13. Stockholders’ Equity

Reverse Stock Split

On October 9, 2023 Fortress filed a Certificate of Amendment to its Amended and Restated Certificate of Incorporation, as amended, to effect the 1-for-15 Reverse Stock Split. The Reverse Stock Split was approved on August 10, 2023 by the Company’s Board of Directors and by the Company’s stockholders at a special meeting held on October 9, 2023, with the authorization to determine the final ratio (within a specified range) having been granted to the Company’s Board of Directors. As a result of the Reverse Stock Split, every 15 shares of the Company’s pre-reverse split Common Stock was combined and reclassified as one share of Common Stock. The proportionate voting rights and other rights of common stockholders were not affected by the Reverse Stock Split, other than as the result of payment for fractional shares. No fractional shares were issued in connection with the Reverse Stock Split. Stockholders who would otherwise have held a fractional share of Common Stock received a cash payment in lieu thereof.

All share and per share information has been retroactively adjusted to give effect to the Reverse Stock Split for all periods presented, unless otherwise indicated. Proportionate adjustments were made to the per share exercise price and/or the number of shares issuable upon the exercise or vesting of all stock options, restricted stock and warrants outstanding at October 10, 2023, which resulted in a proportional decrease in the number of shares of the Company’s common stock reserved for issuance upon exercise or vesting of such stock options, restricted stock and warrants, and, in the case of stock options and warrants, a proportional increase in the exercise price of all such stock options and warrants.

No fractional shares were issued in connection with the Reverse Stock Split, and stockholders who would otherwise be entitled to a fraction of one share received a proportional cash payment.

Stock-based Compensation

As of September 30, 2023, 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 June 2023, the Company’s Board of Directors and stockholders approved an amendment to the 2013 Plan to increase the number of authorized shares issuable by approximately 0.5 million shares, for a total of approximately 1.9 million shares across the 2007 and 2013 Plans and approved an amendment to the ESPP to increase the number of shares issuable by approximately 0.1 million shares. As of September 30, 2023, approximately 0.5 million shares are available for issuance under the 2007 and 2013 Plans.

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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 three and nine months ended September 30, 2023 and 2022:

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For the three months ended September 30, 2023 and 2022, approximately $0.9 million and $1.0 million, respectively, of stock-based compensation expense was included in research and development expenses in connection with equity grants made to employees and consultants and approximately $3.5 million and $5.8 million, respectively, was included in general and administrative expenses in connection with grants made to employees, members of the board of directors and consultants. For the nine months ended September 30, 2023 and 2022, approximately $2.3 million and $3.6 million, respectively, of stock-based compensation expense was included in research and development expenses in connection with equity grants made to employees and consultants and approximately $11.0 million and $13.9 million, respectively, was included in general and administrative expenses in connection with grants made to employees, members of the board of directors and consultants.

Stock Options

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

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As of September 30, 2023, Fortress had $0.4 million in unrecognized stock-based compensation expense related to options which is expected to be recognized over the remaining weighted-average vesting period of 2.7 years.

Restricted Stock and Restricted Stock Units

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

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As of September 30, 2023 and 2022, the Company had unrecognized stock-based compensation expense related to restricted stock and restricted stock unit awards of approximately $13.5 million and $22.9 million, respectively, which is expected to be recognized over the remaining weighted-average vesting period of 1.7 years and 2.0 years, respectively.

Warrants

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

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In connection with the Oaktree Note (see Note 9, Debt and Interest), the Company had issued warrants to Oaktree and certain of its affiliates to purchase up to approximately 0.1 million shares of Common Stock at a purchase price of $48.00 per share (the “Oaktree Warrants”). Oaktree is entitled to additional warrants if at any time prior to the expiration of the Oaktree Warrants the Company issues equity, warrants or convertible notes (collectively known as “Security Instruments”) at a price that is less than 95% of the market price of the Company’s Common Stock on the trading day prior to the issuance of the Security Instruments. The Oaktree Warrants expire on August 27, 2030 and may be net exercised at the holder’s election. The Company filed registration statement No. 333-249983 on Form S-3 to register the resale of the shares of Common Stock issuable upon exercise of the Oaktree Warrants that was declared effective by the SEC on November 20, 2020.

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On June 13, 2023, the Company entered into a Letter Agreement (the “Letter Agreement”) by and among the Company, Oaktree and certain of its affiliates, pursuant to which the Company agreed to lower the exercise price of the existing warrants to $8.136 per share (adjusted for the Reverse Stock Split) and issue amended and restated warrants reflecting the new exercise price (the “Amended and Restated Warrants”), as consideration for the warrant holders’ agreement to permit the Company and/or certain of its subsidiaries to take certain actions. The Amended and Restated Warrants are exercisable on or after June 13, 2023 and expire August 27, 2030.  

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The Oaktree Warrants were previously determined to have met the criteria for equity classification. The Oaktree Warrants were reported as a component of additional paid in capital within Stockholders’ equity, and the value ascribed to the warrants was recorded as debt discount of the Oaktree Note and is amortized utilizing the effective interest method over the term of the Oaktree Note. The modification of the warrants resulted in a change in value of $0.3 million which was recorded as interest expense in the condensed consolidated statement of operations for the nine-months ended September 30, 2023.

Long-Term Incentive Program (“LTIP”)

On July 15, 2015, the Company’s stockholders approved the LTIP for the Company’s Chairman, President and Chief Executive Officer, Dr. Rosenwald, and Executive Vice Chairman, Strategic Development, Mr. Weiss (amended and restated with stockholder approval on June 7, 2017). 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, 2023 and 2022, the Compensation Committee granted 81,286 and 73,532 shares each to Dr. Rosenwald and Mr. Weiss, respectively. These equity grants were made in accordance with the LTIP, and each award represents 1% of total outstanding shares of the Company as of the dates of such grants. The shares will vest in full if the employee is either in the service of the Company as an employee, Board member or consultant (or any combination of the foregoing) on the tenth anniversary of the LTIP, or the eligible employee has had an involuntary Separation from Service (as defined in the LTIP).  The only other vesting condition – one based on achievement of an increase in the Company’s market capitalization – has already been achieved, with respect to each annual award under the LTIP.  The shares awarded under the LTIP will also vest in full (and the Company’s repurchase option on each tranche of shares granted thereunder will accordingly lapse) upon the occurrence of a Corporate Transaction (as defined in the LTIP), if the eligible employee is in service to the Company on the date of such Corporate Transaction. The fair value of each grant on the grant date was approximately $0.8 million for the 2023 grant and $1.0 million for the 2022 grant. For the three months ended September 30, 2023 and 2022, the Company recorded stock compensation expense related to LTIP grants of approximately $1.5 million and $1.3 million, respectively, and for the nine months ended September 30, 2023 and 2022, recorded stock compensation expense related to LTIP grants of approximately $4.4 million and $4.0 million, respectively, on the unaudited condensed consolidated statement of operations.

Capital Raises

2021 Shelf

On July 23, 2021, the Company filed a shelf registration statement (File No. 333-258145) on Form S-3, which was declared effective on July 30, 2021 (the "2021 Shelf"). Approximately $110.1 million of securities remain available for sale under the 2021 Shelf as of September 30, 2023.

2020 Shelf

On May 18, 2020, the Company filed a shelf registration statement (File No. 333-238327) on Form S-3, which was declared effective on May 26, 2020 (the "2020 Shelf") and expired on May 26, 2023.

At the Market Offering

In connection with the 2020 Shelf, the Company entered into an At Market Issuance Sales Agreement ("Fortress ATM"), governing potential sales of the Company's Common Stock. On May 26, 2023, the Fortress ATM was amended to reflect potential future sales under the 2021 Shelf.

For the nine months ended September 30, 2023, the Company issued approximately 0.2 million shares at an average price of $9.61 for gross proceeds of $2.2 million pursuant to the Fortress ATM. For the nine months ended September 30, 2022, the Company issued approximately 0.3 million shares at an average price of $23.85 for gross proceeds of $5.9 million pursuant to the Fortress ATM.

Registered Direct Offering and Concurrent Private Placement

On February 10, 2023, the Company completed a registered direct offering of Common Stock pursuant to which it issued and sold approximately 1.1 million shares of its common stock at a purchase price of $12.53 per share and secured approximately $13.2 million in net proceeds after deducting estimated offering expenses.

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The Company also simultaneously closed on a concurrent private placement with investors in the registered direct offering, for the pro rata rights to acquire, in the aggregate, securities exercisable into approximately 3.5% of the outstanding shares of common stock in each of the Company’s next 20 new operating subsidiaries (the “Contingent Subsidiary Securities”). The Contingent Subsidiary Securities will only be issued to the extent such a new operating subsidiary first consummates a specified corporate development transaction within the next five years, and will be exercisable immediately upon issuance, with an exercise period of 10 years, at an exercise price equal to the fair market value of one share of common stock of the subsidiary on the date of the corporate development transaction. The Company’s stockholders approved the issuance of the rights and Contingent Subsidiary Securities at a special meeting of stockholders on April 10, 2023, as required by Nasdaq Listing Rule 5635.

Mustang 2020 and 2021 Shelf Registration Statements and At-the-Market Offering (the “Mustang ATM”)

On October 23, 2020, Mustang filed a shelf registration statement (File No. 333-249657) on Form S-3 (the “Mustang 2020 S-3”), which was declared effective on December 4, 2020. Through the Mustang 2020 S-3, Mustang may sell up to a total of $100.0 million of its securities. As of September 30, 2023, approximately $7.8 million of the Mustang 2020 S-3 remains available for sales of securities.

On April 23, 2021, Mustang filed a shelf registration statement (File No. 333-255476) on Form S-3 (the “Mustang 2021 S-3”), which was declared effective on May 24, 2021. Through the Mustang 2021 S-3, Mustang may sell up to a total of $200 million of its securities. As of September 30, 2023, there have been no sales of securities under the Mustang 2021 S-3.

On July 2018, Mustang entered into an At-the-Market Issuance Sales Agreement (the “Mustang ATM”) with B. Riley Securities, Inc. (formerly B. Riley FBR, Inc.), Cantor Fitzgerald & Co., National Securities Corporation (now B. Riley FBR, Inc.), and Oppenheimer & Co. Inc., relating to the sale of shares of common stock pursuant to the Mustang 2020 S-3. 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. On December 31, 2020, the Mustang ATM was amended to add H.C. Wainwright & Co., LLC as an Agent. On April 14, 2023, the Mustang ATM was amended to add the limitations imposed by General Instruction I.B.6 to Form S-3 and remove Oppenheimer & Co., Inc. as an Agent.

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During the nine months ended September 30, 2023, Mustang issued approximately 52,000 shares of common stock at an average price of $3.15 per share for gross proceeds of $0.2 million through the Mustang ATM. During the nine months ended September 30, 2022, Mustang issued approximately 0.5 million shares of common stock at an average price of $12.61 per share for gross proceeds of $6.6 million through the Mustang ATM. In connection with these sales, Mustang paid aggregate fees of approximately $0.1 million. Pursuant to the Company’s Founders Agreement with Mustang, Mustang recorded 1,297 shares issuable to Fortress for the nine months ended September 30, 2023, and issued 13,131 shares of common stock to Fortress at a weighted average price of $13.56 per share for the nine months ended September 30, 2022, in connection with the shares issued under the Mustang ATM.

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Checkpoint 2020 and 2023 Shelf Registration Statements

The Checkpoint 2020 S-3 shelf registration statement (File No. 333-251005) filed by Checkpoint in November 2020 that was declared effective in December 2020, through which Checkpoint may sell up to $100 million of its securities. At September 30, 2023, approximately $8.7 million of the securities remains available for sale through the Checkpoint 2020 S-3.

In March 2023, Checkpoint filed shelf registration statement (File No. 333-270843) on Form S-3 (the “Checkpoint 2023 S-3”), which was declared effective May 5, 2023. Under the Checkpoint 2023 S-3, Checkpoint may sell up to a total of $150 million of its securities.   As of September 30, 2023, approximately $91.7 million of the securities remains available for sale through the Checkpoint 2023 S-3.

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Checkpoint Registered Direct Offerings

In July 2023, Checkpoint closed on a registered direct offering (the “Checkpoint July 2023 Registered Direct Offering”) for the issuance and sale of an aggregate of 2,427,186 shares of its common stock at a purchase price of $3.09 per share. In addition, the offering includes 809,062 shares of common stock in the form of pre-funded warrants at a price of $3.0899. The common stock and the pre-funded warrants were sold together with Series A warrants to purchase up to 3,236,248 shares of common stock and Series B warrants to purchase up to 3,236,248 shares of common stock. The Series A warrants are exercisable immediately upon issuance and will expire five years following the issuance date and have an exercise price of $2.84 per share and the Series B warrants are exercisable immediately upon issuance and will expire eighteen months following the issuance date and have an exercise price of $2.84 per share (collectively, the “Checkpoint July 2023 Common Stock Warrants”). The total gross proceeds from the offering were approximately $10.0 million with net proceeds of approximately $9.1 million after deducting approximately $0.9 million in commissions and other transaction costs. The Checkpoint July 2023 Common Stock Warrants met the criteria for equity classification. As of September 30, 2023, all of the pre-funded warrants from the Checkpoint July 2023 Registered Direct Offering were fully exercised.

In May 2023, Checkpoint closed on a registered direct offering (the “Checkpoint May 2023 Registered Direct Offering”) for the issuance and sale of an aggregate of 1,650,000 shares of its common stock at a purchase price of $3.071 per share in a registered direct offering. In addition, the offering includes 1,606,269 shares of common stock in the form of pre-funded warrants at a price of $3.0709. The common stock and the pre-funded warrants were sold together with Series A warrants to purchase up to 3,256,269 shares of common stock and Series B warrants to purchase up to 3,256,269 shares of common stock. The Series A and B warrants (the “Checkpoint May 2023 Common Stock Warrants”) are exercisable immediately upon issuance with an exercise price of $2.821 per share and the Series A warrants will expire five years following the issuance date and the Series B warrants will expire eighteen months following the issuance. The total gross proceeds from the offering were approximately $10.0 million with net proceeds of approximately $9.1 million after deducting approximately $0.9 million in commissions and other transaction costs. The shares of common stock, pre-funded warrants and Checkpoint May 2023 Common Stock Warrants were registered for sale under the Checkpoint 2023 Form S-3.  The Checkpoint May 2023 Common Stock Warrants met the criteria for equity classification. As of September 30, 2023, all of the pre-funded warrants from the Checkpoint May 2023 Registered Direct Offering were fully exercised.

In April 2023, Checkpoint closed on a registered direct offering for the issuance and sale of an aggregate of 1,700,000 shares of Checkpoint common stock at a purchase price of $3.60 per share of Checkpoint common stock and accompanying warrants in a registered direct offering priced at-the-market under Nasdaq rules. In a concurrent private placement, Checkpoint issued and sold Series A warrants to purchase up to 1,700,000 shares of Checkpoint common stock and Series B warrants to purchase up to 1,700,000 shares of Checkpoint common stock. The Series A and B warrants (collectively the “Checkpoint April 2023 Common Stock Warrants”) are exercisable immediately upon issuance with an exercise price of $3.35 per share.  The Series A warrants will expire five years following the issuance date and the Series B warrants will expire eighteen months following the issuance date. The total gross proceeds from the offering were approximately $6.1 million with net proceeds of approximately $5.5 million after deducting approximately $0.6 million in commissions and other transaction costs. The 1,700,000 shares of common stock were registered for sale under the November 2020 Form S-3. The Company filed a separate registration statement on Form S-3 to register the Checkpoint April 2023 Common Stock Warrants, which was declared effective May 5, 2023. The Checkpoint April 2023 Common Stock Warrants met the criteria for equity classification.

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In February 2023, Checkpoint closed on a registered direct offering (the “Checkpoint February 2023 Direct Offering”) with a single institutional investor for the issuance and sale of 1,180,000 shares of its common stock and 248,572 pre-funded warrants which were subsequently fully exercised in February 2023. Each pre-funded warrant is exercisable for one share of common stock. The common stock and the pre-funded warrants were sold together with Series A warrants to purchase up to 1,428,572 shares of common stock and Series B warrants to purchase up to 1,428,572 shares of common stock (the Series A warrants and Series B warrants collectively the “Checkpoint February 2023 Common Stock Warrants”), at a purchase price of $5.25 per share of common stock and associated common stock warrants, and $5.2499 per pre-funded warrant and associated common stock warrants. Net proceeds from the Checkpoint February 2023 Direct Offering were $6.7 million after deducting commissions and other transaction costs. The February 2023 Checkpoint Common Stock Warrants met the criteria for equity classification. In March 2023, Checkpoint filed a registration statement on Form S-3 to register the warrants, which was declared effective on May 5, 2023.

Pursuant to the Company’s Founders Agreement with Checkpoint, Checkpoint issued to Fortress 2.5% of the aggregate number of shares of common stock issued in the registered direct offerings noted above. Accordingly, Checkpoint issued 240,526 shares of common stock to Fortress at a weighted average price of $3.36 per share for the nine months ended September 30, 2023.

Avenue

Avenue January 2023 Registered Direct and Private Placement

In January 2023, Avenue entered into a Securities Purchase Agreement (the “Avenue Registered Purchase Agreement”) with a single institutional accredited investor, pursuant to which Avenue agreed to issue and sell (i) 448,000 shares (the “Avenue Shares”) of Avenue’s common stock at a price per share of $1.55, and (ii) pre-funded warrants (the “Avenue Pre-funded Warrants”) to purchase 1,492,299 shares of common stock, at a price per Avenue Pre-funded Warrant equal to the price per share, less $0.001 (the “Avenue Registered Offering”). The Avenue Pre-funded Warrants have an exercise price of $0.001 per share, became exercisable upon issuance and remain exercisable until exercised in full. Avenue received approximately $3.0 million in gross proceeds from the Avenue Registered Offering, before deducting placement agency fees and estimated offering expenses.

Also in January 2023 Avenue entered into a Securities Purchase Agreement (the “Avenue PIPE Purchase Agreement”) with the same institutional accredited investor for a private placement offering (“Avenue Private Placement”) of the January 2023 Warrants to purchase 1,940,299 shares of Avenue common stock. Pursuant to the Avenue PIPE Purchase Agreement, Avenue agreed to issue and sell the January 2023 Warrants at an offering price of $0.125 per January 2023 Warrant to purchase one share of Avenue common stock. The January 2023 Warrants have an exercise price of $1.55 per share (subject to adjustment as set forth in the January 2023 Warrants), are exercisable immediately after issuance and will expire three years from the date on which the January 2023 Warrants become exercisable. The January 2023 Warrants contain standard anti-dilution adjustments to the exercise price including for share splits, share dividend, rights offerings and pro rata distributions. The Avenue Private Placement closed on January 31, 2023, concurrently with the Avenue Registered Offering. The gross proceeds to Avenue from the Avenue Private Placement, before deducting placement agent fees and other estimated offering expenses payable by Avenue, were approximately $0.2 million.

Avenue September 2023 Private Placement

In connection with the Avenue September 2023 Private Placement (see Note 15, Related Party Transactions), Avenue entered into a registration rights letter agreement (the “Avenue Registration Rights Letter Agreement”) with the Avenue Private Placement Investors. Pursuant to the Avenue Registration Rights Letter Agreement, Avenue will be required to file, on or prior to September 8, 2024 (the “Avenue Private Placement Filing Date”), a resale registration statement (the “Avenue Private Placement Resale Registration Statement”) with the SEC to register the resale of the Avenue September 2023 Private Placement Shares.

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Journey 2022 Shelf Registration Statement and At-the-Market Offering

On December 30, 2022, Journey filed a shelf registration statement (File No. 333-269079) on Form S-3 (the “Journey 2022 S-3”), which was declared effective on January 26, 2023. Through the Journey 2022 S-3, Journey may sell up to a total of $150 million of its securities. As of September 30, 2023, there have been no sales of securities under the Journey 2022 S-3. In connection with the Journey 2022 S-3, Journey entered into an At Market Issuance Sales Agreement governing potential sales of up to 4,900,000 shares of Journey's Common Stock.