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11. CONTRACTS AND AGREEMENTS | 3 Months Ended
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Mar. 31, 2016
Contracts And Agreements |
NOTE 11. CONTRACTS AND AGREEMENTS | Employment Agreements On February 11, 2014, the Company entered into an employment agreement with Halden S. Shane, our Chief Executive Officer (“CEO”). The term of the employment agreement extended through December 31, 2016 with automatic renewal for successive one-year periods unless otherwise terminated by either party thereunder. Dr. Shane’s annual base salary was $36,000, which shall increase to $120,000 upon the Company exceeding gross revenues of $5,000,000 on a calendar year basis and to $175,000 upon the Company exceeding gross revenues of $10,000,000 on a calendar year basis. Dr. Shane also received a grant of 3,000,000 warrants to purchase shares of the Company’s common stock at a price of $0.30 per share which have a term of five years and vest upon the following schedule: 1,000,000 vested upon issuance, 1,000,000 vested on February 11, 2015, and 1,000,000 vested February 11, 2016. Dr. Shane’s employment agreement includes restrictive covenants of non-solicitation and confidentiality of proprietary information. Under the employment agreement, Dr. Shane assigned any and all of his rights to Company proprietary information to the Company and agreed that all property created by him during and in connection with his employment constitutes “works for hire” as defined in the United States Copyright Act. On January 15, 2016, the Company entered into a new employment agreement with Dr. Shane. The agreement provides for a base annual salary of $360,000. The agreement also provides for the quarterly issuance of 250,000 options to purchase common stock in 2016 with an exercise price equal to the three day trailing volume weighted average price of the common stock. The previous agreement between the Company and Dr. Shane provided for an annual salary increase in the amount of $120,000 upon the Company exceeding gross revenues of $5,000,000 on a calendar year basis and to $175,000 upon the Company exceeding gross revenues of $10,000,000 on a calendar year basis, which does not exist in the new agreement. In the event Dr. Shane is terminated for any reason or becomes disabled or dies, any options held will become cashless and will be entitled to piggyback registration and are exercisable immediately. Dr. Shane is also entitled to performance bonuses, subject to the achievement of certain objectives, including (i) a minimum semi-annual grant of stock options to purchase up to 250,000 shares of common stock and (ii) a cash bonus, in the sole discretion of the board of directors. In the event, Dr. Shane is terminated as CEO as a result of a change in control, Dr. Shane will be entitled to a lump sum payment of two years’ salary at the time of such termination and will be granted 3 million options that are cashless and, when exercised, will have piggyback registration or demand registration rights, and if applicable, any and all outstanding stock grants will be accelerated and be fully vested. Termination for cause may be effected by the board of directors by written notification to Dr. Shane; provided, however, that no termination for cause will be effective unless he has been provided with prior written notice and opportunity for remedial action and fails to remedy within 30 days thereof, in the event of a termination by the Company (i) by reason of willful dishonesty towards, fraud upon, or deliberate injury or attempted injury to, the Company, (ii) by reason of material breach of his employment agreement or (iii) by reason of gross negligence or intentional misconduct with respect to the performance of duties under this Agreement. Upon termination for cause, Dr. Shane will be immediately paid an amount equal to his gross salary. The board of directors may effect a termination other than for cause at any time upon giving notice to Dr. Shane. Upon such termination, Dr. Shane will be immediately paid an amount equal to his gross salary On February 8, 2016, the Company entered into an employment agreement with Robert Wotczak in connection with his role as the Company’s President. Mr. Wotczak’s annual salary is $240,000 per annum paid bi-weekly. Additionally, in accordance with the terms of the agreement, the Company agreed to issue him 150,000 shares of common stock, which was issued in April 2016. Mr. Wotczak will also be entitled to (i) annual grants of stock options to purchase up to 250,000 shares of common stock each year under the 2016 Plan, (ii) additional shares of common stock granted on an annual basis based on achievement of performance objectives, (iii) an annual raise and/or bonus for meeting or achieving certain performance objectives, (iv) a vehicle expense up to $750 per month and (v) health insurance contributions equal to 80% toward the cost of an individual plan. Mr. Wotczak’s agreement includes restrictive covenants of non-solicitation and confidentiality of proprietary information. In the event of a change in control of the Company, which results in his termination, Mr. Wotczak will be entitled to a lump sum payment of one year’s salary and all equity awards will be accelerated and fully vested. The Company may terminate Mr. Wotczak’s employment at any time; provided, however, that the Company must provide fourteen days’ notice if any of the following events occur: (a) the sale of substantially all of the Company’s assets, (b) sale, exchange, or other disposition in one transaction of the majority of the Company’s outstanding capital stock, (c) the Company’s decision to terminate its business and liquidate its assets, (d) the merger or consolidation of the Company with another company, or (e) bankruptcy or chapter 11 reorganization. On September 30, 2014, the Company entered into an employment agreement with Nick Jennings, our Chief Financial Officer (“CFO”) to provide part-time services. The term of the employment agreement was through December 31, 2014 with a review of employment in January 2015. Mr. Jennings’ salary was $5,000 per month in cash and $2,000 in common stock per month, paid quarterly. Mr. Jennings also received a 5 year warrant to purchase up to 300,000 shares of common stock at a price per share equal to $0.30 and vests upon the following schedule: 100,000 vested upon issuance, 100,000 vested on October 1, 2015, and 100,000 will vest as of October 1, 2016. In connection with the employment agreement, Mr. Jennings entered into agreements that included restrictive covenants of non-solicitation and confidentiality of proprietary information. On September 2, 2015, we entered into a new employment agreement with Mr. Jennings, which superseded his prior agreement, pursuant to which he will continue to serve as our CFO. Mr. Jennings’ annual salary is $132,000 which is reviewed each year. Mr. Jennings also received a 5 year warrant to purchase up to 100,000 shares of common stock at an exercise price per share equal to the fair value at the date of grant which fully vested at the time of issuance, which was on January 26, 2016. Mr. Jennings is also entitled to additional equity compensation based upon superior performance of his responsibilities, as determined by the board of directors, in its sole discretion. In the event of a change in control of the Company, which results in his termination, Mr. Jennings will be entitled to a lump sum payment of one year’s salary, all equity awards will be accelerated and fully vested. In the event his employment is terminated other than for cause, Mr. Jennings will receive an amount equal to his annual salary as of such terminate date after the second employment anniversary. On October 16, 2014, we entered into an employment agreement with Norris Gearhart pursuant to which he agreed to serve as the Company’s Chief Operating Officer (“COO”). Mr. Gearhart’s salary was $126,000 per annum paid bi-monthly. Additionally, Mr. Gearhart received 100,000 shares of Common Stock upon signing his agreement, a monthly transportation expense up to $500 towards a vehicle and the ability to receive an additional cash or equity bonus upon the achievement of pre-agreed performance objectives. On September 2, 2015, we entered into a new employment agreement with Mr. Gearhart, which superseded his prior agreement, pursuant to which he will continue to serve as our COO. Mr. Gearhart’s’ annual salary is $145,000 which is reviewed each at the end of the second anniversary. Mr. Gearhart will receive annual grants of stock options to purchase up to 250,000 shares of Common Stock at an exercise price equal to the volume weighted average price of the five-day period prior to the close of the year. Mr. Gearhart is also entitled to additional equity compensation based upon superior performance of his responsibilities, as determined by the board of directors, in its sole discretion. In the event of a change in control of the Company, which results in his termination, Mr. Gearhart will be entitled to a lump sum payment of one year’s salary and all equity awards will be accelerated and fully vested. In the event his employment is termination other than for cause, Mr. Gearhart will receive an amount equal to his annual salary as of such terminate date after the second employment anniversary. Sales and Distribution Agreement In September 2014, the Company entered into a Sales and Distribution Agreement, superseding previous agreements, with TOMI Panama S.A. (“TOMI Panama”) covering Panama. TOMI Panama is the exclusive distributor of the Company’s products and services within the country of Panama. For the three months ended March 31, 2016 and 2015, the Company made sales and provided services to TOMI Panama for approximately $18,000 and $37,000, respectively. Distribution and Licensing Agreement On March 21, 2014, the Company entered into a distribution and licensing agreement with Plascencia Universal, S. de R.L. de C.V. (“Plascencia Universal”), a Mexican company that will act as the exclusive distributor of TOMI’s products and services in Mexico. The principal of Plascencia Universal is also the broker for the Company’s insurance policies and was appointed a director of the Company. In April of 2015, the Company modified its agreement with Plascencia Universal with respect to the license fee included in the original agreement. In December of 2015, the principal of Plascencia Universal resigned from the board of directors. For the quarter ended March 31, 2016, sales to Plascencia Universal were approximately $655,000. Manufacturing Agreement On October 15, 2014, the Company entered into a manufacturing and development agreement with RG Group, Inc. The agreement does not provide for any minimum purchase commitments and is for a term of 2 years with provisions to extend. For the three months ended March 31, 2016 and the year ended December 31, 2015, RG Group, Inc. manufactured substantially all of the Company’s equipment. At March 31, 2016 and December 31, 2015, the Company maintained required deposits with RG Group, Inc. in the amounts of $237,345 and $442,358, respectively. Consulting Agreement In January 2015, the Company entered into a consulting agreement which has since been terminated that provided for a fee based on revenue received from existing and prospective clients assigned and revenue from sales related to customers the consultant finds for the Company. The agreement also provided for the issuance of 100,000 shares of the Company’s common stock that were issued in February 2015 and valued at $25,000. In addition, the agreement provides for the issuance of 75,000 common stock warrants on a quarterly basis that vest upon issuance with a strike price equal to the volume weighted average price for the 5 day period prior to the close of the quarter with a term of 3 years. The exercise price for the warrants issued was $0.50, $0.62 and $0.33. During the year ended December 31, 2015, the Company utilized the Black-Scholes method to fair value the warrants to purchase up to 225,000 shares of common stock with the following range of assumptions: volatility, 157%-174%; expected dividend yield, 0%; risk free interest rate, 1.01%-1.42%; and a life of 3 years. The grant date fair value of the warrants issued was $0.37, $0.54 and $0.30. For the quarter ended March 31, 2015, the Company recognized approximately $28,000 in equity based compensation on the issuance of the warrants. This consulting agreement was terminated October 1, 2015 when the consultant accepted a full time employment position with the Company. Agreements with Directors The Company appointed Mr. Walter C. Johnsen as a director on January 29, 2016. The term of his agreement as director commenced on February 1, 2016 for 1 year and until a successor is elected, or resignation or removal. The agreement between the Company and Mr. Johnsen provides for an annual fee in the amount of $25,000 paid on a quarterly basis and an annual grant of options to purchase up to 25,000 shares of the Company’s common stock. The Company issued the options to Mr. Johnsen in February 2016. (See note 8 - Stock Options) The Company appointed Ms. Kelly J. Anderson as a director on January 29, 2016. Ms. Anderson will serve as the chair of the Company’s audit committee. The term of her agreement as director commenced on February 1, 2016 for 1 year and until a successor is elected, or resignation or removal. The agreement between the Company and Ms. Anderson provides for an annual fee in the amount of $26,000 paid on a quarterly basis and an annual grant of options to purchase up to 25,000 shares of the Company’s common stock. The Company issued the options to Ms. Anderson in February 2016. (See note 8 - Stock Options) The Company appointed Mr. Edward J. Fred as a Director on January 29, 2016. The term of his agreement as director commenced on February 1, 2016 for 1 year and until a successor is elected, or resignation or removal. The agreement between the Company and Mr. Fred provides for an annual fee in the amount of $25,000 paid on a quarterly basis and an annual grant of options to purchase up to 25,000 shares of the Company’s common stock. The Company issued the options to Mr. Fred in February of 2016. (See note 8 - Stock Options) The Company issued 25,000 options to Harold Paul in February 2016. Mr. Paul is a director of the Company. (See note 8 - Stock Options) Other Agreements In May 2015, the Company was awarded a grant by the United States Agency for International Development (“USAID”) in the amount of $559,000 for the development of SteraMistTM Mobile Decontamination Chambers to fight the Ebola epidemic. The grant is based on milestones set forth on the agreement between the Company and USAID. As of March 31, 2016, the Company has met the first five milestones and received gross proceeds from the grant in the amount of $537,272. The Company has incurred costs in connection with the grant through March 31, 2016 in the amount of $350,552. The proceeds received as part of the grant in excess of the costs incurred has been presented on the Company’s balance sheet as a liability in the amount of $186,720 as of March 31, 2016. In May 2016, the Company completed the USAID Grant (See Note 14). In June 2015, the Company launched the TOMI Service Network (“TSN”). The TSN is a national service network composed of existing full service restoration industry specialists that have entered into licensing agreements with the Company to become Primary Service Providers (“PSP’s”). The licensing agreements grant protected territories to PSP’s to perform services using the Company’s SteraMistTM platform of products and contain fixed price minimum equipment and solution orders based on the population of the territories granted pursuant to the licensing agreements. The licensing agreements also provide for potential job referrals to PSP’s where the Company is entitled to referral fees. Additionally, the agreement provides for commissions due to PSP’s for equipment and solution sales they facilitate to other service providers in their respective territories. As part of these agreements, the Company is obligated to provide to the PSP’s various training, ongoing support and facilitate a referral network call center. As of March 31, 2016, the Company had entered into 41 licensing agreements in connection with the launch of the TSN.

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