Note 11. Commitments and contingencies

Operating leases

The Company leased three office locations in Huntersville, NC pursuant to five- and three-year lease agreements, and month to month. The three-year lease agreement expired in April 2018 in connection with a move in corporate office location, and the five-year lease agreement expires in November 2022. The operating leases provide for annual real estate tax and cost of living increases and contain predetermined increases in the rentals payable during the terms of the leases. The aggregate rent expense is recognized on a straight-line basis over the lease term. The total lease rental expense was $0.1 million and $0.1 million for the years ended June 30, 2019 and 2018, respectively.  

The Company leases equipment for the NY Facility until September 2023. The aggregate rent expense is recognized on a straight-line basis over the lease term. The total lease rental expense was $0.1 million, and $0.1 million for the years ended June 30, 2019 and 2018, respectively. Additionally, the Company leases a copier for the NC office location pursuant to a five-year lease agreement. The total lease rental expense was $6 thousand and $1 thousand for the years ended June 30, 2019 and 2018.

The following table outlines the minimum future lease payments for the next five years and thereafter, (in thousands):

Ontario County Industrial Development Authority Agreement

On February 27, 2018, the Company entered into a Lease and Project Agreement (the "Lease and Project Agreement") and a Company Lease Agreement (the "Company Lease Agreement" and together with the Lease and Project Agreement, the "Agreements"), each dated as of February 1, 2018, with the Ontario County Industrial Development Agency, a public benefit corporation of the State of New York (the "OCIDA"). Pursuant to the Agreements, the Company will lease for $1.00 annually to the OCIDA an approximately 9.995 acre parcel of land in Canandaigua, New York, together with the improvements thereon (including the Company's New York fabrication facility), and transfer title to certain related equipment and personal property to the OCIDA (collectively, the "Facility"). The OCIDA will lease the Facility back to the Company for annual rent payments specified in the Lease and Project Agreement for the Company's primary use as research and development, manufacturing, warehouse and professional office space in its business, and to be subleased, in part, by the Company to various existing tenants. The Company estimates substantial tax savings during the term of the Agreements, which expire on December 31, 2028. In addition, subject to the terms of the Lease and Project Agreement, certain purchases and leases of eligible items will be exempt from the imposition of sales and use taxes. Subject to the terms of the Lease and Project Agreement, the OCIDA has also granted to the Company an exemption from certain mortgage recording taxes for one or more mortgages securing an aggregate principal amount not to exceed $12.0 million, or such greater amount as approved by the OCIDA in its sole and absolute discretion. The benefits provided to the Company pursuant to the terms of the Lease and Project Agreement are subject to claw back over the life of the Agreements upon certain recapture events, including certain events of default.

Real Estate Contingent Liability

On March 23, 2017, we entered into an Asset Purchase Agreement and a Real Property Purchase Agreement (collectively, the "STC-MEMS Agreements") with The Research Foundation for the State University of New York ("RF-SUNY") and Fuller Road Management Corporation ("FRMC"), an affiliate of RF-SUNY (collectively, "Sellers"), respectively, to acquire certain specified assets, including STC-MEMS, a semiconductor wafer-manufacturing and microelectromechanical systems ("MEMS") operation with associated wafer-manufacturing tools, and the associated real estate and improvements located in Canandaigua, New York used in the operation of STC-MEMS (the assets and real estate and improvements referred to together herein as the "STC-MEMS Business").

In connection with the acquisition of the STC-MEMS Business, the Company agreed to pay to FRMC a penalty, as set forth below, if the Company sells the property subject to the related Definitive Real Property Purchase Agreement within three (3) years after the date of such agreement for an amount in excess of $1,750 thousand, subject to certain enumerated exceptions. The penalty imposed shall be equivalent to the amount that the sales price of the property exceeds $1,750 thousand up to the maximum penalty ("Maximum Penalty") defined below, (in thousands):

The fair value of the contingent liability was calculated by an independent third-party appraisal firm, utilizing a present value calculation based on the probability the Company sells the property triggering the contingent penalty and a discount rate of 15.6%. The 15.6% discount rate was derived from a weighted average cost of capital, modified to include the effects of the bargain purchase price. As of June 30, 2019, and 2018, the fair value of the contingent liability was $0.4 million and $1.2 million, respectively. During the year ended June 30, 2019 and 2018, the Company marked the contingent liability to fair value and recorded a gain of $0.8 million and $0.5 million, respectively, relating to the change in fair value.

Litigation, Claims and Assessments

From time to time, the Company may become involved in lawsuits, investigations and claims that arise in the ordinary course of business. The Company believes it has meritorious defenses against all pending claims and intends to vigorously pursue them. While it is not possible to predict or determine the outcomes of any pending actions, the Company believes the amount of liability, if any, with respect to such actions, would not materially affect its financial position, results of operations or cash flows.

During the year ended June 30, 2019, the Company ended the employment of its principal financial officer, John T. Kurtzweil (the "Former CFO"). The Former CFO's employment was terminated for cause pursuant to the terms of his employment agreement by unanimous vote of the Company's Board of Directors and not due to any disagreement concerning the Company's financial statements, accounting policies or accounting practices. The Former CFO disputes the termination for cause and has since filed for an arbitration hearing pursuant to the terms of his employment agreement and has filed a complaint under the whistleblower provisions of the Sarbanes Oxley Act of 2002 with the Occupational Safety and Health Administration of the U.S. Department of Labor. The Company has not recorded a loss contingency associated with the Former CFO's termination. In accordance with the Former CFO's employment agreement, if it is determined that grounds for termination were for cause then the expense to the Company would be $0. A determination that grounds were without cause would result in the cash expenditure of approximately $206 thousand representing 1 years' salary, COBRA and cost of living expense, and prorated bonus up to the date of termination. Additionally, the Company would record a non-cash expense of approximately $883 thousand representing the immediate full vesting of restricted stock units and stock options on the date of termination.

Tax Credit Contingency

The Company accrues a liability for indirect tax contingencies when it believes that it is both probable that a liability has been incurred and that it can reasonably estimate the amount of the loss. The Company reviews these accruals and adjusts them to reflect ongoing negotiations, settlements, rulings, advice of legal counsel and other relevant information. To the extent new information is obtained and the Company's views on the probable outcomes of claims, suits, assessments, investigations or legal proceedings change, changes in the Company's accrued liabilities would be recorded in the period in which such determination is made.

The Company's gross unrecognized indirect tax credits totaled $0.1 million as of June 30, 2019 and $0.1 million as of June 30, 2018 and is recorded on the Consolidated Balance Sheet as a long-term liability.