INNOVATE Corp

16. Related Parties

During the first quarter of 2024, in connection with the Rights Offering, the Company entered into an Investment Agreement with Lancer Capital, an entity controlled by Avram A. Glazer, pursuant to which Lancer Capital agreed to the Backstop Commitment to purchase up to $19.0 million of Series C Preferred Stock in connection with the Rights Offering and to purchase $16.0 million of Series C Preferred Stock in a Concurrent Private Placement, of which $25.0 million would be purchased before the closing of the Rights Offering if the Rights Offering did not close by March 28, 2024. As a result of the extension of the Rights Offering, on March 28, 2024, Lancer Capital funded the equity advance of $25.0 million to the Company and received 25,000 shares of Series C Preferred Stock. As a result, Lancer Capital's beneficial ownership increased from 29.1% as of March 5, 2024, immediately prior to the start of the Rights Offering, to 48.8% as of March 31, 2024. On April 24, 2024, as a result of the closing of the Rights Offering and Concurrent Private Placement, Lancer Capital purchased an additional approximately 6,286 shares of Series C Preferred Stock for $6.3 million, increasing Lancer Capital's beneficial ownership to 52.1%. On June 18, 2024, the Company held its annual shareholder meeting where the Company's shareholders approved the conversion of the Series C Preferred Stock into common stock. As a result, approximately 31,286 Series C Preferred Stock held by Lancer Capital were converted into 4,469,390 shares of INNOVATE's common stock (44,693,895 on a pre Reverse Stock Split basis). Refer to Note 15. Equity and Temporary Equity for additional information. As of September 30, 2024, Lancer Capital's beneficial ownership was 49.5%.

Lancer Capital held $2.0 million of principal amount of the Company's $51.8 million 7.50% 2026 Convertible Notes, as of both September 30, 2024 and December 31, 2023. As of September 30, 2024, the $2.0 million in 7.5% notes are convertible into 47,265 shares of common stock of INNOVATE. Refer to Note 11. Debt Obligations for additional information on the 2026 Convertible Notes. During both the three and nine months ended September 30, 2024 and 2023, Lancer Capital earned $37.5 thousand and $112.5 thousand, respectively, in interest relating to these notes.

In December 2023, the Company entered into a sublease agreement for a special purpose space with PBCIC, a Florida not-for-profit corporation and related party to Avram A. Glazer, the Chairman of INNOVATE's Board of Directors and a significant shareholder, who is also on the board of directors of PBCIC. In March 2024, the Company assigned this lease to an entity controlled by Mr. Glazer. In addition, in March 2024, the Company assigned a lease for office space to an entity controlled by Mr. Glazer. Refer to Note 9. Leases for additional information.

In September 2018, the Company entered into a 75-month lease for office space which expires in December 2024. As part of the agreement, INNOVATE was able to pay a lower security deposit and lease payments and received favorable lease terms as consideration for landlord required cross default language in the event of default of the shared space leased by Harbinger Capital Partners, a company controlled by a former CEO of INNOVATE and formerly a related party, in the same building. With the adoption of ASC 842, Leases, as of January 1, 2019, this lease was recognized as a right-of-use asset and lease liability on the Consolidated Balance Sheets.

On May 9, 2023, the Company entered into a Stock Purchase Agreement and Subordinated Unsecured Promissory Note with CGIC in the principal amount of $35.1 million. CGIC is a former significant shareholder and is the shareholder of the Series A-3 Preferred Stock and Series A-4 Preferred Stock. As a result of the closing of the Rights Offering on April 24, 2024, INNOVATE redeemed $4.1 million of the CGIC Unsecured Note on April 26, 2024. Refer to Note 11. Debt Obligations and Note 15. Equity and Temporary Equity for additional information.

Banker Steel previously leasedtwo planes from Banker Aviation, LLC, a former related party and entity that is owned by Donald Banker, who was the CEO of Banker Steel until December 2023. Both leases had been terminated by the fourth quarter of 2023. For the three and nine months ended September 30, 2023, DBMG incurred related lease expenses of $0.3 million and $1.0 million, respectively.

DBMG and Banker Steel, jointly and severally, had a subordinated 4.0% note payable to Banker Steel's former owner, in which Donald Banker's family trust has a 25% interest, and jointly and severally also had a subordinated 8.0% note payable to Donald Banker's family trust, the latter of which was fully paid off in December 2023. The 4.0% note and associated accrued interest matured on March 31, 2024, and was fully redeemed on April 2, 2024. During the nine months ended September 30, 2024, DBMG made $5.0 million in scheduled principal payments on the 4.0% note. DBMG incurred aggregate interest expense related to these notes of $0.3 million for the three months ended September 30, 2023, and $25 thousand and $1.3 million for the nine months ended September 30, 2024 and 2023, respectively. Accrued interest was $0.1 million as of December 31, 2023.

As of September 30, 2024 and December 31, 2023, R2 Technologies had $22.8 million and $17.4 million, respectively, in principal amount of 20.0% senior secured promissory notes due to Lancer Capital. Refer to Note 11. Debt Obligations for additional information.

R2 Technologies recognized $0.6 million of revenue from sales with a subsidiary of Huadong, a related party of R2 Technologies, for the three months ended September 30, 2024 and recognizedno revenue for the three months ended September 30, 2023. R2 Technologies recognized $0.8 million and $0.2 million of revenue from sales and profit sharing agreements with a subsidiary of Huadong, a related party of R2 Technologies, respectively, for the nine months ended September 30, 2024 and 2023. As of both September 30, 2024 and December 31, 2023, there wereno related receivables from this subsidiary of Huadong.

Stock compensation and royalty expenses related to Blossom Innovations, LLC, an investor of R2 Technologies since 2014, totaled $0.2 million and $0.1 million for the three months ended September 30, 2024 and 2023, respectively, and totaled $0.4 million and $0.2 million, for the nine months ended September 30, 2024 and 2023, respectively.

Refer to Note 6. Investments for transactions with equity method investees of the Company.