & Co., Ladenburg Thalmann & Co. Inc. and H.C. Wainwright & Co., LLC (each a "Agent" and collectively, the "Agents"), relating to the sale of shares of common stock. Under the Checkpoint ATM, Checkpoint pays the Agents a commission rate of up to 3.0% of the gross proceeds from the sale of any shares of common stock. During the year ended December 31, 2018, Checkpoint sold a total of 1,841,774 shares of common stock under the Checkpoint ATM for aggregate total gross proceeds of approximately $8.0 million at an average selling price of $4.33 per share, resulting in net proceeds of approximately $7.7 million after deducting commissions and other transactions costs.

 

In March 2018, Checkpoint completed an underwritten public offering, whereby it sold 5,290,000 shares of its common stock at a price of $4.35 per share for gross proceeds of approximately $ million. Total net proceeds from the offering were approximately $20.8 million, net of underwriting discounts and offering expenses of approximately $ million, including approximately $ million to National Securities Corporation, a subsidiary of National.

 

 

In 2017, Mustang raised gross proceeds of $56.0 million, before expenses, in a private placement of shares and warrants for which OPN Capital Markets was the placement agent and received a fee of $5.6 million (recorded as contra-equity) or 10% of the gross proceeds. The financing involved the sale of units, each consisting of 10,000 shares of common stock and a warrant exercisable for 2,500 shares of common stock at an exercise price of $8.50 per share, for a total price of $65,000 per unit. The warrants have a five-year term and are only exercisable for cash. Mustang issued 8.6 million unregistered shares of common stock, excluding founder shares, and million warrants in connection with this transaction. In addition, the placement agent received 861,077 warrants or 10% of the shares issued.

 

As of December 31, 2018, the Company determined that the warrants still did not meet the definition of a derivative and continued to qualify for equity recognition.

 

 

On August 17, 2016, the Company entered into an Amended and Restated At Market Issuance Sales Agreement, or Sales Agreement, with MLV & Co. LLC, or MLV, and FBR Capital Markets & Co., or FBR (“ATM”). On August 18, 2016, the Company filed a Registration Statement on Form S-3, which became effective on December 1, 2016 and permits the Company to issue and sell shares of its common stock having an aggregate offering price of up to $53.0 million from time to time through MLV and FBR, as sales agents under the Sales Agreement. The Sales Agreement terminates on August 17, 2019.

 

Pursuant to the terms of the ATM, for the year ended December 31, 2018, the Company issued 2,914,410 shares of common stock at an average price of $2.50 per share for gross proceeds of $7.3 million. In connection with these sales, the Company paid aggregate fees of approximately $0.3 million. No shares were issued under the ATM in 2017.

 

 

In November 2017, the Company raised gross proceeds of $25.0 million in an underwritten public offering of one million shares of 9.375% Series A Cumulative Redeemable Perpetual Preferred Stock (“Series A Preferred Stock”) at a price of $25.00 per share. Net proceeds totaled approximately $22.2 million in the Series A Preferred Stock offering after the payment of underwriter fees of approximately $2.7 million, of which $2.1 million was paid to NSC, one of several bookrunners for the offering and $0.1 million of other fees.