Exhibit 10.3

 

PROMISSORY NOTE

 

Borrower:

Applied Optoelectronics, Inc.

13115 Jess Pirtle Blvd.

Sugar Land, TX 77478

Lender:

East West Bank

Loan Servicing Department

9300 Flair Drive, 6th Floor

El Monte, CA 91731

 

Principal Amount:  $22,000,000.00 Date of Note:  January 26, 2015

 

PROMISE TO PAY. Applied Optoelectronics, Inc. ("Borrower") promises to pay to
East West Bank ("Lender"), or order, in lawful money of the United States of
America, the principal amount of Twenty-two Million & 00/100 Dollars
($22,000,000.00) or so much as may be outstanding, together with interest on the
unpaid outstanding principal balance of each advance. Interest shall be
calculated from the date of each advance until repayment of each advance or
maturity, whichever occurs first.

 

PAYMENT. Borrower will pay this loan in accordance with the following payment
schedule:

 

DRAW PERIOD. The loan will have a fifteen (15) month draw down period ending on
April 26, 2016 (the “Draw Down Maturity Date”) with interest payments due
monthly calculated at the prevailing rate on the Note. The first interest
payment is due on February 26, 2015 and will continue on the same day of each
month thereafter.

 

CONVERSION TO TERM LOAN. On the Draw Down Maturity Date, the section entitled
"Line of Credit" is hereby deleted and the outstanding principal balance as of
the Draw Down Maturity Date shall be converted to a sixty-nine (69) month term
loan, with principal and interest payments due monthly amortized over three
hundred (300) months. The first principal and interest payment is due on May 26,
2016 and will continue on the same day of each month thereafter. The final
principal and interest payment is due on January 26, 2022 (the “Term Loan
Maturity Date”) and will include all unpaid principal and all accrued and unpaid
interest.

 

Unless otherwise agreed or required by applicable law, payments will be applied
first to any accrued unpaid interest; then to principal; then to any late
charges; and then to any unpaid collection costs. Borrower will pay Lender at
Lender's address shown above or at such other place as Lender may designate in
writing.

 

VARIABLE INTEREST RATE. The interest rate on this Note is subject to change from
time to time based on changes in an independent index which is the one (1) month
Wall Street Journal London Interbank offered rate, as quoted in the "Money
Rates" column of The Wall Street Journal on the date of determination (the
"Index"). The Index is not necessarily the lowest rate charged by Lender on its
loans. If the Index becomes unavailable during the term of this loan, Lender may
designate a substitute index after notifying Borrower. Lender will tell Borrower
the current Index rate upon Borrower's request. The interest rate change will
not occur more often than each month. Borrower understands that Lender may make
loans based on other rates as well. The Index currently is 0.167% per annum.
Interest prior to maturity on the unpaid principal balance of this Note will be
calculated as described in the "INTEREST CALCULATION METHOD" paragraph using a
rate of 2.750 percentage points over the Index, resulting in an initial rate of
2.917%. NOTICE: Under no circumstances will the interest rate on this Note be
more than the maximum rate allowed by applicable law. For purposes of this Note,
the "maximum rate allowed by applicable law" means the greater of (A) the
maximum rate of interest permitted under federal or other law applicable to the
indebtedness evidenced by this Note, or (B) the "Weekly Ceiling" as referred to
in Sections 303.002 and 303.003 of the Texas Finance Code.

 

INTEREST CALCULATION METHOD. Interest on this Note is computed on a 365/360
basis; that is, by applying the ratio of the interest rate over a year of 360
days, multiplied by the outstanding principal balance, multiplied by the actual
number of days the principal balance is outstanding, unless such calculation
would result in a usurious rate, in which case interest shall be calculated on a
per diem basis of a year of 365 or 366 days, as the case may be. All interest
payable under this Note is computed using this method.

 

PREPAYMENT. Borrower agrees that all loan fees and other prepaid finance charges
are earned fully as of the date of the loan and will not be subject to refund
upon early payment (whether voluntary or as a result of default), except as
otherwise required by law. Except for the foregoing, Borrower may pay without
penalty all or a portion of the amount owed earlier than it is due. Prepayment
in full shall consist of payment of the remaining unpaid principal balance
together with all accrued and unpaid interest and all other amounts, costs and
expenses for which Borrower is responsible under this Note or any other
agreement with Lender pertaining to this loan, and in no event will Borrower
ever be required to pay any unearned interest. Early payments will not, unless
agreed to by Lender in writing, relieve Borrower of Borrower's obligation to
continue to make payments of accrued unpaid interest. Rather, early payments
will reduce the principal balance due. Borrower agrees not to send Lender
payments marked "paid in full", "without recourse", or similar language. If
Borrower sends such a payment, Lender may accept it without losing any of
Lender's rights under this Note, and Borrower will remain obligated to pay any
further amount owed to Lender. All written communications concerning disputed
amounts, including any check or other payment instrument that indicates that the
payment constitutes "payment in full" of the amount owed or that is tendered
with other conditions or limitations or as full satisfaction of a disputed
amount must be mailed or delivered to: East West Bank, Loan Service Department,
9300 Flair Drive, 6th Floor El Monte, CA 91731.

 

LATE CHARGE. If a payment is 10 days or more late, Borrower will be charged
5.000% of the unpaid portion of the regularly scheduled payment.

 

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POST MATURITY RATE. The Post Maturity Rate on this Note is the lesser of (A) the
maximum rate allowed by law or (B) the rate formed by increasing the applicable
interest rate on this Note by an additional 5.000 percentage point margin ("Post
Maturity Rate Margin"), with the Post Maturity Rate Margin applying to each
succeeding interest rate change that would have applied had there been no
acceleration. Borrower will pay interest on all sums due after final maturity,
whether by acceleration or otherwise, at that rate.

 

DEFAULT. Each of the following shall constitute an event of default ("Event of
Default") under this Note:

 

Payment Default. Borrower fails to make any payment when due under this Note.

 

Other Defaults. Borrower fails to comply with or to perform any other term,
obligation, covenant or condition contained in this Note or in any of the
related documents or to comply with or to perform any term, obligation, covenant
or condition contained in any other agreement between Lender and Borrower.

 

Default in Favor of Third Parties. Borrower or any Grantor defaults under any
loan, extension of credit, security agreement, purchase or sales agreement, or
any other agreement, in favor of any other creditor or person that may
materially affect any of Borrower's property or Borrower's ability to repay this
Note or perform Borrower's obligations under this Note or any of the related
documents.

 

False Statements. Any warranty, representation or statement made or furnished to
Lender by Borrower or on Borrower's behalf under this Note or the related
documents is false or misleading in any material respect, either now or at the
time made or furnished or becomes false or misleading at any time thereafter.

 

Insolvency. The dissolution or termination of Borrower's existence as a going
business, the insolvency of Borrower, the appointment of a receiver for any part
of Borrower's property, any assignment for the benefit of creditors, any type of
creditor workout, or the commencement of any proceeding under any bankruptcy or
insolvency laws by or against Borrower.

 

Creditor or Forfeiture Proceedings. Commencement of foreclosure or forfeiture
proceedings, whether by judicial proceeding, self-help, repossession or any
other method, by any creditor of Borrower or by any governmental agency against
any collateral securing the loan. This includes a garnishment of any of
Borrower's accounts, including deposit accounts, with Lender. However, this
Event of Default shall not apply if there is a good faith dispute by Borrower as
to the validity or reasonableness of the claim which is the basis of the
creditor or forfeiture proceeding and if Borrower gives Lender written notice of
the creditor or forfeiture proceeding and deposits with Lender monies or a
surety bond for the creditor or forfeiture proceeding, in an amount determined
by Lender, in its sole discretion, as being an adequate reserve or bond for the
dispute.

 

Events Affecting Guarantor. Any of the preceding events occurs with respect to
any guarantor, endorser, surety, or accommodation party of any of the
indebtedness or any guarantor, endorser, surety, or accommodation party dies or
becomes incompetent, or revokes or disputes the validity of, or liability under,
any guaranty of the indebtedness evidenced by this Note.

 

Change In Control. Any transaction in which any “person” or “group” (within the
meaning of Section 13(d) and 14(d)(2) of the Securities Exchange Act of 1934)
becomes the “beneficial owner” (as defined in Rule 13d-3 under the Securities
Exchange Act of 1934), directly or indirectly, of a sufficient number of shares
of all classes of stock then outstanding of Borrower ordinarily entitled to vote
in the election of directors, empowering such “person” or “group” to elect a
majority of the Board of Directors of Borrower, who did not have such power
before such transaction.

 

Adverse Change. A material adverse change occurs in Borrower's financial
condition, or Lender believes the prospect of payment or performance of this
Note is impaired.

 

Cure Provisions. If any default, other than a default in payment is curable and
if Borrower has not been given a notice of a breach of the same provision of
this Note within the preceding twelve (12) months, it may be cured if Borrower,
after Lender sends written notice to Borrower demanding cure of such default:
(1) cures the default within thirty (30) days; or (2) if the cure requires more
than thirty (30) days, immediately initiates steps which Lender deems in
Lender's sole discretion to be sufficient to cure the default and thereafter
continues and completes all reasonable and necessary steps sufficient to produce
compliance as soon as reasonably practical.

 

OTHER DEFAULTS MODIFIED. Notwithstanding the section above entitled “Other
Defaults”, Borrower fails to comply with or to perform any other term,
obligation, covenant or condition contained in this Agreement or in any of the
Related Documents between Lender and Borrower; or any shareholder, member,
trustor, or any owner of the Borrower also holding a controlling interest in any
given entity’s common stock, membership interest, trust interest, or any other
ownership interest (“Related Entity”), fails to comply with or to perform any
other term, obligation, covenant or condition contained in any other agreement
between Lender and the Related Entity.

 

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LENDER'S RIGHTS. Upon default, only after Borrower has exhausted all remedies
under the Cure Provisions section as set forth above, Lender may declare the
unpaid principal balance under this Note and all accrued unpaid interest,
immediately due, and then Borrower will pay that amount.

 

ATTORNEYS' FEES; EXPENSES. Lender may hire an attorney to help collect this Note
if Borrower does not pay, and Borrower will pay Lender's reasonable attorneys'
fees. Borrower also will pay Lender all other amounts Lender actually incurs as
court costs, lawful fees for filing, recording, releasing to any public office
any instrument securing this Note; the reasonable cost actually expended for
repossessing, storing, preparing for sale, and selling any security; and fees
for noting a lien on or transferring a certificate of title to any motor vehicle
offered as security for this Note, or premiums or identifiable charges received
in connection with the sale of authorized insurance.

 

JURY WAIVER. Lender and Borrower hereby waive the right to any jury trial in any
action, proceeding, or counterclaim brought by either Lender or Borrower against
the other.

 

GOVERNING LAW. This Note will be governed by federal law applicable to Lender
and, to the extent not preempted by federal law, the laws of the State of Texas
without regard to its conflicts of law provisions. This Note has been accepted
by Lender in the State of Texas.

 

DISHONORED CHECK CHARGE. Borrower will pay a processing fee of $25.00 if any
check given by Borrower to Lender as a payment on this loan is dishonored.

 

RIGHT OF SETOFF. To the extent permitted by applicable law, Lender reserves a
right of setoff in all Borrower's accounts with Lender (whether checking,
savings, or some other account). This includes all accounts Borrower holds
jointly with someone else and all accounts Borrower may open in the future.
However, this does not include any IRA or Keogh accounts, or any trust accounts
for which setoff would be prohibited by law. Borrower authorizes Lender, to the
extent permitted by applicable law, to charge or setoff all sums owing on the
indebtedness against any and all such accounts.

 

COLLATERAL. Borrower acknowledges this Note is secured by the following
collateral described in the security instruments listed herein:

 

(A) a Construction Deed of Trust dated January 26, 2015, to a trustee in favor
of Lender on real property located in Fort Bend County, State of Texas.

 

(B) an Assignment of All Rents to Lender on real property located in Fort Bend
County, State of Texas.

 

(C) inventory, chattel paper, accounts, equipment, general intangibles and
fixtures described in a Commercial Security Agreement dated January 26, 2015.

 

(D) deposit accounts described in an Assignment of Deposit Account dated January
26, 2015.

 

LINE OF CREDIT. This Note evidences a straight line of credit. Once the total
amount of principal has been advanced, Borrower is not entitled to further loan
advances. The following person or persons are authorized to request advances and
authorize payments under the line of credit until Lender receives from Borrower,
at Lender's address shown above, written notice of revocation of such authority:
Chih-Hsiang (Thompson) Lin, CEO of Applied Optoelectronics, Inc. Borrower agrees
to be liable for all sums either: (A) advanced in accordance with the
instructions of an authorized person or (B) credited to any of Borrower's
accounts with Lender. The unpaid principal balance owing on this Note at any
time may be evidenced by endorsements on this Note or by Lender's internal
records, including daily computer print-outs.

 

CHOICE OF VENUE. If there is a lawsuit, Borrower agrees upon Lender's request to
submit to the jurisdiction of the courts of Harris County, State of Texas.

 

SUCCESSOR INTERESTS. The terms of this Note shall be binding upon Borrower, and
upon Borrower's heirs, personal representatives, successors and assigns, and
shall inure to the benefit of Lender and its successors and assigns.

 

NOTIFY US OF INACCURATE INFORMATION WE REPORT TO CONSUMER REPORTING AGENCIES.
Borrower may notify Lender if Lender reports any inaccurate information about
Borrower's account(s) to a consumer reporting agency. Borrower's written notice
describing the specific inaccuracy(ies) should be sent to Lender at the
following address: East West Bank Loan Service Department 9300 Flair Drive, 6th
Floor El Monte, CA 91731.

 

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GENERAL PROVISIONS. If any part of this Note cannot be enforced, this fact will
not affect the rest of the Note. Borrower does not agree or intend to pay, and
Lender does not agree or intend to contract for, charge, collect, take, reserve
or receive (collectively referred to herein as "charge or collect"), any amount
in the nature of interest or in the nature of a fee for this loan, which would
in any way or event (including demand, prepayment, or acceleration) cause Lender
to charge or collect more for this loan than the maximum Lender would be
permitted to charge or collect by federal law or the law of the State of Texas
(as applicable). Any such excess interest or unauthorized fee shall, instead of
anything stated to the contrary, be applied first to reduce the principal
balance of this loan, and when the principal has been paid in full, be refunded
to Borrower. The right to accelerate maturity of sums due under this Note does
not include the right to accelerate any interest which has not otherwise accrued
on the date of such acceleration, and Lender does not intend to charge or
collect any unearned interest in the event of acceleration. All sums paid or
agreed to be paid to Lender for the use, forbearance or detention of sums due
hereunder shall, to the extent permitted by applicable law, be amortized,
prorated, allocated and spread throughout the full term of the loan evidenced by
this Note until payment in full so that the rate or amount of interest on
account of the loan evidenced hereby does not exceed the applicable usury
ceiling. Lender may delay or forgo enforcing any of its rights or remedies under
this Note without losing them. Borrower and any other person who signs,
guarantees or endorses this Note, to the extent allowed by law, waive
presentment, demand for payment, notice of dishonor, notice of intent to
accelerate the maturity of this Note, and notice of acceleration of the maturity
of this Note. Upon any change in the terms of this Note, and unless otherwise
expressly stated in writing, no party who signs this Note, whether as maker,
guarantor, accommodation maker or endorser, shall be released from liability.
All such parties agree that Lender may renew or extend (repeatedly and for any
length of time) this loan or release any party or guarantor or collateral; or
impair, fail to realize upon or perfect Lender's security interest in the
collateral without the consent of or notice to anyone. All such parties also
agree that Lender may modify this loan without the consent of or notice to
anyone other than the party with whom the modification is made. The obligations
under this Note are joint and several.

 

PRIOR TO SIGNING THIS NOTE, BORROWER READ AND UNDERSTOOD ALL THE PROVISIONS OF
THIS NOTE, INCLUDING THE VARIABLE INTEREST RATE PROVISIONS. BORROWER AGREES TO
THE TERMS OF THE NOTE.

 

BORROWER ACKNOWLEDGES RECEIPT OF A COMPLETED COPY OF THIS PROMISSORY NOTE.

BORROWER:

 

 

APPLIED OPTOELECTRONICS, INC.

 

By: /s/ Chih-Hsiang (Thompson) Lin                         

Chih-Hsiang (Thompson) Lin, CEO of Applied Optoelectronics, Inc.

 

 

 

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