12. Commitments and contingencies

Commitments

The Company has an agreement with KTB for the Company’s exclusive license of patent rights held by KTB for the worldwide development and commercialization of aldoxorubicin. Under the agreement, the Company must make payments to KTB in the aggregate of $7.5 million upon meeting clinical and regulatory milestones up to and including the product’s second final marketing approval. In the nine months ended September 30, 2014, the Company met two clinical milestones, resulting in total payments of $2.0 million to KTB. The Company also has agreed to pay:

·	commercially reasonable royalties based on a percentage of net sales (as defined in the agreement);

·	a percentage of non-royalty sub-licensing income (as defined in the agreement); and

·	milestones of $1 million for each additional final marketing approval that the Company obtains.

In the event that the Company must pay a third party in order to exercise its rights to the intellectual property under the agreement, the Company will deduct a percentage of those payments from the royalties due KTB, up to an agreed upon cap.

Contingencies

On June 13, 2014, three purported securities class action lawsuits pending in the United States District Court for the Central District of California, were consolidated in the matter of In re CytRx Corporation Securities Litigation, 2:14-CV-01956-GHK (PJWx), and lead plaintiff and lead counsel were appointed. On October 1, 2014, plaintiffs filed a consolidated amended complaint on behalf of all persons who purchased or otherwise acquired the publicly traded securities of CytRx between November 20, 2013 and March 13, 2014, against CytRx, certain Company officers and directors, a freelance writer, and certain underwriters. The complaint alleges that certain of the defendants violated the Securities Exchange Act of 1934 by making materially false and misleading statements in press releases, promotional articles, SEC filings and other public statements. The complaint further alleges that certain of the defendants violated the Securities Act of 1933 by making materially misleading statements and omitting material information in the shelf Registration Statement on Form S-3 filed with the SEC on December 6, 2012 and Prospectus Supplement on Form 424(b)(2) file with the SEC on January 31, 2014. These allegations arise out of the Company’s alleged retention of The DreamTeam Group and MissionIR, external investor and public relations firms unaffiliated with the Company, as well as the Company’s December 9, 2013 grant of stock options to certain board members and officers. The consolidated amended complaint seeks damages, including interest, in an unspecified amount, reasonable costs and attorneys’ fees, and any equitable, injunctive, or other relief that the court may deem just and proper. On December 5, 2014, CytRx and the individual defendants filed a motion to dismiss the complaint. On July 13, 2015, the Court issued an order granting in part and denying in part the motions to dismiss filed by the Company, the individual defendants and the underwriters. On August 7, 2015, the plaintiffs filed a First Amended Consolidated Complaint. On September 8, 2015, the Company and the individual defendants filed a motion to dismiss the claims alleged under Section 12(a)(2) of the Securities Act of 1933, and under Section 15 thereunder, to the extent they are predicated on claims under Section 12(a)(2). On September 8, 2015, the plaintiffs filed a motion for reconsideration of the part of the Court’s July 13, 2015 order dismissing Rule 10b-5(b) claims against the Company, Kriegsman and Haen. The Court was scheduled to hear argument on the defendants’ motion to dismiss and the plaintiff’s motion for reconsideration on October 26, 2015, but took both motions under submission and the hearing off calendar on October 23, 2015.

On April 3, 2014, a purported class action lawsuit was filed against the Company and certain of its officers and each of its directors, as well as certain underwriters, in the Superior Court of California, County of Los Angeles, captioned Rajasekaran v. CytRx Corporation, et al., BC541426. The complaint purports to be brought on behalf of all shareholders who purchased or otherwise acquired the Company’s common stock pursuant or traceable to its public offering that closed on February 5, 2014. The complaint alleges that defendants violated the federal securities laws by making materially false and misleading statements in the Company’s filings with the SEC. The complaint seeks compensatory damages in an unspecified amount, rescission, and attorney’s fees and costs. On October 14, 2014, the Court granted the parties’ joint ex parte motion to stay this proceeding pending resolution of motions to dismiss in the related federal action, In re CytRx Corporation Securities Litigation, 2:14-CV-01956-GHK (PJWx). On August 21, 2015, the Court continued the stay pending resolution of any motions to dismiss the First Amended Consolidated Complaint filed in the related federal action.

On July 3, 2014, a shareholder derivative lawsuit was filed in the United States District Court for the Central District of California, captioned Fishman v. Kriegsman, et al., 2:14-cv-05169, purportedly on the Company’s behalf against certain of its officers and each of its directors. The complaint alleged breach of fiduciary duties, corporate waste, gross mismanagement, and unjust enrichment in connection with the Company’s alleged retention of DreamTeamGroup and MissionIR. The complaint sought damages, restitution, corporate governance reforms, and attorney’s fees and costs. On September 3, 2014, plaintiff filed a notice to voluntarily dismiss this action against all parties without prejudice, which the Court granted on September 9, 2014.

On September 10, 2014, the Delaware Court of Chancery consolidated Schwartz v. Ignarro, et al., Case No. 9864, Johnson v. Ignarro, et al. , Case No. 9884, and Silverberg v. Kriegsman, et al., Case No. 9919, three shareholder derivative lawsuits described in the Company’s Quarterly Report filed with the SEC on August 6, 2014. A consolidated complaint concentrated on the stock-option grant claims was filed on October 9, 2014, which relates to the Company’s December 9, 2013 grant of stock options to certain board members and officers. The consolidated lawsuit is captioned In re CytRx Corp. Stockholder Derivative Litigation, C.A. No. 9864-VCL. On November 10, 2014, the Company and the individual defendants filed a motion to dismiss the consolidated complaint or, in the alternative, to stay the action. The Court heard argument on the motions on January 8, 2015. The Court denied the motion to dismiss and granted in part and denied in part the motion to stay. On June 2, 2015, the Company announced that they had reached an agreement to settle the Delaware stockholder derivative action. Under the settlement, it agreed to re-price certain stock options to purchase common stock that were granted on December 9, 2013 to certain of its directors and officers from the original exercise price of $2.39 to an exercise price of $4.66 (the share price at market closing on December 20, 2013). The settlement also provides that the Company will implement certain corporate governance changes and modify its governance practices regarding the granting of stock options. The parties thereafter reached an agreement on an award of $1.1 million of fees and expenses to plaintiffs’ attorneys, which award must be approved by the Court regardless whether there is an agreement between the parties. These fees and expenses will be covered by the Company’s insurance companies. The settlement is subject to the drafting of definitive documentation, notice to stockholders, and Court approval. The settlement approval hearing before the Delaware Court of Chancery is scheduled for November 20, 2015.

On August 14, 2014, a shareholder derivative lawsuit, captioned Pankratz v. Kriegsman, et al., 2:14-cv-06414-PA-JPR, was filed in the United States District Court for the Central District of California purportedly on the Company’s behalf against certain of its officers and each of its directors. The complaint alleges breach of fiduciary duties, unjust enrichment, gross mismanagement, abuse of control, insider selling and misappropriation of information in connection with the Company’s alleged retention of DreamTeamGroup and MissionIR, as well as its December 9, 2013 grant of stock options to certain board members and officers. The complaint seeks unspecified damages, corporate governance and internal procedures reforms, restitution, disgorgement of all profits, benefits, and other compensation obtained by the individual defendants, and the costs and disbursements of the action.

On August 15, 2014, a shareholder derivative complaint, captioned Taylor v. Kriegsman, et al., 2:14-cv-06451, was filed in the United States District Court for the Central District of California purportedly on the Company’s behalf against certain of its officers and each of its directors. The complaint alleges breach of fiduciary duties, unjust enrichment, gross mismanagement, abuse of control, unjust enrichment, insider selling and misappropriation of information in connection with the Company’s alleged retention of DreamTeamGroup and MissionIR, as well as its December 9, 2013 grant of stock options to certain board members and officers. The complaint seeks unspecified damages, corporate governance and internal procedures reforms, restitution, disgorgement of all profits, benefits, and other compensation obtained by the individual defendants, and the costs and disbursements of the action.

On October 8, 2014, the Court in Pankratz and Taylor consolidated the cases and appointed lead plaintiffs and co-lead counsel. On October 20, 2014, the Company and the individual defendants filed motions to dismiss the consolidated Pankratz and Taylor cases or, in the alternative, to stay the cases. On January 9, 2015, the Court stayed the actions pending the resolution of the consolidated Delaware derivative action. On February 27, 2015, the Pankratz and Taylor plaintiffs filed a motion to vacate the stay. On June 24, 2015, the Court granted the motion to lift the stay in light of the pending settlement of the Delaware derivative litigation discussed above. The Court further denied the motion to dismiss without prejudice and invited the Company to move to dismiss the case within 30 days pursuant to the doctrine of forum non conveniens based on its forum-selection bylaw, which mandates that derivative actions be filed in Delaware. The Court advised that it would consider any forum non conveniens motion before considering any subsequent motion to dismiss under Rule 12. On July 24, 2015, the Company and the individual defendants filed a motion to dismiss pursuant to the doctrine of forum non conveniens. The Court was scheduled to hear argument on this motion on September 28, 2015. On September 24, 2015, the Court took this motion under submission and took the hearing off calendar.

The Company intends to vigorously defend against the foregoing complaints. The Company has directors’ and officers’ liability insurance, which will be utilized in the defense of these matters. The Company has incurred legal expenses in defending these complaints and as of September 30, 2015, the Company has an outstanding receivable from its insurance carrier of $1.7 million related to these expenses. The Company’s liability insurance may not be sufficient to cover all of the expesnes and liabilities the Company may incur in connection with the foregoing matters. These claims are subject to inherent uncertainties, and management’s views of these matters may change in the future.

The Company evaluates developments in legal proceedings and other matters on a quarterly basis. If an unfavorable outcome becomes probable and reasonably estimable, the Company could incur charges that could have a material adverse impact on the Company’s financial condition and results of operations for the period in which the outcome becomes probable and reasonably estimable.