| Commitments and Contingencies |
9. Commitments and Contingencies The Company acquires assets still in development and enters into research and development arrangements with third parties that often require milestone and royalty payments to the third party contingent upon the occurrence of certain future events linked to the success of the asset in development. Milestone payments may be required, contingent upon the successful achievement of an important point in the development life-cycle of the pharmaceutical product (e.g., approval of the product for marketing by a regulatory agency). If required by the arrangement, CytRx may have to make royalty payments based upon a percentage of the sales of the pharmaceutical product in the event that regulatory approval for marketing is obtained. These arrangements may be material individually, and in the unlikely event that milestones for multiple products covered by these arrangements were reached in the same period, the aggregate charge to expense could be material to the results of operations in any one period. In addition, these arrangements often give CytRx the discretion to unilaterally terminate development of the product, which would allow CytRx to avoid making the contingent payments; however, CytRx is unlikely to cease development if the compound successfully achieves clinical testing objectives. CytRx’s current contractual obligations that will require future cash payments are as follows (in thousands): | | | Operating Leases (1) | | | Employment Agreements (2) | | | Subtotal | | | Research and Development (3) | | | Total | | 2014 | | $ | 337 | | | $ | 2,575 | | | $ | 2,912 | | | $ | 8,490 | | | $ | 11,402 | | 2015 | | | 258 | | | | 850 | | | | 1,108 | | | | 2,106 | | | | 3,214 | | 2016 | | | 228 | | | | — | | | | 228 | | | | 943 | | | | 1,171 | | 2017 | | | 255 | | | | — | | | | 255 | | | | 681 | | | | 936 | | 2018 | | | 262 | | | | — | | | | 262 | | | | — | | | | 262 | | Thereafter | | | 302 | | | | — | | | | 302 | | | | — | | | | 302 | | Total | | $ | 1,642 | | | $ | 3,425 | | | $ | 5,067 | | | $ | 12,220 | | | $ | 17,287 | |
(1) | Operating leases are primarily facility lease related obligations, as well as equipment lease obligations with third party vendors. The Company recognized lease expenses of $315,134, $324,536 and $321,782 in 2013, 2012 and 2011, respectively. |
(2) | Employment agreements include management contracts which have been revised from time to time. The employment agreement for the Company’s President and Chief Executive Officer provides for a minimum salary level, which is adjusted annually at the discretion of the Company’s Compensation Committee, as well as for minimum bonuses that are payable. New employment agreements for the Company’s other executive officers are usually entered into annually. |
(3) | Research and development obligations relate primarily to clinical trials. Most of these purchase obligations are cancelable. |
The Company applies the disclosure provisions of ASC 460, Guarantees ( “ASC 460”) to its agreements that contain guarantees or indemnities by the Company. The Company provides (i) indemnifications of varying scope and size to certain investors and other parties for certain losses suffered or incurred by the indemnified party in connection with various types of third-party claims; and (ii) indemnifications of varying scope and size to officers and directors against third party claims arising from the services they provide to the Company. To date, the Company has not incurred material costs as a result of these obligations and does not expect to incur material costs in the future; further, the Company maintains insurance to cover certain losses arising from these indemnifications. Accordingly, the Company has not accrued any liabilities in its consolidated financial statements related to these indemnifications or guarantees. The Company is occasionally involved in claims arising in the normal course of business. There were no such claims that the Company expects, individually or in the aggregate, to have a material adverse effect on CytRx. |
