Note

12.

Commitments and Contingencies

Provenzano Employment Agreement

June 18, 2019,

we and the head of our Odor-

-More subsidiary, Joseph L. Provenzano, entered into an employment agreement (the “Provenzano Employment Agreement”), replacing in its entirety the previous employment agreement with Mr. Provenzano dated

January 1, 2008.

The Provenzano Employment Agreement provides that Mr. Provenzano will serve as our Executive Vice President of Operations, as well as the President and Chief Executive Officer of our wholly owned subsidiary Odor-

-More. Mr. Provenzano’s base compensation will remain at his current rate of

$170,000

annually. In addition to this base compensation, the agreement provides that he is eligible to participate in incentive plans, stock option plans, and similar arrangements as determined by the our Board of Directors, health insurance premium payments for himself and his immediate family, a car allowance covering the expenses of his personal commercial grade truck which the company uses in company operations on a continual basis, paid vacation of

four

weeks per year, and bonuses in such amount as the Compensation Committee

may

determine from time to time.

In conjunction with this agreement, our Compensation Committee awarded Mr. Provenzano an option to purchase common stock and restricted stock units under our

2018

Equity Incentive Plan (see Note

The Provenzano Employment Agreement has a term of

five

years, unless earlier terminated in accordance with its terms. The Provenzano Employment Agreement provides that Mr. Provenzano’s employment

may

be terminated by the Company due to his death or disability, for cause, or upon a merger, acquisition, bankruptcy or dissolution of the Company. “Disability” as used in the Provenzano Employment Agreement means physical or mental incapacity or illness rendering Mr. Provenzano unable to perform his duties on a long-term basis (i) as evidenced by his failure or inability to perform his duties for a total of

120

days in any

360

-day period, or (ii) as determined by an independent and licensed physician whom Company selects, or (iii) as determined without recourse by the Company’s disability insurance carrier. “Cause” means that Mr. Provenzano has (i) engaged in willful misconduct in connection with the Company’s business; or (ii) been convicted of, or plead guilty or nolo contendre in connection with, fraud or any crime that constitutes a felony or that involves moral turpitude or theft. If Mr. Provenzano’s employment is terminated due to merger or acquisition, then he will be eligible to receive the greater of (i)

one

year’s compensation plus an additional

one

half year for each year of service since the effective date of the employment agreement or (ii)

one

year’s compensation plus an additional

one

half year for each year remaining in the term of the agreement. Otherwise, he is only entitled to receive compensation due through the date of termination.

The Provenzano Employment Agreement requires Mr. Provenzano to keep certain information confidential,

not

to solicit customers or employees of the Company or interfere with any business relationship of the Company, and to assign all inventions made or created during the term of the Provenzano Employment Agreement as “work made for hire”.

Office Leases

We have long-term operating leases for office, industrial and laboratory space in Westminster, California, Oak Ridge, Tennessee, and Alberta, Canada. Payments made under operating leases are charged to the Consolidated Statement of Operations and Comprehensive Loss on a straight-line basis over the term of the operating lease agreement. For the years ended

December 31, 2018

and

2019,

rental expense was

$213,000

and

$208,000,

respectively. On

January 1, 2019,

we adopted ASC

842

which resulted in a right-of-use asset and lease liability and short-term leases are

not

included in our analysis. The adoption resulted in an immaterial cumulative effect of an accounting change that was

not

recorded. The lease of our corporate office qualifies for the new treatment; it originated in

August 2016,

expires

August 2020,

contains a yearly escalation of

3%,

and includes a

four

-year renewal option whereby the base rent is adjusted to then market value. That has been included in the analysis. The lease of our Oak Ridge, Tennessee facility also qualifies, and it had

one

executed extension to

September 2020,

and has

one

renewal option for another

five

years where the rental rate would adjust to greater of the current price and fair market value.

determination has been made whether to exercise the renewal option. The lease of our Canadian facility is less than

one

year.

None

of our leases have additional terms related to the payments or mechanics of the lease: there are

not

any CAM charges or tax sharing arrangements, easement provisions or any free rent. Since there is

explicit interest rate in leases, management used its incremental borrowing rate, which is estimated to be

18%.

Our right-of-use asset and lease liability operating leases included our office space BioLargo/ONM and BLEST. Our BioLargo/ONM lease has a

-year extension and we included this extension in the net present value of our lease payments, which used the incremental secured borrowing cost to BioLargo of

18%.

As of

December 31, 2019,

our weighted average remaining lease term is

years and the total remaining operating lease payments is

$710,000.

The leases have

additional payment terms such as common area maintenance payments, tax sharing payments or other allocable expenses. Likewise, the leases do

not

contain other terms and conditions of use, such as variable lease payments, residual value guaranties or other restrictive financial terms. Our minimum lease payments over the next

five

years are:

Time period	BioLargo Corp / ONM		BLEST		Total
Year ending December 31, 2020	$	111,000	$	65,000	$	176,000
Year ending December 31, 2021		115,000		65,000		180,000
Year ending December 31, 2022		118,000		43,000		181,000
Year ending December 31, 2023		122,000		--		122,000
Year ending December 31, 2024		71,000		--		71,000
Total	$	537,000	$	173,000	$	710,000

The difference between the minimum lease payment total of

$710,000

and the

$411,000

lease liability recorded on the balance sheet is the utilization of the

18%

discount factor in determining the lease liability.

Clyra Medical Consulting Agreement

Clyra Medical (see Note

) entered into a consulting agreement with Beach House Consulting, LLC, through which Jack B. Strommen will be providing consulting services to Clyra related to its sales and marketing activities and in exchange receive

$23,000

per month for a period of

four

years. The agreement originally provided that Clyra’s obligation to pay fees under the agreement begin the month following Clyra reception of FDA pre-market clearance on its

first

product, which occurred in

September 2019.

December 2019,

the parties modified the agreement such that fees are incurred once Clyra generates

$250,000

in monthly revenue on average for

three

consecutive months. The total cash obligation related to the agreement would be approximately

$1.1

million.