(9) Commitments and Contingencies

Capital Leases

The Company has entered into certain capital leases for computer equipment and vehicles. The leases are payable in monthly installments and expire at various dates through 2018. The recorded balance of capital lease obligations as of December 31, 2016 and 2015 was $0.1 million and less than $0.1 million, respectively. Future minimum payments under capital leases at December 31, 2016 are as follows:

Year	Capital Lease Obligations
	(In thousands)
2017	$	37
2018		5
Total		42
Less portion representing interest		(3	)
Present value of future minimum payments		39
Current maturities of capital lease payments		(35	)
Capital leases, excluding current portion	$	4

Operating Leases

On June 29, 2016, the Company entered into a new agreement to lease approximately 51,650 square feet of office space in Northborough, MA, the location of the Company’s current headquarters. The new lease succeeds the existing lease between the Company and the landlord that expires on December 31, 2016. The lease term commences on January 1, 2017 and expires on December 31, 2026. The annual base rent associated with the lease will be approximately $408,000 during the first year of the lease, and increase by approximately 3% annually for the term of the lease. The lease also provides for the payment by the Company of its pro rata share of real estate taxes and certain other expenses. Prior to the expiration of the lease term, the Company will have the right to extend the lease for an additional term of three years.

Under the terms of the new lease, the landlord will provide the Company with an allowance of up to $1.2 million to be utilized for improvements to the leased premises. These amounts are recorded as a component of deferred rent in determining the minimum lease payments for the property. As of December 31, 2016, the Company had capitalized $0.7 million in leasehold improvement costs.

The Company also leases facilities and equipment under operating leases expiring at various dates through 2021. Under these agreements, the Company is obligated to pay annual rentals, as noted below, plus real estate taxes, and certain operating expenses.

Future minimum lease payments under operating leases at December 31, 2016 are as follows:

Year	Operating Leases
	(In thousands)
2017	$	1,222
2018		1,239
2019		813
2020		640
2021		505
Thereafter		2,512
Total minimum lease payments	$	6,931

The Company incurred rent expense under all operating leases of approximately $1.5 million, $1.6 million and $1.2 million in the years ended December 31, 2016, 2015 and 2014, respectively.

Letters of Credit

The Company has been required to provide certain customers with letters of credit securing obligations under commercial contracts. The Company had letters of credit outstanding for $2.7 million at both December 31, 2016 and 2015, respectively. These letters of credit are secured by the Company’s revolving credit facility (see note 6).

Customer Supply Agreement

During 2016, the Company entered into a supply agreement (the Supply Agreement) and a joint development agreement (the JDA) with BASF SE (BASF). Pursuant to the Supply Agreement, the Company will sell exclusively to BASF the Company’s Spaceloft ® A2 product at annual volumes to be specified by BASF, subject to certain volume limits. The Supply Agreement will terminate on December 31, 2027. Upon expiration of the Supply Agreement, the Company will be subject to a post-termination supply commitment for an additional two years. The JDA is designed to facilitate the collaboration between the parties on the development and commercialization of new products.

In addition, BASF will make a non-interest bearing prepayment to the Company in the aggregate amount of $22 million during the construction of the Company’s planned manufacturing facility in Statesboro, Georgia (Plant Two), subject to the Company’s prior satisfaction of certain preconditions, including securing a debt commitment from a third party lender for at least $30 million. BASF is obligated to pay the prepayment to the Company in eight equal consecutive quarterly installments commencing on the first day of the calendar quarter following the date on which the preconditions are met. Once commenced, BASF’s obligation to make such quarterly payments shall be subject to postponement in the event of delays of three months or more in the projected date of completion of Plant Two by a commensurate number of months.

After October 1, 2018, the Company will, at BASF’s instruction, credit up to 25.3% of any amounts invoiced by the Company for Spaceloft ® A2 product sold to BASF against the prepayment balance. However, BASF has no obligation to purchase products under the Supply Agreement. If any of the prepayment remains uncredited against amounts invoiced by the Company as of September 30, 2023, BASF may request that the Company repay the uncredited amount to BASF in four equal quarterly installments beginning on December 31, 2023. The repayment obligation will be secured by a security interest in real estate, plant and equipment at the Company’s Rhode Island and Georgia manufacturing facilities.

As of December 31, 2016, the Company anticipates that the impact of constrained capital investment and low activity levels in the global energy markets will continue into 2017. With this view of the market, the Company has elected to temporarily delay the board approved Plant Two project and its related financing to better align the capacity expansion with the Company’s assessment of demand for the 2018 to 2020 period. As a result, the Company has yet to fulfill the prepayment preconditions and commencement of the quarterly prepayments from BASF will be delayed until the preconditions are satisfied.

Litigation

The Company is, from time to time, a party to litigation that arises in the normal course of its business operations. See Part I, Item 3 (“Legal Proceedings”) of this Annual Report on Form 10-K for a description of certain of the Company’s current legal proceedings. The Company is not presently a party to any litigation for which it believes a loss is probable requiring an amount to be accrued or a possible loss contingency requiring disclosure.