(9) Commitments and Contingencies

Operating Leases

During 2016, the Company entered into an agreement to extend its lease of approximately 51,650 square feet of office space in Northborough, Massachusetts. The lease commenced on January 1, 2017 and will expire on December 31, 2026. The annual base rent associated with the lease was $408,000 during 2017 and will increase by approximately 3% annually for the term of the lease. The lease also requires 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, 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 provided the Company with an allowance of $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, 2017 and 2016, the Company had capitalized $1.2 million and $0.7 million in associated leasehold improvement costs, respectively.

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 rent, real estate taxes, and certain operating expenses.

Future minimum lease payments under operating leases at December 31, 2017 are as follows:

Year	Operating Leases
	(In thousands)
2018	$	1,335
2019		909
2020		687
2021		535
2022		473
Thereafter		2,039
Total minimum lease payments	$	5,978

The Company incurred rent expense under all operating leases of approximately $1.4 million, $1.5 million and $1.6 million in the years ended December 31, 2017, 2016 and 2015, 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 of $2.3 million and $2.7 million at December 31, 2017 and 2016, respectively. These letters of credit are secured by the Company’s revolving credit facility (see note 6).

Customer Supply Agreement

The Company is party to a supply agreement, as amended, with BASF Polyurethanes GmbH (BASF) (the Supply Agreement) and a joint development agreement with BASF SE (the JDA). 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, in its sole discretion, may make prepayments to the Company in the aggregate amount of up to $22 million during the term of the Supply Agreement. BASF has agreed to make a prepayment in the amount of $5 million to the Company in two equal installments in 2018 (the 2018 Prepayment). The amounts and terms of additional prepayment installments, if any, are subject to negotiation between the Company and BASF.

After January 1, 2019, 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 2018 Prepayment remains uncredited as of December 31, 2021, BASF may request that the Company repay the uncredited amount to BASF. The prepayment obligation is secured by a security interest in real estate, plant and equipment at the Company’s Rhode Island facility and a license to certain intellectual property.

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.