Item 1.01
Entry into a Material
Definitive Agreement
.
On
December 19, 2018, ChromaDex, Inc. (the “Company”) and
Nestec Ltd. (“Nestec”) entered into a supply agreement
(the “Supply Agreement”), pursuant to which Nestec will
exclusively purchase nicotinamide riboside marketed under the brand
name Tru Niagen (“NR”) from the Company, and Nestec
will be entitled to develop, manufacture, sell, promote, import and
distribute products using NR for human use in the (i) medical
nutritional and (ii) functional food and beverage categories (the
“Approved Products”) in certain territories, including
North America, Europe, Latin America, Australia, New Zealand and
Japan (the “Territory”), subject to certain territory
reversion provisions. Subject to certain conditions and reversion
rights, during the term of the Supply Agreement, the Company will
not sell NR to any third party or itself use NR in any medical
nutritional products for human use in the Territory. Subject to
certain conditions and reversion rights, the Company will not sell
NR to any third party for use in the manufacture of third party
functional food and beverage products that consist of protein based
ready to drink or loose powder beverages sold under a third party
brand in the Territory. The Company reserved rights for
co-exclusive sales of functional food and beverages consisting of
protein based ready to drink or loose powder beverages. Approved
Products do not include, among other things, supplements or sports
nutrition products.
As
consideration for the rights granted to Nestec under the Supply
Agreement, Nestec agreed to pay to the Company an upfront fee of
$4,000,000. Following the launch of the first Approved Product in
each sub-Territory for each of the (i) medical nutrition and (ii)
functional food and beverages categories (each, a “Product
Category”), Nestec will pay the Company a one-time fee for a
potential total aggregate payment of $6,000,000. The Supply
Agreement additionally provides that Nestec is obligated to pay to
the Company sales fees at tiered percentage rates ranging from the
low-single digit to high-single digit percent of worldwide annual
net sales of the Approved Products, subject to a minimum annual
royalty for each Product Category applied against actual sales fees
due starting 24 months after Nestec has launched an Approved
Product in the relevant Product Category. No sales fees will be due
after the expiration or abandonment of all of the Company’s
applicable issued patents and applicable filed patent applications
for NR.
The
Supply Agreement may be terminated by (i) a party for cause if the
other party commits a material breach of the Supply Agreement and
does not cure such breach within 30 days following such
party’s receipt of written notice; (ii) a party immediately
upon the giving of written notice if the other party files a
petition for bankruptcy, is adjudicated bankrupt, takes advantage
of the insolvency laws of any state, territory or country, or has a
receiver, trustee, or other court officer appointed for its
property; or (iii) a party if a force majeure event with respect to
the other party shall have continued for 90 days or is reasonably
expected to continue for more than 180 days. Additionally, (a)
Nestec may terminate the Supply Agreement if Nestec’s
technical feasibility in desired food forms is not achieved by
December 31, 2019 by providing the Company 60 days written notice;
(b) after the first anniversary of the Supply Agreement until the
24th month after the launch of the first Approved Product in each
Product Category, Nestec may terminate the Supply Agreement as to
one or both Product Categories upon the payment of a $500,000
termination fee (the “Termination Fee”) for each
terminated Product Category; and (c) after the 25th month of the
launch of the first Approved Product, Nestec may terminate the
Supply Agreement with 12 months written notice, with no Termination
Fee due. Upon the termination of the Supply Agreement, Nestec may
complete and sell any work-in-progress and inventory of Approved
Products within six months after the effective date of the
termination (unless such termination is based on cause or a breach
by Nestec of the Company’s intellectual property rights or
Nestec’s confidentiality rights therein), following which
Nestec will have no further right to use NR or sell the Approved
Products.
The
foregoing is only a summary of the material terms of the Supply
Agreement, and does not purport to be complete and is qualified in
its entirety by reference to the full text of the Supply Agreement,
which will be filed, with confidential terms redacted, with the
Securities and Exchange Commission as an exhibit to ChromaDex
Corporation’s Annual Report on Form 10-K for the year ending
December 31, 2018.
On
December 20, 2018, the Company issued a press release announcing
the Supply Agreement. A copy of this press release is attached
hereto as Exhibit 99.1.