14. Stockholders’ Equity

Common Stock

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 74,027,425 and 57,845,447 shares are outstanding at December 31, 2019 and 2018, respectively.

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

Voting Rights

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.

Dividends

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.

Liquidation

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.

Rights and Preference

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.

Fully Paid and Nonassessable

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

Series A Preferred Stock

On October 26, 2017, the Company designated 5,000,000 shares of $0.001 par value preferred stock as Series A Preferred Stock. As of December 31, 2019, and 2018, 1,341,167 and 1,000,000 shares, respectively, of Series A Preferred Stock were issued and outstanding.

The terms, rights, preference and privileges of the Series A Preferred Stock are as follows:

Voting Rights

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

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 $2.6 million and $2.3 million of dividends in Additional Paid in Capital on the Consolidated Balance Sheets as of December 31, 2019 and 2018, respectively.

No Maturity Date or Mandatory Redemption

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.

Optional Redemption

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.

Special Optional Redemption

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:

Conversion, Exchange and Preemptive Rights

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.

Limited Conversion Rights upon a Change of Control

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.

Liquidation Preference

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.

Ranking

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.

Stock-Based Compensation

As of December 31, 2019, 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 6,000,000 shares of Common Stock to eligible employees, directors, and consultants in the form of restricted stock, stock options and other types of grants. In 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 10,000,000, 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 13,750,535 shares were granted under both the Company’s 2007 and 2013 plans, net of cancellations, and 2,249,465 shares were available for issuance as of December 31, 2019.

Certain partner companies have their own equity compensation plan under which shares are granted to eligible employees, directors and consultants in the form of restricted stock, stock options, and other types of grants of stock of the respective partner company’s common stock. The table below provides a summary of those plans as of December 31, 2019:

 

 

The purpose of the Company’s and partner company’s 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.

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, 2019 and 2018:

 

 

For the years ended December 31, 2019 and 2018, $2.8 million and $5.3 million was included in research and development expenses, and $10.4 million and $9.7 million was included in general and administrative expenses, respectively.

Options

The following table summarizes Fortress stock option activities excluding activities related to partner companies:

 

 

During the years ended December 31, 2019 and 2018, there were no exercises of stock options.

As of December 31, 2019, the Company had no unrecognized stock-based compensation expense related to options.

Restricted Stock

Stock-based compensation expense from restricted stock awards and restricted stock units for the years ended December 31, 2019 and 2018 was $11.5 million and $13.9 million, respectively.

During 2019, the Company granted 1,546,408 restricted shares of its Common Stock to executives and directors of the Company and 290,000 restricted stock units to employees and non-employees of the Company. The fair value of the restricted stock awards issued during 2019 of $1.4 million and the fair value of the restricted stock unit awards issued during 2019 of $0.4 million were estimated on the grant date using the Company’s stock price as of the grant date.  The 2019 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 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.

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

 

 

The total fair value of restricted stock units and awards that vested during the years ended December 31, 2019 and 2018 was $2.0 million and $3.3 million, respectively. As of December 31, 2019, the Company had unrecognized stock-based compensation expense related to all unvested restricted stock and restricted stock unit awards of $11.9 million and $1.8 million, respectively, which is expected to be recognized over the remaining weighted-average vesting period of 4.8 years and 2.1 years, respectively. This amount does not include 227,083 restricted stock units and 395,869 restricted stock awards as of December 31, 2019 which are performance-based and vest upon achievement of certain corporate milestones. Stock-based compensation for these awards will be measured and recorded if and when it is probable that the milestone will be achieved.

Deferred Compensation Plan

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, 2019 and 2018, certain non-employee directors elected to defer an aggregate of 230,000 and 230,000 restricted stock awards, respectively, under this plan.

Employee Stock Purchase 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.

As of December 31, 2019, 454,515 shares have been purchased and 545,485 shares are available for future sale under the Company’s ESPP. The Company recognized share-based compensation expense of $0.1 million and $0.2 million for the years ended December 31, 2019 and 2018, respectively.

Warrants

The following table summarizes Fortress warrant activities, excluding activities related to partner companies:

 

 

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

Long-Term Incentive Program (“LTIP”)

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.

On January 1, 2019 and 2018, the Compensation Committee granted 648,204 and 586,429 shares each to Dr. Rosenwald and Mr. 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 2018 and 2017. 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 $0.6 million for the 2019 grant and $2.3 million for the 2018 grant. For the year ended December 31, 2019 and 2018, the Company recorded expense of approximately $1.4 million and $1.3 million, respectively related to the LTIP grants on the Consolidated Statements of Operations.

For their service in 2017, Dr. Rosenwald and Mr. Weiss received bonuses of $500,000 each, paid in cash during the quarter ended June 30, 2018 (the “LTIP Annual Cash Bonus”). Dr. Rosenwald and Mr. Weiss waived their right to the LTIP Annual Cash Bonus. The Company treated this transaction as a capital contribution, which is reflected on the Consolidated Statement of Changes in Stockholders’ Equity for the year ended December 31, 2018. In lieu of the LTIP Annual Cash Bonus, on July 3, 2018 the Company’s Board granted Dr. Rosenwald and Mr. Weiss each a restricted stock award for the number of shares of the Company’s common stock with a fair market value equal to the LTIP Annual Cash Bonus, measured at the date of such consent; such number of shares as calculated at the $3.04 closing trading price of the Company’s common stock, equal to 164,473 shares each. The fair value of each grant on the grant date was approximately $0.5 million. For the years ended December 31, 2019 and 2018, the Company recorded expense of approximately $0.3 million and $0.1 million, respectively, related to these grants on the Consolidated Statements of Operations.

Capital Raise

At the Market Offering

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 terminated on August 17, 2019.

Pursuant to the terms of the ATM, for the year ended December 31, 2019 and 2018, the Company issued approximately 8.0 million and 2.9 million shares of common stock, respectively, at an average price of $1.88 and $2.50 per share, respectively, for gross proceeds of $15.1 million and $7.3 million, respectively. In connection with these sales, the Company paid aggregate fees of approximately $0.3 million and $0.3 million, respectively.

2018 9.375% Series A Cumulative Redeemable Perpetual Preferred Stock At the Market Offering

On April 5, 2018, the Company entered into an At Market Sales Agreement (the “2018 Preferred ATM”), with B. Riley, National Securities Corporation, LifeSci Capital LLC, Maxim Group LLC and Noble Capital Markets, Inc. as selling agents, governing the issuance of the Company’s 9.375% Series A Cumulative Redeemable Perpetual Preferred Stock (“Perpetual Preferred Stock”). For the year ended December 31, 2019, the Company issued 39,292 shares of Perpetual Preferred Stock for gross proceeds $0.8 million at an average selling price of $20.67. No shares of Perpetual Preferred Stock were issued in 2018. Under the 2018 Preferred ATM, the Company pays the agents a commission rate of up to 7.0% of the gross proceeds from the sale of any shares of Perpetual Preferred Stock, and in connection with these sales, with respect to the year ended December 31, 2019, the Company paid aggregate fees of approximately $24,000.

The above-mentioned shares of Perpetual Preferred Stock were sold under the 2016 Shelf. The 2016 Shelf expired on December 1, 2019.

2019 Common Stock At the Market Offering

On June 28, 2019, the Company entered into an At Market Issuance Sales Agreement (“2019 Common ATM”), with Cantor Fitzgerald & Co., Oppenheimer & Co., Inc., H.C. Wainwright & Co. Inc., Jones Trading Institutional Services LLC and B. Riley, as selling agents, governing potential sales of the Company’s common stock. For the year ended December 31, 2019, the Company issued approximately 3.8 million shares of common stock for gross proceeds of $5.6 million at an average selling price of $1.49. Under the 2019 Common ATM, the Company pays the agents a commission rate of up to 3.0% of the gross proceeds from the sale of any shares of common stock, and in connection with these sales, with respect to the year ended December 31, 2019, the Company paid aggregate fees of approximately $0.2 million.

2019 9.375% Series A Cumulative Redeemable Perpetual Preferred Stock Offering

In November 2019, the Company completed an underwritten public offering of 262,500 shares of its 9.375% Series A Cumulative Redeemable Perpetual Preferred Stock, (plus a 45-day option to purchase up to an additional 39,375 shares, which was exercised in November, 2019) at a price of $20 per share for gross proceeds of approximately $6.0 million, before deducting underwriting discounts and commissions and offering expenses. (See Note 21.)

2019 Shelf

The 2019 offerings of both common stock and preferred stock were sold under the Company’s shelf registration statement on Form S-3 originally filed on July 6, 2018 and declared effective July 23, 2019 (the “2019 Shelf”). Approximately $38.3 million of securities remain available for sale under the 2019 Shelf at December 31, 2019.

Checkpoint Therapeutics, Inc.

In November 2017, the Checkpoint filed a shelf registration statement on Form S‑3  (No. 333-221493) (the "Checkpoint S-3"), which was declared effective in December 2017. Under the Checkpoint S‑3, Checkpoint may sell up to a total of $100 million of its securities. In connection with the Checkpoint S‑3, Checkpoint 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 an "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, 2019, Checkpoint sold a total of 2,273,189 shares of common stock under the ATM for aggregate total gross proceeds of approximately $8.0 million at an average selling price of $3.52 per share, resulting in net proceeds of approximately $7.8 million after deducting commissions and other transaction costs.

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 November 2019, Checkpoint completed an underwritten public offering of 15,400,000 shares of its common stock at a price of $1.27 per share for gross proceeds of approximately $19.6 million. Total net proceeds from the offering were approximately $17.6 million, net of underwriting discounts and offering expenses of approximately $2.0 million.

In March 2018, Checkpoint completed an underwritten public offering of 5,290,000 shares of its common stock at a price of $4.35 per share for gross proceeds of approximately $23.0 million. Total net proceeds from the offering were approximately $20.8 million, net of underwriting discounts and offering expenses of approximately $2.2 million.

Approximately $41.4 million of the shelf remains available for sale under the Checkpoint S-3, following the offerings noted above.

Mustang Bio, Inc.

On July 13, 2018, Mustang filed a shelf registration statement No. 333-226175 on Form S-3, as amended on July 20, 2018 (the "2018 Mustang S-3"), which was declared effective in August 2018. Under the 2018 Mustang S-3, Mustang may sell up to a total of $75.0 million of its securities. In connection with the 2018 Mustang S-3, Mustang entered into an At-the-Market Issuance Sales Agreement (the "Mustang ATM") with B. Riley FBR, Inc., Cantor Fitzgerald & Co., National Securities Corporation, and Oppenheimer & Co. Inc. (each an "Agent" and collectively, the "Agents"), relating to the sale of shares of common stock. Under the Mustang ATM, Mustang 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, 2019, Mustang issued approximately 3.5 million shares of common stock under the Mustang ATM at an average price of $6.42 per share for gross proceeds of $22.5 million. In connection with these sales, Mustang paid aggregate fees of approximately $0.5 million, for net proceeds of approximately $22.0 million. No sales were made under the Mustang ATM in 2018.

In April 2019, Mustang completed an underwritten public offering of 6,875,000 shares of its common stock, (plus a 30-day option to purchase up to an additional 1,031,250 shares of common stock, which was exercised in May 2019) at a price of $4.00 per share for gross proceeds of approximately $31.6 million, before deducting underwriting discounts and commissions and offering expenses. The shares were sold under the 2018 Mustang S-3. Mustang paid aggregate fees of approximately $2.1 million and received approximately $29.5 million of net proceeds.

On August 16, 2019, Mustang filed a shelf registration statement No. 333-233350 on Form S-3 (the “2019 Mustang S-3”), which was declared effective on September 30, 2019. Under the 2019 Mustang S-3, Mustang may sell up to a total of $75.0 million of its securities. As of December 31, 2019, no sales were made under Mustang’s 2019 S-3 and approximately $20.9 million of the 2018 Mustang S-3 remains available for sale.