On April 3, 2014, the Company entered into a Shared Services Agreement with OPPM in which the parties agreed to share a rented facility as well as costs for certain services, which they individually require for the operation of their respective entities. The Company’s Chairman, President and Chief Executive Officer and the Company’s Executive Vice Chairman, Strategic Development are both Co-Portfolio Managers and Partners of OPPM. The Company incurred expense of approximately $0 and $66,000 under this agreement for the three months ended September 30, 2016 and 2015, respectively. The Company incurred expense of approximately $84,000 and $154,000 under this agreement for the nine months ended September 30, 2016 and 2015, respectively. The agreement can be terminated by either party with thirty days’ notice.

 

 

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 and nine months ended September 30, 2016, the Company invoiced TGTX $0.3 million and $0.6 million, respectively. The Company received payments of $71,800 for both the three and nine months ended September 30, 2015.

 

 

In September 2014, the Company entered into Desk Space Agreements with OPPM and TGTX to occupy 20% and 40% of the New York, NY office space that requires TGTX and OPPM to pay their share of the average annual rent of $0.5 million and $1.1 million, respectively. These initial rent allocations will be adjusted periodically for each party based upon actual percentage of the office space occupied. Additionally, the Company has reserved the right to execute desk space agreements with other third parties and those arrangements will also affect the cost of the lease actually borne by the Company. The Desk Space Agreement was amended in May 2016, adjusting the initial rent allocations to 45% for TGTX and 10% for OPPM.

 

Each initial Desk Space Agreement has a term of five years. The Company took possession of the New York, NY office space in December 2015, commenced build out of the space shortly thereafter and took occupancy of the space in April 2016. The Company expects the total build out costs to approximate $5.1 million and will share the costs with OPPM and TGTX under the Desk Space Agreements. As of September 30, 2016, the Company had paid $0.4 million in rent under the Desk Space Agreements, and invoiced OPPM and TGTX approximately $37,000 and $180,000, respectively, for their prorated share of the rent base. In addition, as of September 30, 2016 the Company had incurred $4.7 million in connection with the build out of the space and recorded a receivable of $2.6 million due from TGTX and $0.6 million due from OPPM.

 

 

Checkpoint has entered into various agreements with TGTX to develop and commercialize certain assets in connection with its licenses, including a collaboration agreement for some of the Dana Farber licensed antibodies, an option agreement and sponsored research agreement for the NeuPharma EGFR inhibitor, and a sublicense agreement for the Jubilant BET inhibitor. Checkpoint believes that by partnering with TGTX to develop these compounds in therapeutic areas outside of its business focus, it may substantially offset its preclinical costs and milestone costs related to the development and marketing of these compounds in solid tumor indications.

 

Opus Credit Facility

 

On September 14, 2016, Fortress entered the Opus Credit Facility with OPHIF. Since Fortress’s Chairman, President and Chief Executive Officer (Lindsay A. Rosenwald) and Fortress’s Executive Vice President, Strategic Development (Michael S. Weiss), are Co-Portfolio Managers and Partners of Opus, an affiliate of OPHIF, all of the disinterested directors of Fortress’s board of directors approved the terms of the Credit Facility Agreement and accompanying Pledge and Security Agreement and forms of Note and Warrant (see Note11).

 

 

Effective March 17, 2015, the Company entered into a Founders Agreement with Checkpoint, which was amended and restated on July 11, 2016 (the “Checkpoint Founders Agreement”). The Checkpoint Founders Agreement provides that, in exchange for the time and capital expended in the formation of Checkpoint and the identification of specific assets the acquisition of which result in the formation of a viable emerging growth life science company, Checkpoint assumed $2.8 million in debt (see Note 11) that the Company accumulated under the NSC Note for expenses and costs of forming Checkpoint, and Checkpoint shall also: (i) issue annually to the Company, on the anniversary date of the Checkpoint Founders Agreement, shares of common stock equal to 2.5%  of the fully-diluted outstanding equity of Checkpoint at the time of issuance; (ii) pay an equity fee in shares of common stock, payable within five (5) business days of the closing of any equity or debt financing for Checkpoint or any of its subsidiaries that occurs after the effective date of the Checkpoint Founders Agreement and ending on the date when the Company no longer has majority voting control in Checkpoint’s voting equity, equal to 2.5% of the gross amount of any such equity or debt financing; and (iii) pay a cash fee equal to 4.5% of Checkpoint’s annual net sales, payable on an annual basis, within ninety (90) days of the end of each calendar year. In the event of a change in control (as it is defined in the Checkpoint Founders Agreement), Checkpoint will pay a one-time change in control fee equal to five times (5x) the product of (i) net sales for the twelve (12) months immediately preceding the change in control and (ii) four and one-half percent (4.5%). The Checkpoint Founders Agreement has a term of fifteen years after which it automatically renews for one-year periods unless the Company gives Checkpoint notice of termination. The Checkpoint Founders Agreement will automatically terminate upon a change of control.

 

Effective March 17, 2015, the Company entered into a Management Services Agreement (the “MSA”) with Checkpoint. Pursuant to the terms of the MSA, for a period of five (5) years, the Company will render advisory and consulting services to Checkpoint. Services provided under the MSA may include, without limitation, (i) advice and assistance concerning any and all aspects of Checkpoint’s operations, clinical trials, financial planning and strategic transactions and financings and (ii) conducting relations on behalf of Checkpoint with accountants, attorneys, financial advisors and other professionals (collectively, the “Services”). Checkpoint is obligated to utilize clinical research services, medical education, communication and marketing services and investor relations/public relation services of companies or individuals designated by the Company, provided those services are offered at market prices. However, Checkpoint is not obligated to take or act upon any advice rendered from the Company and the Company shall not be liable for any of Checkpoint’s actions or inactions based upon the Company’s advice. Fortress and its affiliates, including all members of the Checkpoint’s Board of Directors, have been contractually exempt from fiduciary duties to Checkpoint relating to corporate opportunities. In consideration for the Services, Checkpoint will pay the Company an annual consulting fee of $0.5 million (the “Annual Consulting Fee”), payable in advance in equal quarterly installments on the first business day of each calendar quarter in each year, provided, however, that such Annual Consulting Fee shall be increased to $1.0 million for each calendar year in which the Company has net assets in excess of $100 million at the beginning of the calendar year.

 

 

Effective as of February 17, 2015, the Company entered into a Founders Agreement with Avenue, which was amended and restated on September 13, 2016 (the “Avenue Founders Agreement”), pursuant to which the Company assigned to Avenue all of its rights and interest under the Company’s license agreement with Revogenex for IV Tramadol. As consideration for the Avenue Founders Agreement, Avenue assumed $3.0 million in debt that the Company accumulated under the NSC Note (see Note 11) for expenses and costs of forming Avenue and obtaining IV Tramadol license, of which $3.0 million represents the acquisition of the License Agreement. The Avenue Founders Agreement has a term of 15 years, which upon expiration automatically renews for successive one-year periods unless terminated by the Company or a Change in Control (as defined in the Avenue Founders Agreement) occurs. Concurrently with the amendment and restatement of the Avenue Founders Agreement, the Company entered into an Exchange Agreement whereby the Company exchanged its 7.0 million Class A Common shares for approximately 7.5 million common shares and 250,000 Class A Preferred shares. Class A Preferred Stock is identical to common stock other than as to voting rights, conversion rights, election of directors and the PIK Dividend right (as described below). Each share of Class A Preferred Stock will be entitled to vote the number of votes that is equal to one and one-tenth (1.1) times a fraction, the numerator of which is the sum of (A) the shares of outstanding Avenue common stock and (B) the whole shares of Avenue common stock into which the shares of outstanding Class A Preferred Stock are convertible and the denominator of which is the number of shares of outstanding Class A Preferred Stock. Thus, the Class A Preferred Stock will at all times constitute a voting majority. Each share of Class A Preferred Stock is convertible, at its option, into one fully paid and nonassessable share of Avenue common stock, subject to certain adjustments. For a period of 10 years from the date of the first issuance of Class A Preferred Stock, the holders of record of shares of Class A Preferred Stock, exclusively and as a separate class, are entitled to appoint or elect the majority of Avenue’s Board of Directors. As holders of Class A Preferred Stock, the Company will receive on each February 17 (each a “PIK Dividend Payment Date”) until the date all outstanding Class A Preferred Stock is converted into common stock or redeemed (and the purchase price is paid in full), pro rata per share dividends paid in additional fully paid and nonassessable shares of common stock (“PIK Dividends”) such that the aggregate number of shares of common stock issued pursuant to such PIK Dividend is equal to two and one-half percent (2.5%) of Avenue’s fully-diluted outstanding capitalization on the date that is one (1) business day prior to any PIK Dividend Payment Date. As additional consideration for the transfer of rights under the Avenue Founders Agreement, Avenue will also: (i) pay an equity fee in shares of Avenue common stock, payable within five (5) business days of the closing of any equity or debt financing for Avenue or any of its respective subsidiaries that occurs after the effective date of the Avenue Founders Agreement and ending on the date when Fortress no longer has majority voting control in Avenue’s voting equity, equal to two and one half percent (2.5%) of the gross amount of any such equity or debt financing; and (ii) pay a cash fee equal to four and one half percent (4.5%) of Avenue’s annual net sales, payable on an annual basis, within ninety (90) days of the end of each calendar year. In the event of a Change in Control, the Company will pay a one-time change in control fee equal to five (5x) times the product of (i) net sales for the twelve (12) months immediately preceding the change in control and (ii) four and one-half percent (4.5%).

 

Effective as of February 17, 2015, the Company entered into a Management Services Agreement (the “MSA”) with Avenue and each of Avenue’s current directors and officers who are directors or officers of the Company to provide services to Avenue pursuant to the terms of the MSA. Pursuant to the terms of the MSA, for a period of five (5) years, the Company will render advisory and consulting services to Avenue. Services provided under the MSA may include, without limitation, (i) advice and assistance concerning any and all aspects of Avenue’s operations, clinical trials, financial planning and strategic transactions and financings and (ii) conducting relations on behalf of Avenue with accountants, attorneys, financial advisors and other professionals (collectively, the “Services”). Avenue is obligated to utilize clinical research services, medical education, communication and marketing services and investor relations/public relation services of companies or individuals designated by Fortress, provided those services are offered at market prices. However, Avenue is not obligated to take or act upon any advice rendered from Fortress and Fortress shall not be liable for any of Avenue’s actions or inactions based upon their advice. Fortress and its affiliates, including all members of Avenue’s Board of Directors, have been contractually exempt from fiduciary duties to Avenue relating to corporate opportunities. In consideration for the Services, the Company will pay Fortress an annual consulting fee of $0.5 million (the “Annual Consulting Fee”), payable in advance in equal quarterly installments on the first business day of each calendar quarter in each year, provided, however, that such Annual Consulting Fee shall be increased to $1.0 million for each calendar year in which Avenue has net assets in excess of $100 million at the beginning of the calendar year.

   

 

Effective March 20, 2015, the Company entered into a Founders Agreement with Helocyte, which was amended and restated as of September 14, 2016 (the “Helocyte Founders Agreement”), pursuant to which the Company agreed to provide the initial funding required by the COH License Agreement for PepVax and Triplex, as well as other operating capital needed to meet Helocyte’s initial capital requirements. As consideration for the Helocyte Founders Agreement, upon Helocyte commencing a third party financing, Helocyte will assume the Company’s accumulated debt, attributable to Helocyte’s expenses and costs associated with its formation, license acquisition and expenses, under the NSC Note (“NSC Note”), or other similar debt. The Helocyte Founders Agreement has a term of 15 years, which upon expiration automatically renews for successive one-year periods unless terminated by the Company or a Change in Control (as defined in the Helocyte Founders Agreement) occurs. Concurrently with the amendment and restatement of the Helocyte Founders Agreement, the Company entered into an Exchange Agreement whereby the Company exchanged its 7.0 million Class B Common shares for 6.75 million common shares and 250,000 Class A Preferred shares. Class A Preferred Stock is identical to common stock other than as to voting rights, conversion rights and the PIK Dividend right (as described below). Each share of Class A Preferred Stock will be entitled to vote the number of votes that is equal to one and one-tenth (1.1) times a fraction, the numerator of which is the sum of (A) the shares of outstanding Helocyte common stock and (B) the whole shares of Helocyte common stock into which the shares of outstanding Class A Common Stock and Class A Preferred Stock are convertible and the denominator of which is the number of shares of outstanding Class A Preferred Stock. Thus, the Class A Preferred Stock will at all times constitute a voting majority. Each share of Class A Preferred Stock is convertible, at its option, into one fully paid and nonassessable share of Helocyte common stock, subject to certain adjustments. As the sole holder of Class A Preferred Stock, the Company will receive on each March 20 (each a “PIK Dividend Payment Date”) until the date all outstanding Class A Preferred Stock is converted into common stock or redeemed (and the purchase price is paid in full), pro rata per share dividends paid in additional fully paid and nonassessable shares of common stock (“PIK Dividends”) such that the aggregate number of shares of common stock issued pursuant to such PIK Dividend is equal to two and one-half percent (2.5%) of Helocyte’s fully-diluted outstanding capitalization on the date that is one (1) business day prior to any PIK Dividend Payment Date. As additional consideration for the transfer of rights under the Helocyte Founders Agreement, Helocyte will also: (i) pay an equity fee in shares of Helocyte common stock, payable within five (5) business days of the closing of any equity or debt financing for Helocyte or any of its respective subsidiaries that occurs after the effective date of the Helocyte Founders Agreement and ending on the date when Fortress no longer has majority voting control in Helocyte’s voting equity, equal to two and one half percent (2.5%) of the gross amount of any such equity or debt financing; and (ii) pay a cash fee equal to four and one half percent (4.5%) of Helocyte’s annual net sales, payable on an annual basis, within ninety (90) days of the end of each calendar year. In the event of a Change in Control, the Company will pay a one-time change in control fee equal to five (5x) times the product of (i) net sales for the twelve (12) months immediately preceding the change in control and (ii) four and one-half percent (4.5%).

Effective March 20, 2015, the Company entered into a Management Services Agreement (the “MSA”) with Helocyte and each of Helocyte’s current directors and officers who are directors or officers of the Company to provide services to Helocyte pursuant to the terms of the MSA. Pursuant to the terms of the MSA, for a period of five (5) years, the Company will render advisory and consulting services to Helocyte. Services provided under the MSA may include, without limitation, (i) advice and assistance concerning any and all aspects of Helocyte’s operations, clinical trials, financial planning and strategic transactions and financings and (ii) conducting relations on behalf of Helocyte with accountants, attorneys, financial advisors and other professionals (collectively, the “Services”). Helocyte is obligated to utilize clinical research services, medical education, communication and marketing services and investor relations/public relation services of companies or individuals designated by Fortress, provided those services are offered at market prices. However, Helocyte is not obligated to take or act upon any advice rendered from Fortress and Fortress shall not be liable for any of Helocyte’s actions or inactions based upon their advice. Fortress and its affiliates, including all members of Helocyte’s Board of Directors, have been contractually exempt from fiduciary duties to Helocyte relating to corporate opportunities. In consideration for the Services, the Company will pay Fortress an annual consulting fee of $0.5 million (the “Annual Consulting Fee”), payable in advance in equal quarterly installments on the first business day of each calendar quarter in each year, provided, however, that such Annual Consulting Fee shall be increased to $1.0 million for each calendar year in which Helocyte has net assets in excess of $100 million at the beginning of the calendar year.

 

Effective March 13, 2015, the Company entered a Founders Agreement with Mustang, which was amended and restated on May 17, 2016 and again on July 26, 2016 (the “Mustang Founders Agreement”). The Mustang Founders Agreement provides that, in exchange for the time and capital expended in the formation of Mustang and the identification of specific assets the acquisition of which result in the formation of a viable emerging growth life science company, the Company will loan Mustang $2.0 million, representing the up-front fee required to acquire Mustang’s license agreement with COH. The Mustang Founders Agreement has a term of 15 years, which upon expiration automatically renews for successive one-year periods unless terminated by the Company or a Change in Control (as defined in the Mustang Founders Agreement) occurs. Concurrently with the second amendment to the Mustang Founders Agreement, the Company entered into an Exchange Agreement whereby the Company exchanged its 7.25 million Class B Common shares for 7.0 million common shares and 250,000 Class A Preferred shares. Class A Preferred Stock is identical to common stock other than as to voting rights, conversion rights and the PIK Dividend right (as described below). Each share of Class A Preferred Stock will be entitled to vote the number of votes that is equal to one and one-tenth (1.1) times a fraction, the numerator of which is the sum of (A) the shares of outstanding Mustang common stock and (B) the whole shares of Mustang common stock into which the shares of outstanding Class A Common Stock and Class A Preferred Stock are convertible and the denominator of which is the number of shares of outstanding Class A Preferred Stock. Thus, the Class A Preferred Stock will at all times constitute a voting majority. Each share of Class A Preferred Stock is convertible, at the Company’s option, into one fully paid and nonassessable share of Mustang common stock, subject to certain adjustments. As holders of Class A Preferred Stock, the Company will receive on each March 13 (each a “PIK Dividend Payment Date”) until the date all outstanding Class A Preferred Stock is converted into common stock or redeemed (and the purchase price is paid in full), pro rata per share dividends paid in additional fully paid and nonassessable shares of common stock (“PIK Dividends”) such that the aggregate number of shares of common stock issued pursuant to such PIK Dividend is equal to two and one-half percent (2.5%) of Mustang’s fully-diluted outstanding capitalization on the date that is one (1) business day prior to any PIK Dividend Payment Date.

 

As additional consideration under the Mustang Founders Agreement, Mustang will also: (i) pay an equity fee in shares of common stock, payable within five (5) business days of the closing of any equity or debt financing for Mustang or any of its respective subsidiaries that occurs after the effective date of the Mustang Founders Agreement and ending on the date when the Company no longer has majority voting control in Mustang’s voting equity, equal to two and one-half (2.5%) of the gross amount of any such equity or debt financing; and (ii) pay a cash fee equal to four and one-half percent (4.5%) of Mustang’s annual net sales, payable on an annual basis, within ninety (90) days of the end of each calendar year. In the event of a Change in Control, Mustang will pay a one-time change in control fee equal to five (5x) times the product of (A) net sales for the twelve (12) months immediately preceding the change in control and (B) four and one-half percent (4.5%).

 

Effective as of March 13, 2015, the Company entered into a Management Services Agreement (the “MSA”) with Mustang. Pursuant to the terms of the MSA, for a period of five (5) years, the Company will render advisory and consulting services to Mustang. Services provided under the MSA may include, without limitation, (i) advice and assistance concerning any and all aspects of Mustang’s operations, clinical trials, financial planning and strategic transactions and financings and (ii) conducting relations on behalf of Mustang with accountants, attorneys, financial advisors and other professionals (collectively, the “Services”). Mustang is obligated to utilize clinical research services, medical education, communication and marketing services and investor relations/public relation services of companies or individuals designated by Fortress, provided those services are offered at market prices. However, Mustang is not obligated to take or act upon any advice rendered from Fortress, and Fortress shall not be liable for any of Mustang’s actions or inactions based upon Fortress’s advice. Fortress and its affiliates, including all members of Mustang’s Board of Directors, have been contractually exempt from fiduciary duties to Mustang relating to corporate opportunities. In consideration for the Services, Mustang will pay Fortress an annual consulting fee of $0.5 million (the “Annual Consulting Fee”), payable in advance in equal quarterly installments on the first business day of each calendar quarter in each year, provided, however, that such Annual Consulting Fee shall be increased to $1.0 million for each calendar year in which Mustang has net assets in excess of $100 million at the beginning of the calendar year.

 

As consideration for the Mustang Founders Agreement, Mustang assumed $3.6 million in debt that the Company accumulated under the NSC Note on July 5, 2016 (see Note 11).

 

 

In May 2015, the Company entered into a full service consulting agreement with Chord Advisors, LLC (“Chord”) to provide advisory accounting services. Under the terms of the agreement, the Company pays Chord $10,000 per month to provide technical accounting and financial reporting support. Either party upon 30-days written notice can terminate the agreement. Mr. Horin, Managing Partner of Chord, serves as Interim Chief Financial Officer to Avenue, Checkpoint, Helocyte and Mustang. Pursuant to the agreements with Avenue, Checkpoint, Helocyte and Mustang, Chord receives $5,000 per month from Avenue, Mustang and Helocyte, and $7,500 per month from Checkpoint to provide back office accounting support and accounting policy and financial reporting services, including the services of Mr. Horin.

 

 

In September 2016, pursuant to the terms of the Merger Agreement between National and Fortress, the Company acquired 56.1% of National for $22.9 million, thereby becoming the majority shareholder of National. The Company’s Executive Vice Chairman, Strategic Development is the Chairman of the Board of National. In the normal course, National provides the Company and the Company’s subsidiaries with placement agent services in connection with third party raises. For the three and nine months ended September 30, 2016 and 2015, National received fees of $1.3 million and $1.3 million, respectively. The fees earned in 2016 relate to Mustang while the fees earned in 2015 relate to Checkpoint.

 

Additionally, the Company’s Chairman, President and Chief Executive Officer and the Company’s Executive Vice Chairman, Strategic Development are both Co-Portfolio Managers and Partners of OPPM which owns approximately 4.6% of National.