| Commitments and Contingencies |
Legal proceedings
On December 29, 2016, ChromaDex, Inc. filed
a complaint (the “Complaint”) in the United States District Court for the Central District of California, naming Elysium
Health, Inc. as defendant. Among other allegations, ChromaDex, Inc. alleges in the Complaint that (i) Elysium breached the Supply
Agreement, dated June 26, 2014, by and between ChromaDex, Inc. and Elysium Health, LLC (“Elysium”) (the “pTeroPure®
Supply Agreement”), by failing to make payments to ChromaDex, Inc. for purchases of pTeroPure® pursuant to the pTeroPure®
Supply Agreement, (ii) Elysium breached the Supply Agreement, dated February 3, 2014, by and between ChromaDex, Inc. and Elysium,
as amended (the “NIAGEN® Supply Agreement”), by failing to make payments to ChromaDex, Inc. for purchases of NIAGEN®
pursuant to the NIAGEN® Supply Agreement, (iii) Elysium breached the Trademark License and Royalty Agreement, dated February
3, 2014, by and between ChromaDex, Inc. and Elysium (the “License Agreement”), by failing to make payments to ChromaDex,
Inc. for royalties due pursuant to the License Agreement and (iv) certain officers of Elysium made false promises and representations
to induce ChromaDex, Inc. into providing large supplies of pTeroPure® and NIAGEN® to Elysium pursuant to the pTeroPure®
Supply Agreement and NIAGEN® Supply Agreement. ChromaDex, Inc. is seeking punitive damages, money damages and interest.
On January 25, 2017, Elysium filed an answer
and counterclaims (the “Counterclaim”) in response to the Complaint. Among other allegations, Elysium alleges in the
Counterclaim that (i) ChromaDex, Inc. breached the NIAGEN® Supply Agreement by not issuing certain refunds or credits to Elysium
and for violating certain confidential information provisions, (ii) ChromaDex, Inc. breached the implied covenant of good faith
and fair dealing pursuant to the NIAGEN® Supply Agreement, (iii) ChromaDex, Inc. breached certain confidential provisions
of the pTeroPure® Supply Agreement, (iv) ChromaDex, Inc. fraudulently induced Elysium into entering into the License Agreement
(the “Fraud Claim”), (v) ChromaDex, Inc.’s conduct constitutes misuse of its patent rights (the “Patent
Claim”) and (vi) ChromaDex, Inc. has engaged in unlawful or unfair competition under California state law (the “Unfair
Competition Claim”). Elysium is seeking damages for ChromaDex, Inc.’s alleged breaches of the NIAGEN® Supply Agreement
and pTeroPure® Supply Agreement, and compensatory damages, punitive damages and/or rescission of the License Agreement and
restitution of any royalty payments conveyed by Elysium pursuant to the License Agreement.
On February 15, 2017, ChromaDex, Inc. filed
an amended complaint. In the amended complaint, ChromaDex, Inc. re-alleges the claims in the Complaint, and also alleges that Elysium
willfully and maliciously misappropriated ChromaDex, Inc.’s trade secrets. On February 15, 2017, ChromaDex, Inc. also filed
a motion to dismiss the Fraud Claim, the Patent Claim and the Unfair Competition Claim. On March 1, 2017, Elysium filed a motion
to dismiss ChromaDex, Inc.'s fraud and trade secret misappropriation causes of action. On March 6, 2017, Elysium filed a first
amended counterclaim. On March 20, 2017, ChromaDex, Inc. moved to dismiss Elysium's amended fraud, patent misuse and the Unfair
Competition Claim. On May 10, 2017, the court ruled on the motions to dismiss, denying ChromaDex, Inc.’s motion as to Elysium’s
fraud and patent misuse claims and granting ChromaDex, Inc.’s motion with prejudice as to Elysium’s Unfair Competition
Claim. With respect to Elysium’s motion, the court granted the motion with prejudice as to ChromaDex, Inc.’s fraud
claim and granted with leave to amend the motion as to ChromaDex, Inc.’s trade secret misappropriation claims. On May 24,
2017, ChromaDex, Inc. answered the first amended counterclaim and asserted several affirmative defenses. Also on May 24, 2017,
ChromaDex, Inc. filed a second amended complaint, amending the trade secret misappropriation claims and addressing Elysium’s
patent misuse counterclaim. On June 7, 2017, ChromaDex, Inc. filed a third amended complaint dismissing the trade secret misappropriation
claims and asserting two breach of contract claims for Elysium’s failure to pay for the product delivered. On June 16, 2017, Elysium answered the third amended complaint. On July 17, 2017, Elysium filed petitions
with the U.S. Patent and Trademark Office for inter partes review of U.S. Patent No. 8,197,807 and 8,383,086, patents to which
ChromaDex, Inc. is the exclusive licensee.
As of July 1, 2017, ChromaDex, Inc. did not
accrue a potential loss for the Counterclaim because ChromaDex, Inc. believes that the allegations are without merit and thus it
is not probable that a liability had been incurred, and the amount of loss cannot be reasonably estimated.
From time to time we are involved in legal proceedings
arising in the ordinary course of our business. We believe that there is no other litigation pending that is likely to have, individually
or in the aggregate, a material adverse effect on our financial condition or results of operations.
Lease
Subsequent to the period ended July 1, 2017,
the Company entered into a lease for an office space located in Los Angeles, California through September 2021. Pursuant to the
lease, the Company will make monthly lease payments ranging from approximately $11,000 to $21,000, as the payments escalate during
the term of the lease.
Employment agreement with Robert Fried
On March 12, 2017, the Company entered into
an Employment Agreement (the "Fried Agreement") with Robert Fried. Mr. Fried is entitled to receive certain severance payments
per the terms of the Fried Agreement. The key terms of the Fried Agreement, including the severance terms are as follows:
Mr. Fried is entitled to: (i) an annual base
salary of $300,000; (ii) an annual cash bonus equal to (a) 1% of net direct-to-consumer sales of products with nicotinamide riboside
as a lead ingredient by the Company plus (b) 2% of direct to consumer net sales of products with nicotinamide riboside as a lead
ingredient for the portion of such sales that exceeded prior year sales plus (c) 1% of the gross profit derived from nicotinamide
riboside ingredient sales to dietary supplement producers; (iii) an option to purchase up to 500,000 shares of Common Stock under
the 2007 plan, subject to monthly vesting over a three-year period; and (iv) 166,667 shares of restricted Common Stock, subject
to annual vesting over a three-year period.
Subject to Mr. Fried’s continuous service
through such date, Mr. Fried is also eligible to receive (i) on March 12, 2018, 166,667 shares of restricted Common Stock, subject
to annual vesting over a two-year period, (ii) on March 12, 2019, 166,666 shares of restricted Common Stock that vest in full on
the one year anniversary of the grant date and (iii) up to 500,000 shares of fully-vested restricted Common Stock that will be
granted upon the achievement of certain performance goals. Any unvested options or shares of restricted stock will vest in full
upon (a) a change in control of the Company, (b) Mr. Fried’s death, (c) Mr. Fried’s disability, (d) termination by
the Company of Mr. Fried’s employment without cause or (e) Mr. Fried’s resignation for good reason, subject in each
case to Mr. Fried’s continuous service as an employee or consultant of the Company or any of its subsidiaries though such
event.
The severance terms of the Fried Agreement provide
that if (i) Mr. Fried’s employment is terminated by the Company without cause, for death or disability, or Mr. Fried resigns
for good reason, or (ii) (a) a change in control of the Company occurs and (b) within one month prior to the date of such change
in control or twelve months after the date of such change in control R. Fried’s employment is terminated by the Company other
than for cause, then, subject to executing a release, Mr. Fried will receive (w) continuation of his base salary for 12 months,
(x) health care continuation coverage payments premiums for 12 months, (y) a prorated annual cash bonus earned for the fiscal year
in which such termination or resignation occurs, and (z) an extended exercise period for his options |
