As of March 31, 2016, the Company had four equity compensation plans: the Fortress Biotech, Inc. 2007 Stock Incentive Plan, the Fortress Biotech, Inc. 2013 Stock Incentive Plan, the Fortress Biotech, Inc. 2012 Employee Stock Purchase Plan and the Fortress Biotech. Inc. Long Term Incentive Plan (“LTIP”).

 

The following table summarizes the stock-based compensation expense from stock option awards, restricted common stock awards, employee stock purchase programs and warrants granted by Fortress for the three months ended March 31, 2016 and 2015:

 

 

(1)	Consists of approximately $9,000 of Avenue's compensation expenses, approximately $1.1 million of Checkpoint's compensation expense, and approximately $181,000 of JMC's compensation expenses on equity grants for the three months ended March 31, 2016.

 

For the three months ended March 31, 2016 and 2015, approximately $1.3 million and $0.3 million, respectively, was included in research and development expenses and approximately $1.6 million and $1.2 million, respectively, was included in general and administrative expenses.

 

In February 2016, the Company modified the vesting schedule on 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 modification extended the vesting on the first tranche of all the grants by twelve months. The impact of the modification was $0.4 million, which will be amortized over the remaining life of the award.

 

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

 

 

As of March 31, 2016, the Company had unrecognized stock-based compensation expense related to unvested option of $62,000 with a weighted average vesting period of 0.1 years.

  

The following table summarizes Fortress’ restricted stock and restricted stock unit award activity, excluding activity related to Fortress Companies (which is discussed below):

 

As of March 31, 2016, the Company had unrecognized stock-based compensation expense related to restricted stock and restricted stock unit awards of approximately $4.1 million and $0.7 million, respectively, which is expected to be recognized over the remaining weighted-average vesting period of 2.7 years and 1.3 years, respectively.

 

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 March 31, 2016, 91,192 shares have been purchased and 108,808 shares are available for future sale under the Company’s ESPP. The Company recognized share-based compensation expense of approximately none and $9,000 for the three months ended March 31, 2016 and 2015, respectively.

 

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

 

(*) - cashless

 

All stock-based expense in connection with these warrants has been recognized prior to January 1, 2016.

 

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 July 15, 2015, grants of 500,000 shares of common stock in each of Mustang, Checkpoint, Avenue, Coronado SO, Helocyte, JMC and Escala, were made to Dr. Rosenwald and Mr. Weiss for their services to the Company under the LTIP. The exercise price of each warrant, which approximates its fair value, was determined by the Company utilizing a discounted cash flow model to determine the weighted market value of invested capital, discounted by a lack of marketability of 44.8%, weighted average cost of capital of 30%, and net of debt utilized. The Company recorded a charge of approximately $2.2 million related to these grants.

 

On January 1, 2016, the Compensation Committee granted 510,434 shares each to Dr. Rosenwald and Mr. Weiss. These equity grants, made in accordance with the LTIP, represent one percent (1%) of total outstanding shares of the Company and were granted in recognition of their performance in 2015. 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 $100,000,000, 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. Since these awards contain a  market condition  as defined in ASC 718, Compensation – Stock Compensation the Company valued the award using the Monte Carlo simulation model. The model generated the fair value of the award at the grant date of $2.37 or $2.4 million for both grants, which is amortized over the vesting period, subject to the above performance condition being probable of being met.

 

 

 

 

On January 8, 2016, Checkpoint granted one of its Board members 50,000 shares of restricted stock under Checkpoint’s 2015 Incentive Plan. The shares will vest in three equal annual installments beginning on January 8, 2019. On March 2, 2016, pursuant to the employment agreement, Checkpoint granted an employee 50,000 shares of restricted stock under Checkpoint’s 2015 Incentive Plan. The shares will vest in three equal annual installments beginning on March 2, 2018. The shares were valued utilizing market income and cost valuation approaches. This yielded a price per share of $4.39 utilizing a risk free rate of return of 1.5 % and expected volatility of 83%. For the three months ended March 31, 2016, Checkpoint recorded stock-based compensation expense of approximately $0.3 million related to three stock grants, which is included in general and administrative expenses on the Condensed Consolidated Statements of Operations.

 

 

 

In January 2016, JMC granted 305,000 of options to its employees. The fair value of stock options granted was determined on the grant date using assumptions for risk free interest rate, the expected term, expected volatility, and expected dividend yield. The stock price was determined utilizing a discounted cash flow model to determine the weighted market value of invested capital, discounted by a lack of marketability of 44.5%, weighted average cost of capital of 30%, and net of debt utilized, resulting in a value of $0.65 per share. JMC does not expect to pay dividends in the foreseeable future so therefore the expected dividend yield is 0%. The expected term for stock options granted with service conditions represents the average period the stock options are expected to remain outstanding and is based on the expected term calculated using the approach prescribed by the Securities and Exchange Commission's Staff Accounting Bulletin No. 110 for “plain vanilla” options. JMC obtained the risk-free interest rate from publicly available data published by the Federal Reserve. The volatility rate was computed based on a comparison of average volatility rates of similar companies. The fair value of options granted in 2016 was estimated using the following assumptions:

 

 

During the three months ended March 31, 2016, stock-based compensation associated with the amortization of stock option expense was approximately $0.1 million. JMC also recorded approximately $35,000 related to the restricted stock granted in 2015. Expenses were recorded in general and administrative expense on the condensed Consolidated Statements of Operations.

 

 

On March 28, 2016, Helocyte granted 150,000 restricted stock to its consultant. The shares will vest in four equal annual installments beginning on March 28, 2017. The stock price was determined utilizing a market approach, based upon a third party financing. Such valuation resulted in a value of $0.097 per share utilizing a volatility of 83% and a risk free rate of return of 1.5%. For the three months ended March 31, 2016, in connection with this grant, Helocyte re-measured this non-employee grant and recorded expense of $62 in research and development expenses on the condensed Consolidated Statements of Operations.

 

On March 30, 2016, Helocyte granted 1.0 million shares to its Chief Executive Officer, for services to be provided. The shares will vest in twelve equal quarterly installments beginning on June 30, 2016. The fair market value of the stock is $0.097 per share based upon a third party valuation. In connection with this grant, for the three months ended March 31, 2016, the Company recorded approximately $500 as general and administrative expenses on the condensed Consolidated Statements of Operations.

 

On February 23, 2016, Checkpoint closed on gross proceeds of $0.6 million, before expenses, in a private placement of shares and warrants to Opus Point Healthcare Fund GP, LLC, a fund managed by OPPM, a related party. The financing involved the sale of units, each consisting of 10,000 shares of common stock and a warrant exercisable for 3,500 shares of common stock at an exercise price of $7.00 per share, for a purchase price of $45,000 per unit. The warrants have a five year term and are only exercisable for cash. Checkpoint issued 126,640 unregistered shares of common stock and 44,324 warrants in connection with this transaction. Due to the absence of a placement agent in this transaction, the net proceeds to, and warrants issued by, Checkpoint were consistent with terms of the December 2015 third-party financing, noted above, which included the payment of fees and issuance of warrants to a placement agent.