13. Commitments and contingencies

Commitments

We have an agreement with KTB for the exclusive license of patent rights held by KTB for the worldwide development and commercialization of aldoxorubicin. Under the agreement, we 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 six months ended June 30, 2014, we met two clinical milestones, resulting in total payments of $2.0 million to KTB. We also 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 we obtain.

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

Contingencies

We are occasionally involved in legal proceedings and other matters arising from the normal course of business. There are currently two purported federal securities class actions pending in the United States District Court for the Central District of California. In addition, there are currently a derivative action pending in the United States District Court for the Central District of California and two derivative actions pending in the Court of Chancery of the State of Delaware. These actions are described more fully below.

Chen v. CytRx Corporation, et al.

On March 14, 2014, a purported securities class action lawsuit was filed against the Company and an officer, as well as DreamTeamGroup and MissionIR, two external investor and public relations firms unaffiliated with the Company, in the United States District Court for the Central District of California, captioned Chen vs. CytRx Corporation, et al., No. 2:14-cv-14-01956-GHK-(RTWx). The complaint purports to be brought on behalf of all shareholders who purchased the Company’s common stock between November 22, 2013 and March 13, 2014. The complaint alleges that defendants violated the federal securities laws in connection with various public statements purportedly issued by us or on our behalf. On May 29, 2014, the court dismissed DreamTeamGroup and MissionIR without prejudice from the action for plaintiff’s failure to serve those parties. The complaint seeks compensatory damages in an unspecified amount and attorney’s fees and costs.

Perri v. CytRx Corporation, et al.

On March 18, 2014, a purported securities class action lawsuit was filed against the Company and an officer, in the United States District Court for the Central District of California, captioned Perri v. CytRx Corporation, et al., No. 2:14-cv-02052-DDP-(JCGx). The complaint, which purports to be brought on behalf of all shareholders who purchased the Company’s common stock between November 20, 2013 and March 13, 2014, asserts claims substantially identical to those asserted in Chen v. CytRx Corporation, et al., No. 2:14-cv-14-01956-GHK-(RTWx), described above. The complaint seeks compensatory damages in an unspecified amount and attorney’s fees and costs.

Kim v. CytRx Corporation, et al.

On April 9, 2014, a purported securities class action lawsuit was filed against the Company and an officer, in the United States District Court for the Central District of California, captioned Kim v. CytRx Corporation, et al., No. 2:14-cv-02689-DMG-(AJWx). The complaint, which purports to be brought on behalf of all shareholders who purchased the Company’s common stock between November 22, 2013 and March 13, 2014, asserts claims substantially identical to those asserted in Chen v. CytRx Corporation, et al., No. 2:14-cv-14-01956-GHK-(RTWx), and Perri v. CytRx Corporation, et al., No. 2:14-cv-02052-DDP-(JCGx), described above. The complaint seeks compensatory damages in an unspecified amount and attorney’s fees and costs.

On June 13, 2014, the court consolidated the Perri and Kim actions with the Chen action, appointed a lead plaintiff and lead counsel in the Chen action, and dismissed the Perri and Kim actions.

Rajasekaran v. CytRx Corporation, et al.

On April 3, 2014, a purported class action lawsuit was filed against the Company and certain officers and each director, 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 and/or traceable to the Company’s secondary common stock offering, which closed on February 5, 2014. The complaint alleges that defendants violated the federal securities laws by making materially false and misleading statements in filings with the SEC. The complaint seeks compensatory damages in an unspecified amount, rescission, and attorney’s fees and costs.

On May 2, 2014, CytRx and the named officers and directors, joined by the underwriter defendants, removed this action to the United States District Court for the Central District of California. Plaintiff filed a motion to remand the case to state court on June 11, 2014. CytRx and the named officers and directors, as well as the underwriter defendants, opposed that motion on July 14, 2014.

Fishman v. Kriegsman, et al.

On July 3, 2014, a purported verified shareholder derivative action was filed in the United States District Court for the Central District of California, captioned Fishman v. Kriegsman, et al., 2:14-cv-05169, against nominal defendant CytRx and certain officers and each director of the Company. The complaint alleges breach of fiduciary duty, corporate waste, gross mismanagement, and unjust enrichment in connection with the Company's alleged retention of DreamTeamGroup and MissionIR, two external investor and public relations firms unaffiliated with the Company. The complaint seeks damages, restitution, corporate governance reforms, and attorney’s fees and costs.

Schwartz v. Ignarro, et al.

On July 8, 2014, a purported verified shareholder derivative action was filed in the Court of Chancery of the State of Delaware, captioned Schwartz v. Ignarro, et al., Case No. 9864, against nominal defendant CytRx and certain officers and each director of the Company. The complaint alleges breach of fiduciary duty, corporate waste, and unjust enrichment in connection with the Company’s December 2013 grant of stock options to certain officers and directors of the Company. The complaint seeks damages, rescission, disgorgement, and attorney’s fees and costs.

Johnson v. Ignarro, et al.

On July 15, 2014, a purported verified shareholder derivative action was filed in the Court of Chancery of the State of Delaware, captioned Johnson v. Ignarro, et al., Case No. 9884, against nominal defendant CytRx and certain officers and each director of the Company. The complaint alleges breach of fiduciary duty, waste of corporate assets, and unjust enrichment in connection with the Company’s December 2013 grant of stock options to certain officers and directors of the Company. The complaint seeks damages, rescission, disgorgement, and attorney’s fees and costs.

Silverberg v. Kriegsman, et al.

On July 21, 2014, a purported verified shareholder derivative action was filed in the Court of Chancery of the State of Delaware, captioned Silverberg v. Kriegsman, et al., Case No. 9919, against nominal defendant CytRx and certain officers and each director of the Company. The complaint alleges breach of fiduciary duty, waste of corporate assets, and unjust enrichment in connection with the Company’s December 2013 grant of stock options to certain officers and directors as well as the Company’s alleged retention of DreamTeamGroup and MissionIR, two external investor and public relations firms unaffiliated with the Company. The complaint seeks damages, rescission, disgorgement, internal governance reforms, and attorney’s fees and costs.

We intend 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. As at June 30, 2014, the Company has incurred legal expenses of $2.5 million, of which approximately $1.6 million will be submitted to its insurance carrier for reimbursement, which is included in the Receivables on the accompanying Condensed Balance Sheet. The Company expects to recover the receivable amount from its insurance carrier. The liability insurance may not cover all of the future liabilities the Company may incur in connection with the foregoing matters. We record accruals for loss contingencies to the extent that we conclude that it is probable that a liability has been incurred and the amount of the related loss can be reasonably estimated. Based on the very early stage of litigation, it is not possible to estimate the amount or range of possible loss that might result from an adverse judgment or a settlement of these matters. We evaluate developments in legal proceedings and other matters on a quarterly basis.