Sinotau Litigation

On August 31, 2015, Sinotau Pharmaceutical Group (Sinotau) filed a suit for damages, specific performance and injunctive relief against the Company in the United States District Court for the District of Massachusetts alleging breach of a letter of intent for licensing to Sinotau of the Company’s NAV4694 product candidate and technology.  The Company believed the suit was without merit and filed a motion to dismiss the action.  In September 2016, the court determined that there was enough evidence to proceed with the case and denied Navidea’s motion to dismiss.  Navidea is currently preparing for a trial which is expected to take place within the next twelve months.  At this time it is not possible to determine with any degree of certainty the ultimate outcome of this legal proceeding, including making a determination of liability.

In July 2016, the Company executed a term sheet with Cerveau Technologies, Inc. (Cerveau) as a designated party for the rights resulting from the relationship between Navidea and Sinotau.  The term sheet outlined the terms of a potential agreement between the parties to sublicense NAV4694 to Cerveau in return for license fees, milestone payments and royalties.  With the exception of certain provisions, the term sheet was non-binding and was subject to the agreement of AstraZeneca, from whom the Company has licensed the NAV4694 technology.  The Company had 60 days to execute a definitive agreement, however no definitive agreement was reached.  Discussions related to the potential partnering or divestiture of NAV4694 are ongoing.

CRG Litigation

During the second quarter of 2016, CRG alleged multiple claims of default on the CRG Loan Agreement, and filed suit in the District Court of Harris County, Texas.  On June 22, 2016, CRG exercised control over one of the Company’s primary bank accounts and took possession of $4.1 million that was on deposit.  CRG subsequently notified the Company that the cash was used to reimburse CRG for actual costs and expenses incurred by CRG related to the collection of the collateral of $778,000, pay the prepayment premium of $2.1 million and the backend facility fee of $1.0 million, and the remaining $189,000 was applied to the principal balance of the loan.

On July 13, 2016, a hearing was held in the District Court of Harris County, Texas with respect to an application for temporary injunction (ATI) filed by CRG in June 2016.  At the conclusion of the hearing, the Court ordered the parties to mediation and stayed any ruling on CRG’s request for injunctive relief until after a mediation has been completed.  On July 20, the parties participated in mediation but were not successful in reaching an agreement.  On July 29, 2016, the Harris County, Texas judge recused herself from the case, citing inability to be impartial.  A new judge was appointed on July 29, 2016.  

On August 30, 2016, the District Court of Harris County, Texas granted CRG’s ATI.  The Court provided the Company with 21 days to enter into the requisite account control agreements with CRG.  In September 2016, the ATI was superseded by the requirement to maintain $2.5 million in a pledged collateral account that is subject to an account control agreement.  The Order granting the ATI is currently on appeal to the Fourteenth Court of Appeals.  Briefing is expected to be completed by early December 2016, after which a date will be set for oral arguments.

Discovery is ongoing in the Texas court action; the discovery period ends June 23, 2017.  CRG filed an objection to the supersedeas that was heard on October 31, 2016, during which the court ruled that an additional $500,000 should be placed in the pledged collateral account within ten days of the ruling.  In addition, CRG has filed a motion for partial summary judgment that currently is set for hearing on December 12, 2016.  The Company is preparing responses to the motion for partial summary judgment.  The trial date is currently set for July 3, 2017.

In June 2016, CRG contacted our primary distribution partner, Cardinal Health, and demanded that Cardinal Health make all future payments for Lymphoseek sales directly to CRG, rather than to Navidea.  Cardinal Health filed an interpleader in the Franklin County, Ohio Court of Common Pleas, requesting that the court make a determination as to whom Cardinal Health should make such payments.  Rulings on June 28, 2016 and August 1, 2016 resulted in $1.0 million of Cardinal Health payments being placed in escrow with the court, with the remaining Cardinal Health payments going directly to the Company.  

In October 2016, a revised TRO was issued, allowing the Company to receive 100% of the receivables due from Cardinal Health, with an additional $1.0 million deposited in a pledged collateral account by the Company as a bond.  The $1.0 million previously deposited by the Company in the Court’s registry as a bond will also be transferred to the pledged collateral account.  CRG has filed a motion to dismiss the Company’s cross-claims in Cardinal Health’s interpleader action.   The Company is in the process of responding to CRG’s motion to dismiss.

The Company maintains that CRG’s allegations of multiple events of default under the CRG Loan Agreement are without merit and the Company believes it has defenses against these claims.  Furthermore, the Company believes that CRG’s actions constitute a material breach of the CRG Loan Agreement and therefore, the Company is no longer subject to certain provisions of the CRG Loan Agreement.  The Company believes that its best course of action is to pay off or refinance the CRG debt and pursue claims for damages.  The Company is continuing to explore alternative financing arrangements, including the Proposed Transaction with Cardinal Health, in order to pay off or refinance the CRG debt.  There can be no assurance that CRG will not prevail in exercising control over any additional banking arrangements that the Company creates, that the Company will be able to pay off or refinance the CRG debt or that the Company will be successful in its claims for damages.  See Notes 2 and 9.

Former CEO Arbitration

On May 12, 2016 the Company received a demand for arbitration through the American Arbitration Association, Columbus, Ohio, from Ricardo J. Gonzalez, the Company’s then Chief Executive Officer, claiming that he was terminated without cause and, alternatively, that he resigned in accordance with Section 4G of his Employment Agreement pursuant to a notice received by the Company on May 9, 2016.  On May 13, 2016, the Company notified Mr. Gonzalez that his failure to undertake responsibilities assigned to him by the Board of Directors and otherwise work after being ordered to do so on multiple occasions constituted an effective resignation, and the Company accepted that resignation.  The Company rejected the resignation of Mr. Gonzalez pursuant to Section 4G of his Employment Agreement.  Also, the Company notified Mr. Gonzalez that, alternatively, his failure to return to work after the expiration of the cure period provided in his Employment Agreement constituted cause for his termination under his Employment Agreement.  Mr. Gonzalez is seeking severance and other amounts claimed to be owed to him under his employment agreement.  The Company intends to vigorously defend its position.  In addition, the Company has filed counterclaims against Mr. Gonzalez.  A three-person arbitration board has been chosen and a hearing is set for April 3-7, 2017 in Columbus, Ohio.

Former Director Litigation

On August 12, 2016, the Company commenced an action in the Superior Court of California for damages and injunctive relief against former Navidea Chairman and Macrophage Board Member Anton Gueth.  The Complaint alleges, in part, that Mr. Gueth intentionally failed to disclose his prior existing relationship with CRG, in addition to multiple breaches including duty, loyalty and contract, interference and misappropriation.  Litigation is currently stayed while the parties attempt to negotiate a settlement.

FTI Consulting, Inc. Litigation

On October 11, 2016, the Company was served with a Complaint filed in the Supreme Court of the State of New York, County of New York, alleging damages of at least $782,601.51 arising from investigative and consulting services that Plaintiff alleges it was retained by the Company to perform.  The Company disputes the amount claimed to be due, as well as whether the services performed were properly authorized, and intends to vigorously defend the action.