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

6 Months Ended

Jun. 30, 2021

17. Related Party Transactions

The Company’s Chairman, President and Chief Executive Officer, individually and through certain trusts over which he has voting and dispositive control, beneficially owned approximately 10.7% of the Company’s issued and outstanding Common Stock as of June 30, 2021. The Company’s Executive Vice Chairman, Strategic Development owns approximately 11.6% of the Company’s issued and outstanding Common Stock as of June 30, 2021.

Shared Services Agreement with TG Therapeutics, Inc (“TGTX”)

In July 2015, 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 June 30, 2021 and 2020, the Company invoiced TGTX $0.1 million and 0.1 million, respectively. For the six months ended June 30, 2021 and 2020, the Company invoiced TGTX $0.2 million and $0.2 million, respectively. On June 30, 2021, the amount due from TGTX related to this arrangement approximated $34,000.

Desk Space Agreements with TGTX and OPPM

In connection with the Company’s Desk Space Agreements for the New York, NY office space, for the three months ended June 30, 2021 and 2020, the Company had paid $0.7 million and $0.7 million in rent, respectively, and invoiced TGTX and OPPM approximately $0.4 million and $0.4 million and nil and nil respectively, for their prorated share of the rent base. At June 30, 2021, there were no material amounts due related to this arrangement from TGTX or OPPM.

As of July 1, 2018, TGTX employees began to occupy desks in the Waltham, MA office under the Desk Share Agreement. TGTX began to pay their share of the rent based on actual percentage of the office space occupied on a month by month basis. For the three months ended June 30, 2021 and 2020, the Company had paid approximately $0.1 million and $0.1 million in rent for the Waltham, MA office, and invoiced TGTX approximately $28,000 and $29,000, respectively.

Avenue Secondment with Journey

Effective June 1, 2021, the Company, InvaGen, Avenue and Journey entered into a secondment agreement for a certain Avenue employee to be seconded to Journey. During the secondment, Journey will have the authority to supervise the Avenue employee and will reimburse Avenue for the employee’s salary and salary-related costs. The term of this agreement lasts until the approval of IV tramadol by the FDA or until the employee’s services are needed again by the Company. The amount reimbursable to Avenue is $25,000 for the three and six months ended June 30, 2021.

Avenue Key Employee Retention

Effective June 24, 2021, the Company and certain of Avenue’s key employees entered into retention agreements (the “Avenue Retention Agreements”) pursuant to which retention bonuses are payable only if the Merger Transaction (as defined in the SPMA) occurs and the applicable employee remains employed by Avenue immediately prior to the closing of such Merger Transaction. These Avenue Retention Agreements are effective until the earlier of the consummation of the Merger Transaction or the termination of the SPMA. Amounts potentially payable to these Avenue key employees are $2.9 million as of June 30, 2021.

Founders Agreement

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, 2020, filed with the SEC on March 31, 2021. The following table summarizes, by partner company, 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 Partner Company	Effective Date ¹	capitalization		Issued
Helocyte	March 20, 2015	2.5	%	Common Stock
Avenue	February 17, 2015	0.0	%²	Common Stock
Mustang	March 13, 2015	2.5	%	Common Stock
Checkpoint	March 17, 2015	0.0	%³	Common Stock
Cellvation	October 31, 2016	2.5	%	Common Stock
Baergic	December 17, 2019 ⁴	2.5	%	Common Stock
Cyprium	March 13, 2017	2.5	%	Common Stock
Aevitas	July 28, 2017	2.5	%	Common Stock
Oncogenuity	April 22, 2020 ⁴	2.5	%	Common Stock
FBIO Acquisition Corp. VIII	November 7, 2017 ⁴	0.0	%	Common Stock

Note 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 or has since been amended to January 1 of each calendar year.

Note 2:

Concurrently with the execution and delivery of the Stock Purchase and Merger Agreement (“Avenue SPMA”) entered into between, Avenue, the Company and InvaGen Pharmaceuticals Inc. (“InvaGen”) (together, the “ SPMA Parties”), the SPMA Parties entered into a waiver agreement (the “Waiver Agreement”), pursuant to which the Company irrevocably waived its right to receive the annual dividend of Avenue’s common shares under the terms of the Class A preferred stock and any fees, payments, reimbursements or other distributions under the management services agreement between the Company and Avenue and the Founders Agreement, for the period from the effective date of the Waiver Agreement until such time as InvaGen beneficially owns less than 75% of the shares of Avenue common stock it acquired under the first closing of the Avenue SPMA. Pursuant to the Waiver Agreement, immediately prior to the closing of the Merger Transaction contemplated under the Avenue SPMA, the Company will convert all of its preferred shares into common shares pursuant to the terms of the certificate of incorporation of Avenue, as amended from time to time.

Note 3:

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.

Note 4:

Represents the Trigger Date, the date that the Fortress partner company first acquires, whether by license or otherwise, ownership rights in a product.

Management Services Agreements

The Company has entered in Management Services Agreements (the “MSAs”) with certain of its partner companies as described in the Company’s Form 10-K for the year ended December 31, 2019, filed with the SEC on March 16, 2020. The following table summarizes the effective date of the MSA and the annual consulting fee payable by the partner company to the Company in quarterly installments:


		Annual MSA Fee
Fortress partner company	Effective Date	(Income)/Expense
Helocyte	March 20, 2015	$	500
Avenue ¹	February 17, 2015		—
Mustang	March 13, 2015		500
Checkpoint	March 17, 2015		500
Cellvation	October 31, 2016		500
Baergic	March 9, 2017		500
Cyprium	March 13, 2017		500
Aevitas	July 28, 2017		500
Oncogenuity	February 10, 2017		500
FBIO Acquisition Corp. VIII	November 7, 2017		500
Fortress			(4,500)
Consolidated (Income)/Expense		$	—

Note 1:

Concurrently with the execution and delivery of the Avenue SPMA entered into among, Avenue, the Company and InvaGen Pharmaceuticals Inc. (“InvaGen”) (together, the “SPMA Parties”), the SPMA Parties entered into a waiver agreement (the “Waiver Agreement”), pursuant to which the Company irrevocably waived its right to receive the annual dividend of Avenue’s common shares under the terms of the Class A preferred stock and any fees, payments, reimbursements or other distributions under the management services agreement between the Company and Avenue and the Founders Agreement, for the period from the effective date of the Waiver Agreement until such time as InvaGen beneficially owns less than 75% of the shares of Avenue common stock it acquired under the first closing of the Avenue SPMA. Pursuant to the Waiver Agreement, immediately prior to the closing of the Merger Transaction contemplated under the Avenue SPMA, the Company will convert all of its preferred shares into common shares pursuant to the terms of the certificate of incorporation of Avenue, as amended from time to time. (See Note 3).